The Economics of Higher Purpose Read online

  By understanding the economics of higher purpose and internalizing the principles in part 2, you can become a person who creates a purpose-driven organization.

  CHAPTER ONE

  Seeing What Cannot Be Seen

  Economics is a rigorous field that is concerned with the study of economic exchange and the resulting economic output. It studies the markets in which economic exchange occurs. It studies the entrepreneurs and organizations that produce the output involved in these economic exchanges, as well as the employees who work in the organizations. And it seeks to understand the behavior of the households that consume the economic output. Economics pays little, if any, attention to how the very purpose of organizations—their reason to exist—guides their decisions. Often, this purpose is stated in the language of economic output—banks exist to safeguard depositors’ money and lend to borrowers, automobile companies exist to make and sell cars, and so forth. That is, purpose is stated in the context of business purpose.

  In this book, we look beyond business purpose to higher purpose. Higher purpose is a prosocial goal that is defined not in terms of economic output but in terms of the contribution the organization makes to society. So when Starbucks states its reason for being as providing its customers “a third place between work and home,” it is articulating a higher purpose that transcends its business goals but yet intersects with them.

  Higher purpose can be pursued by all organizations, big and small, and at every level within the organization. But the pursuit of higher purpose is not the norm. Rather, it is an exception to the norm, so you will not find it when you look at the average organization. Micah Solomon gives the following example, quoting Jay Cold-ren in this story about The Inn at Little Washington in Washington, Virginia. This is something Coldren observed on his first day on the job at the hotel:

  I watched a couple arrive at The Inn from Pittsburgh, several hours away, to celebrate their anniversary with a three-night stay. As the staff unloaded the luggage, our female guest said to her husband, “Don’t forget my hanging bag.” Her husband looked into the trunk and came up with a horrified expression on his face. Apparently, she had left her bag beside the car in their garage assuming he would pack it, but he never saw it.

  At this point, she pretty much fell apart: This poor woman was checking into one of the most expensive places on the planet with nothing but the clothes on her back! As the doormen and I tried to figure out what to do to make this couple happy, one of the staff who had been there a lot longer than me drove up to the front of the inn in the company car. I looked at him oddly and he just smiled and said, “Get me their keys and the address; I’ll be back before dinner.”

  I was floored. No one asked him to do this, and there wasn’t a moment’s hesitation on his part. He was so much a part of the service culture that he just knew the exact right thing to do. He was halfway to Pittsburgh before the lady actually believed that we were really going to get her luggage at her house. He drove eight hours straight and made it back before their dinner reservations at nine.1

  This is an example of a purpose-driven employee. Instead of minimizing effort like a typical “agent,” he took ownership. The fact that people like him exist is important. When we’re coaching executives on how to do purpose work in their organizations, we often tell them to do something paradoxical—look not for typical behavior as reflected in large-sample averages, but look for exceptions. These are the outliers. Look for excellence via positive deviance, examine the purpose that drives the excellence, and then imagine your entire workforce imbued with that purpose. But purpose work is not meant to be charity. Rather, it is about behavior that is woven into the fabric of your business model.

  This book is all about the unique intersection between business practice and higher purpose.

  Economics teaches us that people tend to be self-interested and effort averse. Managers often say, “My people do not work as hard as I do unless they are paid enough, and even then I have to watch over them.”

  This work-resistant logic drives managers to create systems of control. Employees recognize that the control systems are in place, and they often respond by devising ways to circumvent the control and blunt its effectiveness. This behavior reconfirms the initial assumptions of the manager and demonstrates a need for more control. Over time the employees become less engaged, and the manager becomes more frustrated.

  The surprising truth is that when managers accept the empirically sound assumptions of economics and related disciplines that employees are effort averse and work hard only if sufficiently monitored and compensated, these gloomy assumptions become self-fulfilling prophecies, and the workforce tends to underperform. Energy is dissipated, output is sacrificed, and there is no logical way out of the energy-draining vicious cycle.

  But there is an alternative view of organizational behavior, a view in which the organization gains an authentic, prosocial, higher purpose that transcends the usual business goals and affects decisions big and small. When this view takes hold, the collective interest becomes the self-interest and employees become less work resistant. It happens because a paradoxical shift is created. When employees make the shift, they begin to see things that cannot normally be seen.

  From Transaction to Contribution

  Managers often make well-justified, negative assumptions about employees and then design systems that end up bringing forth the assumed negative behaviors. They must transform the vicious cycle into a virtuous, self-reinforcing cycle. To do this, they have to shift the transaction-oriented mind that is focused on constraints to the purpose-motivated mind that is focused on the service of possibility. They enter the realm of imagination and emotion, and there they clarify a passionate, higher purpose that orbits around contribution.

  When managers become purpose driven, they begin to transform into leaders. They begin to transcend conventional thinking, and they begin to comprehend the economics of higher purpose. They come to understand that when an authentic higher purpose permeates business strategy and decision making, the personal good and the collective good become one, and the vicious cycle is broken. Both employers and employees begin to engage more fully. They collaborate and exceed expectations. Long-term economic benefits are produced.

  This works, however, only if employees believe that the higher purpose is authentic. If higher purpose is pursued solely for economic gain, it will be viewed as a tool of manipulation, and employees will recognize it immediately. They will see it as one more attempt to control, and it may fail to produce long-term economic gains. Unless the higher purpose becomes the arbiter of every strategy and leadership decision, the organization has no higher purpose. Herein lies the paradox: an authentic organizational higher purpose will change the fundamental implicit contract between employers and employees and change behavior, thereby producing long-term economic gain, but only if it is not pursued with the intent of producing economic gain.

  Why Is the Pursuit of Higher Purpose Not More Common?

  At this stage, we often find that people have questions like these: This sounds good, but if it is such a great idea, why isn’t everyone doing it?

  This question is natural, and chapter 6 is devoted to answering it. But for now we note that managers often reject the option to pursue higher purpose based in part on their level in the organization—many feel they are not high enough in the organization to implement organizational change. Think of the CEO’s choice. Some of the reasons why CEOs do not pursue higher purpose are these:

  Lack of belief and personal doubt. Many leaders think of their workforce as being self-interested and motivated only by additional wealth, organizational prestige, and promotions. Thus, they view the pursuit of higher purpose as not being in their best business interest, and they think that a serious embrace of higher purpose will cost the organization in terms of business outcomes.

  The tyranny of the here and now. How do I pursue higher purpose when I barely have time for the next crisis? Time is preci
ous and scarce. Many CEOs feel that they do not have the luxury of time to pursue higher purpose.

  What will my financiers think? Pursuit of higher purpose may sometimes be difficult for shareholders and creditors to distinguish from the pursuit of pet projects that provide personal benefits to the CEO at the expense of shareholder wealth. This misgiving may make them suspicious of the CEO embracing higher purpose and devoting organizational resources to it.

  Cultural disconnect. How do I promote collaboration around the pursuit of higher purpose in an organization that does not value it? How can higher purpose have positive impact in an organization with a control- and competition-focused culture?

  How to Do It: The Path to Organizational Higher Purpose

  These barriers notwithstanding, we provide a practical eight-step process to help you discover your organization’s higher purpose and successfully imbue the organization with it:

  Step 1: Envision the Purpose-Driven Organization

  A major impediment to the adoption of organizational higher purpose is that the organization’s leaders do not really believe in it, as we discussed in the preface. Because they view their employees as being rational, self-interested economic agents, they believe that the employees cannot become a purpose-driven workforce. Nonetheless, they perceive pressure to come up with a statement of purpose. So they create a task force or hire public relations (PR) consultants to help them. They come up with a statement that is presented to the organization and the outside world, but the statement does not change the organization’s decisions or its people. So the first step in the process is that you change your mind-set to envision a purpose-driven workforce. If you don’t believe it, you will never see its value.

  Step 2: Discover the Purpose

  Once you have altered your mind-set and accepted the notion of a purpose-driven workforce, the next step is to articulate a higher purpose. A striking fact that we discovered in our research is that a purpose is not invented. It is discovered. It is already there, latent and invisible to most, but it is there nonetheless. It is currently embedded in both the feelings and the thoughts of the people. The leader’s job is to help the organization discover it. While discovering it may take some time, the correct perspective is to view this step not as a wasteful expenditure of time but as an important investment in the future of the organization.

  Step 3: Meet the Need for Authenticity

  The higher purpose that you discover must meet a crucial test—it must be authentic. Perhaps the most important finding of our research is the importance of authenticity of organizational purpose. If purpose is a PR gimmick, a slogan put up on the walls, employees see through it. They become cynical. If the higher purpose is not authentic, it may do more harm than good. We will show you how to avoid this and create an authentic purpose message in which the people believe and invest. Authenticity also ensures that higher purpose will change the culture of the organization from one of intrafirm competition and conflict to one of shared beliefs, renewed commitment to the purpose, and cooperation. This change in culture will reduce self-interested behavior within the organization. So down the road it will actually free up time and enable greater focus on exceeding the customer’s expectations and less on resolving organizational conflicts.

  Step 4: Turn the Higher Purpose into a Constant Arbiter

  Having discovered and articulated an authentic higher purpose, you must turn your attention to communicating it. When we are helping organizations implement a higher purpose, we are sometimes asked, “When will we be done?” What we have found is that the organization is never done. Higher purpose is a journey, not a destination. So it is really important for leaders to constantly and clearly communicate the higher purpose and to reinforce it by letting the organization know how its higher purpose has affected its business decisions. We show you how to turn purpose into a constant message, the arbiter of every decision, the driver of hard choices, and a differentiator for the organization. Such clear and constant communication can also serve as the basis for communicating purpose to the firm’s financiers.

  Step 5: Stimulate Learning

  After you communicate higher purpose, you must follow up by stimulating employee learning that will facilitate the task of operationalizing the purpose within the organization. This step enables employees to use their creativity and smarts to come up with new ways to productively link their day-to-day decisions with the higher purpose of the organization. While we recognize the importance of the conventional focus on motivation by extrinsic rewards, we show you how higher purpose, by stimulating learning, also generates intrinsic, nonpecuniary rewards for employees. These can significantly enhance the power of extrinsic rewards.

  Step 6: Turn Midlevel Managers into Purpose-Driven Leaders

  Once you have discovered a higher purpose and articulated it, you must enlist midlevel managers to become purpose-driven leaders. Purpose cannot remain the responsibility of only those at the top—the task of leading must be spread throughout the ranks. While conventional management thinking views midlevel managers as responding to authority, we show you how to turn your midlevel managers into people who inspire through purpose, authenticity, and vulnerability.

  Step 7: Connect the People to the Purpose

  After you enlist the help of midlevel managers as purpose-driven leaders, you must seek to broaden the base of those who connect with the purpose. A key step in this process is to make sure the organizational higher purpose becomes personal for its employees. This means that you connect employees emotionally to the higher purpose so they become invested in it. While the role of positive emotion is not emphasized in conventional management thinking, we show you how to emotionally connect all the people to the purpose. The purpose must capture not only people’s minds but also their hearts.

  Step 8: Unleash the Positive Energizers

  In every organization there are “positive energizers,” those who exude positive energy that is infectious. These people are not risk averse. They are not effort averse. Everybody knows who they are. Leaders can tap this valuable off-balance-sheet resource and use these employees to be ambassadors for imbuing the organization with higher purpose. While it is commonly assumed that change is a top-down process, we show you how to unleash the positive energizers and initiate change at every level.

  The eight steps suggest a progressive logic of actions that follow a sequence: envision a purpose-driven organization, discover the purpose, monitor for authenticity and constancy, stimulate collective learning, transform midlevel managers, connect to the workforce, and unleash the positive energizers. They can thus be used as a checklist. Yet you may begin to notice that the process is not as linear as you might wish. The process is full of recursive loops. It is about constantly acting, reflecting, learning, adapting, and acting again. To create a purpose-driven organization, you must reflect what you seek to create—you must be a purpose-driven person, willing to suffer learning because you live for the collective good.

  An Anecdote and Definitions

  In researching this book, we interviewed Richard (Dick) Mahoney, the former CEO of Monsanto. Dick was CEO at a time when Monsanto had chemicals divisions in its portfolio; these businesses were eventually divested. Dick told us about the time that they first began monitoring emissions of pollutants in 1987. Dick said he was shocked at Monsanto’s numbers and decided that the company not only needed to improve but that it had to have such spectacularly low emission numbers that it would become an icon for the industry. He asked for a 90 percent reduction within six years. While many believed it could not be done, Dick said the surprising thing was how the goal energized the company around a worthwhile cause and created pride in the employees. The results were stunning, and they set the tone not only for Monsanto’s conversations with the EPA but also for the industry as a whole. As his successor, Robert Shapiro, states,

  My predecessor, Dick Mahoney, understood that the way we were doing things had to change. Dick grew up, as I did n
ot, in the chemical industry, so he tended to look at what was coming out of our plants. The publication of our first toxic-release inventory in 1988 galvanized attention around the magnitude of plant emissions.

  Dick got way out ahead of the traditional culture in Monsanto and in the rest of the chemical industry. He set incredibly aggressive quantitative targets and deadlines. The first reaction to them was, My God, he must be out of his mind. But it was an effective technique. In six years, we reduced our toxic air emissions by 90 percent.2

  With his decision about what Monsanto would pursue after he looked at the company’s emissions data, Dick Mahoney created an authentic higher purpose that had economic consequences. There are four key words: economics, authentic, higher, and purpose. These words seem simple and familiar. Yet when integrated, they create an image that is neither simple nor familiar. We now define each word, in reverse order.

  Purpose: We tend to be path dependent.3 In other words, the decisions we make in a given situation are highly shaped by the decisions we have made in the past. Generally, the past determines the present, and people tend to live in a reactive state.

  Purpose is a proactive notion. Consider this unusual question: When does the future determine the present? The answer is, when we clarify and commit to an envisioned image. Dick Mahoney identified a future six years hence for Monsanto in which it had 90 percent lower emissions. That determined how the company behaved in the present. Purpose is an intention that creates focus and draws us into the creation of a new future.