An organisation’s purpose is a measure of its contribution to the world beyond financial returns. Outdoor clothing retailer Patagonia states: ‘We’re in business to save our home planet’. Google aims ‘to organise the world’s information and make it universally accessible and useful’. Danish toy company Lego seeks to ‘inspire and develop the builders of tomorrow’.
Public sector and other non-profit organisations usually define their purposes in terms of meeting stakeholder needs: hospitals serve patients, charities assist beneficiaries and governments support citizens. But how important is purpose in for-profit firms beyond generating returns for owners?
Purpose-driven organisations outperform those with less readily apparent purposes
Purpose outperforms
Multiple reports by management consulting firms have claimed that purpose-driven organisations outperform those with less readily apparent purposes. However, these consultancies do not disclose their data-gathering methods and analytical techniques, so it is impossible to assess critically whether such conclusions are warranted.
Surveys often find that customers are more likely to buy from firms with stronger purposes. However, the best evidence for the importance of purpose may come from employee outcomes. Research by Christiane Bode at Bocconi University in Italy and Jasjit Singh of INSEAD in Singapore found that some employees were not only attracted to corporate social initiatives but even willing to accept temporary salary cuts for such opportunities. The employees reported reasons for their interest including being able to deliver societal impact as well as acquiring new skills that may benefit them in the long run.
Strong evidence in support of purpose-led organisations comes from a meta-analysis conducted by researchers led by Purdue University’s Blake Allan. Across 44 prior studies comprising 23,144 individuals, employees’ perceptions of the meaningfulness of their work correlated strongly with outcomes including higher work engagement (r = 0.74), commitment (r = 0.75) and job satisfaction (r = 0.74), and moderately with self-rated job performance (r = 0.33).
Failure to turn lofty purpose into meaningful action is increasingly punished in the marketplace
Such findings have mainly been reported in organisations located in Western democracies. The benefits of organisational purpose have been investigated much less in more authoritarian countries.
Damage limitation?
Many organisations have vision, mission and values statements but use them only in limited ways: in marketing to customers or when hiring, for example. University of Toronto academic Sarah Kaplan remarked that some firms ‘make socially desirable claims to maintain their legitimacy’ but use such declarations ‘as a cover for damaging actions’ to the environment, civil rights, consumers’ health and so on.
Failure to turn lofty purpose into meaningful action is increasingly punished in the marketplace. When leaders – at all levels of an organisation – espouse one thing but behave differently, the end result may be more damaging than not having a purpose in the first place. The growing availability of mobile phones, digital technologies and the internet means that organisations face growing scrutiny; they risk being exposed as hypocritical or outright deceptive when they claim to be purpose-led but behave otherwise.
Consult and design
Truly purpose-led firms change their actual strategies, core activities, structures and practices. An important early step is to consult stakeholders widely to identify the gap between aspiration and reality. Including leaders across core organisational functions also delivers better results than delegating purpose-related responsibilities to a separate team.
Performance targets must be appropriately aligned for purpose to be of use
Organisations that succeed in becoming purpose-led firms further design appropriate processes and management controls to support their purposes. For example, retail banks prioritising customer service and long-term customer relationships have removed incentives for selling individual financial products. An accountancy firm I worked with rewards partners a proportion of their bonuses based on the extent to which they are judged by anonymous colleagues to have displayed the firm’s values. Performance targets and key performance indicators must be appropriately aligned for purpose to be of use.
Purpose versus profit
Academics Marya Besharov and Björn Mitzinneck note that there will always be destructive tensions and conflict in for-profit organisations between stakeholders supporting purpose versus profit. These risks are especially apparent in listed firms when shareholders may prioritise short-term financial performance over long-term social impact.
Even in non-profit organisations, the perception of purpose by employees is not automatic. Individual managers and supervisors can contribute by communicating the organisation’s purpose frequently. They can further increase employees’ engagement with it by inviting and responding thoughtfully to employees’ input on how to turn purpose into specific plans and actions at the local level.
Leaders can also frame team and individual targets both in terms of financial targets and in relation to the organisation’s purpose. Collecting and sharing stories that exemplify employees’ behaviour aligning with the firm’s purpose can likewise reinforce the message.
More information
Watch Dr Rob Yeung’s video on meaningful work.
ACCA’s annual virtual conference, Accounting for the Future, features sessions to help you thrive in your career, including Dr Rob Yeung on Skills for thinking critically about creativity.
