David Packard, co-founder of Hewlett-Packard, was among the first executives to embrace the power of purpose.
Back in 1960, talking to HP’s training group, he said: “I want to discuss why a company exists in the first place,” he began.
“In other words, why are we here? I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we have to go deeper to find our reasons for being.”
He told the team that he believed companies exist to “make a contribution to society. . . Purpose should not be confused with specific goals or business strategies. Whereas you might achieve a goal or complete a strategy, you cannot fulfill a purpose; it’s like a guiding star on the horizon—forever pursued but never reached.
“Yet although purpose itself does not change; it does inspire change. The very fact purpose can never be fully realized means that an organization can never stop stimulating change and progress.”
Wowza. David was a leader ahead of his time. His ideas are now embraced by the best CEOs, McKinsey consultants Carolyn Dewar, Scott Keller, and Vikram Malhotra write in their book CEO Excellence: The Six Mindsets That Distinguish the Best Leaders from the Rest.
“The best CEOs, like David Packard, instill a clear sense of social purpose in their organizations,” the authors write. “If you ask a Lockheed Martin employee what their job is, according to Marilyn Hewson, “they’ll tell you they’re not just building airplanes, radars, and missile defense systems—they’re helping US and allied forces strengthen global security.
“They’re not just writing software—they’re helping governments deliver essential services to millions of citizens. They’re not just designing satellites and rockets—they’re expanding the boundaries of scientific discovery.”
2: Some organizations like Patagonia, TOMS, Warby Parker, and Ben & Jerry’s were founded to forward a specific mission.
“Where a company’s social identity isn’t as overt,” Carolyn, Scott, and Vikram write, “excellent CEOs apply many of the same lenses as they do when reframing the vision of the company, which accounts for why many of the best CEOs see the concepts of vision, mission, and purpose as interchangeable.”
One proven strategy to help identify a compelling purpose? Look to the firm’s origin story. When Brad Smith became CEO of Intuit, he emphasized the organization’s early focus on “championing of the underdog,” At Microsoft, new CEO Satya Nadella spoke about Microsoft’s emphasis on “creating technology so that others can create more technology.”
How do leaders know if their firm’s purpose is the right one? One litmus test is to see if the purpose packs an emotional punch. Does it inspire team members to ask, “How can we make this happen?”
Another essential component of a successful purpose is that it aligns with the company’s vision, strategy, capabilities, culture, and brand.
Says Satya Nadella: “Somebody once said that you can only trust people who think, say, and do the same thing. By the same token, you can only trust companies that are thinking, saying, and doing the same thing. That’s the consistency you need.”
When Flemming Ornskov was CEO of Shire, he met with a former colleague who said, “The thing I’m missing at my new company is that at Shire I always knew why we were doing what we were doing. The purpose was totally clear to me. When I came home, I could talk to my family about rare diseases, how important it is to address them, and how we and I made a contribution.”
3: Henrik Poulsen‘s experience as CEO at the utility giant Ørsted is particularly striking. He “pulled off one of the most dramatic purpose-led corporate transformations in recent history,” the authors write.
The company’s growth was stagnant when Henrik took over in 2012. So, he and his team asked themselves: “What does the world need, and where does the company excel?”
Through their discussions, they agreed that “their industry was at the brink of a massive transformation away from fossil fuels toward clean energy,” they note.
A decision was made: “We’d better get on the right side of it earlier rather than later,” Henrik recalls.
At the time, the offshore wind projects in Ørsted’s portfolio were more expensive than fossil fuel–generated electricity. Henrik decided, however, that wind was the best opportunity for long-term growth. “It was an uneconomic niche, and demand was uncertain,” Carolyn, Scott, and Vik write, but he “believed he was on the right side of the macrotrend.”
Henrik began a series of bold moves. In 2014, the firm raised capital by selling 18 percent of the company to Goldman Sachs’s private equity arm.
“The backlash was fierce,” the authors write. “Many Danes believed he was selling out cheap. Sixty-eight percent of the country opposed the sale, and a number of major politicians resigned, including six cabinet members.”
Yet, Henrik stood firm. He invested the money raised to become the international leader in offshore wind. The firm won several large projects in the UK, Germany, and elsewhere.
“In 2016, Ørsted successfully went public at a valuation of $16 billion, and by the following year had phased out the use of coal, sold off its oil and gas businesses to Ineos for $1 billion, and changed its name from Danish Oil and Natural Gas to Ørsted to reflect a shift to renewable energy. Today, 90 percent of the company’s energy is produced by renewable resources.”
When Henrik retired in 2021, Ørsted was ranked the world’s most sustainable company, with a market share of more than $80 billion, a nine-fold increase from when he took the helm.
“When I look back over the last eight years,” Henrik reflects, “the deep rooting of purpose in the organization was absolutely critical for us. People fundamentally believed in what we were doing. That all translates into productivity. It translates into execution capacity. And ultimately it drives your competitiveness. And as our conviction grew, the world around us became more and more convinced that we were right. If you have a purpose that is really linked to a fundamental need in the market and it’s something people really care about, that’s the biggest asset you can have.”
More tomorrow!
_____________________
Reflection: What is my organization’s purpose? Does it inspire me and my colleagues?
Action: Discuss with a colleague or my team.