Corporate Management

Purpose is strategy, but only one in three companies has formalised it

Research by Politecnico di Milano's Purpose in Action Observatory highlights the importance of formalising and implementing corporate purpose to achieve significant results in terms of employee motivation and social impact

11 November 2024

POLIMI Graduate School of Management nel segno del Purpose Day

4' min read

The dialectic revolving around the concept of purpose is interesting, and thus - referring to its most recognised and shared definition - the very reason why a company was born and exists, the assumption that goes beyond the purely economic aspect and the ability to generate profit and extends to the impact that the company can have on society and the environment in which it is embedded. The 'purpose' that describes a company has not always enjoyed particular attention, even within the organisation itself, and has not found the valorisation that it should instead as an expression of the capacity to create and develop value for all, from customers to shareholders, from business partners to employees to the community as a whole.

The concept of purpose has now become one of the most debated topics in business strategy and more and more companies are gradually recognising the importance of identifying it. Despite the growing popularity it is enjoying, however, this concept remains elusive and shrouded in ambiguity, not least because of its complex nature which often makes it difficult to implement within organisations.

The recent research of the Purpose in Action Observatory of the School of Management of the Politecnico di Milano, carried out in cooperation with BVA Doxa and OpenKnowledge, took stock of the perception of this topic from the management's point of view and its diffusion and application within Italian companies, comparing the impressions of 785 C-level, senior and senior managers of companies of various sizes operating in the service, industry and trade sectors.

Of the various findings that have emerged, collected in a white paper soon to be published and the subject of an event scheduled to take place in Milan on 27 November, two data stand out without doubt, in apparent contrast to each other. While 51% of the managers surveyed recognise the positive impact of purpose on employee motivation, only a minority of companies, 32% to be precise, formalised it, highlighting a need for greater structuring. And only 17% measure it with specific indicators, while 36% do so unsystematically.

A 'purpose' not yet well formalised

According to Josip Kotlar, Associate Dean for Strategic Projects at Polimi Graduate School of Management, there are two possible interpretations that can be used to understand the above dichotomy. The first has to do with the 'character' of many Italian companies, particularly those with a family imprinting, which have a strong purpose despite never having formalised it, because it is in their nature to feel the purpose of doing business without feeling the need to define it as a 'socio-symbolic object'. Often, in short, the purpose is formalised only when the need arises, whether for a stock market listing or in view of a merger/acquisition.

The second refers to the status of the corporate population that participated in the study. Top management, as a rule, knows and understands it, less so first level managers and other employees. But it is now well established, as a general principle, that the organisations most responsive to the formalisation of purpose demonstrate that they have an additional resource at their disposal in terms of sustainable development, capacity for innovation, propensity for change and involvement of their workforce.

Among the other indicators highlighted by the Observatory, one cue for reflection concerns the presence or absence of recurring moments or practices dedicated to purpose in the company. Well, six out of ten managers (59%) admit their absence and only 21% have instead confirmed this 'practice' through training activities, workshops, community, leadership and culture days, webinars and internal social projects. "In many companies," Kotlar adds in this regard, "there is still no clear awareness of the strategic value of this concept: asking the company's raison d'être often coincides with the attention paid to sustainability or social and environmental impact issues. Doing purpose, on the other hand, is something more, it is a way of doing strategy, and those who do strategy have a better chance of seizing development and transformation opportunities in advance, by reading and understanding more carefully the signals and stimuli coming from the external environment'.

The benefits of formalising purpose

Formalising the purpose, the Polimi Graduate School of Management professor convincingly emphasises, allows organisations to align their vision with a significant contribution to society and also to measure (in the long run) business performance, evaluating the results achieved in terms of improved corporate engagement or greater social impact and assessing the return on investment accordingly. There is no universal recipe that management can make its own to drive down the value of purpose. If anything, there are requirements that can be considered indispensable for a company (or a manager) who wants to invest in sustainable and purpose-driven business models and turn social action into a strategic element for business success.

The first step, according to Kotlar, is almost taken for granted and is the first enabling factor: formalising the purpose and making it a shared resource within the organisation. Then it is necessary to choose the application of the purpose that is most coherent and most compatible with the business and corporate philosophy, testing and experimenting in various areas of the organisation. Finally, it is necessary to create dashboards to verify the achievement of the set goals, step by step. "You have to be willing to invest, incurring additional costs and with results that can only be achieved in the medium to long term," concludes the GSoM professor, "but the time for declarations has passed and it is time to act and break down the obstacles that prevent companies from making a difference.