All my career, I’ve had businesspeople and senior managers tell me that the purpose of business is to make a profit. It has been these same individuals who most undermine the digital transformation initiatives in their organization.
10 years and nothing transformed
I once worked as a business analyst with a globally recognised brand in the motor finance sector. This organisation was highly tuned into the profit motive. Quarterly performance metrics were presented to whole of organisation updates. Divisional directors would speak to sales and margin metrics and every monthly update.
Making money was the sole purpose of this organisation, and they were very good at it. They were the market leader for the previous two decades. However, in recent years, they had lost their market dominance to new more digitally savvy players.
Their loss of market was not because of lack on investment into digital technology. This company ways spending more than $20 million a year for more than 10 years on information technology upgrades. Nor was it lack expertise. When you are spending that kind of cash, you can always buy the best expertise. Yet, despite having all the money and people needed, this company has been unsuccessful in uplifting their core information technology onto a modern platform. All they could manage, was to tinker at the edges of their information systems.
They would say things like “our teams have change fatigue”; “we are already understaffed and can spare our people”; and “we need to be complaint with regulations”.
As the business analyst receiving these responses, it was obvious to me that these where lame excuses. Corporate speak to paper over a deep aversion to risk to the profit metrics that underpinned the annual bonuses of these managers.
This organisation was unable to transform its information systems because the executives and managers where constantly creating restrictions, conditions and barriers that would directly block and interfere with the work of the digital transformation program.
Every year this went on, their costs of operation increased, and quality-of-service decreased. Market competition was gaining ground and eventually, running ahead. Profitability and market share steadily declined over the 10 years.
The Australian automative finance market was valued at USD 50.6 Billion in 2021. In the ten years previous, this company fell from market leader to middle of the pack. Over-taken by competitor organisations who do digital better.
The barrier that couldn’t be overcome was the focus over short-term profit, meant that no other purpose could be effectively pursued.
The Profit Motive
Profit is nothing but a mathematical concept. A core tenant of financial accounting. Profit is the difference between money earned and spent by an organisation within a given period.
Investopedia defines:
“Profit describes the financial benefit realized when revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question.”
In our neoliberal capitalist society, we are told that the purpose of business is to make profit. We incentivize people at work to place profit of the organisation above all else. We make profit the purpose of our existence, we attach our identify to the profitability of the organisations in which we work.
The profit motive describes the act of placing of emotional, personal, community and often spiritual value on to the profitability of an organisation.
When organizational leaders make their purpose about the profit of the organization, they stifle innovation by digital transformation.
The profit motive is an ineffective purpose
It is the profit motive – the act of making profit our purpose at work – that I believe is the root cause why most organisations struggle in their digital transformation initiatives.
In all my 20-year career, the vast majority of people I have met are not at all motivated by making money for their company. Most people want to do something more valuable with their time at work. They want to do work that matters.
When I work in the small businesses, I find that profit is never a motivating factor. Rather, it is the interest, freedom and autonomy that comes with owning a business, that motivates both the owners and employees of that organisation.
It is the desire to do something meaningful and useful for the benefit of others that motivates people to take risks and do great work.
Authentic purpose is non-financial
Why should a number defined by a mathematical framework, be the purpose in which people gives their lives? What a waste!
I’ve never subscribed to the idea that the purpose of business is to a profit. I have long recognised the trope of the ‘purpose of business is to make profit’ as neoliberal propaganda, sold to society to benefit the owners of capital.
Profit is a measure of performance and sustainability of an organisation. It is an important metric, but no more important than the capacity of an organisation to support real-living wages of employees, or the environmental harm created from its production and products.
Organisations focused on quarterly performance of profit, are incapable of seeing beyond the immediate short term, and therefore decision makers are resistant to engage and support the changes that are required for a successful transformation project.
Digital transformation is not profitable in the short term
Digital transformation requires significant change to how your business works. It means fundamentally changing the mechanisms in which your organisation creates and derives value from the information pipelines it maintains. You are directly playing about with the profit engine of your organisation.
Upgrading the information technology in your organisation means reducing the effectiveness and efficiency of your information pipelines during the time of transformation. This requires organisations to see beyond the profit motive, to the true purpose of the work they do. It means incurring a reducing in profitability in the short term, in striving for significant benefits for profit, people and planet in the medium to long term.
Align your digital transformation with a higher purpose
To be successful at digital transformation, organizational leaders need to be able to step out of the profit motive that drives their business-as-usual performance.
Investing your emotional energy and identity into profit of your organisations, causes decision makers to be blind to the reality of digital transformation. It becomes the source of blockers and risks to the transformation project, which will inevitability cause your organisations to become less profitable.
When a digital transformation initiative is constrained by ‘profits in the short-term’, it inevitably creates an organisation that is less profitable.
