The case for Purpose across tangible drivers of value creation explained why this is not just fluffy stuff. In this post, we explore the ‘how’ of Purpose by looking at some paradigm shifts we need to get our head around.
Purpose-oriented organisations (and their sustained success) have ushered in (at least) four paradigm shifts. Some of these are already part of mainstream dialogue amongst business leaders while others are emerging.
The paradigm shifts require us to update our mental models about business and value creation; I’ll break this down into:
- Business Model
Mindset: Long-term impact over short-term profit
The perils of short-termism have been well understood for a long time and still most businesses report profits by the quarter incentivising managers to optimise for near-term outcomes. This is not just a business issue, to paraphrase the investor Esther Dyson: in politics the dominant time frame is a term of office, in fashion and culture it’s a season, for corporations it's a quarter, on the internet it's minutes, and on the financial markets mere milliseconds.
All this short-termism has created a psychological effect called Temporal exhaustion, as sociologist Elise Boulding said (in 1978)
“If one is mentally out of breath all the time from dealing with the present, there is no energy left for imagining the future”
We can only guess her reaction to the relentless, Twitter-fuelled politics of the 2020s. No wonder wicked problems like climate change or inequality feel so hard to tackle right now.
Organizations that orient around Purpose have found a way to break free (at least psychologically) from the systemic short-termism around them. Instead, they define their purpose and measure impact on that purpose. Often these Purpose measures are leading indicators of profit (for all the reasons we mentioned in the Case For Purpose article).
SpaceX is a classic example: The purpose is defined as “Making humans a multi-planetary species” and the long-term measurable impact has been defined as “Sending 1 million humans to mars by 2050”.
Notice how the purpose has nothing to do with SpaceX or Elon Musk. It describes the world(s) it wants in the future. The impact it wants to make on the world is typically called the moonshot, offering a time-bound and quantifiable metric that brings the purpose to life.
This long-term purpose focus forces breakthrough thinking. For example, SpaceX realized that to achieve its purpose, it needed reusable 1st stage rockets, orbital refueling, and other innovations that were near impossible on a short-term & incremental development path.
Longer time frames are difficult to genuinely organize, especially if you are a publicly listed company. This is why many startups are staying private longer and why there is a whole movement trying to figure out the legal structures to enshrine purpose into ownership models for companies.
This mindset shift is starting to affect other short-term-oriented spheres too; like politics. For example, Finland and Sweden have parliamentary advisory groups to foster longer-term planning, and Hungary has an ombudsman for future generations. Wales has enshrined this in law under the Wellbeing of Future Generations Act and has a Future Generations Commissioner.
Markets: Purpose over problem, and problem over solution
Peter H. Diamandis espouses that "the world’s largest problems are also the world’s largest markets." For example, there is over $1Tn of value to be created by the energy industry, for the energy industry itself, as it transitions to less hydro-carbons. Further, the 6 largest greenhouse gas emitting nations will need to spend $75Tn to 2050 to stay within the 2C global warming target.
Focussing on purpose over problems and problems over solutions helps companies redefine markets and their playing field often finding orders of magnitude more value to go after rather than the red ocean fight for market share in constrained solution-focussed markets.
Consider retirement villages and aged care. In New Zealand, this is about $3Bn market characterized by the solution: build and run bricks and mortar facilities for the elderly. By redefining their purpose to focus on the ‘well-being of seniors’ one large operator expanded their addressable market from $3Bn growing at 4% CAGR to $14Bn growing at 13% CAGR, creating a $65bn market to aim for in 2030 (That's 20x) - the amount spent by Seniors each year. This opened the door to opportunities such as using under-utilized commercial kitchens to provide nutritious food to the seniors and less-able-bodied outside the village walls, eventually becoming a virtual village platform across a suite of wellbeing services.
Business Model: Abundance over scarcity
Multiple exponential technologies are emerging at the same time unlocking abundance in many previously scarce resources, for example abundant digital photos instead of scarce film photos. 20th-century business models were all structured around scarcity and charging a fee for access to the scarce thing.
In the photo example, the scarce thing was photo film and processing. When digital cameras arrived, the business model to charge per photo disappeared, RIP Kodak. While abundance is characterized by near-zero marginal costs, it does not drive profit to zero. The shift to abundance ushered in different (profitable) problem spaces such as storage (photo apps), search (interest), and sharing (Instagram).
The playbook for business models to tap into abundance and then profit from abundance is well known. In 2014, Salim Ismail released the book Exponential Organizations with a simple map describing the attributes utilized by exponentially growing organizations (ExO). This playbook (including detailed worksheets for each attribute) has been open-sourced and made free via the OpenExO community.
A 2021 study tracked the performance of the top 10 ExOs in 2014 for 7 years and compared them to the bottom 10 ExOs. They found those that pulled the ExO levers hardest delivered:
40x Higher Shareholder Returns
2.6x Better Revenue Growth
6.8x Higher Profitability
11.7x Better Asset Turnover
Firms tapping into abundance and growing exponentially have been evolving their business models every 5 years to take advantage of new sources of abundance as more exponential technologies matured, see the Amazon example below.
Competition: Purpose ecosystems over competition
By orienting around purpose, firms are not staying in their lane anymore accelerating the blurring of traditional industry lines. Mercedes-Benz no longer competes with BMW and Lexus but Google, Uber, and Tesla too.
Tesla is a great example to make this point. Tesla’s purpose is “Accelerating the world’s transition to sustainable energy,” and while it produces cars, it is much more than an automobile company. It is disrupting energy distribution with Gigawatt factories, solar energy with Powerwalls, and transport with autonomous-capable EVs.
As more companies solve for purpose, industry lines blur. As industry lines blur the fundamental concept of competition gets redefined.
Competition (scarcity-based and win-loss dynamics) gets replaced by purpose ecosystems (abundance-based and win-win dynamics).
This is happening with or without individual firms willingness to participate in ecosystems. Customers and community members already combine products and services from ‘competitors’ to serve their needs in pursuit of their purpose. The above example demonstrates how Google, Microsoft, TED, and Wikipedia are all in the knowledge ecosystem with products combined by customers, whether they acknowledge it or not.
The most important elements of this type of business model based on an ecosystem are:
- Purpose - the reason for the ecosystem and everything that happens within it. The Purpose is achieved when all of the hard problems are solved. The purpose is at the centre of the ecosystem, and it shapes everything else with the goal of massive impact.
- Community - those people and organizations participating in the ecosystem, symbiotically helping to achieve the purpose.
- Value - generated by interactions with the ecosystem. Typically these value exchanges are businesses or products/services.
Purpose ecosystems attract communities of people and organizations aligned with their purpose to become both contributors and users of the various services that the ecosystem offers.
Seeding and activating these ecosystems to harness the win-win dynamics requires different approaches to just letting the free market do its thing. XPRIZE is one example, such as the $100M prize for carbon removal.
Several countries and organizations are applying Mariano Mazzucato's Mission Economy principles to encourage cross-sector collaboration towards wicked problems. Below is the approach by the OECD to encourage missions to achieve the SDGs.
And an example of how this in practice:
Purpose-oriented organizations (and their sustained success) have ushered in (at least) four paradigm shifts that unlock significant energy and latent potential for organizations of all sizes.
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