Purpose-Led Organizations: Another Buzzword Or Something More?

Yvonne Fandert

Were jobs in the past meaningless before consultants, researchers, and practitioners identified purpose as a critical differentiator for companies to be successful in the digital age?

Is becoming purpose-driven more hype leading to the expectation of increased profit for those who talk about it? Or is there something more substantial behind this new corporate trend?

And if so, how much of it is really new versus old wine in new bottles? And more importantly, what does it mean for us as HR professionals?

According to a KornFerry study, purpose-driven businesses have 4x the compound annual growth rate (CAGR) of companies in the S&P 500 Consumer Sector. Nearly all employees (90%) in purpose-driven organizations report feeling engaged, compared to 32% of employees in other companies. As SAP colleague Florian Kunzke highlighted in this article, purpose makes people 3x more likely to stay in an organization, leading to 1.4x more employee engagement, and 2x more optimistic employees. It also creates 75% more customer retention.

So there seem to be some convincing – profit and nonprofit related – arguments to inspire organizations to become purpose-led.

What does it mean to be purpose-led?

According to Markus Heinen, chief innovation officer of EY, “Purpose is an aspirational reason for being that is grounded in humanity and inspires action.” In other words, an organization needs to stand for something it believes in, going beyond profit and impacting society. This can, of course, extend beyond pure social projects. If a company can direct its vision, mission, and business model towards something that creates purpose, and can demonstrate how their products create purpose, it is even stronger.

Many great companies show a strong focus on purpose, including:

  • Unilever, one of the top-ranked purposeful brands, states that to succeed requires “the highest standards of corporate behavior towards everyone we work with, the communities we touch, and the environment on which we have an impact.”
  • Patagonia, which produces gear and clothes for alpine and outdoor sports, is determined to reduce waste and impact on the environment. Why? To allow its customers and society to continue to enjoy what they are passionate about: the great outdoors. These goals are reflected in the corporate values as well as many processes such as the famous buy-back initiative of used gear.
  • Zappos and its famous “happiness culture” create not only a distinct corporate culture, but also happy, loyal customers. 

The causality and relevance of purpose

Purpose-led companies usually have strong employee engagement that has increased year over year; they also see an increase in retention. Yet, we could conclude that there is a direct correlation between purposeful activities and the impact just mentioned. But would that be “jumping to conclusions”? My personal view is that purpose certainly helps, but profit is essential as well: not only to fund the social projects, but also to keep your employees happy with a fair and competitive salaries. Purpose and profit should not be seen as contradictions, but complementing factors. As research, such as WillisTowersWatson in 2016, shows, base pay/salary is the second top attraction and retention driver.

Let’s have a deeper look at causality: The impact of the unconsciousness on behavior and decisions is not a new study field. If you research the field of social and market psychology, you will find many studies that show how often we behave irrationally, driven by heuristics and emotional arousal. To put this in context: people behave in a way that makes them feel good; they prefer to be around people they trust; they are more likely to buy products in an environment that makes them feel good. This in turn shows that experience is vital. Therefore, it is vital to focus on consumer experience, treating each other as internal consumers, and putting the consumer into the center of everything.

The human wish to do something meaningful is also not new. It seems to be ingrained in our human nature. Asking “what’s the purpose of (my) life” might be as old as human mankind. At the same time, the answer to it will differ depending on the context, circumstances and the phase/situation of life you are in right now. While, for example, after WWII, people in highly impacted countries focused on starting from scratch to survive hunger and get a job to feed their children. Many are luckily now in a much better position. The unemployment rate is low, and for many people, earning money is not enough anymore, as they take it for granted.

Contributing to a higher purpose has become more relevant. Somehow like the pyramid of needs: moving from core needs towards personal growth and development, until contributing to a higher purpose that goes beyond the individual contribution. In addition, experts confirm that we are in a candidate-driven market, in which candidates hold more power than employers, a trend that seems to be deepening. This means that employees have the power to request a deeper purpose from their employers, a situation that did not exist 50 years ago: “Future generations want the organizations where they are spending their time and energy to match their personal values and purpose in life,” according to Nancy Birkhölzer, CEO ixds. This is also underlined by a recent study done by the MRI Network: 90% of all recruiters are convinced that we are in a candidate-driven market.

experts have described the current labor market as “candidate-driven.” Job seekers hold more power than employers, a trend that seems to be deepening

2017 Recruiter Sentiment Study MRI Network

Source: 2017 Recruiter Sentiment Study, MRI Network.

How to drive purpose in organizations

Now after having explored the various impact, and the increasing relevance that purpose has, let’s have a quick look at some general principles and best practices that helps organizations to improve their purpose:

  • Have an authentic purpose that also fits your business model
  • Communicate it to the employees in a clear way -make them believe in it, and let them experience it
  • Have each team, department, and role design their own purpose which serves an overall purpose and let them act according to it
  • Hold people accountable to the purpose
  • Define metrics and goals based on purpose to assess effectiveness

Conclusion

The relevance of purposefulness has increased over the past years. While knowledge about the human mechanics that are running in the background is not fundamentally new, how it’s being expanded into the business world, including profit organizations, is. This has to do with the increasing importance of employer branding to attract but also retain best talents.

Nevertheless, it is imperative to go beyond pure lip service or marketing brand – just writing down a purpose-driven mission statement is not enough. Purpose-led companies need to be followed by consistent leadership behavior, tangible examples, and continuously evolving and adapting strategy and execution along with the rapidly changing environment.

Profit and purpose do not contradict, but they can complement each other. Successful companies will find a way to keep profit and purpose in a healthy balance.

For more on this topic, see Engage Employee Engagement By Connecting Them To Your Company’s Purpose.

This article originally appeared on LinkedIn Pulse.


Yvonne Fandert

About Yvonne Fandert

Yvonne Fandert is leading the HR Office for the MEE and EMEA region at SAP. She joined SAP in 2006 and held various local and regional HR Business Partner positions, as well as project director positions within HR. She did a Master in Business Administration at the University of Mannheim, Germany, and a Master of Human Resource Management and Coaching at the University of Sydney, Australia. Being a certified coach, Yvonne feels passionate about personal development, and is a firm believer of personal growth via constant learning and self-reflection.