How success undermines purpose and why it doesn't have to

It's far too easy to forget why you're in business in the first place.

by Tom Lansdowne
Last Updated: 19 Apr 2018

There’s a lot of pressure resting on the shoulders of my Northern Line tube driver every Monday morning.

She’s the only one that gets to decide whether this week will be a good week. Not just for me but for the 714 TfL customers that I share my morning commute with. All of us hoping that we don’t get a red signal day…

But every now and then she’ll inject a little personality into her rendition of ‘mind the gap’, and like the most British version of a Mexican wave you’ll ever see, one by one me and my fellow commuters start to crack a smile (only briefly, of course).

It’s the smallest of things, but life in the capital is made a little bit better.

Transport for London has something that many businesses don’t: clarity over its purpose and belief throughout the organisation that it matters.

How purpose fades

Whilst all businesses are created with a purpose, many forget what that purpose is.

At the beginning it tends to be served well, but inevitably me-too products begin to pop up and innovation across all sectors causes customer expectations to rise. Before long new customer growth slows and retention dwindles, and with that a sharp focus on purpose can be replaced by calls for more profit.

As a result, businesses begin to add increasingly irrelevant services to a core that over time fails to meet its intended need. Long-lasting relationships with customers become transactional as the business becomes functional. The reason customers were attracted in the first place is lost behind last-ditch discounts and big budget TV campaigns.

For those that fail to find a turnaround the inevitable outcome becomes news of pension woes and unemployment.

The problem of shareholder value

If the problem is purpose (or a lack thereof), then the reason is short-termism.

In the mid-1970s we saw a shift in management thinking that led to the creation of shareholder value capitalism, the belief that the sole objective of a CEO should be to maximise the return to investors. The issue with this principle, however, became clear shortly after: as soon as businesses began trying to maximise value to owners, value began to fall in the long-run.

This is because shareholder value today actually has very little to do with the present – only 4% of a company’s valuation can be attributed to current performance. What this means for CEOs is that the only way to raise shareholder value is to raise future expectations, which leads to prioritising short-term strategies over long-term impact.

What’s more, this inherent short-termism is as prevalent at the top of the organisation as it is all the way down. Senior managers look to do their two or three years without any disasters, making the numbers work at all costs and trying desperately to avoid any risks that could cause a deviation from the status quo. Any mess is just left to the next unsuspecting soul to handle.

Purpose empowers

A strong and worthwhile purpose at the heart of any organisation can provide the clarity to guide employees to make decisions freely that contribute to the bigger picture. Businesses are human organisations and we give our best when we’re involved in something that feels worthwhile, where we each have a part to play in the wider story.

More and more businesses are wising up to the need to uncover their purpose, and the version of their purpose that best fills the needs of their customers and not their shareholders.

By striving to serve a purpose that is truly customer-led, companies force themselves to push through improvements to their business that align with where genuine value is created, enabling them to win more customer decisions in their favour and increase profits in the process.

When employees have a clear purpose to strive for and a belief that it matters, a healthy share price becomes a natural consequence, as managers care about profits just as much as shareholders do: more profit means salary increases and office perks. A strong and worthwhile purpose simply provides the environment for a team to perform at its best.

Tom Lansdowne is a consultant at The Foundation, an independent management consultancy specialising in customer-led growth. You can find him on Twitter @TomLansdowne

Image credit: Lightspring/Shutterstock

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