Corporate purpose matters – more so than ever.
There’s an increasing – and reasonable – expectation that corporate responsibility (CR), environment, social and governance (ESG) initiatives, employee wellbeing and community engagement projects feature high on the priority list of organisations of all sizes.
These different elements – along with other, similarly noble ambitions – need to coalesce around a central theme. In many cases, this is encapsulated in the organisation’s corporate purpose statement, which acts as a guiding star for the leader, C-suite and board, while also signalling the organisation’s virtuous intentions to external stakeholders.
However, writing for Strategy+Business, Sally Blount and Paul Leinwand observe that many leaders across a range of industries and markets find it difficult to communicate a meaningful purpose to employees – one that inspires them and demonstrates why their work matters. What’s more, too often, purpose statements fail in articulating outcomes that will enable success in the company’s market.
The problem starts at the creation process, the authors explain, with leaders dodging key questions such as:
- Does the purpose statement address a clear customer need or problem that needs solving?
- Is the company in a unique position to fulfil the promises contained in the statement?
- Is there a direct connection between the stated purpose and what the company does to earn revenue?
If these questions aren’t answered sufficiently, the purpose statement is liable to create confusion and distract employees and customers from the true core of the business. Then there’s a danger of strategic and operational drift that threatens motivation, cohesion and, ultimately, performance, warn Blount and Leinwand.
A motivated workforce and customer engagement is essential if companies are to succeed in their ESG missions, transformations and bold aspirations, and a clear purpose is a “critical source of energy”, insist the authors.
They offer five steps for leaders looking to harness the power of purpose:
1. Put strategy first, not communication
Strategy begins with purpose – and purpose belongs with strategy.
Crystallising the company’s purpose has the power to spark clear decisions, drive transformation and inspire products and services that employees can be proud of; however, delegating the creation of the purpose statement to public relations or human resources teams is unlikely to produce results that are fit for any of those purposes.
While those functions are likely to offer worthwhile perspectives, putting the task in their hands risks creating a “purpose gap” – the difference between what an organisation actually does and what merely sounds good. These departments often get wrapped up in the theme of “changing the world”, along with nebulous phrases like “community building”, “life enriching” and “pursuing passion”.
2. Remember the customer proposition
Many leaders list a range of ESG goals when talking about purpose, including investment in areas such as inclusion, equity and diversity, sustainability and employee wellbeing. However, Blount and Leinwand point out that there are few organisations that have found a “true intersection” joining these initiatives with customer impact and profitability; what’s more, the jury’s still out on the market longevity of those that have, they insist.
Too often, then, purpose statements tout ESG initiatives without the language being tied to what the organisation actually produces.
While it’s understandable that leaders are drawn to noble statements intended to generate goodwill towards the company, a for-profit organisation needs to articulate why customers are willing to invest their money. Before ESG-related initiatives are presented because it seems the right thing to do or it might attract employees, the customer value proposition needs to be expressed, answering the core question of, “Why do we exist?”
Leaders shouldn’t try to avoid the hard work of articulating how the company makes an impact. They should look for a meaningful link between their proposition to customers and investors and the greater good of society – and communicate it to employees. The authors offer the example of a CEO of a consumer air filter supplier who recently told them in simple terms that the company makes family homes healthier.
3. Build your purpose around your special power
Many organisations can struggle to identify a meaningful competitive advantage.
For example, as they scale up, companies can become less differentiated and end up providing products and services that could be procured from various competitors. This can mean leaders find it difficult to answer key questions such as, “What critical role do we fulfil for customers,” and, “What would happen if the company ceased to exist?”
However, Blount and Leinwand insist that almost all organisations have a unique capability – a “special power” – that is often unrecognised. Most companies have a high-performing group, brand or business unit and true differentiation often lies behind that success. Once this special power has been identified, leaders should look to articulate it and galvanise purpose around it.
4. Draw purposeful lines across units
Once the role the company can play in society and customers’ lives has been identified, leaders of multi-unit organisations might find that aspects of the portfolio don’t match up quite as well as others.
According to Blount and Leinwand, purpose doesn’t have to cover every part of an organisation’s revenue but it’s essential that employees’ day-to-day tasks don’t work against it.
Leaders should ensure that the purpose is crystal clear at business and market level for all lines. They need to collaborate with unit leaders to articulate how money is made by the unit and why it matters. Then they can assess and express how the organisation’s centre adds value across the various purposeful activities. This “role of HQ” might involve the deployment of scaling capabilities or providing talent and capital access.
So, business units need to develop meaningful purposes, related to their own strengths, independently, and the wider organisation needs to ensure its overall purpose makes sense to them and enables them to succeed.
Blount and Leinwand warn that this process will sometimes involve tough decisions leading to the selling or divestment of units if they’re deemed to serve their own purpose better on their own or as part of another organisation’s portfolio.
5. Have purposeful discussions in the boardroom
Boardroom conversations tend to focus on areas such as capital allocation, executive and shareholder compensation and margin improvement. However, Blount and Leinwand suggest that deep discussions about the company’s value to customers need to be added to the list.
There is a danger, though, that direction of ESG discussions can steer leaders off track. It’s only right that the boardroom should look into ESG efforts in the context of purpose, but too often the focus of the conversation shifts onto metrics, reporting and one-off investments that aren’t meaningfully linked to the organisation’s real purpose.
Leaders and boards shouldn’t be afraid to ask difficult questions about purpose, even if doing so feels cumbersome and time-consuming in the boardroom environment.
Blount and Leinwand conclude that the need for leaders to consider purpose is more acute in today’s challenging environment than ever. They need to shun platitudes and be bold and honest about how their organisation can shape the future for customers – and how employees can make the purpose a reality.