Profitability - a concept even the best business schools got wrong!

The pursuit of profitability leads companies down a catastrophic path of destruction. Management, egged on by high-priced management consultants, argues that the organization can cut its way to profitability through cost-slashing measures, price hikes, supplier squeezes, or downsizing.

But after a few short-term wins, these tactics inevitably backfire, leaving management baffled and wondering why their bottom line is now looking worse.

The truth is, profitability is grossly misunderstood, even in the halls of many management universities. They peddle the myth that profitability is the ultimate goal, the holy grail of business success. But the reality is that profitability is merely a byproduct of something far more fundamental.

Think about it. When was the last time you went back to a business that failed to deliver on its promises? When did you last recommend a company that left you feeling ripped off? The answer is probably never.

On the other hand, when you give customers ridiculously more value than they pay for, something amazing happens. They become loyal advocates, eager to spread the word about their positive experiences. They return again and again, and they’re willing to pay a premium for the privilege of doing business with you. And that’s when the profits start rolling in.

It’s time to flip the script on profitability. Understand the relationship between the cause (customer value) and the effect (profitability). Customer value is the substance, and profitability is merely the shadow. You can’t create a shadow without a substance — a principle that engineers grasp intuitively, yet remains elusive in the halls of many management universities.

Per Lindstedt

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