Recent MIT CISR research showed that large, established organizations gain a competitive edge when they decentralize decision-making. In this approach, senior leaders set strategic objectives for the organization but empower most of its teams with the authority and accountability to decide how best to achieve those objectives. As teams are closest to emerging opportunities, they are best positioned to quickly sense and seize them. This increases organizational agility, and produces higher returns from innovation as well as net profit margins and revenue growth rates well above industry averages.1
However, the success of decentralized decision-making hinges on the organization having a comprehensive organizational purpose: a multi-faceted statement that articulates why the organization exists by outlining future aspirations, value propositions, and core values. An organization’s purpose can serve as a source of inspiration to teams, inform strategic planning, and guide decision-making.
We found that the performance benefits organizations achieve from decentralized decision-making were amplified in organizations where purpose was ingrained in leaders’ planning and teams’ decision-making processes. In our survey, these organizations reported average net profit margins and revenue growth rates that were respectively 5.4 and 12.9 percentage points above their industry averages. Without an ingrained purpose, however, decentralized organizations fell behind their industry peers, reporting net profit margins and revenue growth rates that were respectively -0.2 and -0.7 percentage points below industry averages.2
In this briefing, we describe the three core components that make up a comprehensive organizational purpose and discuss how these components support decentralized decision-making by aligning leaders’ strategic objectives and teams’ decisions.