Purpose is at the heart of strategy ... but it's complicated!

Why does your organisation exist?  Because if you can’t articulate your purpose, then I’m not sure how you determine your strategy.  That might seem a simple question, and yet if you asked your executive team I wonder how many different answers you would get? 

Argenti[i] offers a very simple articulation of corporate purpose comprising three essential elements:

  1. Cui bono?  Who is the intended beneficiary
  2. What is the intended benefit?
  3. And how much is satisfactory?

Notice his focus on ‘intended’ beneficiary.  Marc Benioff – the Chairman and CEO of Salesforce – argues that business is about driving broader stakeholder value and improving the state of the world.  I may return to this theme in a later blog, but for companies, other than not-for-profits, it arguably fails the ‘intended beneficiary’ test.  

Argenti argues that for companies the only measure is ‘a satisfactory return on the owners’ investment’.  He ‘fesses up’ to feeling disheartened when people deny that profit is the aim of companies.  Wesfarmers, one of Australia’s most successful corporations, has long followed the Argenti planning system.  It is an unabashed adherent to the mantra of shareholder value.  I’m not sure if that led them to the Argenti planning system, or if Argenti helped shape this world view.   But it has served them well!

This view of the primacy of shareholder value is much loved by many, and the implications of not delivering on shareholder value are ever present.  The market can be pretty harsh when the returns are not ‘satisfactory’ as evidenced in this article: Resource sector CEO's face killing season amid commodities slump.

But it is easy to find many highly respected business leaders who argue against the cult of shareholder value.  Counterintuitively, Rosabeth Moss Kanter has argued:

“The companies that are most successful at maximising shareholder value over time are those that aim toward goals other than maximising shareholder value”   

In 2010 Roger Martin, the Dean of the Rotman School of Management argued that maximising shareholder value “is a tragically flawed premise, and it’s time we abandoned it … and made the shift to customer capitalism”.  In fact, decades ago Peter Drucker argued that “the sole purpose of business is to attract and retain customers”.   The Aspen Institute recently found that while most executives believe the ‘accepted wisdom’ in the US is that businesses are obliged to maximise shareholder value, when asked their own views the highest rated corporate purpose was “to serve customers interests”.

It’s not that Drucker et al. imagined companies did not need to make money.  Failure to make an economic return constrains the ability to attract growth capital and thereby build the infrastructure necessary to attract and retain future customers.  Unless, of course, you are the charismatic Jeff Bezos (Amazon CEO) who appears committed to ‘profitless growth’[ii].  One wag recently described Amazon as “a charitable organization being run by elements of the investment community for the benefit of consumers”.

Just as capital markets will punish companies that fail to deliver ‘satisfactory returns’, so too will customers.  Woolworths, one of Australia’s most highly regarded retailers, clearly lost sight of their customers when they held their EBIT margins too high (8% at their peak) for too long, prioritising profits over customer value.  Their share price is now down 30% in the last 12 months, with commentators expecting it will take at least 2 years to recover a reasonable sales growth trajectory. And it has cost the Chairman and CEO their jobs: undoubtedly others will go to. 

How does the talent equation fit into this storyline?  If the purpose of business is to offer a reasonable return to ‘investors’, then we must acknowledge that the investment includes both financial and human capital. Financial capital without talent is just money.   So just as the investors of financial capital expect a reasonable return, so too human capital should expect a reasonable return.

If you see ‘human capital’ as simply an instrumental input to ‘production’ then you will fall well short of what’s possible.  This reflects the difference between transactional leadership – which produces what you contract for – versus transformational leadership – which produces more than you expected. 

There are a significant number of very successful CEO’s who not only describe this, but actually live it: viz.

Business has to give people enriching, rewarding lives, or it’s simply not worth doing … Richard Branson


You have to treat your employees like your customers … Herb Kelleher (CEO Southwest Airlines)

So what does all this mean for your enterprise? 

Every business is has three distinct beneficiaries: capital; customers; and talent.  And each of these beneficiaries expects different ‘benefits’.  In reality you are competing for each of these ‘beneficiaries’ with a benefit (value proposition) that at least meets their expectations. 

Arguing which of these three beneficiaries has ‘primacy’ simply misses the point: to succeed, a business must be designed to win in all three markets. Viz.

  • Winning in the talent market is the essential enabler to succeed in the customer market;
  • Winning in the customer market is essential to achieving economic profitsrequired in the capital market;
  • And it is the capital market which ultimately enables the corporation to grow … and without growth, an organisation ossifies and leaks talent. 

What now?  You might create space for an open conversation around this issue in the Board room and within your executive team.  Explore these questions:

  1. What do we see is our core purpose?  Does it centre on ‘investors’ (financial/human capital) or customers?  Or all of these?
  2. Do you have a clear view about your distinctive value proposition within these three markets: capital; customer; talent. Do we offer a point of differentiation?
  3. Is there an overarching strategic architecture which binds these three value propositions together into a coherent, reinforcing set of choices?

Good luck.


[i] John Argenti (1992): Practical Corporate Planning

[ii] There is a lot of debate about this.  I believe the emperor has no clothe