„Fake Purpose Is Dangerous“
Purpose: Just a corporate mission statement?
Ranjay, you have been focusing on the topic of purpose in your research for some time. Why do you find the concept relevant?
If you had told me five years ago that I would write a book on purpose, I would have said: You are crazy! Absolutely not. For me, Purpose was a very fluffy, philosophical topic. I saw Purpose more as the usual corporate mission statements – it didn't seem relevant to me. Who cared about that? Nobody reads mission statements. I thought I had already found the formula for success in good and bad times: develop a good strategy and implement it. But when I talked to companies that are currently going through a transformation, with people from Microsoft, Etsy or the start-up Livongo – my view changed. They all told me: the why is important because then the what and the how becomes much easier.
The title of your current book is "Deep Purpose". Isn't it enough for companies to simply have a purpose?
I have found that purpose is often only formulated as a statement of intent. If it remains just a mission statement and if there are just superficial goals, it doesn't achieve anything. And that's why I had to call the book "Deep Purpose". So, the idea of Deep Purpose is that companies really put their purpose into action.
The why is important because then the what and the how becomes much easier.
In times of crisis like these, aren't there more important things for companies than dealing with their own search for purpose?
In difficult times you have to make compromises and sometimes very difficult decisions. Should we lay people off? Do we have to reduce or freeze salaries? Or should employees voluntarily reduce their working hours? To what extent should we raise prices and how much in relation to inflation? A purpose cannot take the decision away from you. But having a clear purpose creates a framework for thinking about trade-offs and choices. A purpose supports the decision-making architecture – for each individual, but also for the company as a whole.
Purpose supports decision-making
But does every company have a purpose beyond profit?
No, not every one. Profit should be an important result of pursuit of corporate purpose. But it is rarely a reason for being. In my lectures, I sometimes ask the audience to tell me the purpose of their company in one word. They mention profit or shareholder value, but also employees, customers, impact or social responsibility. So, every company has a purpose - whether it is helpful to the world or not. But it is not so easy to find it.
The idea of Deep Purpose is that companies really put their purpose into action.
How do you find the purpose of a company?
One of the ways is to look back into your own past. What were the beliefs of the founder? At Lego, for example, the founder was all about intelligent play. When the company wanted to put its own purpose into words, that's where it started. But you also have to modernise the purpose. The question is: What does the founding purpose mean for the future? How can you connect the past with the future? That's how you try to distil the core of it. Many companies find this very difficult. Because they confuse the question of why with who they want to serve.
That means companies are asking themselves the wrong questions or not asking the right questions in the right order?
Exactly. The question of who the company's purpose serves and how much certain target groups such as shareholders, customers or employees get out of the company's value is of course important. Even Peter Drucker said: The purpose of a company is to generate customers. But today I feel this is a second-order question. The purpose of an organisation is about what value it wants to create and how it wants to do that.
A purpose cannot take the decision away from you. But having a clear purpose creates a framework for thinking about trade-offs and choices.
When a company has found its purpose, it does not mean that the purpose is attractive for employees...
A purpose only works if employees can identify with the company's purpose. For this to happen, people must first know their own purpose in life. A personal purpose is a stable and lasting intention to achieve something that is meaningful to the self, but also to the world beyond the self. This definition is from Stanford University psychologist William Damon. Companies can actively support personal meaning-making – Microsoft, for example. At first, I was confused: Why is Microsoft helping its employees discover their own life purpose? But they want employees to be aligned with their own goals and to be able to connect their personal goals with those of the company. Kathleen Hogan, Microsoft's Chief People Officer, puts it this way: "You don't really work for Microsoft unless Microsoft works for you."
Purpose is not a "non-profit-stuff"
In companies, however, performance matters. To what extent does a Purpose make you more successful?
Some people think that having a Purpose comes at the expense of making profit. They think of "that non-profit stuff": you take money from profits to fund social projects. This is a misunderstanding. Purpose can often unlock profits in the first place. There are four ways Purpose activates performance: Purpose must be directional, motivational, reputational and relational. I outline each of these in my book. And in my recent podcast where I interviewed 10 global CEOs you can hear compelling stories of how they leveraged these 4 pathways to put their purpose to work. Having highly motivated employees who are proud of what they do has a positive impact on profits. When you have highly connected customers and suppliers who trust you more, when you have clarity about the basis for decision-making.
A purpose only works if employees can identify with the company's purpose. For this to happen, people must first know their own purpose in life.
Do you have any examples of this?
I looked at Bühler, a Swiss company that makes food processing equipment. Barilla pasta and Lindt chocolate are some prominent brands that use their machines – but they are much bigger. Almost half of all grains worldwide is processed on machines made by Bühler. Their partners have placed greater trust in them since they formulated their Purpose. Strict sustainability standards are therefore a real competitive advantage. The products and services must be competitive. Then the purpose can be the deciding factor for a cooperation.
So far, however, there is no evidence that purpose companies really perform better and generate more profit. Only a certain correlation can be proven in some sectors, right?
The question is: how do you measure purpose? Is it enough if a company has been awarded "Great Place to Work" or writes about it in its company reports? It is very difficult to find suitable key figures for everyone here. I am currently researching the topic and working with EY, among others, on this. It is hard enough to define for an individual company what their purpose is in terms of financial value for customers or the community. We don't yet have good keys to measure purpose. And so, some companies are relying upon measures that correlate with purpose like various dimensions of value that might follow if you are aligned with your purpose.
The products and services must be competitive. Then the purpose can be the deciding factor for a cooperation.
Especially in times of crisis, it is important for companies to be flexible and agile. Doesn't a purpose with fixed goals limit agility and even lead to competitive disadvantages?
Especially in bad times, you should rely more on your purpose. That can also mean that you have to lay people off. That was the case with the online marketplace Etsy, for example. Giving employees priority over partners and shareholders can jeopardise the sustainable health of companies. At the time, Etsy decided to lay off 10 per cent of its workforce. Today, the marketplace is profitable and has hired more people again.
Not everything is perfect
So that means, in case of doubt, you don't have to be so precise with the purpose?
Not everything is perfect. You also have to have the courage to do imperfect things. Take the company Gotham Greens: the agri-tech company uses urban rooftops, for example in New York City or Boston, to farm, grow lettuce and herbs. There are hardly any transport costs, 90+ percent of the water is recycled. But the salads spoil quickly. The problem: the packaging. They tested all kinds of environmentally friendly packaging, but they turned out to be unsuitable. So, there was only one solution left: plastic. And that's what they use as long as there is no better alternative. That's what I call pragmatic idealism.
That means that short-term profits come first, even if the purpose suffers in the process?
Sometimes yes. Because what can happen is that managers say: in the long term I will deliver. If we stick to the purpose, we can't perform in the short term. They use the purpose as a cover for personal failure. Or they are so busy with the why that I can't think about the how.
The need to take a stand on social issues, environmental issues and governance has more to do with the ESG movement than with purpose.
More and more companies are under pressure to speak out on political issues such as climate change or gender issues. To what extent does this have to do with the spread of the Purpose concept?
The need to take a stand on social issues, environmental issues and governance has more to do with the ESG movement. This is related to the Purpose movement, but it is not the same. For example, the issue of abortion: if a company says I don't have an opinion on this, I sell shampoo, not only do employees start rebelling, but customers also go into boycott. Spotify podcaster Joe Rogan has spread various misinformation about Corona vaccinations. So, the question was whether to ban his popular podcast. But Spotify invoked free speech until employees rebelled. A purpose does not give a clear answer on how to proceed in such cases. But it helps to set boundaries and say "no". I learned this from Thomas Thune Andersen, the Chariman of Ørsted. He says: "Our Purpose has allowed us to make demands on our stakeholders, rather than take demands from them".
Purpose is not woke
Buzzwords like purpose and stakeholder capitalism are considered chic and ridiculed as "woke". How do you explain that?
I think it is cynical. Cynicism is one of the worst things that exist. But it is unfortunately the case that there is also a kernel of truth behind it. If you don't take purpose seriously, it remains just PR. Some people believe that they only have to do a few social projects. Today, pressure comes from all sides: from customers, employees, shareholders and society. That's why they react with counter-pressure: they turn it into political arguments from the left or the right.
If you don't take purpose seriously, it remains just PR.
In 2019, the Business Roundtable, a coalition of CEOs from most major US companies, made a grand statement about wanting to create value not just for shareholders but for all stakeholders. A Wharton study proved that they did exactly the opposite with the Corona pandemic. Can such cynics, as you say, damage the purpose movement and make it altogether untrustworthy?
Yes, that is a problem. This undermines the credibility of the purpose movement and plays into the hands of cynics. They say that business is all about making money. One interesting context where I observed many organizations with a genuine sense of purpose was in a range of start-ups. Some of them have had a purpose beyond profits only from the beginning. One of the examples I give in my book is my mother, who founded a successful fashion company in 1972.
What was her purpose?
She lived in India and did a master's degree in anthropology in America. Her master's thesis was about women in India who hand-printed their clothes. At that time, there were none of these hand-printed skirts and blouses in the western world. That was her idea. She also wanted to make money, but above all she wanted to show the western world that we Indians are not primitive, backward people. And to give these women in the villages, who are very poor, a livelihood.
Take purpose seriously
It often seems as if companies themselves believe in their own image and an invented purpose that does not correspond to the facts. Is that a danger?
Fake purpose is dangerous in the transparent world we live in today. If you play this game, you will get caught by your employees or customers very quickly. And this will trigger a backlash against you.
Putting a purpose into words is one thing. But what can leaders do to ensure that the purpose is actually realised in the company?
They have to really take the purpose seriously if they want to deepen it. Only then can they bring it into their organisation. This means that they have to weigh up short-term and long-term goals. But the most difficult thing is: leaders themselves must have a personal purpose in life and be able to connect it with the company's purpose. Because if they can't, no one else will either.