The New Era Of Purpose

For too long now, the answer to the question, "What's the purpose of business?" has been something along the lines of 'to maximize profit and increase shareholder value.'

But could the era of relentless sole focus on shareholder value now be over? In a Financial Times article on March 12th, even Jack Welch declared the obsession with short-term profits and share-price gains as "a dumb idea."

We say, "Amen."

At best, it acknowledges the critical role that profitability and strong performance plays in making a business viable. But as Ed Freeman, Professor at Darden, once said, "Profits are necessary to a business, just as red blood cells are necessary to a human. While you may need red blood cells to live, the purpose of life is not to create red blood cells."

At worst, the exclusive focus on shareholder value creates a zero-sum game mentality that can often create pressure to exploit workers, pinch suppliers, fudge the numbers, and generally do whatever it takes to drive value for the shareholder at the expense of all other stakeholders.

So what's an alternative answer to the question: What is the purpose of business? The purpose of business is simply this - have a purpose! Have an object toward which the organization is striving that makes a positive difference in the lives of the people you are serving. Have something that you're fighting for that captures the hearts and imagination of your people. Find, as Victor Frankl said, 'a concrete assignment in the world which demands fulfillment,' and fill it.

And guess what? The profitability and shareholder value will follow. Having a Purpose at the heart of a business is not a distraction from managing the bottom line. It drives the bottom line.

In fact, purpose drives everything. On a very pragmatic level, when an organization has a clear understanding of its Purpose, navigating tough decisions becomes much easier. It's real simple -- does something further the over-arching Purpose of the organization or not? If it does, you do it. If it doesn't, you don't. Allocating resources, hiring employees, planning for the future and determining success metrics can all be viewed through the lens of the Purpose. And you never make a decision that will violate, or put at risk, the fundamental reason for your existence.

Purpose holds you steady. It acts as the anchor to hold you steady and see you through when you're getting knocked all over the place. If a company doesn't have a clear sense of their reason for existence beyond making money, they'll begin making decisions out of fear and desperation and can easily get thrown off course. Witness the grasping for straws we see all around us.

Purpose also propels you forward - acting as a catalyst for innovation. It provides the motivation and direction necessary to create meaningful innovation in the marketplace. The most innovative companies on the planet inspire their employees to think creatively by tapping into their personal passions and commitment to a higher cause. P&G unleashed a wave of innovation when it decided to take Pampers out of the 'dry butts' business and get into the 'baby development' business. That focus provided the catalyst for innovation that catapulted Pampers from a good- to a great- brand in relatively short order. Compare this with the motivating effect of telling a workforce to 'be innovative because we need to maximize shareholder value.'

Purpose recruits passionate people. The more purpose driven an organization is, the more it can attract passionate, talented people based on shared values and commitment to a common purpose. Purpose is going to be a major factor in winning the war for talent; and, at the end of the day, the talent of the organization is the ultimate determinant of its success. Millennials, in particular, want to apply their talents toward something they believe in--and business, as it is run today, is decidedly not something they have much faith in. When people are working in the service of a Purpose that they recognize as important, it brings a level of energy and vitality to the work at hand. It can transform the work environment from a soul-depleting experience (imagine a scene out of 'The Office' - where Jim nods off while describing his job to the documentarian) - to an enlivening experience, where people are fired up to get to work and make a difference.

And ultimately, that's one of the greatest benefits of shifting the purpose of business from just profit maximization to fulfillment of a worthy purpose. A book like Purpose Driven Life wouldn't have 30 million copies in print if people weren't seriously interested in living lives of Purpose. Since work is where most people spend most of their time, imagine how much happier the world could and would be if people felt like what they did mattered. If people felt like they were using their talents fulfilling a purpose they could feel good about.

So, if business leaders are really interested in creating value - create it for everyone. Have a purpose that drives everything that you do and pursue it in a way where everyone wins: employees, customers, vendors, the community, the planet, and, yes, the shareholders too.

Business leaders today need to get over the belief that principles and profit can't exist in harmony with one another. We believe history will show, that companies that stand for nothing but the pursuit of profit, won't be left standing in the long run. Rather, it's the businesses driven by a purpose--driven to make a real difference in the lives of ALL of the people they serve--that will win in the marketplace.

We have an opportunity, right now, to usher in the era of purpose. Let's begin.

Comments

[Maureen Barry]

What some of you are missing is that Purpose IS the way for any company to maximize profits. Purpose and business performance are not only NOT mutually exclusive, the first is the path to the latter. This thesis is timely and will be proved out by history in the end--only companies of great purpose beyond making money will end up surviving and thriving in this economy and beyond. I say Bravo! to Roy Spence and Haley Rushing for showing us the way.

[j-tho]

Wow ~ I was planning to post a simple "here-here" to this article, but then looked at the comments so far. What a bunch of negativism! These comments sound to me like when you suggest something new at a staff meting and everyone starts in with their "we've tried it before", "we've never done things that way", "it won't work", etc. I don't want any of you in MY company!

Come on people ~ if you keep doing what you've been doing you'll keep getting the same result. And can't we all agree that the result we're getting isn't too great?

[Roy Spence]

Thank you so much. The simple and yet powerful truth is that the "old way" getting off and feeling better on the platform of tearing down in over. The new way and the new road is about building up and making a positive difference­...Let the old be negative..­.let the new be a dawn of a new and purposed filled way...that is the new road i choose to take-thanks again...RS

[jeanrenoir]

The relatively small number of Madoffs in Wall St. banks and sub-prime mortgage mills who almost destroyed the American and world economies with their toxic asset Ponzi schemes, while they themselves--the ultimate insiders--got out before the ceiling fell in and sipped their cocktails on Nantucket and St. Barts, are, like Madoff, among the greatest criminals in world history. Twenty-five years ago, Christopher Lasch followed up his classic indictment of our Culture of Narcissism with an attack on America's ruling class per se called The Revolt of the Elites. Lasch argued, the way Tom Wolfe brilliantly did later in the Decade of Greed in Bonfire of the Vanities, that the Masters of the Universe in NYC had become a group of people whose decadence rivaled that of the Romans on Capri. The barbarians at the gate this time are the Chinese, not the Goths. And they are in the process of crushing America by simply acting with national purpose, while the American elite destroys our country from NYC by treating us all the way Madoff treated his most famous sucker, Elie Wiesel. America is truly finished now, because of the rot at the top represented by these incredibly cynical and selfish sociopaths. It's sad that we've now got our best, smartest President since, probably, Lincoln, and all he can do is manage the American decline these jerks have baked in our cake.

[Sundialsvc4]

There is the famous tale that says that Henry Ford knew that all of the workers at his factories needed to make enough money to buy Ford cars.

He was correct.

Finance is what we would call "an enabling industry." Any form of commerce absolutely requires the services of people who are willing to lend their money to others with the expectation of a reasonable return. It requires both: banking, and more-speculative investors. But it also requires that "never the twain shall meet." For fifty years, it was so.

"A rising tide lifts all boats." And yes, the water in that ocean is "pure money." But you don't siphon-away "all that money" and cart it off just for yourself. Which is more or less what these greedy fools tried to do (and to top it all off, they spilled it).

As you say, we can all do much better than this...

[j-tho]

Great comment ~ thank you.

[hark]

I'm sorry, but this sounds like Ayn Rand capitalistic idealism. It doesn't exist. Business is in business to make money, and the more freedom they have, the more ruthless they will become in their greedy pursuits. Because that is human nature.

Our government, in the Preamble to the Constitution is charged with, among other responsibilities, promoting the general welfare of the people. It's right in there, but our government hasn't been doing its job since Reagan persuaded us that government was the problem, not the solution, and that its only purpose was to defend us from foreign enemies, and otherwise step out of the way. He was wrong, dead wrong, and after thirty years of following Reaganomics, we wound up with this mess.

The goverment - we the people - has to get back to doing its job. Serving us, not big business.

Anyone who thinks CEOs are going to transform themselves into Ayn Rand heroes is asking for the same meltdown we're going through now.

It ain't gonna happen. It ain't their job, and they're not going to do it. We have to do it - the government.

[DuganS1]

"Purpose" is nothing but some abstract idea. A business exists to make money. Businesses have always looked at ways to maximize profits. It's not like it's some new phenomenon.

[sheila]

Blue sky laws are central to this process, and since they are all about making short-term cash for shareholders, companies are at risk every time they "waste" money on taking care of the environment, their staffs, or the companies they trade with. Change these laws so that living wages, environmental stewardship, and fair trade policies are REQUIRED, not discouraged, and we will see a shift in business ethics.

[drymartini1]

well if you dont like caring only about the bottom line, there are PLENTY OF OPTIONS.

1) start your own business
2) Start a partnership
3) Start a corporation but do not take it public.

3) is important. Nobody cares or dictates a private company. But if its a publicly listed company, then shareholders get to pick whats the agenda of the company is. and its profits.

dont like it. Dont go public then.

[ProudMormon]

Is that any better than the Government model where "It's all good if the bottom line is in the red every quarter until the end of time, as long as someone feels like we care..."

[ProudMormon]

The great thing about America (at least thus far) is that anybody can start a new purpose driven business at any time. There's no need to "reform" current businesses, because they already have well functioning business models. So I'm not sure why you address current business leaders in your post. You should be addressing the business leaders of tomorrow. Our system allows those future business leaders to "usher in a new era", so there is no need to try to ham-handedly impose "progress" on current corporations and their leaders.

[magen]

I've been saying for several years now that the business philosophy is-----

"It's all good as long as the bottom line is in the black at the end of every quarter--no matter who gets effed, or what gets destroyed.­"

This needs to end once and for all.