Purpose without Performance Is Pyrrhic

Purpose without Performance Is Pyrrhic

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Over the past two decades popular opinion has shifted about the importance of an organization’s purpose — a raison d’etre that goes beyond financial metrics to encompass benefits from improving company culture for employees to saving the environment from climate change. This purpose is intended to serve as a guiding light for the organization, showing a way toward profit while incorporating and generating other types of societal value.

But some organizations may have shifted too far toward the ancillary-benefits spectrum and away from what Milton Friedman famously extolled as the real — and only — purpose of an organization: to create value for shareholders.

https://www.altruistleague.com/the-friedman-doctrine-at-50-alive-well-harder-to-misuse/

Some organizations have recently experienced a backlash against corporate leadership teams who have appeared too focused on purpose, at the expense of performance. French conglomerate Danone, for example, recently ousted its purpose-focused CEO after share price suffered relative to peers.

Why the Rush to Purpose?

Business is never simply a transactional function on the part of a provider and a consumer. In addition to the functional benefits of a product or service consumers look to purchase from businesses that have brands they can identify with, based on the satisfaction of reinforcing the consumer’s identity by satisfying an emotional need, among other reasons. We also think of an organization’s “value” not simply as the value it provides to customers, but to employees, the community where the company is based and even society at large.

As brand expert David Aaker has asserted, this broader concept of value serves expanded rational, emotional, self-expressive and social needs on the part of consumers and draws them closer to a brand and the underlying organization, ideally creating a virtuous cycle whereby all stakeholders mutually trust and support each other and an organization.

Many organizations have built purpose into their brand and messaging though disparately titling it “goals,” “values,” “mission” or something similar. This newly-defined purpose then takes on an outsize influence in other business decisions, built around an alignment with the purpose of the organization.

We have long argued for a more expansive conception of organizational value — that organizations with a robust Shared Purpose ultimately provide more value for stakeholders in the long run… up to a point. But you can’t have purpose without performance.

When Purpose Overshadows Performance

Emmanuel Faber had been at French food-products manufacturer Danone for more than 20 years when he was recently ousted as Chairman and CEO of the organization. The reason? Activist investors disappointed with the share performance of the company. Faber had bet hard on the benefits of sustainable capitalism, implementing programs that focused on making Danone a purpose-driven company, famously congratulating shareholders for “toppling the statue of Milton Friedman.”

Shareholders weren’t having it though, particularly when Danone’s shares began to lag behind archcompetitors Nestle and Unilever. Shareholders’ objections were that Faber pushed Danone too much toward a mission while neglecting his principal responsibilities of driving forward a for-profit enterprise.

 

Faber wasn’t the first and won’t be the last executive to focus on shifting an organization toward a purpose-driven existence, but the Danone example seems to show a clear need to link purpose with performance. Executives who fail to appreciate the need to perform may soon find themselves out of their jobs.

Making Purpose and Performance Compatible

All is not lost for pursuing purpose and performance. They are not mutually exclusive, but organizations must work to attain a balance between the two, ideally developing a virtuous cycle where one supports the other. Performance-led brand development means aligning brand and culture to drive competitive advantage and revenue growth.

We advocate for making a positive impact and aligning brand, business and social impact strategy, but it should follow that order. You can’t do good if you do not have the resources to do so. Organizations need to sell products and services at a price that at minimum covers its costs. Losing money on every sale and making it up on volume has doomed many organizations. Incorporating Shared Purpose to enhance the customer and employee experience, however, helps drive competitive advantage and enable organizations to deliver on their value proposition across employees and customers, creating stakeholder value.

Aligning brand, culture and performance is not just a communications initiative, but rather a business and operational strategy that organizations need to recognize, analyze and implement.

Key Takeaways

  • Many organizations have made a concerted effort to incorporate “purpose” to their DNA, which aligns brand and culture for customers, employees and other stakeholders
  • Performance still matters to stakeholders to achieve a return on their investment as customers, employees or shareholders and leadership must make sure not to lose sight of that paramount goal
  • Organizations that neglect performance may find themselves out of business… and their leaders out of a job
  • Purpose and performance are not only compatible, but support each other through alignment among brand, business and social strategy
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