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What are some disadvantages of profit maximization?

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Quick Answer

Some of the disadvantages that can result from a company becoming overly focused on profit maximization are the ignoring of risk factors, a lessening or loss of transparency and the compromising of ethics and good business practices. Some profit maximization strategies may produce short-term results that ignore potentially costly situations developing in the long run. Poorly planned short-term profit maximization can also lead to a negative public perception that can significantly affect future sales.

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Full Answer

Profit maximization is an obvious goal of management, but it does not necessarily imply that short-term profit increases will produce long-term sustainable gains. For example, a reduction in product quality that lowers production costs will produce a quick increase in profit, but lowered quality standards can also tarnish a company's reputation and provide the competition with an advantage.

Lowering or eliminating a company's employee training or research and development budget will lessen operating expenses and also maximize short-term profits. However, the competition may not follow suit and instead produce a much better product or service. The long-term result could be a significant loss of market share for the company that decided to lower its budget to pursue a short-term profit gain.

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