The question of purpose has become topical once again in business management with increasing noise over the need to have one and the choices available. The point that seems to be missed is that every business already has a purpose. However, leadership may not be actively aware that they have set a purpose for their business. And in many cases, that purpose may be draining performance rather than energising it.
Active Knowledge Questions:
Can you state the purpose for which your business exists and whether it uplifts performance or weakens it?
A Founder’s Purpose
Purpose is misunderstood by many business leaders and is often interchanged with vision, mission and the profit motive. It is, however, one of the most powerful tools that a business leader can use to muster commitment, passion and the focus of all the people working within and with their business.
If crafted correctly, it is also the window through which endless opportunities for growth may be discovered.
Purpose is born in the creation of a business, the seeding of the original idea that launched that business. Yet it is often forgotten as the founder’s influence wanes or discounted as new leadership is appointed.
Make the reason for your business’s existence ‘righteous’. In other words, something that everyone working for the business can relate to, take pride in and feel good about. This then becomes the focus that you constantly speak to. When you talk about direction and seek to muster everyone’s energy, it is the language of purpose that you must use.
Purpose is founded in need, that is, meeting someone else’s need. And you compete by fulfilling that need better than anyone else. Purpose is not necessarily timeless but, if correctly crafted, can have an enduring quality underpinning growth and relevance.
The Default Purpose
In the absence of a founding purpose, one can be inadvertently created (sometimes through marketing efforts) without recognising the underlying impact that it may have. Often profit becomes the default purpose. This will always be the case where a profit-first motive exists in a business, or no other dominant purpose is spoken into.
But no business should exist to profiteer, as profit is an outcome and not a catalyst of performance. Where leaders use profit or monetary reward as their prime motive, they only seed self-interest, politics and bureaucracy, undermining performance.
The importance of purpose is not new, it’s old thinking, but we seem to have forgotten its role and likely that has been a result of the profit motive.
Many people in business will recognise the name Peter Drucker, who is often described as ‘the father of modern management’ and ‘the man who invented corporate America’. But many business people may be surprised at some of his fundamental management concepts – especially those around profit and purpose as it relates to corporations.
Let’s look at some of Drucker’s fundamental principles* and see what light they may shine on the ‘profit-experiment’ that has been occurring in businesses around the world. They include:
- The purpose of a business is the creation and satisfaction of the customer.
- Purpose is related to the corporation’s contribution to society, not profit.
- Profit optimisation should be a measure and not profit maximisation. Optimisation is ascertaining the most suitable ratio between risks on the one hand and opportunities on the other.
- To seek to measure profit maximisation is to fail to identify and implement new opportunities, develop human assets, and recognise external threats.
- Profit is a necessary condition of sustenance but is redundant with regard to purpose.
- Profit has no more to do with promoting corporate culture than breathing air has to do with the goals of human life.
- The maximisation of profit as a business goal is ill-conceived, as it threatens the foundation of the corporation’s economic assets.
- The avaricious pursuit of profit as an inherent human trait is a myth.
- Profit is not the reward for the risk-taker. Such an explanation is to elevate greed and bribery to be the driving force of the capitalist system.
- Profit is the future investment in the creation of tomorrow’s jobs.
Purpose and motive go hand in hand. You cannot articulate a purpose founded in meeting customer needs and then pair it with a profit-first motive. Such a motive will erase purpose; motive must always be to compete, that is, the lift performance to its full potential through the competitive engine that exists within every business.
Competitively Fit
For purpose to have that enduring quality and the benefits that go with that, it must be focused on customer needs and not outcomes.
By ‘need’ I mean the reason why a customer uses your product and the benefit they receive from it. Of course, change is continuous and, therefore, many things can impact how customers experience need and how your product or service meets that need. The challenge of competitiveness is to keep your eye firmly on that need and everything that may impact it, while continuously seeking to lift the value you deliver to your customer.
Value reflects the customer’s experience of the fulfilment of their need. Whereas outcome is normally not directly connected to need at all. It usually relates to the business’s experience or goals, for example, selling more units.
A focus on need is enduring; a focus on outcomes is terminal.
I think everyone has some understanding of what happened to Kodak as a business. George Eastman founded it in the 1880s with the vision to make photography as convenient as the pencil. It started with the slogan, ‘You press the button, we do the rest’.
The commercial strategy was one of manufacturing and selling inexpensive cameras and making large margins from consumables. It became almost a monopoly business in the supply of film and cameras in the USA and around the world.
But then change came in the form of competition from Fujifilm selling lower-priced film and supplies. Then the digital camera, which Kodak developed in 1975, and shelved for fear of cannibalising its film sales. So, history tells us that the once-great business of Kodak faltered and eventually failed.
What was the focus of Kodak? It would seem that its purpose evolved around a strategy of being able to produce and sell an inexpensive camera to feed the demand for consumables in the form of films and the associated processing supplies, that is, profit-first. So as an alternate product, the digital camera, emerged the almost natural response was to not pursue it as it went against the business’s reason for existence being to sell consumables.
Imagine what the history of Kodak may have been if its purpose as a business was ‘allowing everyone to easily capture those special moments in their lives’? The digital camera would have been a natural innovation, and the focus on film sales may not have had such a hold on the business’s leadership.
Drawing Lines Around Purpose
The meaning and role of purpose, mission and vision are often confused within a business. In separating out the three terms:
- Purpose is the business’s reason for existence, and profit is the least effective of any reason for which a business may be formed.
- Vision is where you are striving to take your business to its next leg of growth.
- Mission is the journey you are on from purpose to reach your vision.
Here is a series of points which may assist you in understanding the character and traits of purpose:
- Purpose is ‘the sport of kings’. Unity of purpose equals power.
- Purpose is most effective when it draws on moral ideas that have stood the test of time.
- Purpose connects people, colleagues, leaders, and communities to plans.
- Purpose is the cement of trust between individuals. It builds relationships and understanding.
- Purpose is the primary source of motivation, performance, and achievement.
- Purpose is the reference guide for all decision-making.
- Purpose is not a tool. It is not mission, vision, values, brand, reputation, corporate social responsibility, codes or policies, corporate governance, or strategic thinking.
- Purpose is paradoxical – it will drive profits but only if it is pursued for its own purpose.
Purpose is why your business exists, and what needs it seeks to meet within the community it has chosen to serve. It will only be tied to a social cause if you are in the business of meeting the need arising from that cause, for example, social housing, mental health, aged care etc. The culture or competencies you seek in your business are elements of your competitive engine and are tied to delivering on the customer value you compete around; they are not your purpose. And a final point, strategy is how you intend to deliver on your purpose; purpose comes first.
Purpose is the cornerstone and reference point for the existence of your business. Real competitive strength lies in that purpose, and everything else builds upon it. Purpose reveals opportunities, ensures alignment, and a compounding of effort. Purpose is founded in meeting customer needs.
*As outlined by John Flaherty in Peter Drucker: Shaping The Managerial Mind, 1999 Joss-Bass Inc, San Francisco, California.
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All the best in the success of your business,
Richard Shrapnel
