Not All Purpose Is Created Equal: Harvard Explains
When you think about the concept of purpose in business, what comes to mind?
Perhaps companies can do well and do good at the same time? Or, the concept of purpose may sound to you like a marketing department initiative - or even a bit of both, with shades in between.
Let’s call it what it is. There really is a level of ‘messiness’ to purpose in business. How can you know which companies are truly committed to their purpose, and those who are merely paying lip service to the concept, or worse?
The complexity of this very question is explored in a recent episode of HBR Ideacast, with Ranjay Gulati, a professor at Harvard Business School and author of "Deep Purpose: The Heart and Soul of High-Performance Companies”.
DO DIFFERENT TYPES OF PURPOSE IN BUSINESS EXIST?
After interviewing 250 people across a range of companies, Gulati argues that there are indeed different types of purpose. He categorises them into two types - convenient purpose and deep purpose.
The majority of companies he advises fall into the category of convenient purpose, where purpose is used for superficial means but not as a central driving force for change. These broadly fit into three areas - purpose as a disguise, purpose on the periphery and purpose as a win-win.
Purpose as a disguise refers to companies where their commitment to social good isn’t strong or broad enough for them to turn away from lucrative yet questionable business decisions. In the extreme, purpose is used to cover up poor business practices, a similar concept to purpose-washing.
Purpose on the periphery, is essentially the same as a corporate social responsibility program, where purpose is a department or an ‘add on’, not central or core to the business strategy.
And finally, purpose as a win-win, where the company only pursues purpose if it gets something back in return. Aiming for the sweet spot between social impact and economic benefit, they fall short as they tend to deliver only when ideal outcomes are possible. They therefore typically fail on either profit or purpose measures - more often on the latter.
Beyond the somewhat deceptive and transactional nature of convenient purpose, Gulati advises there is another type of purpose - deep purpose.
Deep purpose companies have purpose at the core of their strategy, and are reaping the benefits of doing well and doing good at the same time.
DIVING INTO DEEP PURPOSE
Deep purpose companies are committed to both positive social impact and commercial outcomes. They frame all their decisions, actions, and processes with their goals and duties in mind. Their purpose acts as their North Star and their leaders adopt a mindset of practical idealism.
Importantly as we see in convenient purpose companies, they simply will not accept trade-offs, they are open to exploring and immersing themselves in them. They are open to ‘good enough for now’ solutions that will lead to broader long-term benefits.
In short, they are determined to bring their corporate purpose to life, but also understand that they must play (and win) within the constraints of a commercial system.
PURPOSE AS A DRIVING FORCE
Gulati describes purpose as a force that enhances productivity, not a charitable venture. This force, he advises, multiplies in power over time. Companies that have a deep purpose have four key themes, which are:
An ambitious goal
Idealistic duty
They serve an array of key stakeholders
They create long term value
DOES PURPOSE AND THE SIZE OF THE COMPANY MATTER?
Startups have the edge when it comes to purpose, Gulati advises, as it can be embedded in the Founders DNA and shared with the team from the get go. Startups are lean and agile, whereas in large and established companies, purpose can require significant risk, change and transformation.
Yet, while the size of the company can affect the outcomes, he advises there is one similarity in determining the success of purpose - it starts with people and culture. Having a clear purpose engages employees and creates momentum and energy.
This thinking is backed by a recent survey by McKinsey and Company who advise that people who live their purpose at work are more productive than people who don’t. They are also healthier, more resilient, and more likely to stay at a company.
WHAT ABOUT WHEN THE PURPOSE IS NOT MAKING PROFIT?
As we highlighted earlier, often companies that embark on a purpose journey find themselves in a position when things get tough. Unfortunately this can lead to the ‘default to profit’ focus, where no social benefit is achieved.
Gulati advises there is actually a better way, where there are thoughtful ‘tradeoffs’ to manage both economic benefit and social impact, rather than always needing to be a win-win.
This is where leaders acknowledge purpose is not a binary upwards projection (or decline) but a core, iterative process where you have a clear purpose and you continuously work towards it.
Leaders who embrace this concept he calls ‘practical idealists’, as there will invariably be times where the “messiness’ of purpose needs to be balanced between the two.
This distinction between the different types of company purpose is now becoming an integral part of thinking for the investment community who always hold the long term view of companies and their future performance.
References:
The Messy but Essential Pursuit of Purpose, Harvard Business Review, March 2022
Inside Companies that Get the Purpose-Profit Balance Right, HBR Ideacast, March 2022
Ranjay Gulati, Professor, Harvard Business School
What is Purpose-Washing? The Word Depot, November 2021
Are Corporate Social Responsibility And Purpose The Same? The Word Depot, 2022
Purpose & Employees: Alignment Is Key, The Word Depot, 2021
