For many years, I worked for one of the world’s leading strategy consultancies. On any typical assignment, watching CEOs evaluating the pros and cons of our recommendations, I would always find myself wondering, “What is really determining their decision?”

With the best chief executives, those at the helm of the most effective companies that we advised, I knew that there was something more driving their decisions than simply the need to make immediate profits. Some advice was deemed a natural fit; some, even though it would be difficult to execute, was taken on as part of a long-term strategy. And some “slam-dunk” options were dismissed immediately, often with a comment like, “This is not what we are trying to do here.” I came to recognize that the more consistent this type of reaction was, the more successful the leadership team, because its members knew where they were going. In other words, while strategic alignment and execution were always essential to success, the most successful leaders were those who knew which strategy to pursue.

All leaders, not just top CEOs, face difficult strategic decisions throughout their careers. The single factor that helps them make these decisions correctly is an understanding of what their organization is really trying to do: its Purpose. That’s because the Purpose of the organization— the shared recognition of the reason why it exists—is the context that determines whether a decision is the right one to make at any particular time.

Purpose does not mean making money. It does not even mean producing goods or services, satisfying shareholders or paying taxes and contributing to society. Those are all the things that an organization must do in order to fulfill its Purpose. The Purpose is a moral conviction: a rationale that explains why a particular group of talented people—leaders and employees—should spend their valuable time working together in this particular organization doing these particular things.  For example: Are we here to discover new inventions? To increase people’s happiness? To create beauty and quality? To control the direction of our industry? Or for some other reason?
 
When a Purpose appeals to the moral conviction of employees, then they are capable of acting with conviction and self-determination, without being micromanaged. When the strategy of a company is aligned with its Purpose, then its moves will make sense, whether in the short or long term. When companies operate over time with a clear and well-aligned Purpose, then they become great and influential.

THE FOUR PURPOSES
For today’s global companies, based on my research, there are four moral traditions on which a successful Purpose can be based:
 
1. Discovery centers on the search for the new. Discovery put America on the map, men on the moon and the dot-coms in business. Sony, IBM, Google, and many technologically based companies have succeeded by making innovation and exploration the center of their effort.

2. Excellence focuses on providing the best possible product or service. Excellence built the great cathedrals of Europe and today’s most successful professional and creative businesses. Apple, BMW, and Warren Buffett’s firm Berkshire Hathaway have all built their identity around the artistry of their endeavors.

3. Altruism is built on compassion. Altruism is the driving force of any organization that exists primarily to help others, like many political parties or most charities.  Nordstrom, Hewlett-Packard, and even Wal-Mart have established appeal around the idea that they are, first and foremost, making their customers happy.

4. Heroism sets the standards for everyone else to follow. Heroism resulted in the Roman Empire, Wimbledon champions Serena and Venus Williams and many spectacular growth companies.  Microsoft, ExxonMobil (and its predecessor Standard Oil), and GE have dominated their markets and industries by focusing on their capacity to win every competition.

To be sure, Purpose is not monomaniacal. Wal-Mart beats the competition; Nordstrom provides excellent service; and IBM has had its heroic moments. But the underlying rationale for the decisions made by these companies becomes clear when you study their histories, which always have to do with fulfilling an idea, often set in place by a leader or a leadership team, about “what we are really trying to do here.”

Companies do not adopt such Purposes by accident; they are deliberately chosen by the leaders, often with original forms of expression. Thomas Watson, Sr., didn’t say “our Purpose is discovery.” He put signs reading “Think” in everyone’s office. In doing so, he was making it clear that discovery was the essential constant at IBM, and every other action people took, including financial security, was secondary. The adoption of a Purpose, and the alignment of corporate strategy with that Purpose, is the single most important job that a leader has to perform. And most CEOs know it: “Purpose” is what they most want to talk about, though they do not always call it by that name.

PURPOSE AND CORPORATE STRATEGY
Corporate strategy is a highly complex business—witness the range of articles and books published on the subject, the number of professors who teach it at business school, and the legions of consultants who make a living from it.
 
However, at its heart is a very simple idea: to enjoy competitive advantage is to be able to generate more wealth than other companies in the same industry year after year.  Not all companies are driven to achieve this, but most public companies need to do so, if only to continue appealing to shareholders.

 
So how do you generate more wealth than other competitors?  In the 1980s and 1990s, many companies assumed that efficiency was the key, but they soon discovered that their competitors could easily make the same changes to their operations (for example, through outsourcing or streamlining).When productivity equalized, they were all competitively back where they had started from, but with lower margins. Companies then realized that the key is not efficiency per se (although this is of course essential to any successful business), but differentiation.

Michael Porter expressed this idea most cogently in his influential 1996 Harvard Business Review article, “What is Strategy?” Competitive strategy means “deliberately choosing a different set of activities to deliver a unique mix of value”; and different positions require “…different product configurations, different equipment, different employee behavior….”

But anyone reading Porter—and certainly anyone wanting to implement Porter—is bound to wonder just how this fit between a position and all the activities supporting it is to be achieved. Even more importantly, how can it be achieved so that others are reluctant to try to imitate it? One could argue that Porter’s answer to this is rationalist: in most cases a company can make a strategic decision because it enjoys distinctive strengths or a position in the industry well suited to that decision. Indeed, companies do not all start from the same place, and the additional costs and difficulties of moving to a strategic position will vary from firm to firm.

However, in practical, day-to-day experience, the difference in strengths and position from one company to the next can rapidly change, depending on the capabilities and commitment of the people involved. The underlying crucial issue is building those capabilities and solidifying that commitment. In any company, those depend on a flow of ideas and a web of routines and relationships. Some routines and relationships are formal—like the budgeting procedures or the innovation management procedures that some firms adopt, or the allocation of decision-making authority. Some are informal—the personal networks that allow individuals to access knowledge across and beyond the company or to assemble teams on an ad hoc basis, or to influence the way decisions are made and so move events forward.

Whether formal or informal, the single most important factor shaping these routines and relationships is the organization’s Purpose: they all rest on a set of shared understandings among everyone involved.  If the organization’s Purpose is mere expedience (making as much profit as quickly as possible, or solving problems with the least effort and cost), people will tend to do things and have contact with people to gain only short-term advantage. If the organization’s Purpose is Discovery, Excellence, Altruism, or Heroism, then people will tend to be guided, consciously or not, by those values when doing regular tasks and building relationships at work. And when it comes to the introduction of new ideas, nothing helps people overcome the fear of adopting them more than the shared understanding that they thus serve a higher Purpose (for instance, saving people’s lives).

These shared understandings then underpin all kinds of internal organizational strengths—motivated employees, effective teamwork, knowledge sharing, efficient factories, creative product development teams, good brand management, a spirit of co-operation, flexibility and so on.

PURPOSE AND DECISION MAKING
It was many years before I understood why, when presented with a series of strategic options, some leaders always seemed to make the right decisions and some leaders always seemed to make the wrong decisions. The most successful leaders understood that the best option is the one that the organization will act on most effectively—in other words, the one that fits best with the Purpose.

So, if you are a leader within a company that seems muddled in its strategic direction, spend some time thinking about what drives you and your organization. Perhaps there is a divergence between the two. Perhaps your organization needs to discover or rediscover its Purpose. Ask yourself which leaders and which organizations you most admire. Then ask yourself what drove them to success. Was it Discovery, Excellence, Altruism, or Heroism?  

Could that Purpose be the driving force in your own organization?

Originally published in MWORLD, Winter 2006/2007

Purpose is the driving force behind a company’s capability to achieve enduring success. To become great, a company’s guiding direction must be more than simply making money: it must have a purpose that appeals to the moral convictions of its key stakeholders, in particular the leadership team.

I’m not opposed to companies making profits. Indeed, this is the paradox of purpose. By aiming for something more than money, companies actually make more money, especially in the medium to long term.

Why is purpose so vital to achieving enduring success? Because purpose is founded on an individual’s own ideas about what is right and worthwhile. Since these ideas are normally rooted in one or more moral traditions, they create the possibility of a shared purpose, linking the leadership team and the rest of the organization.

With a shared purpose comes a clear sense of direction, which boosts morale and helps leaders make difficult and radical decisions. It supports innovation, reduces risk aversion, motivates people to think in new ways, and encourages leaders to put ideas into practice. It also helps build and maintain relationships. If your customers share your purpose, like those who buy from Anita Roddick’s The Body Shop, they are likely to prefer your products to those of a competitor.  Today, the companies that generate the best ideas, build the strongest relationships, and hold on to their brightest stars will prosper and grow.

Four Competitive Purposes

A global company can base its purpose on four moral traditions: discovery, excellence, altruism, or heroism.  These traditions link back to four of the greatest philosophers—Søren Kierkegaard, Aristotle, David Hume, and Friedrich Nietzsche—and produce organizations that stand the test

of time because they are based on ideas that have stood the test of time.

1. Discovery appeals to the adventure within us, the explorer who wants to race beyond knowledge. Discovery put men on the moon, America on the map, and the dot-coms in business. Discovery was the driving force behind Tom Watson of IBM, who plastered the slogan

“THINK” around the offices. It is also the purpose of Sony, described by its founder as a “place of work where engineers can feel the joy of technological innovation.”

Richard Branson, the creative spirit behind the Virgin Group, embodies discovery: a means that allows him to understand the world better, and thus offer a distinctive new service. Branson is a modern-day explorer, who has broken records on sea and land, seeking to go faster and farther than anyone else.

2. Excellence appeals to the perfectionist within us, the artist whose exacting standards allow no compromise. Excellence has built great cathedrals and successful businesses. Excellent firms prefer to turn away customers rather than compromise their quality standards.

Warren Buffett has built an empire based on the highest principles of investment: He only buys shares in a company—or buys a whole company—if exacting criteria are fulfilled.  His excellent Berkshire Hathaway has averaged over 20 percent annual ROI since 1965. Steve Jobs has been a symbol of excellence at Apple, NeXt, Pixar, and Apple again, and he will bring the same purpose to Disney. Jobs’ commitment to excellence is obvious in the sleek, intuitive design of the iPod, but it can also be seen in the Apple I, which was originally envisaged inside a case made from koa, an exotic light-colored wood from Hawaii.

3. Altruism appeals to the caring person within us, the philanthropist who strives for the good of all. Altruism lies behind major political movements, charities, and many businesses that exist to serve their customers. Altruism may take the form of helpful personal service, delivering products at affordable prices, or using technology to improve or save lives. Many businesses are animated by this ethic.

During its explosive growth Wal-Mart was animated by the character of its founder, Sam Walton, whose desire to get the best deal was based on his empathy with his customers.

4. Heroism appeals to the winner within us, the competitor who seeks to dominate his or her field and set the standards. Heroism resulted in many spectacular growth companies, from

Standard Oil to Microsoft. Bill Gates’ plan to put his operating system onto every desktop was a heroic obsession.  It is not the specific goals that tap into human aspirations, but the ambition and daring evident in those goals. 

The difference between heroism and excellence can be seen in the contrast between Microsoft and Apple.  Apple engineers tinkered at perfection, while Microsoft was busy taking over the world.  Henry Ford was the Bill Gates of his age, a man whose heroic purpose was to democratize the automobile, and who achieved this with a small team that shared that purpose.

There are other important purposes that a company can be based upon, such as religion and patriotism (nationalism).  With its Christian principles, ServiceMaster celebrates the worth of

each employee—its motto is “Honor God in All We Do.”

Many major companies whose purpose has been based on patriotism are now seeking new purposes. Deutsche Bank, for example, having been the German bank, under the leadership of

its Swiss CEO Dr. Josef Ackermann, has become an international firm.

Purpose achieves powerful results.  Purpose drives great companies and individuals. If you examine any story of enduring business success, you will find a moral foundation of purpose. Discovering an authentic purpose is the first step to setting organizations on their way to greatness.

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Originally Published in Leadership Excellence, December 2006

 
For any organization, the starting point of greatness is not in meeting expectations–whether of shareholders, board members, or constituents–but fulfilling a Purpose that fits the identity of the organization. For example, is a foundation charged primarily with discovery: inventing new approaches to helping people? Or with excellence: promoting a high standard of service and execution? Or with altruism: making greater numbers of people happy? Or with heroism: proving that difficult challenges (such as natural disasters) can be mastered?

 
The answer will vary from organization to organization, but the central point is universal. Organizations that thrive over time do so by invoking and fulfilling a purpose: ideally one based on a moral tradition that has stood the test of time. In my book Purpose: The Starting Point of Great Companies, I apply this principle to commercial firms and corporations, but the value of a moral basis of purpose is just as relevant to social sector organizations and their leaders as it is to leaders in any other sphere. While it may be tempting to think of organizations as being made up of instructions, processes, and resources, it should never be forgotten that people are their fundamental components. And one of the distinguishing features of people is that they have strong ideas about what is right and wrong. If you can resonate, collectively, with those ideas, then you can tap into people’s commitment and creativity to a far greater degree. Karl von Clausewitz, Prussian general and author of On War, was right to believe that in war the physical factors are “little more than the wooden hilt, while the moral factors are the precious metal, the real weapon, the finely-honed blade.”

 
Many people who talk about organizational purpose are concerned either with accountability or responsibility–what the organization must do to fulfill its obligations. But if you are interested in promoting greater levels of success, then purpose must be considered as a form of choice: to what ends are the leaders, and the rest of the organization, willing to commit themselves? This way of looking at purpose may not be familiar to all readers, so I will spell it out–first in the context of commercial companies, and then for the social sector.

The sole purpose of commercial companies is to make products or to provide services in order to create profits for their shareholders. Undoubtedly this sounds familiar. It is the mantra taught in the economics departments of our universities and repeated by many leading economists in the media. This view of heartless Mammonism is reinforced by the stories of WorldCom, Enron, and Arthur Andersen, and many other stories of corporate corruption, and it is further reinforced by such legislative prescriptions as Sarbanes-Oxley, which is so draconian for U.S. companies that they are struggling to compete in the global marketplace. And why do companies need Sarbanes-Oxley? Because, it is said, they can’t be trusted. Because all they care about is money. No wonder many morally committed individuals seek work in the social sector; based on this purpose, they have every reason to fear that their aspirations will find no home in business.

 
There is, however, another tradition in economics, a tradition that does not seek to exclude human morality from the graphs and equations. This is the tradition of J. M. Keynes, of Amartya Sen, and of James Buchanan. It is a tradition that dates all the way back to Adam Smith, regarded by many as the founder of economics, who, before he wrote The Wealth of Nations, wrote The Theory of Moral Sentiments.

At heart, the concept of purpose belongs squarely in this tradition. This is not to argue against commercial firms’ making money–quite the reverse. In fact, companies that employ a purpose tend to produce greater profits than those that don’t. But by aiming for some long-term objective that is more important than money, companies actually provide more financial rewards for their shareholders and employees (so long as the purpose they pursue is compatible with the strategic assets).

Purpose is so powerful because it is founded on deeply held ideas about what is right and what is worthwhile. These ideas are normally rooted in one or more traditions that have been articulated by moral philosophers. Because these traditions have been shared in some form throughout history, they draw on common experience and worldviews. They thus link top management and other employees in a natural and organic way. When a company or foundation is driven by such a shared purpose, its morale will be higher, the quality of innovation will improve, its internal and external relationships will be strengthened, and its leaders will be able to point the way forward with genuine conviction.

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