Monday, March 1, 2010

Profit and Value

Dear Colleagues

Profit is paramount in modern decision making ... and has been for several decades. As a result society has been short changed. There are no metrics for value in the ubiquitous socio-economic metrics that are beamed around the world 24/7 by Bloomberg News and the like.

Value is given short shrift by most pro-profit decision makers ... "It is too subjective" ... "It is impossible to quantify".

Maybe value is subjective and maybe it is difficult to quantify ... but value is important. In fact value is central to the whole notion of quality of life and the pursuit of happiness.

I would remind died in the wool Americans that profit is not mentioned in the founding documents, but pursuit of happiness is!

Value is an important concept ... really it is more important than profit. Money determines profit, something in addition to money determines value. It is a bit like the difference between a house and a home. You can buy a house with money. A home takes more than money ... it takes money and family and friends and memories and dreams.

Or perhaps the idea of a House of Worship ... and a Church Home. One is just a building ... while the other has a lot of other attributes.

So Community Analytics (CA) is not only about the money and the profit of an organization ... CA is all about the community and how value is behaving. With good decision making, a community can improve its quality of life ... improve its value. Progress is about the community improving its quality of life. Performance is how efficiently the community uses resources to achieve this improvement.

Profit is not bad and value good. The best outcome is when there is profit to reward investors and value adding so that the community has progress. There is a bad outcome when profit is created simply be destroying value in the community and reducing quality of life. This can be difficult to compute ... but that does not make it unimportant.

The profits of the banking and finance sector over the past two decades have been created on top of the wealth of modern industrialized societies. This wealth from the efforts of past generations has been mined and destroyed and recorded as profits for the financial services industry ... and when that was gone the same basic business model has been used to remove wealth from future generations. This is an obscene way of running a society ... but is the natural outcome of a system of metrics that is all about profit and nothing about value.

Shame of those responsible for all of this!

Peter Burgess

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