The Single Measure of Merit: Profits and Grades

Be careful of the ‘single measure of merit.’  We have a tendency to seek simple criteria to judge whether something or someone is successful or not.  In business, it might be profit; in politics power; in school, grades and the GPA; in work, pay or promotion; in the military, killing the enemy; in sports winning.  Not that these are unimportant – but ‘success’ is more complicated than that, and other things may be more important.   Frequently these single measures are useful tools, but they can be deceptive – they are often means to other ends, which are usually more important.   If not pursued with wisdom, these intermediate goals – the means – can undermine the ends which they are meant to serve.

Now let’s talk about profits and grades.

In business, profits are clearly important, but they are not an unqualified good, and many argue that they are not the primary goal of business.  There are other criteria that must be considered in evaluating business success. Though profits are necessary, they are not a sufficient condition for judging business success. 

While businesses often measure their success at the end of the quarter in profits, students similarly often measure their success at the end of a semester by the grades assigned by their professors.  We know that the quarterly profit and the student’s grade tell us something, but they don’t tell us everything.  They may not even tell us the most important things.

Is the purpose of a business primarily to make a profit, and ideally, to make a very good profit? Or is it something else?  Are profits a means to another end?  Milton Friedman made the provocative statement that the purpose of a business is to make a profit.   Advocates of Corporate Social Responsibility (CSR) respond that the purpose of a business is to create goods and services in a way that serves the needs of society, and to be well rewarded for doing so.  They claim that profits are a by- product of and reward for doing something else well.   

Is the purpose of taking a class to get a passing grade, and ideally to get a very good grade? Or is it something else?  For some students, some classes are merely a hurdle to get over to get something else –   a mere means to another end.  Most of us believe however that taking a class should serve a broader purpose – to better understand the subject matter, how the subject matter relates to the student’s broader life goals and other areas of interest.   In that case, taking the class and getting a passing grade are a means to a broader end. 

I think you may see where I’m going with this.  If the student focuses on learning, works hard, and becomes engaged with the subject matter, ideally s/he will get a good grade as a matter of course. But if the student comes to better understand the subject matter, learns how the subject is important in a broader context, but doesn’t get the grade s/he wanted, the student can still view the class as a success in meeting that broader goal.  That said, a poor or failing grade, which does not allow the student to progress, can become a serious liability to continuing one’s education and learning.  Students cannot ignore grades and still serve their broader goals.

Likewise in business, by providing a great service or product to one’s community and customers, most companies will indeed be profitable as a matter of course. But even if fantastic profits don’t ensue, the business that is meeting its broader goals can still be considered successful, as long as it meets its financial commitments.  But as with learning, if the business doesn’t take care of the ‘business of business,’ it can lose money and ultimately fail, no matter how good its product/services and support to stakeholders.

In both business and school, there are certain practical functions that have to competently managed in order to achieve desired profits or decent grades. In business, these include marketing, accounting, legal compliance requirements, and building and sustaining positive relationships with employees, customers, and the supply chain.  In academics, these practical functions include reading and research, writing, critical and disciplined thinking, time management, etc. In both fields, performing these practical skills poorly will lead to failure, no matter how much passion, integrity, service, and long term focus one has.

In business and in school, there are people with natural aptitude and talent – for getting good grades in school or making money in business.  It comes relatively easy for them. There are business people who can make money without passion or a quality product or service, or strong business processes. Some people just know how to play the business game well to make money.  And in school, there are students who are intelligent and efficient and have a natural gift for figuring out how to meet professors’ expectations without seriously engaging with the material or even learning much.

 And, there are others in business who work hard, with great passion, and provide great products and service, but just can’t seem to make a strong profit.   Likewise, there are students who are positively transformed by the class and the subject matter, but somehow struggle to put things together with all the fundamentals necessary to play the grade game well and come up with an A, no matter how hard they seem to work.  It isn’t fair.  Life isn’t fair.  There are some for whom things come easy, and there are others who always seem to struggle to keep their heads above water.

Just think of athletics.

But then think of character.

Under stress, the business person for whom profits are everything, will be sorely tempted to fudge the books, lie or tell half truths to customers, or otherwise violate ‘the rules’ of the game to achieve their primary objective – profits and the trappings of success.  Those who keep a broader primary goal in mind will see violating the rules to maximize profits a violation of trust with their customers, employees, supply chain and others.

Likewise under stress, the student for whom the grade is all important, will be sorely tempted to plagiarize or otherwise violate the rules of academic integrity to get that A, and maintain a high GPA.  Those focused on learning will take their lumps with lower grades if they are struggling or under stress, but they will stay focused on the learning itself.

The ideal in business is that the business with the best product and services, the best support to customers and supply chain, and respect for environmental impact will also be the most profitable. We know that is not always the case. Sometimes it’s because of inadequate attention to the business processes necessary to maximize efficiency and profitability.  Sometimes the market is not ready for their product/service; sometimes competitors may just have greater talent for business.  And sometimes the playing field is not level. And some people get away with lying and cheating. Life isn’t fair.

The ideal in school is that the student who is most engaged, puts in the most work and learns the most, gets the best grades. We know that is frequently not the case. Sometimes it’s because of inadequate attention to the mechanics of research, writing, engagement with the professor’s objectives, or a disconnect between what the student wants to focus on and the professor’s approach. Sometimes other students are simply more talented and intelligent.

But in business and in school, the Quality End we seek is not measured primarily in profits or grades.  Both profits and grades are necessary, but as means to other ends.  If the businessman and the student stay focused on the right goals, while still giving adequate attention to the means, in the long run, success will usually come their way, even if there are some short term failures.

Let’s return to the ‘single measure of merit.’  The message is: Be careful not to confuse means and ends.   You’ve heard the old saying: Be careful of what you want, you just might get it.  Knowing the right thing to want is very important.  Aristotle once said that the clever person knows how to get what he wants. The Wise person knows the right things to want.

Ideally, we want to be both wise and clever.  Given a choice, I’d rather be wise.

One thought on “The Single Measure of Merit: Profits and Grades

  1. I am in full agreement with you that grades tell us little about the amount of learning that went on or level of understanding a student achieved. It merely measures the student’s ability to take tests well which may or may not be correlated with their understanding of the material. And, as you pointed out, certainly tells us nothing about the amount of effort the student put forth.

    In an ideal setting the instructor would be able to accurately gauge a student’s understanding of the material. In this idealized world grades would be a signal to potential employers of the prospective employee’s skill level. There is, however, no incentive which forces instructors to figure out how to do this.

    If employers were in charge of handing out grades you can be sure they would reflect a student’s value to their future employer. Employers have an incentive to cull the deadwood and skim the cream.

    Profits serve a similar purpose for society; they tell us how well a company is using resources—how skilled they are at meeting social needs. The better a company can meet social needs the higher their profits. If they’re inefficient they go out of business.

    This process does not always happen as quickly as we would like, but it is the basis for profit and generally speaking it works well. Cheating can work in the short term but generally does not work very long. Eventually people want to see results and those are difficult to fake.

    We’re a lot closer to the idealized world in business than in education. The proper incentives are already there. In education the end consumer is the employer but the employer doesn’t get to administer the exams. They have to rely on the instructors to watch out for their interests without incentives aside from a moral responsibility.

    In business on the other hand the end consumers are the customer and the investor and they do get to administer the exams. The customer ultimately gets to decide if the company is producing anything of value and gets to evaluate whether it is meeting all other expectations the customer has including proper treatment of workers and the environment.

    Investors get to decide if the company is doing so efficiently. If the company is providing valuable products or services more efficiently than other companies they make more profit. This one indicator, profit, contains all the expectations of the consumer.

    If companies disregard the ethical treatment of employees and the environment it is the responsibility of the consumer to asses a value for that. Companies are not in a position to decide how much society values employment practices and environmental concerns any more than the student is able to evaluate their own knowledge of a subject.

    Companies reflect the values of society. If society really valued environmentally sensitive companies that’s what we would have. If a company’s actions don’t reflect what any particular person thinks it should, it’s more likely that person is out of touch with social demands than that the company is.

    The company has an incentive to figure out what is being demanded, the individual doesn’t. I can make a case for why every company should be paperless. I can talk about the environmental impact of using so much paper. But ultimately, if society writ large does not feel the same way, my protests will amount to nothing.

    A person today who thinks businesses aren’t paying attention to the right things has two options; take it to the government (the concentrated voice of the people) or take it to the streets and see if they can inspire a movement.

    The absolutely futile thing to do is go to companies and tell them they should care more about the environment. That’s like telling a student to hold themselves to a higher grading standard. The incentives are all wrong.

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