Purpose and profit aren’t mutually exclusive. In fact, they are married. Organizations that work from a sense of purpose consistently create high shareholder returns.
Purpose starts with intention, and it isn’t just about altruism. It centers on creating value for customers, the community, and the enterprise itself. Companies that are clear about purpose, and stay aligned with it, are far more likely to triumph in the long term.
Three key reasons purpose matters:
1. The long view builds stamina. Purpose-driven companies see employees, customers, suppliers and relevant communities as partners. Maximizing those relationships just to boost the quarterly bottom line isn’t the goal. Instead, leaders in these organizations see and act on the imperative of fostering a long-term capacity to continually create value.
Economist and theorist Michael Porter recognized the role that shared value plays in transactions for community good, customer good, or enterprise return. Organizations that develop the ability to create and sustain shareholder return tend to be relevant, resilient, and more profitable.
2. Optimism drives smart risk. Purpose-driven companies that maintain faith in their objective can make braver choices. One example: Salesforce, a customer relationship management and commercial social networking firm founded in 1999. It spent billions of dollars to build a core IT platform and application set.
Salesforce leaders knew that business costs would decrease with every new user. They understood the importance of becoming the obvious choice. Committed to reaching critical mass quickly, they set aside a pure profit motive to follow that strategy. By 2016, a clear purpose had steered Salesforce to become one of the most highly valued U.S. cloud computing companies and the first software-as-service company added to the S&P 500.
3. A higher standard inspires loyalty. Companies that act from a great sense of responsibility — such as environmental or social — inspire stronger employee engagement and greater customer loyalty. One example is CVS, the retail pharmacy giant with 8,000 pharmacies, 900 MinuteClinics, and 200,000-plus employees.
CVS leaders don’t just talk about maximizing shareholder value. They talk about the company’s purpose: “Helping people on a path to better health.” In the marketplace, CVS has been forced to compete with grocery and convenience stores for increasingly commoditized products, which has put a squeeze on profit margins. When company leaders decided to move up the value chain by getting into healthcare services, they ran into an ethical hitch. Selling tobacco projects conflicted with the commitment to customer health.
Company leaders chose to stop selling tobacco products, taking at least a $2-billion dollar hit in the process. The company made its commitment even more transparent by rolling out a smoking-cessation program for customers. It was the first retail pharmacy to make such a significant commitment to the health of its consumers. The end result has been overwhelmingly positive economic news.
A purpose-driven organization can stay on an even keel even under a barrage of market disruptions. Leaders can audaciously strategize towards greater market dominance. They can position their organizations as an obvious choice among consumers, for whom integrity and transparency are more important than ever. Purpose provides the power they need to matter and to thrive.
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