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Well-being as objective function for business?
Yannis Georgellis
Friday 7 November 2014, OECD Conference Centre
‘A business’s sole purpose is to generate profits for their
shareholders and companies that pursued other missions would be
less competitive, resulting in fewer benefits to owners, employees,
and society’
Milton Friedman, 1970, New York Times
Profit Maximisation
max PROFIT = (Total Revenue) – (Total Cost)
= (Price) x (Output) – (wL + rK)
Production function: Q = f (L, K)
Stakeholder Theory of the Firm
Firms aim at satisficing rather than maximizing their results.
i.e., some groups may settle for "good enough" achievements rather than striving for the best possible outcome
Stakeholder Theory of the Firm
How much profit are we ready to give up in order to keep stakeholders happy?
Profit
A
B
Business Models
A business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. The process of business model construction is part of business strategy.
The business model indicates how the firm
will convert inputs (capital, raw materials
and labour) into outputs (total value of
goods produced) and make a return that is
greater than the opportunity cost of capital
and delivers a return to its investors.
Business Models
Any resilient business model
must be able to create and
sustain returns for its investors
over time, otherwise, it is likely
to go out of business or fashion.
Employee Happiness and Well-being
as
Objective Function for Business?
Employee Happiness and Well-being
as
Objective Function for Business?
Employee happiness as a business model
Employee happiness
Motivation Productivity/
profit
Employee happiness as a business model
Company Valuation
Employees as a resource (inputs)
wage Hours of work
Effort
Incentives for performance (The standard economics paradigm)
Incentives for performance
Ranking of job characteristics, as revealed by subsequent quit behaviour (Clark, 2001- Labour Economics)
Most important Next most
important
Insignificant
Men Job Security Pay Everything Else
Hours
Women Initiative Hours Promotion
Work Itself Relations
30 or Under Initiative Job Security Everything Else
Hours
Over 30 Pay Hours Promotion
Work Itself Relations
Job Security Initiative
Are happy employees more productive employees?
Are happy employees more productive employees?
• Happy employees could turn complacent?...
• Correlation vs. Causality
Happiness Performance
• Measurement issues
