What’s the purpose of business?

In a world of overwhelming complexity, it isn't easy to find the purpose of business. We shouldn't veil our confusion.

Do the Right Thing is a Spike Lee movie that's already 30 years old. It is what the title says: a call to do the right thing. In the case of the movie, it's clear what the right thing is. In the business world, it's not so easy. There was a time when maximising shareholder value was considered the right thing to do. But in 2019, this time finally seems to be over. It's now way less clear than it was before, and the newfangled focus on purpose only thinly veils the underlying confusion.

On an abstract level, we could return to the great Peter Drucker, who famously stated that the purpose of business is to create a customer. That was in 1954, and 65 years later it sounds like an early version of the customer centricity mantra of today's digital era. On a similar note, Timm Richter asserts:

The main aim of any company is to offer a product or service such that it generates user value.

Are we doing the right things?

Thus, we arrive at creating customers and generating user value as the main purposes of any business. And indeed, that's what the great digital companies of today do all the time. In countless battles with incumbents, they prevail through better customer experiences. Create better customer experiences and win – is it really that simple? At NEXT19, Brian Whipple said something that stuck in my head:

It seems we can do anything, but are we doing the right things?

Let's have a closer look. We can do anything refers to the incredible power of digital technologies. It's hard to understate its impact on our world and its capability to create new realities. It is a disruptive force to existing businesses, to our societies and to all kinds of structures. With technology, we can do almost anything.

This quasi almighty power poses an urging question: Are we doing the right things? This is, by its nature, an ethical question. It's the age-old question what we should do. And beyond that is another question: Why should we do what we do in the first place? The why is the purpose, and thus we come full circle.

The rise of purpose marketing

The digital revolution has replaced shareholder value with user value. Shareholders and the other stakeholders, like employees, suppliers and society, are best served when the user gets value through better customer experiences. This is how Steve Denning puts it:

If the customer’s needs are met, then the shareholder’s needs will in due course also be met. When customers are delighted, the firm makes more money and can afford to pay workers more and meet the needs of other stakeholders. Moreover, customer capitalism is intrinsically moral: human beings are creating value for other human beings.

In today's business reality, we are not there yet. At least not entirely. We've seen the rise of purpose marketing, but this approach is often in danger of putting lipstick on a pig. In that case, the purpose is attached to the brand on a superficial level, like any old-school marketing campaign. It may work for a while, but ultimately customers will see through it.

Done properly, purpose sits on a higher level than vision (goals) and mission (how to reach them). Purpose answers the question why a company exists in general, beyond making money, maximising shareholder value, creating customers or generating user value. It is a bigger why, and also a more specific why.

In a world of overwhelming complexity, it is hard to find the right answer to this question. Digital technology is powerful, and the more powerful it gets, the more important becomes the question: Are we doing the right things? We should freely admit our confusion, and that we don't yet know the answer.

Photo by Gary Butterfield on Unsplash