Essay on the Concept of Profit Maximization

Peter Drucker explained that the origin of all the confusion that many business individuals had is Profit maximization. In lay mans terms, it is a way of saying that a business enterprise sells high and buys low. But as Drucker figured out this concept hardly explains the success or failure of the business (Starbuck, 2013).

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But as we look at the causes of business problems today it has little to do with buying low and selling high. Customers are the main reason why a business exists. Therefore, a wide range of factors needs to be considered when delivering services to them. According to Peter Drucker, profitability and profit as vital to business, yet, profitability is usually a limiting factor and not a purpose of business. This is one of the major reasons why outrightly states that profit maximization is meaningless (What is maximization? definition and meaning, 2017).

Profitability and profit are absolute requirements, but this does not mean that profit is the basic purpose of the business. Actually, profitability is the necessary ingredient which relates to the optimum performance of the business. Drucker explains that primary objective of a business is the attainment of enough profit to allow for the risk of financial doings of the business. The idea of the businesses not considering profit maximization the sole purpose, therefore means that customer satisfaction is deal with regarding quality products, reasonable prices, and Proper service deliverance. Although profits are necessary for the business to grow, the idea of achieving success should not be prioritized at the expense of the customer needs and welfare. According to Drucker, the only reasonable purpose for a business is to create a customer. Because the Customer is the founder of the business and he gives employment.

If profit maximization was the right description for the basic objective of the business, then the scenario of failing business just because of raising prices and developing a greater differential between cost and revenue could not hold. As costs to the business increase, some pass these costs on to the Consumers as an urgent solution to maintain their profits. This rarely works because the Consumers will always move away from the higher prices and hence making this business to lose the customer base ((Starbuck, 2013).

Drucker brought this profit ambition of the business to question, and he claimed that this theory was invented by smart economists to explain a situation in which the economic equilibrium could not explain. However, he said considering that profitability is a myth would bring more harm than profit maximization this is because profitability is necessary for both successes of the society and the individual. In fact, according to him, business making profit was crucial for the welfare of the individual business and the society.

According to Bernie Marcus and Arthur Blank, the co-founders of The Home Depot, if they were able to bring quality customer product at the right price and offered perfect service, they could change retailing America. Thus, according to them, profit maximization was unnecessary. They observed that if they set down things, volume expanded and costs as a rate of offers diminished. They had wanted to grow the test to other Handy Dan stores. In any case, now they chose to utilize that arrangement to strike out all alone. Imagining an across the nation chain of outlet center loaded with a wide collection of items at the most minimal conceivable costs and staffed with prepared partners giving completely the best client benefit in the business, Blank and Marcus set up shop in two outdated Treasure Island rebate stores in rural Atlanta. With an implantation of money from a New York City venture firm, they supplied the racks with 18,000 unique things from paint to pipes apparatuses sliced costs deep down, and contracted and prepared the staff. One of the main reasons that can be attributed to Home Depots success is their original founders lack of fixation on profitability and understanding that what matters is customer satisfaction (American National Business Hall of Fame, 2017).

Profit maximization is not the best method for growing business for some reasons. As much as profit and profitability are important in business, they are usually a limitation. This is because it creates the idea of improper business ethics in that the business do not provide quality products which satisfy customers. The concept of maximization of profits is meaningless poses danger as it makes profitability appear as a myth. Profit is not the cause, explanation, or method of reasoning of business conduct and business choices, yet rather the test of their legitimacy. If celestial beings rather than businessmen sat in executives' seats, they would, in any case, be worried about productivity, in spite of their aggregate absence of individual enthusiasm for making benefits.

The base of the confusion is the mixed up conviction that the thought process of a man the supposed benefit intention of the specialist is a clarification of his conduct or his guide for the right activity. Regardless of whether there is such an incredible concept as a benefit thought process at all is profoundly suspicious. The thought was designed by the established financial analysts to clarify the financial reality that their hypothesis of static equilibrium couldn't clarify. No proof of has ever been confirmed of the existence of the benefits thought process, and we had since a long time ago found the genuine clarification of the marvels of financial change and fig development which the profit intention was first advanced to clarify. The concept is more terrible than irrelevant: it harms. It is a noteworthy reason for the misconception of the way of benefit to our general public and the profound situated threatening vibe to profit, which are among the riskiest ailments of an industrious society.

It is generally in charge of the most noticeably bad slip-ups of open strategy in this nation and also in Western Europe which is solidly in light of the inability to comprehend the nature, capacity, and reason for a business venture. Furthermore, it is a huge part in charge of the overall conviction that there is an intrinsic inconsistency amongst benefit and an organization's capacity to make a social commitment. An organization can make a social commitment just if it is exceptionally productive (The concept of profit maximization is, in fact, meaningless, 2017).

To comprehend what a business is, we need, to begin with, its motivation. Its motivation must lie outside of the firm itself. Truth be told, it must lie in the public eye since business endeavor is an organ of society. There is just a single legitimate meaning of business reason: to make a client. It is basic knowledge that if a business tends to satisfy its clients and customers, it usually ends up being successful thus this concept of profit maximization is an irrelevant process which majorly focuses on making profits rather than satisfying customer needs, therefore, meaningless.

References

American National Business Hall of Fame est. 1972. (n.d.). Retrieved March 21, 2017, from http://anbhf.org/fellows/arthur-blank-and-bernie-marcus/

Starbuck, P. (2013). Concept of profit maximization is meaningless. Oxford Handbooks Online. doi:10.1093/oxfordhb/9780199585762.013.0014

The concept of profit maximization is, in fact, meaningless. (n.d.). Retrieved March 21, 2017, from http://www.bing.com/cr?IG=DE8F18C60A224514BD2C463E556056B7&CID=37B3DF0D1BF165960916D5411AC064DF&rd=1&h=UXBCmo73lHewxSTNssjy7yCSGD0hdKYiV5XmuxrGcO4&v=1&r=http%3a%2f%2fizquotes.com%2fquote%2f225233&p=DevEx,5063.1

What is maximization? definition and meaning. (n.d.). Retrieved March 21, 2017, from http://www.businessdictionary.com/definition/maximization.html