BUSINESS ANALYTICS & ECONOMETRICS
When defining a business, profit maximization is generally associated as the main purpose; even though profit has an indispensible role to play in businesses, it definitely cannot become the business goal. There are many reasons against this: first of all, this goal only emphasizes on the end result that is the maximization of profits while completely overlooking the means that need to be employed to achieve the results. If a business ultimately aims to maximize its profits, it could even make use of socially undesirable means.
Secondly, this goal ignores the interests of all the other stakeholders except the owners. When profit maximization is the goal, the business concern is depicted as the domain of the owners only. There is no way to succeed when a business overlooks the stake of labor, customers, suppliers, government and most importantly, the community (Pirson & Lawrence, 2010). Without the cooperation of all stakeholders, a business cannot succeed.
Thirdly, considering profit maximization as the main purpose of the business, the managers would be misguided; in order to maximize the profits of the firm, the managers may apply such means or tactics that could endanger the sustainability of the company. This specially refers to the situation where the managers would ignore all kinds of research and development initiatives within the enterprise and only focus on short-term achievement of profit.
But I believe that the most important reason why profit maximization should not be considered as the business goal is that, it is not consistent with the modern trends of the corporate world.
The trends prevalent in the modern era of globalization include diffusing the ownership share, professionalizing the managers, a distinct techno structure, employee empowerment and personnel development. This structure focuses on the sustainability and growth of the enterprise; therefore, the long term growth must be emphasized rather than maximizing the profits. The structure of the business plays a significant role in this regard. Though the type of market may somewhat influence the goals of business but it should be dependent upon serving the society (Kolstad, 2007). Whatever the scenario and the needs of the market, the society and the community must be given greater significance as is the need of today. Only those businesses survive that focus on being socially responsible.
Kolstad, I. (2007). Why firms should not always maximize profits. Journal Of Business Ethics, 76 (2), pp. 137--145.
Pirson, M. A. & Lawrence, P. R. (2010). Humanism in business--towards a paradigm shift?. Journal Of Business Ethics, 93 (4), pp. 553--565.