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The Economic Rationale of Strategy Development: Profit

In: Future Viability, Business Models, and Values

Author

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  • Friedrich Glauner

    (Cultural Images Values Management
    Eberhard Karls Universität Tübingen)

Abstract

Economic theory tells us that the rationale of profit governs the development of strategies. According to this rationale, generating income is the first and foremost purpose of any enterprise. A healthy income stops a company from being pushed out of the market, e.g. by insolvency. And income satisfies the demands of the company’s shareholders. Income represents the interest on the capital brought in by the company’s owners and investors, and it helps ensure that they will keep financing the business and not cut their ties because of poor returns. With this fixation with revenue, increasing shareholder value has become the primary goal of strategic decisions (Rappaport 1986, and more recently Goedhart et al. 2015). This affects our notion of strategies in general and the specific strategic portfolios used by companies in the real world.

Suggested Citation

  • Friedrich Glauner, 2016. "The Economic Rationale of Strategy Development: Profit," CSR, Sustainability, Ethics & Governance, in: Future Viability, Business Models, and Values, chapter 3, pages 23-33, Springer.
    • Handle: RePEc:spr:csrchp:978-3-319-34030-2_3
    DOI: 10.1007/978-3-319-34030-2_3
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