Profit maximization aims to achieve immediate financial gains by reducing costs and increasing revenues. This short-term focus involves aggressive cost-cutting and sales strategies. For example, Amazon initially pursued profit maximization by optimizing operations and rapidly expanding its product range. Although this approach increased short-term profits, it often led to criticisms regarding labor conditions and environmental impacts.
In contrast, wealth maximization aims to increase the overall value of the business over the long term, considering the interests of all stakeholders. This strategy involves investing in innovation, sustainability, and infrastructure, which may not yield immediate profits but may lead to substantial returns over time. For instance, Amazon has invested in renewable energy projects and sustainable packaging to reduce environmental impact and improve social well-being. By focusing on long-term growth and sustainable practices, Amazon seeks to create enduring value for all stakeholders including shareholders.
Profit maximization is primarily managed by operational managers and executives who oversee day-to-day activities and ensure short-term financial targets are met. Wealth maximization is overseen by the board of directors and senior executives, including the CEO and CFO, who formulate long-term strategies and invest in sustainable practices to ensure the company's growth and sustainability.
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