SUMMARY
Over the last 15 years, Purpose has steadily risen in importance on many CEO agendas. In addition to having the attention of the Business Roundtable, several high-profile business leaders such as Satya Nadella of Microsoft, Alan Jope of Unilever, and Larry Fink of BlackRock, have brought the topic of Purpose and how it benefits the triple-bottom line of people, profit, and planet to the limelight. Yet, despite the attention, the value of being Purpose-driven remains somewhat elusive as research on quantifying its benefits has been narrowly focused or subjective. As corporate Purpose increasingly becomes a business imperative, so too does the need for an accurate measure of its holistic impact. In the long-term, quantifying impact serves as a guide for consistent decision-making and as a shield against the growing risk of Purpose-washing effects.
To create a more thorough value picture, BCG BrightHouse and BCG GAMMA came together to build an AI-driven index to measure Purpose in an objective, comparable, and scalable way. Along our journey, we grappled with the limitations of data in measuring motivation, explored ways to measure the immeasurable, and reaffirmed the need to balance traditional metrics and human-centered understanding to assess how a Purpose-driven company performs.
MEASURING THE HEART OF BUSINESS
As business continues to adopt a broader stakeholder approach, success metrics should appropriately evolve. Our study used traditional metrics as standard inputs for company valuation, wand humanistic metrics, which are KPIs developed to measure intention and impact across stakeholders. In the age of societal capitalism, top-tier companies demand additional metrics, including diversity, equity, and inclusion benchmarks, ESG impact value, and employee inspiration. These humanistic metrics comprise a new ROI, something we call return on intent. (See Exhibit 1)
EXHIBIT 1: New ROI
Over the years, leadership experts have declared that the most successful CEOs possess both I.Q. and E.I (emotional intelligence). This balance certainly relates to the success of Purpose-driven leaders, as understanding and implementing a company’s unique role in the world and acting on it requires both a great intellect and a big heart.
CALL OUT:
“The most effective leaders are all alike in one crucial way: They all have a high degree of what has come to be known as emotional intelligence. It’s not that I.Q. and technical skills are irrelevant. They do matter, but…they are the entry-level requirements for executive positions.”[1]
Similarly, a company focused on traditional I.Q. metrics tracks costs, drives market share, and considers investment horizons solely based on profit. In contrast, a company flexing its I.Q. + E.I. skills factors the emotional toll of cost-cutting, considers values when selecting partnerships, and assesses the second-order effects of new products and services on multiple stakeholders. Together, I.Q. + E.I. measures encompass how an organization interacts with all stakeholders to create holistic value (See Exhibit 2).
EXHIBIT 2: What you measure in business
PREVIOUS STUDIES ON COMPANY PURPOSEFULNESS
Previous studies measuring Purpose have garnered significant attention despite admitted limitations. For example, in their 2007 book Firms of Endearment, Sisodia, Wolfe, and Sheth studied how some companies try to generate “every form of value” for all stakeholders. After undertaking a deep dive on a handful of firms that saw Purpose as a competitive advantage, the authors admitted, “We had no interest in conducting a statistical analysis of a plethora of companies in search of those whose financial performance supported the FoE hypothesis…” In other words, they picked companies that fit their narrative, ex-ante.
Grow, by Jim Stengel, while adding important insight to the Purpose movement, also suffers from a similar Halo effect. In this case, the author included only successful companies in his study. That he found returns of over 400% with some companies is compelling but hardly surprising. By failing to ask whether less successful companies lack Purpose – or better, choosing companies randomly and asking how Purpose correlates with returns across strong or weak organizations, these studies fail to make a convincing case that Purpose drives enterprise value.
Since the publication of Grow, many public relations and marketing agencies have researched brand purposefulness. The Porter Novelli / Cone Purpose Biometrics Study is one of the more robust examples. The study, released in 2018, and again in 2019, acquired its data from an online survey administered to 1,193 randomly selected consumers. While consumer surveys are a good representation of a business’s Purpose-driven actions in a custom context, we believe they do not capture the range of views reflected in a broader stakeholder sample set. Additionally, a brand-only approach to Purpose is most relevant for Business to Consumer (B2C) companies.
Finally, there are ESG studies. The terms and practice of collecting ESG data started in 2005 and has proliferated to over 600 different data aggregators today, collecting hundreds of different, self-reported, and organizational metrics. Yet, in this growing sea of numbers, there remains significant noise. Where ESG aims for comprehensiveness, it wants focus around an authentic company Purpose to guide decision-making.
AN OBJECTIVE INTENT
In response to the many limitations described above, BCG BrightHouse partnered with BCG GAMMA to develop an AI-driven index to measure overt Purposeful actions based on twenty-five years of articulating and implementing Purpose. Our team created a comprehensive framework for assessing an organization’s Purposefulness, focusing first on stakeholder groups, then analyzing what KPIs were possible given the available data. We ultimately developed 45 key performance indicators, 20 of which are newly conceived AI-driven metrics developed by BCG GAMMA.
BCG GAMMA utilized a variety of natural language processing techniques to track perceptive metrics such as positive and negative sentiment and overall Purpose commitment in a variety of online publications. For emphasis, we aimed to make as few subjective decisions as possible to ensure our own bias was not driving outcomes.
However, we have confirmed that externally available sentiment only allows for measuring the ability of an organization to be perceived as purposeful and does not illuminate employee behaviors, strategic operations, and organizational performance.
In order to track how Purpose drives behavioral change at all levels of the organization, and how it defines new levels of performance, metrics should tell how the wider organizational context is mirroring meaningful and human change, enabling leadership to understand the root cause of behavior, drive change where needed, and track evolution overtime. Only by then, Purpose will become muscle memory, authentic behaviors will spontaneously emerge, and management decisions will be driven and tracked through I.Q. + E.I. metrics.
3 METHODS TO DEPLOY THE I.Q. + E.I. ORGANIZATIONAL DIAGNOSTIC PROCESS
Tracking I.Q. + E.I. is vital to measure how an organization interacts with all stakeholders to create holistic value. To ensure data, humanity, and strategy holistically drive practices, actions and performance, an organizational Purpose diagnosis process has to be deployed by using I.Q. + E.I. metrics, so to say through objective, reflective and perceptive measurements:
EXHIBIT 3: Three Purpose Metrics
- Objective metrics – When their relevance to Purpose is granularly assessed and tested, pre-existing KPIs are the most reliable and accessible type of objective metric to measure Purpose, track its embed in the organization over time and see impact on performance. What is an example?
HR-related KPIs serve as an exemplar framework that consistently measures the impact of Purpose in culture and at different levels of the organizational structure. Selecting the right HR KPIs requires an organization to:- Focus on both strategic and operational KPIs creating a clear link to processes impacting Purpose activation
- Select by considering ease of KPI operationalization (i.e. assignment of clear measures and responsibilities) and by giving primacy to KPIs that are already available at a required quality level
- Search for best practice by nomination through various perspectives (i.e. successfully used, covering key requirements, proven external best practice)
- Reflective metrics – Various tools can uncover reflective metrics on the current and desired cultural state of an organization. This enables the identification of root causes of cultural gaps and highlights the required changes for authentic Purpose to come to life. Reflective metrics are the tool that most closely quantifies sentiments and emotions, providing nourishing data on E.I. performance. What is an example?
Employee sentiment surveys are the most effective tool to collect reflective Purpose metrics that are demographically representative of the organization, allowing to consider the biggest gaps by cultural dimensions and what will the best purpose activation practice be for each. Effective deployment of employee sentiment surveys requires the organization to:- Use questions targeted to Purpose
- Include entire culture and sub-culture/splits (different departments, sectors, positions, tenures, geographies)
- Define goals for a Purpose-driven culture to focus survey results on opportunity and impact
- Perceptive metrics – External perception of Purpose is key to ensure the organization is externalizing its efforts and leveraging them for stakeholder engagement, talent attraction, brand positioning and expression. Artificial Intelligence (AI) tools – like our BCG BrightHouse + GAMMA Purpose index – can be adopted to get an overall score of how an organization’s Purpose is externally portrayed. What is an example?
Natural Language Processing (NLP) algorithms can translate external stakeholders’ qualitative perception and sentiment of the organization into quantifiable and trackable metrics. NLP can mine unstructured text from multiple sources and languages, enables comparison over time and entities, and elevates granular intervention. Specifically, NLP tools may help the organization to:- Monitor external expression of ideas referenced with Purpose
- Quantify the frequency Purpose is mentioned in communications or external publications
- Translate the sentiment of language used to describe Purpose (i.e. kind, aggressive)
CONCLUSION
Forward-looking companies increasingly value Purpose. More anecdotal evidence suggests it may play a role in long-term organizational health and success. Yet, to date, evaluations of the relationship between Purpose and financial (or other) outcomes has been limited by two shortcomings. First, existing tools for assessing Purpose and performance make too narrow of an examination. Second, studies relating Purpose to financial health have been overly selective, creating potentially biased results. The combination of these two forces has led us to wonder whether Purpose is most accurately measured in a totally objective or a totally subjective way. The answer was neither: only by selecting a combination of objective KPIs, reflective metrics on employee sentiment, and external data on stakeholders’ perceptions, an organization may understand the root cause of purpose-led behavior, drive change where needed, and track evolution over time.
Measuring Purpose requires a tailored combination of objective, reflective and perceptive factors that shed insight on the role of data, humanity, and strategy. Articulating, living, and sustaining an authentic Purpose is a journey. By measuring its impact, an organization may act and bring Return on Intent to life.
[1]https://online.hbs.edu/blog/post/emotional-intelligence-in-leadership