For some people the question of the purpose of a company sounds slightly strange; it addresses the question why it does what is does. Spontaneously one might say that the answer is quite simple: to make money. However, this answer does not appear to be particularly convincing. It is not only the customers who expect a more elaborate answer but also other stakeholders.
Therefore, the purpose of a company has become crucial with profound influence on perception of companies. However, it is not only the perception but also the performance. In addition to the customers who become more and more interested in a company’s purpose and values also the employees ask themselves what value and what meaning their work has. This finally makes the question of purpose a fundamentally economic one.
It is not surprising that companies that have a good answer to the question of their purpose show a better market performance than those that lack any (EY: Winning with Purpose, May 2016).
In the SAP Innovation Center Network (ICN) program “Future of Work” we explore how companies can make systematic use of the ideas that stand behind the concept of purpose. The SAP Research & Innovation Hub St. Gallen has partnered up with the University of St. Gallen (HSG), one of Europe’s leading business schools, to investigate business-related topics in “Future of Work”.
“Following a purpose also means to be attentive to new opportunities.”
Hard-nosed business people might object that the purpose of a company is restricted to creating value for customers and making as much money as possible. However, in times of the digital economy and global transparency such attitude becomes more and more questionable. Customers pay attention to the working conditions, under which goods have been produced and to the environmental consequences of such production. Society and governments call for companies to accept social and environmental responsibilities in exchange for the profits they make. Young and highly educated people are more and more looking for employers who can answer the question how their work contributes to human and environmental well-being. Ignoring this development becomes more and more societally and economically risky.
There are also other than altruistic reasons, though, why following a purpose is economically profitable. If you aim at the societal or environmental challenge, you are most likely to find an open field of challenges not yet tackled; addressing them always means opportunities for new fields of business as we see in areas such as wind and solar energy or sustainable transportation. In a world in which innovation has become the driving force of economic development the identification of fields, in which such innovation is most promising, is essential for business success. The earlier a company explores solutions for global challenges the better it will be prepared to competition. Naturally, this requires that the purpose is not chosen randomly but properly fits to the respective enterprise.
“The earlier a company explores solutions for global challenges the better it will be prepared to competition.”
We consider the business model concept a highly effective means to approach organizational purpose. Business models conceptualize the core business logic of an enterprise, that is, a business model describes what a company does and how it runs. If a company wants to answer the why-question of its purpose it must also answer this how-question. It is not sufficient to simply pursue any beneficial purpose – it must be the right one that fits to the company. Therefore, the purpose should always be closely related to the specific competencies of a company, those competencies in which the company can achieve the most promising results. It should always respond to the question “why our company”. The why also corresponds to the values that a company pursues in general such as fairness, sustainability or gender equality. The idea of purpose is that the business and the ethical dimension always go hand in hand. Purpose is always a synergetic concept; following it a company provides its customers the opportunity to take part in the vision of a brighter future by taking part in the respective purpose – buying an electric car means supporting the idea of sustainable transportation.
At the SAP Research & Innovation Hub St. Gallen, as part of SAP ICN’s research, we explore the business logic of purpose and work on methodologies to support SAP customers to take advantage of this new thriving idea and become part of SAP’s vision to help the world run better and improve people’s lives.
After the first SAP Research Round Table on “Future of Work” that launched the research activities on purpose, a second Research Round Table, which particularly focuses on purpose, will take place in Berlin at the beginning of July 2017.
- Placing purpose at the center of business does not only aim at global well-being but is also a promising business strategy in the digital economy.
- The purpose of a company should not be randomly chosen but closely related to what the company can do best.
- Purpose and economic sustainability must be tightly interconnected to ensure long-term success; this requires a suitable methodology SAP is working on.