How to establish a corporate purpose that assists you to steer change?
It’s Not Just About Profit
Purpose statements of most commercial business organizations are oriented around enhancing shareholder value. With the impactful disruption of the Covid-19 pandemic bringing about global unpredictability and uncertainties, organizations are now taking a re-look at this premise. It is no longer the case that shareholder interests are paramount. Organizations are now tending to believe that their purpose should embrace a wider canvas to cover society as a whole. Interconnectedness and interdependence mean that the interests of all stakeholders merit attention. The purpose of organizations is to lean towards encompassing shared prosperity instead of just existing for the cause of a single subset. This aspect was clearly enunciated in The Business Roundtable, Washington, USA statement of August 2019, which redefined the purpose of a corporation as one that leads to the benefit of all stakeholders–customers, suppliers, communities, and shareholders. This was a marked departure from the earlier commonly held narrow view.
The Larger Picture
The revised perspective of what constitutes the purpose of an organization and how it can be implemented for the greater good has led to corporates to examine restructuring not only the processes but also mindsets. Changes within the organization are imperative to meet the new onus of collectively benefiting the entire ecosystem.
In an EY(Ernst & Young) Global survey of almost 1500 business leaders across diverse industries, it came to light that purpose-centric businesses are using their avowed purpose to effectively counter the current disruption. 73% of the leaders’ EY spoke to expressed confidence that having a well-integrated purpose will help their company successfully meet the current challenges.
Business enterprises that have adopted the new purpose have to first and foremost communicate the same across tiers and business verticals. Moving away from being a pure profit-centric enterprise to a socially responsible corporate citizen needs commitment at all levels. The underpinnings of the change have to be accepted by all stakeholders as otherwise, the business will flounder between diverse objectives and, in the long run, possibly end up with negative consequences.
The purpose, after integration, becomes the cornerstone of all subsequent decisions and policies. Strategies that align with the new ethos of maximizing value for all stakeholders will have to be implemented.
To derive maximum mileage for the enterprise and for managing change, business leaders should follow the following principles:
- Make purpose the pivot of decision making: this allows the business to single-mindedly pursue their goals and objectives, leading to a motivated and well-performing strong entity. It builds resilience, and it takes less effort at managing change.
- Develop purpose-centered capabilities and competence: navigating turbulent times becomes easier when leadership and people have the know-how and the ability to competently handle crisis situations. Equipping the people with the necessary skills and expertise gives strength to the organization to face new challenges and transformation with fortitude and success.
- Implement visible actions that communicate the purpose: every business action must walk the talk and constantly endeavor to show the stakeholders that there is no divergence from the chosen purpose. Clear communication and visibility increase trust, integrity and reinforces belief in the corporate purpose.
- Develop collaborative intent: all resources must collaborate towards fulfilling the corporate purpose. This will optimize the use of scarce resources for the defined objective bringing about efficiencies and maximizing value.
The above purpose-centric actions are done in a concerted manner, when fully implemented and internalized, will render greater resilience and sustainability to the business. It creates a business model that helps transcend uncertainties and provides value to all stakeholders. Distilling the clarity of purpose and aligning it within the organization gives the power of a focused approach. Matching strategic actions accelerate all-round performance.
In the US and Europe, companies with high ESG (Environmental, Social and Governance) scores have outperformed those with poor ESG scores. In some jurisdictions, the law has come into play in fixing policy prescriptions in this area. In India, for e.g. it is mandatory for companies of certain turnover and profitability to spend 2% of their average net profit for the past 3 years on CSR (Corporate Social Responsibility) activities. Investors, consumers, and governments view these activities in a very positive light.
Consumers are now looking beyond the value-for-money metric. They are assessing brands on the purpose they portray and act upon. How closely this purpose aligns with their own value system becomes a compelling reason to favor a particular brand. With this comes long-lasting relationships that form the backbone of a company’s continued relevance.
Purpose-led enterprises access greater opportunities as they are perceived to be integral to creating better communities. New markets and growth avenues welcome them to add value to existing efforts. This, in turn, propels the creation of innovation, forming the bedrock of a new ecosystem. A strong purpose goes towards creating a feel-good factor about such businesses, enhances brand recognition, credibility and improves customer loyalty, leading to better payoffs in the long run. Business purposes that meet these consumer expectations are more likely to survive and thrive in these turbulent times.