The Economics of Higher Purpose Read online

  The answers to all these questions are in the affirmative. In the chapters that follow, we will see numerous case studies that provide examples.

  Benefits of Higher Purpose

  An organization benefits from having an authentic higher purpose in two main ways. First, an authentic purpose binds people together, forming a “moral glue” and inspiring employees. People are motivated to act in the collective interest of the organization rather than to pursue narrow self-interest. People do not cut corners ethically because they know that doing so is not consistent with the culture of the organization and that their fellow workers will not endorse them in doing so.

  In an organization of higher purpose, employees expect one another to do the right thing. Employees work harder, do less to sabotage one another in competitive intraorganizational games, and are more likely to stay with the organization, meaning lower turnover of valued employees. As a result, the economic output of the organization increases. In one organization we worked with, the CEO told us about how higher purpose had changed the culture: “Now when they have a conflict, they just ask what I would say if I were there, and most of the time they know the answer. So I do not have to arbitrate disputes. People sort things out. There is no backstabbing where people come to me to complain about others.” The result is a strong focus and energy that flows toward the goal of exceeding customer expectations.

  The claim that purpose-driven leaders are able to achieve these outcomes is supported by large-sample research. A survey of 20,000 employees across 25 industries suggests that people in positions of authority who have clarity of purpose and communicate it have great impact on the workforce. Employees of purpose-driven leaders are reportedly 70 percent more satisfied, 56 percent more engaged, and 100 percent more likely to stay with the organization.10

  Second, an authentic organizational higher purpose helps to clarify the organization’s deepest intent to external stakeholders. This clarity reduces conflicts with those stakeholders, including public regulators, competitors, suppliers, and customers. Just think of the scandals involving systematic falsification of emissions data by Volkswagen, Toyota’s accidents in North America involving stuck gas pedals in its cars, and the huge fines and negative publicity that many financial institutions were subjected to in the aftermath of the 2007 to 2009 financial crisis.

  These incidents were very damaging to these organizations in a tangible economic sense. By contrast, Southwest Airlines, which has a much better reputation than most companies for an organizational higher purpose that attends to both employees and customers, has been able to do things other organizations cannot do.

  Higher Purpose and Economic Performance

  An organizational higher purpose is neither charity nor a panacea for doing well. To do well, the organization needs all the other business capabilities: a core competence, a strategy tied to that core competence, a good product, the ability to execute plans, sound financial management, and operational excellence. Moreover, what we seek is an understanding of the intersection of higher purpose and business strategy, not some charitable cause distinct from the company’s business. Thus, the organization must stress operational and economic success while it embraces higher purpose. In fact, it is hard to imagine an organization being able to make the short-run sacrifices in pursuit of higher purpose unless it is also financially healthy in the long run.

  An organization can embrace an authentic higher purpose, but that purpose has to also make economic sense in the overall business of the organization. A nice illustration of this is provided by an episode of Shark Tank, in which a farmer named Johnny Georges, who had invented a tepee that would cover trees that were being watered in the field in order to conserve water used in irrigation, was seeking funding from the sharks to grow the business. The product was called “tree T-PEE,” and it was an ingenious yet strikingly simple water and nutrient containment system.

  Georges’s stated higher purpose was to conserve water in farming and to better serve farmers. The sharks asked him how much it cost to make each unit of the product and how much he was charging for it. They thought he was charging too little—the profit margin was too low. But he kept saying that these were farmers he was serving, and he did not want to gouge them with higher prices. Shark after shark turned down the request for funding because of the perceived lack of commercial viability and the seeming impossibility of scaling up the business with such low profit margins. Eventually, one shark, John Paul DeJoria, stepped up and provided funding, insisting, however, that the selling price would have to be raised to a level Georges was comfortable with but higher than what was currently being charged. The business went on to become successful. The day after the episode of Shark Tank aired, Georges’s inbox was flooded with more than 56,000 emails, and he sold thousands of tree T-PEEs that night. The product is now sold internationally, and Georges has a secured a deal with Home Depot.11

  This example illustrates the importance of the word economics in the statement of corporate higher purpose. Pursuit of higher purpose is not charity. If you’re a manufacturer, you don’t need to give the product away. Having a profitable business does not conflict with the pursuit of higher purpose.

  We now turn to the issue of imagination.

  CHAPTER THREE

  Imagining Organizations of Higher Purpose

  Henry Ford said, “If I asked the customer what he wanted he would have said, ‘a faster horse.’” A person who has never imagined an automobile cannot ask for one; they can only ask for a better or faster version of what they already comprehend. Because they make conventional assumptions, they can only aspire to incremental changes or small improvements.

  This limitation also applies to the subject of this book. Authentic higher purpose, as we saw in chapter 1, transcends conventional assumptions. The notion tends to defy normal understanding, imply accountability, and spur resistance.

  Imagining the Unimaginable

  It is difficult to imagine a person of authentic higher purpose, and it is difficult to imagine an organization of authentic higher purpose. When Shauri was invited to engage in purpose finding, she resisted with vigor. She could not imagine how to create and live from an authentic higher purpose, so she remained in a reactive state. She was behaving conventionally. Shauri’s story is that of a young woman, a first-line employee who cannot imagine living in a higher state. It is understandable that she would be trapped in convention. She is not the only one who has trouble imagining a higher state. This book partially flows from a discovery we made when we interviewed CEOs of organizations driven by an authentic higher purpose.

  Our surprising finding is that more than half of the CEOs we interviewed were just like Shauri, the first-line employee. When they first became CEOs, they had heard of purpose but did not understand its power, and thus did not want to invest in finding it. As with most people, they became purpose driven through crisis and deep learning.

  One of these CEOs is Alberto Weisser, the retired CEO of Bunge, a global food company.12 In Alberto’s 11 years as CEO, the company grew by a factor of 10. Between the time it went public in 2001 and the time of his retirement in 2013, the stock price had increased fivefold.

  Alberto’s story appears to be a saga of uninterrupted success. It was not. In fact, his first year as CEO was one of the most difficult of his life. He was failing because of something he could not imagine.

  Alberto’s career was in finance. He was CFO before being promoted to CEO. He was a master of the conventional economic perspective, and that had carried him up the corporate ladder. Given his training, he believed that an organization is a hierarchy of authority. The person at the top gives orders, and the people below follow them. If there is resistance, the CEO has to be tough.

  Alberto was tough, yet he was failing. As he applied his conventional ideas of hierarchy, authority, and toughness, the organization failed to perform. This failure challenged his theory of leadership, and it eventually transformed his way of seeing
the world. Alberto eventually became a purpose-driven leader who could imbue an organization with authentic higher purpose, but getting there was not easy.

  Looking back, Alberto says, “I was overwhelmed and I was scared.” We tend to think of CEOs as people in positions of power who are immune to being scared. Yet the role of a CEO is to lead change. Leading change means inviting people into unique challenges and deep learning. It is a fearful thing when facts begin to tell you that you do not know how to perform your primary professional function.

  That fear is greatly increased as you begin to realize that the beliefs that brought you to your current professional position are actually the source of your failure. Suddenly you are living in a terrible paradox, and the only way out is deep or transformative learning, which requires mindful reflection and personal discipline. It means that you come to see something you cannot imagine.

  Alberto continued, saying, “I was simpleminded.” Simpleminded does not mean stupid. One does not climb to the top of a corporation by being stupid. In fact, Alberto was quite brilliant. When it came to finance, he had a complex mental map that allowed him to do things others could not do. Alberto could take the most difficult financial challenges and come up with brilliant solutions.

  In this context, simpleminded means being unsophisticated about something. It means being unaware and failing to see parts of reality that are important. It means not seeing the dynamic whole. Alberto was “simpleminded” because he had a conventional, mind-set that limited the range of his influence. His mind-set, which was heavily influenced by traditional economics, had led him to success as a young professional and now blinded him to what he needed to know and do in order to be successful as a CEO.

  The Conventional Economic Mind-Set

  The lesson here is that economics is a highly sophisticated field of thought. It emerges from the rigorous examination of social and financial reality. The conventional economic mind-set is the foundation of business education, and it gives rise to the language and practice of business. It is based on many explicit and implicit assumptions, such as the following:

  The Conventional Mind-Set

  The typical organization is a structured hierarchy.

  People are risk averse and self-interested (i.e., they maximize their own expected utility).

  People work for monetary rewards and minimize personal costs because doing so increases expected utility.

  People compete for resources because greater resources yield higher compensation, organizational power, and other perks (all of which increase expected utility).

  People hold on to the status quo because they are risk averse and change increases uncertainty, which decreases the expected utility.

  People underperform because they perceive themselves as toiling for others (i.e., they are agents of others rather than owners or principals).

  How can the assumptions in this list impede our success as leaders?

  Conventional means “usual,” “normal,” “established,” “standard.” If we examine normal experience, we find the patterns listed above. Self-interested people seeking survival in a hierarchy tend toward political compromise and compliance with expectations. The culture drives behavior. As managers engage in problem solving, they become extensions of the culture. They become instruments seeking to restore equilibrium and control. The thought process that underlies the problem solving begins with the transactional assumptions listed above and ensures that the status quo survives.

  Academic disciplines teach rigorous analysis based on these transactional assumptions. A person who learns economics and other related fields gains knowledge that first increases the ability to create value and that then, paradoxically, begins to decrease the capacity to create value. The discipline first turns the novice into an expert analyst or problem solver, a person like Alberto who creates value and moves up within the expectations of the culture.

  As the person moves toward the top, they need a new, more complex, and even paradoxical mind-set. A leader must be able to simultaneously maintain and destroy culture. They must maintain order through conventional thought and hierarchical practices while simultaneously inspiring people to move into uncertainty, learn, and innovate.

  This ability to maintain order and inspire change cannot be done by fiat. The leader must have vision, purpose, and inspiration. They must integrate images of a desired future with the existing images of a constrained present. They must have awareness of interpersonal relations and the ability to influence without authority.

  Experimental research shows that when people are in the conventional economic mind-set, they have less empathy.13 The people affected by the analytical decisions also have less awareness. Leaders in the conventional mind-set construct people as objects to be acted upon. Robert Chapman, CEO of Barry-Wehmiller, is a purpose-driven leader who rejects this mind-set. He told us: “I learned nothing about leadership from business school. Everything I learned about leadership came from parenting.”

  The conventional mind-set precludes the notion of authentic higher purpose. It negates the pursuit of prosocial behavior. It is based on the above assumptions of self-interest, scarcity, and competition, and it tends to produce what is assumed.

  Seeing Conventional Reality

  Why does the conventional mind-set preclude the adoption of an authentic higher purpose? One possibility is that there is a sorting effect as people move up the hierarchy. Those who, like Alberto, are task focused and achievement oriented tend to be more likely to succeed early in their careers, especially in achieving readily observable tangible outcomes. This success helps them get promoted by people who themselves seek to be promoted and care primarily about measurable economic outcomes.

  If the organization’s culture values individual achievement, numbers tend to be all that matter, and people who produce the numbers get promoted and rewarded. That is, incentives are “high powered.”14 Employees seek to emulate those people, further reinforcing the numbers-driven culture. Yet this narrow and conventional focus destroys relationships, and the numbers eventually fall.

  Unfortunately, this paradoxical dynamic is invisible to the people who produce it. The people who are promoted generally attribute all their successes to their own abilities. Hence, they rise to the top with little appreciation of the “hidden factors” that contributed to their success, namely the culture of the organization and the contributions of others. Psychologists call this “attribution bias.”

  When such people become CEOs, they often do not appreciate the role of culture or higher purpose. They are unable, for example, to transform a culture of self-interest into a culture of collaboration. Like Alberto, they cannot move the organization because they cannot produce an authentic higher purpose or the moral power necessary to change the existing culture.

  When these people encounter a cultural problem, they usually respond by producing more analysis of the technical and financial systems, which are central to the conventional mind-set. They may eventually realize the value of a more positive culture and the importance of collaboration, but they do not know how to change the culture. Their “rationality” in dealing with the problem exacerbates the already widening mismatch with social reality. A vicious cycle emerges and sucks the organization into a whirlpool of increasing tension, conflict, and decay. The organization, which has become divided and distrustful, underperforms its potential. The conventional economic mind-set, encouraged by the authority figure who once created value, is then destroying value. The authority figure cannot understand why.

  We do not mean to denigrate rigorous thought and economic analysis or ask people to abandon these. To the contrary, we continue to advocate the rigorous tools of economics and the related disciplines. But what we are calling for is for people to augment traditional economic analysis and access a more complete and dynamic form of understanding and influence. To obtain that understanding, you must transcend the conventional mind-set and come to imagine what the conventional mind-
set precludes.15

  From Knowing to Learning

  At the end of our interview with Alberto, he reflected on his learning journey. He said that of all the assumptions in the conventional economic mind-set, there was one that was more problematic than any other. His conventional mind-set told him that he had to be “the expert.” As the leader, he needed to have all the answers. This assumption, more than any other, accounted for his initial failure. He said, “If you are an imperial CEO, or if you think too much of yourself, then it doesn’t work.”

  The need to be an expert, someone who is in control and does not fail, is a natural consequence of the conventional mind-set. It is not a problem limited to CEOs. It permeates the culture and applies to everyone.

  From the time we learn to talk, we internalize the conventional mind-set. We learn from our parents that life is hierarchical—such as when we’re told “Because I told you so.” We learn that it is better to be on top of a hierarchy than on the bottom: “I am the boss.” We learn that people are self-interested, and outcomes must be negotiated as in the parental edict: “It you want dessert, you have to eat what is on your plate.” We learn that resources are scarce: “No, you cannot have it. Money does not grow on trees.” We learn that conflict is natural: “Share it with your brother, or I will take it away.”