Profits and Ethics: Partners in Success

 

     I am going to start this blog with something I know is not true -- but, since I WANT it to be true, I will make it my postulate.

All companies want to do GOOD in hand with doing WELL.

     Doing good makes a positive impact on the community, society, the environment, and every aspect of life you can think of. Doing well involves making the company a commercial success.

     The way our economic systems are structured, it is easy for a company to turn away from the path of trying to do good in order to do what appears to be the most profitable process. The "bottom line" is the result of adding all kinds of numbers and projections together, subtracting costs, adding income, getting interest from positive cash flow, etc.

     In such a situation, it is easy to say "if I increase my costs, I will decrease my profits". Increase the number in the spreadsheet and it will give you the number you are expecting. So, doesn't that prove that your surmise is correct? Yes -- but only if all the numbers are completely independent of each other. There are usually dependencies among the numbers but they aren't always easy to recognize and companies (and their boards, owners, and stockholders) want stability and projections that they can rely on. Possible, but unproven, dependencies are not given enough weight to override that change of number in the spreadsheet.

     Let's take a number that is in every company's spreadsheet -- salaries. Increase salaries, decrease profits. That's what the numbers say -- once again, assuming independence between the numbers in the spreadsheet.

     The search, for the lowest salaries to be paid, leads to many things. How do you succeed in paying people less? Outsource to other locations that have lower wages. Pay just enough that there are enough desperate people willing to work for the wage. Eliminate safety measures, increase working hours without additional pay, intensify the working hours so the body and/or mind is always working at peak output and left drained and exhausted at the end of the day (crippling their ability to positively interact in any family unit). Lots of ways to wring the sponge.

     Lower wages equals greater profits -- that's what the spreadsheet says.

     But does that mean that higher wages equals fewer profits? You might assume so but here come the interdependencies. How much does attrition and turnover cost? Nothing directly -- but REPLACEMENT of those resources cost something. It costs a lot of something. Lower wages will lead to higher attrition and turnover (not that wages are the only criterion for such events). So, when you decrease that number in your spreadsheet, be sure that you increase the numbers for recruiting and training, and decrease the factors involved with productivity. And the more you decrease the salary number the more the other numbers have to change. A 30% attrition rate will cost more than twice that of a 15% attrition rate because you are not only increasing recruiting/training but constant turnover is a terrible thing for productivity.

     Productivity is related to more than salaries, of course. There are many factors and I won't even attempt to capture a majority of them within this blog. The takeaway is that productivity is a huge factor in profitability of a company and that concentrating on only one number independent of other factors is likely to be a very large mistake.

     Increased salary not only has an effect on productivity numbers but it also is a contribution to sales numbers. The more people who have money to spend on products, the more money enters the economic system so they can buy your products. Ignoring the distribution of people who have how much money -- the greater the number of people who can afford to purchase your product, the more you can sell. "Trickle up" is a real thing.

     Beyond that salary number, there are many other factors that involve treatment of employees, communities, and surrounding world. Some of those "soft" factors include equal treatment, positive purpose, comfortable work environment. good communication, and so forth.

     Profitable businesses recognize that racism, sexism, genderism, Xisms, and anti-Xisms all are counter-productive and hurt profitability. That can be shown easily within the spreadsheet based on productivity and sales. You don't want to turn away potential customers and, since creativity and abilities are well distributed within all of humanity, isms within the company will decrease the ability to produce and to compete.

     Closely related to "isms", harassment also decreases productivity and morale. Different from the "isms", harassment can, and does, occur within various groups and not "just" between groups. Positive treatment -- encouragement, acknowledgement, elimination of obstacles lead to improvement both within the individuals involved but also morale, productivity, and positive interactions with the customer base.

     The bottom line of this blog is that numbers within a spreadsheet are not independent. Doing the "right thing" can increase productivity, morale, positive interactions with the customer base -- which in turn leads to greater profits and dividends.