The authors argue that leaders are under pressure to produce a corporate purpose much as they were pressed to produce vision and mission statements in the 1980s and 1990s, and that the risk is speed, shortcuts and spin taking precedence over authentic action.
Their diagnosis is definitional. Purpose is used in three senses: competence, meaning the function the product serves. Culture, meaning the intent with which the business is run. And cause, meaning the social good the company aspires to. All three can create a meaningful why.
Key findings
- Cause-based purposes get the most attention because companies pushing for societal change are more visible, but that is a matter of visibility rather than effectiveness.
- Choosing among them is a business decision anchored in strategy, and means identifying the most authentic and motivating basis for alignment among the stakeholder groups the business depends on.
- Purpose sits at the intersection of four business agendas: demand generation for marketing and sales, employee attraction and retention for HR, ESG performance for governance and sustainability, and resource allocation and risk for strategy and finance.
- Improving ESG performance is good for business, especially in areas material to the industry, but the authors insist it is distinct from the purpose of a business.
Rule one: do not rally around a cause unless you have one
Purpose discussions usually open by asking how the world would be worse off if the company did not exist. Only a limited number of companies operate in industries where that question has a compelling answer, such as Beyond Meat or Disney, along with health, science and clean energy businesses.
Pressed too hard, the question makes companies misrepresent what they actually do. WeWork described subletting office space as striving to elevate the world’s consciousness, and Knorr, a brand known for stock cubes and gravy, suggested consumers could change the world by changing what was on their plate.
The authors note that a cause-based north star mostly benefits consumer-facing companies. Few others, particularly in B2B sectors like basic materials, energy generation, capital goods, commercial transportation and business services, have a higher purpose they can authentically claim.
Rule two: a strong culture is often all you need
The current fixation pushes executives to be seen running a good business, when sometimes it is enough to run a business well. Culture-based statements suit companies that provide necessary products and services without credibly presenting as agents of social change.
Mars is the example. In 2019, after more than a century, it produced its first purpose statement, focused on how the company does business rather than what it aspires to change, resting on Five Principles published in 1983.
The counter-example is Nestlé, which positioned itself in 2014 as the world’s leading nutrition, health and wellness company and had to retract when commentators observed that nearly three-quarters of its earnings came from snacks and confectionery. It retreated to the more believable Good food, good life.
Culture-based purpose takes three forms: cultural consistency, adherence to a code such as the J&J credo or Mars’s Five Principles. Cultural fit, emphasizing an aspect that attracts like-minded people, as with Bridgewater’s radical transparency. And cultural diversity, promoting inclusiveness, which suits companies whose employee base needs to match their customer base.
Rule three: do not delegate purpose to marketing alone
Marketing is often handed the task because it is assumed to be closest to consumer sentiment. But marketing’s objective is to generate demand, so the exercise can devolve into appealing to consumer preference, and since most consumers prefer companies with a cause-driven purpose, the result is an elevated statement that flatters the company.
At the extreme it becomes posturing. The authors cite BAT and Philip Morris International claiming purposes of building a better tomorrow and unsmoking the world, and the poorly received attempts by Pepsi and Gillette to advocate for social issues they had little previous involvement with.
Dove is the contrast. Its real beauty campaign came out of research showing that in 2004 only 2 percent of women worldwide would describe themselves as beautiful, a figure that had reached only 4 percent by 2010. Its functional benefits gave rise to an emotional one, self-esteem. The lesson drawn is that a campaign works best as the offspring of a corporate purpose rather than its progenitor.
Some companies with genuine cause-based purposes deliberately keep them out of advertising, to avoid trivializing something central. Starbucks advertises product quality and novelty, and JetBlue advertises what drives ticket sales.
Where purpose statements come apart
The competence-culture gap appears when a company creates value for customers but is less well regarded as an employer or partner. Amazon and Walmart have enjoyed high customer approval while being criticized over their record as employers, their reluctance to recognize workers’ rights and supply chain transparency.
The culture-cause gap appears when a company has a clearly stated cause-related purpose and low employee engagement, which points to a need for more focus on culture or a reassessment of the purpose’s authenticity. Uber in 2018 and Volkswagen are given as examples of reinventing a culture that turned a blind eye.
The five-step process
Step one is to identify the internal constituencies with a stake in purpose, across demand generation, employee engagement, governance and sustainability, and strategy and business valuation, and form a working team with representatives from each.
Step two is to establish a common language around the three definitions and explore how each is relevant to each constituency, taking as expansive a view as possible and making authenticity the binding constraint.
Step three links purpose to strategy by asking what will most affect the company’s success over the next decade, whether talent, product innovation, premium pricing or international expansion, and typically produces a short list of three to five candidate ideas.
Step four is to transcend siloed thinking, on the grounds that purpose cannot be authentic if it is motivated only by self-interest and opportunism. The test questions include whether the usefulness of what you provide is self-evident, whether the nature of the business makes a claim to do good credible, and whether leaders’ behavior supports it.
Step five is embedding purpose in behavior, which the authors call the hardest step. New behavior has to be modeled by senior leaders and reflected in performance reviews, promotions, recruitment, business decisions and the culture.
The closing observation is about perspective. Only executives experience purpose top down. Everyone else experiences it bottom up, through products, services, employees, locations and communications, which is why the ultimate test is whether it improves the way the business actually operates.
Scope and limitations
The four authors write from the constituencies they represent, a former CMO, a former CHRO, a professor of global business and a strategy consultant, and one of them discloses a past paid advisory relationship with a company used as an example.
Source
This page summarises What Is the Purpose of Your Purpose?, by Jonathan Knowles, B. Tom Hunsaker, Hannah Grove, Alison James, March–April 2022.