With more than half a trillion dollars in revenue, it’s worth looking at Walmart’s approach to linking purpose with profits, which is about going beyond ‘doing good’ for public relations reasons and embedding it in core business. Walmart’s CEO, Doug McMillon, explains the rationale for thinking and acting in this way:
Business exists to serve society and, in turn, serving society strengthens our business.
This is the blueprint for moving from a ‘shareholder first’ to a ‘stakeholder capitalism’ model. There is scepticism that stakeholder capitalism is about redirecting profits from shareholders to others, however it is in fact about making targeted investments that underpin the growth and sustainability of future profits, and Walmart’s reporting shows us how this link is made.
The company’s stated purpose is “Helping people around the world save money and live better“. Aligning corporate purpose with a genuine societal need ensures a business stays relevant in the eyes of customers and motivates employees to deliver the intended outcome.
Not so long ago most companies talked in terms of an activity (“we run supermarkets”), a desired market position (“the largest supermarket chain”) or a financial goal (“the most profitable supermarket operator”). When purpose is missing or not adhered to it’s easier for companies to lose their way.
I rate Walmart’s purpose statement quite high – with some room for improvement – and if you want to find out more about the 5 factors I use in evaluating corporate purpose you can refer to this analysis of Australia’s top companies.
How is the link to profitability made?
The question for any company is: what societal problems could or should we invest in using a business case? In other words, it’s not about donations, grants or protecting brand and reputation – those activities can still go on – it is about investing with two aims:
- Making a significant improvement or impact in society; and
- Delivering a commercial return on investment.
In Walmart’s reporting, they break it down into the opportunities for their main stakeholder groups. For example, their priority for customers is to provide convenient access to affordable food and other essential products and services. They drill down further and note that service levels, store safety, healthy food offerings, environmentally friendly products, local sourcing and other factors are all tied up in this objective.
I found the employee (or “associate” in their language) area to be quite interesting, where they focus on opportunities for good jobs and advancement. Do they do it out of the goodness of their hearts? Well, maybe they do in part, but training that assists career growth out of entry level roles and into more responsibility also leads to:
- Better customer experiences
- Lower staff turnover (currently at 15%, a 5 year low); and
- Higher sales.
The value proposition for shareholders is that, by making targeted investments in certain stakeholder groups, they will generate superior long-term returns.
How do they form their strategies?
The process they go through in choosing their investments is laid out in an intuitive and easy-to-understand way:
- They pick salient social and environmental issues – those that are relevant to their business and where they have an ability to effect change
- They aim to make it count by transforming systems, such as entire food supply chains or the whole workforce
- They integrate into business-as-usual with attention paid to planning, performance management, role descriptions, policies, procedures, systems and tools
- They seek to engage with partners (such as NGOs) to scale their impact; and
- They align their philanthropic efforts with these challenges if possible.
This is effectively a process for identifying ‘shared value’ opportunities, which is what connecting profit with purpose is all about.
The new economy
I trust this has given you a look under the bonnet of Walmart and how it makes the link between profitability and corporate purpose. The members of US Business Roundtable have made lofty commitments to this way of operating, and Walmart has a clear plan for moving forward.
As you can see, it’s not about frivolous giving, it’s about finding where commercial opportunity goes hand-in-hand with the needs of people and the planet. I’m looking forward to seeing how the measurement of their initiatives evolves and improves over time.
I welcome any comments or thoughts you have if this topic interests you.
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Phil Preston helps executives and leaders navigate the transition to the new economy. He is the author of Connecting Profit With Purpose and can be contacted via firstname.lastname@example.org or +61 408 259 633.