Purposeful business is key to long-term results
Can a business create profits and be a responsible organisation? The rampant spread of the coronavirus highlights the apparent tension between profit and purpose, which is confronting business leaders all over the world.
“Capitalism was in crisis even before this new virus struck. There were serious concerns that companies were earning profit by extracting from the rest of society – underpaying workers, price-gouging customers, and polluting the environment.
The coronavirus further highlights this tension. Do companies keep paying their workers even though they’ve temporarily shut down? Does a manufacturer of an in-demand product raise its prices?”
“But the evidence suggests that there need not be a trade-off in the long-term. Companies that are motivated first and foremost by the desire to serve society end up more profitable as a by-product,” said Alex Edmans, Professor of Finance at London Business School.
So what can you do to maintain a profitable business while also acting for the benefit of society?
Using hard evidence and numerous real-life examples from around the world, Professor Edmans explains how you can create both social value and profit in his new book, Grow the Pie: How Great Companies Deliver Both Purpose and Profit.
“The starting point is for a company to define its purpose. Purpose is the answer to the question “How is the world a better place by your company being here?”. The evidence shows that purpose must be focused. A company can’t be all things to all people, but needs to stick to what it’s good at.”
“Of course, a purpose statement alone is meaningless; it needs to be put into practice – even if this involves tough decisions that are odds with profit. For example, Sainsbury’s vision is “putting our customers at the heart of everything we can do”. They’ve reserved the first hour in every supermarket for elderly and vulnerable customers, and giving them priority access fort online delivery slots – even though they’re not the biggest spenders.”
Alex also highlights that, contrary to common practice, serving society is more about innovation (what he calls “growing the pie”) – than corporate philanthropy (splitting the pie differently).
”Leaders should ask themselves “What’s in my hand?” What do they have at their disposal that can serve society right now. This often involves innovative thinking. One chain of gyms is offering its space to the UK’s National Health Service to be used for beds or facilities. Chelsea Football Club is allowing health workers to stay at their hotel for free, to avoid long and disrupted commutes due to the reduction in public transport.”
Alex also stresses that creating value for society is a goal to which ordinary citizens can contribute. “We often think that citizens are powerless in the face of big business, but that’s not true. What is in citizens’ hands right now is their own actions. By staying at home, or not panic buying, you can save lives. For other citizens, what’s in their hand is the ability to help out others. Some of my friends are doing shopping for their vulnerable neighbours. Another has advance-purchased 100 coffees from his local coffee shop to help their cash flow. Overcoming the world’s biggest problems – climate change, resource depletion, and now the coronavirus – is a huge challenge. So it requires everyone – companies, investors, and citizens – to play their part.”
Grow the Pie: How Great Companies Deliver Both Purpose and Profit, is published by Cambridge University Press 26 March 2020.
For further information:
To see Professor Edmans talking about his book see here
TED talk What to Trust in a Post-Truth World and the TEDx talk The Social Responsibility of Business with a combined 2 million views.
