Put purpose at the core of your strategy

It’s how successful companies redefine their businesses.

Companies have long been encouraged to build purpose into what they do. Usually it’s talked about as an add-on — a way to create shared value, improve employee morale and commitment, give back to the community and help the environment. But as we worked with the high-growth companies in our study and beyond, we began to recognise that many of them had moved purpose from the periphery of their strategy to its core — where, with committed leadership and financial investment, they had used it to generate sustained profitable growth, stay relevant in a rapidly changing world and deepen ties with their stakeholders.

Two critical roles

In the course of our research, we talked to scores of high-ranking executives. What we learned from those conversations was that purpose played two important strategic roles: It helped companies redefine the playing field, and it allowed them to reshape the value proposition. And that, in turn, enabled them to overcome the challenges of slowing growth and declining profitability.

Role 1: Redefining the playing field. What’s a key difference between low-growth and high-growth companies? The former spend most of their time fighting for market share on one playing field, which naturally restricts their growth potential. And because most aggressive battles take place in industries that are slowing down, gains in market share come at a high cost, often eroding profits and competitive advantage as offerings become commoditised.

High-growth companies, by contrast, don’t feel limited to their current playing field. Instead, they think about whole ecosystems, where connected interests and relationships among multiple stakeholders create more opportunities. But these firms don’t approach ecosystems haphazardly. They let purpose be their guide.

Role 2: Reshaping the value proposition. When confronted with eroding margins in a rapidly commodifying world, companies often enhance their value propositions by innovating products, services or business models. That can bring some quick wins, but it’s a transactional approach geared toward prevailing in the current arena. Because a purpose- driven approach facilitates growth in new ecosystems, it allows companies to broaden their mission, create a holistic value proposition and deliver lifetime benefits to customers.

Companies can make this shift by responding to trends and building on trust.

Responding to trends. In line with its purpose of “contributing to a safer society,” Sweden’s Securitas AB, a security company with 370,000 employees, has traditionally offered physical guarding services. But in the early 2010s its CEO at the time, Alf Göransson, saw that globalisation, urbanisation and the increasingly networked business landscape were all changing the nature of risk. The company had to explore new ways of using electronics to provide security. This shift, Göransson understood, was not a threat to the existing business but an opportunity to grow — as indeed it has proved to be.

Building on trust. When Mahindra Finance, the financial services arm of the Mahindra Group, a $20 billion Indian conglomerate, wanted to define its value proposition, it looked to its parent company’s long-time purpose-driven strategy of improving customers’ lives — encapsulated in 2010 by the simple motto “Rise”. It’s a word that the company’s third-generation leader, Anand Mahindra, expects will inspire employees to accept no limits, think alternatively and drive positive change.

In keeping with that strategy, Mahindra Finance decided to target its core offering, vehicle financing, to rural areas. That meant that the company had to figure out how to determine the creditworthiness of customers who were mostly poor, illiterate and unbanked, with no identity documents, no collateral and cash flows that were often impacted by monsoons. To do that, the company had to develop completely new ways to handle loan design, repayment terms, customer approval, branch locations and disbursement and collection in cash. Remarkably, the company managed to do all those things and established a preliminary level of trust with its customers.

Developing a purpose

Leaders and companies that have effectively defined corporate purpose typically have done so with one of two approaches: retrospective or prospective.

The retrospective approach builds on a firm’s existing reason for being. It requires that you look back, codify organisational and cultural DNA and make sense of the firm’s past. The focus of the discovery process is internal. Where have we come from? How did we get here? These are the kinds of questions leaders have to ask.

The prospective approach, on the other hand, reshapes your reason for being. It requires you to look forward, take stock of the broader ecosystem in which you want to work and assess your potential for impact in it. The idea is to make sense of the future and then start gearing your organisation for it. The focus is external, and leaders have to ask a different set of questions: Where can we go? Which trends affect our business?

Implementing a purpose-driven strategy

Leaders need to think hard about how to make purpose central to their strategy. The two best tactics for doing that are to transform the leadership agenda and to disseminate purpose throughout the organisation.

Benefits on the soft side

Purpose can also help with the soft side of management — the people-related aspects of running a business, which so often prove to be the undoing of leaders. By putting purpose at the core of strategy, firms can realise three specific benefits: more-unified organisations, more-motivated stakeholders and a broader positive impact on society.

Unifying the organisation. When companies pursue dramatic change and move into larger ecosystems, it’s unsettling for employees. Purpose helps employees understand the whys and get on board with the new direction.

Motivating stakeholders. According to the Edelman trust barometer, distrust of government, businesses, the media and nongovernmental organisations is now pervasive. At the same time, more than ever, employees, especially millennials, want to work for organisations that can be trusted to contribute to a higher cause. And when customers, suppliers and other stakeholders see that a company has a strong higher purpose, they are more likely to trust it and more motivated to interact with it.

Broadening impact. Purpose creates a basis for defining how each unit will contribute to the organisation and to society as a whole. This focus on collective objectives opens up many more opportunities to improve growth and profitability today and in the future.

The approach to purpose that we’re recommending cannot be a one-off effort. Leaders need to constantly assess how purpose can guide strategy, and they need to be willing to adjust or redefine this relationship as conditions change. That demands a new kind of sustained focus, but the advantages it can confer are legion.