The ROI of Purpose
As more and more companies adopt a purpose-driven strategy, one of the key questions that needs to be addressed is how to measure the return on investment from a purpose-driven initiative. But the question is a complex one since purpose affects so many different aspects of a company: consumers, employees, shareholders and other stakeholders.
While we are no means an expert on the intricacies of business modeling, we offer a modest proposal on how to integrate the various metrics into a multi-dimensional model which attempts to truly ‘measure what matters’ when it comes to calculating the ROP (or ‘Return On Purpose’) for a company or brand.
Here are the key elements which we propose should be measured:
Financial:
At we outlined in the principle ‘Purpose Must Be Profitable To Be Scalable’, the model must measure the financial gains attributable to the initiative (since this is business, not philanthropy). For instance, when Adidas sells 11 million pairs of sneakers made of ocean plastic at $2 billion of revenue, that line item on a P&L is a clear indication of the financial success of the project. If the company is publicly listed and an initiative can be shown to have a direct impact on the share price (as in the case of Nike who’s Colin Kaepernick campaign ultimately surged 33% after taking a dip), there is also a case to be made for attributing that value to the model.
Brand:
The impact of a purpose-driven initiative on the health of the brand is also another key area to be measured. There is no doubt that the brave stand Patagonia took in challenging President Trump burnished its brand in the eyes of its loyalists. And there is no doubt that Tesla’s bold ambition to rid the planet of fossil fuels is part of why its customers are willing to pay a price premium for the brand. The ‘silver bullet’ question which is most important is drawing a clear correlation between purpose and sales. Sometimes the correlation is easy to see: witness how Patagonia’s sales jumped six times on the day following the announcement. However given the complexity of the purchase funnel, we believe that at the very least measuring ‘Purchase Intent’ (‘Does this initiative make you more or less likely to purchase this brand’) is the closest proxy when trying to evaluate success.
In the age of ‘weaponized word of mouth’ at scale via social media, the other crucial thing to measure ‘Advocacy’ (‘Does this initiative make you more or less likely to recommend this brand’). As we outline in the chapters about Tieks, positive word of mouth at scale is invaluable to a brand. If possible, brands should put into place bespoke pre- and post-consumer tracking or use existing models like Net Promoter Score to measure this sentiment. Other measures worth tracking are brand loyalty, lifetime value and the openness to paying a price premium.
Employees:
Often, as we saw in the chapters on Lego and Chobani, one of the biggest upsides of purpose-driven initiatives is the effect it has on the employees of the company in terms of morale and motivation. While each company has its own metrics for measuring employee engagement, a common one worth measuring is the impact on turnover: Does the initiative make employees more or less likely to stay with the company? One of the world’s leading corporate purpose platforms, Benevity’s research shows that employees are 57% more likely to stay with a company which offers volunteering and fundraising opportunities, leading to significant cost reductions (the average cost of replacing an employee is 1.2 times their annual salary).
This is in addition to helping make it easy to recruit new employees, especially Millennials and Gen-Z who are increasingly motivated by the opportunity to work for a company that creates meaningful social and environmental impact (leading to lower recruiting costs). As the importance of the ‘Employer brand’ (the term used to describe a company's reputation and popularity from a potential employer's perspective) continues to grow, purpose will become a key component to attract the best talent.
Innovation:
Another under-measured aspect of purpose initiatives are the effects they have on liberating employees to think innovatively on how everyone can add value to the company. In some cases, this has led to employees coming up with entirely new products or opening up new markets. Authentic, employee-driven innovation maybe one of the most valuable outcomes that a purpose-driven culture can trigger.
A great example is the chapter on Microsoft employee Saqib Sheikh who developed a ‘Seeing AI’ app which has enormous potential to create a new platform for products that drive accessibility.Or as we show in the chapter on Zappos Adaptive, a clothing line started by Zappos employee Saul Dave after a phone call with a customer revealed a hugely underserved new market.
Stakeholders:
This is a somewhat broad bucket which includes both ‘customers’ (retailers and distributors who may purchase your product to sell to consumers), ‘suppliers’ (vendors who sell raw materials or produce your product for you) and ‘society’ (government, nonprofits and other actors whom the company has relationships with).
The benefits of a positive reaction to a purpose-driven initiative could be myriad; from more favorable trading terms to broader community acceptance and support. Ultimately all of this ladders up to Corporate Reputation, that invaluable intangible which can greatly affect the perceived ‘Brand value’ of a company.
Social:
Finally, it is now becoming possible to measure the social and environmental benefits of an initiative in terms of not just ‘outputs (the list of actions generated by the initiative) but ‘outcomes’ (the actual benefits to local and global society). One of the pioneers in this field is our friend Lesa Ukman whose Pro Social Valuation model is worth exploring because it is able to calculate a financial value to society generated by a social impact initiative.
For instance, if a corporate impact initiative leads to 50,000 veterans getting jobs (as is the case with Activision’s Call of Duty Endowment) we now have a way to accurately measure the reduction in cost to society in terms of welfare and support services, not to mention the economic upside caused by so many new entrants to the workforce.
While it is imperative to acknowledge that it takes many actors to create such systemic shift, if companies are able to correctly attribute that value and fold a proportion of that it into the return on investment model, this makes the business case for doing good that much stronger and paves the way for future initiatives.
As companies search for a holistic approach, we hope this exploration can spark debate on how to measure economic, social and cultural capital generated by purpose-driven company initiatives. We believe that with time our models for measuring the impact will become more sophisticated and standardized across business allowing us for the first time to see how truly transformational this approach could be.