3 Steps To Measuring Purpose At Work

In recent years, boards of directors have become increasingly focused on the concept of purpose.

This is driven by a sense that purpose drives culture, supports the attraction and retention of talent, and is increasingly a differentiator when it comes to customers and suppliers.

Traditionally, company performance has not accounted for the impact of purpose-based belief systems and managerial practices, but rather on the legal concept of the firm as an entity that owns property and contracts with other parties. 

This market shift has now provided the opportunity to create a reporting framework of measurement that accounts for purpose. 

WHAT THE DIFFERENCE BETWEEN ‘TRADITIONAL’ AND ‘PURPOSE’ PERFORMANCE MEASUREMENT?

In general, established or traditional accounting practices records the costs, incomes, assets and liabilities of the company - as well as the costs of the resources a company employs, and the earnings it derives from them. 

Essentially, what is recorded are what a firm owns and maintains, but not on what it depends on, or is responsible for, including its impacts on other parties. As a result, current accounting methods do not provide all the information that is relevant to promoting responsible, purposeful business practices. 

In contrast, purpose performance measurement aims to create a framework of “measuring what matters” (including, but not limited to, financial performance).

THREE STEPS TO PURPOSE MEASUREMENT

In a recent paper published by Harvard Business School, the concept of measuring purpose alongside traditional accounting practices is explored. 

The aim of the paper is to clarify the confusion that arises from how to measure the performance of purpose-driven business practices, and in practical terms, also provides a suggested way forward for reporting.

What is proposed is a three step internal model. It is thought this approach will be successful, (which falls to the organisation to adopt) as it enables a set of relevant and consistent appraisals for both senior management teams and external stakeholders to review - including investors and policymakers.

The three key steps proposed include motive, metrics and money, as outlined below:

1. Motives - creates the appropriate framework in which the company should operate within. This includes a defined purpose (why the company exists), vision (what is its strategy), mission (where it aspires to be) and values (how it operates).

2. Metrics - identifies the metrics that are required to enact the purpose - inputs (what the company uses), outputs (what it produces), outcomes (what changes), impacts (affects on well being). When compiling reports in relation to their purposes, companies should provide qualitative, quantitative, financial and non-financial information.

3. Money - in this final step, there is a comprehensive monetisation of the metrics set out in step 2 - essentially, monetary values are attached to the aforementioned metrics. The paper provides two alternatives on how this could be approached.

In summary, this three-step model provides an integrated reporting framework against which decisions (internal or external) for the company can be made. 

This allows investors and other key stakeholders to assess the performance of a company against its stated purpose, rather than just its financial performance like current accounting practices.

You can read the full paper here. 

References:

• https://www.hbs.edu/impact-weighted-accounts/Documents/Measuring_Purpose-An_Integrated_Framework.pdf