Q&A with Harvard Business School Professor Ranjay Gulati

Why goal-oriented businesses are now more important than ever.

In this episode of the Harvard Business School Healthcare Alumni Association (HBSHAA) Q&A series, Michael Wong talks with Harvard Business School Professor Ranjay Gulati about the role of purpose in conducting business and on the importance of having initiatives to ensure that the objective is integrated into the company.

Wang: According to a recent dialogue captured on the Law School’s Governance Council, with a “…growing view that companies should consider environmental, social and governance (ESG) issues in the management of their businesses, and resistance from those who believe companies should be run solely to maximize share price, (it) has intensified attention to the more fundamental question of corporate governance: what is the purpose of the company? »1 From the pandemic to the recent Ukraine crisis, what roles, if any, should companies and their employees play in tackling today’s global issues?

Gulati: It has never been more important for a company to have a clear and understood objective. As I recently wrote in my new book,2 having a purpose is not a mission statement or corporate social responsibility (CSR); Yet many companies still treat it as if it does.

Consider Purdue Pharma, which many see as the main culprit in the devastating opioid crisis given its irresponsible marketing of highly addictive painkillers such as OxyContin. Although Purdue Pharma said its goal was “…compassion for patients, scientific excellence, and inspired by their search for new medicines,” the company’s actions clearly led to a washing goal. Such actions have given the goal a bad name and led some to believe that it is just a reputation-building exercise.

But others disagree. As Larry Fink, CEO of Blackrock, recently stated, “…no company can realize its full potential without implementing a sense of purpose in the organization.” Once you’ve bought into your goal, the question is, what is your real goal?

Once you are forced to think long term, you realize it encompasses a range of stakeholders. Thus, there is a growing movement among companies and their employees who have decided that the purpose of business is not just to make profits but rather to reach out to a wider set of stakeholders. And when you serve stakeholders, profits will follow.

Wang: Since the Fortune’s Most Admired Companies reports began, technology and pharmaceuticals have topped the overall ranking, where all nine selection criteria include social responsibility.3 Based on your research, teaching, and guidance, what are some common best practices shared by these and other leading organizations when it comes to creating a group of highly engaged and motivated employees?

Gulati: Whether purpose and profit can go hand in hand remains an empirical puzzle that many researchers are trying to solve. But based on my extensive research, I can confidently say there seems to be a connection, especially for companies that deliberately go deep. To unpack this connection, allow me to share a four-pronged framework that shows precisely how a company’s pursuit of a deep purpose can deliver sustained superior business performance.4

Directional—First, purpose guides the growth of a business. One company I studied, Bühler, proactively sought to reduce waste, energy, and water consumption in its customers’ factories, which sparked deeper partnerships and focused efforts to innovation. The company’s reinvented purpose, formalized in 2010 under the slogan “Innovations for a Better World”, was able to build on a long history of harnessing technological advances for innovation.5

Focusing on this mantra daily, by 2020 the company announced a five-year strategy that included the goal of reducing energy, waste and water in Bühler’s customer value chains by 50%. by 2025. The company has directed its R&D and open innovation partnerships towards these goals. Additionally, he emphasized his three-tiered approach to balancing economy, humanity and nature and his marketing. And its sales teams highlighted the win-win of environmental sustainability and cost savings for its customers.

The results were that Bühler reduced the environmental footprint of its own sites, achieving a 30% reduction in CO2 emissions, 24% in water and 35% in waste compared to 2015. Equally important , doing good did not jeopardize the economic sustainability of the company as “order intake increased by 12.2%” in 2021.6

Relational and Reputational—Second, owning and communicating a long-term goal builds trust with customers and partners, and third, builds corporate reputation. Since becoming CEO of Best Buy in 2019, Corie Barry has linked the company’s business goal of “enriching lives through technology” to the company’s social goals of ” continue to drive initiatives/progress that reflect the company Best Buy wants to see in 20 years.” years.” By creating teams empowered to produce innovative ideas (such as new models of recycling engagement with consumers), the company was able to achieve its social goals while meeting its revenue goals. Under Barry’s tenure, revenue grew 10.3% ($42.8 billion in 2019 to $47.2 billion in 2021).7

Motivational—Finally, as Kevin Johnson of Starbucks told me, building a company culture based on a clear purpose supported by daily actions, especially during tough times, can increase employee motivation and engagement. employees. Specifically, Starbucks has established an emotional connection between its internal and external employees with its customers. Starbucks was founded on the belief that its purpose was more than just profits. Whether it’s providing medical coverage or college education support, or more recently, paying salaries during the pandemic, the company’s actions have taken place during good times and bad, clearly separating from other businesses that often have a practical purpose, one that is only supported if the effort is easy.

While this playbook framework has the potential to guide C-suites, I will share my observations that for many goal-driven businesses, when the going gets tough, they unfortunately revert to a profit-driven strategy.[8] At the other end of the spectrum, some companies stay true to their purpose, even if it comes at the expense of short-term growth and profitability. In conclusion, think creatively about how to deliver the most value to all stakeholders in your C suite.

Ranjay Gulati is a professor at Harvard Business School and author of “Deep Purpose: The Heart and Soul of High-Performance Companies.” He holds a Ph.D. from Harvard University, an MBA from MIT’s Sloan School of Management, and two bachelor’s degrees, in computer science and economics, from Washington State University and St. Stephen’s, respectively. Delhi College.

Michael Wang is a board member emeritus of the Harvard Business School Healthcare Alumni Association.

References

  1. Lipton, Martin, Savitt, William and Cain, Karessa L., “On the Purpose of the Corporation” Harvard Law School Forum on Corporate Governance, May 27, 2020
  2. Gulati, Ranjay, Deep Purpose: the heart and soul of successful companies, HarperCollins Editors, February 8, 2022
  3. According to the 2022 report, Apple got the top most admired company for 15 consecutive years, a record. Early No. 1 ranking streaks included those of Merck (seven years) and IBM (four years). https://fortune.com/worlds-most-admired-companies/
  4. https://www.charterworks.com/deep-purpose-ranjay-gulati/
  5. Gulati, Ranjay, Wohlgezogen, Franz, Sen, Malini, Bühler: Mobilizing industry around a common goalHarvard Business School, February 1, 2021
  6. Bühler, Annual Report 2021, https://www.buhlergroup.com/content/buhlergroup/global/annual_report/annual_report_2021/group/business-review.html
  7. Best Buy 2021 Annual Report, https://s2.q4cdn.com/785564492/files/doc_financials/2021/ar/Best-Buy_Annual-Report_FY21.pdf
  8. Gulati, Ranjay, “The Messy But Essential Pursuit of Purpose”, Harvard Business School Press, March-April 2022

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