February 24, 2022

TPL Insights: Building Peak-Performance Cultures #107 – Inside Companies that Enable Purpose to Drive Peak Performance Part 1

By Rob Andrews

 

With paraphrased content from Ranjay Gulati’s HBR article published February 15, 2022\

Purpose has become a corporate buzzword over the past decade. Corporate leaders are being pressured by their boards and external stakeholders to embrace the idea that companies cannot just focus on profits; that they also must do good for their broader stakeholder groups, to include the board, employees, shareholders, management, and society. Ranjay Gulati, professor at Harvard Business School has studied how dozens of purpose-driven companies, from Etsy in the U.S. to Recruit in Japan, enable purpose to drive exceptional financial performance. He argues that while we all want a win-win, leaders must also learn to make thoughtful tradeoffs. Here are some examples of companies who reside in the 3% who make purpose work.

As purpose-driven start-ups go, Gotham Greens is a tremendous success story. The company uses advanced hydroponic farming techniques to grow fresh, high-quality, pesticide-free produce, which now sells in more than 40 U.S. states. Since its launch, in 2009, it has redeveloped 500,000 square feet of out-of-use city industrial spaces and brownfield sites into modern urban greenhouses—facilities that use 95% less water and 97% less land than conventional farms do. Profitable since its first year, it has been named one of Business Insider’s “50 Coolest New Businesses in America.” By the close of 2020 the company had attracted $130 million in investment.

Gotham Greens clearly delivers social and environmental benefits, making good on its mission of finding new ways to produce local food, revitalize communities, and innovate for a sustainable future. At the same time, it’s creating wealth for its employees and investors. It’s an example of what Ranjay’s Harvard Business School colleague Michael Porter and the FSG cofounder Mark Kramer have dubbed “shared value” and what Whole Foods Market’s CEO, John Mackey, calls “conscious capitalism.”

And yet not even Gotham Greens always realizes its ideals perfectly. If you’ve bought its produce, you know that the greens come in single-use plastic packaging, which is terrible for the environment. Why would a company so dedicated to sustainable, low-waste production make such a decision? As its CEO, Viraj Puri, has explained, it was a difficult but well-researched, mindfully made, and necessary trade-off—the kind that even the most noble companies must constantly make to truly deliver long-term value for all stakeholders.

Over the past three years Ranjay has conducted in-depth research on how mission-driven organizations—both old and young and spanning a variety of industries and geographies—succeed. No question, the best of them strive to deliver on their purpose while also generating profits at every turn. Indeed, they see purpose in the same light as profit—as a generative force that expands and improves everything about an organization. For example, you might see a manufacturing company shifting to new energy sources that pollute less and reduce costs, or a bank hiring a more diverse workforce, which benefits the community, brings the bank closer to its customer base, and spurs revenue-generating innovation.

However, smart corporate leaders understand that such win-win solutions—those that yield universal short-term benefits—often aren’t possible. How can a company move forward when it can’t simultaneously achieve purpose and profit or when it’s impossible to satisfy diverse groups of stakeholders in equal measure at the same time?

Many companies revert to a profit-first strategy when the going gets tough. Others, more committed to their mission, might cling to it instead, come hell or high water—or bankruptcy. But if your end goal is to create long-term value and have a meaningful positive impact on the world, neither of those strategies is tenable.

Gulati’s research, conducted at an array of large public and private companies, points to a better approach. It involves using purpose as a North Star to clarify priorities and inspire action in situations where trade-offs must be made. It requires leaders to lean into such deliberations in consultation with stakeholders; to look beyond short-term, win-win solutions for ones that are good enough for now and promise broader benefits in the future; and finally, to effectively communicate the thinking behind those complex decisions to garner support.

Deep purpose organizations are deeply committed to both positive commercial and positive social outcomes. Their leaders adopt a mindset of practical idealism.

This isn’t a straightforward process. In fact, it can be excruciatingly difficult. But evidence from dozens of companies—including Gotham Greens, the personal-health-care company Livongo, the handmade-goods marketplace Etsy, the HR-technology conglomerate Recruit, the diversified industrials multinational Mahindra Group, and the plant and advanced-materials-engineering company Bühler—shows that it works.

Pursuing Deep Purpose

Before Gulati digs into the messy but critical process of successfully navigating trade-offs, he describes what he defines as a deep purpose company. In his work studying and advising organizations over the past few decades, he’s reviewed hundreds of purpose and mission statements and found that the most compelling—and most effective in guiding decision-making—have two basic and interrelated features. First, they delineate an ambitious long-term goal for the organization. Second, they give that goal an idealistic cast, committing to the fulfillment of broader social duties. These statements are meant to assert the commercial and societal problems a business intends to profitably solve for its stakeholders. They succinctly communicate what a company is all about and who it hopes to benefit.

Deep purpose companies thoroughly embed their purpose in their strategy, processes, communications, human resources practices, operational decision-making, and even culture. Sadly, such enterprises are quite limited in number. Most companies practice what I call convenient purpose: They talk about purpose but act on it only in superficial ways.

Some set out high-minded goals and serve society to an extent while continuing to sell dangerous products and services that cause serious harm. Depending on your moral perspective, certain companies dealing in such products, and even some traditional and social media, fall into this category. Their commitment to social good isn’t strong or broad enough to lead them to divest from lucrative but questionable businesses. This is purpose as a disguise. At an extreme, companies may even use lofty missions to hide malfeasance. Examples include Theranos, the blood-testing start-up that promised a pathway to personalized health care but is said to have faked the efficacy of its equipment, and Purdue Pharma, which allegedly pumped sales of its breakthrough pain-relief medication OxyContin so dramatically that the result was a devastating opioid epidemic.

Other organizations offer what Gulati calls purpose on the periphery: They work to do good through corporate social responsibility (CSR) efforts and to do well through their core businesses, but they keep the two separate. While helping society to a degree and certainly rewarding shareholders, they stop short of transforming themselves into entities that promote environmental sustainability, community support, and employee well-being.

Then there is the purpose as a win-win company. They aim for the sweet spot where social and economic value intersect. However, they tend to deliver only when ideal outcomes are possible (which is less often than one might think) and thus typically fail on either profit or purpose measures—more often on the latter. As the journalist and commentator Anand Giridharadas has argued, the “promise of painlessness”—the idea that “what is good for me will be good for you” and that investors and top executives need not sacrifice for the public good—is terribly naive.

Deep purpose organizations are different. As the name indicates, they are deeply committed to both positive social and positive commercial outcomes, framing even the smallest decisions, actions, and processes with their goals and duties in mind. Their leaders adopt a mindset of practical idealism. That means they don’t simply accept trade-offs—they immerse themselves in them. They are determined to bring their corporate purpose to life, but they also understand that they must play and win within the constraints of our capitalist system.

Consider the exhibit “Weighing Purpose and Profit in Decision-Making.” Every purpose-driven, for-profit company claims to be aiming for the “purpose with profit” box. Deep purpose businesses, with leaders who embrace practical idealism, get there more often than others because they are not only truly committed to purpose with profit but also willing to reside in the “profit first” or the “Good Samaritan” quadrant for a time, provided they see a way to move over or up to the win-win ideal in the future. They may avoid decisions that yield only commercial gain with no prospect of social benefit. But if a choice boosts profit in a way that will one day do widespread good, they may make it and work hard to ensure that it eventually provides multistakeholder benefits. Likewise, if they have a Good Samaritan idea that they believe will become profitable over time, they may take a risk on it and then do everything possible to ensure that it works financially.

These leaders recognize the impossibility of devising perfect solutions that benefit all parties equally all the time. They settle instead on arrangements that may require a short-term or partial sacrifice by some but generate a balance of long-term value for everyone.

I hope this paraphrased content has helped you understand what purpose-driven organizations are about. Stay tuned for part 2 on Ranjay Gulati’s research next week. Please give us a call if you’d like a little thought partnership around leveraging purpose in your organization.

Warmest Regards,
Rob

Rob Andrews
Allen Austin
Consultants in Retained Search & Leadership Advisory