Building a purpose-led organisation

Leaders seeking to profitably build a purpose-led organisation should look for opportunities to better serve their community in ways that intersect with their business interests

• Getting clear on purpose is not just about doing good. It is about being able to explain why you do what you do.

• Organisations that find a purpose that intersects with their business interests have a powerful tool to align their teams and their markets.

• To make purpose effective, it must be embedded in everything you do.

Purpose-led organisations have had some remarkable commercial success over the last two decades. Think Body Shop (acquired by L’oreal, and again by Natura / Aesop), Stonyfield Farm (acquired by Danone, then sold to Lactalis for $875m), Wholefoods Market (snapped up by Amazon for $14Bn), Burt’s Bees (now owned by Clorox, for $913m) and Seventh Generation, purchased by Unilever for over $600m.

These businesses were typical of the early era of purpose-led retail challenger brands, many of which achieved mainstream success and were ultimately acquired by the category leaders. 

The broader market is also recognising the role of purpose in generating long-term relevance creating value. Leaders as powerful as Black Rock’s Larry Fink and global consulting firms including as Accenture, EY and McKinsey, are calling for businesses to clarify and act in line with their purpose, or find themselves on the sidelines.

Since market researcher Nick Bez and I first started asking Australian consumers for their perspectives on the purpose of business in 2007 via the Mobium Group Living LOHAS consumer trends survey, Australians have consistently told us that they expect companies to observe a broader set of obligations than only the pursuit of profits.

Australians have consistently told us that they expect companies to observe a broader set of obligations than only the pursuit of profits.

In our 2018 study, we asked 2,000 adult Australians to indicate their level of agreement with the following statement: “I believe that it is important for companies to consider the impact of their operations on the environment and community and not just make profits.” Over 95% ‘Agreed’ or Strongly Agreed’ with that statement. It was a similar result in our first study in 2007 and again in 2008, 2009, 2010 and 2015. 

It is one thing to agree an organisation’s purpose, and another to create value from it. Creating value from purpose requires genuine leadership, perseverance, patience and the guts to make decisions based on long-term value, rather than short-term profit maximisation. This is especially true for publicly traded companies. 

For leaders with the foresight and temperament to recognise the value and see it through, there are five essential practices to apply:

1)    Adopt a purpose that intersects with your business interests

2)    Place your purpose at the core of your strategic decision-making

3)    Shape your value proposition to complement your purpose

4)    Build reinforcing capabilities

5)    Embed purpose into the agenda of every leadership meeting

These practices are adapted from an excellent article by professors at IMD and Temple University, and the insights below reflect a combination of the authors’ five tests of purpose-led businesses, and our own experiences working with purpose-led brands over the last two decades.

Adopt a purpose that intersects with your business interests

Adopting a purpose that intersects with your business interests involves identifying the most material social or environmental issues in your business’ operations and selecting, from this list, an issue which you have capacity to positively influence, and that your customers, staff and other stakeholders care deeply about. (For more on materiality assessments see this excellent article on Greenbiz).

Take animal testing at Body Shop as an example. What founder Anita Roddick knew was that health and beauty product manufacturers undertook extensive animal testing, that it was often cruel, that it was unnecessary, and that it was unacceptable to the young women that she sought to serve. “Never tested on animals” became more than just the slogan customers would read every time they entered the store. It was a promise that became a mantra throughout the business, that resonated with customers, and that gave clear purpose to the brand.

Similarly, outdoor clothing manufacturer and retailer Patagonia recently updated its company purpose to be, “We’re in business to save our home planet”. For a company making outdoor gear for counter-culture outdoor enthusiasts, this purpose resonates deeply. The privately-owned firm backs up its purpose with a value proposition anchored on durable, organic and fair-trade products, and an imposing activism record that has seen some of the most iconic wild places, loved by its customers, saved from exploitation. 

But its not just fashionable retail product companies that are taking purpose to heart. Consider Finnish oil-refining firm Neste. A 2019 HBR article reports that Neste, faced with falling oil revenues and EU low-carbon legislation, realised that its traditional playing field would not continue to provide the results that it had in the past. With this knowledge, it decided that renewable energy would provide a better platform for long term value, and, as a result, it would be guided by a new purpose, “Creating responsible choices every day,” which it placed at the core of its strategy.

The new CEO then went about embedding this purpose across the organisation, leading sceptical internal and external commentators through a fundamental shift in the firm’s decision making, culture, value proposition and operations. It took six years, by which time Neste would become the world’s largest producer of renewable fuels derived from waste and residues. A clear example of a socially responsible purpose that leverages important trends (concern about climate), and creates new forms of value for shareholders.

By aligning your purpose with your business interests, your organisation will have the incentives to move beyond the superficial, to try new things, take risks, and design the new solutions required to make a positive contribution and create value in the new economy.

Place your purpose at the core of your strategic decision-making

When an authentic purpose permeates business strategy and decision-making, with the proper incentives in place, organisations see the value of their choices playing out in results. 

On the other hand, researchers Robert E. Quinn and Anjan V Thakor report in their HBR article that, 

‘When a company announces its purpose and values but the words don’t govern the behaviour of senior leadership, they ring hollow.” 

One approach to address this is to include the purpose in the company’s constitution and formal governance processes. Efforts to foster the inclusion of purpose in a company’s constitution and core decision-making include California’s ‘Benefit Corporation’ legislation , the rise of  B-Corp certification, the US Business Roundtable’s definition of a new purpose for business and the UK Institute of Directors’ Manifesto on Corporate Governance.

Shape your value proposition to complement your purpose

An organisation’s purpose can be most powerful when it is built right into the firm’s customer value proposition. A worthwhile question to ask is, how is your purpose brought to life through your customer’s experience with your product? For example: 

• If you are an organic consumer goods manufacturer, how is your packaging complementing the sustainability focus of your product? Is it plastic or biodegradable? 

• If you are a sustainable fashion manufacturer and retailer, how is your offer incorporating your messages about ‘repair what you’ve got before you buy new’ being brought to life in your retail formats?

• If your purpose as a bank has something to do with enhancing the financial wellbeing of communities, how are the terms and conditions of your products assisting people in times of crisis such as during the current coronavirus pandemic?

Building your value proposition around your purpose is also a powerful test of the logic of your purpose. If it can’t be built into your product, or doesn’t resonate well with your customers, maybe something needs to be reconsidered.

Build capabilities that reinforce your purpose

Management consultant Chris Tipler, in Corpus RIOS, his treatise on the ‘how and what of business strategy’, states that, “Business strategy is about matching ambition (or strategic intent), with capability.”

If that is the case, and a firm’s purpose is at the core of its strategic intent, then it follows that the firm’s capabilities must be built to reinforce its purpose. 

At a practical level, this means carefully reviewing your organisation’s capabilities and asking, ‘what do we need to be better at, to ensure that we have an impact and are bringing our purpose to life?’ For example, if you are a packaging business focused on re-usability, it will be wise to invest heavily in research capabilities to understanding how end customers acquire, use and dispose of the products that are shipped in your packaging, or if you are a car company whose purpose is to accelerate the shift to electric vehicles, investing in capabilities that deliver a nation-wide fast-charging network will be critical to your success.

Embed purpose into the agenda of your leadership team every time you meet

Strategy is not what you say, its what you do. That is, your strategy reveals itself not by the words on the page, but by action. 

Making your purpose real means taking it seriously by placing it front and centre in strategic and operational decisions. At every point, leaders must ask, ‘does this advance our purpose’? This is not a place for weasel-words. Any clever middle manager can find a way to justify something in the name of the company’s purpose if they try hard enough. So, this is not about following the letter of the purpose statement, but its spirit. Cynicism must be checked at the door. 

Crafting a compelling purpose that aligns with your business interests is about identifying issues that are material to your business’ operations, that you can positively influence, and that resonate with your customers and staff, and then adapting your decision-making, value proposition, capabilities and practices to deliver on that purpose. And if the likes of Larry Fink are right, it could just set you up for a winning future.