The (un)clear Linkage Between Purpose, Profit Maximisation, And Solving Global Challenges

This blog was initially published by Simon Nopp on LinkedIn in English and in German.

While companies are struggling to reinvent their business models and maximize their profits, we are experiencing several global challenges that require our attention. How can those challenges be aligned? Becoming a purpose-driven entity and looking at the world’s biggest challenges as the greatest business opportunities allow businesses to prosper in the 21st century, to identify the urgently needed business models to stay competitive, and to generate a positive impact in the world.

Read more about this topic in the article below and let me know your thoughts. Let us work together to empower everyone to sustainably disrupt the world, through disruptive innovation, generating new business models, and the power of digitization! 🌍 What are the main reasons that hinder companies to become purpose-driven? How can we help companies to find business opportunities and business models for the future? What are the roles of the biggest global challenges in these scenarios?

Milton Friedman is well known for his statement that a company’s sole social responsibility and purpose is to make a profit. One of his key arguments is that companies work for their shareholders.  By spending money on societal goals or environmental initiatives they would steal their shareholders’ money. On top of that, companies have no expertise in social or environmental issues. Hence, they do not have any legitimacy to impose solutions for these issues. Lastly, a company is just an artificial construct created by people and, as such, can not have rights and obligations. Ultimately, every single person can decide to do something good with their money. So why should the company use the money they have to pursue environmental or social initiatives?

I do think his arguments make a very good case. Our system is based on capitalism. Without generating profit the majority of the companies could not employ their employees and they could not continue to provide their services. And by using the money for non-business purposes like environmental initiatives or solving social issues companies might lose money to invest in innovation to stay competitive.

So was Milton Friedman right?

I strongly believe that in our current economic systems the biggest positive impact on society and the environment can be generated if companies benefit from their social or environmental activities by generating profits. The key question would then be: “Can companies generate more profit by using their money to solve social or environmental issues?” Recent studies show that purpose-driven companies outperform their competitors significantly.  Employees are more than twice as productive in purpose-driven companies. In the long run, purpose-driven organizations generate higher revenues. And, in terms of brand engagement, purpose-driven entities outperform traditional companies remarkably.

Why are the mission and vision statements not enough? Mission and vision statements are limiting the way of thinking, possibilities to pivot and innovate, and ultimately to generate higher impact. Let’s take the example of a car manufacturing company:

“We want to become the leader in the car manufacturing industry by using the state of the art x, y, z, technology”

Neither does this statement allow the company to explore new technologies (e.g electric powered engines) nor does it allow the company to rethink the way of transportation or their business models. (Are cars how we perceive them today still the main way of transportation in 20 years? How does the majority of people go from A to B in 20 years?) In a time were most CEOs state it is important to reinvent business models for the future these are crucial questions.

Furthermore, this statement does not include the public, other people, or other companies to contribute to their vision. It is entirely focused on one organization - WE, and nobody else. Hence, it does not inspire others and the company will have trouble building a community around their vision.

So what about finding a massive transformative purpose instead? For a car manufacturing this could be something like this:

“Enabling everyone in the world to go from A to B in a safe and sustainable way”

Although this is by no means the perfect statement, it serves to illustrate the difference to the above statement. It is inspiring and invites others (no WE) to join the cause. It allows the company to build a community around its purpose. It is not limiting the company to one specific technology or business model - it leaves freedom to pivot. Yet, it still serves as a clear north star for the company. It is massive, transformative, and shows a clear purpose. And, it gets people behind the cause. This includes employees but also people from the outside of the company. Of course, it is not enough to just write a statement, all the activities have to be aligned with the purpose to truly achieve outstanding results.

I am rather sure that our cars and means of transportation will change drastically in the future. I do not know if we will have electric-powered drones carrying us around, electric or hydrogen-powered vehicles if we make use of special tunnel systems like Elon Musk proposes with his Boring company, or something completely different. I am sure, however, that we will see a remarkable change and the companies that want to lead the transformation in the 21st century have to find their massive transformative purpose and aim big. The ones who do not dare and take the “safe” road now, will end up in a dead-end tomorrow.

Additionally, to the above-mentioned benefits, a clear purpose allows companies to align their activities with solving global challenges. Peter Diamandis states “the world’s biggest problems are the world’s biggest business opportunities”. Among the biggest challenges are climate change, education, world hunger, healthcare, political transparency but also societal challenges like wellbeing and innovative and reflective societies, or arising challenges about new technologies like artificial intelligence.

So where does that leave us? I think companies, entrepreneurs, and business owners need to ask themselves how they can become purpose-driven entities and connect their activities with solving global challenges. Purpose-driven does not mean to have a fancy marketing slogan, it means that your activities are truly aligned to achieve that purpose. By doing so, companies create shared value for society, stakeholders, and their business.

The ones that use these challenges just as window dressing or for marketing will not reap the true benefits in the long run. The companies that do not start to think about how they can leverage their existing structure, knowledge, and processes to create a truly positive impact in the world will fall behind. And lastly, the companies that stay only vision and mission-driven by stating their how and what but not their why will be limited in their strategic planning, their innovation activities, and their ability to create business models for the future.

So start with identifying your massive transformative purpose, pivot and identify business models and innovation activities around it, and lead the transformation in the 21st century!

If you would like to have more information about the studies used in the article, or how to become a purpose-driven company, just write me a short message.