Menu
search

The Purpose of Profit. Doing the right thing for the bottom line.

Scroll Down

Published on 8th June, 2021
By Jamie Smith
Categories: | Opinion |

Most companies will have a set of values they define for themselves but here’s a question. How do you know if they’re authentic? There is a simple test. Were the business to suffer as a result of sticking to them, would it still do it? Same for if it could make more money by diverging from them? The arrival of the Covid19 pandemic in 2020 certainly revealed a lot about company values and their authenticity, just ask anyone who paid £50 for four toilet rolls. My contention is this. Companies that put their personal goals and sustainability above a shared common purpose that’s bigger than themselves sacrifice tomorrow for today, and not just during times of crisis like the present moment.

Image via Nicolas Gras

In Simon Sinek’s famous talk ‘How Great Leaders Inspire Action’ he says people don’t buy what you do, they buy why you do it. On that basis, picture this scenario. Imagine being asked to invest in an old bloke walking around his garden for days on end in an attempt to raise one thousand pounds for an NHS charity he believes in. Doesn’t sound like a ‘must buy’ if pitched to the typical boardroom, yet Sir Tom Moore went on to raise more than £30 million for charity through the power of community, a community built on a set of shared values that were authentic. With hindsight I suspect some household name brands would have liked to have sponsored Sir Tom before he started that journey, but few would have. The key point is this. The guy is a hundred years old. This wasn’t a career move. People don’t buy what you do, they buy why you do it. The value of embedding this in organisational culture matters because there are more consumers who will buy why you do what you do, than what it is that you do. In many cases a competitor can mirror your product or service quickly, but it’s much harder to copy why you do it. Authenticity is still a rare currency and I believe it to be a powerful foundation for sustainable competitive advantage but only if it’s real and on that point it had better be. In the digital age authenticity can be verified in minutes by a quick scan of your digital profile and history, and if you’re not really living the values you say you believe in your business will be ghosted faster than a Tik Tok.

Image via James Lee

If you’re doing the right thing, you don’t need to tell people about it.

Billionaire investor Warren Buffett once said “It takes twenty years to build a reputation and five minutes to ruin it” and in an online world that is less about ‘word of mouth’ and more about ‘world of mouth’ this has never been more true. This applies equally as much to the large multinational as to the small shop. You may recall a small BP garage in Cambridgeshire going viral in 2020 because it was selling hand sanitiser for over £6 a bottle at a time when it’s community was desperately seeking to protect itself. The corporate PR managers for BP found themselves hastily issuing a statement saying ‘this has nothing to do with BP’ noting that it was the ‘initiative’ of a local cashier. Maybe so but it was the PR team for BP who were forced to issue the statement which says it all. The time to do the right thing isn’t just during a time of crisis which merely amplifies it, it’s always. The evidence shows it pays off, literally, not just by making people feel good, it boosts the bottom line also.

As Harvard Business Professor and Executive Chairman of Best Buy Hubert Joly has noted in an article in Forbes “This is a time when performance will be judged by how a company and its leadership serve everyone and fulfill a higher purpose – and specifically how they have shown up and met the requirements and expectations of its multiple stakeholders”. Perhaps a positive arising from the pandemic is that it has shone a light on the many companies who are authentically committed to doing the right thing, and I bet they will be recognised for it for years to come. Supermarkets are a good example, ensuring the availability of essential products through the introduction of various measures from ‘silver’ shopping hours for older people to special arrangements for essential workers. Others radically transformed their operations to new ways of helping such as Brewdog, a brewery and pub chain who started to produce hand sanitiser and gave it away for free to those who most needed it. Chelsea Football Club put NHS staff into a local hotel it owns in recognition of the extraordinary working hours many NHS staff are enduring and therefore may not be able to travel home. This helped the NHS to keep essential services working at a time of incredible pressure.

Image via William White

Whilst none of these changes are a magic bullet solution to the challenges that communities face then or now, the values these organisations have displayed will form stories that create the very culture that sustains them. Some businesses enjoy a ‘loyalty beyond reason’ from their users when it comes to the communities they serve. I have seen this personally with customers of businesses like Harley Davidson where brand loyalty extends in a very literal way to personal branding, with clients often having a tattoo of the company logo because it represents who they are at their most authentic self. If you think about that, that’s quite some competitive advantage. Imagine a business case suggesting taking hundreds of millions of dollars and going after the customers of Harley Davidson. It’s likely it wouldn’t go well. The reason for this is because people form tribes based on common values and a shared common purpose. When we find others who align, it’s a powerful force for change and doing the right thing has always been good for business because at the risk of sounding like a hopeless optimist, people are actually fundamentally rather good, so it’s a bigger tribe than most people think. Just ask Sir Tom Moore.

Corporate Social Responsibility isn’t a Department or a Budget Line.

My contention is that this is the time to reimagine business models built on new ways to measure value because what got us here won’t get us there. Conventional business models suggest that metrics like cost/benefit analysis is the way to identify profit where the outcome is favourable. The problem with this outdated approach is that if applied it would suggest that the cashier in the BP garage did the right thing with the £6 hand sanitizer. On that point I suspect they are likely still waiting for their bonus from BP for dramatically increasing the profit margin on hand sanitizer and may have since ‘moved on to new opportunities’. Why? Because in the world as it is now value is measured in different ways, cost benefit analysis is still needed but the benefit needs new metrics. If businesses want to create sustainable growth they need to stand for something others believe in, and live it. It’s all about the why. Why do you do what you do, and can you prove it? You will need to demonstrate you live your values because tokenism won’t get you too far. Saying you’ve planted a tree in Namibia won’t save your profits if the world sees you driving a supercharged carbon based furnace on the way to the private jet.

Image via Matt Walsh

For those businesses who live their values because it’s who they are, they will secure loyalty beyond reason with the communities they serve and their tribe which is great for the bottom line. Given that those communities will always outnumber the people in a business itself, as author David Price OBE explores in his book ‘The Power of Us’ the force of a community with a shared common purpose will always outperform anything the bureaucracy of a large organisation attempts to do on a like for like basis. Securing that loyalty with those who happen to be on the same shared mission as you and the lifetime value of that relationship to the profits of the business is greater than any other business model that could be created.

People First.

I was once asked to deliver some training to a large number of new sales people for a multinational company all of whom were shortly to be attending a large sales conference bringing together buyers and supplies. I shared some insights I had learned a long time ago from studying the work of Dale Carnegie and others that I had applied with impact during my career. The scenario I shared was about a busy person arriving at the conference as a buyer and being faced with a vast array of corporate stands all competing for their attention with the objective of selling to them. The buyer then proceeds to do something like a cross between a moonwalk and a downhill slalom as they try to get to a meeting or seminar they are running late for without getting delayed by multiple sales pitches they didn’t ask for. Rather than hassle them here’s what I suggested the aspiring sales people did. Have a coffee in hand, pass it to them and say something like ‘you look like you need this so here you go, have a great day and if you get ten minutes later in the break I’d really appreciate a few minutes to hear about what you do. Have a great day’. Then walk off. The reason? We’re all programmed to reciprocate and value random acts of kindness if the intention is genuine. The person may never come back of course and both parties are aware of that, but as a minimum it delivers a demonstrable impact that the business had thought about their journey and their time, and valued it. When business puts its community first, the community usually looks after it in return for this reason. It creates a circular economy of loyalty. That loyalty is even stronger when the user community co-creates the products and services with the business, because then it has an emotional stake in it and people make emotion based decisions most of the time.

Here’s the tricky bit…

Investors and boardrooms historically like to see a business case that stacks up using profit forecasts and all of the usual metrics. An executive putting forward a vision of a happier user driven community that may lead to sustainable growth but that can’t be measured in a conventional sense may have a difficult time as colleagues struggle with the concept of seemingly paying them to hallucinate. However, stick with it, because the evidence is building and it will help leaders to feel more assured that a business case built on user empowered communities who do the right thing can be constructed in a similar way to the historical dominant culture of tried and tested metrics.

Purpose is the road to profit.

In the article ‘How great companies deliver both purpose and profit’ published by London Business School Alex Edmans points out that companies who look after their immediate community of employees well and do the right thing for them outperform their peers by 2.3%-3.8% a year over a sustained 28 year period. This represents a massive 89%-184% when compounded that translates directly to stakeholder value. This view is reinforced by an increasing body of wider research and data. In the Forbes article ‘Doing the Right Thing Is Just Profitable’ Peter Georgescu argues that the most ethical companies in the US have also proven themselves to be the most profitable and sustainable over the longer term and he arrives carrying data. Most of the companies in the research generated a 3.5% higher return on the capital invested than comparators, pay their staff more, have more diverse representation on their Boards, created more jobs, recycle more and contribute more to social causes that benefit the wider world around them. The companies who operate like this are not sacrificing tomorrow for today by trying to rip people off in a time of crisis, or acting in their own self interests above those of their users. Doing the right thing pays off, period. Just ask Patagonia the outdoor clothing specialists who told their customers to stop buying their products and instead return them to be repaired. Their profits increased significantly yet that would have been quite some Boardroom pitch, ‘so basically your strategy is that you’re going to tell our customers to stop buying our products and to return them to us? Run that past us one more time…’.

There’s a simple lesson in all this. Doing the right thing is always the right thing to do. The more that businesses embed this in their corporate culture, the greater our collective prosperity will be because when profit has a bigger purpose, we all win.


References:

BP Garage Under Fire for Selling £6 Hand Sanitizer
https://www.cambridge-news.co.uk/news/local-news/hand-sanitiser-bp-garage-coronavirus-17927356

Forbes – Doing the Right This Is Just Profitable
https://www.forbes.com/sites/petergeorgescu/2017/07/26/doing-the-right-thing-is-just-profitable/?sh=176bd987488a

London Business School – How great companies deliver both purpose and profit
https://www.london.edu/think/how-great-companies-deliver-both-purpose-and-profit

Leave a Reply

Your email address will not be published.

Mindset Leadership Operating System T.E.A.M.