What’s the link between purpose and the bottom line?

A clear purpose drives results.

These are the words of Claudine Gartenberg, a Wharton School professor and co-author of one of the largest studies ever conducted on corporate purpose.

According to Prof. Gartenberg, purpose is “a set of beliefs about the meaning of a company’s work beyond quantitative measures of financial performance.”

In a recent IESE Insight article, she points to an important distinction: this definition underlines the strength of a person’s beliefs, not their “reason for being,” which is where most dictionaries tend to focus.

After analyzing data from nearly 500,000 employees at 500 companies, Gartenberg et al. differentiated between two types of purpose-driven organizations: those with a high level of purpose-camaraderie (“I find meaning in my work but also a sense of family”) and those that show a high level of purpose-clarity (“I find meaning in my work but also believe that management has a clear vision of where the company is going and what I need to do to get there”).

This perspective is supported by research by my colleagues at IESE and the University of Navarra: in their purpose strength model, they suggest that purpose-centered organizational strategy and leadership inspire a stronger sense of shared purpose among employees and possibly lead to greater commitment and other benefits.

Purpose and results

But let’s go back to the beginning: what’s the link between purpose and corporate results?

According to their research findings, purpose alone and purpose-camaraderie had no direct impact on performance, yet purpose-clarity was highly predictive of financial performance. In fact, purpose-clarity translated into a 4% uptick in ROA, 0.7% higher annual return on enterprise value, and a 7% increase in annual returns.

That said, when it comes to boosting the bottom line, meaningful and clearly communicated statements of purpose are not enough: employees need to firmly support the mission and promote it organization-wide, with middle managers playing an especially relevant role.


The power of purpose

Cerealto Siro Food, a Madrid-based family firm, offers a prime example of the power of purpose. In March 2020, shortly after the outbreak of the global pandemic, the Spanish government declared a state of alarm and ordered all non-essential activity to come to a halt.

As a food manufacturer, Cerealto was considered an essential service, which immediately gave rise to two critical challenges: guaranteeing supply for consumers and safeguarding the health of employees. Founder and President Juan Manuel González Serna shared these concerns a few months later in the “Responsible Leaders Dialogues” session, organized by the SERES Foundation.

As he explained, demand immediately skyrocketed, prompting the firm to dramatically increase their manufacturing activity to 24/7 operations. González Serna says he feels “proud and enormously grateful” to all of his employees, but especially to those at the pasta factory, which produces around half of the pasta consumed in Spain.

At this installation, nearly 90% of employees have some type of disability. As González Serna shared, “They gave it their all, with a zero absenteeism to date. I have nothing but words of deep respect and admiration for them.”

Without a doubt, Cerealto employees live out the company’s purpose as their own and consider it far more than its economic impact. This is precisely why its purpose – as defined by Claudine Gartenberg – resonates so much with them.

Homepage image: Laura Tancredi from Pexels

 

One thought on “What’s the link between purpose and the bottom line?

  1. The bottom line reveals a company’s profitability and how well it manages costs. A part of net income is the top line, which can also be found on the income statement. It speaks about the gross income produced by a company over a specific time frame.

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