For too long now, the answer to the question, "What's the purpose of business?" has been something along the lines of 'to maximize profit and increase shareholder value.'
But could the era of relentless sole focus on shareholder value now be over? In a Financial Times article on March 12th, even Jack Welch declared the obsession with short-term profits and share-price gains as "a dumb idea."
We say, "Amen."
At best, it acknowledges the critical role that profitability and strong performance plays in making a business viable. But as Ed Freeman, Professor at Darden, once said, "Profits are necessary to a business, just as red blood cells are necessary to a human. While you may need red blood cells to live, the purpose of life is not to create red blood cells."
At worst, the exclusive focus on shareholder value creates a zero-sum game mentality that can often create pressure to exploit workers, pinch suppliers, fudge the numbers, and generally do whatever it takes to drive value for the shareholder at the expense of all other stakeholders.
So what's an alternative answer to the question: What is the purpose of business? The purpose of business is simply this - have a purpose! Have an object toward which the organization is striving that makes a positive difference in the lives of the people you are serving. Have something that you're fighting for that captures the hearts and imagination of your people. Find, as Victor Frankl said, 'a concrete assignment in the world which demands fulfillment,' and fill it.
And guess what? The profitability and shareholder value will follow. Having a Purpose at the heart of a business is not a distraction from managing the bottom line. It drives the bottom line.
In fact, purpose drives everything. On a very pragmatic level, when an organization has a clear understanding of its Purpose, navigating tough decisions becomes much easier. It's real simple -- does something further the over-arching Purpose of the organization or not? If it does, you do it. If it doesn't, you don't. Allocating resources, hiring employees, planning for the future and determining success metrics can all be viewed through the lens of the Purpose. And you never make a decision that will violate, or put at risk, the fundamental reason for your existence.
Purpose holds you steady. It acts as the anchor to hold you steady and see you through when you're getting knocked all over the place. If a company doesn't have a clear sense of their reason for existence beyond making money, they'll begin making decisions out of fear and desperation and can easily get thrown off course. Witness the grasping for straws we see all around us.
Purpose also propels you forward - acting as a catalyst for innovation. It provides the motivation and direction necessary to create meaningful innovation in the marketplace. The most innovative companies on the planet inspire their employees to think creatively by tapping into their personal passions and commitment to a higher cause. P&G unleashed a wave of innovation when it decided to take Pampers out of the 'dry butts' business and get into the 'baby development' business. That focus provided the catalyst for innovation that catapulted Pampers from a good- to a great- brand in relatively short order. Compare this with the motivating effect of telling a workforce to 'be innovative because we need to maximize shareholder value.'
Purpose recruits passionate people. The more purpose driven an organization is, the more it can attract passionate, talented people based on shared values and commitment to a common purpose. Purpose is going to be a major factor in winning the war for talent; and, at the end of the day, the talent of the organization is the ultimate determinant of its success. Millennials, in particular, want to apply their talents toward something they believe in--and business, as it is run today, is decidedly not something they have much faith in. When people are working in the service of a Purpose that they recognize as important, it brings a level of energy and vitality to the work at hand. It can transform the work environment from a soul-depleting experience (imagine a scene out of 'The Office' - where Jim nods off while describing his job to the documentarian) - to an enlivening experience, where people are fired up to get to work and make a difference.
And ultimately, that's one of the greatest benefits of shifting the purpose of business from just profit maximization to fulfillment of a worthy purpose. A book like Purpose Driven Life wouldn't have 30 million copies in print if people weren't seriously interested in living lives of Purpose. Since work is where most people spend most of their time, imagine how much happier the world could and would be if people felt like what they did mattered. If people felt like they were using their talents fulfilling a purpose they could feel good about.
So, if business leaders are really interested in creating value - create it for everyone. Have a purpose that drives everything that you do and pursue it in a way where everyone wins: employees, customers, vendors, the community, the planet, and, yes, the shareholders too.
Business leaders today need to get over the belief that principles and profit can't exist in harmony with one another. We believe history will show, that companies that stand for nothing but the pursuit of profit, won't be left standing in the long run. Rather, it's the businesses driven by a purpose--driven to make a real difference in the lives of ALL of the people they serve--that will win in the marketplace.
We have an opportunity, right now, to usher in the era of purpose. Let's begin.