Economics is not all about the money, and business is about more than business. We economists recognize that wealth is not an end unto itself, but a means to an end. Similarly business is simply a way to do things that satisfy people. Company leaders benefit from recognizing non-monetary goals when they interact with employees, customers and suppliers.
Before Adam Smith wrote the Wealth of Nations (1776), intellectual leaders believed that a great nation accumulated gold. But Spain had used its colonies in the Americas to bring home a huge volume of gold, and the result was more inflation than prosperity.
Smith recognized that people want to consume more than accumulate. And he knew that people wanted love and friendship. He would probably have cited Maslow’s hierarchy of needs if only it were available to him. This is not economics gone soft. It is hard-core economics applied to real people with real hopes and fears and feelings.
The practical implications begin with employees. Yes, they work for the boss to earn a paycheck. But they also want dignity. That includes being recognized for good work, being treated respectfully and having an opportunity to advance.
The common executive approach treats employee retention as a problem for the human resources department to solve with good pay and benefits. But the best benefit that a company can provide to an employee is a good boss. The good boss treats all with dignity and respect, and also understands each employee’s hopes and fears, helping the person to achieve those hopes while keeping the fears at bay. Bringing out the best in people does not come from bosses who are soft on slackers, nor from bosses who berate people struggling in a job. Good bosses are firm and fair.
Executive leadership must hold first-level managers accountable for their employee retention, but also must provide those managers with the training and tools to be great bosses.
Customers, like employees, also have concerns beyond price. In fact, they never choose to buy goods or services in order to keep their money; they choose to exchange their money for something of greater value. Yes, they want low price, but more importantly they want high value.
Most customers start out reasonable, but some are pushed into madness by insane business processes they must navigate. Along the way customers may lose their sense of dignity, of being respected and valued and treated fairly. Keeping business costs down is good for keeping prices down. Sam Walton described Walmart’s mission as, “We save people money so that they can live better.” And his company needed to keep costs down to achieve that mission. And Walmart has treated me as a customer much more respectfully than many other businesses that don’t claim to save me money.
Part of a feeling of dignity is agency, the idea that a person controls his or her own destiny. Being able to make a choice is a big part of that agency. Having to buy the fries along with the burger would deprive a customer of the dignity of choice. It is often a good business strategy to bundle different products together, but the downside is that customers may feel worse about their lack of decision-making authority—even if they eventually buy the bundle.
Customers also want a sense of fairness. Anyone who has raised two or more children know that the greatest source of anger for a child is seeing a sibling get a bigger slice of cake. Your product may be a great bargain at $10, but a customer who sees someone else get the product for $9 will be unhappy. A company can argue that paying $10 is still a good value, but the unfairness is a separate issue. A label for the discount goes a long way to ease the sense of unfairness, so call it a senior citizen discount, an early bird special, a loyal customer promotion—even a lame description eases the discomfort.
Suppliers also want more than money in exchange for the goods and services they provide to your business. The people who work for the supplier are human beings who want dignity and respect. Sometimes they will give up their dignity to get the sale, but they feel the loss. And they remember the loss when they have to choose which customer gets priority if there are not enough products to serve everyone, or who gets rush delivery or extra service.
Economic transactions are not just about money. Both sides are trading one package for another. The buyer offers a package of money plus respect, and the seller offers a valuable good or service plus respect. Respect, here, is a catchall for the way people want to be treated.
Every company must make the dollars and cents work out right, but focusing on money while ignoring human feelings will worsen the financial statement.