In response to the tumultuous events since March 2020—the pandemic, heightened awareness of racial inequities, the rise of stakeholder capitalism—companies have taken on a greater role in addressing broader societal challenges and are touting their purpose statements. The big challenge: how to ensure those statements are meaningful and relevant?
What is the Purpose of ‘Purpose’?
by Denise Lee Yohn
Purpose, it seems, is the new black. Every corporation seems to be talking about purpose. But purpose statements aren’t supposed to be fashionable—they should be powerful. Your purpose should drive your business. It should guide strategic decision-making; shape your organizational culture; undergird relationships with customers, employees, investors and other stakeholders.
Most company purpose statements don’t. According to research by The Harris Poll, only 24 percent of B2B business leaders said their purpose is embedded in their business. How can you help your organization transform its purpose from incidental to instrumental? Consider three questions:
- What kind of purpose do we need?
- Who are our most important purpose stakeholders?
- How will we measure the impact of our purpose?
The Purpose of Your Purpose
Many companies fail to make the most of the opportunity that a purpose statement represents because they are unclear about what their purpose is for—or what it should be for—in the first place.
You might think you need an idealistic purpose that aims for some social good because that kind of purpose tends to get the most attention these days. When you hear the purpose of Starbucks is “To inspire and nurture the human spirit,” or Unilever’s is “To make sustainable living commonplace,” you might feel like you need a similar cause-based purpose.
But the authors of a recent Harvard Business Review article observed that there are other types of purpose statements to consider. Your purpose can also convey your competence—the function that your business serves. Walmart’s statement, “To save people money so they can live better,” speaks to its competence in providing products at a great value. Your purpose can also indicate your culture—the intent with which you operate your organization. Charles Schwab uses this kind of purpose when it says its aim is “to champion every client’s goal with passion and integrity.”
If you only want to use your purpose as a cause but the function and culture of your organization isn’t aligned with such a lofty notion, chances are the statement will remain simply a rallying cry or inspirational message instead of the driver of your company. Instead, you should consider what kind of purpose would be pragmatic and authentic to your organization. Calibrate the level of ambition behind your purpose with your company’s intent and capability to execute on it.
A purpose statement that is based on your organization’s competence or culture doesn’t have to be any less inspiring or differentiating. The competence-based purpose of Nike, “To bring inspiration and innovation to every athlete in the world,” has fueled that company’s success for more than 50 years.
Who Should Be Engaged?
Over half (56 percent) of B2B business leaders in the Harris Poll study said that purpose feels like a PR exercise instead of a business strategy. Purpose statements often end up serving only as public relations tools because they’re directed at the wrong audience.
The primary stakeholders of your purpose are your employees, core customers and board of directors. Focus on these groups as you develop and share it to maximize its impact.
Employees. Your purpose should help attract prospective employees and help with retention by motivating and aligning current employees. People want to know that the work they do matters. So make sure that your purpose explains the valuable impact of employees’ day-to-day work. The connection doesn’t need to be direct, but it should be clear.
Customers. Your purpose should also resonate with your core customers. It should reflect a deep understanding of your customers’ needs, desires and expectations of your business.
A good way to ensure that customers buy into your purpose is to make them its focus, clearly putting them at the forefront of your statement and referencing how the organization benefits them. “Raising the world’s expectations for how much good food can do” (Tyson Foods’ purpose) seems less about the value the company creates for customers than “Nourishing families so they can flourish and thrive” (the purpose statement at Kellogg’s).
A customer-relevant purpose may seem obvious but in an analysis of nearly 2,000 CEOs’ descriptions of their organization’s purpose, more than half of respondents failed to mention who the company was meant to serve or help. It’s not surprising, therefore, that many purpose statements seem nice-to-have vs. necessary.
Board of directors. Finally, engaging your board of directors with your purpose is instrumental in its impact. But according to an analysis published in the Harvard Law School Forum on Corporate Governance, the vast majority of signatures of CEOs on the Business Roundtable statement were not approved by the companies’ board of directors. The researchers conclude, “The most plausible explanation for the lack of board approval is that…CEOs didn’t regard the statement as a commitment to make a major change in how their companies treat stakeholders. In the absence of a major change, they thought that there was no need for a formal board approval” (emphasis added).
But corporate boards are now being asked explicitly by powerful asset managers to enforce accountability on issues such as purpose, so board members must vet their company’s purpose statement and be able to use it as a measure of non-financial performance.
How Do You Measure Success?
This raises the last consideration for your purpose: How you will know if your organization is successful in fulfilling its purpose?
Your purpose should factor into decisions across a full range of company activity, including strategic (product/service portfolio, asset utilization, capital allocation), operational (processes, supply chain, distribution, customer experience), and organizational (organizational design, talent acquisition and retention, culture and employee experience, performance management).
You should implement performance indicators and reporting systems that measure the impact of your purpose in these different areas. You might not be able to quantify changes in all these variables, so prioritize those that are most relevant and concrete. The link between your purpose and a KPI may not be explicit, and the KPI might not capture the full impact of your purpose, but the metric should provide some evidence that you are moving in the right direction.
For example, a company with a purpose that centers on creating world-changing technologies might track the percent of investments it makes in R&D. If your purpose focuses on increasing access to resources, a key measurement of success might be your market penetration in underserved regions. Or you could start measuring a purpose of empowering people to do more by surveying your employees about whether they feel empowered and productive.
By identifying the measures of success, you can uncover disconnects between your purpose and primary business goals. If they’re out of sync, it’s likely your purpose will be overshadowed. What’s more, the process of identifying success metrics for your purpose can facilitate alignment among company leaders about expectations for how your purpose will be operationalized and the trade-offs that will need to be made to pursue it.
The way most companies develop a purpose seems to emphasize vision and virtue. But the process should involve less imagination and more interrogation. Examine the why, who and how of your purpose to ensure it has power.
The Purpose Paradox
by Douglas A. Lepisto, Christopher Michaelson, Michael G. Pratt and Luke N. Hedden
Purpose is an organization’s answer to the question, “Why do we exist?” For businesses, that answer can be about the products and services a company sells and
the money it earns from them. However, purpose today implies connecting what you do to some higher purpose that goes beyond profits. Far from being a luxury, articulating an organizational statement of purpose has now become virtually mandatory.
Given the pressures to adopt a higher purpose, and the potential benefits of doing so, it seems like a no-brainer that organizations should get on the purpose bandwagon. Recent studies by all the Big Four professional services firms link an organization’s purpose to organizational success, including financial performance, confidence, innovation, employee engagement and more.
However, herein lies the rub: if organizations are viewed as adopting a higher purpose simply to go along with
current trends, they are not likely to reap its benefits. This is what we call “The Purpose Paradox”—that purpose only has instrumental value when it is done for its intrinsic value. Navigating this paradox is central to capturing the benefits of organizational purpose.
Expectations for a higher purpose are embedded in at least two macro-trends. Over the last few decades, cultural attitudes toward business have shifted from a focus on share value to shared value. Increasing shareholder value is considered an important outcome of business success but not the ultimate purpose that makes business worthwhile. The number of mentions by companies of a “higher purpose” and their goal of “changing the world” have leaped significantly in recent years as part of a growing corporate purpose movement. Within companies, employees are also demanding a change. More workers would accept a diminished role or pay for something more meaningful.
What Is at the Heart of the Purpose Paradox?
A statement of purpose can instill internal stakeholders with a sense that their work is meaningful and worthwhile, and it can justify to external stakeholders why the organization’s work is worth doing. Whether businesses can achieve both those benefits at the same time depends largely on what appears to be motivating the adoption of their purpose statement.
Management research widely suggests that company strategies and services must align with cultural expectations in order for the company to seem legitimate and garner support. Following the trend, however, also poses challenges. A downside to managing purpose for external stakeholders is that it can breed stakeholder cynicism and employee disillusionment for doing the right thing for the wrong reasons, also known as “purpose washing.” Research suggests that companies’ stock prices are punished when they are perceived as being opportunistic and not committed to their claims. That is why some caution that purpose done only to please stakeholders and improve profits from the “outside in” will often backfire.
In order for purpose to be effective, it should be viewed as authentic and voluntary—motivated from the inside. When purpose is authentically motivated from the “inside-out,” it inspires accountability from its shareholders and is viewed as essential and genuine, rather than an add-on.
The need to conform to outsiders’ demands and the need to be authentic from within are at the heart of the Purpose Paradox. In light of this tension, some have suggested that foregoing the pursuit for profits will indirectly lead to them. Yet a more active approach to maximizing authenticity without sacrificing conformity to external expectations may be the best way to manage the Purpose Paradox.
How Can the Purpose Paradox Be Managed?
How can companies effectively navigate this tension? Having a history of embracing a higher purpose is one obvious solution. For instance, Patagonia and Walmart have purposes that conform to expectations, but are also grounded in their founders and histories. Histories support authenticity by demonstrating credibility through past claims and actions. It demonstrates that purpose is coming from “who we are” as an organization.
But what about the many companies that lack a history of a higher purpose? These companies arguably have the greatest opportunity to benefit from purpose. Yet, they acutely face the dual and conflicting pressures of conformity and authenticity. How might leaders begin to address this challenge in a statement of purpose?
Our research suggests authenticity can be bolstered when purposes are linked to shared experiences and core competencies. For example, an athletic footwear and apparel company found that authenticity came from employees’ shared experiences in fitness activities. By providing a vivid, tangible and common experience, these activities provided a credible starting point for their higher purpose—to enable people to realize their potential through fitness. Put another way, the company may not have aspired to a higher purpose in the past, but they appeared ready to embrace it in the future in a way that resonated with their stakeholders.
Authenticity can also be reinforced by linking purpose to core competencies. In a famous example, Merck’s development and donation of a drug to combat river blindness in communities that could not afford to pay for it was viewed as a genuine expression of its purpose—“to improve human health”—because it strongly connected with its core competence as a pharmaceutical company. Merck’s action may have been built into its mission, but other companies in the industry followed suit, targeting diseases that their core competencies equipped them uniquely to cure even when they did not generate direct revenue.
As noted at the outset, purpose ultimately has its roots in the “mundane” work that an organization does. To the degree that formal and informal leaders can link this work credibly to a higher purpose, authenticity will follow. There is perhaps no clearer example of this than a janitor, when asked what he did for NASA, responded, “putting a man on the moon.” Just as with vivid, tangible and common experiences, showing the path between work and higher purpose also can communicate that the organization is creating an authentic purpose in the here and now.
The key to managing the Purpose Paradox is not to ignore either pressure. Rather, it involves actively communicating the primacy of one (authenticity) over the other (conformity). Simply conforming to the pressures of the purpose mandate makes authenticity harder to demonstrate. But adopting a higher purpose for its intrinsic value not only brings greater resonance and legitimacy, but it also unlocks the instrumental value of productivity and profits.
- How an Accounting Firm Convinced Its Employees They Could Change the World, by Bruce Pfau, Harvard Business Review, October 2015.
- Feintzeig, R. (February 2015). “I Don’t Have a Job. I Have a Higher Calling.” The Wall Street Journal.
- Mackey, J., & Sisodia, R. 2013. Conscious Capitalism. Cambridge, Mass.: Harvard Business School Publishing
- Kelly Global Workforce Index. (2009). “Around the Globe, the Desire for Meaningful Work Triumphs Over Pay, Promotion, and Job Choices.”
- Lepisto, D. A. 2022. “Ritual Work and the Formation of a Shared Sense of Meaningfulness.” Academy of Management Journal.
- Dutton, J. E. & Pratt, M. G. 1997. Merck & Co, Inc.: “From Core Competence to Community Involvement.” In N. Tichy, A. McGill, & L. Sinclair (Eds.) In the Public’s Eye: Best Practices of Global Corporate Citizenship (pp. 81-93), Lexington Press.