For those who have little to do with finances, tend to think that the main financial goal of a company is profit maximization, because we must bear in mind that when business objectives are established, they establish a kind of framework that helps decision making and if the administrator focuses making its decision only to the extent of maximum utility is a danger that this not the future of the company is guaranteed to run. Since Profit maximization is a shortsighted approach.
You can imagine then what kind of decisions could have an entrepreneur who had only intended to maximize profits?
Surely the actions it would take to achieve that purpose would be: Lower costs and expenses, for which could focus on the use of cheap labor and low-skilled, use of raw materials of questionable quality, reduced maintenance costs and control quality, high selling prices, limited after-sales services, low investment in advertising and retrenchment and who knows what else would.
It is possible that this kind of strategy the company reach a high principle generate profits, but did you know that such a situation can be sustainable in the current conditions of competition in the market?
For as you are thinking, I also think it would not be sustainable, since cheap unskilled labor generates unproductive and deteriorates the quality, machinery wears out quickly and the worst that customers eventually migrate, ie withdraw.
Thus, it is impossible that the company can achieve two important goals: to grow and stay.
So far, it is very important to note that our corporate culture is given or inclined to give higher priority to reducing costs and expenses, when there are two most significant alternatives within the scope of the financial basic objective; these are:
Income generation and resource management. And this is because cost reduction is limited while the other two alternatives offer a myriad of options.
Here is an example of a company’s strategy to reduce costs and expenses to increase profits, and that the company serves the market with various products and at any time decide to leave several of them to devote themselves to produce the most profitable. With this strategy you can probably improve profits in the short term, but could open the possibility that competition takes the void that represents the unattended with the less profitable products market, and lead a strategy of penetration to other customers what to long term mean a loss of market penetration with consequent effects on profits.
That decision to eliminate product lines should go beyond the mere consideration of the value they produce and should include other factors, strategic type that could lead the company to accept the sacrifice of profits in the short term in order to ensure the permanence and growth in the long term.
Given the above, it can be concluded the following:
- The basic objective financial understood as maximizing the utility does not guarantee the permanence and growth of the company.
- Maximizing profits alone, it is a short-sighted concept
- Obtaining profits must obey more of a long-term strategy to uncontrolled exploitation of different opportunities that the market gives the company
- The financial basic objective must be viewed from a long-term perspective because in many cases you may sacrifice profit in the short term will help ensure the permanence and growth.
All these practices mistaken with respect to financial basic objective, as we have observed in many seeking entrepreneurs who achieve great profits do not mind sacrificing quality and customer service. Whereupon they have motivated the failure of their companies.