This article is for the right brained, finance driven, those who want to understand the economics of Purpose-driven or are looking to convince others of Purpose’s benefits. It’s also for those that want to learn how to mitigate risk, decrease moral hazard, improve employee productivity and contain costs.
For 20-years, as an owner operator, consultant and Fortune 500 Manager, I’ve experienced the benefits of being purpose-driven first hand. They include:
1) The ability to drive sustainable top line sales growth, both 1x new sales and year over year same customer increases.
2) Dramatic bottom line increases driven by sustainable (year-over-year) cost containment.
3) Reduced labor costs.
4) Higher long-term return on investment.
As purpose-driven has become the rage, anecdotal stories raged. But, we’ve fundamentally been lacking a rigorous, systematic view of the underlying economics, the science behind Purpose-driven, if you will. What I observed, which has now been fundamentally proven out by Finance and Economics, (see below for highly rigorous economic study), are the following economic truths.
1) Purpose driven creates sustainable value at a rate higher than traditional enterprises achieve. This occurs because both because of the time horizon purpose-driven investors are willing to follow and dollar values they’re willing to allocate. Fundamentally, purpose-driven investors see value in the journey unto itself. When you see a journey having value, you invest more and over longer time horizons, because there is value, you’re seeing aside from traditional economic metrics that cause you to invest more. When harnessed properly, those investments create sustainable value at a rate higher than traditional enterprise achieve.
2) Purpose-driven investors may invest when others wouldn’t creating real value (real options if you will) for themselves and others. What? A purpose-driven investor sees value even when economic value may not appear to others. They’ll seed technologies and ideas for the benefit of the idea, technology or the benefit the world will receive. That investment creates value: information, a product, a technology that they or others can harvest. In simple terms, what if no purpose-driven investor had seeded the technology to get men to the moon? How much value/industries was created as a result of it? What would have happened if the initial investor had harvested the value of the investment? How about the Internet? A purpose-driven investment can fundamentally create real value for the initial investor and others.
3) Purpose-driven investors innovate faster, respond to challenges faster and contain costs better. Typically, purpose-driven investors pursue more holistic thinking and with their activities with great passion. The journey matters. So, losing it is a problem. This can, in very practical terms, create substantial economic value. In my own experiences, we literally dropped the price of our COGS year-over-year as a result of being purpose-driven. Why? We challenged more assumptions, saw sustainability and design as a lever for change and used holistic thinking to drive change we wouldn’t have otherwise. The result? Costs were contained. Why? We believed in what we were doing and if we didn’t do that, we’d lose the opportunity to do it. Is it a new phenomenon that a concept can fundamentally challenge our economic paradigm and create value and contain costs? No. In many ways Purpose-driven mimics the quality movement. It was a paradigm shift to consider that paying more up-front for quality could create significantly decreased costs. There was huge resistance to the idea. We all know that to be true today. Purpose-driven is the same.
4) Labor costs are lower when you’re purpose-driven. The fundamental economic paradigm, that we as humans exclusively pursue that which maximizes economic value is wrong. You see if every day. Other things, meaning, safety, self esteem all have value. Fundamentally, this is what creates lower labor costs when your purpose-driven. People work for less because they obtain other value, including the experience of the journey, from being purpose-driven. Now, go a step further, when your labor costs are lower, your investment hurdles are lower. When you’re investment hurdles are lower you can invest more over longer horizons and still see great outcomes.
So what, now what? If you want to learn more in more rigorous, economic driven terms, read The Economics of Higher Purpose. It lays out in a systematic, objective and rigorous way, the economics of Higher Purpose. If you’re interested in the tools and techniques to drive economic value through a purpose-driven approach, stay tuned. I’ll be expanding on the philosophies, tools and frameworks shared in this keynote address, that I’ve used over the last 20-years, in my next article.
The voice and stories from this blog originate from the collective wisdom and experiences not just of our team, but with those we were fortunate to learn from.