All the countries of the world are struggling due to Covid-19. The disease has exposed the weak points of nations. Super power and developed economies have failed to make basic things like masks and ventilators at scale. This has become a key discussion point. This inability has been attributed to the way companies operate. In the blog post, I am discussing this concept of profit, efficiency and sustained business.
Problem due to too much focus on Efficiency
The main goal of any business activity is to make profit. A loss making company cannot sustain for long. So all the companies try to maximise profit. Efficiency helps in maximising profit. An efficient company can produce more output even with less input. So all thrive for efficiency.
The following practices are commonly followed by companies to be efficient. Companies try to avoid ware house stocks. They decrease redundancy so that all the resources are with near 100% utilisation. They focus on few core competencies while outsourcing the rest to more efficient sources.
As a result of this approach, companies now don’t have the required assets to scale up and handle sudden spikes in demand. The companies are also dependent of a few sources for their input. So when pandemic affected the sources , the whole supply chain got broken. There is not much resiliency and redundancy. Previously also there are instances when a company has lost its competitive edge by outsourcing too much. But during Covid-19, people have felt the problem caused by efficiency seeking approach and discussed at here and here.
Solution
Businesses need profit to sustain. They cannot afford to be inefficient. At the same time, too much focus on efficiency can make the businesses fragile. It is now time we need to have a broader view for the goals of businesses. Are the companies existing only to make profit? Companies should focus on sustainability. But they need to take the risks into consideration. They need to focus on capability building. They need to focus on long term view and the impact of the company in the local community. Increasing profits at the cost of increased risk, reduced capability and negative impact on community is not the right way for a company to operate.