It’s no secret that businesses have long had a singular goal: maximize profits. But a remarkable shift has companies breaking away from this monolithic motive to tackle pressing social and environmental challenges. Interest in purpose-driven businesses is at a record high, but what’s causing it?
This article sheds light on the phenomenon, explores the benefits of adopting a purpose, and provides steps for companies interested in making a difference. But first, let’s delve into the historical context that paved the way for this seismic shift in the business world.
Seeds of Change: Corporate Social Responsibility
The notion that businesses have a responsibility beyond their investors is nothing new; it began in the early 20th century when a few visionary leaders recognized the need to improve the welfare of their employees. By supporting their employees’ well-being through philanthropy, these pioneers began what we now refer to as Corporate Social Responsibility (CSR) – the idea that businesses should consider impact beyond financial performance.
Fast forward to the 21st century, and we’ve witnessed purpose-driven businesses that take it to the next level. Impact investing is a model that has gained significant traction in recent years. This approach seeks to generate positive social and environmental outcomes alongside financial returns. The Global Impact Investing Network reports that in 2020, the market for impact investments exceeded $715 billion – illustrating an increased appetite for businesses that combine purpose and profits.
As we see, the concept of businesses having a responsibility beyond their shareholders has come a long way, from the early days of philanthropy to the emergence of purpose-driven business models. But why has this shift happened, and what are the benefits? Let’s explore this further.
The Generational Factor
The growing emphasis on purpose isn’t solely the result of a changing business landscape; it reflects a broader societal shift in values and preferences, primarily driven by Millennials and Gen Z.
According to Deloitte, these generations prioritize corporate responsibility, with 87% of Millennials and 94% of Gen Z holding the firm belief that companies should address urgent social and environmental issues. This narrowed focus has resulted in a new breed of business that places impact on equal footing with financial performance.
As Millennials and Gen Z become the demographics employers and advertisers target, their influence will continue to grow. So, as we pass the torch to the next generation, organizations that fail to recognize this imminent seismic shift risk falling behind and losing relevance.
The Power of Purpose-Driven
As businesses move towards heightened social consciousness, they must recognize the psychological power of purpose to remain competitive. Companies that tap into intrinsic motivation, foster identity, and create emotional connections with customers have a distinct advantage in today’s purpose-driven world.
The psychological benefits of being a purpose-driven business:
Intrinsic Motivation and Commitment: Employees are a company’s most valuable resource, and their motivation is critical to success. According to a McKinsey study, employees who perceive their work as purposeful are 32% more committed and enjoy 46% more job satisfaction. By connecting with a cause, organizations tap into employees’ intrinsic motivation. We observe this psychological phenomenon at Tesla, where transitioning to sustainable energy motivates employees and increases commitment, productivity, and profits.
Possession Theory and Belonging: Employees and customers develop a strong sense of identity and belonging when a company’s mission aligns with their values and beliefs. Research on possession theory found that employees who feel connected to their company’s purpose experience increased levels of motivation and trust. Similarly, consumers who identify with a company’s cause are far more likely to advocate for the brand. Patagonia’s commitment to environmental activism and sustainability is a prime example of how connecting mission with purpose can foster a sense of belonging and loyalty.
The Halo Effect and Connection: By supporting a cause that resonates with the public, companies create an emotional connection that enhances their image. Businesses that link mission and purpose often benefit from the Halo Effect. This cognitive bias occurs when a single positive attribute influences how an individual sees another person, place, or thing. TOMS Shoes is an excellent example; donating a pair of shoes for each sold creates an emotional bond with customers, elevating the brand’s reputation.
Understanding the psychological power of purpose is an asset to any business, regardless of industry. By adopting a more profound sense of purpose, companies can reap psychological benefits that allow them to build a loyal customer base, an engaged workforce, and a positive reputation.
Unlocking the Benefits
Companies can unlock significant benefits that drive long-term success by integrating purpose into their core strategies. A study by Cone Communications found that 87% of consumers would support a company based solely on shared values, and 76% would refuse to patronize a business that didn’t. While this is reason enough for most companies to consider supporting a cause, there are many other benefits.
The benefits of being a purpose-driven business:
Cultivate Trust: According to the Institute for Public Relations, employees in organizations with a defined purpose trust their colleagues and superiors more. This increased trust can lead to enhanced teamwork, greater innovation, and improved communication. A company’s purpose can also foster customer trust, leading to stronger relationships and increased brand loyalty. For instance, Johnson & Johnson’s long-standing commitment to global health initiatives has helped build a loyal customer base and a strong market position.
Build Resilience: Resilience is crucial in determining a company’s long-term success. Organizations with an established social purpose are more resilient during economic downturns and periods of uncertainty. Connection to a cause provides employees, customers, and investors the stability and continuity to navigate challenging times. During the pandemic, Zoom embraced its mission to empower millions of users worldwide; this allowed the company to thrive even during adversity.
Attract and Retain Talent: Companies prioritizing social responsibility attract top-tier candidates who are more likely to stay with the organization long-term. A survey by PwC found that 88% of millennials prefer to work for companies that take a strong stand regarding social responsibility. For example, Salesforce’s commitment to philanthropy through its 1-1-1 model has helped the company attract and retain top talent in a highly competitive industry.
Enhance Customer Loyalty: Consumers expect companies to contribute to society and are willing to reward those that do. A Nielsen study revealed that 55% of global consumers would pay more for products and services from companies committed to making a positive impact. Warby Parker’s commitment to donating a pair of glasses to someone in need for every pair sold has earned it a loyal customer base.
Improve Financial Performance: Aligning with a social cause can lead to better financial performance. On average, companies practicing CSR experience 4% to 6% higher stock returns. Various benefits, such as customer loyalty, employee engagement, and operating efficiency, contribute to higher profits. For instance, Novo Nordisk’s commitment to improving diabetes care worldwide has contributed to its strong financial performance and continued success.
Strategies for Adopting Purpose
We’ve established that companies can reap significant benefits by aligning mission and purpose, including increased employee motivation and long-term growth. While this is true, there’s one caveat: companies can’t pick a random cause and expect it to work. Inauthenticity is easy to recognize.
Five strategies for becoming an authentic purpose-driven business:
1. Identify and Connect to a Deeper Meaning
Define the organization’s fundamental reason for existing because being purposeful means more than increasing focus on CSR. Building a solid foundation that connects with employees, customers, and potential clients requires companies to convey purpose in everything they do. Regardless of their products or services, organizations can elicit enthusiasm and excitement by finding new ways to connect with their purpose.
2. Align with Stakeholders
Select a cause that resonates with key stakeholders, including employees, customers, and investors. This alignment will help foster authenticity, commitment, and community, making implementation easier and success far more likely. Ben & Jerry’s commitment to environmental issues aligns with its core values and stakeholders’ beliefs.
3. Measure and Evaluate
Regularly evaluate and measure the impact of purpose-driven initiatives using key performance indicators. Impact assessment tools help monitor progress, identify areas for improvement, and maintain transparency. For example, Google’s parent company, Alphabet, regularly publishes its Environmental, Social, and Governance (ESG) report to highlight progress toward sustainability goals.
4. Engage and Co-create with Employees
Involve employees in developing and implementing purpose-driven initiatives, provide them with opportunities to contribute their skills and expertise, and offer training to help them understand its impact. Regularly asking employees for input allows for increased traction and significantly higher workforce satisfaction levels. For example, Salesforce encourages employees to volunteer and provides paid time off for philanthropic endeavors.
5. Foster Partnerships
Collaborate with non-profit organizations, government agencies, and other businesses to maximize impact when addressing complex social and environmental challenges. Starbucks’ partnership with Conservation International promotes sustainable coffee production and supports independent farmers.
As an increasing emphasis on purpose drives the private sector, it’s clear that this is not a passing trend but a transformative force with the power to catalyze lasting change. With customers, employees, and investors eager to share in this vision, companies that align with society’s betterment will emerge as tomorrow’s leaders. Although we face unprecedented challenges, purpose-driven businesses clear a path toward a more sustainable and prosperous future. As organizations commit to making a difference and measure each decision against that pledge, we move closer to a world where purpose and profit go hand in hand.