March 2, 2019
The Purpose Effect

Purpose-Driven Companies Outperform The Financial Markets By 42 Percent

It seems that purpose is starting to pay off.

In DDI’s 2018 Global Leadership Forecast results, the research firm highlights several financial advantages to organizations that define their purpose and act on it.

In a survey of 1,500 global C-Suite executives, DDI found that those companies who both define and act with a sense of purpose outperformed the financial markets by a whopping 42 percent.

Those companies who talk a good game—that is, they have defined their purpose but don’t do anything about it—performed at the mean of all organizations.

And those without a purpose statement and who obviously do not act or behave with a sense of purpose underperformed by 42 percent.

Authors Robert Quinn and Anjan Thakor detail the transformation of DTE Energy’s organizational purpose in this Harvard Business Review article. After reflecting on how exactly the company’s purpose ought to change—coming out of the 2008 economic meltdown—CEO Gerry Anderson decided to shift gears and both define and act differently. He wanted to see the entire company act differently.

Anderson started with the company’s new declaration of purpose. “We serve with our energy, the lifeblood of communities and the engine of progress.” From there the company and its senior leaders wove the purpose into everything imaginable, be it training, meetings, and even sing-alongs.

The result? As the authors write in HBR, “DTE’s stock price more than tripled from the end of 2008 to the end of 2017.”

The EY Beacon Institute reports similar good tidings from the definition and enactment of organizational purpose.

Over three years the firm found that 58 percent of companies who prioritized both the definition and enactment of organizational purpose experienced growth of 10 percent or more. Compare that with the laggards, those thinking about it or doing nothing. Forty-two percent reported flat or declining revenue over the same period.

Boston Consulting Group also found long-term benefits to financial results when compared to an organization’s ability to define and operate with a sense of purpose. That is, purpose has to be truly baked into the DNA of the company.

From total shareholder return, EBITDA growth and revenue increase, those purpose-first companies outperformed companies without a sense of purpose by 2X.

The results are starting to pile up. There is a definitive link to acting with a higher sense of purpose and the bottom line of a company. So why aren’t more organizations operating this way?

First, there is pride.

How many CEOs and executives want to admit that their strategy is wrong? That is a sign of weakness. And when there are signs of weakness many believe an exit package is certain to follow.

Second, even the word “purpose” continues to have a negative connotation in the land of executives.

It sounds soft. It’s not tough. You can’t possibly measure it. Isn’t “purpose” the name of a Justin Bieber album that my children keep playing over and over?

Third, Larry Fink is wrong.

Some executives believe the BlackRock CEO has lost his stature with the recent push to highlight the link between purpose and profit. “He’s clearly not one of us,” some will mutter in the backrooms of private clubs. “I’m not going down that purpose path. It’s crazy.”

But the problem is that it’s not crazy. Purpose is a winning strategy.

More and more data suggests that is a strong and positive financial bottom-line benefit to both defining and acting with a higher sense of purpose.

I spent the better part of three years researching this concept in the run-up to publishing my book, The Purpose Effect. And since 2016 I have continued to stay very close to the concept.

It’s only gathering speed.

What side of history do you want to be on?

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