For Corporate Purpose to Matter, You've Got to Measure It

FOR CORPORATE PURPOSE TO MATTER, YOU’VE GOT TO MEASURE IT By Jim Hemerling, Brad White, Jon Swan, Cara Castellana Kreisman, and JB Reed

t’s no surprise when a consumer prod- long-term performance. That correlation Iucts company or an insurer declares its exists, however, only if a company’s pur- commitment to corporate purpose. But pose is deeply embedded and not superfi- when the world’s largest investment man- cial. So how can a company be sure? Some agement firm ($6.3 trillion in assets under organizations put considerable effort into management) announces that having a establishing a corporate purpose and yet corporate purpose is a precondition for are surprised when it doesn’t stick. consideration in its portfolio, that’s headline-worthy. To help companies determine if their efforts are effective, we have developed a BlackRock Chairman and CEO Larry Fink methodology for measuring an organiza- famously noted in his annual letter to tion’s purpose. We can also disaggregate a CEOs this year that a company must have a company’s purpose score to reveal the purpose beyond profit or it risks being many sources of an effective purpose, iden- ousted from the firm’s investment portfo- tify the areas of strength, and find opportu- lio. BlackRock’s commitment to purpose is nities to better embed it. indeed heartening. Yet Fink is undoubtedly as much of a pragmatist as he is an idealist, and his words echo what many company Purpose and Performance leaders already know: organizational pur- Are Correlated pose is valuable for many reasons, one of First, let’s define purpose. Purpose is an which is the economic benefit. Studies organization’s “why.” It articulates why the show that organizations with a purpose company’s work matters to the world, and perform better than those without one. it is the foundation on which the company’s mission, vision, values, and culture In-depth analysis by BrightHouse and BCG are built. Purpose lies at the intersection reveals a correlation between purpose and of two fundamental questions: Who are we—what are our authentic and distinctive companies in the consumer, technology, strengths? What human need do we fulfill and financial services industries.1 Using in society? participants’ responses, we calculated a purpose score for each company using the Purpose is a critical ingredient for success- net top-box method (subtract “strongly dis- ful change initiatives, an essential element agree” responses from “strongly agree” re- for an engaged workforce, an enduring sponses and divide the result by the total North Star in an era of always-on transfor- number of responses). A score of 30 or mation. Purpose is the imperative of lead- above was considered to be high among ers who believe in the triple bottom line the companies surveyed; a score below and a prime motivator of employees who 20 was low. Then we determined the long- seek more than a paycheck. In the digital term performance of each company, de- age, purpose helps transcend virtual dis- fined as the average ten-year total share- tances to bring people together, whether to holder return (when this wasn’t available, enhance customer or employee interac- we used the average five-year TSR). (TSR tions or enable collaboration. (See Purpose reflects stock price appreciation and divi- with the Power to Transform Your Organiza- dend returns.) tion, BCG Focus, May 2017.) Next, we analyzed the relationship be- Authentic, embedded purpose is deter- tween purpose and TSR, and clear patterns mined by four characteristics: emerged. (See Exhibit 1.) Many organizations with a high purpose score also had •• How well is it articulated? Have high TSR; we called these the Camelot leaders communicated a clear and companies.2 Organizations with a low pur- compelling purpose statement that pose score also had low to middling perfor- employees know and understand? mance. Those companies fell into one of two groups, which we called fiefdoms (to •• Does it inspire? Does the company indicate their primarily transactional rela- purpose resonate with employees and tionship with employees) and fortresses (to motivate them to take action? reflect that they are strong but lack an ex- plicit interest in society). Organizations •• How deeply is it integrated? Does the with a high purpose score and low perfor- purpose guide core business decisions mance we called castle-in-the-sky compa- and ways of working throughout the nies. There weren’t many of these compa- organization? nies, which demonstrates that without embedding purpose, long-term perfor- •• How well is it recognized? Do employ- mance is unsustainable. Almost every com- ees believe that people outside the pany with a purpose score over 30 has a company recognize its purpose? ten-year TSR above the S&P 500 median.

To demonstrate the correlation between The correlation between purpose and per- purpose and performance, we designed a formance is clear and demonstrable. But survey with 15 statements that reflect the that’s not all the purpose score tells us. We robustness of purpose. For example: my found that a company may have a relative- company’s purpose addresses a real need ly high overall score but fall short in one of in society; my company lives its purpose the four critical characteristics. And that with passion; and, if my company were has implications for the stickiness of pur- gone tomorrow, the world would lose some- pose as well as for long-term performance. thing meaningful. The respondents were to indicate whether (and to what extent) they agreed or disagreed with each statement. Uncovering the Purpose Gaps When we disaggregate purpose scores, we The survey was administered to employees often find surprising disparities among the and managers at 25 large publicly held US scores for individual characteristics. Across

The Boston Consulting Group • BrightHouse 2 Exhibit 1 | The Camelot Matrix Reflects the Purpose-Performance Payoff

Purpose score 60 Castle in the sky Camelot

0 Fiefdom Fortress –10 –40 –20 0 20 40 60 Long-term performance (average ten-year TSR, %) Sources: BrightHouse; BCG analysis. Note: To measure the purpose of 25 large publicly held US companies in the consumer, technology, and financial services industries, we surveyed employees and managers in each company. We calculated the purpose scores using the net top-box method (subtract “strongly disagree” responses from “strongly agree” responses and divide the result by the total number of responses). the board, companies’ scores for articula- Clearly, the company needs to address the tion are invariably higher than those for inconsistent application of its purpose. any of the other three characteristics— which is logical. It is easier to articulate a To boost its inspiration score, the company purpose than to integrate it, for example. could develop reward and recognition pro- But consider two consumer-oriented com- grams that tie to its purpose (such as a sys- panies with high overall purpose scores: a tem that awards points for behaviors that chain restaurant and a specialty clothing support a gathering-place atmosphere) or manufacturer. After breaking down their hold regular offsite events to create shared overall scores, we find markedly different experiences (and thus the sense of an in- purpose profiles. (See Exhibit 2.) ternal gathering place) for the team. The company could also improve the employee The first company, the chain restaurant, evaluation tool to clarify which skills and has a spiky profile: Employees and manag- behaviors support its purpose. ers gave the company high marks for articulation, but not for inspiration. The compa- In contrast, the specialty clothing manufac- ny also scored high for integration but low turer has more consistent scores across all for recognition. four purpose characteristics. Clearly, this company is driven by its purpose: deepen- Research on this company corroborates ing humans’ connection to nature. Its these results. Although the company’s pur- well-articulated vision, mission, and value pose is clearly articulated—to be a place statements are known throughout the where people want to gather—it isn’t com- workforce, and the founder’s story serves pelling enough to inspire action throughout as a rallying cry. At the corporate level, em- the company’s hundreds of restaurants. ployees are energized and challenged; at Moreover, despite the fact that the compa- the retail level, although their experiences ny provides generous benefits, many em- vary, employees consistently report a fun ployees do not feel appreciated for their and energized work environment, positive work. These gaps explain the relatively low interactions with coworkers, and enthusiasm inspiration score. Yet the company’s pur- for the company’s products. Employees see pose is well integrated into decision mak- that leaders’ strategic decisions—their se- ing, business strategy, and ways of working. lection of outdoor gear manufacturers,

The Boston Consulting Group • BrightHouse 3 Exhibit 2 | A High Overall Score Can Mask Gaps Among the Characteristics of Purpose

CHAIN RESTAURANT SPECIALTY CLOTHING MANUFACTURER Purpose score 50 45 40 35 30 25 20 15 10 5 0 Overall Inspiration Recognition Overall Inspiration Recognition Articulation Integration Articulation Integration

Source: BrightHouse-BCG 2016 survey.

wildland advocacy efforts, and community they reported being buoyed by the knowl- projects (such as sponsoring outings for dis- edge that the public holds the company in advantaged kids)—are consistent with the high regard. company’s purpose. In contrast to Jobs’s ambitions for the company, the pace of innovation at Apple over Case in Point: Apple the past several years has slowed; the As we’ve noted, a purpose is easier to ar- iPhone continues to account for a dispro- ticulate than it is to integrate. It is also a portionately large chunk of the company’s journey, not a destination. To appreciate revenues (62% in the first quarter of 2018). what focusing on purpose can reveal about Apple’s announcement in December 2017 this journey, let’s take a close look at Ap- that Jony Ive, the company’s legendary ple, a company that is remarkable for be- chief design officer, will resume managerial ing purpose-driven and—with a market control over design suggests that Apple cap surpassing $1 trillion—for delivering wants to rediscover its purpose as a revolu- long-term performance. We recently sur- tionary toolmaker. veyed a new group of Apple employees, and again, Apple proved to be a leader in Articulation. Apple’s historically clear and purpose—overall and in each of the four compelling purpose statement was reflect- characteristics. ed in its articulation score. In 2016, CEO Tim Cook revised his earlier, rather worka- Overall. Apple is among the most purpose- day, purpose statement to something closer ful companies we surveyed, and it was in spirit to his predecessor’s: “At Apple, we firmly in Camelot territory. One of the believe technology should lift humanity company’s cofounders, the visionary Steve and enrich people’s lives in all the ways Jobs, articulated a simple and bold pur- people want to experience it.”3 pose for the company: to make tools for the mind that advance humankind. Em- Inspiration. Apple’s high score in inspira- ployees feel that their day-to-day work is tion highlights a purpose so strong that it meaningful and clearly see signs of the makes people clamor to work at the com- company’s commitment to its purpose in pany. (Inspiration thus also bolsters the operational decision making. In addition, company’s recognition.)

The Boston Consulting Group • BrightHouse 4 The first-day memo that welcomes new Recognition. Among the tech companies employees captures the company’s well- we surveyed, Apple enjoyed one of the articulated purpose: highest recognition scores. Employees are well aware of the public’s love for the There’s work and there’s your company—its iconic marketing, social life’s work. consciousness, and continued growth. (Apple’s compound annual growth rate The kind of work that has your from 2004 through 2015 was more than fingerprints all over it. The kind 35%, although it has since plateaued.) In of work that you’d never compro- 2018, Forbes ranked the Apple brand as mise on. That you’d sacrifice a the world’s most valuable for the eighth weekend for. You can do that straight year. Apple has long been commit- kind of work at Apple. People ted to privacy and security (as reflected in don’t come here to play it safe. its encryption and data-storage features), They come here to swim in the and Cook recently reiterated his longstand- deep end. ing support for privacy amid the growing public concerns over the misuse of person- They want their work to add up al data. to something.

Something big. Something that hen companies clearly articulate a couldn’t happen anywhere else. Wpurpose that inspires employees, and when they integrate it enterprise-wide so Welcome to Apple. that it’s visible internally and externally, the purpose can work its magic. But as Integration. Purpose remains a driving we’ve shown, embedding a purpose in a force in Apple’s strategy and operational deep and enduring way is not a one-and- decision making, even if innovation has done endeavor. Companies shouldn’t as- slowed. Although the company is arguably sume their purpose is working without growing less innovative, it has demonstrat- looking beneath the surface to understand ed its commitment to creating tools that how it is realized across the business. When enrich people’s lives. Apple continues to they do, they can almost always identify op- set the standard for product design, with portunities for improvement—opportuni- competitors emulating the groundbreaking ties that help extend and enhance the pur- look, feel, and functionality of the iPhone. pose’s impact on long-term business It has also made innovations to its device performance. Camelot is within reach, even operating systems, introduced thinner, fast- if purpose is an ongoing journey. er processing chips, and patented augment- ed reality technology. (The iPhone 8 was the first smartphone designed for augment- Notes ed reality.) 1. We surveyed only US companies to control for cultural differences. We chose consumer, technology, and financial services companies because third-party Apple has also made waves with a series of studies found that purpose was likely to be most high-profile hires. The company brought on widespread in the respective industries. former Yves Saint Laurent CEO Paul Deneve 2. The Camelot matrix was cocreated by Joey Rei- man, the founding chairman and CEO of Bright- in 2013 to focus on special projects (specifi- House, a BCG company, and Andrea Hershatter, cally, leading the development of the Ap- senior associate dean at Emory University’s Goizueta ple Watch), and former Burberry CEO An- Business School. 3. Cadence Bambenek, “Tim Cook’s Mission of gela Ahrendts joined Apple in 2014 to Making Tech to ‘Lift Humanity’ Fills an Important integrate the company’s physical and on- Void Left by Steve Jobs,” BusinessInsider.com, June line stores, extending Apple’s tradition of 13, 2016. creating a seamless customer experience.

The Boston Consulting Group • BrightHouse 5 About the Authors Jim Hemerling is a senior partner and managing director in the San Francisco office of The Boston Con- sulting Group. You may contact him by email at [email protected].

Brad White is a managing director in the Berlin office of BrightHouse, a BCG company, and the president of its Europe and Middle East business. You may contact him by email at [email protected].

Jon Swan is a partner and managing director in BCG’s Boston office. You may contact him by email at [email protected].

Cara Castellana Kreisman is an associate strategy director in the Atlanta office of BrightHouse, a BCG company. You may contact her by email at [email protected].

JB Reed is a principal in BCG’s Atlanta office. You may contact him by email at [email protected].

Acknowledgments The authors extend a special thanks to Joey Reiman, the founding chairman and CEO of BrightHouse, a BCG company, and Andrea Hershatter, senior associate dean at Emory University’s Goizueta Business School, for cocreating the Camelot matrix. The authors also thank Phillippa Owens for her assistance with this article.

The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advi- sor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with offices in more than 90 cities in 50 countries. For more information, please visit bcg.com.

BrightHouse, a BCG company, is a global creative consultancy devoted to helping organizations uncover their purpose and bring it to life so that they can grow their people, profits, and social impact. For more than 20 years, we have been applying our unique methodology, frameworks, and capabilities in human insights, design, film, and writing to accelerate transformation and value creation for global brands and Fortune 500 companies alike. For more information, please visit thinkbrighthouse.com.

The Boston Consulting Group • BrightHouse 6