We incur costs when performing an activity, when expending energy. Therefore a business enterprise that produces a product or service also produces costs, naturally. Not only are costs unavoidable they are necessary! Moreover, there’s an optimal level of costs both below and above which an enterprise renders itself less viable.
So why is it that most managers or leaders want to minimize, not optimize, costs? The most logical answer, based on the formula profit = revenue – cost, is they see it as a means for maximizing profit. After all, this is the business of business!
Having this mindset, what most seek to do is get the most out of the business. That is, they view the business as a thing—an object—from which profit is extracted. Moreover, every ‘thing’ in the economic equation (i.e. capital, labor, natural resources, suppliers, customers) is manipulated and even exploited for this purpose. This means spending as little as possible in order to get as much profit as possible out of the business.
Just look around, there are far more examples of this than a caring person could tolerate. Examples where the total cost to society is enormous! Most recent include the mining disaster in West Virginia and the tens of thousands of gallons of oil gushing into the Gulf of Mexico. In the long run this mindset is detrimental to society and to the business enterprise.
However, if the business of business is about serving the needs of people in society, then the purpose changes from extracting profit from the business to providing value through the business. Correspondingly, the spending decision becomes an investment decision. Thusly reframed, the decision requires a far wider perspective and a far deeper understanding of the role of business in the lives of people. It becomes a decision about what best serves ‘We’, not merely a decision about what’s in it for ‘Me’.
But to manage and lead a business for this larger purpose requires a different kind of person. One that is not narrowly fixated on profit or growth. A person that understands that such a fixation is detrimental to progress. The kind of person that makes a commitment to cultivating and developing the capabilities and ensuring the safety of people throughout the organization, and seeing this as an investment not an expense. Why are such people so rare when doing otherwise increases the total cost of doing business?