The meaning of it all

March 18, 2008
What is the purpose of a business? That is, why does a company or an organization exist? Is it to make things, like castings, or is it to make money? There is a lot of sympathy for a rather contrary idea, that the purpose of a business to fill ...

What is the purpose of a business? That is, why does a company or an organization exist? Is it to make things, like castings, or is it to make money? There is a lot of sympathy for a rather contrary idea, that the purpose of a business to fill a social need. Some organizations seem to suggest this when they promote their philanthropic or environmental deeds. Then, there are a surprising number of people who would say, or at least agree, that the purpose of a business is to employ people.

All of these things might be true, depending on the business in question, but it’s more accurate to conclude that very few people ever ask the question. Yet, for every business there are numerous “stakeholders,” people who for various reasons rely on it’s continuation. We may not think much about this, but all the major technological, political, financial, and global issues of our time give us cause to think seriously about this question.

For example, the United Autoworkers union has been on strike versus American Axle & Manufacturing since late February, taking 3,650 workers at five plants out of action. That’s not the full extent impact, though, because less than three weeks later almost 30 General Motors plants have been partially or entirely idled — including the GM Powertrain metalcasting operations — because the supply of critical components for light trucks and SUVs has been cut. If the strike continues, some Chrysler plants may also begin to feel the effects.

American Axle designs and manufactures forged axles and other driveline, drivetrain and chassis system components. Its five main plants are former GM operations, spun off more than a decade ago. The company prospered under independent ownership, but changes in the auto industry seem to have caught up to American Axle: it maintains that its total cost per union worker is $73.48/hour, and that two years of discussions with the UAW have failed to address labor costs effectively.

“All of the changes we have proposed have been accepted by the UAW in agreements with our competitors in the United States,” states chairman and CEO Richard E. Dauch. “I have no idea why AAM is being singled out for a different set of economic conditions. We look forward to continued negotiations with the UAW to resolve these most pressing labor and economic matters.”

American Axle and the UAW have different understandings of the purpose of this business. The company wants to continue the progress it has made in establishing a successful, global Tier 1 organization; and the union wants to preserve the livelihoods of its members, and a foothold for itself in the automotive supply chain.

In time, we may see that these two purposes cannot coexist. The company does not employ so many union workers that the UAW can negotiate dollars for positions. Nor can the union overlook the fact that much of that hourly employment cost is tied up in benefits; bargaining about wages isn’t going to make much difference to the outcome, but those benefits are vital to the workers’ welfare.

Less than a year ago, the UAW found enough common ground with the GM, Chrysler, and Ford to agree on new labor contracts. Now, those same contracts, and others, have lowered the overall labor cost, making American Axle uncompetitive.

Furthermore, American Axle is demonstrating that it can manufacture its products overseas, successfully, raising the possibility that high-cost domestic operations may not be essential to its purpose.

This isn’t a problem for American Axle only, or the union, as we see in the spreading shutdown of the GM plants. If it continues, more operations will be affected, including other GM suppliers. What’s at stake is a swathe of the automotive supply chain, and all because of a fundamental disagreement over the purpose of one company.

What is the purpose of a business? The answer is not so easy to determine. For successful businesses, the answer may be complicated by the opportunities and obligations that develop in the course of their success. For unsuccessful companies, the answer may be more difficult to determine, or it may be determined already.

About the Author

Robert Brooks | Content Director

Robert Brooks has been a business-to-business reporter, writer, editor, and columnist for more than 20 years, specializing in the primary metal and basic manufacturing industries. His work has covered a wide range of topics, including process technology, resource development, material selection, product design, workforce development, and industrial market strategies, among others. Currently, he specializes in subjects related to metal component and product design, development, and manufacturing — including castings, forgings, machined parts, and fabrications.

Brooks is a graduate of Kenyon College (B.A. English, Political Science) and Emory University (M.A. English.)