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- What CEO’s Really Think About The Role Of Purpose In An Organization - September 5, 2019
Love it or hate it, ‘purpose’ is currently one of the most talked about business concepts, with books on the topic appearing every day and industry leaders promoting its importance. Yet virtually no-one can agree on exactly what it is or how it should be utilized.
When Larry Fink, CEO of BlackRock, wrote in his 2018 letter to CEOs that “purpose gives your business its license to operate in today’s society”, it made us question – what do today’s business leaders really think about purpose?
In response to this we polled over 700 CEOs in Germany, France, the UK and the US, to see if they think purpose is important and – if they do – what they use it for. The research revealed that while 97% of CEOs believe there is a role for purpose in an organization, perhaps surprising just 29% believe it’s most effective under their leadership.
Changing roles and greater expectations
Since the 2008 financial crisis, the role of the CEO has changed. Today’s CEO is facing more demands, greater expectations and significantly less time to deliver. Mark Weinberger, Global Chairman and CEO of EY agrees: “Today’s CEOs have to constantly think about how to improve their business models, while simultaneously navigating fast-paced, massive disruption of industries and business and a strong undercurrent of uncertainty running through societies around the world.” In fact, 78% of CEOs agree they have a 90-day window to prove themselves in an organization, while 60% of CEOs believe the 90-day window is dangerous and encourages short-termism.
While CEOs know they need to deliver long-term business sustainability, market and technology disruption makes this more challenging than ever to accomplish. The combination of short-termism, reducing tenures and increasing shareholder demands are putting CEOs under increasing pressure, hindering a company’s ability to lead with purpose.
This is particularly dangerous given that today’s culture places increased expectations on CEOs to use their positions and businesses to step in and solve socio-economic issues that governments, or society, are failing to address. Our research showed twice as many CEOs are motivated by shareholders than by society, directly contradicting this expectation.
Given CEOs are under increasing time pressure to add value and face increasing demands from all stakeholder groups, we wanted to understand the extent to which purpose was being used to help them tackle these challenges.
The majority agree that purpose has a role to play and can help them connect with customers, employees and increase the success of transformation efforts – we found that 65% of CEOs think the main role of purpose is to connect with employees or customers. But there is a huge gap between this acknowledgment and the reality, with less than half of CEOs surveyed taking ownership of purpose to drive change and value creation.
Worryingly, while 84% of executives strongly agree that business transformation efforts will have greater success if integrated with purpose, only 46% of executives think their organization has a strong sense of purpose. Clearly, many businesses lack a clear and effective plan that will enable them take decisive action. While CEOs acknowledge the role of purpose and agree it has a significant role to play in the long-term success of a business, most are not currently harnessing its potential.
Short-term survival vs long-term success
Time proves to be a determining factor when it comes to using purpose to drive business value – despite an understanding of the lasting benefits of purpose in an organization, the need for instant results is forcing CEOs to neglect long-term goals. Purpose can help them achieve their longer-term ambitions – but most aren’t using it to that end, or taking personal responsibility for it, only doing so once they’ve been in the job for a while. And many CEO tenures aren’t long enough to reach that point. Telling just 21% of CEOs who have been in their role for less than one year believe they are responsible for defining company purpose; that number jumps to 39% for CEOs who have been in their position for 10+ years.
This focus on short-term survival means they are neglecting purpose in favor of more immediate concerns. Consider this: 57% of CEOs prioritize ‘creating value by fulfilling customer needs’, but just 10% think purpose’s most valuable role is ‘helping them connect with customers. Clearly, a lack of understanding about the role of purpose in an organization is harming business.
Take Unilever as an example. Out of 400 of its brands, only 28, including Dove, Lifebuoy and Ben and Jerry, are propelling the company’s purpose driven journey, at a growth rate of 69% and adding 75% to the total business. Unilever CEO Alan Jope previously said that brands without a purpose will have a short-term future, further stating: “Purpose is one of the most exciting opportunities I’ve seen for this industry in my 35 years of marketing. Done properly, done responsibly, it will help us restore trust in our industry, unlock greater creativity in our work and grow the brands we love.”
Taking control of purpose
One brand that has been making waves in this area is Patagonia. The outdoor clothing company has a long record of making choices that may seem risky for business, instead prioritizing purpose and not shying away from the environmental costs of consumerism. Back in 2011, they took this to the next level with their “Don’t Buy This Jacket” ad in the Times. Launched on Black Friday, the ad displayed the environmental costs of the company’s top-selling R2 fleece sweater. The ad saw a 30% spike in sales. Patagonia continued with this message of negative consumption for the next few years, with sales jumping by 27%.
Only one third of CEOs believe responsibility for purpose sits with them, with the vast majority believing it to be another function’s task. Interestingly, CEOs consider their own boards to be less effective stewards of purpose than marketing and sales divisions, despite more CEOs believing the board should define purpose. This delegating of purpose to marketing and sales teams suggests that 1) CEOs are focusing what they see as other more important concerns or 2) they see purpose as a marketing and sales narrative rather than the engine that drives fundamental business decisions and financial performance.
It’s clear that almost all CEOs know their organization’s purpose, but their commitment to it and how it is used varies considerably.