Purpose vs Profit: Are they compatible in 21st century business?
CMI explores the shift in thinking as companies dig deep to communicate their purpose to engage millennials, keep profits on track and avoid corporate crises
The Chartered Management Institute (CMI), the professional body for management and leadership, today launched its whitepaper The What, the Why and the How of Purpose: A Guide for Leaders in association with Blueprint for Better Business.
The report includes in-depth interviews with 14 big brands, including Unilever, BT and Marks & Spencer. It sheds light on why successful organisations are shifting their focus from pure profit to a more fully-rounded, purpose-driven focus, which runs through the entire organisation. It was written by Charlie Ebert of Judge Business School Cambridge, Dr Victoria Hurth of the University of Plymouth, and Prof Jaideep Prabhu of Judge Business School Cambridge.
It defines purpose in business as: ‘An organisation’s meaningful and enduring reason to exist that aligns with long-term financial performance, provides a clear context for daily decision making and unifies and motivates relevant stakeholders.’
Ann Francke, CEO, Chartered Management Institute, commented: “The bottom line is that purpose-driven, people-centric, values-driven companies outperform. Not just because they do better sustainably over time, they also avoid the risk. They avoid the Volkswagon and the Tesco-type reputational problems, and they help to prevent the damage that wipes 30% off share prices.”
So why is this report on purpose in business needed and why now? With the continuous flow of business crises – such as the Carillion catastrophe – the reputation and legitimacy of business is under scrutiny. There are too many examples of the harm that can be done, to business and society, when companies focus purely on profits and maximising shareholder value.
This is reflected in the recently revised UK Corporate Governance Code, with its sharper focus on purpose and recognition that reforming business culture is key to rebuilding trust and driving productivity.
As for the millennial workforce, those born between 1981 and 1996 are proving increasinglyattracted to organisations that can demonstrate a purpose that they can relate to. Businesses are having to fight hard to attract the best talent and recognise the need to incorporate business purpose to attract and retain talent.
Geoff McDonald, Former Global Vice President of Human Resources, Unilever said: “It’s about creating meaning, and answering the question, ‘why do you do what you do?’
“I’ve worked for professional services firms and for some banks. They are all realising that, with young talent, they want purpose. Why? Because they want meaning in their lives. They want to work for an organisation that’s got a sense of meaning. And people are beginning to get that.”
According to CMI and a Blueprint for Better Business, the five reasons companies are becoming more purpose-driven are:
● To maintain and increase legitimacy in business
● To attract, motivate and retain talent
● To drive strong customer and stakeholder relationships
● To increase employee psychological well-being
● To increase business performance
Charles Wookey, CEO, A Blueprint for Better Business commented “Many people are talking about the potential of purpose, but a lot remains to be done to ensure it works in practice. This report is a useful contribution to this conversation, helping leaders and managers cut through the noise and build their understanding of purpose based on insight from in-depth interviews with their peers. We hope this research gives businesses confidence that exploring purpose seriously, even if not easy, offers clear, practical benefits.”
Ann Francke, continued: “There is no doubt that modern business works best when it has a clear, meaningful purpose at its heart. When an entire company makes daily decisions based on a powerful business purpose, it can deliver profits to shareholders, meaning to its workforce and benefit society as a whole.”
For more information on CMI’s newThe What, the Why and the How of Purpose white paper written in association with Blueprint for Better Business, visit:www.managers.org.uk/purposeinbusiness @cmi_managers