What is the purpose of a business?
Milton Friedman famously said, “The social responsibility of business is to increase its profits.” This has evolved into the dictum, “The purpose of a business is to maximize shareholder value.”
Peter Drucker countered, “Business is an organ of society…There is only one valid definition of business purpose: to create a customer.“
I puzzled over these two seemingly contradictory ideas for years.
Complicating my thinking was an awareness that there are other purposes for a business: creating employment, solving a social problem, providing a vehicle for fame or political power, etc, etc.
There are noble purposes for a business and ignoble purposes for a business.
I don’t want to teach the ignoble purposes. Although I do warn my students against them.
Business can be a noble endeavor; a high calling.
Business provides goods or services for a customer. Business provides work for employees. Business provides a good return for the owners. Satisfying the needs of the first two stakeholders is essential to satisfying the third.
For a while, I perched on this definition: The purpose of a business is to provide goods and services to customers, to create jobs for employees, and to provide a healthy return for owners.
But I came to realize that it’s possible for all three to be satisfied and still have an ignoble business.
You can imagine the kinds of business in which customers, employees, and owners are pleased but society or the planet are worse off.
A business must also be good for society and our planet.
I now summarize my teaching about business purpose this way: The purpose of business is human flourishing.
Milton Friedman famously said, “The social responsibility of business is to increase its profits.” This has evolved into the dictum, “The purpose of a business is to maximize shareholder value.”
Peter Drucker countered, “Business is an organ of society…There is only one valid definition of business purpose: to create a customer.“
I puzzled over these two seemingly contradictory ideas for years.
Complicating my thinking was an awareness that there are other purposes for a business: creating employment, solving a social problem, providing a vehicle for fame or political power, etc, etc.
There are noble purposes for a business and ignoble purposes for a business.
I don’t want to teach the ignoble purposes. Although I do warn my students against them.
Business can be a noble endeavor; a high calling.
Business provides goods or services for a customer. Business provides work for employees. Business provides a good return for the owners. Satisfying the needs of the first two stakeholders is essential to satisfying the third.
For a while, I perched on this definition: The purpose of a business is to provide goods and services to customers, to create jobs for employees, and to provide a healthy return for owners.
But I came to realize that it’s possible for all three to be satisfied and still have an ignoble business.
You can imagine the kinds of business in which customers, employees, and owners are pleased but society or the planet are worse off.
A business must also be good for society and our planet.
I now summarize my teaching about business purpose this way: The purpose of business is human flourishing.