In his annual letter to the leaders of companies that his asset management firm invests in, BlackRock CEO Larry Fink wrote, "Profits are in no way inconsistent with purpose -- in fact profits and purpose are inextricably linked."
The President and CEO of State Street Global Advisors, Cyrus Taraporevala, echoed Fink in State Street's letter to clients, sharing that a global accounting firm recently found that "'intangible assets' such as culture average 52% of an organization's market value (and in some sectors as much as 90%)."
By way of a framing analogy, companies can be likened to an IT framework where “hardware” includes tangible assets like buildings, machines, capital; “software” includes people, processes, technology, information assets, intellectual property; and the “operating system” is the confluence of purpose, brand and culture that directs and animates how daily work gets done – with and through “hardware” and “software.” Aligning these three in ways that customers value is the essential task of organizational leadership …. and the key to building sustainable, hard-to-copy enterprise value.
Culture begins with your purpose -- why you are in business.. … does it inspire people to create and sustain superior customer experiences?
Take Unilever, for instance. The formal purpose of the brand is "to make sustainable living commonplace," which informs leadership decisions in everything from investment models and acquisitions to factory waste.
The company's progress is remarkable: Unilever's sustainable living brands have outperformed the company's average growth rate for the last four years and accounted for 70% of Unilever's turnover growth in 2017. And Unilever was named as the employer of choice for fast-moving consumer goods graduates in 44 of the 52 countries the company recruits in.
Compare Unilever's results with this Gallup finding: Only 27% of employees strongly believe in their company's values, and less than half strongly agree that they know what makes their organization stands for and what makes it different.
Leaders should worry about that. An actionable purpose like Unilever's has a positive effect on everything a company does and such a focus on purpose unites and touches every stakeholder -- customers, employees, regulators, legislators, the media and influencers.
Indeed, Taraporevala's letter specifically states that intangible corporate assets, like corporate culture, drive "a greater share of corporate value" and allow companies to navigate "unprecedented business disruptions."
Then, he acknowledges that corporate culture, as a metric, is "difficult to measure and manage," but not impossible. As a thought starter, ask yourself: if purpose, brand and culture were in sync around things customers value, what numbers would go up or down in your company?
Here are some simple steps leaders can use to take a look at their “operating system;” purpose, brand and culture.
1. Check your organization's purpose and brand.
The CEO, and leadership group need to clearly identify the organization's purpose -- why they are in business -- and how they want the brand to be perceived by applicants, employees and customers. Purpose and brand set the stage for everything else. Top executives need to be aligned, consistent and committed to the purpose and brand. That is the starting point for bringing teams together and effective decision-making.
Here’s a brass-tacks question to ask of customers, employees and suppliers: Most days, it seems like we operate as if our main purpose is to ________.
Some of the answers may surprise you, especially if you start to nudge how customer or employee conflicts are typically handled, what happens to inconvenient truths, tolerance for trying new things, how good ideas get embraced or shelved.
One revealing question for your best customers is to ask them to characterize the character of their most trusted, long term supplier ….. then listen hard and try to learn from the evidence they give.
2. Audit programs, commuprnications, habits
This especially includes marketing and business development practices, budgeting and management decisions, people management practices, tribal customs and reward/recognition rituals, and team structures for alignment and consistency with the organization's purpose and brand. What happens to people who make their numbers and exemplify the desired purpose, brand, culture behavior? What if they don’t?
3. Shift your managers' mindsets from being the boss to being a coach.
The culture you want can only be implemented by your best managers. A great culture is one of the few things an organization can't buy. Managers will make or break your culture change, for good or ill. By repositioning your managers from boss to coach, your organization will increase employee engagement, improve performance, and start to see the cultural shift you desire.
The engine of purpose-focused culture change takes a great deal of fuel, and it needs to come from the top. But once leaders have the machine running, the measurement and management of culture becomes vastly less difficult.
Unilever provides another sterling example. In the 1890s, Unilever's purpose was "to make cleanliness commonplace." That was an inspiring goal in the 19th century when few other soap companies could make that claim.
But the global bath soap market is now a $19.5 billion industry with a CAGR of about 5.2% -- and soap is only one of dozens of Unilever product lines that 2.5 billion people use every day. Commonplace cleanliness doesn't differentiate Unilever, and this purpose won't drive its culture.
Sustainability clearly does.
Getting more products to more people with less damage to the environment is a cultural value that workers can get behind. And Unilever's success proves BlackRock's CEO right when he says profits are in no way inconsistent with purpose: Unilever's organic sales growth is rising, its free cash flow jumped 75% in 2017, its underlying operating margin is 18.4%, and it posted $10 billion in profits in 2017.
Unilever changed its purpose when it had to. Not every company can. But then, not every company has a clearly defined purpose.
The ones that do, and act on it, have a corporate advantage. Investors like Fink and Taraporevala look for it; employees feel it. Cultures with well-defined purpose attract and keep top talent and engage workers more deeply. Engaged workers perform better, and so do their companies. Purpose is crucial to an enterprise's success.
The best leaders know that -- and the best companies follow their lead and act on it. Zappos is a company that has decided to work on purpose, brand and culture in a serious way. https://bit.ly/2WsDFkP
Here’s an actionable thought. Select a handful (4-6) opinion leaders and high potential employees and charter them to take the pulse, do some reading and recommend steps to better align purpose, brand and culture - around customer needs, expectations and priorities. Suggest a simple report out format: do more, do less, start this, stop that. Simple metrics; if we did all this right, what numbers would go up or down? One way to start is to take the free B Corps assessment, https://bit.ly/2wF9k3i
If you are interested in help, want to make progress without speed bumps, potholes or needless kafuffle, contact Dunnington Consulting
802 863-4694 https://www.buildcompanyvalue.com/
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