Profit in for-profit organisations

u4s2p12 Issues:-

1. profit as a source of purpose in for-profit organisations
   
   • assumes key influence over strategy is from shareholder(s)
   • objectives of all other stakeholders take second place (org does not accept a role in delivery of benefit to wider stakeholders)
     HOWEVER, for all for-profit orgs, profitability is crucial
2. measuring profit
   What measures should be used? Profit? Income? Value added? NPV?
   
   • Economic Profit - over a particular time period, short run or long run. Can be
     
     • Normal Profits - economic profit of a normally efficient organisation in a "perfect" market
     • Abnormal Profits - profits in excess of normal earned by an org exploiting its competitive advantage
   • Accounting Profit (net profit after interest and tax, or before tax, or operating profit - net before interest and tax) 
   • ROCE, ROSE
   • Residual Income
   • Economic Value Added
   • Net Present Value
3. the importance of risk
   Shareholders are the principle providers of funds and so have a special moral status which means they are due rewards for the risk they incur through their investment
4. the significance/demands of survival
   Recognising that many firms have a day to day struggle to survive, and the "perfect" market does not exist, so turbulence and strong competitive activity can affect establishment of purpose. In a very hostile environment it may be that "survival is the only sensible purpose (Lynch 2003).
5. a stakeholder perspective
   This assumes that Grant's assessment of the potential outcomes of the shareholder approach is invalid, and that net negative externalities are developing because of the shareholder approach. But a stakeholder perspective is more complex than a shareholder-only one. The stakeholder perspective requires that interests of all stakeholders are considered during the strategy process.
   
   • Resource Dependence theory - this is a theory that only stakeholders who contribute significant resource to the firm should be considered, rather than all.
   • The role of government - a stakeholder perspective recognises that governments may intervene in the organisation whereas a shareholder perspective prefers a limited role for government