A Conversation with Jerry Porras - Purpose and Vision

Liu Lan: There is a long-standing debate about the purpose of the company. Most business people, whether in the US or China, still don't believe a business should have a purpose beyond profit. Did this disappoint you?

Polas: No. I mean, this is the reality. I think what we should be doing is making a distinction between getting a reasonable profit and maximizing it. You have to make a profit or you can't survive, that's the reality. Therefore, not making a profit is not an option. The choice is to obtain a reasonable profit or maximize the profit. Economists' view is that businesses exist to maximize shareholder wealth, that is, maximize profits. This is the intellectual legacy of the economics world. Not surprisingly, most managers think so.

Our findings in Built to Last are profound in this sense. We found that, over a 70-year period, companies focused on maximizing profits beat the market by a ratio of 3:1, while companies focused on purpose beat the market by a ratio of 15:1.

By the way, I updated the data in 2000 after 10 years. Finding 10 years later, the visionary companies outperformed the market by a ratio of 16:1, while the control companies outperformed the market by a ratio of 4:1, and they also rose, but the visionary companies continued to rise relative to the market.

Data is powerful. But people refuse to look at the data, refuse to accept it. They inexplicably assert that there is something wrong with the data analysis, or that it's just bizarrely biased, or something like that. They are reluctant to give up the idea that maximizing profits is the only way to make big money. I think they're reluctant to give up because it's easier.

Liu Lan: That's a great point.

Borath: Yes, it's easier this way. It's so clear that everyone knows it. You won't hear any complaints either. People won't criticize you because it's widely accepted.

But if you're a more courageous manager, you say our focus is to contribute, and if we do really well, we're going to make a lot of money, we're not focused on making money, we're focused on getting things done . It's more courageous, but it's harder, harder to convince others, because of the circumstances.

Liu Lan: You mentioned just now that you had an argument with Jim Collins about whether a company was purpose-driven or mission-driven. What is the difference between the words purpose and mission, and vision and values?

Polas: These words are used a lot. Purpose is not that often, but mission, vision and values are used a lot. These words are often used in different meanings.

Let's talk about the mission first. A mission sometimes describes the contribution you want to make. If you use it in that sense, it's more of a purpose. But sometimes the mission is used to describe what you're doing, like "Our mission is to provide health care to the Northern California community." Sometimes a mission is a responsibility that you have, which is often used in the military. Sometimes a mission is a big goal you want to achieve, like "our mission is to put a man on the moon and back successfully within 10 years". Mission is used in the above four contexts.

What do you mean when you use it? I don't know, I'll have to listen to it to know what you mean.

Purpose has a more definite narrow definition of why you exist and what the fundamental contribution you are making. This is why we substitute purpose for mission. When we first discussed the difference, it wasn't very clear. - We are influenced by our respective backgrounds. Jim has previously worked with the management team of a small company. For them, the mission is more of a primary goal. I work with bigger companies.

Jim is a consultant and I do more theoretical thinking. I was thinking, what is the glue that holds the tissue together, determines the structure, the culture, everything. I think it is the purpose. At the beginning we had a dispute, through discussion, we understood each other, and it was smooth sailing after that.

Let's talk about values. What we found in our research are core values, enduring, limited in number, only three or five, very fundamental, values that you stick to no matter what. This is different from other values in the organization.

These other values—which I didn't use in the Built to Last book, but I use that word for them now—I call them strategic values. They are what organizations use to achieve strategy. The point is, if you change the strategy, then you change the values.

And the reality is that your strategy has changed, but the values are often the same, preventing you from realizing the new strategy. This is one of the problems of change, how to change values.

Core values and strategic values are two different values that exist in an organization. Core values do not change, strategic values are dynamic and they should change.

Vision, in its most common sense, is a vision of the future, or your dream of what the future will be like. If you ask yourself what role vision should play in an organization, you'll get a long list. A vision should inspire people, should inspire people, should focus people, guide behavior, limit action, and so on.

I asked students in my senior executive course to tell me what they thought the vision should do for their company, and I got a list of up to 20 items. I asked again: Does your company have a vision? They all raised their hands. Let me ask again: How many of these 20 items are written on the blackboard, how much does your company's vision meet? The usual answer is three, four, five. That is, there are 15 to 17 items where the vision is not met.

What's the problem? The problem is that the traditional view of vision is not complex enough. So our description of the vision in Built to Last is that the vision has to be more complex than the dream of the future. If you're going to meet all 20, the vision has to be more complex.

If you look at what visionary companies do to meet these 20 items, first they have a purpose and they meet some of them; they have core values and they meet some of them; they also have bold goals and they meet some of them . Combined, all 20 items are satisfied. So we say that the vision is all three. Also, you have to communicate the vision, so have a vivid description of the vision. So the vision is these three or four added together.