Companies with a clear purpose perform better

Numerous studies have proven, and countless business leaders have spoken of, the power of purpose. Harvard Business Review (HBR)1, for instance, reports that purpose-driven organizations enjoy higher growth rates, improved employee satisfaction and higher success in strategic transformation efforts than peers without a clear sense of organizational purpose. In another survey, conducted by HBR2 researchers, found that visionary leadership is the second most sought out trait of a business leader. And yet, many businesses seem not to fully take advantage of this opportunity or fail in doing so. Could it be so that the positive impacts of purpose-driven strategies are not fully recognized?

Redefining your purpose often means taking on a path less explored

A company’s purpose is derived through careful inspection of why the company exists, what it does and what it wants to achieve in the future. What the company stands for and what it strives for in the bigger picture should ultimately be reflected in its corporate identity: The corporate strategy, culture, the value proposition of its offering and even how the company is governed. Hence, great purposes are not created simply to rationalize an existing corporate strategy, but to truly help companies (re)imagine what business they are in, or perhaps even more importantly, what business they could be in. As a result, purpose driven companies more often than not tend to set the bar higher for what they aim to achieve in the future.

Having studied hundreds of top executives, HBR3 concluded that most high growth companies are strongly led by their purpose. As such, they aren’t limiting themselves to just their current playing field, but allowing themselves to seek growth opportunities in adjacencies – guided by their purpose. This is because defining a purpose requires executives to think (sometimes far) ahead and answer difficult questions about their business. What is important for our customers in the future? Who are our customers in the future? What kind of role could and should we take in the future? But just as well, leaders should also be able to make sense of the past to identify what strengths have led them to the position they are in today, and how those strengths can be harnessed to create value in other areas as well.

In contrast, companies struggling to find growth on matured markets are most often the ones looking at their business from a narrow point of view, fighting over market shares within strictly defined categories. Generalizing a little, the difference between companies that are purpose driven and those who are not is that the former define their frame of reference based on their customers’ needs, not by prevalent categorization of their industry.

Think about this for a moment – if you were to lead, say, an industrial manufacturing company looking for growth, would you rather go for stealing market share from your direct rivals in current verticals (which would likely mean decreasing your margins), or would you look for novel ways of creating value to your customers by addressing the underlying needs that they have, which might mean expanding beyond your current verticals? In which of the scenarios can you find more opportunities to grow and innovate? From the point of view of a potential employee, which alternative sounds more engaging?

So, what’s the purpose of having a purpose?

A strong and well-defined purpose ultimately allows businesses to shift focus away from current offerings and categories to take a wider view on solving customers’ problems, and as such, to creating value. This way businesses also have the opportunity to take a unique view on the market on which to build differentiation on. Like a compass, a well-defined purpose provides focus – a shared direction and shared meaning for the whole organization, helping to direct energy towards achieving common goals. At the same time, it also presents a clear mandate for all in the organization to harness their creative power in creating value. Ultimately, a clear purpose also provides guidance for decisions in times of uncertainty. As Bob Swan, CEO of Intel puts it: “When the shit hits the fan—whether it is COVID or social injustice—we look to our purpose to figure out what to do”.

How can we help your organization?

Our customer needs-based approach to purpose and strategy work ensures you are focusing on the right value-adding activities in your strategy. We believe best results in strategy work are achieved by combining human and business understanding, and by engaging and committing employees throughout the process.

Read more about our growth strategy practice.

 

Sources:
1. https://hbr.org/resources/pdfs/comm/ey/19392HBRReportEY.pdf
2. https://hbr.org/2009/01/to-lead-create-a-shared-vision
3. https://hbr.org/2019/09/put-purpose-at-the-core-of-your-strategy
4. https://fortune.com/2020/11/11/purpose-driven-leadership-ceos-advice/

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