Can Profit-Maximization Be Achieved?

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Business School
Business School

Strategic Management

Module Code: 26390
Student ID: 201019522
Module Leader: Steve Braund
Word Count: 2365
Due Date: 15 March, 2012
Profit was the well-known significance of the enterprise’s existence in the past, because the enterprise was considered as private property of its shareholders. Naturally, profit-maximisation is the objective what the enterprise pursues. With the development of the time, many people began to query the significance of enterprise. Meanwhile, corporation social responsibility was considered by many scholars that to replace the enterprise’s significance which is profit. On the other hand, though profit-maximisation is unprocurable, many companies still pursue profit-maximising. Barney and Hesterley (2006) believed that adopting a simple profit-maximising perspective can have positive impact for firm.

Many people disagree with above assertion. They worried about that enterprise which pursue profit-maximisation will be blinded its reason by short-term profit, thus damage society interest. However another part of people argue that profit-maximisation is the driver for enterprise development. The enterprise will lose its competitiveness without profit-maximisation. This paper is to discuss above assertion with appropriate examples. On the same time, the writer believes that profit-maximisation and taking corporation social responsibility (CSR) are not opposite; they are interdependence. Therefore, this paper will also use a range of models and examples to analyse how profit-maximisation and CSR supplement each other, and have the positive impact on the firm.

Impossibility of achieving profit-maximisation
In the past, the enterprises were considered as private property of their owners, and shareholder is the only group that management needed to be sensitive towards. Then, Friedman (1970) pointed out that “the social responsibility of business is to increase its profits”. Therefore, people used to believe that the objective of enterprise is profit-maximising. It means the companies should pursue maximum profit as possible as they can. However, in reality, no enterprise is able to achieve profit-maximisation. Because Freeman (1984) considered that enterprises should be also concerned about the interests of other stakeholders when taking strategic decisions. With the times progress, Freeman’s opinion was accepted most people.

Therefore, the enterprise has to takes responsibility to its stakeholders as above picture shows. There are different needs between each stakeholder of the enterprise. For example, consumers expect that company provide high quality products with low price. The government expect that company is able to pay taxes as high as possible, and also expect company provide employment. Moreover, “the operation of each firm is in the hands of the management, but ultimate control lies with the owners”. (Wenders, 2001) This means the enterprise may conflict with its owners, when the different objectives appear between management and ownership. Therefore, it is too difficult to satisfy all the parts of the company’s stakeholders. Balance the stakeholders’ interest would raise the operational cost. Consequently, it is impossible to achieve the object of profit-maximising.

On the other hand, writer tries to use Porter’s five forces model to explain why profit-maximisation is unachievable.

In general, there are three ways to make profit. The first is that sell more; this means sell the products or services to customers as more as possible. It is mainly influenced by the threat of potential entrants and the threat of substitutes. The second is that sell for more; this means increase the price of products of services as high as possible. It is mainly influenced by buyer power. The third is that buy for less; this means reduce the cost as possible as the company can. It is mainly influenced by supplier power. However in reality,...
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