There’s more to success than turning a profit. Customers and community figure into the equation.
What is the purpose of business? Milton Friedman was a famous free market economist. Many would suggest that his answer to the question is “to maximize shareholder value.” That is a narrow view, focusing on the owners of the firm. It chooses not to consider other stakeholders of a business such as customers, employees and the community in which the business operates.
My answer to the question of “what is the purpose of business?” is that the purpose of business is to meet human needs in two ways:
- To provide goods and services to customers.
- To provide employment and opportunity to those involved in the enterprise.
Meeting the needs of customer and community
The first purpose includes basic needs that take the form of goods and services, but also less urgent goods and services that contribute to an improved standard of living. The products produced by business contribute to the common good by meeting basic needs as well as less critical needs.
The business needs to be sustainable, which influences how it does business. The focus is on long-term customer relationships, not a quick transaction. The environment cannot be excessively exploited in the process of producing goods and services, since that is not sustainable. To be sustainable, the business needs to operate profitably, so that it provides incentives for capital, but profitability, particularly when measured in the short term, is not the sole purpose of the business. The business cannot focus on just one stakeholder, but must consider others, as well.
There is also the concern about the type of business and how needs are being met. What if it is prostitution? Gambling? Stealing cars? Distributing narcotics? These are all breaking the laws of society (normally), so I would not want to suggest that those sorts of businesses are OK. And are those goods and services one can feel good about providing to consumers?
Think of examples of successful businesses that you know of – Costco, Boeing, Paccar, Amazon or Facebook. Is it profitability that gives owners and employees pride and excitement? Or is it meeting customer needs with what they produce and what they do that makes people passionate about their work? Profit is necessary, but is not the only component of a successful business.
Providing employment opportunity
Employment is important. It provides income to meet basic needs, of course. But employment is also a way for people to define themselves and find meaning and fulfillment and feel good about themselves. Employment provides human dignity.
There is the possibility that employment provided by business is exploitive, that working conditions are harsh, unhealthy, or dangerous. But it should not be and does not need to be that way, nor is that sustainable. For example, poor working conditions will decrease worker morale and lead to declining worker productivity. The firm becomes less competitive and market share begins to erode. Or, hazardous working conditions may lead to government intervention, either because the law is being broken or public outcry forces government to act.
The other side of it is also true, in that a business that is creating jobs for the sake of creating jobs is not sustainable. Additionally, those jobs are not likely to be fulfilling because people will not be inspired about meeting customer (human) needs.
Integrating business and community
One reason that business should be about meeting human needs and contributing to the common good is that society creates an environment that allows a business to operate. Without that supportive environment, a business could not be successful. Consider such things as property rights, enforcing contracts, educating and training the workforce, overseeing a monetary system and well-functioning financial markets, maintaining law and order, and providing infrastructure such as highways and ports that support commerce. Businesses have a “license to operate,” so to speak, in this supportive environment.
As business fulfills its purposes of providing goods and services and providing employment and opportunity, it also boosts the standard of living of society and contributes to the common good of the community supporting it.
The Seattle University Albers School of Business develops exceptional business leaders who are values-driven and committed to advancing the common good.