The traditional view of corporations has long been that they exist primarily to create value for shareholders. However, this profit-centric approach has led to various social and environmental issues, with the 2008 financial crisis highlighting the need for a shift in mindset. Today, businesses are increasingly embracing purpose-driven theories, recognizing that they can have motives beyond just profit – especially if pursuing profit causes more harm than good.
A groundbreaking research program by The British Academy has been exploring how corporations can be both purposeful and profitable in the future. The authors of the report suggest that profit should be a result of a company's purpose, rather than the purpose itself. Instead, a company's purpose should be focused on contributing to societal goals and serving the broader public interest.
A new perspective on purpose
Companies that lead with purpose are better equipped to identify and capitalize on the commercial opportunities that our ever-growing environmental and social challenges present. Purpose is a way to solve social and environmental problems profitably, rather than profiting by producing these problems. It's important to remember that purpose is contextual and specific to each corporation, meaning it should be tailored to address the unique issues the company is equipped to solve.
Given the changing landscape, some scholars argue that conventional business models may no longer be appropriate and propose systemic change. Hybrid business models, which are commercially viable while also creating positive social and environmental impacts, are an attractive option. These models focus on balancing profit with social purpose, using innovation strategies to ensure corporate sustainability.
Rethinking business models
Innovative and hybrid business models, such as social-oriented and social purpose enterprises, are gaining traction as societal norms and expectations push for their adoption. However, there are still significant challenges to fully realizing both financial and socio-ecological purposes. Similarities can be found between social purpose and circular business models, both of which view weaknesses in existing economic systems as opportunities to innovate and position businesses as drivers of positive change.
Some experts believe that an existing business model can be strengthened by having a clear corporate purpose and a strong commitment to see it through. This approach can create benefits for the company and those who benefit from its social commitments. Rather than transforming business models, coupling strategy with purpose might be the answer. This can be achieved through analytical, business model, and institutional coupling, each of which focuses on different aspects of integrating purpose into the organization's practices, values, and interests.
As more businesses adopt purpose-driven approaches, we'll likely see a shift in how organizations balance profit and purpose. By prioritizing societal and environmental goals, companies can create a better world while still achieving commercial success. The power of purpose is undeniable, and embracing it can be the key to a more sustainable and equitable future for all.