Corporate purpose has made the leap from nice-to-have to materially important: Companies that enable employees to fulfill their personal purpose through their work reap a multitude of benefits in the form of improved loyalty and retention, higher levels of engagement and achievement, and improved health and personal resilience, according to a McKinsey study on the role of purpose in the employee experience.
But fewer than half of executives believe that purpose makes a difference, according to an earlier McKinsey survey. More recently, research from MIT Sloan Management Review found that half of the executives they surveyed believed that the role of purpose has been overlooked in driving business performance.
Where’s the disconnect?
Before we go any further, it’s worth noting the opportunity at hand for leaders to engage their employees more fully in their organizations’ purpose.
In the aforementioned McKinsey study, 70 percent of the employees surveyed said their sense of purpose is largely defined by work. However, a significant gap exists between executives and frontline employees when it comes to how people perceive the impact of their work on purpose: 85 percent of executives and upper management believe they are living their purpose at work, whereas only 15 percent percent of frontline employees agreed.
Worse, nearly half of these employees disagreed, compared with just a smattering of executives and upper management.
Keep these data in mind as we consider how purpose contributes to profit.
Corporate purpose drives profitability from multiple angles. Research from Gallup gets even more granular, finding that improving employees’ connection to purpose by only 10 percent delivers an 8 percent decrease in turnover and a 4.4 percent increase in profitability.
The bottom-line savings a company would realize from improving employee retention are obvious. The influence of purpose on consumer behavior may be less visible, but the impact is potentially even more significant: According to research from PwC, a huge majority of consumers — 76 percent — would not hesitate to vote with their wallets and cease doing business with a company that treats its people, the environment or the communities in which it operates poorly.
Less visible to the naked eye is the profound impact purpose can have on providing clarity to the organization.
Claudia Gartenberg, a preeminent researcher on corporate strategy purpose, and her coauthors offered this definition of purpose — “ a set of common beliefs that are held by and guide the actions of employees” — in the paper titled, “Corporate Purpose and Financial Performance.”
Gartenberg and her fellow researchers surveyed approximately 500,000 at a sample of U.S. firms, and concluded that “high purpose” firms come in two forms:
The researchers found that firms exhibiting both high purpose and clarity “have systematically higher future accounting and stock market performance, even after controlling for current performance, and that this relation is driven by the perceptions of middle management and professional staff rather than senior executives, hourly or commissioned workers. Taken together, these results suggest that firms with employees that maintain strong beliefs in the meaning of their work experience better performance.”
The opportunity to operationalize purpose is front and center at the upcoming 3BL Forum: Brands Taking Stands, taking place on October 25, 2022, at New York City’s iconic Pier Sixty.
Candid discussions about the role of corporate purpose within an organization, and the effect of the headwinds we’re experiencing today on brand commitments, are on tap. Learn from (and network with) senior leaders at top-tier brands as they address meeting stakeholder expectations for ESG, sustainability and diversity during this period of constant change.
TriplePundit readers can receive 35 percent off their in-person tickets using the code 35FORUM2022 when prompted.
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