UCL School of Management

31 January 2022

What is the driving force behind an organisation: Profit or Purpose?

Business meeting between three people, with a green wall in the background that reads "Innovate" in white writing.

Should profit be the fundamental driving force for an organisation? Writing for HR Magazine Adam Kingl discusses why moving away from focusing on the share price and redefining the purpose of a company can be more beneficial for the longevity of an organisation.

In recent years and especially since the COVID 19 pandemic, the pace of capitalism evolution has accelerated and companies focus more on stakeholders such as customers, employees and communities rather than shareholders. Adam explains that “most businesses were founded on an idea of introducing an exciting product to the world, serving a previously undiscovered market need, bettering a community or creating employment opportunities” but a blinkered approach on share price can prevent this.

The importance of ratios derived by financial analysts to assess a company’s health have become increasingly more important to investors, but Adam warns these performance indicators are limited to the short-term and do not include the customer value indicators.

He adds that “companies that remain focused on their purpose are rewarded by investors and customers. Aggregate research has proven that such purpose-focused firms significantly outperform their rivals.”

The key to success is that purpose and profit are two forces that serve each other, “The most successful companies, both in profitability and longevity, are the ones who recognise the absolute necessity of profits as well as the equally high necessity of having a purpose beyond shareholders’ wealth.”

Read the full article

Last updated Thursday, 3 February 2022