Playing to Win
Corporate Purpose & Strategy
Harnessing Productive Selection Bias
Corporate purpose is a very hot topic these days, with corporations being called upon to do more to benefit the world against the backdrop of increasing concerns over climate change, social justice, and economic inequality. I get lots of questions about how I think about corporate purpose in relation to strategy. So, I decided to write my 26th Year II Playing to Win/Practitioner Insights (PTW/PI) on The Purpose of Corporate Purpose: Harnessing Productive Selection Bias. You can find the previous 78 PTW/PI here.
The Hot New Thing
There is no question that corporate purpose is a hot topic. You know a business topic is hot if its enthusiasts assert that their topic is more important than strategy. Culture is more important than strategy. Execution is more important than strategy. Artificial intelligence will replace strategy. And now, evidently, purpose is more important than strategy. Sigh. It feels so cliché to make that argument, though I guess that it flatters strategy if everyone with a business idea feels that the only way to elevate it is to compare it favorably to strategy!
I would be the first to agree that purpose is important. P&G, the company with which I have worked the longest, has a statement of Purpose, Values and Principles (PVP) that is cherished by its people. The purpose part holds that P&G “will provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come,” which I like.
The thing I don’t like is putting purpose and strategy in opposition to one another. Why? It is because purpose is one of the five key choices in strategy. I use the term aspiration in my strategy model. I don’t care at all what you call it — purpose, aspiration, mission, vision. These terms tend to be used relatively interchangeably, though some argue vociferously that they all mean something different, and you should have more than one of them. That I don’t like at all; having one of the terms above is optimal and reduces confusion.
The Purpose of Corporate Purpose
I believe that the most useful way to think about corporate purpose is with the lens of driving productive selection bias. Whatever choices you make as a corporation will generate selection bias. If you offer your workforce generous pension benefits, you will end up with disproportionately older employees because younger workers don’t value pension benefits as much as older workers. If you survey customers by telephone, you will get older respondents because younger potential respondents don’t use their phones as phones anymore.
Every single strategy choice will drive selection bias. If you tell the world you offer ‘The Ultimate Driving Machine,’ you won’t attract soccer moms to your showrooms. If you distribute your insurance through independent insurance agents, you will attract customers who want personal assistance in choosing. If you put design at the center of your How-to-Win, you will attract designers.
The selection bias you generate with your choices can be helpful or unhelpful to you. On the helpful front, if your recruiting pitch is “The Few, The Proud,” you are likely to get a rich mixture of future Marines (which is probably why the Marines returned to that pitch after dropping for a very short time). On the less helpful front, if your primary recruiting pitch is that we pay the highest salaries, you are likely to get the most money-grubbing employees.
The simple rule to follow when you design your choice of purpose is that your purpose should drive selection bias that makes it more likely that you will achieve your purpose — not make it less likely that you will achieve it. It is a circular relationship — and important.
Many statements of purpose are unhelpfully vague, abstract, and lofty. Before its spectacular crash, WeWork’s mission was (literally) “to elevate the world’s consciousness.” What selection bias did that drive? I would argue that it attracted employees who were romantic and didn’t like being held accountable to achieving goals. If their goal is so abstract that there is no way to measure progress toward it, employees are totally safe from scrutiny. And it attracted shareholders who were, well, nuts — at least one very large, very nutty one. Finally, customers couldn’t care less about WeWork elevating anyone’s consciousness, let alone their own. They wanted flexible workspace, not consciousness raising.
It is arguable that WeWork’s purpose drove selection bias that guaranteed it would not achieve its purpose. It got them a workforce and major shareholder that were happy to just follow a pied piper. The only humans whose consciousness they raised were those reading their public offering document for their 2019 attempted IPO, because reading it helped them raise their consciousness as to the dubiousness of WeWork’s business model. The IPO crashed and burned and WeWork has struggled ever since, losing a staggering $4.6 billion in 2021.
Compare that to Paul Polman’s purpose when he took over as CEO of Unilever in 2009. He wanted to demonstrate to the world that a giant company like Unilever could invest in growing its brands while decoupling that growth from its environmental footprint. While lofty, the purpose was neither vague, nor abstract. His 2010 Sustainable Living Plan laid out clear and concrete targets, such as slashing the carbon, water, and waste impact of its products in half and sourcing 100% of agricultural raw materials sustainably within five years. He aggressively drove selection bias by inviting shareholders who didn’t like his long-term vision to sell their shares, while actively courting long-term investors (such as family offices and sovereign wealth funds) that wanted to see a big company show the corporate world that such a lofty purpose could be achieved. He made it a centerpiece of his strategy to attract the employees and customers that shared that vision.
The stakeholders brought into the fold by the purpose-driven selection bias helped Unilever achieve its purpose. When the Brazilian private equity giant 3G tried to take over Unilever to rein in its lofty ambitions, as was its acquisition track record, Polman’s shareholders stuck with him and delivered 3Gs its first takeover battle defeat. It is harder to tell how much the purpose helped win customers and recruit talent, but my take is that they were more helpful than not.
If WeWork’s and Unilever’s purposes are on the opposite ends of the selection bias spectrum from the purpose hurting attainment of the purpose to helping its attainment, most fall somewhere in between. P&G’s feels closer to the helpful selection bias end of the spectrum — improving the lives of consumers is doable, and I can imagine employees and shareholders being game to sign up for that. Uber’s “we ignite opportunity by setting the world in motion” feels closer to WeWork’s lofty vagueness and abstraction. And IBM’s feels somewhere in the middle — Let’s Put Smart to Work. It is hard to see in what positive way it creates selection bias that makes it more likely that IBM will indeed put smart to work.
A corporate purpose has the potential to be a very good thing. It is important to see it as a strategy choice and as I have always argued, the strategy choices need to fit together and reinforce one another. And a purpose fits with the rest of strategy if it drives selection bias that helps enhance the enabling management systems that build the must-have capabilities that enable you to win where you have chosen to play. A valuable purpose will cause the customers, employees, shareholders, and other relevant stakeholders that you need to fulfill your purpose to choose you, while the customers, employees, etc. who would be bad for your strategy choose to involve themselves with other companies.
That is why loftier is not necessarily better when it comes to statements of purpose. While it might feel, especially in the current environment, that a loftier purpose is nobler, if your purpose causes the stakeholders you need to run for the hills rather than embrace you, it will be the cornerstone of a losing strategy. And you are not going to make the world a better place if your strategy fails to survive. It might be an awesome thing for the world to have its consciousness raised. But that ain’t about to happen based on WeWork sinking under a wave of ridicule and gigantic losses.
Your thinking task should be to formulate a choice of purpose that is integrated with the rest of your strategy choices. I would love to see as many Polman-esque purposes as possible — those are purposes that are lofty but at the same time sufficiently concrete and appealing to drive an upward spiral towards their achievement. That takes a lot of thought and iteration.
You need to be willing to iterate across the strategy choices before locking and loading on a purpose. What do you need from customers, employees, shareholders, etc. to prevail the way you seek to win in the place you seek to play? Will your purpose attract to your organization the folks in those categories that you need? If not, experiment with different purposes and different Where-to-Play/How-to-Win (WTP/HTW) combinations. Maybe a different purpose will work with your existing WTP/HTW. Or maybe the existing purpose will work with an adjusted WTP/HTW. Keep going back and forth until you have a purpose that reinforces the rest of the strategy choices.
Only then can you be confident that you will produce an upward spiral that helps you achieve your lofty purpose, rather than a downward spiral that causes everyone watching to lower their aspirations to avoid a miserable fate like yours.
BTW, the launch of my next book, A New Way to Think, is now only 8 days away on May 3, 2022. If you enjoy the Playing to Win/Practitioner Insights series, I predict you will love the book. Please consider preordering it here.