Having a clearly articulated and widely understood purpose is beneficial for organisations. Companies that prioritise purpose, versus companies that do not, are generally more profitable (see our Business Case for Purpose), have an easier time attracting and retaining A-level talent, and have inspired employees that far outperform mediocrity (visual below, with mediocrity shown as 100 for ‘satisfied’ employees).
What is less well-known, is that companies that prioritise purpose are also quicker on their feet when it comes to transforming themselves. Whether it comes to transforming the business model, geographical expansion, changing the top leadership and/or launching new products, they tend to do better when the purpose is widely understood by their employees (see the second visual below).
Don’t senior executives know all of this? Of course they do. When asked how purpose should be embedded in organisations they respond by placing purpose in pretty much every aspect of their companies. In the visual below, you can see their responses on the ‘ideal integration of purpose’ in aspects like strategy development, the business model, branding, the operating model, and leadership development. Note that all these elements are rated higher than 8/10 on ‘ideal integration’, but lower on the actual integration axis.
Knowing that everyone sees this, the question then is why companies so often fail to embed purpose effectively in their practices. This question directly relates to the most senior executives in the firm – the board of directors, and the CEO – that act as representatives of the company owners (stockholders). The first part of the answer is the behaviour of senior executives themselves. Their succeeding in embedding meaningful practices in their day-to-day behaviour is critical for their employees to do the same, without it it’s fruitless to ask employees to do so. However, many senior executives belief they already are the change, and fail to recognise the fact that they themselves need to change first. This self-awareness bias is inherently human, as we’ve seen studies before showing for example 94% of people believing themselves to be in the top half when it comes to athletic ability, or 93% of US drivers believing they’re in the top half of driving ability.
The second big problem is that most leaders fail to articulate a clear purpose for themselves in the first place. In a recent HBR article, researchers found that fewer than 20% of leaders have a clearly articulated purpose for themselves. Our experience with company leaders tells a very similar story: the concept of purpose is an abstract one, and many leaders have not forced themselves to think about it hard enough for either themselves, or their people.
A third important factor is the relationship/agreements of the CEO and board with the shareholders. When shareholders require short-term profit, and judge their representatives this way, it is notoriously hard to focus on the long term. It is therefore no surprise that 14-17% of companies interviewed mentioned short-term shareholder pressure as the most important barrier to purpose-driven practices. Although we fully realise that it can be challenging for company leaders to have this discussion with shareholders; without it they are severely limited in their options.
Although executives mention many other challenges when it comes to embedding purpose in their organisations (e.g. poor communications, lack of buy-in in the organisation, systems/structures not aligned, wrong KPIs), we feel those problems will never be solved when the first three problems mentioned above are not tackled first. The board of directors, and the CEO especially, have critical roles to make this happen.
More information on leading purpose-driven enterprise will be online soon, stay tuned! Feel free to contact us with any questions/comments about the article through firstname.lastname@example.org.