The best way for a business to maximize profits is not to seek to maximize profits.
By ANDREW STARK
If to the hammer everything is a nail, then to the management guru flourishing an insight, everything is a case study. John Kay, the former director of Oxford's Business School, has an insight—a promising insight, as it happens. Often, Mr. Kay says in "Obliquity," we can attain a desired goal only by pursuing it indirectly. He ranges widely, though not indirectly, in support of his claim. (more after the break)
Mr. Kay cites the case of Gen. James Wolfe, who in 1759 assaulted Quebec by an indirect route, surprising the French garrison. He cites the National Park Service, which hit upon the idea of preventing big forest fires by allowing smaller ones to burn and thus consume the underbrush that might fuel a conflagration. He cites Jane Jacobs, who taught us that the best neighborhoods evolve indirectly, without any conscious design by planners. And then there is Louis Pasteur, whose "aha!" moment came when he contemplated the unexpected results of an experiment. His epiphany was indirect because he wasn't heading in its direction when he had it.
Applying his insight to business, Mr. Kay notes that when Merck was governed by the "oblique philosophy" of George Merck, who focused on manufacturing "medicine for the people . . . not for profits," it was comfortably profitable. When it assumed a "more direct approach" under CEO Ray Gilmartin, who pledged that Merck would be "totally focused on growth," it ran into the financial difficulties provoked by Vioxx. Similarly, when Boeing's stated purpose shifted from surmounting "technological challenges" to an explicit focus on "shareholder value," its stock price floundered. One of the reasons Jack Welch did so well for General Electric's shareholders, Mr. Kay says, is that he worried about workers and customers while regarding shareholder value as "the dumbest idea in the world."
Mr. Kay, summing up his disparate cases, declares that "goals are often vague, interactions unpredictable, complexity extensive, [and] the environment uncertain." True enough, though most managers probably already know these key facts of life. They are the conventional wisdom. Still, Mr. Kay begins with a provocative, profound and counterintuitive insight: When it comes to major goals, whether in life or in business, one can pursue them best by deliberately not pursuing them.
Happiness is one of those goals. Mr. Kay quotes John Stuart Mill, who framed what has come to be known as the happiness paradox: "Those only are happy . . . who have their minds fixed on some object other than their own happiness." Or, as Hawthorne said: "Happiness is a butterfly, which when pursued, is always just beyond your grasp, but which, if you will sit down quietly, may alight upon you." Why should this be so? Mr. Kay doesn't really say, but one answer is to be found in the work of the philosopher Arthur Schopenhauer. If you consider what's involved in the direct pursuit of happiness, Schopenhauer said, you will quickly become miserable. Think of anything that might make you happy—say, winning that boy or girl or beachfront property of your dreams. As you pursue your quest, you experience the frustration of unfulfilled desire and the anxiety of not knowing whether you will succeed. Then, assuming you do succeed, you immediately begin to tire of your object of happiness: After all, you wanted it in the first place because you did not have it; now that you have it, you no longer want it.
Given that the direct, conscious pursuit of happiness is such an ordeal, it follows that happiness can be attained only if we focus on activities we deem valuable for their own sake. Engrossed in other pursuits, we may then feel happiness "alight" upon us.
Mr. Kay's innovation is to pair this age-old paradox with a newer one, which he calls the "profit-seeking paradox" and sees in cases like Merck and GE. The idea here is that the best way for a business to maximize profits is not to seek to maximize profits. Mr. Kay's argument, which owes much to the economist Robert Frank, goes as follows. Consumers will purchase from your business, or employees will go the extra mile to contribute to your success, only if they believe that you care about their interests. The best way to establish that you care is to show that you can place their interests ahead of your own. In a recession, for instance, you take the hit and avoid layoffs. Then your workers will go to bat for you, giving you a 110% effort.
But, as Mr. Kay notes, something more is required. Even if you know that keeping workers on the payroll will elicit their over-the-top effort, the hope of gaining their over-the-top effort cannot be your motive for keeping them on the payroll. If your employees think that you care not about them but rather about the 110%, they won't oblige you by working harder. Paradoxically, then, to gain the 110% you must demonstrably not care about it.
Mr. Kay could have pursued his juxtaposition of the paradoxes of happiness and profit a bit further, for they show a revealing difference. In the happiness paradox, our not having something leads us to desire it and our having it then destroys that desire. In the profit paradox, our desiring something—say, the highest possible share price—is what gives meaning to our willingness to let it go; our relinquishing of that desire then allows us to get what we had wanted to begin with. The profit paradox embodies the soul-building wisdom of Zen-style spirituality, while the happiness paradox is just another way of describing the everyday folly of the rat race. Ultimately, it is the practices of business, as Mr. Kay describes them in "Obliquity," that contain profound lessons for life, not the other way around.
Mr. Stark is a professor of strategic management at the University of Toronto.
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