Business Truisms or Fallacies?

There are certain narratives, theories and principles that grow to dominate how we approach the world of business. Some are timeless, others are relevant only to the circumstances and then there are those that are misguided/fallacious. It is important for us to continuously challenge our closely held beliefs, particularly in the face of niggling information that threatens to rock the foundations thereof…

"The primary purpose of a business is to maximize profits for its owners or stakeholders”

Still commonly taught in leading business schools. Management teams are still incentivised in many organisations to focus predominantly on profit growth / maximisation. If the company is profitable, it means everyone wins right? So why is this becoming a debatable matter?

Too often, the theme of profit maximization has led to detrimental environmental impacts, large-scale retrenchments, asset-stripping or underinvestment in the future, anti-competitive manipulation, and when challenged by popular “disruptive” competition, a downward spiraling of once great businesses. This isn’t only a short-term vs long-term focus problem; it is a priority of focus problem (Customer vs Shareholder). Many publicly listed mature or declining companies today continue to focus their actions/incentives around profits/shareholder wealth whilst the thriving/growing businesses tend to focus on pleasing as many customers as possible, for as long as possible. This alone gives the customer-focused businesses an invisible edge over their older competitors. Simply put, the primary purpose of business is not to maximise profits for shareholders, but to provide unique, meaningful value to customers, in a sustainable manner…Do this right and the shareholders inevitably win over the long-term.

“In business, you have to be a rational, unemotional thinker”

An accepted mantra, preached in particular by investing legends and later embraced by the corporate world. This may well apply to investment decisions, but it is debatable whether this applies to business in general. In fact, the creative, innovative and problem-solving functions within business do far better with a healthy dose of emotional empathy, counterintuition and inverted logic. If we are to please as many customers as possible, we have to know them fairly intimately, noting that their purchasing decisions tend largely to be emotionally driven. The concept of value is itself relative and dynamic, which means that successful value creation is not arrived at through logical planning, but through an iterative process of open-minded trying/testing and adapting. There is much in business that is difficult to quantify and to quote Einstein, “what counts can’t always be counted” – so reducing certain business decisions to that of solely following the numbers and logic, in a highly complex and chaotic world, is misguided.

“Technology is the great disruptor”

General technological change has certainly been a key driver of change within a business.

And the ability to drive one’s own technological innovation is being identified as a key strategic driver, leading many to rightly conclude that most companies in the future may well be quasi-software companies. But is technology the great disruptor? It can certainly disrupt. But disruption surely tends to happen to the inflexible and unprepared…who themselves have been in a state of denial or ignorance. What or who then is the true disruptor of business? Surely technology should be seen merely as a tool for delivering value, albeit a very important tool? In most instances, the same technology is available to most market players. Why then is it being identified as the great disruptor?

One could argue that the cause of disruption has more to do with the disrupted, than the disruptor. Those businesses that are proactive in being “best-informed” and adaptable to market changes (which include “value possibilities”) are rarely disrupted – and are in fact accused of being the disruptors. On the other hand, those businesses who react to market changes in a more defensive manner (defending the status quo), give rise to their own disruption. As some have pointed out; Apple did not disrupt the music industry, being forced to go out and buy full-length albums did. Uber did not disrupt the taxi business, limited availability/access and fare control did…

“The best ideas or strategies win”

I suspect that many reading this are ready to refute the above statement, insisting that it is mostly about execution…and they would, in my experience, be right. However this fallacy is worth mentioning only because these same people often don’t act as if this is the case. Many companies still act in a fashion so as to award brownie points to those who appear to have great ideas or those who are impressive/intelligent talkers. The implicit assumption is that great ideas or strategies should be top-down (a debate for another day). The ability to generate great ideas is certainly part of the process, but execution remains the most critical aspect in business. As they say, talk is cheap and ideas...plentiful. A business has to be able to execute as effectively as possible. This requires planning, co-ordination and performance management skills that are honed only through experience.

The importance of execution is also supported by the fact that those who are actually “the first to market” are often not the ultimate winners. They are often the sacrificial pioneers that prepare the way for those future titans who ride in their slipstream, only to eventually step out to deliver far greater value (10X), pushing market acceptance past a critical tipping point.

The skillset to manage effective/successful execution remains a widespread problem, particularly in more mature companies today…

"There is a single best way to manage and run a business over time”

This is more implicit than explicit. Many consulting firms and business gurus appear to base their latest sales pitch on this premise. I've often met managers who approach their business in this way too, although they would deny it. Their personal beliefs, reinforced by what had worked in the past, tend to create unintended blind spots, biases and barriers of competence. Paradoxically, this is the drawback/downside that accompanies experience. This is not to say that there aren't definite paths/ways/things that one should avoid. By all means, soak up and be mindful of this "negative knowledge", since it carries far more certainty within it than positive knowledge (to paraphrase Nassim Nicholas Taleb).

There is by now thousands of case studies that show that what worked in the past, doesn't always work in the future and what didn't work in the past, may just work now etc. Furthermore, the same level of business success (however you define it) has been achieved by competing companies that have taken very different paths, with completely different cultures, headed by vastly different leadership styles. They all serve to demonstrate one key point - It is all relative. Borrowing from science, let's call it the business management law of relativity. One has to find the way that is most appropriate in delivering optimal results, within the context/circumstances. The ultimate key here is to be open-minded, whilst applying your critical judgement - you will then discover that finding this best path, easier than you think...

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