We have seen much abuse over the last decade which has given business a bad rap. First we start with the run up of “easy success” with the dot.com craze and its bust, followed by the corruption of Enron, Tyco and the like. And now we have the financial crisis that is not only impacting our country but the whole world.
Certainly we have had similar situations in the past and this is nothing new, one might say. We had the savings and Loan crisis in the 80s and if you want we can probably travel back in history and find continual repeating of the pattern.
But what is really going on. I suggest it is that we have lost site of the real purpose of businesses.
Business is fundamentally a system, a living organic system that directs the flow of energy, transforming it into a desired result. And the guiding principle of the desired result emanates from the soulful purpose of the organization. In essence business is The Living Organization™ with a unique purpose that coalesces and transforms the energy of its people to provide goods or services to the community it serves.
As with all systems business needs a feedback loop so the system can be properly monitored and balanced. And the feedback loop for business is the financial metrics we use. So profit is the gauge of the system with two inputs, revenue and expenses. Revenue is the meter for how well the market perceives the value of our goods and services. Expenses are the metric for how efficient we are using our resources.
OK, you say so what’s new. Well what’s new is the fact that we lost sight of the fact that profit is the gauge of the system not the goal. We have elevated Profit (and all its associated alternatives such as shareholder value, ROC, etc), to be the reason we are in business.
With such a view we begin to quickly discover it is a lot easier to adjust the gauges then improve the system it is measuring. And so we have very smart people adjusting the gauges with off balance sheet transactions, or derivatives, or claiming that the fundamentals of business do not apply as we saw during the dot.com era (we don’t have to make a profit).
It is always easier to adjust the gauges but, as any engineer will tell you, eventually the underlying system will flow out of control if you don’t use the feedback of the control loop to keep it in balance.
The real purpose of business is to energize our people around the deeper purpose for why the organization exists, which is to serve the market in some unique and contributing way. And the real role of leaders is to guide the flow of that energy efficiently transforming it to produce the goods and services it is uniquely gifted to contribute.
If our leadership at all levels can remember this, I doubt we will have as many future debacles as we seem to have experienced over this last decade.