What Should Be the Real Goal of a Company?
Business texts and microeconomic theory tells us that the goal of a business enterprise should be profits, measured by return on assets or investment in both the short and the long run. How many companies, however, do you know that make good profits in the short run, but in doing so, get sick to the core through internal fighting, rumors, backstabbing, or undermining each other? All of which eventually impact the company’s long term profitability? They experience the space syndrome: expanding at the margin, collapsing at the core.
For short and long term profitability, a company must be healthy. Health should be the real goal of a company. Its leadership should first heal the company if it is unhealthy, and maintain its health against the threat of too much or not enough organizational change.
Healthy organizations produce profits in the short and long run. Profits, on the other hand, do not make for a healthy organization.
Now, let us define “healthy.”
A system is healthy if it is effective, if it produces the desired results for which it has been established in the short and the long term, and if it achieves those results in the most efficient way.
To be effective and efficient in the short and long run, my research has discovered that the system must perform four roles well.
|Input: Role||Output: Organizational Impact|
|(P) Produce desired results||Short term effectiveness|
|(A) Administration||Short term efficiency|
|(E) Entrepreneurship||Long term effectiveness|
|(I) Integration||Long term efficiency|
If the organization produces the desired results, i.e., it satisfies clients’ needs, as measured by repetitive sales in a competitive market, and the cost of producing those results is lower than what the clients are willing to pay to satisfy their needs, the company is profitable in the short run.
If the company spends energy and resources to prepare for future needs and clients, the (E) role, has a culture of mutual trust and respect that causes integration, and energy is not wasted in organizational decision-making and implementation, then the organization will be efficient and the company will be profitable in the long run.
The role of leadership is to make and maintain the health of the company, to see to it that none of the four roles are missing or endangered.
The danger to organizational health can stem from several causes, including hiring people with the same style or avoiding style diversity; each PAEI role calls for a different managerial style1.
Another major reason why one or more roles will feel threatened or disappear from the organization is the organizational structure. For example, take a structure where there is a VP for sales and marketing. Sales should perform the (P) role. Marketing, the (E) role. Put the short and long term roles together, and the short term will get all of the attention. Marketing, in this case, performs a sales support function rather than drive the sales effort.
It is the same if engineering and production are put together under the same VP. Engineering should be (E), and production (P). Put them in the structure under the same VP, and you will find that engineering is not innovating, applying new technologies or new ways of producing, but instead doing equipment maintenance; (P) subdues (E).
To have a healthy organization, we need common vision and values, a diversified organizational structure to deliver the desired strategy, and to avoid destructive conflict in decision-making (the styles are different but need one another to make a PAEI decision), a collaborative decision-making process, and leadership that command and grant mutual trust and respect.
A healthy organization is like a well-cooked gourmet dish: it needs fresh, good ingredients (the right people), a recipe to cook it correctly (collaborative decision making based on rules of conduct), the right hardware to cook it (diversified organizational structure), and an understanding and agreement on what dish do we want to cook: Italian, Japanese, etc. (common vision and values).
Be healthy first. If you are healthy, you will be profitable now and in the future.
That is the goal.
Ichak Kalderon Adizes