Corporate purpose drives performance, but needs consistency (and investments)

09-07-2019

Purpose-driven companies have superior performance in the medium-long term, but they are sometimes pushed for bold decisions with relevant costs.

In the 1960s about one company out of twenty ran the risk of being overwhelmed by technological, economical, social and cultural changes which made business forecasts such difficult. Today market volatility is much higher, and failure threatens one organisation out of three. But it’s not size, financial resources or innovation capabilities that cause a business to be safe. It’s the inner knowledge of the direction to take and the real reason for being, thus its purpose.

As Seneca wrote that “there is no favorable wind for the sailor who doesn’t know where to go”, corporate purpose answers a very simple, but really tough question: why does the company exist? What’s its ultimate goal? More than its mission, before values or any strategic guidance, purpose expresses where the organisation is aimed to, and which role it calls out.

The purpose is “neither a claim nor a marketing trick”, said Francesco Guidara, director at Boston Consulting Group, last week during a debate by The Ruling Companies. The purpose is “set in the CEO agenda”, since representing an authentic commitment, inspiring and driving each department, process, and decision. It pulls the organisation out of its comfort zone and, while being relevant to times, it should last over time.

A number of studies proved purpose-driven businesses to have superior performance in the medium-long term, greater employee engagement and talent acquisition, more loyal customers and solid stakeholders relations. But purpose is not only a growth accelerator. It also generates costs, and that’s something companies tend to forget.

Corporate purpose is costly as it “imposes a behavioural consistency that should be backed by relevant investments in a lot of areas”, stated Gianmario Verona, dean at Bocconi University in Milan, mentioning for instance compensation and incentive systems, organisational changes, corporate communication. More, the purpose might push the company for bold decisions about partnerships, procurement, pricing, inclusion, social and community programs.

The freedom to pursue a goal is thus related to financial performance, as only a profitable business has enough resources to keep up with the purpose and its promise. In this perspective, purpose-driven companies obviate the impossibility and inability of some governments to secure progress and well being in domains such as environmental protection, health or education. That’s the core of Corporate Social Responsibility, as Adriano Olivetti defined it about 80 years ago: “A business cannot look at profit indexes only. It should give back wealth, culture, services, and democracy”.