Short-Term Profit Versus Long-Term Value

Once upon a time, long, long ago, almost all companies and businesses aimed to provide value. That is, that while their first objective was to make a profit, many—if not most—of them also sought to provide goods and services that others would find valuable. If you made something people wanted, did something people needed to have done, or perhaps if you could sell goods or services that people didn’t exactly need, but would buy from you anyway, you could make money.

In those days, it might take a while to become profitable, and you didn’t always stay profitable. Profit was a long-term objective. However, you watched your costs, your overhead, the salaries of your personnel, and your profit margin. The less scrupulous would use cheaper materials, cheaper labor, and cheaper working conditions. Of course, the completely unscrupulous have always been among us; no doubt you’ve heard of snake oil salesmen!

Suddenly, in the 1980s everything started to go screwy. Providing goods and services of value became almost an afterthought. Every company had to show a healthy profit every quarter; nothing else mattered except short-term profits. Remember when we used to say, “The customer is always right”? Suddenly the new byword was “the investor is always right.”

Big corporations that had had a bad quarter began laying off employees by the thousands. I couldn’t help but wonder what kind of operation these folks were running if they had thousands of extra employees they could suddenly do without. Didn’t these employees have skills and talents that got them hired in the first place? Hadn’t these companies needed them to produce goods and services? Hadn’t they invested time in training the employees? And didn’t the employees have valuable experience?

By the late 1990s, massive layoffs became commonplace and job security was a thing of the past. Then we started “outsourcing” labor where it could be done a lot cheaper, and—all too often—under questionable conditions. Yet all Wall Street could see were short-term profits. The investors are always right, remember?

Now, here in the USA, we’ve painted ourselves into a corner, economically-speaking. It seems we hardly produce anything anymore. News of the financial crisis is all over the media and the internet, yet it looks like Wall Street and Big Business continue to follow the same profit-driven mania.

It is past time for change. To take a step forward, I believe we need to take a step backward: In short back to value, not short-term profit. Short-term profit benefits only a very few people. The “shareholders” and “investors” are by and large a very small group of people. Perhaps one of Wall Street’s dirty little secrets is that in most corporations, the majority of the stock is held by the CEOs and precious few other people.

Value, on the other hand, benefits all of us. Value produces goods and services that we’re willing to pay for. Value doesn’t necessarily find only the cheapest way to do things. Value encompasses benefits for employees, for consumers, and for society at large.

One way that companies can start providing value right now is by giving their remaining employees skills and resources to manage the current crisis, skills and resources that will help not only the company at large, but all of society. Barnes & Conti is a company that consistently delivers that sort of value.

Our influence course, Exercising Influence, is the most widely-used influence program, globally. A few large companies offer Exercising Influence through their internal training institute or university. No one has to take it, but hundreds of people register for it each quarter.

Of course, innovation is near and dear to me, and now is the time to innovate. In fact, in times of crisis, the businesses who are able to innovate may very well be the ones to rise to the top. Our Managing Innovation program presents the only process I know of to facilitate the innovation process from ideas to fruition.

I admit it, I put in a blatant plug for two of our programs. They are only two of many opportunities to begin reintroducing value into the way we do business. Employee training, retention of the best people, stepping up quality of goods and services produced; these measures probably will not increase profits in the short term. But when businesses like these succeed, they benefit everyone: consumers, employees, shareholders, and society at large.

Joel Kleinbaum
Blogger-in-Chief