How would you feel if your publicly traded organization were able to improve its stock market returns by 7.6% annually? And what if it came solely due to the conduct of middle managers?
A recent study suggests that to make such gains, we ought to consider three aspects.
First, it must operate with a “high purpose.” The organization works not solely on quantitative measures of financial performance, but beyond. It operates with meaning, serving all stakeholders be it the community, environment, customers, suppliers, employees and so on. It conducts its business to contribute to human betterment. Employees thus have deep pride in their place of work.
Second, senior leaders must establish and execute on a clear strategy such that everyone in the organization is aware of where it’s heading and how it’s going to get there. In essence, the organization must possess “high clarity.” A high clarity organization is clear on direction and efforts to achieve it.
The authors, Claudine Gartenberg, University of Pennsylvania, Andrea Prat, Columbia University and George Serafeim, Harvard Business School, contend that a “Purpose-Clarity” organization is one in which employees sense that their tasks are significant—moving toward more than revenues or profitability—and that they have the means in which to accomplish those tasks positively.
The third aspect concerns middle management. Analyzing data provided by Great Place to Work over six years, from 429 publicly traded companies via more than 450,000 employee responses, the researchers claim that for an organization to make financial gains, it is middle managers who make it happen.
As the researchers write, “Our evidence suggests that a strong sense of corporate purpose is indeed associated with better firm performance, but only if that sense is held within the middle ranks of an organization, and only if accompanied with clear direction and resources from management.”
Middle managers have become the glue that binds the book of purpose and execution. In the cases of organizations that have reset or redefined its purpose, they take it and translate it to front-line team members, so everyone is aware of its importance to not only the bottom line but to society.
So too, middle managers take the corporate strategy and begin a process of translation, both for themselves as well as the team members that they support. So long as the direction is clear from senior leaders, in a Purpose-Clarity firm, middle managers will execute on the strategy to great benefit.
The key, however, is that there needs to be the one-two combination of purpose and clarity. Having one without the other may not permit your organization the financial stock market gains it aims to achieve.
Not everyone agrees with the concept of corporate purpose. An article on Strategy + Business suggests, “purpose is only effective to the extent that it is organic and pervasive” further stating that the term is now “the most misunderstood and misused management concept.”
I believe it comes down to a firm’s morality. Peter Drucker wrote in 1973’s Management: Tasks, Responsibilities, Practices: “There is only one valid definition of business purpose: to create a customer.”
Is that the only reason to be in business? To create a customer? Is that moral in this day and age?
Perhaps, almost fifty years later, we can upgrade Drucker’s view on business such that we begin operating our companies with higher morality.
To create a customer is a myopic business strategy. “To ethically create a customer and improve society” might be a positive expansion on how things stand today.
If the purpose is clear (and more than achieving financial targets) and how to achieve it is buttressed by senior management’s task for high clarity, shouldn’t the return be improved financial results?
The study’s researchers believe so. In my experience working for publicly traded organizations—full-time and as a consultant—I have witnessed it, too.
When the organization operates with a higher purpose and does so by establishing clarity with its direction, the results are a win-win for investors and society.
It seems we need to get more senior executives and front-line team members on the bus.