These quotes got me thinking:
“The bad news is, time flies. The good news is, you’re the pilot.” Michael Altshuler
“Priority management is the answer to maximising the time you have.” John Maxwell
All very well, but are we talking short or long term? I remember reading a book over 30 years ago that changed my thinking about organization priorities – permanently. I can remember neither the title nor the author, simply the message: If you solely prioritize profit (tangible), you can very quickly strip (intangible) wealth that you’ve spent years creating, and rapidly compromise profit.
“Not everything that counts can be counted and not everything that can be counted counts.”
Albert Einstein (early 1900s)
Factors interfering with profit are pretty pervasive in the average organization, but if all you focus on is the tangible result, those insidious issues will go unaddressed and you will never know how much profit was intrinsically possible. No matter how technology has changed things, people are essentially the same and business is about people.
This is the classic thought divide between Milton Friedman (your priority is profit – circa 1970s) and Adam Smith (and others of his generation, 1700s – 1900s: your priority is consumers.)
Being somewhat risk-averse, I sit firmly on the fence:
- You have to satisfy both investors and customers or you won’t have a business. If you swing too far in one direction, you risk losing funding and/or future revenues
- You have to take a longer term view as there is a lag between investing in resource and having that resource produce value (‘realised benefits’)
- Not everything of value shows up in your reporting – you may be fooled to think it is not there (while it is materially affecting your numbers)
Simon Sinek’s ‘The Infinite Game’ (2019) puts forth the view that there is more to the game of business than tangible – ‘finite’– bottom lines. Buckminster Fuller back in the last century challenged finite concepts of value and predicted a time when information would be delivered in a non-physical, connected world. He saw as inevitable a shift from the tangible (finite) to the intangible (infinite). “You have to decide whether you want to make money or make sense, because the two are mutually exclusive.”
In a reputation economy, other metrics challenge Friedman’s assertion. E.g.“Your reputation (is part of) your intangible value, which, by the way, makes up 81% of market value.”1 The counter argument to Friedman’s is: focus on profit and other things, that materially impact profit, suffer.
I recall being surprised (shortly after I read that book 30 years ago) when a sports coach said: “We focus on performance, not results.” I did a double take. But it is essentially the same argument. The score board is history – make your adjustments while the ball is still alive and you get to control what ends up on the scoreboard. (He also made the point that you can get a great result against a sub-standard team that is misleading, setting you up for catastrophic failure later in the season.)
In my experience, leaders are separated along these lines:
- those who focus on short term, tangible, easy-to-measure results
- those who focus on longer term, intangible value – those factors that are not as easy to measure, but that count more when it comes to achieving potential profit and profit that is more resilient
“Organizations that have made a strategic investment in employee development, Gallup finds, report 11% greater profitability and are twice as likely to retain their employees.”2
While research is now prolific into non-profit drivers of profit, the alternative view still seems to be main stream. Was it because Friedman simplified matters? Just one thing to focus on does seem alluring. If only it were that simple.
“A singular focus on profit at the expense of customer and/or staff engagement will not optimize performance. There is enough evidence now to show that companies with high customer advocacy and staff engagement outperform those with a singular focus on profit.” 3 Owen McCall (who specializes in the delivery of value from technology.)
The question is: what will you prioritise in 2020 – profit or people? They don’t have to be mutually exclusive.
- “What is the reputation economy?” Sven Klingemann, PhD, Director of Research Reputation Institute https://insights.reputationinstitute.com/blog-ri/what-is-the-reputation-economy
- “What High Performance workplaces do differently” by Rob Desimone. Gallup Workplace. December 12, 2019 https://www.gallup.com/workplace/269405/high-performance-workplaces-differently.aspx
- “Clarity amidst chaos” by Cherri Holland. May 22, 2018