Focus on Shareholder Value not Profit. #myopinion
Organisations that focus on maximising profit often fall into the trap of short term success at the cost of long term value. A business can lift short-term profit through several ways that may actually damage to shareholder value such as:
- Increase pricing in the short term, boosting profits from existing customers less able/ not immediately willing to switch to purchasing a competitors product, but ultimately alienating and potentially loosing a percentage of the existing customer base.
- Reduce pricing in the short term (including discounting) in an effort to boost market share, but ultimately damaging the long term value of the brand. Think Pizza Express…
- Decreasing capital expenditure (either on fit out or facility maintenance) boosting profitability but damaging long-term competitiveness in the market.
- Decreasing operating costs, to the extent product quality or service are compromised, but with little negative impact on sales in the immediate term.
By focusing on maximising shareholder value, an organization is forced to:
- Give priority to the medium and long term versus the short term
- Give priority to the establishment of a sustainable competitive position, rather then provisional profit
- Give priority to growing future cash flow.