The term purpose has been hijacked. The majority of companies today deploy corporate purpose superficially as a promotional vehicle to make themselves appear virtuous to the outside world or to rally employees. When pursued more thoughtfully- purpose can transform how companies do business. Leaders who truly embrace purpose can supercharge productivity and performance, while enabling their companies to make profound contributions to society. In today’s volatile business environment, purpose driven leaders can navigate our daunting and unprecedented challenges by looking towards purpose as a conceptual foundation and anchor.
Ranjay Gulati is the Paul R. Lawrence MBA Class of 1942 Professor and the former Unit Head of the Organisational Behaviour Unit at Harvard Business School. In his new book, Deep Purpose: The Heart and Soul of High-Performance Companies, he argues that companies must embed purpose more deeply than they currently do, treating it as a radically new operating system for enterprise. At a time when many have become cynical about purpose, Gulati documents the vast performance gains that purpose-driven companies achieve as well as the social benefits they deliver.
In this interview, I speak to Professor Ranjay Gulati about deep purpose, leadership, and his field research in organisations including Etsy, Lego, Warby Parker, Mahindra, Microsoft and the Seattle Seahawks. Gulati discusses how long-term value and short-term performance need not conflict but rather, when leaders go deep on purpose, high-performance and durable profits typically follow, delighting all stakeholders. Deeper engagement with purpose holds the key, not merely to the well-being of individual companies, but to humanity’s future.
Q: What does purpose mean to business?
[Ranjay Gulati]: Purpose has been fundamentally an individual construct, which we have taken into organisations, and onwards to the large concept of the purpose of business in society.
As an individual you can talk about the purpose of your life, your purpose at work, in your career… The psychologist, William Damon, describes purpose as, ‘a stable and generalised attention to accomplish something that is at the same time meaningful to the self, and consequential to the world beyond the self.’ Every religion talks about purpose in some way. In Sanskrit they talk about karma – the idea that you’re following your intention, not some laws in society or even a sense of duty, you’re doing something meaningful to you.
We’ve translated this to business in a very interesting kind of way – at a very dry level, you can look at Delaware General Corporation Law and see what the purpose of the corporation is. If you look through this lens, you will see the idea of the fiduciary responsibility of the board of directors to aid the shareholders. Let’s go back in history a bit. In 1886, the US Supreme Court had a decision – Santa Clara County v Southern Pacific Railroad – which looked at whether an organisation was a person. As part of that legal doctrine, what emerged was that under certain conditions, a company can be treated as a person. This meant that if a company is a person, it should have a persona, somewhat of a soul. There emerged what you could call welfare capitalism. Companies started to personify themselves with their founders, and there emerged this idea that we [the company] should have purpose.
There’s an economic view of the purpose of an organisation, which is that it is a nexus of contracts in aid of serving shareholders, and individuals come to work as part of that contract. Many people have taken issue with this economic model – and this is an ongoing debate such that maybe economic relationships alone, aren’t enough to galvanise people around a common cause. In the 1930s and 50s, people said organisations could serve as carriers of meaning, emotion, moral values… purpose.
Q: What is the difference between purpose, CSR and mission?
[Ranjay Gulati]: Purpose is not a mission statement, nor is It CSR, yet the majority of companies still treat it as it is. Some companies treat purpose as a motivational and reputational tool, and this can lead to purpose-jacking. Let me read you three purpose statements from healthcare companies.
Company 1 is dedicated to helping patients who often have no effective treatment options by developing and commercialising innovative treatments.
Company 2 has a compassion for patients, excellence in science and is inspired by their pursuit of new medicines.
Company 3 wants to facilitate the early detection and prevention of disease and to empower people everywhere to live their best lives.
Company 1 is Turing Pharmaceuticals whose former CEO, Martin Shkreli famously raised the price of a life-saving drug from $13 to $750.
Company 2 is Purdue Pharmaceutical, considered to be largely responsible for the deadly opioid crisis through the irresponsible marketing of highly addictive painkillers such as OxyContin.
Company 3 is Theranos, under trial right now for knowingly defrauding clients and investors.
These are the kind of things that give purpose a bad name…. it’s wallpaper.
The reason I titled the book Deep Purpose is that you can either view purpose superficially or seriously. I think only a small subset of companies actually ‘do’ deep purpose – the vast majority think of it as an instrumental tool – it’s not. Deep purpose is fundamental to who we are, it informs our strategy, who we hire, our CSR, and how we do what we do. It’s part of the fundamental DNA of business and can be seen as a unifying statement of the commercial and social problems that a business intends to profitably solve in the short and long run for its stakeholders.
You need to bring this to life though. Anyone can buy a statement, you need to turn a statement into action.
Q: Does purpose drive performance?
[Ranjay Gulati]: The prevailing view is that purpose is a tax on doing business… it’s like CSR, a price of admission, a license to operate. Business leaders talk about it and say, ‘oh, we need to have some kind of social agenda…’ and see it as a tax on business versus something fundamental to how they operate which can actually help them make money while doing good.
This is the question; how can purpose make a business more productive than it would be without that purpose? There are some suggestive studies – people are measuring this and trying to correlate performance and purpose, and there are some interesting data coming out…
Purpose can elevate a firm’s performance through strategic direction; it provides clarity on where we want to go – strategic agenda, where we want to (and don’t want to) play. Purpose also gives motivation – it animates and inspired employees around a common cause. All of us want to be a part of something bigger.
Purpose also performs a reputational role; it elevates our brands.
Purpose also creates a common understanding of how you relate to your stakeholders around the community, around CSR, your suppliers, stakeholders, and wider environment.
In my research I found several examples where purpose was used to transform businesses. Microsoft is a great example. When I interviewed Satya Nadella, he talked about how their purpose and culture acted as guardrails, as constants in the business. He said their strategy and organisation may change- but their purpose gives them a constant. Lego is another great example. I looked at how Jørgen Vig Knudstorp transformed Lego with his ideas embedding culture and purpose across the business. You even see this in start-up and fast-growth ventures who make purpose part of the DNA of who they are.
The companies who embrace purpose often animate a growth agenda, and ensure their team connect with these ideas on a daily basis. They walk the walk!
Q: How can we measure purpose?
[Ranjay Gulati]: How do you measure purpose and its correlates? Do you measure the inputs or the antecedents of purpose? Or the outputs and consequences?
Companies who really understand purpose often operationalise it into a set of concrete measures which form part of the incentivisation and reporting structure. Measuring purpose is about holding yourself accountable internally and externally.
My research took me into the world of ESG (Environmental & Social Governance) measures. Research shows that ESG measures often don’t correlate with each other, and many of our most problematic companies score well on ESG! If we break it down – we see the E getting better at being measured, even the G, but the S is a mystery bucket. I’m glad we’re amid a measurement revolution but we must think very hard about what we’re measuring and the discipline we apply. ESG measures outcomes rather than impact (for example) and measures also need to balance commerciality with impact.
Q: Why do people still think in terms of ‘trade-offs’ with purpose?
[Ranjay Gulati]: As an organisation you can have your cake and eat it. You can have commercial and social payoff. At the individual project level, you have to be willing to make trade-offs and realise that there isn’t always a win-win. Companies today are becoming more ambitious in their approach – they’re taking on projects which appear to have only social value, but are determined to make those projects commercially viable. Walmart, a decade ago, decided to put solar panels on stores. They didn’t know how they were going to make this viable, or make money, but they took a leap of faith and decided to do it because they believed it was the right thing to do. Similarly, you may also take on a commercial project where you don’t see the social impact – but you may give yourself a timer and think, ‘I have to find a way to make this project have social value in it as well….’
Q: How do we create better leadership around purpose?
[Ranjay Gulati]: The job of a leader is to get people aligned with them around a common cause. Leaders can align people through incentives and rewards (the nexus of contracts) – but they can also inspire them around something that makes them want to come to work in a different kind of way. When you’re inspired, you’re not only engaged, but you’re also satisfied… you’re more motivated, you’re more creative, productive and committed. The war for talent we’re entering suggests that the younger generation has much more of this proclivity than others do.
All businesses need to understand how they’re helping employees feel inspired when they come to work. That’s the job of leadership – and can be achieved through compelling storytelling, animation of purpose, and providing the appropriate challenge.
You’re also seeing much more pressure building from the investor side. Larry Fink is the Chairman and Chief Executive of Blackrock. He has run a number of letters trying to cajole leaders of public companies to state and live their purpose – thinking about, and reporting on their commercial and social objectives. We also see sovereign wealth funds, pension funds and other investors taking the same approach!
Investors are demanding more of companies alongside returns.
Q: What is your purpose and what do you hope your legacy will be?
[Ranjay Gulati]: I’m a professor, first and foremost. An educator and researcher. At Harvard Business School, we like to say that we educate leaders who make a difference in the world. My personal purpose in life was to do great research, and to teach through my research. I want to enable enterprises to become their best selves for the world at large. Commerce has a huge impact on people’s lives – it provides livelihood – it provides products and services. It’s such an enabler in all our lives. If I can enable commerce to be more productive and more humane, I feel I’m living my life’s purpose.
There’s a time in our lives where our purpose is defined by fame and fortune, as you get older that purpose becomes more expansive. We want to make a positive impact on our world at large.
Turning to legacy.
A few years ago, my father passed away. I went to India to perform his last rites, his funeral. At the funeral, there were three clusters of people. His friends and former colleagues were clustered in one corner, his neighbours in another corner and of course his family in another. I noticed a woman who was standing by herself. She clearly wasn’t well to do, and I went to her and introduced myself. She told me she was my father’s house cleaner – and cleaned his house every morning. I remember my father told me how reliable and honest she was, and I was curious why she came to the funeral. She told me how much she missed my father, I told her I would too. She told me, ‘no, you don’t understand…. I clean about twenty-five houses a day, nobody ever asked me how I was, apart from your father. He took the time to ask, and took the time to listen… I’m really going to miss him.’ Purpose is lived not just through big actions, but through vital small actions.
People think of legacy in big terms, but I’ve come to realise that legacy is lived through small actions and gestures as well.