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The Purpose of Business

By CB, JBSA, and LDSSA student groups  |  february, 2013, Issue 1

The diversity of Booth is astonishing, and yet we all share one common factor: the decision to pursue a business profession. For some of us that decision was made years ago, while for others that decision was made just a short time ago before applying to Booth. But why? Why have we chosen to go into business? Or better yet, what is the purpose of business?

Last week you took a version of the famous "fairness" quiz from the renowned behavioral economist, Daniel Kahneman. Similar to other MBA respondents, 66% of us thought it would be fair to auction off the last "hot toy". However, what MBAs may misjudge is how differently the general public views profits, as just 26% found this action to be fair in Kahneman's study. By adding a purpose for the profits (charitable donation), MBA opinions on fairness (91%) more closely align with the general public (79%). Thus it's not the profit-maximization that bothers some, but the purpose behind it.

So we once again return to the original question, what is the purpose of business? The MBA mantra is that it is "to maximize shareholder value". But is this 'fiduciary duty' even possible? Do all shareholders share the same values? Apple has more than 917 million shares of stock outstanding. How many different objectives might shareholders have for holding Apple's stock? Unequivocally, profits need to be a part of the equation as they are "like oxygen for the human body" according to business philosopher Peter Drucker. The U.S. Small Business Administration reports that nearly 600,000 new businesses are started annually and only 1/3 of those survive 10 years. But do entrepreneurs begin their business with the purpose of making a profit, or is making a profit a means to some other end, such as providing for their family? David Burkus of Oral Roberts University asserts that profits are not a purpose, but a measurement. "Profits...determine if you can keep playing...like a batting average in baseball." Do you play to hit the ball? No, to quote Herm Edwards: "You play to win the game!"

If maximizing shareholder value isn't the right purpose, then what is? Peter Drucker preached that the purpose of business is to create a customer. He wrote "the customer is the foundation of a business and keeps it in existence." Is this sensible, or just a step back to where the profits are derived? Does this address why businesses are launched in the first place?

An alternate idea for the purpose of business comes from Harvard's Michael Porter: "Businesses must reconnect company success with social progress. Shared value...is not on the margin of what companies do but at the center." Do businesses have a debt to their communities as stakeholders? Is this ideal realistic in allowing organizations to maintain the life-giving profits they need?

What do you think? Add your voice to the conversation! Please visit www.boothcb.org/polls to answer a quiz related to the purpose of business and compare your results with other professionals.

Last Updated 2/10/13
Last Updated 2/10/13