Corporate Purpose Misconceptions

The 5 biggest purpose misconceptions

More and more companies are positioning themselves publicly with a corporate purpose that takes the common good into account. In purpose projects, however, we repeatedly come across misunderstandings and erroneous assumptions about purpose. We would therefore like to clear up the five biggest purpose misconceptions here.

1. “Purpose is just a buzzword, it goes away quickly.”

The concept of corporate purpose is currently experiencing a boom phase in wider discussions, both on the financial markets and in corporate headquarters. Many agencies and consultancies are selling purpose orientation as a new miracle cure. The fact is, however, that purpose has been an issue ever since companies have existed. Many family entrepreneurs therefore rightly ask what is new about companies not being solely profit-oriented. The fact is: Purpose is not just a “new pig in the poke”. There’s more to it than that – and it’s not going away any time soon. For many companies, the topic even has the potential to become a real game changer. Why is that?

On the one hand, concern about the endangered future of humanity on this planet runs deep, especially among younger people. The younger generation often holds up a mirror to society and is actively involved in issues such as environmental and climate protection. From customers, to employees, and to the general public, expectations of companies to contribute to solutions to the major global challenges are also increasing. In times of social media and increasing transparency, corporate misconduct can hardly be hidden any more. But looming regulations such as the Supply Chain Act and investor demands are also increasing the pressure on companies to rethink their business models, some of which have become outdated, and to see how they can once again focus more on the common good in their business activities. Because meaningful, sustainable economic activity is increasingly being rewarded on the demand side and technological progress is at the same time enabling steadily better solutions for the major challenges facing society, we are seeing an unstoppable, purpose-driven transformation in most sectors of the economy.

The transition to a new, more sustainable economy is taking place with innovative technologies that resolve the conflict of economic interests on the one hand and social and environmental interests on the other. Companies that change course in a timely and sustainable manner have the chance to put their business models on a new, long-term path. This usually does not happen overnight and is therefore usually much less disruptive than it might seem for some companies. In our consulting work, we have experienced for several years that companies are capable of fantastic renewal achievements as soon as the direction is recognized and defined. This is now also clearly evident in topics such as sustainability, climate protection and the circular economy. In these fields, it is now leading companies themselves and no longer the legislators who are driving the transformation and raising the bar ever higher. Such fundamental transformation processes reconcile the external pressure to adapt and the needs of the various stakeholder groups.

2. “Purpose is a marketing issue, we can leave that to our agency.”

A clear no: Corporate purpose is not primarily a marketing or advertising issue, but a matter of the heart that affects the entire company – and therefore a matter for the board. According to our own definition, purpose is about a sustainable, positive contribution to a value-creating coexistence of the company, society and the environment.
Those who do not take the topic seriously and do not want to integrate it into the business model are better advised not to even try to position themselves via a purpose. Because this is exactly what distinguishes a higher corporate purpose from traditional CSR concepts. Companies that want to use corporate purpose as a pure marketing tool will probably fail with this “purpose-washing”, because consumers and the critical public will quickly expose a lack of sincerity, false sustainability and above all a lack of authenticity. Although a clear commitment in the form of a purpose statement plays an important role in the direction of a company, a mere statement is not yet a lived purpose. It must also be followed by evidence that the claimed corporate purpose is actually taken into account in day-to-day business. The list of failed purpose campaigns is getting longer.

The path to anchoring this in the business model and putting it into practice in daily business can be a painful and exhausting process – but it is worth it. For only if a company actually aligns its economic activities with a purpose that creates meaning and thus demonstrably achieves something for the common good, can it also advertise this sustainable, value-creating contribution.

Even the smallest deviations can raise uncomfortable questions from the public and make the entire purpose positioning appear dubious. One example is the food company Nestlé: “In good food lies the power to create a better life for all. We unleash that power – today and for future generations,” is the food giant’s slogan. Meanwhile, in Vittel, France, the company pumps out a billion litres of water a year, where it faces accusations of sustainably lowering the groundwater table, which is of course primarily relevant “for future generations”. With its well-worded purpose, Nestlé therefore exposes itself to the suspicion of purpose washing. Building on that being ranked 42nd in the Swiss Purpose Readiness Index is also a clear indication that Swiss consumers also still have some doubts about Nestlé’s credibility.

3. “You cannot develop a purpose, it comes from your DNA.”

This assumption is certainly true – but only about half of it. It is true that a purpose, especially in family businesses, is often based on a proud heritage and lived social responsibility. But that alone is usually not enough. Corporate Purpose is not a historical seminar – no matter how strong the traditional corporate values, the brand model and other identity-forming elements such as mission and vision may be.

Our experience and empirical research such as the Purpose Readiness study clearly show that a strong corporate purpose usually always includes the past, present and future. “Experienced Truth” is the experience stakeholders have already had with an organization. “Transformational trust”, on the other hand, encompasses stakeholders’ positive expectations for the future. A relevant purpose is therefore always also future-oriented.

With regard to future-oriented expectations, two aspects are of particular relevance: firstly, the authenticity and credibility of top management in relation to its formulated strategy. And secondly, the first concrete evidence that the company is actually implementing its purpose-driven transformation. In many cases, a purpose must first be developed – or it must at least be uncovered and further developed.

4. “Every company should have a purpose.”

One of the most common purpose misconceptions, however, purpose is not a panacea for everyone and everything – even if some like to claim this and ride the purpose trend wave. As a rule, successful tech companies have to serve as role models for successful purpose positioning. In an inadmissible causal conclusion, purpose propagandists then usually claim that purpose brings fabulous profits, acts as a gigantic motivational boost for employees and HR departments can hardly keep themselves busy with applications.

The fact is: if a company can make a relevant and credible positive contribution that interests employees, customers and the public, then purpose makes sense. If not, then a purpose positioning is not advisable. This is because a purpose – especially ethically and morally – increases a company’s fall from grace. If the actual economic actions do not match the formulated and communicated purpose in one or more points, the critical public often notices this quickly. Then, in case of doubt, the damage to the company’s reputation is greater than it would be without a purpose. It therefore only makes sense for companies to position themselves with a purpose if they have a credible basis and can actually translate a purpose into actions and results.

The image of the industry in which a company operates can also be a very critical factor for success. Companies that position themselves in the high-end luxury segment, for example, cannot easily develop a socially relevant purpose because their business model is based on exclusivity. An oil company also hardly has the prerequisites for a successful purpose statement – unless it completely turns its business model upside down. In this case, the path to a credible purpose is more difficult and more protracted – a positioning via purpose is also not generally recommended as a “must”. But there are also initial examples of large companies from less prestigious sectors that are successfully transforming themselves with the help of a purpose positioning. The tobacco company Philip Morris, for example, has formulated the purpose of wanting to create a smoke-free future. The goal of the global corporation is to replace conventional cigarettes with alternatives that reduce harmful substances. With this purpose, Philip Morris has initiated a comprehensive transformation and is developing its business model and value chain accordingly.

5. “The most difficult thing is to find your purpose.”

On an individual, personal level, this sentence may be true: Hardly anything is harder than finding one’s purpose in life. But for companies the statement does not apply: we have accompanied many companies and have made the experience that it is usually not too difficult to define a higher corporate purpose. Purpose development processes are closely related to general positioning processes. As a rule, they are preceded by an intensive analysis of the current state, a perception analysis of the internal and external target groups as well as an analysis of the strengths and weaknesses and especially the strategic orientation of the formulation. The decisive factor is that when defining a purpose, companies always ask themselves to what extent they can actually deliver what is envisaged.

The actual implementation work often only begins when a company has found and formulated a purpose and wants to fill it with life in all areas of the company. From our experience, this implementation is much more difficult than formulating a purpose statement. In order to make a purpose credible and strong, it is important that an organization internalizes its aspiration, firmly anchors it strategically and also visibly implements it. In our experience, this sometimes requires painful changes – purpose and transformation projects therefore often go hand in hand.

Contact our Corporate Purpose Experts

DR. NIKLAS SCHAFFMEISTER

 

Managing Partner Cologne

Carina Hauswald

 

Managing Partner Zurich

SIMON ASCHERMANN

 

Manager Cologne