Despite their indispensable role in business, profits cannot be the be-all and end-all of business. The profit maximisation objective is undesirable on account of the following reasons:
1. Profit maximisation overstresses the end result and overlooks the means employed to achieve the profits. It considers profit as the ultimate goals of business rather than a means to the real end. The ultimate aim of business should be social welfare.
If profit maximisation is considered as the ultimate aim of business, businessmen might try to maximise profits by socially undesirable means such as profiteering, black-marketing, hoarding, exploitation of workers and consumers, etc.
2. Profit maximisation overstresses the reward for owners and ignores the interests of other stakeholders. Profit is the reward for capital and profit maximisation gives the impression that a business concern is the domain only of owners.
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In reality, no business can succeed without the fullest co-operation of labour, consumers, Government and the community at large. Profit maximisation objective overlooks the stake of these groups in business.
3. Profit maximisation misguides managers to the point where they may endanger the survival of the business. In order to maximise current profits, managers may undermine the firm’s future.
They may ignore research and development, executive development, pushing of the most easily saleable products, and other long-term investments. Such activities threaten the long-term success of the enterprise.
4. Profit maximisation has capitalistic overtones. The advocates of socialism decry the goal of profit maximisation on the ground that profit maximisation results in the exploitation of poor by the rich. It also accentuates inequalities in the distribution of income and wealth.
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5. Profit maximisation is inconsistent with the modern trends in business. Diffusion of share ownership, Professionalisation of management, growth of institutional shareholding and the emergency of a distinctive techno structure are some of these trends.
The main goal of the techno structure (control by managers and technologists), is survival and growth of business. Profit maximisation may endanger long term growth and, therefore, the techno structure prefers long-term growth. These professionals regard profit maximisation as unrealistic, inappropriate and even immoral.
A truly successful business can be built only if the objective of “service to the society” is constantly followed. If this is done profits will come automatically, but if the whole emphasis is on making money business may not survive and succeed for a long period.
The guiding principle of business should be profit through service. Every business should provide a proper balance between profit motive and social service.