Purpose-driven companies as vehicles of progress.

by Michael Ikpoki | October 24th, 2016

So what does “purpose” mean? Sometimes, definitions are clearer when compared with other related terms. So how is the purpose of a company different from it’s mission or vision?. In very simple terms, purpose describes why the company has decided to make a difference while its mission describes what it does to achieve this purpose. The Vision describes the destination. Purpose guides the company while the mission drives the company.

In a recent survey titled “the business case for purpose”, a team from Harvard Business Review Analytics and professional services firm EY’s Beacon Institute defined purpose as “an aspirational reason for being which inspires and provides a call to the organization and its partners and stakeholders and provides benefit to local and global society”.

Research has shown consistently that human beings are naturally driven to connect to something greater than themselves. The survey referred to earlier did a detailed comparative analysis of companies over a period of six decades which showed that a group of visionary companies – those guided by a purpose beyond making money – returned six times more to shareholders than explicitly profit-driven rivals. It concluded that companies that are able to harness the power of purpose to drive performance and profitability have more engaged employees, are more productive and enjoy a distinctive advantage or leading edge over their peers in their respective Industries.So there is a strong positive business case for purpose on the top and bottom-line.

The clarity of purpose is a galvanizing positive force which unleashes energies and potentials of all stakeholders towards a common noble outcome. This establishes a deeper connection with the company. This is serious, not CSR tokenism or PR razzmatazz. Purpose is authentic, intrinsic in the strategy of the company, translated into its operations and exemplified by its leadership. Customers are attracted to the company not just for its products or services but what the company represents or stands for. Governments in particular, will see such a purpose-driven organization as not just a tax-payer or employer of labour but an entity which shares in the long-term socio-economic progress of the country or place of operation. A good example of a purpose-driven company is Unilever. Its Unilever Sustainable Living Plan (USLP) commits to increasing positive social impact while growing its businesses. The company has confirmed that its brands in its sustainable portfolio are growing twice as fast as the rest and are contributing to half of overall business growth. Unilever is a leading authority in sustainability and is a globally well respected company with positive brand value to its operations all over the World.

Operating without a purpose can have catastrophic consequences especially for big companies. Toyota’s purpose was to provide customers with quality products at good prices in contribution to the economic and industrial vitality in the countries of operation. They deviated from this because of a growth push to overtake General Motors. Result: compromise in quality, massive vehicle recalls with attendant negative brand damage. Wells Fargo which was until recently, the most valuable commercial bank in the United States has run into troubled waters. It had a “pressure cooker” culture to aggressively cross-sell customers to meet steep growth targets. Result: fake accounts opened without customers’ knowledge, dismissal of 5300 employees, fines, Congress investigation, retirement of the CEO, significant brand damage also threatening the credibility of the financial services Industry. What is most critical in these examples is their actions represented a breach of the trust of their teeming customers.

It raises a fundamental question: Are companies created to serve customers and make profits from there or are they created to make profits?. Wells Fargo has since publicly scrapped the sales targets and has now rededicated itself to winning back the trust of the customers. The same market that had rewarded Wells Fargo handsomely for its cross-selling strategies has now severely penalized Wells Fargo. Its stock has plummeted and has now been overtaken by J.P. Morgan as the most valuable bank in the U.S. This is what can happen to a company, especially a big one, without a purpose or moral compass.

Companies have a critical role to play in developing society. Through their investments and operations, they create employment, wealth and value. They pay huge taxes which fund Government’s development programmes. Companies represent the engine room of any economy. A recent Mckinsey Report titled “Lions on the Move 2” highlights the fact that the African Continent still has a huge potential for growth. It highlights the growth opportunities to the tune of $5.6 Trillion by 2025. However, the Report identifies that this can only happen if Africa has larger companies to power this growth. Only 400 African companies have annual revenues of more than $1B and there are no African companies in the Fortune 500.

In Africa, we particularly struggle with building effective public institutions to execute a clear development agenda to grow our economies. Generally, there seems to be an inherent distrust and misalignment between the public and private sectors on what the development agenda and plans should look like and how it should be executed. We obviously need to bridge these gaps. To this end, it seems like we need not just more big companies but more purpose-driven companies in Africa.Purpose that demonstrates sincerity of companies towards a greater common good than just themselves.Purpose that demonstrates that the public and private sectors have common objectives – to improve the lives of our people. This should be done within the context of proper structures of governance that instill certainty, transparency and confidence of all stakeholders. After all, companies cannot thrive in societies that fail. Purpose that can be translated into more meaningful and constructive partnerships with stakeholders and Governments, to define and create more positive socio-economic development outcomes in Africa. In other words, a common development blue print. Purpose that shows that good business is good for shareholders, stakeholders and society at large.On the other hand, it means that Governments must create the right environment for businesses to thrive and contribute to society. We cannot reasonably expect to grow bigger businesses in Africa if we do not create the right environment for existing businesses to thrive.

So if the business case for purpose-driven companies is so clear, why is this mantra not catching on in Corporate Africa? I will not attempt to answer this question. However, what is very clear is that only bold, charismatic and forward-looking leaders can build and lead purpose-driven organizations.