Profits and share prices are the RESULT of organizational actions, not the GOAL

Peter Drucker 5 Questions

Peter Drucker 5 Questions

Here’s an article on Harvard Business Review about how the Internet is going to make managers care more about their employees. I actually disagree with that notion — hierarchy ain’t going anywhere anytime soon and, if anything, the era of “customer-first” business practices will probably be awful for employees — but this section is interesting:

The foundation is Peter Drucker’s insight of 1973: the only valid purpose of a firm is to create a customer. It’s through providing value to customers that firms justify their existence. Profits and share price increases are the result, not the goal of a firm’s activities.

As Ranjay Gulati notes in Reorganize for Resilience (2010), this means orienting everyone to the goal of delivering more value to customers sooner, and aligning all decision-making with this goal. It is a shift in mindset from “You take what we make,” to “We seek to understand your problems and will surprise you by solving them.”

The last line of the first paragraph is the interesting part. If you took 100 CEOs and sat them down, and then asked them: “What is the GOAL of your organization?”, I’m guessing over 70 would say some variation on “make money” or “give value back to the shareholder.”

The thing is, that has never been the goal — even back to the 1200s and shit. The goal of firms/organizations/businesses/etc. is to create customers and a demand/need for something. Profits and stock price are the result.

My point here is that I don’t think a lot of senior managers understand that in the modern age; I think most people view “the money” as the goal, when in fact “the money” is simply a result of the actual goal. But if you think it’s the actual goal, you chase that around — which leads you to, in fact, ignore the actual goal (creating the customer).

Phrased another way … how many businesses adopt ridiculous sidebar plans or enter new fields simply because they think there’s money to be had there, even if they’re not going to service customers properly in that space?

This is a subtle nuance, but understanding that money is the result and not the actual goal can make a boatload of difference.


Ted Bauer


  1. That ‘making customers’ understanding is the difference that makes ALL the difference. – Great post!

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