Business decisions can’t always be win-win. Being clear in your purpose can help guide you through tradeoffs.
Purpose has become a corporate buzzword over the past decade. Leaders are embracing the idea that companies can’t just do well financially; they also have to do good for society. But how many organizations are really walking the talk? Ranjay Gulati, professor at Harvard Business School, has studied how dozens of purpose-driven companies — from Etsy in the United States to Recruit in Japan — simultaneously pursue profits. He argues that while we all want a win-win, leaders must also sometimes learn to make thoughtful tradeoffs. Gulati is the author of the book Deep Purpose: The Heart and Soul of High-Performance Companies and the HBR article “The Messy but Essential Pursuit of Purpose.”
ALISON BEARD: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Alison Beard.
Purpose has become a corporate buzzword over the past decade. Leaders are embracing the idea that companies can’t just do well financially. They also have to do good for society, but how many organizations are really walking the talk? How many get beyond mission statements and publicity stunts to identify and pursue a purpose. The will lead to business success as well as benefiting a broader set of stakeholders. How many dig deep down into the messy work of making trade offs between those stakeholders? When there aren’t any win-win solutions? How many keep out it day after day, quarter after quarter, year after year.
Our guests today has studied companies around the world that do all of above. He acknowledges that it’s not easy, but he’s found common principles and themes in the way they operate that he thinks other companies can and should try to emulate.
Ranjay Gulati is a professor at Harvard Business School. He’s the author of the book, Deep Purpose: The Heart and Soul of High Performance and the HBR article, “The Messy But Essential Pursuit of Purpose Listeners.” He’s also one of my favorite collaborators and a friend Sanjay I’m so happy to have you on the show.
RANJAY GULATI: Allison, thank you so much.
ALISON BEARD: So why have you chosen to study purpose.
RANJAY GULATI: You know, five years ago? Alison, if you told me that I was going to write a book about purpose, I would have told you’re crazy. No way to me purpose was like wallpaper. Purpose was like purpose statement. My observation was no one took those seriously. It was just a checkbox task that people undertook once in a while. They dust it off, but never really did much with. And I had a series of epiphanies that came to me over time. One of them came from my AMP students, the advanced management program, where I was repeatedly being challenged by students saying, you’re talking about how to make companies successful through market strategies and other things, but you need to talk about purpose. And we think it’s very important today. And then it was a series of conversations.
I also had with Larry Fink, CEO of BlackRock and also two of his colleagues. And they gently but firmly interrogated me saying you teach business in a business school. What do you teach about purpose? And what do you teach about businesses in the world today? And I honestly was stumped.
ALISON BEARD: So how can a company define or outline their purpose in a way that doesn’t just feel like window dressing, that isn’t superficial.
RANJAY GULATI: You need to think about purposes much bigger than a statement. I think it’s how you live it. In fact, Satya Nadella whom I interviewed for the book.
ALISON BEARD: The CEO of Microsoft.
RANJAY GULATI: CEO of Microsoft told me, writing a purpose statement was the beginning and the easy part, what came next was much harder. And so how do you go from a purpose statement to actually living it? Now there’s several paths to a purpose statement. I want to clarify. What I found a set of themes across the companies I looked at. This ideal was typically ambitious, so it had a goal component to it. It had an idealistic cost, so it had a kind of a duty component to it. It knowledge that we are here to serve an array of stakeholders and it had this kind of vision of long term value. And it was these four elements that… and then bringing them alive. That really were the magical pieces of this story. I realized a lot of companies practiced what I thought where came to call superficial or convenient purpose.
ALISON BEARD: What are the flavors of convenient purpose that we commonly see?
RANJAY GULATI: Well, the first lowest level is what you might call disguise. Purpose as disguised. This is what you also call virtue cloaking. You had FENO, Purdue Pharmaceutical, Enron, and a whole range of other companies kind of latching on. This is purpose in disguise. The next level up from that was what I actually came to call purpose as periphery. So you do it as CSR. You’re doing some social outreach and you make it sound good. And you amplify that. That was purpose on the periphery because you’re not changing the core of your business, right? You’re working on the margins.
Then you come to the more complicated one, which was purpose as win-win. Now, this is a big advance, but it also was limiting because it meant that I will only do something good for society, if it’s good for me. And a lot of critics went after this because they said you are taking a low road. And so even this was to me, a very limiting idea. So these were the three levels of what I would call convenient purpose.
ALISON BEARD: Okay. And so the goal then is to move beyond all of that, to deep purpose. How do companies do that?
RANJAY GULATI: So I think Alison, as I said earlier, Satya Nadella the CEO of Microsoft side that, writing a purpose statement is easy, what you do after is harder. I think there are several barriers overcome first. The first is realizing that purpose is not a tax on business. Purpose is not charity. Purpose is not giving away things for free to stakeholders to get them off your back purpose is actually an animating force to enhance the productivity of your business that you can actually do good and do well at the same time. It’s a force to do that. And I think you have to realize that it’s a force multiplier because only then are you going willing to invest in it?
Part of my learning was how does purpose operate as a force multiplier? So there’s the what is purpose question? There’s the why it is important or some would say, how does it matter? And then there is the how question.
ALISON BEARD: I know that you studied both sort of large existing companies and startups is the process of getting to deep purpose different or the same for each type?
RANJAY GULATI: You know, startups and some ways are luckier that they are able to do this earlier from the formative stages, like in if you know, embedding DNA. And I looked at a number of them. I mean I think I found it fascinating to look at Gotham Green, which is an urban agro-farming company that is now grown, massively doing urban farming on rooftops and cities around the country. I looked at ABI Parker and how they have expanded their footprint.
I looked at a whole range of ventures, small to large, where the founder and the team had bought into the idea that we need to from the ground up, I have a purpose, which should animate our thinking. It gets harder as you get bigger, and there is a purpose decay over time, and you can see that with founders coming back. When Howard Schultz came back to Starbucks, he said, oh, Starbucks has lost its soul.
Phil Knight said something similar when he came back to Nike. So you see this kind of boomerang effect of founders returning, talking about this something spiritual that has been lost. And I think recovering it is challenging but possible.
Another company I looked at large company was Lego. And how Lego had to rediscover its essence in the process because many companies who are large, who think about purpose, typically when they’re facing kind of serious existential crises, but the process is different. One is embedding it from the get go. One is rediscovering, reminding, but there are some common themes as well across that. I mean, the idea is how do you make purpose part of your daily operating rhythm of all the things you do as a business.
ALISON BEARD: Yeah. And so how do you do that?
RANJAY GULATI: Well, let’s start from the beginning. First of all, how do you hire? How do you fire? How do you promote? What’s your culture like? So your people and culture piece needs to connect into your purpose. And one of the fascinating cases I got to write was a case on Pete Carroll, the coach of the Seattle Seahawks football team in Seattle, for those who are international. And Pete Carroll talks about how he worked the purpose and culture to create a high performing organization, that how do you get people to show up differently to work? We all know that people, when they experience a sense of pride are much more energized by the place they work. And this is even more important today. So the first piece was getting the people and culture side, right?
Once you get that piece locked in, then you start to think about the structure and processes in an organization. So you start to think about how do I empower? How do I think about collaboration in the organization? And once you create this culture of trust and responsibility, which were the two common themes I saw in these organizations, it changes the way you get to organize your business and how you think about structure and process in the organization. It also gets you to think about metrics. How are we going to measure ourselves? But I have to say it all starts with belief.
ALISON BEARD: But of course we do live in the real world. So you’re not always is going to be in situations where every decision you make ticks all of those boxes. There are now a ton of win wins in the world or equal win wins. So when companies haven’t thought deeply about their purpose, what tends to happen in those cases?
RANJAY GULATI: I think when you don’t have a clear understanding of your purpose, what you typically start to see is unfocused strategies. First of all, strategies are opportunistic. You see lack of focus over there, right? You see an organization where you live up to what economists have described organizations as a nexus of contracts. People show up to work as a job, and you end up defaulting towards shareholder maximization as kind of the only metric you understand.
And so you create this kind of self-fulfilling loop where that’s the organization you’re in. We create kind of inert, alienated work environments, where people come to work as a job. And everyone is focused on looking at only one key metric and it plays into what cynics like to say. That’s the only way.
ALISON BEARD: It’s like people have a purpose in mind, but when the going gets tough they default to… All right. But we do have to get this business going and secure our profits and make sure we have a robust P and L and please our shareholders.
RANJAY GULATI: True. But the other extreme also is kind of problematic, right? Where you say, I’m only here, purpose is anything but profit. And one of the cases I wrote was on Etsy, where for a period of time, Etsy had this idea that where a social impact company, they were a big corporation, but they made no money. And then they went public also and then they still said, we’re not going to make any money and finally, there was a little bit of a shareholder revolt. And there were some people hovering to take them private again. And then they woke up and they got a new CEO. And when he said, look, we got to make money while doing social impact. They were like, oh my God, the dark side of capitalism. And I think it’s a great story because as what they did in the process was find a way to do both. The term I like to use for these leaders is practical idealists.
They’re not mindless. They’re not kind of idealists in the sense of like, we have to do good for society and shareholders. All of you sit on the sidelines. And, but they’re not also saying I’m going to hit win-win. Everything I do is going to make everybody happy. They understand the art of tradeoffs; that you have to make calculated choices. So let me go back to Gotham Green. So here’s a company that is deeply committed to environment sustainability. They’re doing sustainable farming. You know, they have reduced their water footprint, usage of water, all that stuff, but they had a huge issue. Packaging and customers don’t want to buy lettuces and herbs that are not in a packet. They tried every recyclable packaging they could. And ultimately they came to the painful realization that pet plastic was the only way to have packaging that keeps produce fresh longer and spoilage was a huge issue.
And so how do you say, okay, I’m going to do that, but I’m going to keep an eye looking for other possibilities in the future. So holding ourselves to realistic standards, but also being idealistic and understanding this. And I think win-win is a very powerful phrase. I think all of us should aspire to, but I think it leads us into a boxes into a corner where say, I’m only going to do things there. Some things are going to have social impact, not economic, and some are going to have economic impact and not social. And how do we manage that or stay in that place of contradiction is a challenge for leaders today.
ALISON BEARD: So just walk me through, you know, I’m trying to lead a purpose-driven company. I don’t even have to be the CEO. I’m maybe leading a project at a purpose-driven company and I’m faced with this really tricky dilemma in that I can’t satisfy both goals. So how do I think about what is important and what I should prioritize in that moment?
RANJAY GULATI: So let’s take a stylized example here. So let’s say there’s two forms of impact, social impact and economic impact. And I’m trying to decide, and I’m finding a situation where I’m hitting one and not the other. And so let’s look at say, I’m hitting social impact, but not commercial impact.
And this is a real example of that is, the CEO of Walmart came to HBS almost a decade ago, the former CEO. And he said that after hurricane Katrina, he was convinced that global warming was real and we needed to do something about it. And he was going to… He mandated that they were going to have solar panels on the rooftops of Walmart stores. And this was going to be real and there was commercially not viable, but he made the commitment to doing it and said, you know what, we’re Walmart we’ll find a way in the future to make it viable, but we got to do it now. We’re not going to wait till it’s win-win. And he did it. And guess what they did a few years later, they found a way to make it commercially viable, but he wasn’t going to wait.
ALISON BEARD: That’s easy when you’re the CEO of Walmart, with piles of money at your disposal.
RANJAY GULATI: That’s true. So now the question is, how can we… Do we have the wherewithal? Does my organization allow this kind of possibility? Now you have the other side too, Allison, that where you have economic impact, but no social impact. Now that may look like a slam dunk decision, but there are so many examples of companies, one is called Recruit, a Japanese company where they say economic impact is not enough for us as a threshold to invest in a new idea. We have to understand how it fits into our purpose and their purpose has woven into it, commercial and social objectives. And so you can start to say, okay, the economic imperative is there. How is it going to align with our purpose? How is it going to also, can we find a way, so maybe we don’t have anything today.
I’m not saying you shy away from that, take it on and then say, okay, I want to keep looking. This is the Gotham Green example. We are going to do something that is economically beneficial for us, pet plastic, but you know what? We commit that we’re going to keep looking for a way to make this much more socially acceptable in terms of just environmental impact.
So I think it’s the ability to live in the off diagonal space, where you get one and not the other, and how much of one. And this is very painful for companies that have legacy businesses that may not be that great. And they’re trying to get out of them. And so how much runway do we give them to get out of them? And I think we all need to recognize that business is messy, but leaders need to articulate a purpose. Now, how does purpose play into this? I think purpose gives you a framework. It gives you a lens to understand these trade offs and choices.
ALISON BEARD: Yeah. And the goal, if you’re finding that you’re either pursuing sort of profits before purpose strategy or a purpose before profit is strategy. Eventually you’re trying to move into that profits with purpose, but you make that decision in the short term, and then you constantly work on it. You invest in pushing into that win-win category at some point in the future, but that takes investment. You can’t just rest on your laurels.
RANJAY GULATI: So in that question, there’s a bit of a logical, let me take it apart. People always ask this question performance with purpose slash profit, with purpose. The moment we ask is it performance or profit or purpose? We are implying that purpose is anything but profit. Even logically the moment we separate the two out, and I’m saying purpose is bigger than profit, purpose enables profit.
In fact, one of people I interviewed is Thomas Thune Andersen, the chairman of Orsted which is this company that’s completely turned green in about a decade or so. And he said, I asked him about this performance purpose question. And he said, I pity those who think of purpose coming at the expense of performance. Pretty harsh words.
ALISON BEARD: But very alliterative.
RANJAY GULATI: Yeah.
ALISON BEARD: I think though, what we’re talking about the fact is that’s all obviously the goal, having purpose drive performance, but in the short term, it’s not always going to do that for you. So that’s why you have to make these tradeoffs.
RANJAY GULATI: Yeah. That’s a great point. Now I must say, Alison, one thing that I’ve found is that there is a holy grail right now of people on the hunt to empirically demonstrate that purpose and performance are correlated at least. People are trying to measure purpose and index it and say, oh, let me show you how it’s correlated or not. How do you measure it?
I thought maybe what I’ll do is since I’m inside these companies and I did interview almost 250 people, I said, let me try to understand the pathways by which, let somebody else try to look at correlations. I want to understand the pathways by which purpose can activate or energize performance.
So I went down the pathways and there are four very discreet pathways by which purpose enables performance. The first one is what I call directional. Having a purpose clarifies direction for you. We all teach strategies saying focus, focus, focus while purpose creates an anchor. It also gives you a lens to think more narrowly, but also more broadly. And it’s that being able to understand your direction, just like human beings. The other part of it is motivational, that how does purpose motivate people or inspire them, make them feel inspired about what they’re doing. And in this context, I found a number of organizations that were getting the employees to talk about their personal purpose, because you know, purpose is a layered construct. There is life purpose. There is career purpose and there’s job purpose. And the feeling among some of these organizations was that until you can get people to think about their own life purpose, you can’t get them to engage with some company’s purpose.
In fact, the CHRO of Microsoft, Kathleen Hogan said to me, that one thing she says often is you don’t really work for Microsoft until Microsoft works for you. So there’s this motivational piece. How do I get people inspired to show up at work? The good old NASA I’m here, Mr. President and I’m here to put a man on the moon.
ALISON BEARD: Right by the Janitor.
RANJAY GULATI: Yes, exactly. The third one is reputational and there’s plenty of work in marketing right now. There’s a booming area on purpose branding that customers actually care about companies seem to have a purpose. It makes them trust the companies more, whether they makes them think they’re more virtuous, it signals that they care about us. So there’s this purpose around, you know, reputational.
And there’s a fourth one, which is purpose is relational. It changes the way companies interact other stakeholders in their community, the suppliers, the ecosystem of partners in their community, nonprofits. In fact, one of the leaders I interviewed said, when you have purpose, it allows you to make demands of your stakeholders rather than reacting to their demands of you. So I think of four benefits. Logically I found and I looked at them empirically, I found this was true, directional, motivational, reputational, and relational.
ALISON BEARD: Yeah. It seems like communication is hugely important in bringing employees on board, making sure that they feel connected to the corporate purpose and it has some relevance to their own personal purpose. What about in these situations where the company, the higher ups do have to make decisions that might hurt employees that might not be best for communities. How do leaders communicate, why they’re doing what they’re doing?
RANJAY GULATI: That’s a great question. And I’ll just give you an example over here of one of my former AMP students, Niren Chaudhary, who is the CEO of Panera and in the middle of COVID, when sales basically collapsed to zero in a matter of like a week, you have to… painful decisions around how am I going to lay off people? I mean, we can’t afford it. And so we either we go bankrupt or we have to do that. So how do you do that? So one is communicating it with compassion and empathy, but what did they do? They recognized that there were other employers, i.e CVS and Walgreen, CBS, and others who were looking to hire. They were short of people. So they called them and said, listen, where about layoff people who are very good, would you be open to giving them a direct chance to apply to you for a job?
How can we help you? How can we offer food? So at Panera, what they did was saying, we are going offer food to all of you. So you can come in with your family once or twice a week. I forget the exact frequency and eat at a Panera for free. So how are we going to soften that? So one is explaining it clearly with compassion. The other one is that, how do we make it so that ultimately, we are all human beings trying to do the best we can in a constrained environment. So I think there’s a humanity to this, which I think is very important. Even Pete Carroll, the coach of the Seattle Seahawks, I mean, he has to trade players and he’s got them thinking I’m in and I’m committed to you and you to me. But unfortunately, if you’re not performing, I’m going to have to let you go. So these are very hard. And I think in purpose organizations, it has felt even more because you’ve committed yourself so deeply to the organization, you’re expecting only good things back.
ALISON BEARD: What about investors? How do investors feel about all this?
RANJAY GULATI: That I think is a very interesting question. And I think is investors, if you look at investors, I think the one view is investors only cared about one thing, and that is returns. At some level that’s true. You can’t say I’m doing purpose, so I’m not delivering returns. I think the message to investors. So if you look at Larry Fink’s letters, his first letter was really saying, I want to see some long term vision of you. Don’t just tell me your short term performance, show me your long term vision. So a long term value is a part of what… You see many investors have a longtime horizons, so they want to understand.
So purpose can be a proxy focal talking about your long term vision while delivering short-term results. It’s also recognizing that in who’s looking long term also understands that business today is a different place and you have to deliver social impact as well as commercial economic returns. They understand that, but the idea that I’m doing once, so I’m going to shortchange you invest. I think it’s the answer is and not or. And if you think of purpose as a generative force, one that elevates your game allows you to be more strategic, allows you to have a more powerful brand, allows you to have a talent magnet, be connected to your communities, purpose and performance go hand in hand.
ALISON BEARD: What about communicating those decisions though, where you will take a hit in the short term for investing in something that will have greater social impact like Walmart solar panels. If you’re not Walmart, if you’re a company that that is really working hard to attract strong, longterm shareholders who believe in you, but also really want to see returns. How do you communicate that trade off that you’re making?
RANJAY GULATI: I will use one word and that is courage. Those are not easy conversations. But I’m looking at leaders who are making those trade offs. I’ll give you one is Corey Baring at Best Buy and a few others. I mean, they are willing to look in their face of investors and say, we are doing this because it’s the right thing to do. And if you look at the recycling program at Best Buy, they’re making money doing that right. But they feel it’s the right thing to do.
ALISON BEARD: They’re recycling old equipment that people bring in?
RANJAY GULATI: Old equipment. And they charge customers for it too. They’re doing it because they think it’s the right thing to do. Now how do you communicate to investors and say look, let me help you understand why this is beneficial for us short term and definitely long term. And this is part of a portfolio of things that we are businesses are expected to do. And I think it is an act of courage. I think something that leaders need to do more of.
ALISON BEARD: I think that a great note to end on, we all need a little bit more courage. Ranjay, thank you so much for being on the show.
RANJAY GULATI: Thank you Alison, as always it’s a please to talk to you.
ALISON BEARD: That’s Ranjay Gulati, professor at Harvard Business School. He’s the author of the book, Deep Purpose: The Heart and Soul of High Performance and the HBR article, “The Messy But Essential Pursuit of Purpose Listeners.” We want to hear from you this spring will be airing a special series with Marcus Buckingham on how to find joy in your work, head to hbr.org/love and work. To answer some questions about your own job. And you might just be featured in the show.
This episode was produced by Mary Dooe. We get technical help from Rob Eckhardt. Ian Fox is our audio product manager. Thanks for listening to the HBR IdeaCast. I’m Alison Beard.
Business decisions can’t always be win-win. Being clear in your purpose can help guide you through tradeoffs.