The Trusted Employer

8

Harvard Business Review

March 2022

are operating very successfully in today’s

digital world.

Consider a couple of data points.

The internet revolution started in the

mid- 1 990s, a quarter century ago, long

enough for the winds of change to work

their way through the whole economy. So

how many of today’s Fortune 500 didn’t

exist back in 1 995? Seventeen. The other

483 have been around, in some shape or

form, since that year. When you look at

the Global 500 , the picture is similar.

Digital disruption is real, of course,

but it has been oversold by three myths:

Every sector is under threat, disruption

happens quickly and is accelerating,

and established firms are struggling to

adapt. The facts suggest otherwise.

I have two objectives in writing this

article. The first is to help businesspeople

understand the reality of the past, which

will better prepare them for the future.

For example, many observers claim that

we are on the cusp of full-scale disruption

in industries such as finance, insurance,

and education. My research shows that

people have been making the same pre-

dictions—erroneously—since the 1 990s.

Knowing why these industries have

not been disrupted so far will improve

our ability to foresee how things might

evolve over the next few years. My

second goal is to help executives make

better decisions. It’s often argued that

the only way to fight a tech disrupter is to

beat it at its own game—by, say, creating

a new business in a separate unit. But I’ve

found that there are at least three other

valid strategies a company might want to

adopt, depending on the circumstances.

Organizations that approach competitive

threats soberly and systematically will

make smarter choices about how to not

only survive but also thrive.

The Real Story

Let’s go back to the 1995 Fortune 500

and Global 500 and compare them with

the 2020 lists.

In 2020 , 198 of the firms that had

made the Fortune 500 in 1995 were still

on the list. Two hundred and fifty-six

firms had dropped off it because they

had merged with or been sold to other

corporations or to private equity firms

or were no longer big enough to qualify.

Only 35 of the companies in the 1995

ranking went bankrupt. The 2020 list

also contained 231 firms that were in

existence back in 1995 and grew enough

to get onto it. Another 54 were spin-offs

and restructurings of previously exist-

ing businesses. And as we’ve noted, only

17 companies—among them, Facebook

(now Meta), Google (now Alphabet),

Tesla, Netflix, and Uber—were founded

after 1995.

As for the Global 500 , 164 of the firms

that were on the list in 1995 still made it

in 2020. Ten had died, 150 had dropped

off the list, and 132 had been sold or

merged with other firms. The 2020 rank-

ing included only 12 entirely new com-

panies; 324 firms were new to the list but

either had existed or were formed from

companies that were already around in

1995. (See the exhibit “The Fortune 500

and the Global 500 , Then and Now.”) The

big change here was geopolitical: The

2020 Global 500 had 95 fewer companies

from Japan than the 1995 list did, and

116 more from China.

The bottom line: There has been less

creative destruction than prior studies

have suggested—indeed, less than most

people believe.

I get a lot of pushback when I pre-

sent this analysis. Some of it is about

the limitations of the sample: The two

lists don’t include private and venture-

backed firms and professional part-

nerships and cover only a 25 -year time

period. These are fair points, but they

don’t discredit the basic findings. If you

want hard evidence about the changing

patterns of consumer and industrial

consumption, the Fortune 500 and the

Global 500 are good places to start.

A bigger concern is that these rank-

ings are based on sales revenue, not

IDEA IN BRIEF

THE MYTH

Many people believe that

technological disruption will

destroy most old-economy

companies, with Big Tech and

unicorn start-ups ultimately

taking over the world.

THE REALITY

When you look at how the makeup of the

Fortune 500 and the Global 500 has changed

since the rise of the internet, that story doesn’t

hold. Only 17 of the companies in the 2020

Fortune 500 didn’t exist in 1995. The picture is

similar internationally.

THE LESSONS

Industry transformation happens very

slowly, and incumbents can successfully

respond to disruptive challenges in one

of four ways: retrench, fight back, double

down on existing assets, or diversify into

new businesses.

38

Harvard Business Review

January–February 2022

How Incumbents

Survive

SP and Thrive

O

T

L

IG

H

T

Trust is the common denominator driving

impact across the multi-stakeholder

ecosystem – with employees at the nexus. 

For any individual company, deter-
mining the purpose of its purpose is
fundamentally a business decision and
must be anchored in strategy. Finding
the right answer involves identifying
the most authentic and motivating basis
for alignment among the key stake-
holder groups on which the success of
the business depends. That is easier said
than done, because multiple business
functions have a vested interest in
and a specific perspective on purpose.
It sits at the intersection of four busi-
ness agendas: (1) For marketing and
sales, it can help win customers and
enhance their loyalty. (2) For HR, it can
attract, engage, and retain employees.
(3) For governance and sustainability,
it can enhance environmental, social,
and governance performance. (4) For
strategy and finance, it can guide how
resources are allocated and risks are
managed.
Any exploration of purpose begins
with recognizing that these agendas are
valid inputs to the process. We four—
a former CMO, a former CHRO, a pro-
fessor of global business, and a strategy
consultant—represent each of the
main constituencies, and we believe
that although every company needs

a purpose, not every purpose must take

the form of a social cause. Of course

every company should work to become

a better corporate citizen, through

programs that actively address climate

change and pollution, workplace safety,

diversity, and employee well-being, and

invest in local communities. As other

scholars have shown, improving ESG

performance (especially in areas that are

most material in your industry) is good

for business. But it is distinct from the

purpose of a business.

In this article we’ll provide three key

rules regarding the role of purpose; our

observations about what companies

typically get wrong about it; and a

framework for evaluating which of the

three types is likely to be most effective

for a company.

1

Don’t Rally Around a Cause

Unless You Actually Have One

Discussions about purpose typically

start with the question How would

the world be worse off if we did not

exist? This spurs people to identify

an inspiring social impact that the

business should strive to achieve.

However, only a limited number of

companies operate in industries where

the nature of the business lends itself to

a compelling answer to that question.

Examples include Beyond Meat, whose

purpose is to find “a better way to feed

the planet,” and Disney, which aims

to “create happiness through magical

experiences.” Health, science, and clean

energy companies fall into this category

too. However, focusing on this question

too much may lead the majority of

companies to misrepresent the actual

nature of their business—as WeWork

did in its 2019 investor prospectus

when it described subletting office

space as striving “to elevate the world’s

consciousness,” and Knorr (a brand

known for stock cubes and gravy) did

when it suggested that consumers could

“change the world by changing what’s

on [their] plate.”

Being able to define a social-cause-

based North Star may be of benefit

primarily to consumer-facing enter-

prises. But few others—particularly

if they’re in B2B sectors such as basic

materials, energy generation, capital

goods, commercial transportation, and

business services—have any particu-

lar higher purpose to which they can

authentically lay claim.

IDEA IN BRIEF

THE PROBLEM

Despite its sudden elevation in

corporate life, “purpose” remains a

confusing concept. Finding the right

one involves identifying an authentic

and motivating basis for alignment

among key stakeholder groups.

WHY IT EXISTS

Purpose is used in three distinct

senses: competence, as in “the

function that our product serves”;

culture, as in “the intent with which

we run our business”; and cause, as

in “the social good we aspire to.”

THE SOLUTION

Not all companies can save the world.

Only a minority should put forward a

cause-based purpose. For the rest,

a functionally useful business or a

strong culture can provide the basis

for a meaningful and motivating why.

38

Harvard Business Review

March–April 2022

Spotlight

Employee trust radiates outward to influence perception, reputation, decision making and

trust levels across all other stakeholder audiences