Adopting a Simple Profit-Maximizing Perspective Can Have Positive Impacts for a Firm - Assignment Example

Critical Evaluation of “Adopting a simple profit-maximizing perspective can have positive impacts for a firm” Introduction: A firm that has a profit maximizing perspective and idea, it has the major part of realized profit and sometimes the idea of maximizing the profit is not acceptable at the root level by the firm itself. As it is figure out by some economists, those existence firms are surviving because they have achieved maximum profit based on profit maximizing level of that firm. The owner of the maximization of profit sets non-profit aims and ideas for its firm managers. The more the load a firm sets on returns and profits, it does not think much about the expenditure, which leads to maximize the profits of the firm (Kaneda & Matsui, 2003). Firms that do not maximize its profit are probably more out competing by proficient rival or acquired by people who can get better evaluation from it by following different plans and strategies (Romer, 2006). Managers are usually changed or fired if they fail to maximize firm’s profit which therefore shows that the profit maximization depends on behaviors of managers that should be consistent and it seems to be staying for long in that firm with the maximization of profits if managers adopt simple profit maximizing perspectives (Romer, 2006). Profit Maximization Perspective: Majority of firms subsist to maximize its profit and its production activities are not limited to the firm itself. Nearly all firms are motivated to maximize its profit and decrease its cost, which makes a positive impact on that firm (Karl, 2007). Firms usually set primary objectives through a number of different choices to maximize it profits, they take some basic decisions to increase its profits that includes how much output they need to supply, which technology they must use to produce, and how much input they may need to demand. The profit maximizing firms will decide the technology it has to use to minimize the cost of production, which has a positive impact on that firm (Karl, 2007). The profit of firm and its determinants is a comprehensive topic of research in the industrial organization field. The advance literature describes two models in the competitive model of the firm’s profit. The first model is the structure conduct performance model (SCP) that describes the extent of concentration in the industry, decides the behavior of the firm and its profitability (Stierwald, 2009). The higher concentration of the firm involvement can lead to higher profits and if the there is a difference between the characteristics of the firm such as level of efficiency, quality management and structure of organization, than the profitability of the firm is affected. The second model is the effect model, which states that within the industry, the firms are heterogeneous and they can be differentiated with their efficiency level. The firms that are more productive have a competitive benefit over the firms that are less productive and those firms earn high profits due to that high productivity (Stierwald, 2009). It is difficult that this requirement can regularly fulfilled by the firms as auditors have different figures related to profit and in order to maintain the profit maximization strategy, the firm should have regular and clear procedure of auditing. The focus of the firms should be on short-term profits because profit is given only once at a year therefore the firm should invest on long-term basis in order to gain the short-term profits (Anderson, Fornell, & Lehmann, 1994). Corporate Social Responsibility (CSR): A firm deliberately engages itself in social responsible activities to maximize it profits at private level according to some recent speculative and experimental studies (Schuler & Cording, 2006). The maximizing profit perspective of a firm can get hold of further profits from other activities that include the enhancement of a firm’s repute and the capability of that firm to produce maximum profits by making different and distinguished products. Firm’s capability to grasp the attention of more competent personnel and capacity to make the finest product enhances in the viewpoint of maximizing the profit for that firm (Schuler & Cording, 2006). Corporate Social responsibility is associated with profit maximization firms or in other words, the firms are acting in response to requirements of CSR (Rahman, 2008). Some of the firms adopt profit-maximizing perspective by the consumer satisfaction, which has a positive impact on that firm’s profitability because of different reasons. Firstly, the consumer satisfaction increases the loyalty of its consumers and motivates them for the future purchasing intention and behavior. This behavior and repurchasing motivation of consumers maximizes the profit of the firm that makes a positive impact. Secondly, if the consumers are highly motivated and satisfied by the firm’s activities, they are ready to give the premiums and prices at best for the benefit they get from the firm (Slade, 2004). When the consumers are highly satisfied, they tolerate the high prices that the firm offers and eventually this increase the performance of the firm economically and the firm maximizes its profits. Third and the basic reason by which a firm maximize its profitability are the results that are gained by the satisfaction, which has impact on the firm’s overall reputation. The firm not only maximizes its profit by its reputation but also it is valuable to establish and maintain relationships with the traders and distributors (Slade, 2004). Firm’s reputation provides halo effect on it because of the positive influence for consumer’s evaluation. Therefore, to maximize profit, a firm should satisfy its customer, and motivate its customers to maintain the reputation of that firm which helps in increasing its profitability and having positive impact for that firm (Yee & Yeung, 2008). It is not new that the organizations are expected to show the behavior, which is ethical, and moral management is involved. In the past years, this behavior of organizations is expected to raise and they are expected to do more for the people and for the environment and this act of organizations are known as “Social Responsibility” or can also be said “Corporate Citizenship” (Graves, Waddock, & Kelly, 2001). The marketers of the firm who are responsible to define and implement the social responsibility of the organizations are expected to do more efforts but unfortunately, their focus is on the profit maximization of the firm and they constantly neglect the social impact of the activities (Graves, Waddock, & Kelly, 2001). The limitations of legal duties of the firm overcome the ethical duties and these duties involve the respect of the people, social and moral rights, avoiding harm and avoiding the harm caused by others. All the entities in the business system agree that the firm should not only focus on the profit maximization but it should also consider its other responsibilities as their foremost obligation (Lantos, 2001). The big organizations regularly claim that their businesses are not only for profit but they are also serving on the large social purposes. They are making constant effort to make the world a better place to live by making healthier food, fuel effective cars, saving energy and many other sources that are helping them to fulfill their social responsibilities. Important institutions worldwide encourage that organization that are willing to support the social cause and are working for the betterment of the people. In the cases where personal priorities and interests are given importance, the idea of social responsibility is of no use and irrelevant. The companies who strive hard to achieve maximum profit are always ending up doing more social work (Verhoef, 2003). The profits and social welfare are always directly opposite to each other and therefore the appeal to organizations for the social work will be not effective because the top management of the organization is never willing to go against the interest of their stakeholders and they cannot voluntarily act in the interest of public (Verhoef, 2003). The example of healthier food market can be taken where fast food restaurants are making profits by expanding their product line by introducing salads in order to appeal the customers who are health conscious. Other companies have also found the new source of making profit by introducing low fat and other kinds of foods that have gained the popularity in the people (Trevino & Nelson, 1999). This way the organizations claim to improve their social responsibility by making more profits. In the same way, the car manufacturer’s claims to make cars that are fuel-efficient and environment friendly. The prices of those cars are more than the price of other cars, hence making more profit in the name of social responsibility. Moreover, many organizations have claimed to improve their social responsibility by making less consumption of the energy, thus reducing its own cost and increasing the profit (Trevino & Nelson, 1999). The companies often make profits by acting in the interest of the public and this executive should me made responsible that their organizations cannot only work for the shareholders, but also they should do some social purpose that should also be big as their profits are (Karnani, 2010). When the companies are willing to do good for the people, the main driving force is the profit that is making the company to perform social work. Most of the time profit and social work are at odds to each other and it is not possible for the managers to dissatisfy the shareholders on the expense of the social responsibility (Karnani, 2010). After many years of research, the profitability management systems verify many organizations have profit and unprofitability opportunities that are not shown publicly. With the use of the appropriate tools, supporting systems and decision-making power, it is possible for the organizations to increase their profits up to 400% and this maximization of the profit is gain by making the smarter decisions. These smarter decisions by the management help the firms to increase the sales and reduce costs without the heavy lifting of the costs (Dr Turney, 2010). For the profit maximization, five steps are proven to make smarter and profitable decisions. The first step is to focus on those areas where the firm understands that the profit can increase and more efforts are be made on those areas. The second step is to identify the gaps in the decision-making and access the decision that is made for the profit maximization. The third step of the firm is the implementation of the profit management system that will help the managers of the company to identify the unseen opportunities that can help to increase the profits (Dr Turney, 2010). The fourth step is the performance management system to be brought in line to emphasize on the decisions of profit and providing motivation to the managers to take decisions that is helpful to the company’s long-term profitability. The final step is to make the decision in context to score of profit management system newly implemented by the firm. This will help the firm to strengthen the accomplishment of the program and give momentum to improve the profitability management (Dr Turney, 2010). Profit maximization of a firm allows the entrepreneurs for better income and bonuses while running a firm and it can be useful in the financial investments for its growth and preventing it from the hard times that it has to face. Usually in a firm owners desire to maximize firm profits while the employees and managers do not, consequently the workers and managers are not motivated to profit maximization of a firm (Pettinger, 2008). They just make sufficient profit to maintain their jobs but then practice other goals like enjoying their work. Maximizing the firm’s market share can attain the positive impact for a firm. Firms not only consider the financial and economic motivations to make decisions for maximizing their profits but they consider different society issues and environmental issues to increase their profits (Pettinger, 2008). A firm’s owner will always want to maximize its profit and earn as high as possible to make profit for that firm. While managers and workers who are actually running the firm might have other agendas except for profit making for that firm. They might not only focus on maximization of profit but to divert the firm from making profits to provide benefit to themselves instead of giving advantages to that firm (Robert E & Lieberman, 2008). Strategies adapted for Profit Maximization: Some best strategies that a firm adopts to maximize its profit are as follows: Firms profit can be maximize by finding business partners who take pleasure of resourcing the consumer, finalizing the deals of incomes and profits, which can give a positive impact to that firm. Consulting any person or firm that already knows how to run an earning- based businesses can help in maximizing its profit and creating a positive impact on consumers with adoption of long-term profitability strategies (Primeaux & Stieber, 1995). A Firm must know what actually its profit margin is and how much profit a firm has to make and how much it costs to provide the maximization of its profit. If a firm does not have an idea of how much it has to earn and spend in order to maximize its profit then it is surely possible for that firm to have a disgraceful loss. Maximizing the firms profit involves the building of great products that it will sell in order to earn high from that product. Adopting such strategy is the best way to earn maximum profit for a firm and generating a positive impact through it. Firm basic focus should not only be on maintaining the firm product but also on finding the consumer that wants to buy that product through which selling increases and profit is maximize (Primeaux & Stieber, 1995). Firm should know its position of forecasted cash flow and finances of each month to decide how to maximize profits for the firm. Proving incoming models before making investments in the firm increase profit margins for that firm because it is very risky to spend money on an assumed income without a proper marketplace for a firm’s product. It is like a person digging himself in a hole and can never get out of it; therefore, a firm should prove its revenue models earlier than investing in them (Primeaux & Stieber, 1995). Conclusion: It is very necessary for the firms that they should make such decisions that help the company to maximize value of the company and make a strategy that will have a positive impact for the firm and its owners. There are quantitative difficulties regarding the increase of the profits because the financial objectives needs to be defined and measured correctly and all the factors involved should be known and took into considerations (Thomas & Maurice, 2008). A firm must be motivated to maximize its efficiency to make it more profitable instead of being encouraged to increase its profit for being more efficient. This is the right statement for the firms that are under perfect competition for grounds of potentially unrecoverable threats to its business (Fernando, 2011). The different perspectives are discuss in the above report that shows the ways to maximize a firms profit though corporate socially responsible behavior of customers, a firm’s reputation, and involvement of firm’s owner and its workers in maximizing its profit in several ways. This concludes that adopting simple maximizing perspectives can have a positive impact but firms should emphasize on their social responsibilities as well. List of References Anderson, E. W., Fornell, C., & Lehmann, D. R. (1994). Customer satisfaction, market share, and profitability: Findings from Sweden. Journal of Marketing , 58 (3), 53-66. Dr Turney, P. (2010). Performance Insights – 5 Steps to Making Profitable Decisions. Retrieved February 23, 2012, from www.costechnology.com: http://costechnology.com/performance-center/features/performance-insights-5-steps-to-making-profitable-decisions Fernando, A. C. (2011). Business Environment. New delhi: Pearson Education India. Graves, S. 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