Imagine that you discovered someone you liked and trusted was being pleasant to you only to get to your money and had no real interest in your well-being. No doubt you would be outraged and would stay well away from them. Yet this underhand approach is the stated strategy of many companies who claim to be customer obsessed purely because happy customers are loyal and drive profitability. Similarly companies make promises to their employees about great work experience as they know that happy employees lead to happy customers and profits. After all this is what we learnt in business school. More recently companies have started to publicise their efforts in CSR or ESG, backed up by certifications, PR campaigns and well written pieces in annual reviews. Much has been written about purpose and its superpower of invoking trust in customers, engagement of employees and attraction of ethical investors. I have written and spoken about how a purpose driven transformation is more powerful than a fear driven one. However I have come across very few truly purpose-driven companies – companies that, in the words of Oxford Professor Colin Mayer, aim to “provide profitable solutions to the problems of people or planet” rather than define their entire existence in terms of share-holder return whilst happy customers, employees and a sustainable world are just a means to an end.
Many companies claim to be purpose-driven but I have developed 3 tests to help determine whether a company is truly purpose driven.
The three tests
1. Does the company fully understand the problem it is trying to solve?
A purposeful company understands that it exists to profitably solve the problems of people or planet as opposed to solely maximise shareholder return. Therefore a truly purposeful company spends time and effort uncovering what their customers are trying to achieve.
I have spent the majority of my career in the banking industry. It may or may not surprise you that some bankers think that their customers wake up in the morning and say “Today is a great day to do some banking.” Actually the vast majority of people hate doing banking. They want banking to disappear out of their lives while they get on with buying homes, saving for college or investing for retirement. The late great Clayton Christensen developed the “Jobs to Be Done” concept: a framework for identifying and solving the true functional, social and emotion needs of customers. When another Harvard Professor, Theodore Levitt told a power tool company that their customers wanted a hole not a drill he was partially correct. Surely the customers really wanted a picture on the wall or a new shelf – the functional need. But actually it is even more important to also understand the emotional and social need. Perhaps the customer’s mother in law wanted a picture of her grandchild or the customer wanted to show off their sophisticated taste in art.
It takes time and effort to uncover this level of customer need and purposeful leaders allocate significant resources in uncovering fresh insights about how their customers needs are evolving. This may take the form of ethnographic research, data analysis, surveys and focus groups (although I would argue that the last 2 do not yield deep enough insights). So if discussions about new products and services do not centre around how they solve customer needs and what the impact will be on the workforce, suppliers, the community and the planet I would question how purpose-driven the company actually is.
2. Are customer, employee and community outcomes defined as a means to profitability or outcomes in their own right?
A company has a moral obligation to enhance the lives of its customers and employees. It should also consider its role in the communities in which it operates, have empathy for suppliers and aim to have positive impacts on the planet. For purpose-driven organisations, these are outcomes in their own right not mechanisms for profitability. A truly purposeful company will have performance measures and governance in place that show improvement across each of these categories and not just financials. Of course strong financials are needed for long term viability but in a purpose-drive company they are not the sole or defining outcome. A quick look at how investment decisions are made is the tell-tale sign as to the true focus of a company. Most business cases I have seen focus on the financial return and little regard is given to anything else. Also you can observe how the inevitable trade-offs between customer outcomes and short term profits are handled? How are senior management rewarded? Do review meetings include questions about customers, employees, communities etc. And how are the suppliers treated? If these are given cursory attention then clearly the company is not truly purpose driven.
3. Does the company define success as continuous improvementment in attaining its purpose?
In his book “The Infinite Game” Simon Sinek defines infinite companies as those striving to continuously improve how they meet their purpose as opposed to finite companies who measure success in terms of beating their competitors. A truly purposeful company has an infinite approach. It is less concerned with how the competition is doing but focusses on being a better version of itself every day. Such a company continuously experiments to look for better ways of enhance lives of customers and employees. There will be ongoing feedback loops across customers, employees, suppliers and communities aimed at learning how to improve. These improvements are celebrated over pleasing bosses. Watch out if people talk about where the boss is going to sit as they enter a meeting room or if a good meeting is defined as one where the most senior person in the room was happy.
There are few companies that can truthfully claim they fulfill these three tests. However, I am optimistic as many are moving in the right direction. Changes in corporate law and governance coupled with individual company changes in performance management and investment decision-making processes need to be put in place to accelerate the progress towards being purpose driven society.
Companies have a moral duty to positively impact customers, employees, suppliers, communities and the planet
True purpose is rare but when in place unlocks trust, passion and long term profitability
Companies need to put in place governance and success measures beyond financials to ensure they are truly purpose driven