Staying relevant as a company is getting harder every year. A recent study shows that the average lifespan of a company in the S&P 500 index has decreased from 61 years in 1958 to just 18 years. At this rate, by 2027, more than three-quarters of the S&P 500 will be companies that don’t exist today. But there’s a way to stay in the game.
Several factors contribute to the continuing growth of companies, one of them being a clearly articulated and lived purpose. Recent research shows that companies with an explicit commitment to a higher purpose, “outperformed the Standard & Poor’s 500-stock index from 1996 to 2011 by an astonishing 10.5 to 1.”
So what exactly is the purpose of a company? First of all, it’s not created, but rather found in the company’s history and founding principles, in its employees’ experiences, in the design of its products and services and in how they are experienced by customers and delivered together with suppliers. Also intrinsic to purpose is the impact and role that the company and its products and services have played in society.
Find your purpose
So how do you find the purpose of your company? When assessing that question, we always keep in mind several aspects. They can be summarized in these seven criteria:
- The purpose can be lived through what the business does and is aiming to do.
- The purpose aligns with the existing vision, values, mission, objectives and business model.
- The purpose drives the growth of the current business, new growth opportunities and enhance innovation.
- The purpose reduces costs (and therefore drives profitability) and mitigates against potential risks.
- The purpose improves the company reputation (and therefore license to operate).
- The purpose is engaging and inspiring for employees and talent in the market.
- The purpose brings value to all relevant stakeholders (customers, suppliers, employees, government, NGOs and shareholders) and makes it clear the role the company wants to play in society.
Explicitly articulating the purpose is not enough to realise the benefits of it. The purpose, just like the company’s vision, mission, brand and values, must be part of the decision-making framework. These aspects all make the foundation of who a company is and need to be consciously and continuously applied in the decisions and actions taken on a daily basis.
A clearly articulated and lived organisational purpose increases the chance for any company to be successful and to stay successful for a longer period of time. In a highly commoditised world, where business cycles have become so short that some offerings become obsolete almost as quickly as they’re created, a purpose that’s emotionally engaging and intellectually inspiring energises employees, creates emotional connections with customers, helps to gain the trust of society by tackling relevant issues in the course of delivering the business and ultimately pays off in increased profitability. That’s what makes it an important tool to stay in business way longer.