In praise of the purposeless company

strategy+business, April 18, 2019

by Theodore Kinni



Photograph by Avalon_Studio

These days, my vote for the most misunderstood and misused management concept goes to “corporate purpose.” Back in 1973, the concept was crystal clear to Peter Drucker, who declared with admirable concision in Management: Tasks, Responsibilities, Practices: “There is only one valid definition of business purpose: to create a customer.” Since then, however, the definition of corporate purpose has mutated into pretty much any reason for being in business that isn’t explicitly connected to making money.

Business professors Sumantra Ghoshal and Christopher A. Bartlett unbottled this genie in a 1994 article in Harvard Business Review, in which they argued that strategy (“an amoral plan for exploiting commercial opportunity”) wasn’t enough: “A company today is more than just a business. As important repositories of resources and knowledge, companies shoulder a huge responsibility for generating wealth by continuously improving their productivity and competitiveness. Furthermore, their responsibility for defining, creating, and distributing value makes corporations one of society’s principal agents of social change. At the micro level, companies are important forums for social interaction and personal fulfillment.”

Why was a highfalutin corporate purpose seen as such a big deal? IGhoshal, who passed away in 2004, and Bartlett, who is now professor emeritus of business administration at Harvard Business School, concluded that companies had to transform themselves from economic entities to social institutions. They added that the “definition and articulation [of purpose] must be top management’s first responsibility.” Read the rest here.