The aim proposed here for any organization is for everybody to gain – stockholders, employees, suppliers, customers, community, the environment – over the long term.
W. Edwards Deming describing the purpose of an organization in The New Economics, page 51
When you think systemically, as Dr. Deming did, it is difficult to accept thinking seeks to over-simplify systems in order to find simple “answers.” Organizations are the collective result of society, employees, owners, customers, suppliers, etc. To believe that the only important consideration is one of those stakeholders is contrary to understanding the organization as a system.
When the organization is viewed as a system the inter-dependence of the stakeholders is appreciated. Owners (stockholders) have a right to expect their interests are respected. But so do all the other stakeholders.
Organizations run with the model that the organization exists to maximize only one stakeholder’s success will suffer. Not only will that organization suffer but all the stakeholders will suffer, including the one that was granted per-eminence. Today, in the USA, and most of the world the stockholders are given per-eminence (in explanations of what the purpose of the organization is). But even then, senior executives are normally making decisions to maximize gains for themselves; providing returns to stockholders are mainly a means to that end, not an end in themselves.
In order to flourish an organization needs to appreciate the view of an organization as a system. And in order to manage based on that understanding the interests of all stake holders must be balanced.
Solutions need to be found that systemically provide value to stakeholders. That may well mean sub-optimizing benefits in various situations to maximize the long term gains. So that may well mean accepting that earnings decline because management failed to design the system to succeed in the conditions that came to be (say the credit crisis).
The solutions sought at that point should not be to focus on minimizing the short term loses of one stakeholder (stockholders) and accepting whatever harm that means to others. The damage to the organization as a system is enormous if short term problems are not handled properly. The stockholders will benefit from managing the organization as a system for the long term. But the extremely short term focus (especially of speculators that grab most of the attention and fill TV screens) on maximizing shareholder value does great damage to organization.
Related: Purpose of an Organization (post on my blog from 2005) – Eliminate Sales Commissions: Reject Theory X Management and Embrace Systems Thinking – Pay Practices Say More About Respect for People Than Words Say