Purpose and profit: why business success needs a broader perspective

New research shows that, although executives believe that purpose and profit can be mutually achievable, they need better information to deliver future success.

Photo by Stephen Dawson on Unsplash

Business leaders globally agree that their organisations need to shift their focus from pure shareholder value creation to wider value considerations, such as value to society and co-creation of value through other external relationships. 

In addition, 96 per cent of business leaders feel that it is important that they can effectively explain how their organisation creates value for their key stakeholders in the long term. 

There is widespread recognition that future success is based on thinking and doing things differently, particularly with regards to stakeholders and the environment. This suggests that organisations and investors are increasingly acknowledging the intrinsic link between an organisation’s social licence to operate and its profitability.

"There is widespread recognition that future success is based on thinking and doing things differently."

Seventy-two per cent of executives believe that aligning their organisation’s profitability objectives with social and environmental responsibility is very important to their success.

Executive Summary

  •                 Executives globally acknowledge that future success relies on consideration of stakeholder perceptions and wider value creation
  •                 Executives and investors alike desire longer-term perspectives on strategic planning
  •                 Employees take the lead as the focus audience of the value-creation narrative
  •                 A focus on value internally leads to better corporate reports and communication
  •                 Integrated thinking is becoming mainstream, but needs board support to progress further

Long-term thinking cultivates long-term success

Although barriers to long-term thinking and behaviour exist, if given the choice, most executives feel that they should be planning further into the future than they currently are. Currently just 30 per cent of executives use a strategic planning horizon that exceeds three years, although 71 per cent would like to start using a planning horizon that is longer than three years. This represents a 10 per cent increase in preference for a longer-term strategy since our 2016 edition. Eighty-two per cent of executives believe that taking a longer-term perspective to strategic planning would improve their organisation’s value creation potential.

The link between success and long-termism is apparent when these two opinions are viewed together. 

Executives also believe that investors are mirroring their long-term views. Only 16 per cent of those surveyed think that investors view past performance as important.

"Executives also believe that investors are mirroring their long-term views."

The majority of executives believe that a future perspective is extremely important for investors and other providers of financial capital. 

 It is clear that today’s leaders need to consider shifting their focus to establish a long-term strategy that supports sustainable growth and success for their organisation. Ensuring that this approach is effectively communicated to all shareholders and broader stakeholders would logically support the organisation’s potential to gain capital funding and its social license to operate.

Broader value is growing in importance

The importance of broader information remains undisputed. More business leaders than ever felt that it is important to consider broader information alongside financial information in order to give investors and other stakeholders a more complete picture of the value they create. 

An overwhelming 97 per cent of executives agreed that bringing together financial and broader performance information would help their organisation explain how it creates value over time. Of these executives, 64 per cent rated broader information considerations as extremely important, an increase of 15 per cent from 2016.

Executives felt that the most critical information to communicate how they believe their organisation will perform in the short, medium and long term is not just hard measures and metrics, but things like:

• articulating a clear statement of purpose, mission and values; 

• highlighting sources of competitive advantage such as talent; and 

• explaining how the organisation’s business model creates long-term value by identifying key value drivers. 

Despite widespread agreement for these broader performance concepts in principle, the majority of business leaders seem to struggle with communicating them. An even bigger challenge is that only 11 per cent of executives believe that non-financial factors are extensively researched and significantly influence strategic decision-making in their organisation. 

Thirty-six per cent of executives consider non-financial or broader factors important but lack reliable tools and techniques to better understand and incorporate them into strategic decision-making. The good news is that 46 per cent are currently developing such tools and techniques. 

We’ve seen an increase in the number of executives who believe their business models effectively explain how they create long-term value while identifying key value drivers. Business models remain a key tool in disclosing an organisation’s value creation process.

Considering stakeholder interests builds trust

Investors remain a key stakeholder, yet with the recent focus on millennials and the future needs of the corporate workforce, it’s no surprise that the importance of employees, and communications to employees, is becoming top of mind for executives. 

Today’s employees want to work for organisations with similar values − especially ones that have a clear purpose beyond a financial focus and make a difference in wider society. Employees at 77 per cent (55 per cent in 2016) pull into the lead for the stakeholder group that executives feel the value creation discussion is most useful for. They are followed by customers at 74 per cent (85 per cent in 2016) and then investors in third place at 68 per cent (77 per cent in 2016). 

Reinforcing the need to balance purpose and profit, the top three factors business leaders deemed important to the success of the organisation are: 

  1. meeting customers' expectations and needs;
  2. inspiring and engaging people; and 
  3. profitability and financial return for investors. 

There are many possible reasons as to why the shift in stakeholder focus has taken place, however when this is viewed in light of the executive’s preference for longer-term strategic horizons and value, it suggests that concepts such as trust and purpose are inherent factors due to their employee and societal relevance. Organisations may be feeling the pressure of regulatory and societal demands for increased transparency. They may still be in the process of fulfilling these needs.

Focusing on value leads to better communication

Having the right focus on value creation can help drive internal changes and support external communication. 99 per cent of executives believe that it’s important to effectively explain how their organisation creates value for the long term through corporate reporting. This is a 6 per cent increase since 2016 and highlights the consistent relevance of effective corporate reporting from an executive perspective.

We are seeing positive movement and improved confidence in reporting. The majority of executives believe that, in the last three years, their corporate reporting:

  • is becoming more reliable for internal and external use;
  • is becoming a better form of strategic insight into the organisation;
  • has a better focus on outcomes for the organisation;
  • has promoted better engagement on value creation with investors; and
  • is becoming more forward looking.

Fifty-one per cent feel they are making progress on the reporting journey, albeit slowly. In order to make positive change in the long term, new and more relevant forms of data are required within some organisations.

 Many organisations are using reporting as a tool to drive change within their business.

Integrated thinking needs board support to progress further

Most business leaders believe that the aims of integrated reporting align with their corporate objectives.

In fact, 74 per cent, of executives think that integrated reporting will promote a more cohesive approach to corporate reporting and better enable them to communicate the full range of factors (financial and broader performance information) that materially affect their organisation’s ability to create value over time.

Integrated reporting is the culmination of integrated thinking and aims to improve the quality of information available to investors and wider stakeholders.

Three quarters of executives surveyed agree that integrated reporting would:

  • improve the relevance of information available to investors;
  • promote a cohesive approach to corporate reporting;
  • enhance accountability for tangible and intangible assets;
  • eliminate internal silos; and
  • reduce short-term thinking.

As a strategic tool, integrated reporting could provide a wealth of benefits to help any organisation, and 76 per cent of executives agree.

"Integrated reporting could provide a wealth of benefits to help any organisation."

That said, only 35 per cent feel that they receive the vital board or executive level support needed to make progress on their integrated reporting journey.

As with many elements of organisational success, board members will need to be more public and clear about their support for integrated thinking and find more integrated ways of disclosing information for reporting. A clear tone at the top drives organisational change more effectively and allows an organisation to capitalise on benefits faster.

10 questions for executives to help develop their value creation stories.

Considerations for enhancing your value creation story

  1. Have you explained the state of play?Provide management’s view of the market, major trends impacting the market, potential for growth, the organisation’s relative positioning, and underlying assumptions. Outline trends that have a material impact on the organisation and its stakeholders, and explain what these mean for the long-term future of your organisation.
  2. Who are you?
    Express a clear statement of purpose, mission, and vision; communicate a clear understanding of your organisation’s role in society and ensure this is translated into tangible policies for the board’s agenda. Explain how stakeholders are engaged, their interests considered, and business decisions made with these in mind.
  3. Does your business explain how you create value?
    Ensure that your organisation demonstrates its long-term value creation process beyond purely financial returns, outlining how your organisation’s operations transform, create or even destroy value.
  4. What makes your business unique?
    Highlight sources of competitive advantage such as talent, access to resources, or other assets that enable your organisation to execute its strategy and succeed in the marketplace. Point out characteristics that make your organisation different, such as purpose or its reason for existing in the context of your stakeholders and value creation.
  5. Where is your business  going?
    Lay out a detailed execution roadmap that defines short, medium and long-term actions linked to key milestones and strategic goals targeted at long-term value creation. Explain strategic priorities... ...provide clear time frames where possible and ensure that your organisation reports back on previous strategic priorities, explaining whether the organisation has met these priorities or not.
  6. How will you get there?
    Disclose strategic goals ultimately tied to drivers of value creation (e.g. returns on invested capital, organic revenue growth) in the context of current and future market trends, and the organisation’s competitive advantage
  7. Do you measure what gets managed?
    Provide medium and long-term metrics and targets that indicate your organisation’s ability to deliver on its strategy, such as customer satisfaction over time, brand strength, and product pipeline investment and returns. Demonstrate how your organisation’s strategy has been designed with consideration of key stakeholder groups. Explain how these priorities are measured and tracked.
  8. What are your challenges?
    Provide an overview of risks and their mitigation plans, including sustainability challenges (e.g. ESG issues). Clearly outline how your board has assessed the organisation’s viability over the long term and ensure that it demonstrates a direct link between strategic priorities and specific risks, showing also how this aligns with the organisation’s risk appetite.
  9. Is action linked to reward?
    Articulate how executive and director compensation tie into long-term value creation and strategic goals. Make a clear link to your organisation’s values, explaining how the board provides oversight and embeds culture throughout your organisation.
  10. Have you provided a complete picture of value?
    Explain how capital and non-capital investments, including a mix of resource allocation, will yield sustained competitive advantage and the creation of long-term value. Ensure your organisation also provides insight into the areas in which it is investing.


    Sallie Pilot

    As chief insight and engagement officer and board director at Black Sun, Sallie is responsible for engagement in the marketplace and strategic direction for their industry leading research programme.  Sallie has more than 20 years’ experience in delivering strategic corporate communications consultancy projects for a range of UK and international clients. She is a globally recognised commentator on ‘integrated thinking’, trends in corporate reporting, and best practice communications.