Combining Purpose With Profits

A sense of purpose that transcends making money can motivate employees. But to sustain both a sense of purpose and a solid level of profitability over time, companies need to pay attention to several fundamental organizing principles.

It’s an old idea: If you want to build a company that truly motivates its employees, it has to have a sense of purpose. Purpose, according to Ratan Tata, the recently retired CEO of the Tata Group, is “a spiritual and moral call to action; it is what a person or company stands for.”1 When such a purpose exists, it provides employees with a clear sense of direction, helps them prioritize and inspires them to go the extra mile — which, the argument goes, should ultimately be good for profit.

Purpose, by its nature, transcends making money: It is about people coming together to do something they believe in and allowing profit to follow as a consequence, rather than as an end in itself. But there is a paradox here. It is hard to fulfill a purpose in the absence of money, so purpose-driven organizations either must rely on donations or benefactors to sustain themselves (as most charities and aid organizations do), or they must become self-funding through their own profits.

Is it possible for a company to strive for a higher purpose while also delivering solid profits? Some have argued that pursuing goals other than making money means, by definition, spending on things that aren’t profit-maximizing. Others have countered that by investing in worthwhile causes, the company is doing something intrinsically valuable that will generate a long-term payoff to all parties.

But, ultimately, this is a well-rehearsed and tired debate, with plenty of evidence available to support both sides of the argument. The important question is not whether there is some tension between purpose and profits; there is. Instead, the question to ask is: How can the tension between purpose and profits best be managed? What structures does a company need to put in place to ensure that its higher-order purpose isn’t squeezed out by short-term profit seeking? How can executives ensure that employees keep these dual goals in mind on a day-to-day basis? And how can this balance be achieved on a long-term basis?

This article is based on research that we have conducted over the last five years looking at the organizational challenges involved in managing two different objectives at the same time.

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References

1. R. Tata, S.L. Hart, A. Sharma and C. Sarkar, “Why Making Money Is Not Enough,” MIT Sloan Management Review 54, no. 4 (summer 2013): 95-96.

2. We acknowledge other studies have provided useful advice to social enterprises, particularly around the notion of shared value, such as M. Pfitzer, V. Bockstette and M. Stamp, “Innovating for Shared Value,” Harvard Business Review 91, no. 9 (September 2013): 100-107. This study starts from a theoretical perspective on human motivation and as a result it offers somewhat different, though complementary, recommendations about how organizations of all types — not just social enterprises — can balance competing objectives.

3. As a research field, this is often called “work motivation research.” G.P. Latham has an excellent summary of the various work motivation theories. On goal-setting theory, E.A. Locke and G.P. Latham also emphasize the importance of goals but mainly focus on the effects of having goals explicitly stated by the organization, rather than on the changing salience of major concerns. The same can be said of the work of Adam Grant: Even though it has put much emphasis on pro-social behaviors and is thus in some ways akin to our perspective, it does not deal with the dynamics of competing concerns. See G.P. Latham, “Work Motivation: History, Theory, Research and Practice” (Thousand Oaks, California: Sage, 2012); E.A. Locke and G.P. Latham, “Building a Practically Useful Theory of Goal Setting and Task Motivation: A 35-Year Odyssey,” American Psychologist 57, no. 9 (September 2002): 705-717; A.M. Grant and S.K. Parker, “Redesigning Work Design Theories: The Rise of Relational and Proactive Perspectives,” Academy of Management Annals 3, no. 1 (2009): 317-375; and A.M. Grant, J.E. Dutton and B.D. Rosso, “Giving Commitment: Employee Support Programs and the Prosocial Sensemaking Process,” Academy of Management Journal 51, no. 5 (October 2008): 898-918.

4. See S. Lindenberg and N.J. Foss, “Managing Motivation for Joint Production: The Role of Goal Framing and Governance Mechanisms,” Academy of Management Review 36, no. 3 (July 2011): 500-525; and K. Keizer, S. Lindenberg and L. Steg, “The Spreading of Disorder,” Science 322, no. 5908 (December 12, 2008): 1681-1685.

5. Strictly speaking, goal-framing theory talks about normative goals that underlie employees’ motivation for joint production rather than pro-social goals. Normative goals are goals held by individuals. However, company goals with a normative orientation are often called “pro-social.” To simplify the terminology here, we use the term pro-social for both levels: Pro-social goals of companies activate pro-social (“normative”) goals in employees.

6. In a game where people would be individually better off (in terms of money) not cooperating, the experimenters saw a much higher percentage of participants cooperate when it was called “community game” compared to when it was called “Wall Street game.” Labeling the game with “community” or “Wall Street” simultaneously expressed the purpose of the game, what kind of behavior is expected and how other participants are likely to behave. See V. Liberman, S.M. Samuels and L. Ross, “The Name of the Game: Predictive Power of Reputations Versus Situational Labels in Determining Prisoner’s Dilemma Game Moves,” Personality and Social Psychology Bulletin 30, no. 9 (September 2004): 1175-1185.

7. See A. Fuster and S. Meier, “Another Hidden Cost of Incentives: The Detrimental Effect on Norm Enforcement,” Management Science 56, no. 1 (January 2010): 57-70; and S. Lindenberg, “Cognition and Governance: Why Incentives Have to Take a Back Seat,” chap. 3 in “Handbook of Economic Organization: Integrating Economic and Organization Theory,” ed. A. Grandori (Cheltenham, U.K.: Elgar, 2013).

8. See Lindenberg and Foss, “Managing Motivation.”

9. N.J. Foss and S. Lindenberg, “Microfoundations for Strategy: A Goal-Framing Perspective on the Drivers of Value Creation,” Academy of Management Perspectives 27, no. 2 (May 2013): 85-102.

10. See Lindenberg and Foss, “Managing Motivation.”

11. B.S. Frey, “Giving and Receiving Awards,” Perspectives on Psychological Science 1, no. 4 (December 2006): 377-388.

12. It appears that many companies use pro-social goals language in their annual reports as a smokescreen to hide unethical practices. See T. Loughran, B. McDonald and H. Yun, “A Wolf in Sheep’s Clothing: The Use of Ethics-Related Terms in 10-K Reports,” Journal of Business Ethics 89, no. 1 (May 2009): 39-49.

13. “Handelsbanken in Brief,” n.d., www.handelsbanken.us.

14. There is plenty of evidence that traditional budgeting processes are flawed. See, for example, M.C. Jensen, “Paying People to Lie: The Truth about the Budgeting Process,” European Financial Management 9, no. 3 (September 2003): 379-406.

15. The Tata Group case study is based on data collected through interviews with company executives as well as on A. Graham, “Too Good to Fail,” Strategy + Business 58 (spring 2010).

16. “Values and Purpose,” n.d., www.tata.com; and “The Quotable Jamsetji Tata,” March 2008, www.tata.com.

17. Graham, “Too Good to Fail.”

18. Keizer et al., “The Spreading of Disorder.”

19. M. Useem and S. Palmisano, “Always Put the Enterprise Ahead of the Individual,” January 18, 2013, http://knowledge.wharton.upenn.edu.

20. The concept of obliquity is developed more fully in J. Kay, “Obliquity: Why Our Goals Are Best Achieved Indirectly” (London: Profile Books, 2010); see also J. Birkinshaw, “Setting Objectives: From Alignment to Obliquity,” chap. 5 in “Reinventing Management: Smarter Choices for Getting Work Done” (San Francisco: Jossey-Bass, 2012).

21. Tata et al., “Why Making Money Is Not Enough.”

22. See chapter 1 of J. Collins and J.I. Porras, “Built to Last: Successful Habits of Visionary Companies” (New York: HarperCollins, 1994).

23. R. Ajemian, “Where Is the Real George Bush?” Time Magazine, Jan. 26, 1987, 20.

i. S. Sinek, “Start With Why: How Great Leaders Inspire Everyone to Take Action” (Portfolio/Penguin, 2009).

2 Comments On: Combining Purpose With Profits

  • Richard Bistrong | February 20, 2014

    An interesting, relevant and thoughtful article. As one considers the definition and pursuit of “social goals”, such as an international anti-bribery corporate ethic and compliance program, this work shows how the alignment of those social goals, and the personal “hedonic” goals of a sales force can work in harmony as opposed in perpetual conflict. It is a subject matter which has real world implications for an anti-bribery compliance program and how that program aligns with the reality of a sales force on the ground. In my reading, this article provides an interesting academic “road map” for those individuals and entities looking to align their international anti-bribery and sales initiatives.

  • victor caballero | October 16, 2014

    Is it possible for a company to strive for a higher purpose while also delivering solid profits? Some have argued that pursuing goals other than making money means, by definition, spending on things that aren’t profit-maximizing. Others have countered that by investing in worthwhile causes, the company is doing something intrinsically valuable that will generate a long-term payoff to all parties.

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