Companies with a clear ‘purpose’ perform better financially, according to a new survey
Virgin Group CEO Richard Branson once said, “It’s always been my objective to create businesses with a defined purpose beyond just making money.”
‘Purpose’ has become quite the buzzword for most organisations and has even gained enough traction to warrant a discussion at the World Economic Forum in Davos while a study done by Oxford University and Ernst and Young showed that “public dialog on purpose has increased five-fold between 1995 and 2016”.
Yet despite all the attention ‘purpose’ is getting, researchers from Harvard University and New York University said no study has yet been done on the kind of business results ‘purpose’ produces, until now.
“Most companies have mission and vision statements, but those tend to communicate very little about a company’s purpose,” said researchers George Serafeim and Claudine Gartenberg at Harvard Business Review.
“They all use the same words, such as ‘respect’, ‘teamwork’ and ‘innovation’ but … a recent study found that corporate jargon about values has absolutely no relationship with firm performance.”
Using a sample of more than 400 US companies, the researchers conducted a survey of 450,000 employees from all levels by asking them to rate their level of agreement to certain statements.
They said that the actual purpose of the organisation is not important, rather they focused their study on how much employees buy into the company’s purpose.
With this, they were able to identify two types of companies with purpose.
The first, high purpose-camaraderie organisations, included companies that scored high on purpose as well as workplace camaraderie.
At these organisations, employees highly rated statements such as, “This is a fun place to work” or “There is a family or team feeling here”.
The second type, high purpose-clarity organisations, showed employees rating high on statements pertaining to management clarity, e.g. “Management has a clear view of where the organisation is going and how to get there”.
Of the two types, they found that it is the latter that “exhibited superior accounting and stock market performance.
They also said that middle managers and professional workers were key drivers of communicating the organisation’s purpose to lower level workers.
“This last finding underscores the absolute importance of fostering an effective middle manager layer within firms: managers who buy into the vision of the company and can make daily decisions that guide the firm in the right direction,” they said.
‘Purpose’ has become quite the buzzword for most organisations and has even gained enough traction to warrant a discussion at the World Economic Forum in Davos while a study done by Oxford University and Ernst and Young showed that “public dialog on purpose has increased five-fold between 1995 and 2016”.
Yet despite all the attention ‘purpose’ is getting, researchers from Harvard University and New York University said no study has yet been done on the kind of business results ‘purpose’ produces, until now.
“Most companies have mission and vision statements, but those tend to communicate very little about a company’s purpose,” said researchers George Serafeim and Claudine Gartenberg at Harvard Business Review.
“They all use the same words, such as ‘respect’, ‘teamwork’ and ‘innovation’ but … a recent study found that corporate jargon about values has absolutely no relationship with firm performance.”
Using a sample of more than 400 US companies, the researchers conducted a survey of 450,000 employees from all levels by asking them to rate their level of agreement to certain statements.
They said that the actual purpose of the organisation is not important, rather they focused their study on how much employees buy into the company’s purpose.
With this, they were able to identify two types of companies with purpose.
The first, high purpose-camaraderie organisations, included companies that scored high on purpose as well as workplace camaraderie.
At these organisations, employees highly rated statements such as, “This is a fun place to work” or “There is a family or team feeling here”.
The second type, high purpose-clarity organisations, showed employees rating high on statements pertaining to management clarity, e.g. “Management has a clear view of where the organisation is going and how to get there”.
Of the two types, they found that it is the latter that “exhibited superior accounting and stock market performance.
They also said that middle managers and professional workers were key drivers of communicating the organisation’s purpose to lower level workers.
“This last finding underscores the absolute importance of fostering an effective middle manager layer within firms: managers who buy into the vision of the company and can make daily decisions that guide the firm in the right direction,” they said.