Profit and Purpose

In the movie Other People’s Money, an exciting debate between Larry the Liquidator (Danny Devito) and Andrew Jorgensen (Gregory Peck) highlights the current discussion of the trade-offs between profit and purpose. Larry the Liquidator insists that the prime objective of business is to make money, while Andrew Jorgensen stresses the needs of the stakeholders.

Companies are increasingly being pushed to change – to tone down the single-minded pursuit of profits and pay closer attention to the impact on stakeholders (employees, consumers, communities and the environment.

While the term profit is easily understood, the term purpose is relatively ambiguous. An article in HBR suggests that purpose can be construed in three ways
Competence: the function that the company’s product serves
Culture: the intent with which the company runs its business
Cause: the social good that the company aspires

While the cause-based meaning is most commonly implied the other implications are equally valid. The purpose should come from the mission statement and get translated into long-term goals and finally into actions that drive the company. Purpose is implemented by companies in many ways. Some companies have a convenient purpose – talk about purpose but act on it only in superficial ways. Another is purpose on the periphery – act on social causes but keep it separate from the core business. Yet another is the win-win purpose that aims to find the sweet spot between purpose and profit.

Business leaders decide based on their commercial orientation (profit maximisation) or social orientation (support stakeholders — purpose). A quadrant illustrates how business leaders make trade-offs between profit and purpose. In the diagram, these choices are shown. At the top left are leaders who are solely concerned with profits (remember, Larry the Liquidator). At the bottom right are leaders that focus exclusively on social outcomes – doing good for the world but not for the business. The top right quadrant highlights leaders who aim to achieve a win-win on both profit and purpose. The bottom left quadrant is where they lose out on both profit and purpose.

Business leaders need to take a hard look at how they create the right balance between profits and purpose.

Published by Utkarsh Majmudar

Utkarsh Majmudar is a Fellow, IIM Ahmedabad and a professional with experience encompassing academics and administration at top business schools in India (IIM Lucknow, IIM Udaipur, and IIM Bangalore) and working with large corporations. His interest areas include corporate finance and CSR.

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