Having It All Backwards – Businesses Realizing Significance Of the Issue
When analyzing how we lead our lives today and how we employ our thoughts on the various facets of life, including businesses. It often presents that we tend to do it all backward.
Take the example of how we consider each other. We are often attracted to others based on physical appearance. We ignore how the person may be on the inside. While surgeries used to perfect physical features are a common occurrence today. A deep analysis may reveal that a simple inner face lift would make the person much more appealing.
The same rule applies to business. While many of us consider business success to be the value constantly added to shareholders’ accounts. Some realize it is just a short-term solution to a much broader implication. Not just the shareholders, but rather the betterment of all involved stakeholders, including employees, customers, partners, community, society, etc., offer a business long-term success that is hard to diminish.
Realize The Importance of Sustainability
Many businesses today are starting to realize the importance of sustainability and long-term success and benefit; the ones practicing it are the ones who, in reality, cement their places in the business world.
Take Unilever, for instance; the company’s mission is to offer sustainable living options as a common phenomenon for all. All the company’s efforts are towards providing value to customers. The community, and society, enhancing the standard of living, and offering life-simplifying products. Nowhere in any statement or mission policy of the company is the phrase “enhanced shareholder value” found. The company, currently worth $60 billion, offers more to its employees and customers; it provides value through its different products, attempting to make the world a better place for all.
Some believe that businesses thrive with the sole purpose of creating value for shareholders (only shareholders). They are not the least concerned about whether or not in any way they are affecting humanity, community, society, employees, etc. They only believe in adding to the business’s revenue and earning money for shareholders. Though this may have been the essence of companies in the past, today, the same model is not effective anymore.
The Right Path To Choose
Let’s be clear about one thing here. When we say that businesses should take the path of long-term sustainability, it does not mean that profits are no longer the center of business activities. Profits are and will always be the core of business objectives. However, the concept of earning profits has transformed into earning good profits. The purpose here is thus to earn profits so that something better can be done with them. The ‘something’ here makes all the difference; it is what justifies the business.
Any business today should decide whether it functions for sole profit-earning purposes only through maximizing the value offered to shareholders by means of profits reallocation in the form of buybacks and dividends or whether the prime function of all its activities is to serve all involved stakeholders.
The Outdated Profit Based Businesses Model
The term ‘shareholders’ was first introduced in 1963, referring to that group related to an organization without whom it would simply cease existence. Businesses today operate keeping profit earning as the sole purpose of all their activities. Whereas it should be taken as an outcome of a much broader sense.
In the late 70s, businesses were almost all focused on bottom-line results, calculating expenses from revenues and maximizing profits to endless bounds. While this allowed them to enhance below-average profit margins to record-high ones in the last three decades, they also had to pay a heavy price. While profits maximized over time, the businesses minimized their value, especially towards other stakeholders such as the community, employees, customers, etc.
This meant they were sharing only a small part of their earned wealth with those who initially helped them make it. While this attitude may have helped them achieve higher profits for some time, it ultimately hurt the economy and their future performance. It is high time that businesses realized that if they are unwilling to share their profits with the economy and their stakeholders, it will reduce their capacity to enhance their lifestyle, ultimately resulting in minimized sales for the businesses. If the living standard of the community, the society, and the employees are deteriorated, how can companies proceed with their profit maximization goal?
Example of Walmart
Let us consider an example here. Walmart employs around 1% of the US population and, on average, pays its workers $12 per hour, amounting to $480 for a free day week, $25,000 per annum. This figure is barely above the poverty line, while the company enjoys an annual total profit of $27 billion.
Remember, this affects almost 1.4 million American citizens and affects their lives. Now, if Walmart were to offer a $500 increase to all its employees, it would cost around $7 billion annually. A $100 increase per week would definitely affect the life quality of life of all its employees. It will enhance motivation and loyalty towards the organization. Also, expectedly a lot of it is bound to return to Walmart again. Who will still be enjoying an adorable $20 billion profit. Likewise, if all other businesses in other sectors do the same, the economy will only swell, and more business opportunities will be available.
This was the reason that first led innovational business entrepreneurs to realize that to thrive in a society, all businesses must consider their goodwill as well, as only when the community thrives can the companies in it as well. Businesses require offering products, services, and value to their stakeholders, which involves every concerned part of society, not just those that economically support us.
The Path Of The Future Businesses
As the world around us gets more complex and dynamic, businesses must keep up with time and offer value to enhance their profitability and offerings to their stakeholders. Success in today’s world is driven not only by finances. But by people and knowledge-sharing processes that are in use to employ a coherent business model.
In today’s competitive world, employing more capital is not the solution to any problem but only an addition. It is the true inner capability of an organization that will empower it to excel and grow and derive from available opportunities. The prospects of achieving competitive edge that keeps them on top. The need is to offer meaning and dignity to an organization’s offerings that benefit the stakeholders and create an enthusiastic and energetic enterprise. The businesses models where one central command and control system was applicable are over. When businesses go global, so does the model they practice, and companies today are trying to find a center-less model, a model where businesses structure their operations on values, knowledge, people, and, of course, coherence.
We analyze businesses and enterprises, realizing their core capabilities and offering them a chance to excel at what they already own. However, they may need more awareness or misguided. Value is created from within. It will be only when a business realizes its true worth and capability. It construct a business model that benefits itself and its stakeholders in the long term, cementing its position while contributing to society as a whole.
Look at the Approaching World of Tomorrow For Businesses
The only businesses that can dream of existing in the fast-approaching world of tomorrow. They are the ones that focus on offering value and realize that contributing to the entire picture. It is the only way to be seen by all. They are the innovators who quickly understood the need of rapidly changing times and the need to enhance capabilities and derive maximum out of available resources to maintain profitability in account books and society.
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