The Purpose Deficit

Much has been written and discussed about purpose since May 2021, when we posted our Savvy Director blog, The Purpose-Led Board. One of the key points for boards and their management teams was a siren call to collaborate toward a common understanding of the purpose — the ‘why’ — that guides the mission, vision, and values supporting their work.

When organizations are formed, there’s usually a clear purpose in mind. It’s often described as the reason why a company or organization exists — beyond mere financial gain.

This core purpose serves as the foundation on which the organization is built. Like a compass, it guides the organization’s strategic choices and the decisions it makes. But over time people change, as does the external environment in which the organization operates. With change, organizations can lose sight of their purpose and struggle to execute it effectively.

In this edition of The Savvy Director, we’ll explore three reasons why boards and the organizations they serve may have lost the ability to execute their core purpose, and what can be done to restore it.

Causes of a purpose deficit

Lack of alignment between purpose and strategy

If purpose is the foundation on which an organization is built, then strategy is the roadmap that guides its day-to-day operations. If the strategy isn’t aligned with the core purpose, the organization will likely struggle to achieve its goals and fulfill its purpose.

The consequences of this kind of lack of alignment can be severe. The organization may experience a loss of focus, direction, and motivation. These in turn can lead to declining performance, employee disengagement, and stakeholder dissatisfaction.

Lack of focus on long-term success

If an organization focuses narrowly on achieving short-term results, they may find themselves sacrificing their core purpose in the pursuit of short-term gains. As a result, they lose focus on the company's long-term goals and values.

It’s conceivable that, in certain situations, there could be short-term justification for an organization to deviate from its core purpose, but over time the downside risk of failing to focus on long-term success can be very costly. The organization may experience a decline in stakeholder trust, reputation, and brand value, leading to loss of social impact, market share, revenue, and sustainability.

Lack of leadership alignment with purpose

The third reason an organization may struggle to achieve its goals and fulfill its purpose has to do with leadership. If the CEO and the rest of the management team aren’t aligned with the organization’s core purpose, the result can be a reduced focus on the company's long-term goals and values.

A lack of leadership alignment with purpose can do a lot of damage. The organization may experience a decline in employee engagement, talent retention, and innovation, which can lead to a loss of competitive advantage, market share, and revenue.

How to sustain a focus on core purpose

Fortunately, there are some steps that a board and management team can take together to restore and sustain the focus on core purpose.

Define and communicate the core purpose - often. As a board, work with the management team to re-affirm the organization's core purpose. A purpose statement should be clear, concise, and compelling. If you’re looking for examples, check out the Best Purpose Statement Examples from the Fortune 500. Once purpose has been defined, it should be communicated to all stakeholders, including employees, customers, and the broader community. Repetition is a good thing.

Align purpose with strategy. Reviewing the company's strategy and, if needed, update it to ensure that it properly reflects the organization's purpose and values.

Embed purpose in decision-making. It’s important to make sure that, when it comes to making decisions, core purpose is at the forefront. One way of doing this is for the board and management team to make use of decision-making frameworks that prioritize the organization's purpose and values.

Foster a purpose-driven culture. Organizational culture is an important factor in sustaining a focus on purpose. Fostering the desired culture includes defining and promoting organizational values, recognizing and rewarding employees who embody the organization's purpose, and creating a sense of meaning for employees.

Monitor and measure progress. The board should monitor the organization's progress in achieving its purpose-driven goals. This can involve developing key performance indicators (KPIs) that are aligned with the organization's purpose and values, and regularly reviewing and reporting on those KPIs – both leading and lagging indicators.

Engage with stakeholders. Key stakeholders — including employees, customers, and the broader community — should be consulted to ensure that the organization's purpose and strategy remain aligned with their expectations and aspirations. There are a number of ways to gather feedback and insights from stakeholders, including conducting surveys, focus groups, and face-to-face meetings.

Regularly review and update purpose and strategy. Together, the board and management team should ensure the purpose and strategy remain relevant and inspiring on an ongoing basis. When needed, they should make the changes required to improve the organization’s focus on its core purpose.

What can the Savvy Director do?

As an individual director, there are several things you can do to foster a purpose-driven culture:

• Lead by example. Demonstrate behaviors that align with the organization's purpose and values.
• Ask questions. Ask management about the organization's purpose and how it’s being integrated into the company's culture, strategy, and decision-making processes.
• Give feedback. Provide feedback to management on how the organization can better align with its purpose and values.
• Be an advocate. Advocate for the importance of purpose-driven leadership and the benefits of aligning the organization with its purpose and values.

In summary

If your board is concerned that the organization has lost its focus and reason for being, it’s important to take action to address the issue. By reviewing and, if needed, updating the organization's purpose statement, the board can help to ensure that the company is aligned with its purpose and is still creating value for its stakeholders.

It's worth noting that the concept of a purpose-driven organization has become increasingly important in recent years, with many organizations — both for-profit and non-profit — recognizing the need to go beyond traditional measures of success such as financial performance.

A clear and inspiring purpose can help attract and retain top talent, build customer loyalty, and create long-term value for stakeholders. With that in mind, boards have a critical role to play in ensuring that purpose remains a key priority and is integrated into the organization's culture, strategy, and decision-making processes.

Key takeaways

• Purpose is a critical element of an organization's identity and should guide the company's strategic goals and criteria for making decisions.
• If an organization loses sight of its purpose, it can result in a loss of direction, motivation, and stakeholder trust.
• Boards and management teams can work together to ensure that the organization's purpose remains a key priority. They can do this by defining and regularly communicating the purpose, aligning purpose with strategy, embedding purpose in decision-making, fostering a purpose-driven culture, monitoring and measuring progress, engaging with stakeholders, and regularly reviewing and updating purpose and strategy.
• Boards and management teams must be aware of the factors that can cause the organization to lose its focus on its core purpose. These include leadership turnover, short-term focus, lack of alignment between purpose and strategy, changes in the external environment, and lack of stakeholder engagement.
• By staying true to its core purpose, an organization can create a sense of meaning for its employees, customers, and other stakeholders. This can result in a positive impact on society, a strong reputation, and a sustainable business model.

 Research and insights on the evolution of purpose-led governance provided by DirectorPrep’s ChatDPQ™.

Resources:

• Purpose Governance: A New Role for Boards. Coro Strandberg. Strandberg Consulting. November 2020.
• The board’s role in embedding corporate purpose: Five actions directors can take today. Celia Huber, Sebastian Leape, Larissa Mark, and Bruce Simpson. McKinsey and Company. November 2020.
• The Board’s Role in Corporate Social Purpose. Amy Silverstein, Debbie McCormack, and Bob Lamm. Harvard Law School Forum on Corporate Governance. July 2018.
• The Purpose-Led Board. Scott Baldwin. The Savvy Director. May 2021.
• The Difference Between Purpose and Mission. Bruce Jones. Disney Institute. February 2016.
• Purpose Governance: A New Role for Boards. Governance Professionals of Canada. November 2020.

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Thank you.

Scott

Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online membership with practical tools for board directors who choose a growth mindset.