There are at least two overarching definitions of business purpose.
One is reflected in Milton Friedman’s statement that a business’ sole purpose is to generate profit for shareholders.
The other is reflected in the new movement of purpose-driven businesses that are changing the common understanding of business purpose rapidly.
That’s good news. We move away from creating value for shareholders – often at the expense of other stakeholders – towards creating values for all stakeholders, such as government institutions, customers, workers and local communities.
There is a real shift happening as we see more and more purpose-driven companies being founded and many of them achieving mainstream recognition. Just think of the whole green mobility and clean tech movement. There are signs that we are moving towards a new era, where companies incorporate new drivers for value. Drivers such as purpose.
So how we will create value in the future?
We believe that we will give up the notion of stakeholders as merely human beings over all. People debate whether or not the environment can be considered as a stakeholder because the environment can’t negotiate for itself and doesn’t have an agency.
The point of discussion is that the environment is not human. But that view is simply outdated.
Our planet is the all encompassing system which we don’t inhabit as an isolated human entity but live and act interdependently. We affect the environment and environment affects us.
Unfortunately, we can’t look into the future, but there are answers if we make sense of the past.
Our hypothesis is that the shift of value creation looks like this: businesses move away from
- shareholder value (past) to
- active stakeholder value (recent past and present) to
- passive stakeholder value (future).
To clarify the distinction between active and passive stakeholders: active stakeholders have direct influence on a company’s business, like investors, customers and employees. Passive stakeholders don’t have direct influence but are affected by a company, like local communities along the supply chains, worker’s family members. And last but not least, our environment.
From shareholder value to active stakeholder value
That Friedman’s statement – that a business’ sole purpose is to generate profit for shareholders – no longer resonates with today’s challenges, is obvious.
Most big corporation have already gone through a shift in mindset and lead on trends to create added value for active stakeholders, for customers and workers. Let’s take a look at those.
Power to customers and workers
With the birth of the internet 30 years ago, companies were forced to adapt their business to the new technology that provided participants with high speed communication, all time connectedness and transparency. One of the many things the internet brought to the modern society is transmission of power to customers and workers.
Today, these two stakeholder groups are a lot harder for a company to retain because they can easily access information online and more importantly, compare information. Consequently, churn rate and employee turnover has increased.
Companies realized that they had to counteract quickly. Certainly, they experienced that this was not an easy task but on the other side, also a task full of opportunities. UX (user experience) and employer branding served as solutions to meet the increasing expectations of customers and workers and provide value that, in return, benefitted their bottom line.
There are “micro trends” in the context of active stakeholder value: the rise of UX for customers and employer branding for workers. They shed light on the overall trend and the question how we create value in the future.
Micro trend #1: The rise of UX
Just 10 years ago, UX was on hardly anybody’s radar.
UX has become so important because it has proven to be the tool to create new value, namely exceptional user experience.
Now, UX should be an integral part of every business – not only technology driven – and thus not seldom a matter chief executives take on. Steve Jobs for example was not only Apple’s CEO but also Chief Product Designer.
Companies need laser focus to create value for potential customers in order to win and turn them into loyal customers. Before the rise of UX, companies focused much more on providing great customer experience by reacting upon their wishes for extra features.
However, it turned out that a company’s reactive behavior can be more distracting than supporting focus. If a company doesn’t focus, they are creating a rather messy product lacking a “coherent user experience”. So instead of listening to customers they observed customer actions. When developing a new product, the designers would sit next to a potential customer while he interacted with the product. This way, the designer figured out the adaptations that were necessary to develop better user experiences. This was a whole new approach and it created more value for customers.
UX can be regarded as the next level of customer experience. Companies have learned to create products based on how consumers act rather than what they say.
Micro trend #2: The rise of employer branding
Another example is employer branding. Because competition for talent is still growing, companies are increasingly concerned about finding and keeping the best talent. The term “employer brand” was first defined in the mid-1990s and became a major focus between 2004 and 2008, when bis corporates like Unilever, Shell and P&G identified the potential of consumer branding as a solution to the war of talent. That time, they transferred the knowledge and successfully created a brand as an employer.
That was 20 years ago. Meanwhile, employer branding moved on into the era of social media and this means another factor became very important: trust. Potential employees are not just looking at employee value propositions of a company but for what their peers have to say.
The new generation is making decisions based on what other employees have to say rather than a company’s recruitment ad. Companies now look for ways to drive employee engagement and advocacy.
In the end, all of these measures contribute to an overall better working environment (= value for workers).
From active stakeholder value to passive stakeholder value
The two examples show how companies have broadened their focus and create value that is not only related to the product but relevant to their active stakeholders, their customers and workers. They understood that addressing them provides new opportunities of value creation and this benefited their bottom line.
In fact, foresighted companies realized that this is the way to future-proof their business and gain new competitive advantages.
Moving into the future: addressing the passive stakeholders
As we observe the inclusion of active stakeholders going mainstream, companies will have to look for new opportunities to create value.
And this is the where we learn from the past.
We will now have to find new sources of opportunities and the next evolutionary step is to provide value to the passive stakeholders, including the environment.
Addressing the passive stakeholders is a way, if not the only way, to create substantial value in the future. Especially in light of accelerating climate change, scarce resources and the planetary boundaries we are maxing out.
There is a strong indication underpinning the hypothesis: Millennials/generation Y are increasingly looking for a workplace with emphasis on social consciousness. They prefer to work for corporations and brands with transparent commitments to sustainability and ethical business standards.
Same goes for consumers. Turnover for organic food worldwide increased from 80 to 90 billion dollars from 2016 to 2017 alone and consumers become more and more aware towards the purpose behind a company and expect transparent and accountable information.
To put it in a nutshell, missing to address passive stakeholders inevitably means failing to address active stakeholders.
Companies will have to understand the world as an interdependent network. We most likely cannot change the system but we can invest in the vision of a sustainable economy and create value that matters and will make all the difference in the future.