Leaders instinctively understand the value of corporate purpose. They know that, when it is well articulated, a company’s purpose statement—or the best proxy for it, such as a mission or vision statement—serves as a north star. It is a reminder of what matters most and provides clarity to employees, managers, and leaders about how to focus amid the cacophony of daily, competing demands. Yet in our work with leaders across industries and markets, we’ve seen many struggle to communicate a meaningful purpose that builds employees’ conviction about why their work matters. Worse still, purpose statements often fail to articulate the outcomes that will enable companies to win in today’s market.
Such disconnects tend to be baked into the creation process. That’s because when they craft a purpose statement, leaders often sidestep critical questions: Does it address a clear customer need or problem to be solved? Is the organization uniquely qualified to deliver on the promise embedded in that statement? And is the stated purpose directly connected to what the organization does to earn its revenues? Failure to answer these questions creates confusion and can distract both employees and customers from the core of what fuels the business. Over time, strategic and operational drift can set in, chipping away at cohesion, motivation, and alignment across an organization—and potentially undermining performance.
Whether they are setting bold aspirations to stay relevant to their customers, undertaking large-scale transformations that involve significant business model changes, or launching far-reaching ESG (environmental, social, and governance) initiatives, organizations rely on an engaged workforce to carry such initiatives forward. For those companies that succeed in motivating their employees to innovate and deliver real value every day, purpose is a critical source of energy. Here are five ways that every leader can harness its power.
1. Make creating your purpose a strategic exercise, not a communications exercise. Simply put, strategy starts with purpose. Leaders need to take responsibility for crystalizing their company’s purpose, doing so with the conviction that purpose has great power to motivate and clarify decision-making. A well-articulated purpose can drive the transformation companies will need to make to stay relevant, and should guide investment decisions that provide the funding for differentiation. Leaders also need to ensure that their employees are able to proclaim with pride the value of the products, services, and solutions they bring to their customers and why that matters to the world, both today and in the future.
But none of these objectives is likely to be achieved if, as happens all too often, leaders delegate the crafting of the company’s purpose statement to public relations or human resources teams. Although these teams may offer important perspectives, placing purpose in their hands raises the risk of creating what we call the great purpose gap—the difference between what sounds good and what the organization really does. Too often, these teams simply benchmark to peers and create statements that build on the theme of “we are here to change the world,” using vague language such as “empowering people,” “building community,” “enriching lives,” “pursuing a passion for…,” and “unlocking the power of….”
2. Focus on how you earn money, rather than how you spend it. We’ve seen many company leaders point to a variety of ESG-related goals when discussing purpose. For example, they talk about investments or metrics in areas such as diversity, equity, and inclusion; sustainable packaging; or employee well-being to demonstrate how they pursue “purposeful” activities. While we applaud organizations that have found the true intersection between these initiatives and their impact on customers and profitability, such companies are relatively few in number (although they tend to get more media attention in the current environment). And most of them have yet to prove their longevity in the marketplace. In most purpose statements we have reviewed where ESG initiatives are touted, the language is not tied to what the company actually produces.
It’s not surprising that leaders gravitate toward lofty statements that might generate good feelings about their organization. But in the end, all for-profit companies need to have a reason why customers will agree to give them money. It is leaders’ responsibility not just to talk about a variety of new ESG-related initiatives, but also to reexamine their customer-value proposition in light of the question “Why do we exist?” There is a danger in simply adding ESG language because it feels like the right thing to do, or because it might attract employees.
Leaders need to do the hard work of unpacking how their organization creates impact. They can do this by making a meaningful connection between their obligations to customers and investors and the greater well-being of society—and to communicate that connection to their employees. Consider the CEO of a small consumer-air-filter supplier who recently had the insight to explain to her employees that their products “make homes healthier for families.”
3. Identify your special power, and build your purpose around it. When answering fundamental questions such as “What critical role do we play for our customers” and “What would happen if we disappear?” many leaders struggle to find a foothold, particularly when their organizations may not have a meaningful advantage.
It’s not surprising that leaders gravitate toward lofty statements, but in the end, all for-profit companies need to have a reason why customers will agree to give them money.
We understand the dilemma. Organizations that have followed many different definitions of value creation and revenue generation over time often come to resemble a collection of profit-generating activities without a cohesive core. Inevitably, companies tend to become less differentiated as they scale up, seeking to reach new markets, access new sources of capital, attract talent, and gain cost efficiencies. They provide products and services that customers would likely be able to procure from several competitors. For organizations that have grown largely undifferentiated, the struggle to accept this situation and solve for it—to identify and double down on a meaningful source of competitive advantage—can feel daunting.
However, we’ve seen that nearly all organizations have some “special power”—unique capabilities that are often unrecognized and can form the basis of a frank discussion about how to scale or transform. In fact, most portfolios have a high-performing business unit, brand, or group. Invariably, differentiation lies behind that success. Identifying that special power is critical to the long-term performance of the company. Leaders then need to articulate that reason for existence, invest in it, and galvanize their employees around it.
4. In multi-business-unit organizations, make sure purpose goes beyond a single unit. Once leaders have clearly identified what role their company can play in the lives of customers and in society, it’s important for them to take a cold-eyed look at their current portfolio. They may find that some businesses don’t line up as well as others. While purpose may not have to span every part of a company’s revenue, it is important that what employees do every day doesn’t work at cross purposes to the company’s stated purpose.
Leaders need to start by ensuring purpose is incredibly clear at the business or market level for each of their business lines; they need to work with each unit leader to clearly articulate how their unit makes its money and why that matters. Then corporate leaders need to assess and articulate how (and if) the corporate center adds value across these businesses’ many different purposeful activities. This is sometimes described as “the role of HQ.” That role could include deploying scaling capabilities that the business units on their own can’t afford (like innovation centers or supply chain components) or providing access to capital and talent.
Organizations have two imperatives. First, they need to make sure that their businesses can independently develop meaningful purposes that makes sense for their customers and that are related to their strengths. Second, they need to ensure that keeping these businesses together still makes sense, and that the organization’s overall purpose enables all of these businesses to succeed. This will sometimes mean making tough decisions to divest or sell businesses that can better enable their purpose by standing on their own or by becoming part of another organization’s portfolio.
5. Boards need to do more to hold leaders accountable on the topic of purpose. Discussions in the boardroom tend to focus on capital allocation, margin improvement, executive compensation, and, when cash is flush, compensating shareholders, either through dividends or stock buybacks. In contrast, deeper, more nuanced discussions about the value a company brings to its customers don’t tend to rank sufficiently high on the board agenda.
Perhaps ironically, the ESG movement isn’t helping. Although the imperative to do better on ESG issues can be a great opportunity to engage in the big questions of purpose, it too frequently shifts the focus to ESG metrics and reporting, and to one-off investments that may not be genuinely connected to the real business of the organization. (What was our score from the Green Building Council? What percentage of our light bulbs have been swapped out for LEDs?)
Some boards understand that they have a unique role in the longitudinal success of the organization and facilitating the right discussions. But taking control of the board agenda to ask management hard questions about purpose can be difficult, and those questions may feel too unwieldly and time-consuming to incorporate into a tightly orchestrated meeting. Still, we would argue that the discussion of purpose lies at the heart of fiduciary oversight.
Given the magnitude of the challenges they face, leaders need to rethink their approach to purpose. Rather than relying on platitudes to move the needle, they need to be boldly honest about how their organization will shape its customers’ future—and how employees can make that future a reality.