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Is your business focused on the wrong question?

Here’s a scene from Absolutely Fabulous, the TV comedy. Edina Monsoon, the PR guru, is challenging her PA, Bubble.

Bubble is clueless and has even worse fashion sense than Edina. For best results, imagine her wearing a multi-coloured tank top and a tutu, and screeching in a vastly exaggerated Lancastrian accent.

  • Edina: Bubble? Listen! What is your job?
  • Bubble: What’s me what?
  • Edina: What is it you do, darling?
  • Bubble: I don’t really know… Get paid?!

“Get paid.” Hah! How clueless! (You can see that scene here...) How can any employee possibly think that the point of a job is to get paid??!

Ah, but...

Why do we admire business leaders and commentators who say that the point of being in business is to make money? Or who say that the job of management is to maximise shareholder value?

These claims aren’t so very different from Bubble’s answer. An absurd over-emphasis on the monetary reward, blind to the real point.

The wrong-headed doctrine of maximising shareholder value has led generations of executives in the business world to focus on the wrong question:

“how can we make more profit next quarter?”

rather than

“how can we be even more valuable to customers in future?”

The results: short-termism, an almost-adversarial relationship with customers, and a massive loss of trust in commercial organisations.

Profit and shareholder value are many things. They’re a consequence, a reward, a source of reinvestment and a tentative measure of how well a business has done. But they’re not the point.

What IS the point? The point of being in business is to be valuable to customers, by harnessing the talents of employees and suppliers. (When I say customers I obviously include clients and consumers.)

This is not a fine distinction; it’s fundamental. Google didn’t get to be huge by figuring out how to make money. They did it by devising extraordinarily valuable services and software. Apple didn’t get to be huge by figuring out how to make money. They did it by creating covetable devices. By contrast, we could all name a long list of failed companies that were focused on chasing profit rather than being genuinely valuable to customers.

In future, every time you hear someone say “the point of business is to make a profit”, feel free to imagine them dressed as Bubble. But then reply “and the best way to make a profit is to be ever more valuable to our customers.” That simple response would dramatically raise the quality of the debate, which frankly, darlings, would be Absolutely Fabulous.

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