“The purpose of business is to create and keep a customer.” Peter Drucker
I liked this piece in the FT (£) about the connection between organisational purpose and profit. This is not a new idea of-course – over a decade ago Jim Collins and Jerry Poras demonstrated (in Built to Last) that companies that were guided by a visionary purpose beyond just making money returned six times more to shareholders between 1926 and 1990 than their explicitly profit-driven competitors.
The competitive context in which we now operate is very different of-course but I think the importance of relating that clear purpose to action has never been greater. The FT article outlines the findings of a new survey from a team from Harvard Business Review Analytics and EY’s Beacon Institute (called The Business Case for Purpose - PDF) that essentially makes the same case – companies that can harness the power of purpose to drive performance enjoy a significant competitive advantage.
But the piece also makes an interesting point about what happens when that purpose is not clear, or the link between purpose and action not explicit. 90% of respondents in the HBR/EY study said that their company understood the importance of purpose yet less than half thought that it ran in a purpose-driven way. A lack of clarity on organisational purpose, or how it is expressed (or how that translates into action) can mean that it is impossible to measure, properly manage, or even to learn and improve in the journey towards it. And what happens in many companies that no clear overriding purpose other than profit?
"In a subtle alchemical shift, the metrics fill the vacuum, muscling out any wider purpose with the imperative of hitting the numbers. This transposition of ends and means is often disastrous because methods, now geared to meeting the metric, are detached from customer purpose — so banks sell payment protection insurance to people who do not need it, or VW managers manipulate emissions readings to meet targets. Look no further for the reason why companies lose their customer focus."
Nicely put.
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