Purpose built: Companies must clearly articulate what they're about

What's the one word among all the management mots du jour that has been proven to drive organisational performance?

Vision, mission, purpose, leverage, sprints, hacks, unpacking, client-centric, disruption, tribes, verticals, on-boarding, agile, disruption or scrums?

Claudine Gartenberg, Andrea Prat and George Serafeim analysed responses from 456,666 employees in 429 firms over six years and across a broad range of industries. In their paper, Corporate Purpose and Financial Performance, published by Harvard Business School last year, the trio found that "firms exhibiting both high purpose and clarity have systematically higher future accounting and stock market performance".

A study by EY Beacon Institute and Harvard Business Review Analytic Services found that "companies who clearly articulate their purpose enjoy higher growth rates and higher levels of success in transformation and innovation initiatives". But EY Beacon boss Valerie Keller was surprised that "given the strong sentiment that purpose is important and the clear benefits it seems to accrue, it is curious that purpose is utilised by only a minority of companies as a driver of strategy and decision making".

A Deloitte report based on the views of almost 8000 millennials across 30 countries found corporate values shared with and believed by millennials promote loyalty - especially when employers demonstrate a strong sense of company purpose beyond financial success. Another Deloitte study on core beliefs and culture found focusing on purpose rather than profits builds business confidence and drives investment.

"Respondents who agree they work for an organisation with a strong sense of purpose are more likely to say their organisation recorded positive growth and outgrew competitors.

"However, despite the advantages ... of a strong sense of purpose, 20 per cent of all respondents say their leadership fails to set an example for the rest of the organisation by truly living the organisation's purpose," Deloitte chairman Punit Renjen said.

It takes a long time to change the way CEOs think.

In 1994, Queenslander Chris Bartlett (now the emeritus professor of business administration at the Harvard Business School) and Sumantra Ghoshal, who was professor of strategic and international management at the London Business School, wrote a powerful call for change, saying "senior managers of today's large enterprises must move beyond strategy, structure, and systems to a framework built on purpose, process, and people" (hbr.org/1994/11/beyond-strategy-to-purpose).

"The great power - and fatal flaw - of the strategystructure-systems framework lay in its objective: to create a management system that could minimise the idiosyncrasies of human behaviour. Indeed, the doctrine held that if the three elements were properly designed and effectively implemented, large, complex organisations could be run with people as replaceable parts. Over time, as corporate size and diversity expanded, strategies, structures, and reporting and planning systems became more and more complex. Employees' daily activities became increasingly fragmented and systematised."

Bartlett and Ghoshal said the CEO's role had to shift from setting strategy to defining purpose.

In The New American Workplace (Palgrave Macmillan, 2007), James O'Toole and Edward Lawler write that "if the United States wishes to continue to be the world's leading economic power, what workplace practices and public policies are required to ensure that it succeeds? These solutions must serve both the wellbeing of employees and the effectiveness of their employing organisations in the belief that doing one without the other is not viable in the long run".

So, what do employees want? Basically, good jobs. Good jobs satisfy: the need for the basic economic resources and security essential to leading good lives; the need to do meaningful work, and the opportunity to grow and develop; and the need for supportive relationships. But at almost every level of an organisation, people base decisions on asking themselves "How will the boss react?" or "What does the very prescriptive policy manual say?" Better to make the wrong decision for the company than get into trouble by advancing the purpose.

Julie Connolly