Why purpose-driven companies do better … they are more ambitious, attract talent, inspire innovation, faster decisions, more trusted, increase loyalty, attract investment
February 1, 2019
What is the benefit of having a purpose beyond profit?
Whilst for some people the notion of having an “inspiring purpose” is morally and commercially a no-brainer, for other people, a purpose can still seem like an irrelevant tagline.
You might argue that businesses have an ethical responsibility to contribute to the societies in which they exist, or that it simply makes economic sense because they can attract more customers and maybe even charge them more, but having purpose is still not obvious.
Back in 2010 I wrote the book People Planet Profit which explored the drive and desire for more purpose in business, and the benefits it can deliver. A decade later, it still seems a new concept to many people.
The Business Case
79% of business leaders recently surveyed by PwC believe that an organisation’s purpose is central to business success, yet 68% shared that purpose is not used as a guidepost in leadership decision making processes within their organisation. Millennials who have a strong connection to the purpose of their organization are 5.3 times more likely to stay.
Add to this, the Edelman Trust Barometer 2019, just released shows that people are more trusting of the employer they work for, than almost any other kind of organisation – from NGOs to governments, well-known brands or social influencers.
Customers view purpose-driven brands as being more caring and, as a result, are more loyal to them. Cone and Porter Novelli consumer research showed that 67% of people feel companies with a purpose care more about them and their families. 79% said they’re more loyal to purpose brands, and 73% said they would defend them. Another 67% said they are more willing to forgive such a company for a mistake.
Recent analysis of “purposeful” companies by the Corporate Board/EY Global Leadership Forecast has the most compelling financial evidence – suggesting that purposeful companies outperform the stock market by 42%. It goes on to compare those who have a purpose statement but no more, who deliver average performance, and those who embed it in everything they do. Companies without a sense of purpose within their vision/mission, underperform the market by 40% it says.
Yet, there is a gap between what business leaders believe their purpose to be and what their behaviours suggest their purpose truly is. The windfalls of purpose may be severely capped by actual business practices, and while it’s only natural to leverage your organisation’s purpose to appeal to job candidates, current employees, customers and prospects, that approach might be underselling the true power of purpose.
Here are some great sources of more detailed insight, including some of the companies who I have worked with on this challenge, like Coca Cola and DSM, who have cracked the code of how purpose and sustainability directly influence business results:
- The Business Case for Purpose by EY and HBR
- Purpose Driven Leadership by Leaders on Purpose
- Purpose Beyond Profit: The Value of Value by CGMA
- The Future of Business? Purpose not just Profit by WEF
- Sustainable Consumption Facts and Trends by WBCSD
- Know The Difference Between Mission And Purpose by Fast Company
- From Me to We: The Rise of the Purpose-led Brand by Accenture
- Purpose and Performance: A Blueprint for Better Business by BBB
- Inspiring Business To Improve Society through Purpose-Driven Brands by BITC
- DSM Case Study: Purpose Led, Performance Driven
- Coca Cola Case Study: Combining Profit and Purpose
- Unilever Case Study: Making Purpose Pay: Inspiring Sustainable Living
Purpose does more than make a brand unique. It can highlight a business’ evolutionary path. At a basic level, purpose can simply express what an organization aspires to be and do. But at a more advanced one, it becomes a conscious expression of how an organisation intends to evolve and transform itself. The best type of purpose is not passive, or even linear, it is transformational. It is ambitious, a cause, something which the organisation and its customers can strive for together. This drives more direction, more innovation and is more energising.
The Purpose Wheel
Inspired by Maslow’s hierarchy of needs and what motivates human satisfaction, IDEO created a purpose framework called the Purpose Wheel. The development of a sense of purpose starts by imagining various ways an organisation might have impact on the world.
The Purpose Wheel drives conversations about future goals, and ultimately create a foundation that the organisation’s leadership can align on before sitting down to write out the statement that answers “the why.”
The center of the wheel proposes five ways a company or organisation might have an impact on the world. Each slice answers the “Why do we exist beyond profit?” question in a different way.
- We exist to Enable Potential … Creating impact by inspiring greater possibilities. (Tesla, Nike)
- We exist to Reduce Friction … Creating impact by simplifying and eliminating barriers. (Google, Spotify)
- We exist to Foster Prosperity … Creating impact by supporting the success of others. (Pampers, Warby Parker)
- We exist to Encourage Exploration … Creating impact by championing discovery. (Airbnb, Adobe)
- We exist to Kindle Happiness … Creating impact by inciting joy. (Dove, Zappos)
The outer wheel is there to push your imagination and force you to consider how your company might make an impact. With it, you continue to engineer your purpose statement: We exist to (inner wheel) through (outer wheel) to impact society for the better.
Consider some familiar examples of companies with purpose:
The Body Shop’s motto is “Enrich, Not Exploit.” It is committed to enriching its people, products, and planet. The company has several lofty objectives: To help 40,000 economically vulnerable people access work around the world. To ensure 100 percent of our natural ingredients are traceable and sustainable sourced, protecting 10,000 hectares of forest and other habitat. To build bio-bridges, protecting and regenerating 75 million square meters of habitat helping communities to live more sustainably.
Icelandic Glacial became the world’s first certified carbon-neutral manufacturer of natural spring water, using green energy to deliver a premium product with a completely offset carbon footprint. Available in 24 countries around the world, the company also provides plenty of water to those in need, from US flood victims to aspiring musicians in Cuba. The water itself is also a winner, according to culinary experts, having won the Superior Taste Award.
Novo Nordisk is a global leader within diabetes care. The Danish pharma company’s key contribution is “to discover, develop and manufacture better biological medicines and make them accessible to people with diabetes throughout the world.”
A commitment to sustainability is sewn into the very fabric of clothing company Patagonia. In addition to supporting numerous environmental initiatives and remaining transparent about their sourcing and production processes, the company has gone so far as to tell its customers not to buy its products, launching the Common Threads Partnership program to encourage people to repair, reuse or recycle instead.
The company’s commitment to social change is reflected in it’s 1-1-1 model – called Pledge 1% – whereby Salesforce contributes one percent of product, one percent of equity, and one percent of employee hours back to the communities it serves globally.
In the 1890s, Unilever founder William Lever set the company’s purpose as “making cleanliness commonplace”. In 2010, the consumer goods giant further honed this purpose to better respond to a world that is “starting to exceed its capacity”. Under this revised purpose of “making sustainable living commonplace”, Unilever has three targets to measure its progress against: improving the health and wellbeing of one billion people, reducing negative environmental impact and sourcing raw materials in a sustainable way while enhancing livelihood. Brands like Dove have taken this mission much further.
“With great courage, integrity and love,” reads the higher purpose statement of Whole Foods, the Amazon-owned organic grocer, “we embrace our responsibility to co-create a world where each of us, our communities and our planet can flourish.” To this end, the multibillion dollar business donates over 5 per cent of its annual net profits to charitable causes and is involved in efforts to safeguard the environment, foster fair trade in its supply chains, improve food safety and ensure the humane treatment of animals.
There is often a misconception that companies must be either purpose-driven or profit-driven, but cannot be both. Which of course is wrong.
Also the words purpose and passion are often used together. This leads to an interesting thought from Ha Nguyen from Omidyar Networks, who distinguished the two
- Passion is about finding yourself. It is about following our interests. Sometimes, we fulfill that part of our lives with hobbies. In other cases, we end up doing what we love for work, and it can lead to very successful careers. While many of us may find our passions and build successful careers that we enjoy, not all of us find purpose in the work.
- Purpose is about losing yourself— in something bigger than you. It is about wanting to make a difference and do for others—to help, to give, to serve. It is the legacy you are going to leave behind.
Fulfillment, says Nguyen, comes not only from doing what you enjoy, but also serving a bigger mission. When you find your purpose, you will have a more far-reaching impact by touching the lives of others in meaningful ways. When you find your purpose, you can also be part of a successful company that makes the world a better place.
In general, purpose-driven companies are more likely perform better because they have:
1. More motivated and energized employees
Currently, 71% of millennials report feeling not engaged or actively disengaged at work. But if you are able to create a situation where employees derive meaning from their work, then everything changes. A recent Harvard Business Review study found that employees who derive meaning from their work report almost twice the job satisfaction and are three times more likely to stay with their organization to fuel business success. The Global Leadership Forecast found that in purposeful organizations engagement levels are 12% higher and employees’ intent to stay is 14% higher.
2. More delighted, loyal and satisfied customers
In this crazy competitive world for talent, having a company with purpose allows you to stand out and becomes a secret weapon. According to New York Times bestselling author Simon Mainwaring, 91% of consumers would switch brands if a different one was purpose-driven and had similar price and quality. Not only does having a strong purpose engage employees, it also helps attract customers and make them more loyal. Product folks know that connecting with customers and putting customers first is critical.
3. More agile and resilient organisations
Purposeful companies deal with volatility much better. They have a strong “North Star” that keeps them focused and aligned even when markets are turbulent. Having employee and stakeholder buy-in enables a purposeful organization to respond more quickly and effectively when opportunities arise or danger threatens (50% higher than non-purposeful organizations). Purposeful companies enjoy higher levels of trust and loyalty, making them more resilient when the going gets tough.
4. Better business outcomes
Given that companies with purpose better motivate employees and satisfy customers, it is not surprising that these companies also have higher business success. In Corporate Culture And Performance, HBS professors John Kotter and James Heskett show that over a decade-long period, purposeful, value-driven companies outperform their counterparts in stock price by a factor of twelve.
Simon Sinek who has given one of the most watched Ted Talks of all time states in a 2017 HBR article, “Profit isn’t a purpose. It’s a result. To have purpose means the things we do are of real value to others.”
Purpose-driven companies attract the best minds, have the most passionate customers, achieve wild success and change the world. When purpose and passion are combined, the impact is powerful not only for individuals, but also on the public they serve to help create a brighter future for everyone.