Why purpose and profit are no longer opposites and how companies can reconcile them for long-term success
Author: House of Eden
- Why purpose and profit do not compete, but complement each other
- Benefits of a purpose culture
- Strategies to balance purpose and profit in a targeted manner
Events such as Covid-19, the general pluralization of lifestyles and generational change are confronting companies with new rules of the game. Those who do not adapt these are considered less attractive to stakeholders, including investors, employees and consumers. So today it is no longer enough to drive profitability or maximize profit: companies need a clearly defined purpose that combines modern values and views.
However, this does not mean uncompromisingly overriding purpose or completely forgoing profit. After all, companies operate in a capitalist market economy, while individuals strive to earn money for luxurious items and experiences. Other is unrealistic.
This results in one of the most important challenges for companies at the moment: A purpose-oriented company create without sacrificing long-term gains. More and more positive examples and studies show that this is not impossible and that authentically striving for something more meaningful can even bring better business results. Time to decipher how companies can balance purpose and profit to reach their full potential in a sustainable, ethical and social way as well as economically.
Recap: Rise of a purpose-driven corporate culture
A clear purpose is the be-all and end-all of an organization: It is the "why" behind the vision, every decision, and every company order. It is the basis for dealing with challenges and uncertainty, but also with success and opportunities: why do we exist, what problems do we want to solve, and what do we mean to people? In short, this makes it a guide that explains the company's essence to the internal and external corporate environment.
Of course, it is not historically unique that these questions arise. However, there are new intentions behind the current trend. It is no longer just about constructing a certain image and thereby gaining market share. It's about doing something good for the environment and communities, creating deeper connections with consumers, attracting and retaining talent, while delivering bigger results - ideally - with impact.
Why "Purpose versus Profit" is a myth
Although the potential of purpose is increasingly being realized, prejudices that cause skepticism persist. Therefore, it is important to make it clear once and for all: Businesses in business are not just about blindly generating sales and purpose-oriented companies are not exclusively idealistic dreamers or public sector NGOs. Purpose and profit can behave in a complementary way. Examples include Stella McCartney, Burt's Bees and Patagonia, or collaborations between Louis Vuitton and UNICEF.
Second, it is possible to realign established companies in a new and purposeful way without underpinning their profitability. Of course, in the short term, there may be losses and costs that go hand in hand with increased organizational risks. In the long term, however, modern structures, products and business models are the key to being future-proof and competitive. This forecast is supported by the fact that more and more venture capitalists are investing in sustainable, ethical or social companies.
Purpose: Engine of ESG & Profit
According to a study by Deloitte, purpose is not only the engine of ESG, but also of profit. Stakeholders would value companies with a purpose more than companies without a purpose, as they are growing three times faster, according to the results of the consultation. Reasons include that Purpose empowers people to mobilize their innovative power and opens up new opportunities for partnerships. And also with interest groups such as competitors. In times of crisis, this can mean more resilience and adaptability.
The study also found that purpose-driven companies have higher gains in market share and achieve higher levels of employee and customer satisfaction. This is because they promote the personal development of their employees in the knowledge that their work can not only have a strong impact on financial goals, but also on society. At the same time, a contemporary purpose positions companies as more attractive in the war for talent because it supports values such as sustainability and equality.
Deloitte also found that many consumers make decisions based on how companies treat their employees, how they treat the environment, and how they support the communities in which they operate. When companies succeed in authentically articulating their commitments, consumers build a deeper connection with them. In the long term, this would create lasting loyalty, consistency and relevance in the lives of consumers.
Challenges in implementing a culture for sustainable, ethical & financial impact
Nevertheless, the interaction of purpose and profit is of course not a sure-fire success. Well-established, renowned companies in particular have to master comprehensive challenges. Among them: A strong product-market adjustment, (further) development of business models, scaling them and the creation of efficiencies. Implementing all of this under the cloak of a clear purpose requires sometimes critical decisions, courage and knowledge transfer.
Another important criterion in the implementation of purpose is timing. What speed of change would a company like to adopt: would it like to develop slightly but surely, grow exponentially or be disruptive? Ultimately, this decision is not only based on the ideas of the C-Level, but also on the industry and its status quo in terms of progress, development and innovation. A car manufacturer’s switch to electromobility requires a different time frame than a fashion brand’s switch to sustainable textiles. In general, however, it is worth creating a fixed timetable with milestones.
Strategies to successfully balance Purpose & Profit
Three tips can become the indispensable empowerment tool to overcome these challenges:
1. Create transparency about short-term sacrifices and long-term growth
The company must paint an unambiguous, coherent picture. Both internally and externally. This means that leaders have an important role to play as catalysts for change. You need to plan and model data-driven to clarify how vision interacts with financial stability. The achievement of corporate goals can be incentivized, for example, through appropriate rewards that are in line with sustainable or social standards.
One buzzword is extremely important here: transparency. Companies may well sacrifice some profit to be industry leaders in sustainability or ethics. However, in doing so, they promote the well-being of the planet and communities. As these become more and more relevant in view of the increasing pressure from stakeholders and regulators, this attitude also serves the well-being of the company. So when a brand acts authentically, it achieves a trusted status with all stakeholders, which opens up new connections while increasing growth and sales.
2. Represent your purpose with conviction - it's contagious
Companies must boldly and confidently express their purpose to investors, employees and customers. It is a natural phenomenon that people are attracted to other people, brands or companies who are passionate about their mission - believe in it. This also means taking responsibility for critical decisions and confidently accepting the consequences.
If a company is run with such a credo, awareness automatically spreads among the teams. In addition to motivation, this atmosphere also creates the courage to overcome uncertainties that are usually associated with fear or pressure. The result: Increased engagement and productivity that improve overall operational performance. Since this approach falls under value-based corporate management, Purpose can increase both customer and employee loyalty in this way, making the company more profitable in the long term.
3. Allow the purpose to evolve with the company and all of its stakeholders
Of course, a purpose-oriented company needs consistency. A purpose stands for something meaningful with meaning and an overarching mission. Therefore, it would be completely wrong to change course based on small changes. Rather, it is sufficient to always keep an eye on the big picture, to create a shared vision and to define and pursue goals based on a constant value system. This approach can provide support and rationalize the uncertainty of day-to-day business life.
Nevertheless, a company must remain flexible in order to balance purpose and profit. This does not mean changing it, but rather developing it further if necessary. It is worth seeking discourse with employees, expanding a diverse culture, carrying out market analyzes and defining new strategies for customer loyalty. This allows both human and monetary potential to be mobilized.
The increasing pressure from all stakeholders, the competitive market and ambitious regulatory authorities points to a future scenario: companies do not have to choose between purpose and profit, but rather combine both to be future-proof. Anyone who recognizes this today anticipates the rules of the game tomorrow. And can already lead companies today or embark on career paths that combine purpose and profit.