Economist Economic Purpose Study

From the Economist Group Study on Economic purpose:
Where social purpose and good business intersect

Overview

David Ogilvy, one of the most famous names in advertising, was the founder of the New York agency that would eventually become Ogilvy & Mather and grow to 450 offices around the world. His career took off in 1953, thanks to a spur-of-the-moment decision to put a 50-cent eyepatch on a shirt model during a photo shoot for the US clothing brand Hathaway. That ad eventually led to a complete sell out at every single New York store who carried the apparel.

Once famous for its “man with the eyepatch” campaign—so much so, in fact, it was even parodied on Saturday Night Live—where is Hathaway today? A discount brand selling at the bottom rung of the marketplace. For its time, the eyepatch was a big idea that made a brand stand out among its peers.  However, today’s successful brands—such as Dove, Philips, Chipotle and Cotopaxi—understand that a big idea transcends how a product is depicted in marketplace. Such brands aren’t purely focused on product marketing, but rather on building purpose-driven relationships with their customers and community. In addition to the stellar quality of their product, they are focusing on social issues such as health care, sustainability, education, and the environment at large.

The approach and outcomes of businesses who focus on social purpose are highlighting a new possibility. Cynics may dismiss “purpose” as the latest corporate buzzword; however, stakeholders such as consumers, employees, and the communities in which our businesses operate are demanding companies consider purpose as the new business mentality. More than ever, a company’s purpose, beyond its financial performance and reputation, can determine its place in business and society.

This study highlights a clear disconnect between brands understanding the need to take a vocal stand on social purpose issues and their willingness or ability to do so. Our data shows that executives who report that operating with social purpose forms part of their overall growth strategy are more likely than those who don’t to announce strong financial performance and believe they are performing better than their peers.

On the flip side, executives cite fear of backlash over inauthentic social initiatives and the inability to connect purpose to financial performance/growth as reasons for not firmly committing to purpose-driven strategies. This study explores the opportunities and challenges faced by executives when it comes to “doing the right thing”. It hypothesises that, far from being a passing fad, purpose in business is taking brands closer to a model that allows for measurement of both social and business health. We refer to it as Economic Purpose.

This study considers four key areas that support the development of Economic Purpose: commitment, courage, measurement, and authenticity & accountability; it considers the potential reputational and financial disadvantage should brands choose to opt out, and the bright future for those who choose to take a stand.

Our methodology

Drawing on The Economist Group’s global panels of executives, we conducted an online survey, in association with Salesforce and Genuinely, in July and August 2017. The survey included 1,497 business professionals, including:

C-suite (27%)
Managers to MD (43%)
Senior analysts or below (30%)

The company backgrounds were as follows:
Size: Under $1bn (65%); Over $1bn (31%), not disclosed (4%)
Footprint: Global/MNC (52%); Regional/Domestic (48%)

Geographical coverage included:
North America (32%)
South America (6%)
Europe (32%)
APAC (22%)
Middle East & Africa (8%)

Survey explainer:

In association with Salesforce and Genuinely, The Economist Group conducted an online global survey of 1,497 business professionals to explore the intersection between social purpose and good business. The study was fielded in July-August 2017 among The Economist Group global panels and covered views from 109 countries.

Data:

When asked, most executives do have a desire to make a difference and believe that their current commitment to purpose has a broadly positive effect, particularly on both the customers they serve and their workforce:  

61% – Operating with social purpose is part of the overall growth strategy of my company
60% – Independent of growth impact, operating with a social purpose is part of the DNA or brand identity of my company
63% – Operating with a social purpose has benefitted the customers my company serves, as well as the communities in which it operates
61% – Operating with a social purpose has improved the lives of employees at my company

Our data shows that working for a company that operates with social purpose is important across all executives, despite their age, with women more likely than men to report this. However, millennial executives are more likely than older executives to wish their company would take a more visible stand and believe future generations will seek out companies who play a role in social change. Interestingly, “talent and job creation” does not rank highly in our respondents’ view on the key factors that contribute to their overall growth strategy for their company — just 11% see it as a priority.

75%  of executives agree that the next generation of employees will increasingly seek out companies to work for that play a greater role in societal change
79% of younger junior employees (below manager level) would prefer to purchase products from a company that operates with social purpose, with 72% being proud to be a customer of such a company

Where there’s a will there’s a way

While executives believe companies that operate with a social purpose have a competitive advantage over their peers (69%), and just over six in 10 (61%) report that operating with a social purpose is part of the overall growth strategy of their company, the emphasis here is on part. It seems few are fully committed: the measure that contributes most to the success of their company’s growth strategy is “products and services” (36%), with “social purpose” cited by just 12%.

Unilever CEO Paul Polman is often held up as a champion of responsible capitalism with good reason: his company is committed to doubling its sales while halving its environmental footprint by 2020. Unilever brands such as Dove, Hellmann’s and Ben & Jerry’s that have integrated sustainability into both their products and purpose delivered nearly half the company’s global growth in 2015 and collectively are growing 30% faster than the rest of the business. Could this be Economic Purpose in action?

Lack of funding and C-suite leadership are both seen as barriers to successfully operating with social purpose. More CEOs need to lead the charge, commit resources and establish real KPIs—both financial and human. This will elevate purpose from its current position as something ancillary to profit, to a new model of Economic Purpose that’s baked into a company’s bottom line.  

Risk is incumbent in adopting or adapting to a new business model and executives are understandably cautious:

Nearly two-thirds of executives (62%) believe that companies need to be willing to take a vocal public stand on issues affecting society.
Yet, fewer than 1 in 5 (18%) see their company as a public advocate willing to take a vocal stand on social issues despite potential backlash.  

The stark contrast between what we believe and what is being done is at the heart of this issue. Having the courage to do what is good isn’t always easy.

20% of executives cite risk to performance/operations as a key barrier to successfully operating with social purpose. Another 1 in 10 executives are concerned about legal risk (13%), as well as political (13%) or public backlash (10%).
Companies are most often advancing their social purpose in less controversial, standard-practice areas including: the environment (27%), community (22%), education (22%) and women (19%).  Fewer are supporting areas that go beyond standard practice: LGBT (8%), homelessness (3%), immigrants (3%), veterans (3%), hunger (3%).

6 in 10 executives believe consumers quickly tire of companies who jump on the bandwagon of popular social issues
Most executives agree (85%) that a mismatch of social purpose initiatives and corporate practices can negatively impact a company’s corporate reputation
68% of execs report companies are increasingly facing a backlash over inauthentic social initiatives

While non-controversial areas such as the environment or education are certainly laudable, engaging on issues that actually break laws and mores in non-progressive communities and countries, such as sexuality or gender identity, have the potential to carry far more risk and, in turn, may require more courage on the part of company leadership. However, being a purpose-driven company can come in many forms and doesn’t necessarily require that you publicise your efforts, only that you embrace them. A very easy way to operate with a social purpose, for example, is to create safe spaces for people to be themselves.

Operating with Economic Purpose is not about jumping on the social purpose bandwagon by engaging on a low-risk issue with the intention of short-term gain.  Acting with courage is to choose an issue that’s true to who your company is, while being aware of how risky that may be and how that risk may impact the organisation overall.

The potential for backlash is inherent in anything, not just taking a stand or exercising social purpose. When a company experiences poor press or public backlash, they don’t stop making their product; they’re committed to it. Purpose requires the courage to make this same commitment and is not just about being rewarded in PR recognition; it is in itself a reward.

The positive impact of LGBT inclusion

Our results show that few companies choose to support LGBT issues as part of their social purpose initiatives (just 8%). A separate piece of research by the Economist Intelligence Unit, Pride and Prejudice Agents of Change (2017), found that 34% of global business executives believe that productivity in the workplace is positively impacted when LGBT diversity and inclusion is at its best. Young workers agreed more than their elders that there is a potential ROI to programmes which raise the status of LGBT workers. It’s a sentiment that’s in line with the findings of this study that suggest millennials are the ones who will ultimately drive change towards a model of Economic Purpose from both the point of view of acting as advocates of change within organisations and as potential employees.

The path to purpose: Not a one-size-fits-all endeavour

“Just giving money is good, but there is a more powerful way to change the world: build better businesses.”
— Stephan Jacob, CEO Cotopaxi

Stephan Jacob, CEO of Cotopaxi, built the company with the notion of purpose and, over time, integrated it into every aspect of their business. Cotopaxi began—as many brands do—by simply giving money to the charities they support. However, they envisioned a greater impact in redesigning their business around purpose and took three key steps.

First, Cotopaxi created a foundation, and hired a Director of social impact. The new role supplemented their executive team and worked to measure and monitor all of their purpose-driven activities. Jacob mentioned this as a critical step as it gave Cotopaxi insights into their actions as well as a way to measure its impact. Additionally, this role allowed the company to tap into social giving expertise that didn’t already exist in the business.

Second, Cotopaxi set their purpose around three key initiatives: health care, sustainability, and education. Once in place, they could begin to shape their business practices around these areas.

Third, Cotopaxi completely redeveloped their supply chain to support their new goals. They connected with each and every vendor and set norms and guidelines. Vendors who work with Cotopaxi must provide healthcare to all of their workers. They then designed programmes to ensure their farmers were able to earn a viable living, and created an entirely new educational programme for their factory workers.

Although the path to purpose is not one-size-fits-all, Cotopaxi is a compelling example of how purpose can be the lifeblood of an organisation, and the steps you can take to wrap your operations around it.

A new normal   

“It’s necessary for a brand to have a purpose more engaging than profits, but any old cause won’t do. The cause should be rooted in the brand; it should make sense to customers…”
— Blake Cahill, SVP Global Head of Digital Marketing and Media, Philips

Organisations are starting to realise they can’t solve the problems they’re facing today with a larger investment in their marketing messaging or by adding more tools and technology to the mix. It’s not enough for a brand to focus on packaging of a message to drive their reputation; a company should be investing in who it is at its core—in its brand character.

Some might ask, “why do we need a business case to do the right thing?” But what if the right thing were the business case? While only 10% of executives cite a positive impact of purpose to their company’s overall performance/growth, there is a realisation that an authentic stance on a brand’s declared purpose is essential to inspiring loyalty in consumers, it is key to attracting young talent and engaging current employees and ultimately has the potential to offer a competitive advantage. Taken all together, this could lead to an increase in profit.

While operating with social purpose is not the only factor in achieving organisational durability and success, its importance is significant. Purpose—applied with authenticity and accountability at the core of a company’s culture and business initiatives—can serve as a catalyst.

Unsurprisingly, as we look to the future, the current crop of millennial executives—tomorrow’s CEOs—see operating with purpose as key. Our findings, along with the examples from companies making the commitment, suggest that purpose is indeed more than just a short-lived PR trend. They suggest the possibility—even a necessity—for the shift towards a new business model. A new normal that’s shaped by Economic Purpose.