Why do companies exist?
I belong to several groups on the Linked In web site. Not long ago, on one of the group sites a member posted the following question for discussion: “Why do companies exist?” Several group members posted interesting replies to the question, among them:
“[Companies exist] to provide value either through a product or service that a customer is willing to pay for. Of course many might say a company exists to make money or even profits, but if you don't provide some kind of value how to you even get to that point?” (Joe)
“Joe, hit the nail on the head. Companies or businesses exist only if they continue to provide value for the customers. To try to answer your question of why they exist to bring people together, it is to utilize the diverse talents required for providing the product. “But companies also exist to serve the people that make them successful. This includes not only the customers, but the employees, and suppliers as well. “I would also take Joe's comment on the negativity of existing for profits one step further. I believe that if a company's leaders feel they only exist for profits, that they are doomed from the start.” (Bill)
Mikel Harry, the self-described co-creator of Six Sigma, piped in and wrote, “The sole purpose of a corporation is to maximize shareholder value (collectively defined by the shareholders and representatives thereof).” In another post, he suggested that companies exist “to consistently make money...” Later, he added that companies must "show me the green..."
Several members joined the discussion and disagreed with Harry. One wrote,
“This has become my favorite: Great companies are not in business to make money, they make money to stay in business and accomplish an important purpose. - Mary Poopendieck
“An important purpose can be: to do something of value that customers will pay for. Also: By doing an ‘important purpose’ you have something to ‘rally’ your employees around. They can get passionate about an important purpose and get a sense of value that a salary alone usually does not fulfill…”
Another group member named Renato contributed, “A company is a legal person with a defined purpose on its constitutive letter. None of the wording will say ‘maximize profits for its shareholders’ as a goal; rather the products or services aimed to fill a need in which by definition/classification the company will look for profits or not.”
Dr. Harry replied, “Although we disagree as to the basic purpose of a corporation, I would like to thank you for sharing your thoughts and opinions on the subject. Certainly, several of your points give ‘cause for pause.’ It’s always good to hear and discuss the perspective of others.”
I decided to contribute something, too, and wrote:
Many of the comments in this thread illustrate the "deadly diseases" that W. Edwards Deming documented decades ago. The first deadly disease was "lack of constancy of purpose to plan product and service that will have a market, keep the company in business, and provide jobs."
In one of his many posts on this thread, Mikel Harry wrote that "we disagree as to the basic purpose of a corporation." Deming put it slightly differently when he noted, "People don't know what they're in business for. Is it to produce product and service? Or is it to make money?..." Answers like "maximize shareholder value” and “consistently make money” and "show me the green" would still be correct in a Management 101 course. America's struggles to compete in the new economic age have proven, however, that they're the wrong answers to the question, "Why do companies exist?"
Almost 40 years ago, Yoshi Tsumuri wrote, "Part of America's industrial problems is the aim of its corporate managers. Most American executives think they are in the business to make money, rather than products and service." Have we learned nothing since Tsumuri's observation was recorded in one of Deming's texts?
Profits and increased shareholder value are not and should not be viewed as the purpose of the company's existence. They are the happy by-product of defining and fulfilling purpose to delight customers with high-quality products and services that have a market, keep the company in business, and provide jobs.
© 2015 James F. Leonard. All rights reserved.