Research

The business of business is... purpose

In many ways, the events of last year have shined a brighter light on corporate purpose. CEOs leading through multiple crises were looked to for clarity and meaning—to set the course through choppy, uncharted waters. Now, as the world begins to reopen, business and sectors once shattered by the global pandemic have to be more thoughtful about their future, making careful choices about what is essential and what to invest in first.

Purpose-driven decisions can help organizations bring clarity and focus during a time when everyone may feel a bit disoriented. Think of purpose as a company’s North Star: it guides the business and its leaders toward their goals and anchors them in unstable times. Purpose is the reason behind why an organization exists—why and how they want to impact the world.

Most every business has a purpose. In fact, of the 640 companies Korn Ferry studied for its research on organizational purpose, 78% describe their purposes on their websites or in annual reports. Yet how an organization lives up to its purpose can influence its success, for better or worse. Even how organizations frame their purpose can have an impact: our analysis of 484 published purpose statements found that companies with outward-focused purposes, phrased in an active voice, tend to be more effective overall.

Organizations, our research shows, tend to orient their purpose one of two ways: outward or inward. Some companies emphasize impact, prioritizing the benefit to their customers or the broader world. Others highlight business ambition, concerned more with the performance of the organization itself.

Take, for example, the purpose statements of two competing airlines. The first wants “to be the leading airline in the world”—an inward and passive purpose, one fixated on attaining top status, though that status is ill-defined. The second, on the other hand, wants to “connect people to what’s important in their lives”—a statement that is much more active, positioning the customer, not the company, at the center of its mission. Our analysis reveals that organizations with outward purposes place higher on the Drucker Institute’s annual ranking of corporate effectiveness. Furthermore, we found they receive higher ratings on all five of Drucker’s dimensions of effectiveness: Customer Satisfaction, Employee Engagement, Social Responsibility, Innovation, and Financial Strength.

Emphasizing impact over status also translates into business results. Our analysis of public financial data found organizations with outward-focused purposes enjoyed sharper growth than those with inward-focused purposes. Indeed, according to our study, externally-oriented companies grew nearly 39% faster than their internally-oriented counterparts, seeing an average 3-year compound annual growth rate (CAGR) of 8.83%; those with inward purposes reported an average CAGR rate of 6.36% .

Purposes that transcend self-interest, our research suggests, can enhance a company’s reputation, attracting support from investors and customers. What’s more, concrete, actionable, and outward-focused purposes can invigorate and inspire a company’s workforce, thus unleashing a wealth of internal resources. After all, when employees see how their job contributes to organizational goals, they are better able to connect their day-to-day work to the company’s higher purpose. And when employees connect to the broader purpose, they become more committed to and engaged with their work, boosting both performance and productivity.

But having a clear purpose statement is only the beginning of the purpose journey. Employees, customers, and shareholders want organizations to live and breathe their purpose through words and actions. This means companies will need to go well beyond “values on a website”—they will need to make real, substantial moves in service of their purpose. Because in a purpose-driven organization, purpose intersects strategy—and is the arbiter of every decision.