It seems like almost every organisation is thinking about its purpose statement. This comes at the same time as trust in business and institutions is hitting new lows. While for many, the impetus to redefine purpose is a response to public opinion, there is a longer-term trend which I think will be positive for both business and society.
Purpose statements come in many forms. Some are focused on the core business (for example, “to create a brilliant connected future for everyone” for a telco) while others pick up more lofty goals (like “to help shape a world where people and communities thrive” for a bank). Either way, this comes at a time when business is trying to be clearer about what they stand for.
These aren’t empty gestures with many businesses taking-on some challenging and progressive goals, on social justice, the environment and gender equality. While some authors, such as Colin Mayer in Prosperity (Oxford University Press 2018), argue that capitalism is fundamentally broken, I think what we are seeing is the evolution of business to create a more sophisticated approach to sustainable business models and profits.
In most jurisdictions, directors have a duty to act in the best interests of their company’s shareholders, typically to provide growth and a financial return. The challenge for directors, as stewards of their company, is to justify an organisational purpose that goes beyond the core profit-earning activities of the business. We see this in the political debate when businesses find their voice on more controversial issues such as marriage equality, gender parity or the environment.
The solution is to link organisational purpose, particularly higher purpose, with a sustainable business model. Except in very rare circumstances, organisations plan to manage risk to provide a return and sustain an ongoing business. Two things are critical to maintain a position in any market, permission to operate and the support of customers.
Permission comes in many forms. At the very least it is a government registration, for regulated entities it includes other forms of licensing. But for every organisation, there is also a social license, an implicit agreement between the community and the organisation that allows them to transact. Purpose talks directly to this relationship.
Measuring social license is difficult, but necessary if it is to be actively managed through tools like an explicit purpose. Media, particularly social media, political discourse and other activity can be analysed and represented as a scorecard. But simply being popular, or at least acceptable, in the community isn’t enough to evidence the social license, customers have to demonstrate their continued willingness to buy.
We’ve all seen businesses with great ethical objectives who have lost out through competitive pressures. While customers say they want to support the higher purpose, they often end-up choosing on price or convenience.
What does, make a huge difference, though is the staff that they deal with. Employees who are engaged are likely to provide better customer service and align to the strategic priorities of the organisation. Numerous studies have shown how important fulfilment at work and in life are to good phycological health and satisfaction. These staff do their jobs with enthusiasm even if their individual tasks are less than exciting.
Employees who only see their employment as a means to an income are unlikely to display an engaging passion for their customers. Those, on the other hand, who can see how their business contributes to the betterment of society as a whole are much more likely to care deeply about their role supporting the needs of their customer.
The link between purpose and profit is then easy to see. A purposeful organisation is more likely to engage its people who, in turn, are more likely to look after their customers which is where profits come from. There are, however, a number of points where this can go wrong.
Having a meaningful purpose is important for people to find meaning, but it has to be authentic and people have to believe in their leaders. Engaged staff are necessary but not sufficient to ensure good customer service, all the other elements of great training and a customer-centric environment are also equally important. Finally, customer loyalty is important but it needs to be the loyalty of the right, profitable, customers.
Each of these criteria are also able to be measured. Staff engagement through purpose can be tested with deliberate questions and customer loyalty can be monitored against the profitability of the products or services that they consume.
Doing the right thing is not only good for society, it is good for business. We shouldn’t, however, be guessing, we need the data.
Information-Driven Business 