What Is a Purpose-Driven Firm?

Some of the most successful companies focus beyond profit margins and returns on investments to craft strong mission statements and purpose-driven strategies. These businesses prove it’s essential to ask: How can I build a sustainable business and serve people?

Despite the advantages of adopting a purpose, it can be difficult for leaders to do. Here’s an overview of what makes a company purpose-driven, the benefits of having a purpose, and why it’s important in sustainable business.

What Makes a Company Purpose-Driven?

According to Harvard Business School Professor Rebecca Henderson, who teaches the online course Sustainable Business Strategy, most of the companies tackling the world’s biggest challenges are purpose-driven. While purpose fits into organizations in various ways, those that are consumer-centric consider the question: How do we meaningfully serve people?

There are several ways to lead a purpose-driven business; the most prominent is by enacting change. According to Sustainable Business Strategy, the five pathways to change that create a purpose-driven company are:

• Pioneering new business models: Creating models that persuade competition to follow suit
• Discovering new technologies or improving existing ones: Driving down costs and forcing competitors to eliminate less sustainable alternatives
• Changing consumer perceptions of sustainability: Encouraging consumers to demand more sustainably produced products and services
• Paying employees more: Giving employees a bigger stake in the business to persuade competitors to follow suit
• Persuading investors to behave sustainably: Showing investors that sustainability is better for the bottom line, which can affect the companies they invest in

Benefits of Adopting a Purpose

Purpose-driven companies are vital to the corporate ecosystem. In addition to the social and environmental benefits of having a sustainable purpose, there are other notable advantages.

1. Builds a Strong Corporate Culture

According to the Harvard Business Review, corporate culture expresses a company’s goals through values, beliefs, and business activities formed by shared assumptions and group norms. It’s influenced by several factors, including stereotypes and progressive initiatives. Business leaders need to take the time to build a strong company culture if they hope to drive purpose.

In Sustainable Business Strategy, Henderson identifies three ways companies can form effective cultures, including:

• Solving problems and discovering solutions: While beliefs and values are essential to culture, they must be organically developed through problem-solving and internal integration as a group.
• Accumulating shared learning: Solutions built and implemented as a group create a pattern or a system of beliefs, values, and behavioral norms.
• Teaching new and existing members: Business growth and success foster a sense of culture that should be communicated to members as the model way to perceive, think, feel, and behave.

Culture doesn’t just inspire a company’s purpose; it also impacts the employees driving its initiatives. When they believe in the culture, they’re more prone to work harder, despite the possibility of stagnant wages. As a result, consumers are more likely to react positively to the business’s purpose and become more loyal to the company.

Related: 15 Eye-Opening Corporate Social Responsibility Statistics

2. Improves Financial Performance

Many businesses on the path to sustainability fear their bottom lines will suffer because of progressive initiatives. Yet, adopting a purpose can significantly improve a company's long-term financial performance. A common barrier is the short-term financial returns they face while transitioning.

Since the trust between leadership and stakeholders is essential to a company’s success, purpose-driven decision-making can be controversial. The shareholder value model of capitalism pressures many managers to maximize profits due to perceived legal obligations. However, companies can legally sacrifice short-term profits with the promise of long-term success. When well executed, purpose-driven decisions can build high levels of trust between team members, companies within the same industry, and, more importantly, key stakeholders.

3. Drives Industry Change

Purpose-driven companies exist to effect change. While internal change initially occurs inside the organization, it eventually spreads externally through a process known as the wheel of change. The positive, self-sustaining impact one firm has on an industry is a powerful force in tackling the world’s biggest challenges.

The wheel of change begins to turn when a company makes a business case to solve an issue, such as global climate change. Changes in strategy, business initiatives, and leadership style not only work to address the problem but often force competitors to follow suit—especially if they produce successful results. This ramps up the wheel’s speed. Consumers sense this shift and demand more sustainable products or services that align with the company’s purpose to combat climate change, despite potentially higher price tags. Ultimately, the market shift becomes self-sustaining, with all leading firms in the industry driving progress.

Why Purpose-Driven Companies Are Sustainable

There are several reasons why purpose-driven companies aren’t just sustainable but industry leaders. On top of fostering company culture, financial success, and industry change, they promote cooperation and long-term sustainability in business.

In Sustainable Business Strategy, it’s noted that people who’ve collaborated in business settings are significantly more likely to cooperate in situations where returns may be less obvious. This is particularly important in sustainable business, where financial return isn’t always guaranteed.

Individuals who want to reap the benefits of becoming effective collaborators should consider learning more about purpose’s role in business through such avenues as an online sustainability course. Leaders who convey the competitive advantage of being purpose-driven can successfully drive change internally and externally at their organizations.

Are you interested in helping your organization pioneer positive change? Enroll in Sustainable Business Strategy—one of our online business in society courses—and download our free e-book on how to become a purpose-driven, global business professional.