Combining Purpose With Profits

MITSMRRedHere is a brief excerpt from an article co-authored by Julian Birkinshaw, Nicolai J. Foss, and Siegwart Lindenberg for the MIT Sloan Management Review. To read the complete article, check out others, and obtain subscription information, please click here.

This article was awarded the Richard Beckhard Memorial Prize as the most outstanding MITSMR article on planned change and organizational development from the previous academic year. Congratulations to Birkinshaw, Foss, and Lindenberg.

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A sense of purpose that transcends making money can motivate employees. But to sustain both a sense of purpose and a solid level of profitability over time, companies need to pay attention to several fundamental organizing principles.

It’s an old idea: If you want to build a company that truly motivates its employees, it has to have a sense of purpose. Purpose, according to Ratan Tata, the recently retired CEO of the Tata Group, is “a spiritual and moral call to action; it is what a person or company stands for.” [R. Tata, S.L. Hart, A. Sharma and C. Sarkar, “Why Making Money Is Not Enough,” MIT Sloan Management Review 54, no. 4 (summer 2013): 95-96.] When such a purpose exists, it provides employees with a clear sense of direction, helps them prioritize and inspires them to go the extra mile — which, the argument goes, should ultimately be good for profit.

Purpose, by its nature, transcends making money: It is about people coming together to do something they believe in and allowing profit to follow as a consequence, rather than as an end in itself. But there is a paradox here. It is hard to fulfill a purpose in the absence of money, so purpose-driven organizations either must rely on donations or benefactors to sustain themselves (as most charities and aid organizations do), or they must become self-funding through their own profits.

Is it possible for a company to strive for a higher purpose while also delivering solid profits? Some have argued that pursuing goals other than making money means, by definition, spending on things that aren’t profit-maximizing. Others have countered that by investing in worthwhile causes, the company is doing something intrinsically valuable that will generate a long-term payoff to all parties.

But, ultimately, this is a well-rehearsed and tired debate, with plenty of evidence available to support both sides of the argument. The important question is not whether there is some tension between purpose and profits; there is. Instead, the question to ask is: How can the tension between purpose and profits best be managed? What structures does a company need to put in place to ensure that its higher-order purpose isn’t squeezed out by short-term profit seeking? How can executives ensure that employees keep these dual goals in mind on a day-to-day basis? And how can this balance be achieved on a long-term basis?

This article is based on research that we have conducted over the last five years looking at the organizational challenges involved in managing two different objectives at the same time. (See “About the Research.”) We have discovered that there are a few fundamental organizing principles that help a company sustain its sense of purpose over time while still achieving a solid level of profitability. [We acknowledge other studies have provided useful advice to social enterprises, particularly around the notion of shared value, such as M. Pfitzer, V. Bockstette and M. Stamp, “Innovating for Shared Value,” Harvard Business Review 91, no. 9 (September 2013): 100-107. This study starts from a theoretical perspective on human motivation and as a result it offers somewhat different, though complementary, recommendations about how organizations of all types — not just social enterprises — can balance competing objectives.] These principles, in turn, are built on a perspective known as goal-framing theory. Goal-framing theory provides a deep understanding of why pursuing what we call “pro-social” goals — which we define as goals that involve working toward common causes that go beyond just making money and staying in business — creates a stronger motivational basis for working in organizations than pursuing self-interest goals that emphasize financial gain or personal enjoyment.

This article draws on a five-year program of research we conducted to understand how companies put in place innovative ways of managing conflicting strategic imperatives, or “dualities,” such as purpose versus profitability, alignment versus adaptability, global versus local and exploitation versus exploration. This research was conducted under the auspices of the Management Lab at London Business School and the Department of Strategic Management and Globalization at Copenhagen Business School. We conducted more than 80 in-person interviews with executives from 15 companies, listed below. Some of these case studies were written up in academic publications and books, while others were used as teaching materials. In addition, we conducted experimental and theoretical research into goal framing, the main psychological theory behind the ideas in the article. (See the endnotes for references to this work.)

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The purpose of this article is to help you to understand why and how a corporate purpose matters and to show how it can be realized without sacrificing profitability — and indeed may result in higher profitability. Goal-framing theory shows that a company’s goals make a difference only when they work on the beliefs of employees, and that the most valuable goals are those that support collaborative work — what we have called pro-social goals. However, these goals compete with other goals for individual mind share and are easily driven out by gain and hedonic goals. As a result, corporate executives have to work doubly hard to affirm pro-social goals and to develop systems and structures that reinforce them. And, most fundamentally, establishing pro-social goals requires developing a tolerance for obliquity — that is, the paradoxical notion that if we follow pro-social goals we aren’t actually getting rid of gain goals. Instead, we are realizing them more effectively.

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Here is a direct link to the complete article.

Julian Birkinshaw is a professor of strategy and entrepreneurship at London Business School. Nicolai J. Foss is a professor of strategy and organization at Copenhagen Business School and the Norwegian School of Economics in Bergen, Norway. Siegwart Lindenberg is a professor of cognitive sociology at the University of Groningen and Tilburg University, both in the Netherlands.

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