Fundamental Objective of Business Management

Before we begin discussing the best way for your company to make a quantum leap, we must first properly define what exactly this quantum leap means. And how to properly measure it.

The first question that we need to ask is: quantum leap to where exactly? The answer is obvious: towards achievement of fundamental objectives of business management. To the top of the mountain (‘Mount Everest’) where we can see the sign ‘Achieved’. ‘Done’.

Therefore, we must begin with proper definition of these objectives (alas, too many management textbooks get it completely wrong). ‘Proper’ means natural, objective, based on facts, logic and common sense.

Business are created by entrepreneurs – their founders. And definitely, for a reason. So why would an entrepreneur start a business? What he – or she – wants to accomplish? Why would he or she take the (often huge) risks of starting and running a business?

For three major reasons, in fact. First, to make a lot of money, of course. Which means (a) to generate a lot of financial value and (2) to monetize it – turn into cold, hard cash – by either receiving dividends, doing an IPO – initial public offering of corporate stock, or selling his/her company to a strategic buyer (e.g. a stronger player in the same industry).  

This will satisfy financial needs of an entrepreneur. An entrepreneur is a special breed for whom to be rich is as vital as for the others to breathe. Therefore, it is, indeed, the need – not the ‘want’.

Second (actually, ‘therefore’), an entrepreneur needs to build (‘engineer’) a powerful (‘lean and mean’) money-making machine, the function of which is to generate the maximum possible amount of financial value in a year, quarter, month, day, etc. This is his or her functional need (again, this is the need, not the ‘want’). Therefore, this ‘machine’ will create functional value for the entrepreneur in question.

Finally, an entrepreneur wants to (1) implement in this machine his or her values, beliefs, principles, etc. as this company is, indeed, his/her ‘baby’ and (2) to thoroughly enjoy the process of building and operating this machine and of making money. Which satisfies his or her emotional needs and, therefore, creates emotional value for an entrepreneur in question. The more, the better, of course.

Therefore, the fundamental objective of managing a business (the raison d’être for a business entity) is to satisfy aggregate needs of its owners (shareholders) to the fullest; in other words, to create the maximum possible amount of aggregate value – financial, functional and emotional for your shareholders. As we are dealing with the business entity here, the ‘first among the equals’ is, obviously the financial value.

This fundamental objective has two sides (‘components’): (1) maximizing aggregate value – a one-time project and (2) building a powerful value-generating machine that will ensure the continuous process of aggregate value generation. As financial value is ‘the first among the equals’, the first component is primarily a financial component and the second one – functional (operational) component of fundamental business management objective.

But this is a narrow definition of this objective. Why narrow? Because it does not take into account needs and interests of other stakeholders of your company. Needs that must be satisfied in order for your company to prosper and even survive. And definitely to achieve its narrow fundamental objective.

Let’s talk about these needs then. Let’s start with obvious ones – those of your customers. Buyers and users of your products and services. Why would they buy them? Some products and services will allow them to make money (business tools) or save money (e.g., lower their utilities bills – or tax liabilities). Therefore, satisfy their financial needs and create financial value.

Mostly, however, these products and services will satisfy their functional needs (food, shelter, transportation, education, etc.). Therefore, create functional value. And your customers would definitely want to enjoy the process of buying and consuming your products and services – and doing business with your company. In other words, to satisfy their emotional needs and receive emotional value.

Other external stakeholders – suppliers, partners, government entities, etc. – interact with your company for exactly the same reasons – to obtain the highest possible amount of aggregate value from you. Financial, functional and emotional. And, when they have a choice, they – and not just your customers – choose the company that will satisfy their aggregate needs better than their competition.

Why would your internal stakeholders – your employees – work for your company? First, to make money. In other words, to satisfy their financial needs and obtain financial value. Second, to enjoy the process of working for your company (after all, they spend most of their time net of sleep in the workplace).

In other words, to satisfy their emotional needs and get emotional value. And, finally, to do their job right (to operate at the highest possible performance), they need to get the right tools for the job. Which means functional needs and functional values.

Obviously, employees always have a choice which company to work for. Which one will they choose? No less obviously, the one that where they will get the highest amount of aggregate value.

Therefore, to get the ‘best’ customers, employees and other stakeholders in terms of generating aggregate value for your shareholders (and the competition is fierce and global), you must satisfy their aggregate needs (1) to the fullest in absolute terms, and (2) definitely better than your competition.

You can consider this need to satisfy the needs of your stakeholders a means rather than the end, but these ‘means’ are so inseparable from the ‘end’ that it would be more beneficial to treat them as an integral part of this ‘end’.

Which will result in the broader definition of your fundamental business management objective:

The fundamental objective of managing your business (the raison d’être for a business entity) is to satisfy aggregate needs of all of your stakeholders – internal and external to the fullest; in other words, to create the maximum possible amount of aggregate value – financial, functional and emotional for your stakeholders, and to do it (1) to the fullest in absolute terms and (2) better than your competition.

As we are dealing with the business entity here, the ‘first among the equals’ are, obviously (1) your owners – shareholders, and (2) the financial value created by your company for your shareholders.

Like in the narrow definition, the broad one has two sides (‘components’): (1) maximizing aggregate value – a one-time project and (2) building a powerful value-generating machine that will ensure the continuous process of aggregate value generation.

As the state (condition) when all aggregate needs are satisfied is rightfully called ‘happiness’, it can be inferred that the broad definition of two sides of fundamental business management objective is (1) to make all your key stakeholders happy and (2) create a ‘machine’ that will keep all of your stakeholders in a permanent state of happiness.

Which in this context can be called ‘corporate happiness’ and your ‘machine’ – a ‘happy company’.