Transforming the "So What" Opposites in to a “So That” Strategy called Purpose Innovation

The last few posts on the topic of “balancing opposites” have definitely made our blog readers to pay a closer attention to the ideas we have been promoting in the fast few weeks. Coincidentally enough, on the other day, one of our readers came up with a “So What?” question– which, in our opinion is a great sign – as, it is just a matter of time that they will transition from the “so what” camp in to the “so that” camp, as alluded in one of our earlier posts (http://strategywithapurpose.blogspot.com/2010/09/transforming-what-aboutso-what.html). With that said, we are going to dedicate this post to answer that specific question- i.e. how do we transform these “so what” questions in to a “so that” strategy called “purpose innovation” within the context of balancing opposites?

First things first... what is this purpose innovation? As depicted in the graphics on the top of the page– when core and edge (or, in general, when opposites) are balanced , the “forces of attraction” from the core and edge participants of various related and unrelated industry verticals come together to unleash their synergistic purpose value in the form of a powerful innovation called - purpose innovation - with its three sub components -

• Boundryless purpose models - A stirred up view of edge opportunities, in the form of a “pull value chain” disrupting the traditional boundaries of related and unrelated industry verticals (CPG, Retail, Telecom/Hi-Tech, health care, Pharma, Insurance, Banking etc.) – who are knitted together with a “forces of attraction” from the “purpose value opposite pairs” such as Health &Wellness/Taste & Beauty, Sustainability/Maintainability, Mass Market/Personalized, Shareholder value/Community value and Externality/Internality - to name just a few.


• Boundryless Purpose bundles - A “causal chain” based dynamic bundle of products and services with a set of positive value incentives that are shared among all the players of the pull value chain (consumers and participants alike) who helped to create them- as incentives help catalyze collaborative action.
  


• Boundryless Purpose platforms* - A flexible foundational platform design that help to change the characteristics of the underlying product and services without changing the platform design significantly using the emerging technology and manufacturing/supply chain best practices - a huge capital cost saver.

I hear someone asking - how is this purpose innovation different from open or institutional innovation? In our opinion, purpose innovation is much broader. While open innovation focuses on leveraging third party resources to support organizations’ product and/or business model innovations, institutional innovation, in some cases, also expands the scope to include the core operating processes of partner’s value chain – but, still within a single or related industry verticals. On the other hand, purpose innovation goes few steps further – by creating a “pull value chain” across both related and unrelated industry vertical boundaries in the form of purpose models, purpose bundles and purpose platforms – that are knitted together with a powerful “forces of attraction” from the consumer consumption driven, causal chain based, “purpose value opposite pairs” as listed earlier.

Pull Value Chain - Explained

This "pull value chain", unlike the push model encourages decentralized, yet loosely coupled interactions among its players from both related and unrelated industry verticals facilitating much broader type of collaborative innovation, using the “forces of attraction” from the purpose value opposite pairs. This attraction in turn inherently makes the participants to come together with a causal chain relationship, thus making them highly scalable with diverse, yet complimentary set of talented resources. This type of unprecedented scalability is being achieved because of the “distributed talented workforce"- regardless of their location or country where the pull value chain’s operations are predominantly executed.

Granted – in some situations, we will need the push management techniques for better control - however, they are used only on a case by case basis, and not as a norm. Hence, the push model organizations –typically go through a mindset shift to effectively harness the potential of pull value chain –which brings up another point - that the purpose innovations, in some cases also might override local product and/or business model innovations within the context of creating big picture value for all the participants - instead of creating the value for just one participant.

Pull value chain, in addition also pulls consumers with the same forces of attraction by providing valuable incentives in the form of purpose bundles. In other words, pull value chain makes consumers as passive virtual business partners within the value chain, thus making consumers as their lifelong partners creating a different kind of consumer loyalty -called “composite brand loyalty”.

The 3P’s (Purpose Models, Purpose bundles and Purpose platforms) Explained

Purpose models are the revolutionary game changing business models that not only just reinvent the firm from product/business model innovation standpoint, but also, mutate the DNA of the brand at the nucleus level and make them to be a part of a “pull value chain” composite brand. In other words, business models usually shuffle the value chain activities of the firm within the four walls of the firm (or at the maximum within the industry or related industry verticals) whereas, purpose models go few more steps further - shuffle the value chain activities of both related and unrelated vertical boundaries– and, then re-purposes the vision/mission of those brands (as both standalone and composite brands), with a causal chain based purpose bundles- that are knitted together by the “forces of attraction” resulting from balancing the “purpose value opposites” (i.e. the example value pairs as identified earlier).

Similarly, Purpose bundles are the causal chain based “consumer consumption” driven “day in the life” type dynamic bundles of products and services from variety of related and unrelated industry vertical providers that are bundled together by the “forces of attraction” from the “value opposites” – thus, providing a better value for the purpose minded consumers who are committed to a leading a purpose life style. For example, under this model, a Health and Wellness/Green minded consumer (who is also a passive partner of the pull value chain), will get a better value when they purchase a dynamic purpose bundle of “health insurance along with a variety of H&W based durables and non durable P&S and workout services” in a price that is in proportion to their purpose scores. The causal chain relationship rationale here is that- those consumers, who eat healthy organic food, apply natural beauty treatments to their bodies and exercise well will have a healthy life - and hence they deserve a better health insurance premium and so on and so forth. Extending the context of the this causal chain rationale, one can also say- that the more products and services consumers add to their causal chain - the more their purpose scores - and hence, better the value.

Likewise, Purpose Platforms are the foundational infrastructure enablers of the purpose models (and purpose bundles) providing the flexible platform design (with principles like JIT, lean manufacturing, tapered integration etc.) to help change the “relevance, access and value” characteristics of the underlying products and services - without significantly changing the platform design. This is a great value-add feature – that these purpose platforms are designed with a flexible design using emerging cloud based miniaturized manufacturing technologies (& nano- technologies) - as they help to change the characteristics of product and services without changing the underlying platform design – which is huge capital cost saver for the "pull value chain" participants.

Bottom line: History is filled with many examples of business concepts becoming successful – only when they “go along with the gradient” in alignment with the nature’s principles. And so, if history repeats itself (as it has done in the past), our purpose innovation has a great potential to be the next wave of disruptive innovation -as it, not only just disrupts the current “push value chain model”, but also, goes along with the gradient (in alignment with the “forces of attraction” principle from balancing the “purpose value opposites”) – as outlined in our blogs -and summarized in the poem below.

Opposites attract opposites for creation to procreate,
Positives exert negatives for the creature to illuminate,
Profits revert purposes for corporations to innovate,
Yet, likes retract likes for them to continue to be unlit,
Like the unlit* Almighty- as He has no opposites!

* That’s why Solomon among other wise men/yogis of yester-years, depict the Almighty to be residing in the inner most court in utter darkness- in alignment with nature’s “forces of attraction” principle -as evidenced in the scriptures of both west and east alike!

What in the world is a "Purpose-Profit" balanced equation?

Courtesy: Google Images

I guess, my blogs in the last few weeks –definitely has created some buzz and made folks to pay a closer attention! On the other day, someone within our professional network barraged me with a list of questions (friendly questions though!) – What do I mean by the purpose-profit equation? What are the variables within this equation -other than purpose and profit? How and where do we draw the line between purpose and profit while balancing this equation? Are these virtues or variables mutually exclusive? Can they walk in harmony with each other - i.e. enhancing and leaning on one another thus creating a multiplier effect as suggested by Inder Sidhu?

While I was thinking about the best way to answer these questions within the larger context of the business world – I could not think of any better analogy than Buddha’s “five horse faculty” analogy. Extending this analogy to the business world- Corporation can be visualized as a team of five horses - with the lead horse (CEO) propelling the other two pairs of horses – and together they pulling the wagon called corporation to meet its intended purpose. The lead horse can go fast or slow (as guided by the board/stakeholders) - and the remaining two pairs of horses, not only must fall in step with the lead horse, but also, must balance with each other for the wagon to go forward without being toppled .

So far so good…right…well, I hear someone asking - what does that got to do with the purpose-profit balanced equation? Well, the first pair of horses within this analogy can be equated to “purpose and profit” dimension followed by the next pair of horses to “destiny and decision” dimension. In other words, “the CEO, purpose, profit, destiny and decision” are the five horses (or variables) that ride the wagon called corporation (as outlined in the picture on the top of the page) - within the context of balancing this purpose-profit equation for a maximum business outcome.

Rightfully so, the first pair of horses that need to be balanced within this equation is “purpose and profit” - I mean literally, they need to be balanced on a continual basis very much like a “tough love” type conversation occurring between two individuals. Again, leveraging Buddha’s analogy – it is like a “blind giant” called profit, conversing with a “small sharp-eyed cripple”, called purpose. Within their conversation - the blind giant apparently was saying to the sharp-eyed cripple: "Although I'm strong and can go very fast, I can't see clearly where I'm going and so, if you can ride on my shoulders, together we could go very far with the help of your sharp-eyes." Granted – it is a funny analogy – but the truth is that purpose and profit dimensions are profoundly intertwined - while the purpose dimension provides the solid root for the profitable growth, profit, on the other hand nourishes the soil in which purpose can grow. They are inseparable and necessary for each other – very much like the mind driving the profit and the heart serving the purpose in our personal lives. When heart and mind are brought to a point of this harmonious co-existence, the power of one driven multiplier effect indeed will start happening!

The next pair within the equation that needs be balanced is “destiny and decision” – i.e. exhibiting unwavering destiny focused determination while balancing the day to day decisions. Leveraging Buddha’s analogy again- it can be compared to a man wearing a turban (destiny) while standing near a burning bush (decision). Obviously, if a man is wearing a turban standing close to a burning bush, he is anxious to get rid of it (due to the heat), but yet, instead of throwing it away completely- he just keeps it aside for a period of time - till he puts the fire off. Similarly, there may be situations within our business world -where we may have to be decision minded to achieve some near term “fire fighting” situations – but, soon afterwards, we must wear the turban(destiny) back, after quenching those fire fighting situations. In other words- if destiny is not coupled with decision, it will lead to a status-quo and eventually will come back and haunt us in the long run.

The next obvious question is how does the lead horse ensure that the remaining pairs of horses are complementing each other by enhancing and leaning on one another thus creating a magical multiplier effect? With the question is about being magical, I guess -the only way we can answer it is, with a picturesque story, and not just words. Although, history is filled with many such examples (both modern and ancient days) - as I think about it more - the story of Joseph stands out more than the others. As the story goes - Joseph, the then governor of Egyptian Pharaoh in the ancient scriptural days is being sent to Egypt against his will. However, on reaching there, in a short time, with his purpose minded focus along with his shrewd profit minded administration kills – get the recognition as the best manager within Pharaoh’s court. Not only that- he also exercises integrity in every decision by fleeing away from the man made distractions (or the so called tests) of his days, but, yet was destiny minded when it comes to saving Egypt from the famine. Even on situations when he was misunderstood, imprisoned, and forgotten by his fellow friends - Joseph exercised his purpose in life – which eventually helped him to create the multiplier effect in the midst of one of the difficult circumstances of his era. In other words, the five horse balancing approach helped him to come up with the first disruptive innovative business model in the world- thus protecting Egypt from one of the worst famines. If you think about it – Joseph along with his team was the first one to come up with the “Harvest-Tax-Store-Consume” business model much ahead of the famine (i.e. recession in today’s terminology) as opposed to the prevailing business model of that era (Harvest and Consume). The impact of his team's genius work was that all the countries in and around Egypt was spared of starvation (i.e. recovery in today’s terminology) during the famine.


Bottom Line: Buddha’s five horse analogy within the context of Joseph’s life is a great case study for today’s business leaders – as balancing these five horses on a daily basis will not only make our corporations a best in class incubator for purpose-profit balanced leaders, but also producing highly sought after destiny-focused decision makers like Joseph. Healthy, yet impactful destiny balanced decisions on a daily basis increases productivity of the employees, enhances the morale, increases the perceived value to consumers; produces healthy financial results, better stock prices and dividends for the investors and other stakeholders.

What in the world is a “World Class Purpose Model”?

Courtesy : Google Images



One of the "golden rules or the litmus tests" investors apply before investing in a firm is the sustainability of its business model (or) the ability of its business model to make money for the long haul. As a matter of fact, investors value the business model more than anything else (even more than the financial plan itself) as– at the end of the day – a sound business model is the one that is going to guarantee the sustainable value or return for their investment. Speaking of this sustainable value/return – most recently, investors also have come to grips with the reality that long term value is not just achieved by the money making guarantee of the business model - but also, by the purpose criteria (KLD scores, sustainability indices, corporate governance scores etc) on top of the profit metrics - as outlined in one of my earlier blogs. In other words, these purpose criteria enabled business models are the ones that is going to give the sustainable value for the investors (& to all the other stakeholders/society alike) as opposed to the mere profit metrics based business models - and I call them as purpose models (http://strategywithapurpose.blogspot.com/2010/06/purpose-driven-strategy.html) as they re-purposes the vision/mission/value/BHAG of the firm within the context of the cross border industry boundaries with a 3P (people, planet and passion) based purpose mindset.


Within the context of this renewed purpose inspired thinking – it is equally important for business models to have a balanced purpose/profit formulas to qualify itself as a purpose model- as corporations are not in the business of running charities. In other words, purpose models must augment the “value based purpose metrics” with “cash flow based profit metrics” to position the firm on a solid ground for the long term sustainable success to further qualify it as the world class purpose model. Speaking of a world class purpose model – we are going to come up with two more complimentary metrics (one for profit and one for purpose) to help investors to evaluate whether a given purpose model can qualify as a world class purpose model.


With the fact that “cash is the king” in today’s business context – we have chosen “operating leverage” as the key measure to assesses the overall health and wellness (& risk level) of the purpose model and to qualify whether it can become a world class purpose model from profit sustainability standpoint. Similarly, with our mantra being “purpose is the queen” – we have chosen “purpose leverage” that assesses the overall purpose and values (& tolerance level) of the purpose model and to qualify whether it can become a world class purpose model from purpose sustainability standpoint.


Operating leverage in my mind is the relationship between fixed and variable cost – the higher the operating leverage, higher the cash flow and vice-versa. In other words, those purpose models with a higher operating leverage and lower marginal cost are the world class purpose models from profit sustainability standpoint. A quick degree of operating leverage (DOL) measure, which shows the extent to which operating profits change as sales volume changes can be calculated as outlined below . More specifically, DOL is the percentage change in income (or EBITDA) divided by the percentage change in the sales output.

DOL = (Q (P-V))/ (Q (P-V) – F)

Q= Quantity produced or sold
V=Variable cost per unit
P = Sales Price
F=Fixed Operating Costs

So, higher the DOL leverage, higher the change in operating profit and better the purpose model is. In other words, in actual numbers, let us say we have a purpose model with a DOL index of 2 along with a 25% change in sales volume - the potential change of operating profit for this purpose model will be 50% (2*25%), a great number, which will definitely make it as a world class purpose model from profit sustainability standpoint.

Purpose leverage, on the other hand, is the relationship between fixed and variable emotional equity – the higher the purpose leverage, higher the emotional attachment of the stakeholders (consumers, investors and suppliers) to the firm and vice-versa. In other words, those purpose models with a higher purpose leverage and lower emotional equity cost are the world class purpose models from purpose sustainability standpoint. A quick degree of purpose leverage (DPL) measure, which shows the extent to which purpose inspired profits change as sales volume changes is can be calculated as outlined below from purpose sustainability standpoint. Specifically, DPL is the percentage change in income (or EBIT) due to the purpose inspired emotional equity divided by the percentage change in the sales output.

DPL = (Q (P’-V))/ (Q (P’-V) – F)

Q= Quantity produced or sold
V=Variable cost per unit
P’ – Purpose inspired marked up premium sales price (i.e. higher sales prices consumers are willing to pay for the super premium products/services because of the firm’s purpose agenda or their emotional attachment/equity to the brand or firm. For example, a Health and Wellness/Green minded consumer will be willing to pay higher price when they know that the firm’s purpose align with their personal purpose/values.
F=Fixed Operating Costs

So, higher the DPL leverage, higher the change in operating profit and better the purpose model is. In other words, in actual numbers, let us say that we have a business model with a DPL index of 5 along with a 10% change in sales volume - the potential change of operating profit for this purpose model will be 50% (5*10%), a great number, which will definitely make it as a world class purpose model from purpose sustainability standpoint.

Bottom line: As represented in the justice model picture at the top of the page, the DPL-DOL balanced purpose model that gets us the repeat customers - where the cost to deliver incremental products/services for an incremental customer approaches almost zero, where the cost needed to bind additional customer’s emotional equity to the firm’s brand approaches almost zero, and where we get a lots of the cash up front and where we have lots of good will and emotional equity on the purpose bank—is what makes a purpose model a world class purpose model. What more can we ask for?

Purpose Driven Strategy

Strategy without Purpose is like kicking the ball to the goal post without knowing where the goal post is. In other words, if strategy is the compass, then purpose is the guiding light. At best, strategy is just a set of smart paths to a destination, whereas purpose is the journey in it by itself. Purpose is something that we need as part of our DNA; purpose is what drives us, ignites our passion and gives us the hope and reason for our existence. Strategies are about the means and they cannot be an end in itself. The challenge today is that many corporations are not lacking strategies, they lack a reason for existence–they lack ‘purpose’.

Having a strategy is a must, but not sufficient…. You need to have a purpose driven strategy for the journey… and …its purpose is that brings meaning and life to the journey. The question is - does your corporation’s strategy have a purpose?

I would use a seed analogy - and equate the “Seed" to "Purpose”. The purpose seed, in my mind has four components -

• Vision (what the firm aspire to be)
• Mission (why does the firm exist/what does it stand for)
• Values (the intangible instruction part)
• BHAG (goals/expectation)

Together, these four invisible instructions, tell the purpose seed to take a deeper root called ethical capital (the cornerstone) prospering eventually in to a healthy crop called the corporation. Seeds have invisible instruction(s) inside them – a corn seed turns in to a corn crop whereas the wheat seed in to wheat crops and so on and so forth. Similarly, words that clearly depict the aspiration, values and goals of a corporation are the seeds for purpose - Purpose then becomes the seed for growth. In other words, a company that embed the right type of invisible instruction(s) within the Purpose statement (seed) will definitely grow in to the crop (corporation) the invisible instructions tell it to grow.

So, within this seed analogy – where does strategy fit in? Extending the analogy little further – the healthy soil, fertilizer and water all can be equated to economic capital, strategy and execution respectively. Strategy is more of a fertilizer as it helps the seed to grow faster to its fullest potential very much like how business model strategies help the company to make money faster and efficiently.

Speaking of business models – vanilla business models are usually created by reshaping the capitals and/or resources within the value chain and/or by shuffling the activities within the value chain whereas purpose driven business models go one step further and redefine the purpose (including the ethical capital) of a corporation as well. I call these purpose driven business models as Purpose Models. Purpose models are the revolutionary game changing business models that not just reinvent the business of the firm, but also mutate the DNA of the brand and the firm -alike at the nucleus level from top to bottom. In other words, business models usually shuffle the value chain activities of the firm within the four walls of the firm (or at the maximum within the industry vertical) whereas purpose models go deep – apart from shuffling the value chain activities –they also repurposes the vision/mission/value/BHAG of the firm within the context of the cross border industry boundaries with an externality/internality/actuality based purpose mindset.

Bottom line : The sooner you understand the difference between these vanilla business models and purpose models and the importance of purpose driven strategic mindset, the better strategic decisions you will make to move your corporation from good to great - as the statistics shows purpose driven corporations have always outgrown the ones who do not have a formal purpose agenda.