In the disruptive environment we are all facing, companies often take a step back and reassess their value proposition, purpose and whether they are ahead of the curve regarding strategic implementation.
This is not limited to South Africa. As a Harvard Business Review article points out, it is a global challenge that companies are struggling to come to terms with.
A Multiplicity of Metrics
The HBR article points out that BHP is Australia’s largest company by market capitalization and is valued at nearly 50% more than the second most valued, the Commonwealth Bank. According to its 2017 annual report, BHP’s purpose was focused on shareholders alone. It aimed “to create long-term shareholder value through the discovery, acquisition, development, and marketing of natural resources.” Post-2019, according to its latest annual report, its purpose statement has broadened: “to bring people and resources together to build a better world.”
The impact of this change in wording can be seen in BHP’s corporate strategic planning. In its 2017 annual report, the company emphasised financial performance and managing risk, in line with its shareholder focus. Its latest annual report carries a much broader and nuanced corporate tone, emphasising BHP’s contribution to “social value.” The company “highlights” its performance around results such as the percentage of women in the workforce, greenhouse gas emissions, Indigenous people in the workforce, and the amount invested in environmental and social programs. It’s clear that the company is investing in, and measuring its impact on, a much broader group of stakeholders.
The Commonwealth Bank is Australia’s second-largest company by market capitalisation and the nation’s largest bank. In 2017 the bank did not have a stated purpose at all. However, in its 2017 annual report, customers are “the overarching priority of our strategy.” Even the mention of staff (“people”) is in terms of what they can do for customers.
The article adds that the bank has now shifted its position and in its latest annual report the company states that its corporate purpose is “to improve the financial well-being of our customers and communities.” It’s a significant expansion. The chairman’s report, which is part of the annual report, highlights “sustainable results for all stakeholders” and concludes with “we recognise the importance of achieving the best balance of outcomes for all stakeholders.” This emphasis is clearly absent from the chairman’s and CEO’s joint statements in the 2017 annual report.
Woolworths is Australia’s largest supermarket chain. By some reckonings, Woolworths is ranked as Australia’s leading brand. In 2017 Woolworths seemed unsure of its corporate purpose and provided two statements. One focused on delivering quality — specifically “adding quality to life” for “our customers” and “our people.” The other was: “We are focused on shareholder returns through the effective deployment of capital and ensuring that we deliver on our Group targets.”
Image By: Gerd Altmann via Pixabay
The article points out that the company has now moved away from these earlier statements and any mention of shareholders. Its latest statement reads: “to create better experiences together for a better tomorrow.” The impact of this on its corporate strategic planning is demonstrated via the broader range of metrics it now provides across its stakeholder groups: shareholders, customers, partners (suppliers), team (employees), and the community.
KPMG is one of the “big four” accounting firms in Australia. While it went down the purpose path prior to the Business Roundtable’s statement, it’s an apt illustration of the impact that doing so has on corporate strategy execution. Like many other businesses, including Cisco, Hasbro, Deloitte and Intrepid Group, KPMG has established a special corporate role in the C-suite — Chief Purpose Officer. This person “is tasked with challenging the board and partnership on the decisions made, and ensuring they are aligned with our purpose and values.”
The Tasks Ahead
The HBR article points out that staff have a healthy scepticism around “management fads.” You need to be aware of this in your corporate strategic planning. Managers have workshopped mission statements. They’ve pondered the corporation’s vision. They’ve teased out the organisation’s values. And they often wondered – to what effect? Now, they’re asked to consider corporate purpose.
While there’s evidence that companies with a clear purpose do better than those without one, this comes with much hard work. Here’s a partial list of your tasks ahead. I address these not only to CEOs and boards in businesses of all sizes, but also to senior executives in leadership positions.
Important factors
The HBR article points out that corporate leaders should educate staff about stakeholder needs. This includes those of the community. Staff mired in the old mindset around “maximising shareholder value” will struggle to make the change — especially those in financial functions. There are organisational culture implications here, too.
Broaden participation in the corporate strategic planning process. Once you recognise the importance of key stakeholders in strategy design, it makes complete sense to make sure your strategy is co-created with them as much as possible.
The article adds that corporate leaders should ensure your corporate purpose is executed via detailed strategy. KPMG, along with many others, recognized that a failure to execute on corporate purpose will do extensive harm to a company. Many businesses are coming up short here.
Purpose-driven companies are part of the modern era and, I believe, are here to stay. As a result, corporate strategic planning methods have had to change and will continue to evolve further from this point.
Image By: Gerd Altmann via Pixabay
IBR powerplay
It is often difficult to know where to start when it comes to this process. This is especially true during financial distress. Emotions are high, and risk management best practice states that corporate leaders should take fewer risks during this period.
However, companies need to be aware that there is a difference between risks that will damage a business and risks which may offer downstream benefits. The challenge is knowing the difference between the two. This is where the benefit of an independent business review stands head and shoulders above other risk management tactics. Having a 360° view of your business and its challenges will determine which risks are acceptable and which are detrimental.
At a glance
Following statements by the U.S. Business Roundtable in 2019 and 2021, the basic purpose of the corporation has been expanded from maximizing value for shareholders to maximizing it for all stakeholders.
The implications of this are that performance must now be measured along many more dimensions than before and that leaders have to help employees transition to a stakeholder mindset, broaden participation in strategy-making, and make sure that their strategies really do reflect purpose. This can surely benefit South Africa.
