Updated: Sep 3, 2019
Credit by : Thomas W.Malnight, Ivy Buche and Charles Dhanaraj.
Eight years ago we launched a global study of high growth in companies, investigating the importance of three strategies known to drive it: creating new markets, serving broader stakeholder needs, and changing the rules of the game. What we found surprised us. Although each of those approaches did boost growth at the organizations we studied, there was a fourth driver we hadn’t considered at all: purpose.
Companies have long been encouraged to build purpose into what they do. But usually it’s talked about as an add-on—a way to create shared value, improve employee morale and commitment, give back to the community, and help the environment. But as we worked with the high-growth companies in our study and beyond, we began to recognize that many of them had moved purpose from the periphery of their strategy to its core—where, with committed leadership and financial investment, they had used it to generate sustained profitable growth, stay relevant in a rapidly changing world, and deepen ties with their stakeholders.
Two Critical Roles
In the course of our research, we talked to scores of C-level executives. They worked at 28 companies—in the United States, Europe, and India—that had had an average compound annual growth rate of 30% or more in the previous five years. What we learned from those conversations was that purpose played two important strategic roles: It helped companies redefine the playing field, and it allowed them to reshape the value proposition. And that, in turn, enabled them to overcome the challenges of slowing growth and declining profitability.
Many high-growth companies use purpose to stay relevant in a fast-changing world.
Role 1: Redefining the playing field.
What’s a key difference between low-growth and high-growth companies? The former spend most of their time fighting for market share on one playing field, which naturally restricts their growth potential. And because most aggressive battles take place in industries that are slowing down, gains in market share come at a high cost, often eroding profits and competitive advantage as offerings become commoditized.
High-growth companies, by contrast, don’t feel limited to their current playing field. Instead, they think about whole ecosystems, where connected interests and relationships among multiple stakeholders create more opportunities. But these firms don’t approach ecosystems haphazardly. They let purpose be their guide.
Role 2: Reshaping the value proposition.
When confronted with eroding margins in a rapidly commodifying world, companies often enhance their value propositions by innovating products, services, or business models. That can bring some quick wins, but it’s a transactional approach geared toward prevailing in the current arena. Because a purpose-driven approach facilitates growth in new ecosystems, it allows companies to broaden their mission, create a holistic value proposition, and deliver lifetime benefits to customers.
Companies can make this shift in three main ways: by responding to trends, building on trust, and focusing on pain points.
Building on trust.
Focusing on pain points.
Developing a Purpose
Leaders and companies that have effectively defined corporate purpose typically have done so with one of two approaches: retrospective or prospective.
The retrospective approach builds on a firm’s existing reason for being. It requires that you look back, codify organizational and cultural DNA, and make sense of the firm’s past. The focus of the discovery process is internal. Where have we come from? How did we get here? What makes us unique to all stakeholders? Where does our DNA open up future opportunities we believe in? These are the kinds of questions leaders have to ask.
Implementing a Purpose-Driven Strategy
Our research shows that a compelling purpose clarifies what a company stands for, provides an impetus for action, and is aspirational. But some purpose statements are so generic that they could apply to any company (like Nissan’s, “Enriching people’s lives”), while others provide only a narrow description of the company’s existing businesses (like Wells Fargo’s, “We want to satisfy our customers’ financial needs and help them succeed financially”). Even if organizations do manage to define their purpose well, they often don’t properly translate it into action—or do anything at all to fulfill it. In those cases the purpose becomes nothing more than nice-sounding words on a wall.
Leaders need to think hard about how to make purpose central to their strategy. The two best tactics for doing that are to transform the leadership agenda and to disseminate purpose throughout the organization.
Benefits on the Soft Side
Purpose can also help with the soft side of management—the people-related aspects of running a business, which so often prove to be the undoing of leaders. By putting purpose at the core of strategy, firms can realize three specific benefits: more-unified organizations, more-motivated stakeholders, and a broader positive impact on society.
Unifying the organization.
When companies pursue dramatic change and move into larger ecosystems, as both Mars Petcare and Securitas have done, it’s unsettling for employees. Why does a pet-food company need to develop a platform to support technology start-ups? Why does an on-site guarding company want to provide electronic security services that could, over time, make the physical presence of guards redundant? Purpose helps employees understand the whys and get on board with the new direction.
According to the Edelman trust barometer, distrust of government, businesses, the media, and NGOs is now pervasive. At the same time, more than ever, employees, especially Millennials, want to work for organizations that can be trusted to contribute to a higher cause. And when customers, suppliers, and other stakeholders see that a company has a strong higher purpose, they are more likely to trust it and more motivated to interact with it.
Strategy involves exploring some fundamental questions. Why are we in this business? What value can we bring? What role does my unit play within the bigger portfolio? Purpose creates a basis for answering those questions and defining how each unit will contribute to the organization and to society as a whole. This focus on collective objectives, in turn, opens up many more opportunities to improve growth and profitability today and in the future.
The approach to purpose that we’re recommending cannot be a one-off effort. Leaders need to constantly assess how purpose can guide strategy, and they need to be willing to adjust or redefine this relationship as conditions change. That demands a new kind of sustained focus, but the advantages it can confer are legion.