More and more large, international companies are aligning their activities with a purpose. There are many reasons for this and the positive effect has been proven in many studies. In smaller and medium-sized companies, purpose-oriented management is still not very widespread. This is regrettable. Because the path from supply-driven to purpose-driven management is much shorter for them thanks to their more manageable size. This interview with Yellow’s strategist explains the advantages of this type of management and how it is achieved.
Hannes Müller is a strategy coach at Yellow and supports companies in becoming or remaining successful. In most cases, the basis for this is an overriding purpose. This raison d’être serves as a guardrail for the development, differentiation, employee attractiveness and, last but not least, the resilience of a company. The so-called purpose resembles the soul of an organisation and the values summarised in it shape the corporate culture. This means that clients who develop their purpose together with Yellow initiate a transformation of their entire organisation. Because Purpose is not marketing, but identity.
What exactly is Purpose?
Purpose defines an overriding benefit that a company creates with its activities. Overarching means that its actions lead to a common and long-term creation of value for all its stakeholders. This means no more and no less, a seriously lived purpose is always in the interest of employees, customers, suppliers and society as a whole.
Where does the trend towards Purpose come from?
I would no longer call it a trend. Purpose has long been recognised in broad business circles and many well-known companies align their activities accordingly. The factors that have led to this awareness of values are complex. Klaus Schwab, the founder of the World Economic Forum Davos, probably played a significant role. As early as the beginning of the 1970s, he published the “Davos Manifesto”, which defined a company’s responsibility towards all stakeholders. More recent are the book The Purpose Economy published in 2014 by economic psychologist Aaron Hurst, and the TEDx appearance of management consultant and author Simon Sinek. His simple formula “Start with why” caused a big stir worldwide and raised question marks in broad sections of the business community.
Millenials are probably responsible for the fact that there is now also external pressure on companies. Like no other generation before them, Generation Y or Me – as they are also known – is aware that life is unique. That is why they very often question the status quo and ask the question why. Millenials are increasingly shaping the economy, whether as employees, consumers, entrepreneurs or even academics. This makes the question of the meaning of an action more and more important.
Why is making a profit suddenly no longer the purpose of a company?
On the one hand, there are certainly the reasons listed above. The state of our planet and the admonishing words of the masterminds have meanwhile reached the ears of all supporters of maximum profit increase. In the sense economy – as the Zukunftsinstitut calls it – profit takes on a new meaning. It represents the result of an entrepreneurially well-solved task and is thus a means to an end, but never an end in itself. Meanwhile, various studies show that purpose-oriented companies are more successful than purely profit-oriented ones. In the Global Leadership Forecast 2018, for example, purpose-oriented companies are said to have a 42 percent higher financial performance.
Another example is organisational development. Purpose orientation is a very effective and simple magic formula for giving employees a high degree of personal responsibility. If they align their actions with the purpose of the organisation, no decision will turn out to be fundamentally wrong.
What is the difference between purpose and vision?
“We will be the number 1 in Switzerland in XY by 2025”. The visions of many companies sound like this or similar. They are formulated from the company’s own perspective and define a goal for the organisation. The purpose changes the perspective and focuses on the benefit for all stakeholders or even for the whole society and the environment. If a company fulfils its raison d’être very convincingly, there is a good chance that it will achieve its quantitatively formulated vision. The purpose is therefore the purpose, the vision a possible result – if one can successfully realise its purpose.
How does the Purpose support operational business?
The purpose serves as a solid and very reliable guard rail. No matter in which area a decision has to be made: A glance at the defined corporate purpose is enough to get certainty about right or wrong. For this, it is indispensable that a purpose is firmly anchored in the culture of the company. That all employees have learned how to act in a purpose-oriented way in their area of impact and responsibility.
How can a company recognise that purpose is missing?
Analysts from the big four consultancies answer these questions with financial figures. For example, various surveys show that, compared to the rest of the industry, purpose-oriented companies achieve higher margins, spend less money on personnel recruitment and are characterised by a higher level of innovation. For those who do not know these figures, Simon Sinek’s Golden Circle is a good tool. His circle consists of three layers. The outer one defines the what, i.e. what the company offers. Every CEO can provide detailed information about this. Asked about the how, which forms the middle layer of the golden circle, many company managers already get bogged down. It gets very quiet when the overall purpose of the organisation is to be explained. The chance of an answer is always higher with large, international companies. Apple, Microsoft, SAP but also Procter and Gamble or Patagonia have a meaningful statement that gives the company and all its stakeholders a reliable anchor for identity. In smaller and medium-sized organisations, such overarching corporate purposes are still not very common.
How does a company find its purpose?
Let us remember that the corporate purpose should always respect the interests of employees, customers, suppliers and society as a whole. Accordingly, the big question of why must be considered from all these angles.
What is the core of the company?
How do our customers define this core?
What is our relationship to our environment?
What is happening in the world that makes us indispensable?
Where can we make a unique contribution that is credible, comprehensible and understandable in connection with our company?
These questions culminate in a short, inspiring statement. For example, “Patagonia is in business to save our home planet.”
How does purpose influence marketing?
The question is well posed. Because very often the purpose is understood as a marketing tool. And that is fundamentally wrong. The Purpose reflects the raison d’être of a company and thus influences every area of an organisation. In terms of marketing, the purpose defines the direction of all activities. It defines the context in which products and services are developed and the way in which stakeholders are interacted with. Thus, the purpose of the organisation and the values associated with it also set the guidelines for communication.
What impact does the purpose have on clients and employees?
The purpose serves as a guide for clients. If the purpose of a company makes sense to them, they will evaluate its products or services positively, which is the basic prerequisite for a purchase or use. Employees also make this assessment. For them, the purpose additionally fulfils the function of a navigator. If solutions have to be sought or decisions made, the Purpose gives them direction.