4 minute read

Why Purpose in Business Is Not About Doing the Right Thing

Business Strategies    4 minute read

Why Purpose in Business Is Not About Doing the Right Thing

At a recent event on the concepts of corporate purpose and social responsibility, senior leaders of several large businesses were asked whether their organisations had a clear and inspiring purpose. All responded in the affirmative. And then several talked at length about their support for their local hospice or other charitable endeavours.

Laudable though philanthropy is, it really shouldn’t be confused with purpose. Whilst corporate social responsibility (CSR) might be a good thing and might make the business feel good about itself – and there’s nothing wrong with that – purpose is a far more strategic and commercially powerful idea.

Sustainable Value

It’s is not about doing the right thing. It’s about building sustainable business value. Done properly, purpose drives sustained commercial performance.

To quote Stephen Howard, Chief Executive of the UK’s Business in the Community: “There is a fundamental difference between … good deeds acting as costly window dressing to spruce up the appearance of a business – and responsible business which is integrated into the fabric of how a business operates, and how its people behave, at all levels.”

Purpose is not therefore about doing good things in the world. It is about a fundamental understanding of why one’s business exists and what it seeks to create in the world. It acts as a ‘North Star’ guiding all commercial strategy and behaviours. And that can have significant commercial impact on the business.

Strategy with Heart

Whilst CSR is about how a company spends its money (responsibly), corporate purpose is about how the business makes its money. It is not about donating to good causes, it is about the fundamental beliefs and behaviours that drive the business. It is not peripheral to but at the very heart of strategy.

Too often in the debate about purpose there is still a focus entirely on staff or customer engagement. That rather misses the point. It makes purpose look like a rehash of an old social responsibility idea. Lord Browne said “CSR is dead” for a reason. And it hasn’t risen again rebranded as corporate purpose.

Yes, like CSR but better, purpose does engage staff and drive talent attraction and retention. 62% of millennials want to work for an organisation that benefits society, and 50% would sacrifice salary for meaningful work, according to Global Tolerance. Staff in purpose-led companies are 40% more engaged, 70% more satisfied and 300% more likely to stay, according to The Energy Project. And, of course, that is a fundamental benefit to the business.

Yes, like CSR but better, purpose influences customer – or at least some customer – behaviour. According to Paul Polman, purpose-driven brands (at Unilever) accounted for half the company’s growth in 2014 and grew at twice the rate of the rest of the business. And customer loyalty too is a fundamental benefit to the business

Far More than CSR

But there is something about purpose that is far more profound and transformational than CSR could ever be.

The real power of corporate purpose is not just that it engages staff or customers, but that it is a single idea that drives everything in the business; and that creates an exceptional degree of strategic clarity and management agility. Purpose has the power to channel and direct all the energy in the business in a single direction, creating the innovation and velocity needed to thrive in an ambiguous and volatile world.

Yet, this is not such a new idea. Research in 2006 by Erik Berggren and Jac Fitz-enz showed that top performing businesses are 20 times more likely to have every manager’s goals aligned to the company strategy. Purpose, when integrated to strategy, simply serves as a powerful and motivating way of creating this alignment.

That may be why purpose-led businesses have a markedly higher asset value than their traditional profit-led peers. In research by Havas, purpose-led companies outperformed a stock-market benchmark by 120%. Burson-Marstellar and IMD came to almost the exact same conclusion in their lengthy study of return on investment over a five year period, concluding that “a strong and well communicated corporate purpose can impact financial performance by up to 17%”.

Yet it is what this research goes on to say that is truly interesting: “the 17% financial benefit can only be reaped if the company integrated purpose with the broader corporate strategy”.

The implications of this are quite profound. Whilst ‘doing the right thing’ as an organisation can have marginal benefits, pursuing purpose as a core driver of strategy can transform a business’s performance and even its shareholder value.

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