In this interview with Prof Ranjay Gulati, Harvard Business School Professor of Business Administration and author of Deep Purpose: The Heart and Soul of High-Performance Companies, he says that employees, customers, communities and society itself are changing, so companies need to articulate a new vision for themselves and a long-term view of their place in the world and purpose can capture that.
1) How would you define ‘deep purpose’? It could mean different things to different stakeholders of a corporation — from employees to shareholders and customers. How does a company align its deep purpose with all stakeholders?
As I say in my book that purpose itself is fundamentally an individual-level construct. It’s really defined at the individual level. And for me, the individual definition I like the best is William Damon, Stanford psychologist, who defines purpose as “an enduring commitment to do something that is meaningful to the self and consequential for the world beyond the self.”
I like the most important word there is “and”, meaningful to the self and consequential for the world beyond the self.
Organisationally, it gets a little complicated, I think, for me, the purpose is a unifying idea of the problems you want to profitably solve like, what value do you want to create? How do you want to create value? For whom do you want to create value?
So purpose involves both ambition, and goals, it also involves duties and it fundamentally involves a long-term view of the world. And I think the confusion is that people think of purpose as stakeholder value. Well, actually, the logical argument is purpose is a long-term view, that long-term view naturally gets you to think about stakeholders, because if you’re thinking long-term, you have to think about stakeholders.
So, to me, purpose is a tool to force you to think about who you are. And then it creates a powerful way to communicate who you are and that creates a shared understanding with your stakeholders about what are you going to do, and what are you not going to do.
So does it solve all stakeholder differences? No, because every stakeholder fundamentally wants something different and many of them are in opposition to each other. How much do I give customers? How much do I give employees? How much do I give my communities?
So it’s a way to kind of parse it out for yourself and communicate it clearly, so it creates a shared understanding; it doesn’t magically solve the problems for you, but it creates a way to communicate your thing.
2) Why has ‘deep purpose’ gained so much currency of late? Is it the fact that the world — and the firm as we have known — are facing problems on multiple fronts — from climate change to inequality between peoples, countries et al?
One, of course, is that society now expects more as the compact between society and business is changing, in light of the problems we’re facing, in light of some of the violations by businesses. But the other thing is society is changing, and employees are changing in terms of what they expect out of work.
Customers are changing what they expect out of the companies they want to buy from. Communities are changing, and so it is all these ideas that are forcing companies to articulate a vision for themselves, a long-term view of their place in the world and purpose is just a convenient way to capture that.
It encapsulates that idea very succinctly. Unfortunately, the word has been hijacked and polarised and people on the left and the right are twisting it around, but the purpose is a statement about existence.
3) Can a company that has been operating in a certain way for decades redefine its purpose afresh, and recast its purpose completely? Can you give examples of companies that have done that?
It’s a great question, and I wasn’t sure about that myself till I encountered Microsoft, where Satya Nadella transformed the company and used purpose as a way or a revision of the purpose, but that was not the only company I saw.
In my book, I talk about LEGO and how the CEO there did it. I looked at Best Buy, the largest electronics retailer in the US, and how they did it. So a number of large and small companies have done it.
4) Can a company, which, say, has been marketing cigarettes, which is today a known health hazard, redefine its purpose which can be believable by its stakeholders and customers? The very basis of its existence would be threatened, wouldn’t it?
Actually, if you look at Philip Morris, companies like them are also trying to transform themselves saying let’s get out of beyond smoke, or if you look at British Petroleum saying beyond petroleum, and even Pepsi if you look at it.
So I think what happens is, if we turn purpose into a purist perfection idea, then nobody is perfect. But it’s an ideal for which we are striving. So I saw companies that were trying to strive to move in that direction and maybe not there yet but trying to move in that direction.
5) Patagonia is an extreme example of a company that is using its profits to address climate change — it’s very clear in its purpose. Do you see more companies doing this or Patagonia is a very unique model which would be difficult to replicate for others?
Patagonia is an exception. Everyone loves to talk about Patagonia and Ben and Jerry’s. In fact, if you notice in my book, I hardly mentioned those two companies. Unilever was the third one. I don’t because I wanted to show that there are 18 other companies, at least that I found that are mainstream trying to do this.
So we attach Patagonia as this high standard of perfection, it’s a unique model but doesn’t mean everybody has to be at that bar where ultimately the owner has donated his entire shareholding to a non-profit. I mean, Tatas have done that in India.
6) Can adherence to ‘deep purpose’ make a company too moralistic?
Yes, that’s absolutely true and that is a risk you run. In fact, it also is a risk that society certainly expects you to take a moral stance on every single issue. What do you think about this? What do you think about that? Take a position on this. And some companies have fallen into that where they find that they are constantly under pressure to have to take a position on every little thing.
And part of the purpose is to delineate the boundaries of the issues you want to speak up about. What are you going to be saying? You’re not here to espouse moralism around everything, every issue out there. It actually creates boundary conditions to limit what you want to talk about.
7) What about companies in the West stating deep purpose but finding, like Patagonia itself did, that its production in poorer countries has labour issues and poor working conditions? Wouldn’t a stated purpose ring hollow then?
So you’re absolutely right. This is a fair question and I think what it does is basically by articulating our purpose, we are raising the bar on ourselves. People talk about tier-1 emissions, tier-2 emissions and tier-3. Similarly, what we’re trying to say is, are we up and down our value chain, living up to the commitments we have claimed?
A great illustration of this was Unilever when they had to deal with palm oil production and say, look, it’s not just about the products we sell, but also how we source our products or the raw materials that go into our products.
And this is an old story now. Nike had to deal with this and so did many companies on soccer balls. So again, the bar has been raised on us by society and others around us and so we have to learn to live with that.
8) You talked about Indra Nooyi’s transformation of Pepsi. She is probably one of the pioneers in spelling out performance with purpose — how difficult is the challenge of reorienting a company around a newly-defined purpose, as she did?
Indra Nooyi did a marvelous job at Pepsi, coining the phrase “performance with purpose” and I like the phrase itself. The purpose is not a tax on business. The purpose is a way to do business profitably. So it is a performance with purpose, right?
But as you can see, in her own story, how hard it is to fundamentally reorient you know, and the idea is that you’re still going to sell Cola, you can call it fun for you, good for you, better for you, but how do you fundamentally transform the footprint of your business in the world. And that is a very hard challenge especially when your cash cow businesses are huge and highly lucrative.
And this is a challenge that even the oil and gas companies are facing right now, given the geopolitics of oil and gas today, we are struggling to say how are we going to wean ourselves of oil and gas.
So I think that the point to make here is, we shouldn’t hold the purpose to a bar of perfection like Patagonia. It is striving towards a goal, establishing that ideal, and then working in a systematic way towards that goal, the way Indra tried to do in her time.
9) Apart from Mahindra’s RISE, do you see any other Indian companies or conglomerates that have articulated a ‘deep purpose’ and are adhering to those principles?
Of course, I talk about Mahindra’s RISE. Everybody in India knows about Tata but I think there are many other companies now that are aspiring to it. I wouldn’t want to name any, given that I am not actively involved in research in India.
But I think the point we want to learn is that, can we do business and be profitable at the same time, and purpose gives us a way to understand the path for ourselves, and also communicate that to others around us.
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