Why Profit Maximisation Is Not Effective

Profit maximisation has been the goal for so many organisations since time began. In the days when cheap, obedient labour was the main resource and hire and fire was the name of the game then profit maximisation by keeping costs low was achievable. However, things have changed. Let’s look at why profit maximisation is not effective.

The standard obedient worker that the education system still produces by the million is no longer required by many organisations. Automation can do what they did far better and far cheaper. Organisations require skilled, imaginative, thoughtful people who cannot be easily replaced. The apprenticeship system is a classic example here. When I was an apprentice there was no real problem if you moved jobs at the end of your time as there was a ready supply of others who would move into the place left by you. Today that is not the case and so I hear many businesses complaining that either the moment they train people they leave or it’s not worth training as they will just go elsewhere for more money. That’s because they are not investing in what these highly valuable people really want. They are profit maximising (short term).

Recruiting and retaining the right people, the ones who will embrace change and exhibit initiative is not cheap. It’s not just about money, its the other things they can demand like flexible working, good facilities, career and personal progression and of course money. Many businesses look at the short term cost of training these people and the long term cost of retaining them and realise this is a direct hit to the bottom line. The same, they fear with things like flexible working. Far better, they say to continue as they are, maximise the bottom line and sort out the problems as they occur. When they then occur they can always cut costs or better still make people redundant and so the spiral begins. Fix the roof when the sun is shining and the rain clouds are currently gathering. Time is running out for many businesses.

I recently read about a merchant bank who “has to make cost saving redundancies” not because they are not making profits (they are making millions) but that those millions are insufficient in the short term to satisfy their short sighted shareholders. This is a brilliant way of creating trauma and lack of loyalty among the remaining staff. The good ones will leave because they don’t feel valued and the others will stay because they can’t move or are ok with just sitting it out. They will then have to pay even more to attract people into their toxic environment and those who remain will have to be put under great pressure to do the work of those who have left.

What we need is not profit maximisation but profit satisfaction. If the organisation is to survive long term it needs to make enough money to enable it to invest in the future and ensure that it takes some of those current profits and invest in the right people and the right technology. The people don’t come cheap. The trouble is that most people look very similar until you get them on board. It is only then that you discover the real thinkers are rare and just money is rarely the motivator.

Invest today to ensure you are around tomorrow. Be the organisation for whom the thinkers and drivers want to work. That’s why profit maximisation is not effective, but profit satisfaction is.

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