Strategic Alignment Reconciles Purpose and Profitability

Purpose and Market Needs Shape Strategic Alignment

To help unpack these issues, consider a simple framework where purposefulness and external demand form two dimensions for product and service selection. (See “Where Purpose Meets Market Demand”) Is the enterprise’s business strategy and the products and services it offers to the marketplace guided by its purpose or driven by external demand?

Ideally, in a strategically aligned enterprise, it should be both. If it is positioned in the top right quadrant, what the enterprise does matters to others, and it’s done well. A strong sense of purpose provides a values-based, pervading logic for why an enterprise offers what it does, and that is valued externally by customers, investors, and other stakeholders.

However, if a company’s clear sense of purpose, no matter how noble and well intentioned, is not translating into an exchange of value with external customers in the form of the products and services they consume, the enterprise is engaging in wishful thinking. It doesn’t matter what an enterprise does if no one is buying what it’s offering — there is limited potential for external impact. Like opportunistic companies, wishful-thinking companies are unsustainable in the long term.

Opportunistic companies are motivated by little but profit. They are highly prone to misalignment because they have no fundamental raison d’être guiding their strategic choices over the long term; rather, they reactively follow the money wherever it takes them. Many once highly successful diversified companies, such as GE, arguably strayed from their core purpose and fell victim to conglomerate discount, a phenomenon in which a whole company is valued at less than the sum of its individual lines of business.

Finally, while some entrepreneurs may launch into the market hoping only to make a quick buck despite little evidence of real demand for their company’s offerings, such businesses don’t last long due to their lack of purpose and inability to stimulate demand. They are essentially dead on arrival, and offering a solution to such problems is beyond the scope of this article.

Leaders must reflect on their enterprise: What is its purpose? What does it exist to do? Why is it important to execute this well? How well have they articulated it? How well do the company’s market offerings align with its purpose, and how in demand are they? Is the enterprise strategically aligned, indulging in wishful thinking, or being opportunistic? If it is not strategically aligned, how can leadership strengthen its purpose, better align its strategy, or both, if necessary?

Strengthening the Company’s Sense of Purpose

The first step in strengthening the enterprise’s purpose is to initiate a leadership conversation that asks five fundamental questions:

1. 1. What do we exist to do as an enterprise?
2. 2. Who do we do it for?
3. 3. Why does it matter that we do it well?
4. 4. How do we define success?
5. 5. How do we measure success?

Leaders must resist the temptation to outsource creative thinking to an external agency and should instead rely on internal talent, including the C-suite and one or two levels below. This approach ensures that all senior operational and functional leaders engage in the process.

Whenever I facilitate such leadership conversations, I strive to ensure that they are disciplined and structured to avoid getting stuck in the weeds — discussions about purpose too often become exercises in wordsmithing. What truly matters is critically reviewing the fundamental meaning and principles that underpin the company’s reason for being. This requires maintaining a 50,000-foot perspective, and, in practice, the thin atmosphere of such abstract discussions can be challenging for results-oriented operational leaders. However, when the process is conducted effectively, its outcome is leadership consensus on the company’s enduring purpose and identity. A purpose statement should reflect that consensus in an easy-to-understand and memorable format.

The British Army recently rearticulated its core purpose to bring clarity and focus to its societal impact and provide the logic for rethinking its organizational strategy. With a storied history spanning hundreds of years, the army has recently had to pivot from two decades of fighting an asymmetric war on terrorism to the new realities of rising global tensions and a war on European soil between near-peer adversaries (those with equal or similar military capabilities).

The rearticulated purpose of the British Army is “to protect the United Kingdom by being ready to fight and win wars on land.” The statement’s brevity and simplicity make it easy for everyone to remember, including — and perhaps most importantly — those serving on the front lines. In a few words, it addresses the five foundational questions above and lays the groundwork for strategizing by describing the army’s role (protecting the United Kingdom) and domain (land as opposed to air, sea, or cyber), elevating readiness as the overriding strategic priority.5

It also defines what success looks like (winning), whether viewed from the highest political chamber of the land, army headquarters, or the battlefield. For army leaders, as for leaders in any organization, the challenge in the conversation that ensues is to choose, among multiple different options, the strategy that best accomplishes the purpose in the current and future operating context.

Aligning Strategy to Purpose

The enterprise purpose provides the ultimate motive for prioritizing options and making discriminating choices.

While they are vital, strategic plans, scenarios, budgets, scorecards, KPIs, OKRs (objectives and key results), and so on are merely expressions of an enterprise’s business strategy; they are not the strategy itself. A strategy is a series of key choices that support fulfilling the enterprise’s purpose in the context of competitive threats and known or nascent market opportunities. These choices manifest as basic strategy principles and assumptions that inform downstream technical planning, prioritization, and, ultimately, the new operational reality, if implemented well.

Strategic alignment does not occur naturally or by accident. It is a matter of choice. Work through the simple but powerful questions with your team for each strategic decision area below, keeping in mind both the current operating context and a five-to-10-year future horizon. Your answers will determine how well your enterprise can perform its purpose and the scale of its potential for a positive impact on the customers and markets you deem important.

What: Which products, services, and activities should your company offer to the marketplace to fulfill its enterprise purpose? These choices are at the heart of the organization’s value proposition, whether as a single line of business or a diverse portfolio. If the enterprise’s purpose is what it exists to do as an organization, then its products and services are how you go about fulfilling it in the context of changing customer demand. What, ideally, should the enterprise continue, start, or stop offering, based on the criteria of alignment to purpose and what customers are willing to pay for?

Who: To whom, ideally, should your enterprise offer its chosen products and services to fulfill its purpose? Does the enterprise purpose require the organization to appeal to the mass market, or will it target a specific segment, such as eco-conscious consumers? Your choices determine whom you primarily seek to engage with in an exchange of value and the subsequent nature of that relationship. For instance, are you leading a B2C enterprise like McDonald’s, engaged primarily in a short-term transactional relationship with customers? Or are you leading a B2B company like McKinsey, perhaps partnering in longer-term, more in-depth relationships with clients? Both are transactions, but they differ markedly in their potential impact and the scale at which they can be performed.

Where: Where, ideally, should you offer your chosen products and services to fulfill the enterprise purpose? Markets can be defined in many ways but typically focus on geography or industry. For example, the choice of which geographical markets to compete in for market share may be local, national, regional, or international.6 The British Army’s primary constituency is national (the U.K.), but its operations may be international in the pursuit of its purpose. Like the choice of customer segment, related market choices profoundly shape the potential scale of enterprise impact in line with purpose-related aspirations.

How: How can you best respond to customers’ preferences to fulfill the enterprise purpose? What are customers demanding of the products and services they consume? Is it affordability? One-stop-shop bundling? Personalization? Each option requires a different organizational capability to be implemented effectively, and superiority should always be the goal in a competitive environment.7 The risk of not being distinctively good is that products and services may become commoditized over time and trapped in a price race to the bottom of the market with equally undifferentiated competitors. If your organization can’t supply what customers want in the way they want it (whether they know it or not), its potential for impact will be limited, and the enterprise purpose will go unfulfilled.

There are no right or wrong answers to the questions listed above — each is an informed gamble. They are also interrelated; addressing one without the others will not provide coherent strategic direction to employees or the market. The answers should be homegrown, not imported; companies should not seek to emulate the choices of others based on the reasoning “Well, if it worked for them, it will work for us.” Doing so can result only in vanilla outcomes at best. Instead, the enterprise purpose provides the ultimate motive for prioritizing options and making discriminating choices that suit each company’s unique circumstances. Equally, the process described above is not a one-time deal; the answers to these questions will likely need to change frequently — as often as necessary — to keep up with the evolving external business environment. The result should be a purpose-aligned strategy that is responsive to external opportunities and threats, and clear in its intent.

For example, since its founding immediately after World War II, the Development Bank of Japan (DBJ) has been driven by a strong sense of social purpose: to facilitate Japan’s reconstruction by financing nationally significant economic and social projects. Today, however, as a wholly owned subsidiary of the Japanese Ministry of Finance, DBJ must also be profitable. Historically, DBJ has fulfilled its purpose of “designing the future through financial expertise” (roughly translated) through structured loans within key industries where private sector financial institutions might not venture. Its development activity is highly diverse, encompassing aviation, utilities, transportation, agriculture, energy, tourism, and more.

Following the 2008 global financial crisis, DBJ diversified its offerings to include investment management, asset management, and financial advisory services. It also expanded its market, establishing offices in London, New York, Singapore, and Beijing. To address the nation’s most significant long-term economic and social development programs through highly targeted and complex investments — capabilities that make it distinctive and differentiated — DBJ is constantly aligning and realigning its strategy, always to serve its enduring enterprise purpose in the context of external demand/need.

A lack of clarity regarding their purpose often drives companies toward opportunism as they attempt to meet performance demands in any way possible. Conversely, insufficient market awareness or customer feedback can easily lead to unrealistic product and service strategies. In a strategically aligned company, the enterprise purpose (the definition of success) and profit (a measure of that success) should naturally complement each other in a closely aligned value chain that offers guidance and clarity to all.