Question

How would you determine if profit as a "direct goal" is overrated? Why profit shouldn't be your top goal. Discuss and provide examples.

Answer 1

British economist John Kay in his book wrote, Profit as direct goal is overarated. He argues we cannot draw a straight line between the cause and long term effect because of its complexity. ie Profit is a long term effect and for increasing the long term effect, we need to improve the factors affecting the profit and it doesnt always leads to a linear relationship.

This shows that a managers information to achieve profit is so incomplete ,the analytics techniques are adequate and things a manager has direct complete are limited due to which it is difficult to directly increase the profits with assurance by varying the input factors a manager knows.

As in Kay's word, "The mistake is to make inferences about the relationships between outcomes and processes when we cannot observe and do not understand the processes themselves." As per him we need to concentrate on things that achieve interemediate goals that will further improve shareholders value.

As an empirical or quantitative evidence, it is seen that Fortunes 100 Best place to work companies are the one which produce more profit than its peers. Hence its better not to consider profit as our top goal.