Tuesday, October 14, 2014
The Profit Paradox
I just returned from the Innovation Institute's Global Business Conference in Dubrovnik, Croatia where my presentation on the "survival" strategies of 100-year-old companies received a great response. (Dubrovnik is a gorgeous city, by the way, and I highly recommend both the venue and the conference.) One of the practices of old companies that received the interest of the conference attendees was the tendency for these companies to look at profit as the necessary fuel to keep their companies operating rather than as the goal or purpose of their business. Don't get me wrong - these companies are profitable; they wouldn't have survived for over 100 years if they weren't. And if they have to choose between profit and growth, they will choose profit. They just don't confuse needing to be profitable with the purpose of their business.
Corporate mission statements are very popular today and you can see them on almost every firm's website. These old companies have been talking about the purpose of their business in "missional" terms for decades, though they might not call it a Mission Statement. Whether it's to make great places to work (office furniture manufacturer), enhance human life (pharmaceutical company), or provide a bit of sunshine to every customer's day (candy store), the purpose of these old companies is clear and meaningful. They talk about their purpose all the time - with employees, with customers, with suppliers, their local community, academic researchers, and pretty much anyone who will listen. They love what they do and it shows. Their mission statement is not just words developed for their website because some management consultant told them they needed one. The mission of these old companies is real, and it is what has driven them to success for over a century.
The profit paradox is this: though these companies do not talk about maximizing profit as their goal or purpose (many don't really like to talk about it much at all), they are very profitable firms. In Japan (where my research partner was able to obtain profitability data, even from small privately-owned firms) companies over 100 years old were twice as profitable as the average Japanese firm. I have not been able to obtain such data from U.S. companies, but I suspect they are also more profitable than average. This is what has enabled them to weather tough times to survive for over 100 years. They don't focus on profit as the purpose for being in business, yet they are very profitable. As one CEO reminded me, profit is the result of doing well what they do as a company, not their goal.
Over the next month I will be posting other behaviors/strategies/principles exhibited by members of the corporate century club. These are statistically significant, cross-cultural behaviors based on ten years of research in both Japan and the United States. I hope you find this information as interesting as do I.