WTFAQ is “Purpose-Driven-Profit”?

WTFAQ is “Purpose-Driven-Profit”?

 

Let’s not beat around the bush: corporations get a lot of flak. The word “corporate” draws up visions of a tightly-knit uniform culture involving a lot of strange verbiages, dry-cleaned suits, and a spectrum of forms with all variety of three-letter acronyms. The bohemian taboo of corporations is nothing relatively new and still exists today as a foundation of the social counterculture. Given some of the, uhh…less-than-respectable practices some corporations have conducted in the past, it’s small wonder why. The Enron scandal, which went public in 2001, was so revealing that it is the go-to case study for unethical business practices and even has its own entry on Encyclopedia Britannica.

 

But despite the flak, you will inevitably receive, a corporate structure is one of the most advantageous ways for you to create for your business. Corporations as an entity themselves are able to mitigate potential liabilities to its shareholders while simultaneously maximizing profits for its shareholders, making both internal and outside investments to the corporation not only attractive for capital but almost “common sense” when these two factors are balanced well. After all, for the better part of a century corporations seemed to solely exist in order to maximize profits for its shareholders.

 

Not to say that they no longer do. But what industry has seen in recent memory is an interesting pivot from the corporation’s single-bottom-line, where corporate performance is measured solely on quarterly or annual profits, to the triple-bottom-line where a corporation’s economic performance is equally measured against its social performance and environmental impact. The best part? Millennials wanting to feel more engaged with the meaning of their work may be the underlying cause.

source: PBS

 

As of late 2017, Millennials made up the largest percentage of the American workforce. As the first generation to be involuntarily baptized in the waters of the 2000s technology boom, it’s no surprise that Millennials are not only the most tech-savvy generation to date but also the driving force behind continued technological advancement and tech-centric consumer products. What contemporary technology has been able to show Millennials and business leaders alike is that, with a loud enough voice, positive change could not only be made on a case-by-case basis, it could become a worldwide movement. Not only through uncovering and ousting unethical behavior, but by consumers simply choosing to spend their dollars on positive values and experiences.

 

“Profit is not the purpose of a business, but rather the test of its validity…the true purpose of a business is to create and retain customers.” – Peter Drucker

 

Imagine, if you will, two separate corporate entities – Firm A and Firm B. Both firms compete in the same market segment and for the same demographic of customers. The Board of Directors (BOD) for Firm A says, “Our company’s purpose is to maximize profits for returns to our shareholders.” The BOD for Firm B says, “Our company’s purpose is to improve the lives of our customers.” The performance of Firm A’s employees are measured by the revenue or profit they generate for the company, whereas the performance of Firm B’s employees are measured by the positive impact their work has on customers.

 

Assuming both companies were founded at the same time, in the same location, by the same people, and uses the same internal technology and software platforms to track metrics and performance, which company will see continuous growth at scale?

 

Firm A’s employees spend all day every day thinking about the next sale. Firm B’s employees spend all day every day thinking about how they can best resolve their customers’ problems.

 

Firm A’s employees are going to use the same tools and systems to sell the same products to ensure short-term sales. Firm B’s employees are going to utilize and adapt – or even develop – better tools and systems to deliver maximum long-term impact on customer creation and retention.

 

Firm A’s leadership will continuously view employees as statistical assets to provide earnings. Firm B’s leadership will continuously view employees as qualitative assets to maintain and grow customer satisfaction with their products or services.

 

Don’t just take my word for it; an independent study of over 500 organizations found that regardless of location, size, industry, or market, employees who felt driven by the purpose of positive customer impact – rather than sales quotas – routinely outperformed competitors. Another study performed by PwC found that Millennials who feel connected to their organization’s purpose are 5.3 times more likely to remain with the company when compared to their disengaged peers. At the same time, almost 80% of 1,000 Americans surveyed said they would remain more loyal to brands that lead with purpose over profit, “and 73% said they would defend” purpose-driven brands.

 

The impact of purpose is even larger worldwide. New York Times best-selling author and CEO of We First Simon Mainwaring states that 91% of global consumers would switch from one brand to another of similar quality and price simply support a good cause.

 

source: Simon Mainwaring

 

Purpose does not always have to be a goal of changing the world or tied to a specific activist cause. It can be something much simpler on a smaller scale. But what’s important is creating your company culture around that purpose to improve the productivity and loyalty of your employees and customers. Let’s take a look at Wawa as an example.

 

Originally founded in 1964 as a roadside dairy market, Wawa evolved into a traditional American gas station in the early-to-mid 1990s. In more recent memory, however, Wawa has seen a paradigm shift from operating solely as a gas station or food market to an organization that constantly gives back to its employees and customers. It is praised for its constant, quick delivery of healthier food options that don’t compromise on taste or price, no-fee ATMs, a rigorous training program, and its influence on local culture by teaching employees to “fulfill lives, every day,” an ask that workers appear more than happy to act on – especially now since Wawa is 41% employee-owned. The company’s current CEO, Chris Gheysens, has said the most important challenge Wawa faces is constantly making sure they have the right people on their team to ensure customer loyalty. Claiming an annual revenue of $10 billion, it seems to be a challenge that Wawa and its employees have excelled at facing.

 

The balance of social, economic, and humanitarian impact driven from a company or brand’s purpose is a true measure of that brand’s sustainability and long-term performance. Aligning a brand and its product or service with some underlying cause for good – to whatever kind and degree – propels growth. Just this past June, Unilever CEO Alan Jope announced that the organization’s 28 Sustainable Living Brands experienced 46% growth in 2017 and 69% growth in 2018 over Unilever’s other brands, delivering some 75% of the company’s total growth.

 

Driving with purpose hasn’t only led to increased financial growth for companies that adopt the triple-bottom-line. Organizational purpose also helps companies and their leadership teams predict and overcome relevant challenges. One of the leaders of the most important test face is weighing the potential trade-offs of responding to unprecedented changes in their market’s environment and pivoting their organization or its departments accordingly. Retail sales are one of the most volatile industry ecosystems for business. Constant shifts in customer trends, expectations, and demands can create chaos for businesses that provide to these customers. Why would a consumer pay top-line prices for a piece of clothing they can buy from another retailer at a lower price? If your answer to that question is “ethical business practices, you’ve either been paying great attention to the content in this week’s post. Or maybe you and I fall in the same bucket of, “I received a Bachelor’s degree in Philosophy and debating ethics is the most fun I can have without binging Slavoj Žižek videos.”

 

Either way, you’re right! The “Sustainable Fashion Survey” published in November of 2018 by Ipsos MORI found that 62% of over 7,700 retail consumers interviewed would be willing to pay 2-5% more for expensive clothing items, and 51% would pay 5-10% more for cheaper clothing items if they knew the company producing those items paid its employees a fair living wage. 78% of consumers felt that clothing brands should provide publicly available information on employee working conditions. Only 17% felt informed about the environmental and humanitarian impacts of the fashion industry, and while 68% agreed that fashion brands should be required to provide information on how their manufacturing process affects the environment, only 19% would trust brands as the source of that information.

 

source: Ipsos Public Affairs, 2018

 

While some companies in fashion refused to address the challenges associated with producing ethical clothing en masse, others embraced the desires of their customers. Pablo Isla, CEO of Inditex, decided to invest funds into R&D for producing clothing that offered a minimal environmental impact. What he found was that it actually led to his company producing higher-quality products. Now his customers are treated to better quality goods with the peace of mind that their money is being spent ethically.

 

There are hundreds – if not thousands – of other examples we could pull from to demonstrate the positive impact and success that leading with purpose first can offer companies and consumers alike. While some commentators decry the shift to purpose over profit as capitalism’s slow heat-death, the data shows us that this simply is not the case. Purpose-driven-profit is causing capitalism to evolve by combining business growth with positive social impact, delivering overwhelmingly positive results seen through strategic partnerships as well as creative and innovative solutions to problems new and old.

 

Thankfully, the corporate shift to leading with purpose over profit shows no signs of slowing down anytime soon.

 

 

 

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If you want more information on Purpose-Driven-Profit and how companies are driving impact through social good over profit, our team recommends the following reads:

 

Green Giants by E. Freya Williams
The Responsible Company by Yvon Chouinard & Vincent Stanley
Green To Gold by Andrew S. Winston
The Step-by-Step Guide to Sustainability Planning by Darcy Hitchcock & Marsha Willard
Let My People Go Surfing by Yvon Chouinard
The Triple Bottom Line by Andrew W. Savitz

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