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Thursday, April 20, 2006

Profits and purpose

During a recent strategic planning meeting, directors of a publicly traded company got into a heated discussion about goal setting for the organization. I suggested that we step back and clarify the company’s purpose and mission.

“Well that’s easy,” said one director, who then highlighted revenue and profitability targets.

But there’s a difference between purpose and profits.

Joan Magretta’s great book, “What Management Is: How It Works and Why I'ts Everone;s Business,” explains why understanding the difference is important if we want everyone in the organization to “pull in the right direction.”

“Now that we’ve become a nation of shareholders and investors, we are more likely than ever to think that the purpose of a business is to generate profits,” she writes. “But the real purpose of any business is to create value for its customers and to generate profits as a result.

“While the distinction between purpose and results may sound like hair splitting, it’s not. It goes to the heart of how managers get organizations to perform.”

In the book Magretta uses Fidelity Investment’s retirement business as an example. Fidelity doesn’t define mission and purpose in terms of profitability or number of retirement accounts. Its purpose? “Make sure people who invest with Fidelity have enough money to retire.”

Such a clear purpose then helps us create the goals and strategies to achieve the greater purpose. And to measure the right performance benchmarks.