Purpose: The Theory and the Practice

Written by

Sergio Caredda

Posted on

December 13, 2021

Edited on

August 25, 2024

Defining Purpose

Defining Purpose is not easy. As Singleton (2014) mentioned, this concept has created dichotomous meanings, with a “pendulation” of authors between the one or the other extremes over time.

One one side we see Purpose defined as an instrumental element of organisation, characterised by being outward focused, functional, and often used as synonym of words such as end, aim, goal, objective. On the other end of the spectrum, we see meanings that have more of a “spiritual” connotation, are more subjective, moral, ideal, emotional and inward focused (van Ingen et al., 2021). Exactly because of this duality, the word is not often used in academic research, and also management literature has made an inconsistent usage of the concept over time.

Yet, the term has been widely used over time, often more than other organisational elements we have seen.

Fig.1: Ngram of usage of the term “Corporate Purpose”, “Organizational Purpose” and “Company Purpose” “Corporate Culture” between 1920 and 2019 from Google Books.

This is why I have extended the time dimension of this graph vs. the ones I used in the past. The reason is that there has been a peak of discussion around the concept of Corporate Purpose in the 1930s’, following along the lines of the big debate on the Theory of the Firm. Big discussions trumpeted the role of corporations in the aftermath of the Black Thursday, and a lot of debate consolidated around a vision based on agency’s theory (Salter, 2019).

A second peak comes around the early 1990s, in conjunction with a key article by Christopher Bartlett and Sumantra Ghoshal on Harvard Business Review, which calls for a focus on People and Purpose ads opposed to a view focused on Strategy and Structures. This article led to a new focus of the entire management literature on the concept of purpose itself, and the value for leaders and executives to define one.

As you can see, a new peak of work around the concept appeared after the investment bubble of the early 2000s, in parallel with the first attempts to focus on new Corporate Sustainability objectives. A plausible working definition often cited is “a concrete goal or objective for the firm that reaches beyond profit maximization.” (Henderson and Van den Steen, 2015)

Purpose—not strategy—is the reason an organization exists. Its definition and articulation must be top management’s first responsibility.
Christopher A. Bartlett and Sumantra Ghoshal, Beyond Strategy to Purpose, (Bartlett and Ghoshal, 1994)

Trying a definition

Defining Purpose is difficult also because both of the dichotomic views have valid points in their definitions. In an extensive research on the economic and financial value delivered by purpose (Gartenberg, Prat and Serafeim, 2016), the authors note that “high purpose firms come in two forms: firms that arecharacterized by high camaraderie between workers and firms that are characterized by high clarity frommanagement“. We’ll check a bit more later about this idea of linking Purpose with value creation. What is interesting to note here is that the dichotomy we have already mentioned, doesn’t really add up, if not for the ideological position of some of its proposers.

Reality is that Purpose should serve both objectives: help management serve a direction to the organisation (as such this gives the organisation an outward focusedapproach, in terms of alignment towards an objective), but also provide internal alignment, of what is defined above as camaraderie. This an idea of an “emergent” sense of purpose that spreads across groups of people, independently from a formal explication.

A crucial aspect of purpose is its inherent intangibility. An organization’s purpose is not a formal announcement, but instead a set of common beliefs that are held by and guide the actions of employees (Gartenberg, Prat and Serafeim, 2016).

Yet, as we will see later, there needs to be also an element of intentionality by making the purpose clear and “tangible” for people to understand and internalise. Which calls for the outside perspective, and boils on a concept of Purpose more linked to communication and sharing. However, there are a few more points we should consider.

An Organizing Framework

In a recent article published on Frontiers in Psychology, Ramon van Ingen, Pascale Peters, Melanie De Ruiter and Henry Robben propose an investigation on contemporary meaning and function of organizational purpose. As seen, despite the varied usage of Purpose in management literature, there’s not a lot of research on this topic. Based on a number of interviews to experts and practitioners both in academia and in the business, the authors developed a framework that builds on the “meaning” that Purpose has (or can have) for an organisation.

Fig.2: Organizing Framework of Organizational Purpose. (van Ingen et al., 2021)

This work makes it really easy to capture the complexity of meanings that Purpose can have, yet provides a framework to understand that we can build a shared meaning around the concept. As you can see from the right of the graph, the consequences of thinking in terms of Purpose are both inward and outward looking. Whether you use an ethical or moral perspective, or a simply utilitarian view of the Purpose, what is important are the elements identified as Moderators: Authenticity, Balance, Perception of Impact and, I would add, consistency.

It’s also interesting to note the mechanism that make the Purpose relevant: it provides meaningfulness for both the individuals and the organisation. It supports the needs fulfillment of individuals and allows to define that “person-organization fit” that we have seen at the core of the definition of Purpose in many consulting brochures.

An apparently complex term to define, becomes an all-encompassing energizing tool to define belonging and direction to an organization. This is essential to define Purpose, which brings me forward to bring up my definition of Purpose.

The Value of Purpose

I’m not particularly passionate about the discussions on the economic or financial value that purpose carries. However, it is worth noting that many scholars, as well as many consulting firms, have tried to research the link between Purpose and financial performance of an organisation. Although we are aware that some elements of Culture, like Integrity, are positively correlated with financial performance (Guiso, Sapienza and Zingales, 2015), the same cannot be stated fully for a the concept of Purpose (Serafeim and Gartenberg, 2016). This is partly due to the above mentioned difficulty in defining what Purpose actually is. If seen from the lense of delivering high clarity in an organisation, purpose seem to matter. “But it only matters if it is implemented in conjunction with clear, concise direction from top management and in such a way that the middle layer within the firm is fully bought in”. (Serafeim and Gartenberg, 2016). “we find that the significant association between high purpose high clarity and financial performance is driven by the middle ranks of the organization” (Gartenberg, Prat and Serafeim, 2016).

What I think is important to clarify, here, is that Purpose alone cannot create “financial value”. It acts through elements of culture and startegy, moving like a balancing act between the elements. For example, a strong link is also seen between Purpose and Building Trust, for successful internal communication. (Cross, Edmondson and Murphy, 2019) which in turns can create financial viability.

What we need to, however, constantly avoid is the idea that Purpose and Profit are somehow opposing elements. Sometime there is a tendency to distinguish between Profit oriented organisations and Purpose Oriented organisations (sometime with a shortcut to simple non-profits (Dahan et al., 2010)). This idea severely limits our understanding of organisations. Even if we look at the concept of purposefulorganisations, we risk of missing the point that profit can be a tool to reach a purpose. Plus, we’ve enough demonstrations of non-profits that are definitely not purposeful organisations in the moral sense.

Let’s now anticipate my working definition of Purpose.

Purpose in the Organisation Evolution Framework.

Purpose: Definition and Critical Element | Organisation Evolution Framework

Definition: Driving force, fuel, bond that pulls the organisation together to pursue meaningful interactions with the outside world.

The definition of Purpose sits at the core of the continuum between consistency and congruence within this model. At the core the purpose represents the ultimate goal for which the organisation has been created, and the source of meaning for all its components. This is why I represent it at the intersection between the inside and the outside of the organisation.

There are several elements here that I want to explain about my definition.

Purpose is essentially the why a group of people sits around a table and decides that an organisation is the best way to solve a problem. This is the reason why the first element a purpose has to serve is to create a bond between the founders, and, successively, with the other members that will join after.
Over time, however, if the organisation grows and survives, the simple original Bond will not be sufficient. Sooner or later the original problem will be solved, so the question is what will keep the organisation moving ahead? In many ways it is a simple “survival question”: which often leads to the emergence of an identifying characteristic that I define fuel. Profit is an example of “fuel” in the sense that profit is needed to allow an organisation to work and prosper. Many organisations tend to focus on the fuel for a big part of their existence, simply because it is what gets the machine going. Without interrogating on what it really means.
If we move from pure emergence into intentionality, then purpose will also represent the driving force behind organisational actions. This serves both to attract new members and explain to the outside what we stand for.
What the Purpose allows is to then define what interactions are meaningful with the external environment.

Purpose serves two main functions, from my point of view:

It defines who we are as opposed to the external environment, thus creating the physical bond that creates the “us” vs the external environment.
Makes the organisation “choose” what ecosystem(s) it want to be part of.

So far there is not a moral or ethical connotation to the concept of Purpose that I am suggesting. I have, however, introduced a view on this in the framework of the concept of the Intentional Organisation, but will discuss this separately.

Critical Element: Definition of Value

Exactly because Purpose is about defining boundaries between internal and external, and creating the bond between the organisation stakeholders and the fuel for its sustenance, the most critical element we should look for is the Definition of Value.

We are used to think about Value as something scientifically defined. When we buy something we are used to associate value to its price. But the concept of value is much more complex than this.

Understanding how performances are evaluated in an organisation, how work is rewarded, how suppliers are paid, how shareholders are remunerated, all these elements can hint to the definition of Value the organisation ultimately possess (and thus give some very important hints on its purpose).

There are a lot of examples around this, many companies started writing down their purpose statements, focusing on sustainability and other hot topics. But if their internal performance systems are all tuned solely on Shareholder’s Returns, then inconsistencies become visibile.

Visible Artefacts:

Performance Management Systems
Incentive Systems
Shareholders Remuneration policies
Corporate and Social Responsibility Reports

Also here there can be many visibile artefacts. I tend to insist on remuneration of the different production factors as these very often give real big hints on what an organisational true purpose is, independently from its declarations.

Expanding the concept

Purpose is the embodiment of an organization’s recognition that its relationships with its diverse stakeholders are interdependent.
Christopher A. Bartlett and Sumantra Ghoshal, Beyond Strategy to Purpose, (Bartlett and Ghoshal, 1994)

Purpose serves two main functions, from my point of view:

It defines who we are as opposed to the external environment, thus creating the physical bond that creates the “us” vs the external environment.
Makes the organisation “choose” what ecosystem(s) it want to be part of.

As you see, I’m recovering the inward and outward views of what I had pointed out before, and creating a working definition that works well with the schema seen in figure 2.

The above doesn’t yet assign any ethical or moral connotation to the term Purpose. On this aspect I tend to be very pragmatic. Although I share the view that many organisations should select a purpose with a strong link with their sense of the common good, the reality is that every organisation has a purpose, whether they have it written it or not. This is for me an important element to consider, because we confuse to often the concept of “Purpose” with the fact that an organisation should be “purposeful“.

I will make an example to be clear. A terrorist unit such as those from Al-Qaeda that is described in A Team’s Team, all have a purpose. And this purpose provides the members of the cell a strong bond (that’s what gets the members to join the organisation in first place), a strong fuel (which is what keeps a dormant cell “active”, and often happens in the form of communication flows of other actions), and a strong driving force which is, in this case, the true ideology of this organisation, and that is carefully crafted by the leader and adapted to the evolving circumstances. These elements together allow intelligence units to distinguish the different organisations, explaining further the concept of “pulling together”. Defining a bomb attack a meaningful interaction with the outside world might be difficult to accept. But from the view of the organisation it is meaningful, especially in clearly defining the components it wants to destroy, and those that it wants to preserve and strengthen.

This crude examples simply shows, once more, one of the characteristics of each of the organisation design components I have listed together. The fact that they do not have a “positive” or “negative” connotation of their own.

Being Intentional: the moral and ethical value of Purpose

Becoming a Purposeful organisation means attaching an moral connotation to what an organisation does. In the example I chose above, there is for sure an ideological connotation of the cell, but this is not sufficient. Purpose is the cornerstone to enable an organisation to start being a good organisation, doing good business, acting in the interest of society. As such, Purpose acts both as a Moral (providing direction to the organisation of what is good and bad) and Ethical (providing the ultimate goal for the members of the organisation, and alignment of values and culture to support its achievement) artefact.

Once more, we see a coexistence of inward and outward effects of Purpose.

Here lies the core of my idea of intentionality. All of the organizational elements we have seen, exist in some shape or form in an emergent state in any organisation. Every group that forms, even without statutes of an organisation, will most probably have most elements of a strategy, a business model, and so on. And the purpose will be the reason of why that group has formed.

The moment we choose a direction, an end-goal, something higher that we want to achieve as a business to deliver value not only for the investors of the organisation, this is when we need to intentionally craft a purpose. I’m not only referring to writing a sentence and hanging it onto a wall, but designing intentionally an “Ethical System” for the organisation, of which the Purpose is the cornerstone.

Fig.4: Purpose as both Moral and Ethical artifact.

The figure above represent the elements of this idea. An Intentional Purpose needs to build both a Moral Direction towards the organisation’s ecosystem (and its market in primis), as well as an Ethical Framework for the organisation, together with the Values, Principles that will help crafting its Culture. Thus, the Inward and Outward focus are both clear components of an organisational purpose.

If one of the two focus is missing, we will miss something. A purpose that is only outward focused is nothing more than a marketing gimmick. A Purpose that is only inward looking becomes nothing more than a source of camaraderie, without a clear impact on the direction of the organisation.

Becoming an Intentional Organisation means equipping your organisation of all the elements that are then needed to support the purpose you identify in an intentional way.

Way too often Purpose has been confused to a certain extend with Vision, Mission and Values. In my mind it is something that is much broader than this, and is directly and intimately linked to what keeps all of the stakeholders “attached” to an organisation: Employees, Shareholders (or other forms of investors, or donors in the case of not-for-profit), Customers, Suppliers… all relate to the organization because of its purpose. And only if we find a purpose that can encompass and balance this multiple “stakes” at play, our organization will be successful.
Daniel H. Pink, Drive – The surprising truth about what motivates us.

Exploring Different Purpose Models

Also with Purpose there are different models out there, essentially linked to how Purpose is defined, and what place it has within the organisational design tools. I’m listing here only a few examples of these approaches, to show how some of these lenses, despite being partial, do all contribute in supporting the role of Purpose as pivotal element in Organisation Design.

Purpose as Contribution of the Organization.

Fig.5: Purpose as part of the Core Culture. Source: Sheila Margolis.

This is the definition provided by Sheila Margolis of the Workplace Culture Institute, and “it should answer the question: “Why is the work you do important?”“

This model is easily associable with the “why” of Simon Sinek, which widely associates organisational and individual purpose and calls for an alignment between the two .

Which is why there is also such a strong link between purpose and the why we work, according to this model. An element often considered by many other authors, and that is also at the core of my definition of the new discourse of work.

Purpose-Driven Leadership

This is an approach developed by Leaders on Purpose, and organization that has developed and integrated approach with ESGs, and carries both a CEO summit every year, and a CEO study focused on Purpose (available the 2020 and 2017-2019 studies)

Fig.6: Purpose and System of Values. Source: Leaders on Purpose, 2017-2019 CEO Study.

Their definition is that Purpose is the ambition to create value by contributing to the welfare of society. It works by creating a strong linkage between corporate culture, strategy and measured impact in terms of needs illustrated by UN’s ESGs. Thus, it focuses on an outside-in perspective looking at impact and value created.

The idea that is expressed here clearly is also how leaders of an organisation need to enact a corporate purpose, in line with the elements identified as “value” and “contribution” the organisation defines as part of its Purpose Statement.

A Purpose Design Model

Fig.7: Purpose Model Design (FromHereOn 2018)

The following model has been developed by FromHereOn as part of their Business Design Methodology.

The model looks at integrating execution alignment and experience alignment, catering an effort to include both an inside-out and outside-in view of the process.

The model also equates Purpose as a process identifying a number of artifacts listed as Brand Promise, Goals and Strategies, Values and Behaviors, Drivers and Vision & Mission.

As you know, my view is that we should not spend too much time in the formalisation of endless documents, provided we cover the key elements needed in our intentional design efforts.

Yet I find this model appealing because, compared to other, it is simple and looks at the right elements to drive the discussion needed for the definition of a Purpose.

Plus, it also makes clear the linkage with other organisation elements such as Culture and Strategy, a paramount element for understating further the model.

The Purpose Discovery Model

Fig.8: Purpose Discovery Model. Source: Wharton BC

Ikigai has inspired many authors in respect to identifying a personal purpose. But it also connects very well with some of the elements of organisational purpose we have seen here. This model, developed by M. Griffin of Wharton Business Consulting (Griffin and Hirst, 2020), shows Purpose as a “sweet spot” between four questions:

What do we love?
What Impact do we want to have?
What drives our profit?
What are we best at?

and the definition of four elements: Passion, Meaning, Mission and Value.

The model seems useful in defining some of the requiring elements of a company purpose, even if it’s not fully clear how the outside in perspective plays in the definition process.

Summing Up

Purpose is probably one of the mos used terms in management consulting these days. Yet, the concept of what Purpose really is (or maybe, should be) is rarely debated, and often in superficial ways. This long article should have given, once more, a good direction in terms of complexity of this critical element as we design an Intentional Organisation.

Plus, it creates the bridge between the inside and outside of an organisation, thus needs to create a good balance, enabling the necessary value flows between inside and outside. Why is this important? Because purpose helps us defining what is valuable for our organisation, and as Value lies always in a relationship between parties, it enables this definition of value to exist.

The Organization Evolution Framework

This article is part of a series where I examine the different components of Organization Design, analyse models and theories and propose a specific approach of Intentional Design.