What is Profit - Literature review Example

Essay Table of Contents Introduction 3 What is profit? 3 Discussion of the ment 4 Discussion in the context of 2009 7 Conclusion 8 References 10 “There’s just something about the pursuit of profit that can tempt people to do things they normally wouldn’t do……decent values prevent businesses, in their pursuit of profit, from behaving like idiots”- Germain & Reed Introduction ‘Profit’, is probably the most widely used word in the business environment. It is the ultimate goal of running any business organization. Each and every employee starting from the sales boy to the managing director of an organization is either directly or indirectly involved in the process of making profit. Generally success or failure of an organization is measured by the profit that it has been making over the years. Every year organizations adopt various strategies, launch different products and services, run recruitment process and pursue various other activities. All these activities are basically either or indirectly directed to one goal which is making profit. These activities are very usual in business environment. However, the interesting fact is that there are several unusual activities which are pursued by the organizations in order to make profit. What is profit? In simple language profit is nothing but the excess of revenue after deducting the total expenses from it. Profit of an organization depends on various internal and external environmental factors. If current world business environment is concerned, organizations from all over the world have seen how difficult it could be to make profit in adverse situations like financial meltdown. The global financial turmoil that started from mid 2008 and still continuing has been proved to be the most difficult period for most of the organizations in the world especially in the developed countries. Many of the global companies which are operating for several years have struggled to make profit and most of them have failed to make profit in this period. The main reason behind this is the sudden fall in demand of almost all the goods and services as the financial condition of the people around the world was badly affected. As a consequence of lowering of overall demand organizations’ revenue has fallen drastically and hence they struggled to make profit. In order to overcome this situation and get the organization back to profit making track managements have performed several activities. They came up with new pricing strategies; they reduced the workforce of the organization, they even sold one or two of their units. What is important to notice is that organizations were involved in several activities which they usually do not perform and the main objective of behind all these was to make profit. Discussion of the statement The statement made by Germain & Reed was “There’s just something about the pursuit of profit that can tempt people to do things they normally wouldn’t do”. This basically means that profit work as the principle motive of any business. But the fact is that there are two types of business organizations, profit and non-profit. It is quite expected that making profit would be main motive of the profit businesses but it is certainly not the principle motive of non-profit businesses. It is very important to have a clear understanding about the reason behind chasing profit. Generally there are two ways of living life, one is sliding down towards the poverty, ruination and finally death and another is living life with success, glory and recognition. There could be two goals as well, one is to just survive and another is to flourish. In every process of living life people get involved in lots of external and internal activities from which they gain some benefits. But at the same time they also incur certain amount of expenses in this process of living their life. When this expense is equal to the gain then it can be said that the person has achieved the objective of survival. This also means that the person is neither better off nor he or she is worse off. But in order to achieve the objective of flourishing there must be a positive difference between the gain and expense, which means the gains need to be greater than the expenses. In other words the person needs to make profit. It is very important to admit the fact that the only way of flourishing is to make profit in life. In individual context profit could be in various different forms. Profit could be in the form of intellectual property where gain is terms of knowledge. Profit could be in the form of technical where gains are in terms of skills. Furthermore profit could be in the form of material where gains are in terms of property and finally profit could be monetary profit where gains are in terms of money. As long as flourishing is the main objective money would be playing a crucial role in the process of achievement of it. Since improving and flourishing are moral in the context of one’s life, profit could also be considered as moral (Stolyarov II, G. n.d.). The above mentioned facts are also relevant in the context of a business organization. In case of an organization also profit could be in various different forms but monetary profit perhaps would be the ultimate objective of any organisation. Business organizations after all made by individuals and run by individuals. Profit made by any organization would be ultimately enjoyed by the individuals only. In simple language business leaders want their business to make profit because they want to earn money to improve their life. Most importantly in this process people who are employed in the organization, also get opportunity to improve their life and flourish. But the success of this process requires the alignment of organizational objectives with individual objectives. Profit in business is something that is considered as the ultimate objective of running the business. The performance of any business organization is generally measured how much profit or loss it has made in a certain period of time. It is very important to make profit for business organizations as they have several responsibilities towards not only their employees but also towards the economy as well as the society of the region where they are operating. It is a very simple concept that if an organization can continue making profit it can think about growing further and this is likely to add more value towards the economy and the society. In the context of business environment, winning competition could be another motive of making profit. Competition is such a factor that makes individual as well as the organization to perform better because basic instinct of an individual or even an organization is to win the competition. Earlier business organizations always used to run after profit, but gradually they realized that they would not be able to gain sustainable competitive advantage in this way. Sustainable competitive advantage is something that would remain with the organization in the next generation of leadership of the organization. Previously companies were only focused on making profit; they were not much focused on the process of making profit; they were not bothered whether the process of making profit is actually adding value to the overall environment and creating sustainable competitive advantage. They were only concerned about maximizing shareholders’ profit. But today entire scenario has changed. Shareholders theory has changed to stakeholders theory according to which organizations are accountable to not only its shareholders but also the general public, customers and community where the organization is operating (Agalgatti, Krishna, 2004). Today most of the organizations are not running blindly to make profit rather they are focusing on aspects like corporate social responsibility in order to make sustainable competitive advantage which would enable the organization to make profit over long period of time. Today ‘business ethics’ is an important term that is concerned with moral standards and their application. The concept of business ethics came with the growing concept of social responsibility of the business organizations. It is often believed that ethics actually prevent organizations to make profit. Ethical values make business leaders think beyond profit. Decisions which are driven by the ethical values are not directed to the profit rather they are directed to the well being of the employees, general people, customers and the overall society. If leaders think ethically they would not make those decisions which they usually make to earn revenue and hence to make profit. Discussion in the context of 2009 The statement made by Germain and Reed could be discussed with respect to the business scenario of 2009. 2009 was the year when most of the business organizations irrespective of their size, were concerned about their survival in the storm that came in the form of recession in 2008. The global financial meltdown that started in 2008 was unexpected to almost all the business organizations and quite naturally they were not prepared for it. The epicentre of this turmoil was United Sates of America from where it spread to entire world economy. The most significant consequence of this global financial meltdown is that the purchasing power of individuals has reduced sharply as a consequence of which overall demand of almost all the products and services has fallen drastically and this badly affected the sales of these products and services. Quite obviously revenue of the companies has fallen sharply. Another important fact is that this recession has affected almost all the industries starting from service to manufacturing. Organizations have been forced to make decisions which they would not make generally. This is because in the period of 2008 to 2009 main objective of most of the business organizations was to stay afloat. Most of the organizations were running in loss, as a result they were desperate to make profit and this make them to take several unusual decisions or actions which they normally would not take. Various strategies to overcome the tough situation include reduction in price, decrease in number of employees, selling of one or two units etc. Companies, who normally do not believe in the strategy of cutting jobs, were forced to reduce workforce in order to reduce the cost and make profit. Within January, 2009 it was announced that almost 65,400 jobs would be cut. Companies like Caterpillar, Pfizer, Sprint Nextel Corp, Texas Instruments who usually do not reduce workforce, were forced to announce job cuts in order to survive in the period of recession. Pfizer along was supposed to cut almost 20,000 jobs in 2009. Caterpillar also announced to reduce its workforce 20,000. Even Texas instrument was found to be announced to cut 3,400 jobs (Pepitone, J. January 30, 2009). General Motors, one of the largest automobile manufacturers in the world, was found to be gone one step ahead and sold its European arm, Opel to Magna international which is a Canadian automobile parts manufacturer, though later the company took back its decision kept Opel with itself. Companies took these decisions because they wanted to make profit and perhaps the aspects of business ethics were not the primary concern of their management. If ethics would have the primary concern they certainly would not think about cutting jobs. But on the other hand if companies would have decided to not cut jobs then probably they would not survive. So, it can be said that there might have some connection between making profit and maintaining business ethics. Organizations can think about being ethical only when they are making enough profit to survive. Conclusion Business organizations have run after the profit over the years and they will run after the profit in future because technically making profit is the ultimate objective of running any business organization. But today organizations have started to see profit from different perspectives. Earlier maximizing shareholders’ profit was the main objective of business firms but today maximizing stakeholders’ profit or gain is the main objective. Since making profit is the principle objective, organizations sometimes adopt strategies which they usually do not adopt. This trend is found to be very common in the period of 2008-09 as organizations have struggled to make profit in this period due to global financial turmoil. References Agalgatti, B. H. Krishna, S. 2004, Business Ethics, Nirali Prakashan Pepitone, J. January 30, 2009. Seven companies announce massive job cuts in a scary start to the week, Bloody Monday: Over 65,400 jobs lost, [Online] Available at: http://money.cnn.com/2009/01/26/news/economy/job_cuts/index.htm [Accessed on January 13, 2010] Stolyarov II, G. No Date, The pursuit of profit is moral, [Online] Available at: http://www.helium.com/items/104839-the-pursuit-of-profit-is-moral [Accessed on January 13, 2010] Read More