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A statement of purpose is an integral component of your business’s overall strategic plan. It contains your company’s core philosophy and values on which you should base all business decisions and strategies. It also sets the values and ethical standards by which you choose to operate. Crafting an understandable and attainable statement of purpose helps you and your management team to create policies and measure the success of your company as a whole.
In order to develop your corporate purpose, you need to stand back and consider why the company exists, who it is meant to serve and how the profits should be generated and distributed. In addition, it is important to take the process beyond the current horizons and explore future opportunities and challenges. The purpose of the company, combined with the vision for the future will set the boundaries and stretch the company as it develops its objectives.
Four questions need to be considered when defining the purpose of the company. The answers to these questions will have an impact on how you formulate your strategy and how that strategy is subsequently implemented:
1. What is our area of activity – and what should it be?
The focus of the activity needs to be narrow enough to be actionable and broad enough to allow scope for development. In order to ensure that you can adapt your strategy without changing your vision for your business, the purpose of the company should not be tied to any type of activity or service. For example, Shell does not define their purpose as being ‘to sell petrol’ or ‘to locate and exploit oil reserves’. Shell defines their purpose as being ‘to develop and exploit relationships with governments worldwide’. In light of this, you should consider the following questions:
- What business are you/should you be in?
- Where and how do/should you add value to your clients?
- How does/should your added value differ from that delivered by your competitors?
- What does your purpose tell you in broad terms about how you might/should be structured?
In addition to exploring these questions from an internal perspective, it can be useful to examine them from your client’s perspective. For example, which activities do they value now and what might they value in the future?
It can also be useful take account of your competitive resources – the chosen area of activity should be related to the key strengths that support the competitive advantage that your company has (or would like to have). The key strength should be explored in detail using a SWOT analysis.
2. What kind of company do we want to be?
Two areas that will help shape the purpose of the company should be considered here:
1) Values and ethical standards:
- What values do/should we hold and why?
- How do/should we wish to conduct ourselves?
- How do we measure up to these ideals?
2) Culture and Style of the company:
Given the amount of time and effort employees put into the company, it is important that you provide a good ‘living space’ for those engaged in its activities.
The following questions should be considered here:
- How do/should you undertake your work?
- What organisational structure do you want to adopt? (Hierarchical, Team based, Entrepreneurial, etc.)
- What challenges should be posed to the members of the company?
- How are/can employees be motivated?
- How are/should employees be rewarded?
3. What is the relative importance of shareholders and stakeholders?
For many companies, their purpose is to advance the interests of the owners, usually the shareholders. There are, however, others who will have an interest in the business and its strategy. This group are known as ‘stakeholders’ and may include staff within the company and, perhaps, interested external individuals or groups, such as the bank. It is, therefore important to identify stakeholders who need to be ‘managed’ in order to ensure that they support (or at least don’t oppose) the proposed business strategy. This task should be left until after the strategic vision and objectives have been defined because it is important to review stakeholders in light of the emerging strategy.
4. What is our relationship with our immediate environment and with society in general?
In the immediate environment, the main problems affecting the purpose are likely to be the level of general turbulence in the market and the strength of competitive activity. In the wider environment, your purpose needs to be considered in light of things like Government policy. It is important to consider these factors in light of the emerging strategy model so these should be explored after the first draft of the strategic plan has been agreed – as part of a SWOT analysis.