What's the Purpose?

Strategy

By John Barrington

In discussion with a wide range of CEOs across Australia, it is a source of constant amazement that many are unclear, or cannot articulate, the Purpose of their organisation.  One would think that this is a fundamental understanding required of the chief executive of any organisation.  Why would this not be the case?  I think there are a number of reasons, including the fact that many leaders are either too scared to be honest about why the organisation exists or are too confused to bring clarity to what should be a relatively simple question.

Some time ago I met with a CEO of a publicly listed company and his direct reports to discuss the strategic issues confronting the organisation.  At the outset he volunteered that from the board, through executive, management and front-line staff, personnel were confused about why the organisation existed.  The company had been privately held prior to listing several years beforehand and the founders were very focused on meeting customers’ expectations and needs.  This clear customer focus, an absolute necessity in the highly contested markets in which they operated, was not only a necessity but no doubt contributed to the significant growth they had experienced over the years preceding listing.  Upon floating the company, their clients and lead initiatives did not waver and the company continued to prosper.  However, there was one fundamental difference from being privately held to now being a listed entity: the fact that they were using OPM, other people's money.

Did this subordinate the clients’ needs?  Or the needs of staff, or any other of the myriad stakeholders involved with the organisation?  Absolutely not.  They continued to be as critically important as they ever had been.  The difference now was that it was more critical to have absolute clarity about the ultimate Purpose of the organisation.  The reason?  Because of the OPM factor; shareholders had invested their money in the company on the expectation that an economic return would be provided.  This does not mean that the other stakeholders are not important.  On the contrary, they come before shareholders in making a claim on the company's residual cash.  Think of it as a totem pole, at the top of which are the employees.  These people are the first, in order of priority, to make a claim on the company's cash.  Next are the creditors, the lenders, the tax office and so on.  After all these claimants have received their rightful dues, and a percentage of profits are ploughed back into the company, shareholders may then take a dividend.  On this totem pole of returns, shareholders are at the bottom.  But they are the ultimate and intended beneficiaries of a company.

Delivering a return to shareholders, while satisfying all other stakeholders on the way through, is the ultimate end of a listed company.

For Not-For-Profit (NFP) organisations, the ultimate and intended beneficiaries are not shareholders, but their claims are just as real.  But in the NFP environment, is often more confused than in the corporate sector. 

To assist, the Argenti Process of Strategic Planning asks 3 fundamental questions:

  1. Who is your organisation set up to ultimately serve (intended beneficiaries)?
  2. What benefits do those people want (benefits)?
  3. How do those people measure the benefits they receive (Beneficiary Performance Indicator)?

For more information, please feel free to email me at john.barrington@barrington.com.au.

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