Philip Sheldrake

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Tag: purpose

The meaning of business

open for business

Why do firms exist? Strangely, no-one appears to have asked this question until a 27 year-old economist did so in 1937.

Ronald Coase published his answer in The Nature of the Firm, now considered a seminal text. He studied the circumstances that led entrepreneurs to hire people as employees instead of simply contracting jobs out to traders and came up with the answer we now simply refer to as transaction costs. People are hired when the various associated costs are lower than they would be otherwise.

Here's a similar sounding question, but one that is actually fundamentally different. What is the meaning / the purpose of business?

Coase needed to look no further than economics to explain why firms exist. Their existence is a binary thing. But any question seeking to address meaning and purpose encompasses philosophy, sociology, and politics.

Unavoidably, any answer is framed in terms of ... What's best? What's optimum? Why? How? And for whom?

Euler Partners sense Summer 2016 - the meaning of business

The answer was in fact framed economically for a long time in terms known as shareholder value, and perhaps Coase's question and answer influenced this blinkered perspective. But we've found and are still finding that a different answer can lead to superior economics, and not just in terms of profitability but in terms of the triple bottom line – people, planet and profit.

Euler Partners' just published its sense Summer 2016 report, The meaning of business. Available here as PDF and also on Medium.com. If you're frustrated with today's typical responses to this question, and / or if you want to build sustainable business, you'll find the report provoking.


Image credit: By Leo Reynolds, CC BY-NC-SA 2.0

Talking garbage and the purpose of business

garbage

The third in a series on the topic of the purpose of business. Follows:

  1. What, exactly, is the purpose of business? An answer post-Drucker
  2. Debating the purpose of business

Business exists to establish and drive mutual value creation. Steve Denning challenged this statement, preferring Drucker's assertion that the purpose of business is to create and keep a customer. I responded, and he has challenged my response:

we may be talking about different things: theoretical purpose of a firm and how to run it

"satisfying all the stakeholders" isn't a viable heuristic to run a firm. See Making Management as Simple as Frisbee

“satisfying all the stakeholders” was tried in mid20thC. It led to Garbage Can firms.

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Garbage

Steve refers to "garbage can firms" in his Forbes article, Is The Tyranny Of Shareholder Value Finally Ending?, an eloquent take down of prioritizing the pursuit of shareholder value. When it comes to garbage it quotes a trio of academics – Cohen, March and Olsen – who in 1972 explained: Read more

Debating the purpose of business

Hogwarts potions

The second in a series on the topic of the purpose of business:

  1. What, exactly, is the purpose of business? An answer post-Drucker
  2. Debating the purpose of business
  3. Talking garbage and the purpose of business

Steve Denning published an article to the Drucker Forum last week, How The Internet Is Forcing The Humanization Of Work, an argument founded on Drucker's assertion that the purpose of business is to create and keep a customer.

Steve found my post on the purpose of business post-Drucker via a thread with Kenneth Mikkelsen and tweeted his comments. His first quotes my re-definition of the purpose of business:

[The] Problem with "establish and drive mutual value creation" is that it doesn't tell me what anyone has to do.

and then:

"Delight customers" as the goal is crystal clear as to what everyone has to do.

and lastly:

Since power has shifted from seller to buyer, "delighting customers" sets priorities right, for firm to survive

I share Steve's optimism that we may be on the cusp of the potential to possibly humanize work (can my optimism be more tentative?!), but I cannot subscribe to his rationale. Read more

What, exactly, is the purpose of business? An answer post-Drucker

Paternoster Square

The first post in what turned out to be a series of three on the topic of the purpose of business:

  1. What, exactly, is the purpose of business? An answer post-Drucker
  2. Debating the purpose of business
  3. Talking garbage and the purpose of business

 

Peter Drucker asserted that the purpose of business is to create and keep a customer. He was right at the time in offering previously inward-looking firms a more appropriate beacon. His dictum is, however, wrong for our time.

The assertion is insufficient in sustainability terms; ie, being concerned with the health and resilience of living systems such as organizations, society and the environment. A customer-centric outlook is too simplistic, simply failing to recognise complexity, and therefore at threat from business that has progressed beyond Drucker's heuristic. Read more