Make purpose the competitive advantage in business

What does it mean to be authentic as a business when the very fabric of society is becoming ever more polarised? How can purpose become a competitive advantage?

The world agenda has shifted. The staple headaches of banking crises, rising debt and slow growth have given way to outright fear of war and conflict on the back of the swing to populism worldwide.

Populism is redrawing communities

Edelman in 2017 highlighted that not only is society at large becoming more fragmented, but we are also each reacting to this trend by shutting our eyes and ears to all information we are inclined to disagree with. Everyone laments polarisation, but what is often overlooked is that it creates a novel sense of belonging and identity. Trump supporters huddle together in condemnation of lying media, and Remainers lament the small-island mentality behind Brexit. Both are forging what is usually considered positive, a community.

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We listen to those most like us

One of the most potent findings from the Edelman study is that peers are now seen as credible sources of information as technical or academic experts (all 3 at 60%). This combines with the media echo chamber and our ability to filter out contrarian views almost entirely from our lives. And leading to the fact that we are, for the first time, able to live the vast majority of our lives without coming into contact with any conflicting opinions to our own.

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And demand businesses should do more to fix the system.

The Edelman study also finds that business is seen by the broad public, even by those who believe the system isn’t working, as the best place to affect positive change. The survey points to this being seen as a moral burden of business. Indeed earlier this month, Larry Fink, the CEO of BlackRock, sent a letter to all the companies BlackRock invests in calling for a renewed focus on purpose:

“We also see many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” ~ Larry Fink, CEO, BlackRock

Purposeful companies outperform their competitors.

Companies are rushing to cash in on this trend. Harvard Business Review mentions how purpose-driven companies have been shown to outperform their peers over the long term. They can benefit from higher employee productivity and customer loyalty and satisfaction.

Purpose is not CSR

In his biting article for Forbes, Dan Pontefract highlights that some are skirting their responsibilities by substituting purpose with CSR activities. It illustrates a fundamental gap in understanding what purpose stands for and, at worst, the dark side of CSR as purely a marketing and PR tool.

The purpose of an organization is different from CSR. It ought to be thought of as how it provides its various services. Why is it in business? Why does it serve its stakeholders? Stakeholders include employees, customers, partners, community members, the environment/planet and those seeking a fair financial return. While CSR can positively affect all stakeholders, it should not be confused with an organization’s purpose.

An organization’s purpose centers around five “Good DEEDS” defined as follows:

• Delight your customers. Working with and for the customer always remembering why an organization exists in the first place.

• Engage your team members. Team members need purpose in their role to flourish, and they need to know they are able to create value while simultaneously feeling valued.

• Ethical within society. Decisions need to be made—be it financially, environmentally, socially—that are always ethical in nature.

• Deliver fair practices. Consistent and positive people practices inside the organization to unleash the creativity and productivity of team members.

• Serve all stakeholders. The organization has a responsibility in society to positively affect customers, team members, the community, environment and owners alike.

Purpose is what your organization stands for. What you stand for must include CSR, but an organization does not solely stand for improving sustainable development. Important, yes. In isolation, no.

The purpose is a credible commitment that comes at a cost.

As Harvard Business Review points out: purpose-driven companies are hard to come by. “Why is that? Because the purpose is costly. At the very least, it requires a credible commitment to that purpose. And credible commitments are those that come at a cost; in the absence of a cost, all companies can claim that they are purpose-driven, and as a result, the commitment stops being credible.”

Roger Martin has worked on this idea and illustrates it with the Virtue Matrix. Put simply, the Virtue Matrix distinguishes between what he calls the Civil Foundation – things that a company does to comply with regulations or to adhere to the existing societal norms – and the Frontier  – activities whose motivation tends to be intrinsic and whose value to shareholders is either clearly negative or not immediately apparent.

Working with purpose is not easy. It is costly, and what was once considered cutting-edge becomes the norm and expected. So the bar is continuously being raised. However, Martin also points out that:

What can be averaged up, however, can also be “averaged down. ”When a corporation from an advanced economy does business in a developing country, it may instead establish a level of corporate virtue consistent with the host country’s civil foundation. Notoriously, Nike, by running its Southeast Asian athletic footwear plants and paying its workers in accordance with local customs and practices, opened itself to charges of operating sweatshops. In essence, it was accused of averaging down its level of corporate responsibility. Although the company protested that its conduct was virtuous by local standards, angry U.S. consumers made it clear that they expected Nike to conform to U.S. civil foundation, even if doing so meant the company had to operate in the strategic or structural frontier of its Southeast Asian hosts. ~ Roger Martin.

And we are back to the public and the influential role of consumers in agitating for change. Growing expectations on businesses to do more than window dressing, effective peer-to-peer campaigns to boycott companies who behave unethically or are seen to profit from misfortune, #deleteUber being but one example.

So the pressure is on. And adding purpose to a company blatantly lacking it is not easy. But it is becoming the license to operate even to investors:

“Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee developments, innovation, and capital expenditures that are necessary for long-term growth. It will remain exposed to activist campaigns that articulate a clearer goal, even if that goal serves only the shortest and narrowest of objectives. An ultimately, that company will provide subpar returns to the investors who depend on it to finance their retirement, home purchases or higher education” ~ Larry Fink, CEO, BlackRock

Steer clear of purpose washing

When purpose has been commandeered by an organization’s marketing department—robbing the concept of purpose by tapping into CSR as its definition—it relegates the idea of purpose to that of green-washing.

Let’s call it purpose-washing.

A purpose-led or purpose-driven company is not operating with purpose when Marketing uses the term to flaunt Corporate Social Responsibility statistics. Cute commercials with a company switching its fleet of trucks to electric vehicles is superb, but it’s not purpose outright. Cutting CO2 emissions is important, but it’s not purpose outright. Opening an environmentally friendly headquarters is fantastic, but it’s not purpose outright. Being philanthropic and donating money to the community is incredible, but it’s not purpose outright. ~ Dan Pontefract

These are examples of CSR, components of an organization’s purpose, but not a substitute for it.

Purpose appropriately done brings out the best in people and the best people

“When corporate executives use the words of purpose to tell a story of same-old-business-models with a focus on profits, they risk being called out for it. When you pursue only the veneer of the idea of ‘purpose’, you miss the opportunity for the larger idea of purpose to change you. You risk ending up with things that are only surface-deep. In the archives of corporate history, this has looked like meaningless mission statements or values carved into the lobby of buildings that nobody lives by.” ~ Nilofer Merchant

Merchant continues: “Things we once considered opposing forces – doing right by people and delivering results, collaborating and keeping focus, having a social purpose, and making money – are not in opposition. They have never been. But we need a more sophisticated approach to understanding business models where profit-making doesn’t mean losing purpose, community, and connection.

The companies that do stand for something – a purpose shared with their community – can bring an objective coherence to their work and have a real advantage in the modern market. People want to believe in something real, of substance. Purpose brings out the best in people and the best people.”

To conclude:

“Profit for a company is like oxygen for a person. If you don’t have enough of it, you’re out of the game. But if you think your life is about breathing, you’re really missing something.” ~ Peter F. Drucker.

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