How enterprises can create meaningful purpose together with their stakeholders
KNOWLEDGE @ KRISTIANIA: Co-Creation of Purpose
Before the onset of COVID, there was a seeming shift in the idea of why business organizations exist. Having long been wedded to a belief in profit-maximizing shareholder primacy, businesses started to profess a different faith.
Driven by the interdependent demands of investors, consumers, employees and activists and a growing recognition of a broader responsibility to society, businesses began to espouse a stakeholder view. Focusing solely on profit seemed out-of-place.
Changing role of business
An indication of this was the Business Roundtable (an association of the chief executive officers of nearly 200 of America’s most prominent companies), and its replacement of its 1997 shareholder focused statement with a new commitment to the role of business in the world.
The newly crafted 2019 purpose refers to creating “value for customers,” “investing in employees,” fostering “diversity and inclusion,” “dealing fairly and ethically with suppliers,” “supporting the communities in which we work,” and “protect[ing] the environment”, with “shareholders” not being mentioned until word 250 of a 300 word statement.
At the end of 2019, the World Economic Forum also refreshed its 30-year old Manifesto, to further emphasize its multi-stakeholder view: “The purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities and society at large. The best way to understand and harmonize the divergent interests of all stakeholders is through a shared commitment to policies and decisions that strengthen the long-term prosperity of a company.”
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The idea of corporate purpose
The COVID pandemic has led to some polarisation about the idea of corporate purpose. Some would argue that short-term necessity requires drastic action, which has led some companies that have publicly embraced a broader purpose, to be expedient when it comes to practice.
Other organizations have seen that the need for a fair and equitable response to the pandemic, requires a real commitment to a purpose that defines the core reason for an organization’s existence and determines its strategic direction. Here the emphasis is on stakeholder value creation, a broader responsibility to societal and economic well-being and a long-term perspective that involves employees.
It’s interesting here to note that, according to a McKinsey study of front-line employees in the US (2019), 82% think that having a purpose is vital, but only 42% think their organizations’ purpose has impact. This indicates the challenge of both defining and delivering a credible purpose.
In this article, we argue that a purpose can only be truly lived, when stakeholders play an active role in co-creating it.
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Defining a purpose, co-creatively
The traditional view of purpose is that it is an articulation of the essence of an organization, its reason for being, why it does what it does, and why that is relevant to its future. Yet, presentations on the subject tend to step over, the ‘meaning’ attached to a purpose, and ‘how’ it is arrived at.
Generally, it is seen as the task of management to filter out the superfluous and focus in on that, which best represents the uniqueness of the organization. Inevitably this editing process brings some aspects of the organization into view and pushes others into the background. Even when the process is rooted in gaining feedback from people, this is still an inside-out approach. There are three flaws to this.
- First, it encourages the purpose orchestrator to see the world from their perspective and to objectify consumers, citizens and others. If one of the premises of stakeholder theory is to deliver fair value to different stakeholders, it suggests recognition of people’s differing needs. That’s harder to achieve when stakeholders are kept at a distance.
- Second, when a purpose reflects the prejudices of managers, it easily falls into the trap of adopting a language which is remote from the everyday realities of the lived existence of others. The purpose might play neatly in the board room, but then fail to connect more widely, which can inhibit the ability of suppliers, partners and employees to bring it to life through their actions. Or worse, it may result in a disavowal of the very idea.
- Third, there is a perception, that once something is committed to paper and presented its meaning is somehow fixed, but this is to ignore the way the meaning of words changes as people use the purpose as a guide to action. One of the prescriptions of a purpose definition is that it should be enduring – yet we must also recognise that the ideas underpinning the purpose will evolve, as once an action inspired by the purpose has been taken, then the meaning of the purpose is no longer the same.
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Engaging the stakeholders
The alternative to the inside out approach is to become closer to stakeholders and to engage them as partners in the process of defining purpose together. For example, when the global science-based company DSM began working on its purpose in 2016, it was very conscious of the need to develop something that was true to its heritage and its competencies; that would reflect the ‘fundamental reality of who we are and what we have already achieved as DSM.’
The aim of the process was not to ‘create’ a purpose as such but to draw out, refine and articulate what was there in the company and its culture. This meant a participative approach to defining the purpose. Not surprisingly, some people in the organization were cynical. Was the purpose simply a project? If the company was already concentrating on sustainability, what was the point of a purpose? Was this just another expression of the DSM brand?
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«Let the discussion play out fully»
Inge Massen, Global Director Purpose, Brand and Employee Communications at DSM, says, ‘An important learning here is that it is key to let the discussion play out fully and not try to respond with knee-jerk answers.
The approach of leaving many perceived dilemmas almost deliberately unresolved was admittedly unusual, but it worked – the idea being that eventually, our people would resolve them together, organically.’ The challenge with this approach was that it took longer than originally envisaged, but it meant that a natural consensus emerged, which made the resulting purpose statement ‘Creating Brighter Lives for All’, feel authentic.
For DSM, the focus was on uncovering an internal truth, that would resonate with employees, in terms of inspiring innovation in nutrition, health and sustainable living and tackling inequality. However, this is not innovation for innovation’s sake – the orientation here is in improving the lives of the company’s different stakeholders.
The implication is that the articulation and implementation of purpose is far more than a project and requires it to be operationalized together with stakeholders. An integral part of co-creating the purpose was to root it in the overall business strategy, which in turn is based on the U. N. Sustainable Development Goals (SDGs) that DSM can most impact.
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Meaning through action
While, senior management support was vital in the articulation process, it is the ongoing work to embed the purpose through cultural programmes and purpose-led innovation initiatives (such as developing solutions to solve major societal problems related to living in megacities), that bring it to life. This points to the fact that while a purpose is generated together, it has to acquire meaning for employees and external stakeholders through action. And when that happens, positive SDG impacts are more likely to actually occur.
The virtue of this method of defining purpose is that it incorporates both the ideas and language of stakeholders. Internally, the purpose also resonates because employees are part of the process and better understand their specific role in helping to co-create the outcomes, and the aspirational impacts that can be potentially achieved.
The final strand is the incorporation of the idea into strategic decision-making and its ongoing delivery together with those suppliers and partners who comprise the DSM ecosystem, in actualizing it together. As Massen notes, ‘It’s a lot about collaboration and finding like-minded companies, NGOs, government bodies and universities to realise our societal ambition.’
Co-creating a lived purpose
It’s one thing to co-create a purpose statement, but another to bring it to life. As the example of DSM suggests, it requires commitment over time and a willingness to involve people in the development of the purpose.
There should be sufficient precision in the underlying idea but also enough space to inspire managers and stakeholders to explore the meaning. Ambiguity is a necessary part of a purpose statement, but when a purpose is too ambiguous or simply vacuous, people will either ignore it or mock it. To engage stakeholders the purpose has to have credibility and to have an emotional appeal. When a purpose is absorbed and actualised it can impact on the assemblage of elements that define experiences in the form of artefacts, persons, processes and interfaces.
The design of these elements will influence the emergence of meaning, but this is no means solely determined by the organization. Rather a purpose comes alive through co-creation; through the digital and physical interactions within an ecosystem.
Take for example, health technology company, Philips and its purpose statement, which is ‘to improve people’s health and well-being through meaningful innovation’ – to which the company adds the specific goal of improving 2.5 billion lives per year by 2030 (including 400 million people in underserved communities).
This is a pellucid and inspiring idea that is rooted in Philips’ heritage but also stretches towards a future with measurable impact that the company monitors continuously. A keyword in the purpose is ‘meaningful’, because it gives emphasis to a people-centric approach to innovation that combines an approach to challenges that involves patients and healthcare professionals in co-creating solutions together and the application of Internet of Things (IoT) and AI.
The development and use of such digital technologies is transformative in that it enables health care providers to build and adapt scalable solutions to different contexts, which is especially important in reaching underserved communities. Philips’ approach delivers an ecosystem solution that makes the best use of digitalization and gives health professionals more time to care for patients. Here the purpose guides decision-making while recognising that value is created – as the purpose statement goes on to say – ‘in partnership with our stakeholders.’
Helping the world run better, improving people’s lives
Similarly, software company SAP uses its purpose in an active way to guide agile decision-making and to build meaning together with its network of 440,000 customers and 21,000 commercial partners.
SAP’s purpose has evolved from a more focused idea to ‘help the world run better’ to a more impactful and participative ideas with the addition of ‘and to improve people’s lives.’ The initial purpose was a statement about efficiency, whereas the developed one is more emotive and recognises the transformative potential of SAP that can be realised together with others including customers, partners, non-profits, governments, universities and influencers.
For SAP, the value of a purpose is not simply in the strategic direction of the business, but in the way, it is shared through its purpose network to co-innovate at scale. By integrating purpose into the organizational culture and embedding it into mainstream activities, it impacts on programmes, partnerships, people and products.
An illustration of its role as a co-creative orchestrator of networks is the way it has engaged with the World Economic Forum’s Global Plastic Action Partnership to provide the software tools and solutions to enable others to eliminate and reduce plastic waste in the oceans. Through its Plastics Cloud, companies can shift away from single use plastics, design better for circularity and help reduce ocean pollution. For SAP, the value of its purpose is directly linked to stakeholder well-being and the way in which it uses it to guide its decisions.
Enacting purpose: Five important principles
In a Fortune survey in May 2020, around half the CEOs believed that COVID would accelerate the move to stakeholder capitalism. This shift requires purpose to become a core tenet of how an organization meets the needs of its different stakeholders. How?
We recommend the following:
- Simple, but… A purpose statement only acquires meaning when it is used to steer the actions of stakeholders. Make a statement too complex and it will be ignored. Rather organizations should err on the side of simplicity and concision, but if a statement is so bland that it could apply to any organization at any time, then it is unlikely to appear relevant to employees and others. Of course, a purpose statement does not exist in isolation, and will be supported by other statements and values, but if it fails in its primary duty to direct and inspire, it becomes pointless.
- Co-create it. Organizations always have a purpose – from the start-up to the multinational enterprise. However, as organizations grow and develop, they move from an intuitive understanding of purpose, to one that is more nuanced and that needs to be articulated. If a purpose is to meet the needs of stakeholders, it should not simply be a managerial creation, but rather the result of a participative and involving process. This may slow things down, but it also helps to create something that is authentic and relevant to both internal and external audiences.
- Integrate it. A core benefit of a clear purpose is its role in decision-making. As companies such as DSM, SAP and Philips show, a purpose that is lived can guide strategy, but also the detailed everyday decisions that people make. This helps companies to be agile, because the boundaries of choice become clearer. In COVID times, this has been particularly important in enabling companies to innovate rapidly in such areas as personal protection equipment, track and trace systems, home working processes and small business funding.
- Let go. Alongside the managerial commitment to deliver on a purpose, organizations need to recognise that they also have to let go of the purpose and let others in their experience ecosystems build on it, develop it and enrich it. There is sometimes a fear that letting go can lead to a purpose that heads off in an unintended direction. There is certainly a risk here, but this is ameliorated, when a properly integrated purpose and effective governance processes combine to determine the way companies work with the ecosystem.
- Communicate outcome impacts. Often purpose statements deal in generalities about a future state – policies rather than outcomes and their impacts. This inhibits their organizational relevance, because it is hard to see what the impact will be and how stakeholders can contribute to it. Also, given that a purpose is designed to be enduring, how does an organization know whether it is making progress or needs to adjust. A company such as Philips, which has a target is in a better position in that it can measure its progress towards realising the purpose and motivate everyone involved.
In a recent study led by Oxford University into enacting purpose, several claims are made for the benefits it can deliver: “Clarity on purpose helps boards make better informed capital allocation choices. A clear purpose motivates employees, boosting productivity and reducing employee churn. Well-articulated, purpose becomes a strategic asset, a competitive differentiator in competitive markets”
However, organizations will only realise the potential of purpose if it is used to guide managerial choices and the actions of stakeholders. This co-creative approach means a purpose has to be seen as a fluid, ever-evolving idea rather then something fixed.
The upside of this is that an organizational purpose that involves all stakeholders is likely to be seen as more meaningful, drive better engagement, and generate developmental impacts that are more sustainable.
- Gast A., Illanes, P., Probst N., Schaninger B. and Simpson B. (2020). Purpose: Shifting from why to how. McKinsey Quarterly. April 22 2020.
- Ramaswamy V. and Gouillart F. (2010) “Building the Co-Creative Enterprise,” Harvard Business Review, October 2010. https://hbr.org/2010/10/building-the-co-creative-enterprise
- Younger, R, Mayer, C. and Eccles, R. (2020) Enacting Purpose within the Modern Corporation: A Framework for Boards of Directors. EPI.
The article is first published in The European Business Review on January 21, 2021.
Text: Professor Nicholas Ind, Department of Economics and Innovation at Kristiania University College and Professor Venkat Ramaswamy, the Ross School of Business, University of Michigan, Ann Arbor, USA.