Corporate Purpose: Why "Meaning" is the Key to Corporate Success

Last year, the Swiss data analyst Neoviso cooperated with Forbes to poll 1,000 members of Gen Z (loosely defined as “people born between the years 1995 and 2010”) about what they expect from their employers. What they found out was that young people value purpose in their jobs. A meaningful job was one of the three most important motivating factors for 38% of the respondents. In Germany, that number even came close to 50%. Asked to assess the importance of having a job that matches their values and interests on a scale of one to seven, Generation Z responded with an average value of 5.6. Many young people want to make a difference through their work. In the language of leadership, this is what you call purpose.

Corporate Purpose Makes Sense - But How?

Christof Miska, sustainability expert at the WU Executive Academy, and his fellow WU Vienna researcher Nathania Chua have studied the topic “purpose” for two years now. More specifically, they worked on the following questions: what exactly is purpose, and how can companies integrate it into their business model?

Corporate purpose can take the form of dividend payouts for shareholders, satisfied employees who are overall happy with their work in the past years, or durable products. Some of it is difficult to measure, which is why many enterprises fail to award purpose the status it deserves, the researchers state. “Too often, companies just put down ‘purpose’ as one of their targets without defining a suitable concept,” Chua says. As this makes it impossible to tap the potential that comes with true purpose, it might not be the best approach.

Work with a Meaning: Finding the Right Corporate Purpose

But how can entrepreneurs translate corporate purpose into business success? Or, more importantly: Why should they – amid an economic crisis – spend time and money on it? And what exactly is purpose, apart from a warm and fuzzy feeling?

“Simply put, purpose is what goes missing when a company ceases to exist,” Miska states. But it’s not that simple. The researchers distinguish between target- and obligation-oriented purpose. Target-oriented purpose is about a company’s mission statement, vision, and strategy. If companies are motivated by an obligation-oriented purpose, they strive to expand their role within society. “Here it is about creating a benefit for society or the planet,” Miska says.

Companies Should Know where the Journey is Going

That, however, is no reason to omit purpose from a company’s strategy. Because that would sometimes have fatal consequences. To protect you from this mistake, Christof Miska and Nathania Chua describe the two most important steps that companies should follow in order to integrate purpose into their strategy:

1. Define Corporate Purpose: In Search of the Big Goal

The first step is to identify and clearly define a company’s purpose. For that, we don’t need an exact definition of purpose in general. Managers should think about what they wish to accomplish through their actions. “Many executives can’t even say what the overarching goal of their company is,” Chua says. “They are so focused on steering the ship, they don’t even know where they want to go.”

To change that, it helps to go back to a company’s roots. What was the founder’s goal when they first started? Many companies can look back on a history that might reflect their corporate purpose. “Insurances often have an interesting history,” Chua explains. “Many of them were created by members who pooled their money in times of crisis. If the CEO of a company is aware of that, maybe they have an easier time identifying the purpose of their business.”

2. Corporate Purpose: It doesn't Work Without Communication

Once a company has defined its purpose, it needs to communicate it within and outside the enterprise. Miska sticks to the example of insurances. “Managers could try to focus their employees’ attention on the fact that it’s not insurance policies they are selling; it’s a sense of security.”

A frequent mistake made in this process is the failure to include all relevant parties. Often, different departments pursue different goals. But it is important for everyone to keep the overarching corporate purpose in mind. The same goes for shareholders and stakeholders.

As an example, the researchers cite a family business that is facing a generational change. If the next generation has not grasped what the purpose is about, they will lead the company into a different direction. If they are not behind the purpose at all, they might not even want to take over the company.

Mission and Vision: Transformation through Corporate Purpose

A targeted purpose has many advantages. For example, it can lead to necessary changes within a company. This is especially true for old industries such as the energy sector, which research counts among the more controversial fields of business. “These industries need to undergo massive changes in the years to come,” Miska emphasizes. “In order for that to happen, companies need to rally their stakeholders, managers, and staff behind a purpose. Otherwise, everyone will have their own vision of where the company should be going.”

Corporate Purpose as a Competitive Advantage

All well and good - but the difficulty remains that effects caused by Purpose are hard to measure. Although there are indicators of a company’s success – cashflow, profit, margins – purpose is not among them. This makes many companies hesitant to deal with the issue. But just because its influence is hard to gauge doesn’t mean it doesn’t exist. “Purpose often indirectly impacts a company’s profitability. It motivates employees and can be a reason for customers to favor the company. Maybe this doesn’t immediately show in the balance sheet. But in the long run, corporate purpose makes a difference.”

This difference can often be seen in the competitive edge companies gain thanks to a strong purpose. The market research company Forrester found out in a study that many Gen Z consumers avoid brands that don’t comply with certain ethical standards. Companies that fulfill or even predict these expectations fare much better at appealing to young target groups. “If my company is the first to live up to all these expectations, my competitors will need to catch up. That will give me a significant edge.”

Crises Make Meaning and Purpose of Organizations Necessary

The debate about the corporate purpose is not new. As early as the 19^th century, economists and businesspeople pondered the role of companies in society. However, in recent years in particular, the discussion has once again become more central. First the pandemic, then wars, all while the climate crisis seems to be getting out of control. These big social challenges have made people take a good look at the responsibilities of companies.

At the same time, a lot of information about companies is accessible online. And social media makes it easier to hold companies accountable if they fail to live up to society’s expectations. This has caused managers to engage more intensively with their companies’ purpose. “Just saying ‘We’re turning a profit’ isn’t enough anymore.” Miska stresses that this new responsibility comes with an opportunity. “It makes companies think about what they really want to do.”

Best Practice Example from the Business World

An enterprise that lives and breathes purpose, Miska and Chua believe, is Tony’s Chocolonely. The Dutch chocolate brand aims to radically change the industry, as the supply chains of many large chocolate manufacturers still rely heavily on children and slaves. Douglas Lemont, CEO of the company, still recognizes that profit is a major component of purpose. “If we’re not profitable in the long run, we won’t be able to change the industry – because then, the big players will always have the excuse that their shareholders want higher margins,” he said in an interview with Forbes last year. In this specific case, Miska says, “Purpose helps David compete with Goliath. Without a strong purpose to rely on, Tony’s Chocolonely probably wouldn’t stand a chance against the big brands of the chocolate industry.”

Corporate Purpose and Profit: An Indispensable Combination for Success

So, Entrepreneurs shouldn’t forget that profitability can (and, in most cases: must) go hand in hand with corporate purpose. “For-profit companies,” Miska explains, “absolutely need to chalk up profits. That’s what they’re here for. Which means they need to be able to walk a thin line and find a corporate purpose that can be reconciled with reaping profits – or, ideally, even increases profits.”

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