The purpose premium
Why a purpose-driven strategy is good for business
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Introduction
Although substantial evidence demonstrates the business value of purpose, many skeptics still believe there is an inherent trade-off between purpose and profit; values and value.
We disagree, and there is significant data to back up our position. An integrated purpose strategy focused on the differentiated role a company serves in society is good business strategy that drives sustainable, long-term value. In fact, purpose strategy is increasingly a business imperative to manage enterprise risk; build trust with customers, investors, and other stakeholders; and develop new markets. Backed by strategic investment in the core of the business, including in the systems that enable the company to consistently deliver on its purpose, it can also be a source of competitive advantage.
Companies across all industries are beginning to recognize this and are making strong purpose-driven commitments and strategic shifts to differentiate themselves in the market. Take MasterCard, which pledged to bring 1 billion people into the digital economy by 2025, or Goldman Sachs, which aims to deploy $750 billion of sustainable finance by 2030. We are also seeing companies change their production (General Motors announcing its Zero Crashes, Zero Emissions, and Zero Congestion plan) and talent models (Intel committing to have 40% of technical positions filled by women by 2030).
Key findings
- An integrated purpose strategy focused on the differentiated role a company serves in society is good business strategy that drives sustainable, long-term value
- Our market scan provided evidence of a “purpose premium,” indicating that more purpose-driven companies outperform their peers across six key drivers
- Now more than ever, relevant stakeholders must come together to develop and adopt a consistent methodology to rank and analyze companies’ comparative financial performance tied to purpose
There is significant evidence that purpose drives business value in several ways. Previously, Deloitte published a report describing six drivers of value, showing how companies can use these drivers to develop a scorecard to inform strategic decisions and outlining the steps companies can take to integrate purpose into core business strategy. We now see evidence of a “purpose premium,” indicating that more purpose-driven companies outperform their peers.
This paper provides a summary of the most recent evidence supporting the strong connection between purpose and business value, as well as an overview of the various methodologies currently used to measure it. It ends with a call to action for those seeking to advance purpose in business, recommending that these stakeholders work to develop and adopt a consistent methodology to rank and analyze companies’ comparative financial performance tied to purpose.
What is purpose?
A company’s purpose is the differentiated role it serves in society connected to long-term value, including the differentiated needs it addresses for all its stakeholders (shareholders, customers, employees, suppliers, environment, and communities) and the consistency with which it delivers on these needs through management systems, processes, and behaviors.
Purpose is more than a company’s CSR initiatives, or social and environmental investments, or a desire to do good in the world; it is more than a PR tactic or traditional cause marketing campaign pursued simply to mitigate risk or protect a company’s reputation. Purpose is not separate from business strategy; rather, it is directly tied to economic performance, competitive advantage, and long-term value creation.
The concept of purpose in business is not new. Nonetheless, the purpose imperative has never been stronger. Companies are facing unprecedented market forces they cannot ignore, from the ongoing crises and repercussions associated with COVID-19, to the groundswell of activity to advance social justice, to the imperative to address the root causes of climate change, to accelerated expectations from government and investors around environmental, social, and governance (ESG) issues. This reality requires companies to define their purpose and ensure that their activities and internal processes are consistent with their stated positions and values; otherwise, companies risk getting left behind.
How does purpose drive value?
In previous research, Deloitte identified six key drivers of corporate value creation when companies integrate purpose into core business strategy: brand and reputation; sales and innovation; capital access; operational efficiency; talent; and risk mitigation.
A company can develop a scorecard based on these drivers of value creation to measure the business value, both qualitative and quantitative, of its purpose-related efforts and set goals to guide strategic choices and resource allocation. Each company’s scorecard will vary depending on its industry, business model, and strategic priorities. For instance, a large technology company might emphasize sales and innovation targets tied to initiatives that drive trust through data privacy, content mediation, and ethical application of technology. Alternatively, a large retailer might emphasize operational efficiency targets tied to initiatives that reduce carbon footprint, waste, and cost throughout its supply chain.
Our recent market scan confirmed and further legitimized the position that a holistic purpose approach can improve business and financial performance (see Appendix for more examples of how companies drive value when they integrate purpose into core business strategy). Moreover, our market scan provided evidence that having a “purpose” is not enough for value maximization. Corporations must think holistically about all the ways in which purpose can create value and prioritize and drive the right dimensions across all relevant stakeholder groups.
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Corporations must think holistically about all the ways in which purpose can create value, prioritize, and drive the right dimensions across all relevant stakeholder groups.
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