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Purpose-Driven Growth: What Acquisitions Can't Buy

04/21/2014 12:00 pm ET | Updated Jun 21, 2014

A few years ago, I studied an organization that had enjoyed over 20 percent average growth for a decade. I was impressed. The CEO had successfully focused on acquiring companies as fast and as often as possible. He had built a huge portfolio of products for his customers.

But when I looked deeper, I discovered low organizational purpose, employees disconnected to a company mission, and weak internal growth. It was quite clear that the CEO's acquisition strategy was not sustainable. Today, the business is struggling.

This is a common problem for acquisition-driven companies. In the 1990s, for example, Cisco enjoyed massive growth almost exclusively from acquisitions. But the once high-flying company has spent most of this century struggling. In 2000 Cisco's share price peaked at $80. Today it sits at about a quarter of that. There are even broad studies that indicate acquisition-based growth strategies are more likely to fail than succeed. Why is this?

Quite simply, organizations heavily concentrated on acquisitions often forget the reason they exist -- their purpose -- and the value of having employees that align with that purpose.

Sustainable Growth

The Purpose Institute defines purpose as "the definitive statement about the difference that you are trying to make in the world."

Purpose-driven internal growth is not growth that comes from buying new businesses. Instead, it is generated from the alignment between employees and their existing company. Purpose-driven internal growth achieves what growth through acquisition can't because the heart of internal growth is fueled by employee engagement.

If employees are connected to their jobs and their company through purpose -- they are personally pursuing what the company is pursuing -- they will make extraordinary efforts to ensure success of the organization's mission.

If they are unconnected and feel just a part of a transactional acquisition machine, they will do little to internally grow the business. Strong duel purpose-driven internal and acquisition growth strategies seen at companies like Stryker (growing 20 percent a year, year-on-year for 30 years) -- the medical technology company where I spent 11 years -- does not happen by itself. It takes a conscious and concerted effort, strong and committed purposed-based leadership, an investment of time and money, and most importantly, employees that align with the purpose of the organization.

Employees must understand and believe in what the company stands for -- its purpose, why it exists -- not just the size of the organization and financial targets. Sustainable growth is driven by people and not transactions.

Because purpose engages both a person's heart and mind, this alignment is the ultimate way to ensure complete focus on the job at hand and subsequently strong internal and sustainable growth.

Raj Sisodia's book Firms of Endearment, reports that purpose-driven companies provided returns of 1646 percent between 1996 and 2011, compared to 157 percent for the S&P 500 and 178 percent for the firms featured in the bestselling book, Good to Great. In addition, their research shows that corporate purpose is also the single most powerful tool for affecting both top and bottom line growth.

Acquisitions As Internal Growth Multipliers

It is easy to get sucked into the romance and ego of making your organization as big as possible as quickly as possible. Size does matter, but not at the expense of sustainability. Sustainable acquisition strategies deliver strong purpose-driven internal growth with each new acquisition while simply acquiring to get bigger puts the whole organization in jeopardy.

As a CEO, you need to ask, "Does this acquisition align with our purpose, improving the business for our employees, customers and stakeholders?" and "How are we going to internally grow this new acquisition within our company?"

It is not enough to buy businesses if you don't understand and have a plan about how your organization is going to internally grow the new addition. Harvard Business Review indicated that out of 3,000 acquisitions by U.S. companies from 2001 to 2011, only companies that created internal growth added value to their shareholders.

Four Critical Components Of Purpose-Driven Internal Growth

1. The presence of a clear and organizationally well-communicated internal growth strategy with defined measures of success and alignment with why the organization exists - its purpose.

2. Leaders that see the big picture and inspire all employees with their vision and purpose beyond growth and financial targets.

3. Empowered and engaged employees leading purpose-driven lives that align with and believe in the purpose of the organization.

4. Forward-thinking leaders that recognize that investment, focus, and C-suite involvement in purpose-driven internal growth are critical at all times for organizational sustainability.