We've all seen it:Companies that have the you factor, an enthusiasm and passion that make employees shine, delight customers and shine for investors. It's not just about the company's warmer fleece, tastier ice cream, or even innovative technology. And it is much more than a mission statement. its meaning Purpose answers the question, "What would the world lose if your company disappeared?" It defines the core purpose of a company and the resulting positive impact on the world. Successful companies are driven by purpose, striving for bigger things and therefore achieving more. Competitors are wondering where to get some of that magic and how to spread it.
About the authors
This article was a global collaborative effort by Sebastian Leape, Jinchen Zou,Olivia Ladewick,petirrojo nuttal,matt stein, Ybruce simpson.
If that's your expectation, this purpose can easily be added to your mix, prepare for disappointment. A superficial approach to purpose does not work. In fact, it can cause significant damage, opening your business to accusations of inauthenticity or "purposive laundering," turning off or outright customers, and disillusioning employees at all levels of your business. Bad results follow when the purpose is a patch job.
But the positive takeaway also applies: companies with a real, lived purpose radiate authenticity and do well by doing good. Clients, suppliers, partners and investors recognize the value proposition. Leaders allocate capital and resources for a purpose. And employees think about purpose from start to finish, making it a natural part of their decision making. Building this momentum is not easy. It requires leaders to embed purpose throughout the organization. Like uspreviously describedThe purpose should be related to your company's "superpower": its unique ability to create value. Purpose is not the same as ESG (see "Purpose, ESG, and the 5Ps" sidebar). The purpose is that of your companyAim.
In this article, we outline a framework that organizations can use to achieve goals, avoid potential pain points or setbacks, and unlock significant value. We call this framework the 5Ps.
A Framework for Purpose: The 5 P's
It is relatively easy to develop a mission statement or start a purpose initiative. Most organizations have tried at some point to define their purpose, and many find it important to ensure that the organization's purpose is embedded in everything it does. But the leaders also know that it is not easy. Perhaps that is why companies so frequently announce changes of purpose. “We had so many purposeful initiatives,” a European group CEO told us, “it just overwhelms me at this point.” A useful analogue is transformations; around70 percentMost of them fail to achieve their stated goals, largely because they fail to change the way people think and behave, and sometimes don't even think about doing so. The purpose must be systemic and rational, but also emotional; it should resonate with the members of your organization and inform their decision-making. Five main elements are crucial:
- Portfolio and product strategy:the products and services your organization offers and the “where to play” and “how to play” decisions you make to better serve your customers
- people and culture:the talent (and talent management) used by your organization
- Processes and systems:the operational processes it adapts to achieve objectives related to the purpose; how you ensure behavior along your value chain is fit for purpose
- Performance Metrics:the target metrics and incentives you use to measure what you want to achieve, how your business is performing, and how you create and distribute incentives to make your organization's purpose tangible
- Charges and Commitment:how to align your positions and external affiliations to consistently align and fulfill your organization's defined purpose
These elements are presented in the following exposition.
These five levers add to the long-term purpose, but need rigorous, regular adjustment over time. Do not fool yourself; There can be uncomfortable decisions to make and often difficult compromises. In either case, start by understanding your company's sources of strength and address the areas where it is vulnerable. Next, programmatically build your target infrastructure.
1. Portfolio and product strategy
Demonstrating the purpose of the products and services you offer is a two-step process. First, make sure your business portfolio aligns with your company's purpose. While most companies will of course not be able to start from scratch in terms of the industries and sectors in which they compete, almost all can find ways to actively and purposefully transform their business mix. Second, once you've chosen your portfolio, fill your stores with products and services that fit your business purpose and filter out those that don't. Fight the tendency to get close to purpose with a "this is the hand I've got" resignation. Of course, the foundation of your business is important, but you have more freedom than you might expect in deciding what your business does and how you can make a positive difference.
Consider bp. Formerly British Petroleum, since its inception more than a century ago, it has been an energy company involved in extractive industries around the world. But that legacy hasn't stopped bp from rethinking what an energy company can be. The company has given a radical turn to its mission of "Rethinking energy for people and the planet"; Not only did it exit its petrochemical business, it also announced a plan to reduce its legacy oil and gas business by 40 percent by 2030 and significantly expand its low-carbon energy businesses (such as bioenergy, hydrogen, and electric vehicle charging). ), and is well on track to become net zero carbon emitters by 2050 or sooner.
Fight the tendency to get close to purpose with a "this is the hand I've got" resignation. You have more freedom than you might expect to decide what your business does and how you can make a difference.
In fact, there are numerous precedents for bold and purposeful portfolio changes. For example, DSM (Dutch State Mines), a company based in the Netherlands, was originally founded to mine coal and has grown over a century to become one of the largest bulk chemical companies in Europe. But by intentionally digging deep and insisting on a “triple bottom line” of people, planet and profit, DSM demonstrated that it could chart a radically different course. Between 2001 and 2015, the company not only divested of business areas such as petrochemicals and ammonia, but also made more than 25 acquisitions in the areas of food, feed and nutrition and became a leading company in innovative specialty chemicals .
Purpose, ESG and the 5 P's
What is the difference between purpose and ESG, and how do the 5 Ps fit together?
A useful framework, we found, is the comparisonBroadof ESG with theuniquenessAim. ESG encompasses the various expectations that society has about the role of the company. There are a variety of ESG options, requirements, and flavors, from community service to inclusion, reporting transparency, and waste management, to name a few. Purpose, on the other hand, helps your organization prioritize all the things it can (and sometimes should) do in ESG. It takes you to the areas where you want to "win" instead of the areas where you want to "play", ie where you can reach the social level but not move higher due to lack of time and resources. for now.
Once you've determined which ESG initiatives are "must-haves," the next step is to integrate them into your organization. The 5 P's can serve as a handy checklist. Look at governance. Effective governance can strengthen an organization's bond with itselfpeople and culture(for example, through employee safety and non-discriminatory hiring and promotion); Enforce principles and standardsPortfolio and product strategy(such as product safety policies and the impact of those products on society and the planet); Aidprocesses and systemsoperate optimally (for example, ensure suppliers are accountable); and ensure thatperformance metricsYpositions and communicationThey are true and transparent. Good governance can also encourage a company to establish or re-establish or aspire to be a not-for-profit corporation.B Company certification.
When leaders actively strive to embed purpose throughout their organization, ESG feels less like a cost of doing business and more like a cost.Source of competitive advantage. This comes from having authentic purpose embedded throughout your organization, not forced or anchored.
S&P Global offers another example: To fulfill its purpose of accelerating progress in the world by providing essential information for companies, governments and individuals to make informed decisions, it has diversified from a broader spectrum of general information and editorial to a changed approach. to research and analysis. It remained an information company through a decade of change, but it morphed into a different type of information company, and obviously more focused, striving to meet the information needs of its stakeholders and society at large.
Creating value for all of your stakeholders by having a positive social impact is a bold decision and can require difficult decisions, such as CVS's decision in 2014 to remove tobacco products from its pharmacies. But as our research has shown, strategic wealth, measured across industries and viewed collectively, isfavors the brave. In fact, companies that manage a static portfoliobelow average standard.
Few companies have as deeply integrated purpose as Patagonia. The California-based outdoor apparel and equipment company has always had a purpose; It was the first company in its state to become, and is, a profit corporation (a form of corporation that allows directors by law to extend their duty of loyalty beyond shareholders).Certified B Corp. For decades, Patagonia's mission has been: "Build the best product, do no unnecessary harm, use business to inspire and implement solutions to the environmental crisis." save our home planet.” The purpose gives Patagonia the impetus to expand into various new businesses, such as food, to drive further advances in regenerative agriculture. The company also creates films and books on environmental activism and launched Patagonia Action Works (PAW), a platform to connect volunteers with activist causes in diverse communities.
As the Patagonia example suggests, your business purpose should drive decision-making about portfolios and then inform your decisions about the products and services you offer within those portfolio companies. Your decision-making is further sharpened by addressing superpower heuristics (“What is the unique way our company can create value and drive progress?”).
Alphabet, for example, prioritizes its mission to promote "freedom and focus." So it makes sense that the Google Play app store no longer offers personal loan apps that come with inflated APRs, such as APRs. B. those of loans for theft. Toy companies are profitably replacing dolls with unrealistic body images with offerings that are more realistic. Banks and financial institutions meet the needs of customers by introducing green car loans, green mortgages and green insurance; For example, Swedish fintech Doconomy offers credit cards with embedded CO2-Emission limits. Functional laundry? Not if the products and services offered are tied to an organization's authentically lived mission.
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2. People and Culture
The second lever of onboarding purpose could be considered as plausible as the first: people and culture. Purpose starts with people. Your employees—indeed, all of your stakeholders—are your nerve center and a resilient touchstone against inauthenticity. For this reason, employee morale is often the most important force undermining false claims of determination. Think, for example, of digital-native companies that have bold mission statements that will change the world, but are still plagued by accusations of "brother cultures," or companies that are asked to market ambitious messages while using heavy handedness. work of prison systems. . In other cases, companies that advocated for inclusion have subsequently been accused of discriminatory behavior on the front lines.
Purpose can align with your people and culture at critical points. That starts with the setup. Managers can actively seek out people who share the values that support the company's purpose. As an executive from a performance sportswear company told us: “We hire people who reflect the values of the company. We never hire bad people in the hope that we can change them." Purpose-driven staffing decisions should also be reflected in staff development and career paths; Being consistent and honest will reinforce a virtuous circle throughout your organization. Managers must also articulate and exemplify the mindsets and behaviors associated with the organization's purpose and hold employees accountable for goal achievement. As the CEO of an Asian company recently told us, aligning with a company's purpose can't be as simple as "management says a few nice words and shuts down." But when the company determines what it wants in a Key Performance Indicator (KPI), good managers "go for it."
Making decisions about your people and your culture also includes capturing opportunities as they arise. At a 2019 AGM, a bp employee raised his hand and asked, "When will bp give [employees] meaningful jobs?" Impressed senior executive (and now CEO) Bernard Looney soon promoted her to the position of "Purpose Engagement Manager" tasked with working with employees to further the company's vision of rethinking energy.
The search for meaning is part of the human condition and is embraced by goal-oriented organizations, not repressed. Employees in purpose-driven organizations are four times more engaged at work.
The search for meaning is part of the human condition and is embraced by goal-oriented organizations, not repressed. Our research shows that employees in purpose-driven organizations are four times more engaged at work, a powerful source of competitive advantage. Consider Best Buy. Former CEO Hubert Joly transformed the consumer electronics retailer into a model where customer service, powered by the human touch, would be the differentiator. Under his leadership, the company invested heavily in staff training; Offer employee discounts to encourage your own employees to buy products, use them, and then recommend them to others; and nurture the Geek Squad, enthusiastic agents who help select, install, customize and support the products Best Buy sells. This reinforced Best Buy's purpose of enriching lives through technology and helped make business more enjoyable for both customers and employees.
In fact, it's hard to overstate the importance of employee engagement. Alex Edmans, a professor at London Business School, showed that companies that invested heavily in employee well-being outperformed their peers in stock returns by 2 to 3 percent per year. That makes sense; How much enthusiasm should we really expect from employees just by touching the clock? PayPal CEO Dan Schulman dramatically increased employee wages in 2019Yhigher benefitsYhe made all employees shareholders of the company, he did it on purpose. Passionate employees exude enthusiasm for customers and communities alike.
Your employees can also be your best barometer of progress. Research on the banking industry in recent decades is littered with examples of employee early warning signs of misbehavior, product misselling, and defective product design. Many of these signals fell on deaf ears or were deliberately ignored. Making sure your people have the right mechanisms and tools, backed by a "Speak Up" culture, to identify gaps is critical to the purpose of integration.
A McKinsey Live Event on Purpose vs. PR: How Businesses Can Find Purpose in the Age of COVID-19
3. Processes and Systems
The third lever, processes and systems, addresses a core "how" of your business model: the operational initiatives, incentives, and governance mechanisms your organization relies on to create value and achieve its purpose. Robust systems are needed to keep the engine running (or starting). Of course, some elements are industry and business specific. For example, food companies can identify and source healthier ingredients from their farmers and greener materials from their packaging suppliers. But regardless of the industry, most companies can incorporate best practices, from cafeteria composting to paid leave for community service.
Your processes and system initiatives must do the same, with careful planning for now and the future. Take Microsoft's approach to carbon emissions, for example. The company has already worked to become carbon neutral (a goal it achieved in 2012), and has since set even higher goals: By 2025, Microsoft hopes to use only renewable energy in its data centers, buildings, and campuses; and the company plans to fully electrify its global fleet of campus-operating vehicles by 2030, the year the company announced it would go carbon negative. While some organizations track carbon to produce nominal (albeit significant) "carbon-adjusted" financial reports, Microsoft has already done this.classifiedan internal carbon fee for its business units. Funds from the assessment will be used to invest in new efforts to reduce CO2 emissions within the company and contribute to environmental protection worldwide.
In fact, when embedding purpose into your organization's processes and systems, it's imperative to think outside the box. Walmart's Gigaton project, for example, covers the entire supply chain: the program aims to help suppliers avoid one gigaton of greenhouse gases by 2030. As part of the initiative, Walmart has identified six categories in which that suppliers must reduce emissions: energy, waste, packaging, forests, agriculture and product use and design. It then built a platform to help suppliers register their emissions reductions. Suppliers develop their own emission reduction targets, which must be "SMART": specific, measurable, achievable, relevant and time bound. They are also required to report their progress annually, and excellence is recognized on the Walmart Center for Sustainability website. Hundreds of vendors are currently participating, and Walmart expects more to join.
As CEO of BHP, Mike Henry,recently shared, the inclusive purpose throughout the supply chain is proving to be a source of resilience, even in the face of COVID-19. Since the start of the pandemic, BHP has moved to support its small local and domestic suppliers by reducing payment terms from 30 days or more to seven days. The company was aware that these providers would be vulnerable and tried to play a role in assisting. That resonates. “If [providers] have seen that we're there for them in times of need, they'll be there for us in times of need,” Henry said. “And we saw that. They have gone to greater lengths to ensure that they can continue to support BHP and honor the commitments they have made to us.”
Five ways ESG creates value
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4. Performance metrics
Purpose can and should be strictly measured. In practice, this means identifying the key performance indicators related to your organization's purpose, tracking them over time, and encouraging your organization to achieve the goals of the purpose. What gets measured gets managed, as Peter Drucker observed. Perhaps the opposite is even more apt: What you're trying to manage needs to be measured, and on a consistent basis. Too often, companies confuse ESG benchmarks with purpose metrics and then mix them up. Standards from third-party organizations such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), while important, should never become the "tail" of ESG reporting, wagging the dog of the resolute business that is running. . your unique metrics that you measure and track. When your company starts reporting ESG and then "reverses" towards a purpose, the purpose is reversed.
Purpose must come from within, guiding the unique metrics you measure and track. If your company starts reporting ESG and then "regresses" towards a purpose, then you regress.
Because purpose expresses who your organization is and aspires to be, purpose metrics should inform not only daily operations, but also allocation decisions, such as investments and M&A, as well as transformation initiatives across the board. the company. Several energy companies, for example, now tie executive pay to emissions. A leading retail bank, to cite another case, found itself embroiled in a national scandal in which several of the country's financial institutions had violated various regulations. The harsh negative publicity prompted intense reflection on the Bank's fundamental purpose and its relationships both with society at large and with individual clients, and how to identify, measure and improve its purpose-driven performance. Part of that purpose was focused on improving client outcomes. One way the bank aligned itself for a more specific outcome was by redesigning the incentives. The Bank's previous incentive structure included volume-based targets. Although not financially significant, the Bank found it critical to reduce the weight of volume-based targets in performance evaluations for its repurpose, if only for token reasons. Notably, however, the bank outperformed its peers financially after reducing the weighting of volume-based targets. The quality of purpose and the broad activities and behaviors that support its purpose proved to be more influential than quantity. The bank is now taking a more balanced approach to measuring and rewarding the performance of front-line employees and managers. It includes a broader range of metrics related to customer outcomes, including, for example, the number and extent of customer interactions to better understand customer needs.
There are a number of tools and KPIs that companies can use, but because the purpose is personalized, off-the-shelf solutions rarely have the same impact as carefully designed ones. Furthermore, measure and activate should not be limited to monetary incentives. Companies can foster outreach by celebrating offices and employees who contribute measurably to the organization's mission. Organizations can also use behavioral economics to encourage positive behaviors like saving energy or reducing waste. we just found thatshowsEmployees and other stakeholders, how the organization is progressing on metrics like diversity or sustainability, information that can be clearly presented in standardized reports, reinforces purpose and builds momentum for more.
It's a fair criticism to say that purpose can feel orthogonal, especially early on in a purpose-driven initiative, because in an earlier way of doing things, it may actually have been orthogonal. But as employees and other stakeholders are routinely presented with purpose-related metrics—for example, the number of employees from underrepresented groups or contracts with minority suppliers or customers—purpose will become more comfortable. It becomes standard practice.
5. Locations and Notices
Also, what applies within your organization must be consistent: purpose must be embedded in the way your organization communicates and interacts with information to the public. It is within this "P" that charges of "purposive laundering" are most likely to be made, and that is understandable. Contrived declarations of intent sound false and the participants recognize the inauthenticity. The Edelman Trust Barometer, for example, found that two-thirds of those surveyed agreed that "[a] good reputation might make me want to try a product, but if I don't trust the company behind the product, I'll soon stop buying it." do it". buying it."1Edelman Trust Barometer Special Report: The Brands We Trust?, Edelman, June 18, 2019, edelman.com.More than half of those surveyed also believe that every brand has a responsibility to address at least one social issue that does not directly affect their business.2Edelman Trust Barometer Special Report: The Brands We Trust?, Edelman, June 18, 2019, edelman.com.
The growing rise of the belief-based consumer is a great opportunity for many companies to make the “S” element of ESG significantly more visible and strengthen their social legitimacy. One way to do this is to consider trade associations that your company supports, or perhaps shouldn't already. For example, both Royal Dutch Shell and bp undertook a thorough investigation of their supporters and eventually withdrew from several business partnerships because they were deemed incompatible with the company's purpose. Another measure is to increase your philanthropy and corporate giving and make these efforts an integral part of your business model. When you do this authentically, connected to your organization's superpower, and verifiable to those around you, you can strengthen your organization's ties to your community and polish your social license. General Mills, for example, focuses its 150-year-old philanthropic foundation on sharing food expertise by forging partnerships with employees in the communities where they live and work. In addition, the Philippines-based conglomerate Ayala Group leads the Ugnayan Project, a private sector partnership that works with hundreds of local businesses to help feed millions of people in Metro Manila.
When purpose is embedded, your organization's positions, communications, and external engagements become logical extensions of your business model; Purpose bridges the gap between walking and talking.
When purpose is embedded, your organization's positions, communications, and external engagements become logical extensions of your business model; Purpose bridges the gap between walking and talking. considerTakeda, based in Japan, and one of the largest pharmaceutical companies in the world. The organization strives, as CEO Christophe Weber explained, to "put [its] people and patients first." When COVID-19 hit, it was one of the first pharmaceutical companies in many countries to recall its field workers and disrupt marketing calls. "For us," Weber says, "it was an easy decision." Or Microsoft, which is firmly committed to "empowering every person and organization on the planet to achieve more." The company said it would close all physical stores and focus its retail operations on digital storefronts. This difficult decision took a while and was completed during the economic downturn caused by COVID-19. Notably, however, Microsoft has decided that store associates will now continue to serve customers from company premises and remotely, providing digital sales, training, and support.
Purpose is a source of competitive advantage, but it must be genuine and built into your company's business model. The 5Ps provide a framework that helps organizations embody purpose in a systematic and holistic way. It helps organizations unlock sources of value, identify pain points, and do good by doing good.
This article was a global collaborative effort betweensebastian jumpsYJinchen Zou(Consultant in McKinsey's Washington, DC office),Olivia Ladewick(an associate partner in the Sydney office),petirrojo nuttalYmatt stein(Partner in London office) andbruce simpson(Senior partner in the Toronto office and leader of McKinsey's Purpose and ESG initiative.)
This article was edited by David Schwartz, senior editor in the Tel Aviv bureau.
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