It’s September. The sprint to year-end is afoot and strategic business planning for 2024 is about to get fully underway. For the first time in four years, this will mean developing plans through a post-pandemic lens.
For forward-thinking, strategic-minded companies, it’s time to refocus on Purpose.
Purpose is a company’s North Star. It is the essential reason why a company exists, and how it contributes to the common good. As a meaningful strategic compass for addressing long-term planning and investing in the vitality of a business, Purpose can help drive a company's success and serve as a competitive wedge to help distinguish it in the market.
Purpose first became a game-changer in the fall of 2019 when the Business Roundtable announced a new Statement on the Purpose of a Corporation. It shifted the long-held singular focus on shareholders to a broader set of stakeholders including customers, employees, suppliers, and communities.
Signed by leaders from 181 major companies, the statement made clear that the means for long-term business health and viability were being redefined.From Washington to Wall Street, the market took notice of this sea change.
However, when COVID-19 emerged months later, companies needed to pivot, and full-scale Purpose efforts were derailed. Regardless, the pandemic only exacerbated the need to focus on select Purpose-related issues.
So, as we now emerge from the wake of the last few years, Purpose is poised to once again take center stage. Building on efforts to date, it can help to steer future planning in the face of changing customer, market and economic demands.
All of this begs a few key questions:
The Japanese construct Ikagai defines the meaning of personal Purpose based on four key questions: What are you good at? What does the world need? What do you love? And why do you get paid?
This same basic construct, modified for companies, can be used by business leaders (see this Harvard Business Review article) to arrive at their corporate Purpose. Constructed of four pillars, Purpose is determined at the intersection of the following:
What does the company stand for and what drives employees – from top leadership down to the general employee base? It’s important to be clear and realistic, as these values shape the company culture, employee behaviors, and both internal and external business practices.
Identify specific, important needs that the business can address or help solve to create a better world. For each need, be sure to assign a level of importance and priority based on the company’s values.
Take an inventory of business assets that can address and provide solutions to the needs identified – particularly those that rank highest in priority. This will help to provide clarity on where business traction is most likely and whether a distinct, competitive, market position can be achieved.
Quantify the business opportunities for the top priorities and asset strengths to further isolate the most relevant Purpose-led business focus. This includes evaluating potential revenue, and projecting how much value the business can realistically and profitably capture.
Purpose should be incorporated into every aspect of a company's business and structure, driving benefits for all of its stakeholders. It should inform robust employee programs; deliver valuable products and services to customers; ensure ethical dealings with suppliers; support local communities; and implement practices for the preservation of our planet.
The “Purpose Playbook: Putting Purpose into Practice with Shared Value” emphasizes the importance of articulating values and norms – a key outcome of the Purpose construct. It also details the portfolio of practices that comprise a Purpose-led company. This includes Governance; Employee Relations; Supplier Relations; Community Engagement; Diversity, Equity, and Inclusion; Social Responsibility/Philanthropy; and Sustainability.
As mentioned, a company’s Purpose provides a strategic compass for long-term planning and the health of the business. Admittedly, it is a process that requires an investment of time and management energy.
However, current market issues and stakeholder concerns are requiring companies to act NOW in order to remain relevant and competitive. Here are four specific Purpose-led issues demanding attention:
The employer/employee contract must change in order to attract and retain talent. For starters, employees, particularly young professionals, are looking to join and remain at companies whose mission and values they believe in. Employees also expect companies to be welcoming, offering Diversity, Equity, and Inclusion initiatives, flexible work arrangements, professional development opportunities, and a safe and respectful work environment for all. However, this is just the beginning. More advanced employee relations efforts include using employee data to create personalization strategies, in effect, deploying the same data-driven disciplines companies use to connect with consumers.
Research and data indicate that consumers’ appetite for sustainability is on the rise creating demand for new products and services. The Boston Consulting Group reports that 70% of consumers are interested in what brands are doing to develop sustainable products, particularly as it relates to food, drinks, and personal items. In addition, a sustainable focus can yield positive financial results. Hewlett Packard’s “big bet on sustainable impact as a competitive edge” realized significant gains. The company reported that $3.5 billion in net sales were influenced by its Sustainable Impact efforts in 2021 – a threefold increase from the prior year.
The perils of climate change are raising red flags in the financial marketplace, requiring companies to take more careful note of their climate profiles and activities. Banks and insurance companies are re-evaluating their lending, mortgage, and policy guidelines in the face of billions of dollars in property damage and lost value. Fitch Ratings has estimated that by 2035, 20% of global corporations may face credit rating downgrades due to climate vulnerabilities, creating a potential negative impact on the cost of doing business..
New regulations requiring companies to provide greater transparency on climate-related material risks are also going into effect. In the U.S., recently passed legislation in California will require all large businesses, both public and private, to disclose their direct greenhouse gas (GHG) emissions as well as those that come from activities like employee business travel. The SEC is also planning to release new disclosure rules that aim to eliminate inconsistent climate-related reporting, providing clear information on material risks to businesses, as well as direct GHG emissions and indirect emissions from purchased electricity and other energy forms. Similarly in the EU, the Corporate Social Responsibility Directive (CSRD) will make companies subject to mandatory sustainability reporting starting in 2024. This alone will force companies to undergo internal transformations to ensure they can provide CSRD-compliant data.
Purpose-led issues are having a direct effect on investing strategies. The aforementioned climate-related regulatory changes are likely to impact ESG Investing, an area of explosive growth over the last few years. In ESG scoring, climate-related concerns have typically ranked lower among the metrics evaluated because of inconsistently reported data. Greater transparency on these issues should help to correct this while also appeasing opponents and climate watchers who have submitted a growing number of shareholder proposals that take aim at ESG.
More importantly, the growing interest in Impact Investing is creating new opportunities for Purpose-led companies. Whether looking to support innovative solutions that address a pressing social or environmental need, Impact Investors typically align their investments with a particular product or service to drive meaningful real-world results alongside financial returns.
Visioning workshops are recommended to bring together cross-functional teams to arrive at well-intentioned, well-articulated Purpose statements and jumpstart work on specific Purpose-led initiatives. They also serve to secure buy-in so that Purpose is sure to guide not only all that a company does but also how efforts are delivered.
Another next step is to develop customer, employee, and supplier personas that are Purpose-focused. This data will provide new dimensions that inform product development, support employee engagement, and improve the selection and evaluation of supplier relationships. This is an investment in the here and now, and into the future.
The return to Purpose is upon us and it’s time to realize its strategic benefits.
This Insight was prepared by Maria Lilly. Feel free to reach out with any questions or comments.