What is the reason for my company’s existence? And why the right answer to this question will future-proof your company…

If you ask why someone buys products from company XY, and all they tell you is: “Because they’re good and cheap,” or if you want to know from one of this company’s employees why they are working there, and they say: “Because the pay is good,” then that company has a problem. Because, if another company sells the same products even cheaper or pays its employees more, then there is no reason to be loyal to them.

The question of why many companies have more “valuable”, i.e. more loyal customers and employees, can no longer be simply answered with a few pearls of wisdom learnt during a university economics degree. And so, although clearly recognisable advantages like quality are still important, they are increasingly becoming mere “hygiene factors”. If you don’t offer quality, you don’t even need to step up to the stage. Creating added value above and beyond a classic brand image used to be a lot simpler. And this is being noticed, above all, by the brands set up with a lot of advertising pressure. They are suffering from tough competition, for example from brands, increasingly indifferent consumers and the sharp pencils of the controllers. And on the labour market – kindled by the demographic development – we are seeing companies battle it out for the best talents.

So what’s the right strategy to win over customers and employees these days? One way is to give customers and employees what they are increasingly asking for and what lies beyond recognisable advantages or purely advertising-generated brand images. It all comes down to the purpose. And this is closely linked to a very fundamental question: why does my company exist in the first place?

Luminaries and world saviours – two types of purpose

As purpose is such a broad topic, it’s worth providing you with an overview first. My first finding: this isn’t actually such a new topic. In fact, there are two purpose strands, only one of which was developed recently. The older, traditional purpose story is that of disruption. It’s about outstanding entrepreneurs, whose investments have changed the world. Elon Musk, Jeff Bozos and Dietmar Hopp are today what Emil Rathenau, Robert Bosch and Max Grundig were in the past. Luminaries who have shaped their companies with their charisma and their ideas, and whose employees are truly inspired by the opportunity to work for them. Indeed, an entire consulting scene has emerged that is experiencing success under the motto “What would Steve have done?” in precisely the places where there is no Elon, Jeff or Dietmar.

The second, newer strand of purpose has developed recently and can be found in the realm reigned by salaried managers. Here it’s not about disruption, but about entrepreneurial responsibility for people and the environment, i.e. sustainability in the broadest sense. This purpose is so popular that there are hardly any company strategies it doesn’t appear in.

So, purpose is either disruptive and very much dependent on the company founder, or altruistic and more consensual. Both purpose strands have their advantages and disadvantages.

Purpose by disruption isn’t for everyone. Entrepreneurs who change the world don’t just grow on trees. They are like a natural phenomenon that evades strategic planning. But it takes a different tack when you start talking about the tradition of a company. As most companies started out disruptive and were founded by charismatic personalities, many people will find an anchor here. However, you have to watch out you don’t come across as archaic. When credible and current references are lacking, the incantation of values and the ideals of the founding father are simply irrelevant to many stakeholders. But there are also problems that crop up in “hot” companies with a disruptive purpose: the belief that you’re moving humanity forward with your own disruptive idea doesn’t necessarily have to correspond with public opinion. People such as Mark Zuckerberg refuse to admit that social networks can also have a highly destructive potential. And it’s debatable whether anyone would actually fall for the very modestly worded motto (“Don’t be evil”) of Google’s corporate code of conduct. This is why disruptive purpose often splits opinion. There are fans and there are opponents. But whatever the case, it definitely attracts attention.

This polarisation doesn’t apply to the second purpose strand: nobody is against companies taking responsibility for people and the environment. However, there is still a lack of attention here. And essentially there are two reasons for this: on the one hand, there is a lack of differentiation. When everyone wants the same, “to take responsibility for people and the environment”, it becomes difficult to differentiate one from another. For companies who base their success on the fact that they stand out from the crowd in this respect, their purpose loses all traction.

And even more importantly, there is often a lack of credibility. The purpose of most companies isn’t to save the world, but to manufacture and sell products or provide services. And most of them do this very well. But if the purpose is only being added on as an afterthought and because it’s en vogue at this moment in time, your customers and employees will notice your intention and feel like you are trying to pull the wool over their eyes.

How to find the right purpose for your company

As the responsibility-oriented purpose outweighs the other and is also easier to plan and control, I would like to show you how to differentiate it and give it credibility.

Differentiation and credibility have a lot to do with passion and real conviction. An abstract and generically worded purpose objective along the lines of “We take responsibility for people and the environment” neither awakens passion, nor is it particularly credible. This goal can only be achieved if you build a bridge. After all, most companies can say they are unique and distinctive. However, this is not part of their purpose, but the company’s mission. And this mission is very closely linked to what the company does. We want to offer the best software for office management! We want to revolutionise the construction of airplane seats! We want to produce outdoor clothing that sets benchmarks!

It’s a lot easier for companies to formulate corporate missions than purpose objectives. Despite the fact that everyone who has ever come up with such a corporate mission wasn’t actually far off from creating a convincing purpose. The aim is to find a direct derivative from the specific corporate mission. We want to offer the best software for office management – in order to make people’s work easier and boost their creativity. We want to revolutionise the construction of airplane seats – so the aircraft emits less CO2 as a result of its lighter weight. We want to produce the best outdoor clothing – but only using recycled raw materials.

The art lies in turning an entrepreneurial goal (mission) into a higher purpose. In such a plausible way that it is transparent and credible for everyone. And with a level of differentiation that will attract attention and arouse enthusiasm.

So we can see that personalised purpose objectives have a somewhat narrower scope of action than the all-encompassing “responsibility for people and the environment”. We’re not asking any manufacturers of knitting machines to save the world. But what they can do is set themselves a higher purpose objective that is derived from their company mission. To build more economical, quieter, solid machines, for example, in order to serve the purpose of sustainability. That is credible and will inspire employees and customers if they can also live up to their promise.

Earning money with purpose

As we’ve now found the key to opening the door to your own purpose, I could wrap up this piece right here. But an important question still needs to be answered: how important is purpose for companies? Is purpose the new differentiator that should be put at the focus of your business activities? Or is purpose, at the end of the day, nothing but another hygiene factor that you need these days in order to be able to play along with the other “wholesome companies”? Here’s a simple consideration: if the purpose of business is business activity – i.e. selling and generating profits – then purpose cannot be separated out from business objectives. If that were the case, the topic wouldn’t really be relevant. At the end of the day, the purpose would remain the icing on the cake, to be extolled in strategy papers and at Christmas parties, only to be swept under the carpet in tougher times.

Can anyone still remember the “Beyond Petroleum” claim as the new acronym of BP? It was phased out when they realised that the economic basis of BP was pretty much diametrically opposed to their lofty slogan. I could fill several more pages with other negative examples, ranging from Deutsche Bank to the ADAC and VW. All these companies recognised the importance of purpose as an important way of asserting themselves against accusations that they were old-fashioned or not environmentally friendly. But they failed to live and breathe this purpose, otherwise the inevitable scandal wouldn’t have followed, whether emissions-related or otherwise. I assume that the purpose remained the icing on the cake for these companies because they didn’t recognise the economic relevance. Ironically, we’re only recognising this relevance now: from the damages caused by unfulfilled promises.

Purpose and reputation – two sides of the same coin

So, getting back to the initial question: what is the economic relevance of purpose?

This question can only be answered if we bring a new factor into play: reputation. Reputation is the perfect counterpart to purpose. While the purpose tells us what the company wants, the reputation reflects what the stakeholders experience. Reputation is – to put it simply – the good standing of a company, an institution or a person. Or to be more precise, reputation is a collective judgement. Related to companies, this collective judgment ranges from customers and employees down to stakeholders like NGOs, investors, suppliers and in large companies down to the wider public. And, for the first time, let’s have a look at some economically sound figures: Calculations by the Reputation Institute and also our own survey clearly show that a high percentage of a consumer’s buying intention (approx. 70 percent) and turnover (approx. 22 percent) is directly influenced by reputation – i.e. by the collective judgement. Specifically, this means that the decision is based on their own opinion, but it is an opinion that has been formed by others, whether by the press, employees, friends or reviews on social media etc.

Reputation becomes workable and open to influence from communication when we consider how reputation, i.e. the collective judgement, evolves. Astonishingly, in the perception of companies there are always three factors that define the reputation. It is the perception of strength, the perception of innovative qualities and the perception of empathy. Strength means that the company has, in my eyes, the necessary size and substance. Innovative qualities mean that I believe the company is future-proof and credit it with the necessary creativity and expertise. Empathy comes when you can credibly convey that the goals you want to achieve are “ethically sound”. If the company is doing well in all of these areas, it will have a good, or even enviably good reputation (most companies have weaknesses in one or more points). And this is where we come full circle: when the collective judgement consists of strength, innovativeness and empathy, it is the purpose that boosts these three factors.

And I can demonstrate this perfectly with a current example: interestingly, it is an example in which responsibility for the planet is combined with a disruptive purpose: Tesla (founded by the luminary Elon Musk). It has a purpose that is derived straight from its company endeavour: to build electric cars. Tesla wants nothing less than to stop climate change and revolutionise road safety with autonomous driving. With a disruptive pioneer who is finally doing what others only talk about. This purpose is obviously being very well received. Because, at the time of writing this, Tesla is perceived as being very strong (even though the company has yet to make a profit). This perception of strength is making itself felt in the company’s stock market price and by the fact that Tesla products are selling well – despite hardly doing any advertising. The public perception of innovation is also incredibly high: Tesla doesn’t just build electric cars. We believe the company that they are massively ahead of their competitors. And this collective judgement has perpetuated itself, although quite a few experts would disagree. In terms of empathy, the purpose of “stopping climate change and revolutionising road safety” is a very hard one to beat. After all, you have to be good if you are setting out to do something of this nature.

This example makes it clear that purpose and reputation are two sides of the same coin. Without a purpose, you won’t have a clear collective judgement. Without a purpose, you won’t be able to stand out from other companies. Without a purpose, you won’t have a high profile among your perhaps most important reputation drivers, your own employees.

If you agree with this theory, then you’ve already made a big step towards taking advantage of the economic momentum of reputation and purpose for your own company.

From the process to purpose

The next step would be to set a process in motion that uses purpose to fulfil the economically relevant goal of improving your own reputation.

This process is relatively simple: first you have to carry out a complete analysis of your company. Based on this analysis, a purpose objective needs to be defined. The next step is to develop measures from this objective. Communication plays an important role in this. What messages will we convince our workforce with? And our customers? And our stakeholders? The clearer, more differentiating and credible the messages are, the bigger the chance the purpose has of shaping your reputation. Which makes our starting question very simple. Why does my company exist in the first place? Because… (if you can’t spontaneously think of an answer to this, we’d be happy to come around and help you!)

Joachim Schöpfer

Managing Partner Serviceplan Berlin

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