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The shareholder’s perspective: profit as the prime objective

management, business, profitability, administration, history of management, planning, leading, controlling, staffing, directing

Profitability is, to many people, the main objective of a business. They stress that, if a concern had no profits, a business could not exist for very long, and therefore consider profits to be the main objective.
The real answer may be to recognize that the supply of a particular commodity is the object of a trading concern, but the motive is profit, which is also used as a criterion of success.
Profits, as an objective, or as a motive, are becoming increasingly qualified by questions of public importance. Businesses are supposed to have ‘social responsibility.’ Some companies consider their overall objectives to be prosperity, growth and the continued life of the business. Some firms may have as their main objective the provision of the finest car in the world. Others may consider it to be giving the public a service which provides the maximum value for money. Again profits may be the object and prosperity may be measured by the annual profit which gives a satisfactory return on capital employed.
Professor Galbraith stated that US businesses are now more interested in growth and stability rather than profit making. Growth can be measured by the actual turnover increase, or an increase in the share of the market. This appears to be an important objective and in this connection a lower return may be accepted now if future prospects appear good. Continued life of a business is related to growth and stability and this will suffer a great deal if no provision is made for innovation, research and development and management succession.
It is important to realize that objectives may change in emphasis over a period of time. At certain periods one or another objective may be dominant. For example, at present the objective may be to stimulate sales to retain maximum profit; later it may be to maintain a satisfactory profit, while selling a better quality product or giving better quality service to customers.
(332 words)

Published: 2007-04-14
Author: Martin Hahn

About the author or the publisher
Martin Hahn PhD has received his education and degrees in Europe in organizational/industrial sociology. He grew up in South-East Asia and moved to Europe to get his tertiary education and gain experience in the fields of scientific research, radio journalism, and management consulting.

After living in Europe for 12 years, he moved to South-East again and has worked for the last 12 years as a management consultant, university lecturer, corporate trainer, and international school administrator

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