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Innovation in the 21st Century: Architectural Change,
Purpose, and the Challenges of Our Time
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Rebecca Henderson (2020) Innovation in the 21st Century: Architectural Change, Purpose, and the Challenges of Our Time.
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Articles in Advance, pp. 1–10
http://pubsonline.informs.org/journal/mnsc ISSN 0025-1909 (print), ISSN 1526-5501 (online)
Innovation in the 21st Century: Architectural Change, Purpose, and
the Challenges of Our Time
Departments of General Management and Strategy, Harvard Business School, Boston, Massachusetts 02163
Contact: firstname.lastname@example.org,https://orcid.org/0000-0001-5902-1891 (RH)
Received: October 29, 2019
Revised: May 27, 2020
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October 30, 2020
Copyright: © 2020 The Author(s)
Abstract. Understanding the process of innovation has been a central concern of man-
agement researchers, but despite this progress, there remains much that we do not
understand. Deepening our knowledge is critically important given the enormous envi-
ronmental and social challenges we face as a society. Pursing incremental innovation will
continue to be hugely important, but this paper argues that building a richer under-
standing of architectural or systemic innovation will also be crucial. This paper suggests
that the study of organizational purpose may provide a particularly fruitful avenue for
History: This paper has been accepted by David Simchi Levi for the Special Issue of Management Science:
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under a Creative Commons Attribution License: https://creativecommons.org/licenses/by-nc-nd/4.0/.”
Funding: This work was supported by the Division of Research, Harvard Business School.
Keywords: innovation •purpose •sustainability
Understanding the process of innovation has been
a central concern of management researchers since
Schumpeter raised the question of whether large ﬁrms
were likely to be more innovative than smaller ones or
whether entrepreneurial ﬁrms were likely to be the
fundamental drivers of innovation in an economy
(Schumpeter 1942). Researchers have continued to
explore the role of ﬁrm size and structure in driving
innovation and have also studied a wide range of
additional topics. In the last 10 years alone, for ex-
ample, Management Science has published at least 68
papers explicitly focused on the forces that shape
innovation. These papers have explored such topics
as the allocation of control rights, the nature of in-
tellectual property policies, the structure of social
networks, the design of innovation contests, and the
role of unions, alliances, and chief executive ofﬁcer
skills—among other things—in driving innovation.
Despite this progress, however, there remains
much that we do not understand. Much of our work
to date has focused on the problem of incremental
innovation—innovation that is a logical extrapolation
of existing ways of doing things. Of course, incre-
mental innovation is often a powerful engine of
progress. The explosion in digital technology that has
reshaped the world has been driven almost entirely
by incremental innovation, most famously through
the power of the processes that are embedded in
Moore’s law. Professor Magnanti’s wonderful history
of the development of linear programming (2020)is
another illustration of the power of cumulative incre-
mental improvements to generate order-of-magnitude
improvements in performance. He documents, for ex-
ample, that linear programs that took a month to solve in
1988 could be solved in less than a second by 2004.
Pursing incremental innovation will undoubtedly
be important in solving many of the social and en-
vironmental challenges we now face. For example,
the recent breathtaking drop in the costs of solar
power—solar now costs less than 25% of what it did in
2009 and is now cost competitive with fossil fuels in
many regions of the world—has been driven almost
entirely by incremental innovation (International
Monetary Fund 2019). But, to a ﬁrst approximation,
the basic design of the solar cell and the core physics
on which it rests have not changed in more than 20
years. Progress has come from a steady progression of
tweaks: thinner, more efﬁcient coverings; better collection
mechanisms; and more efﬁcient installation techniques.
the problems that we face will often require systemic
or “architectural”innovation. Deploying renewable
energy at scale, for example, requires a comprehensive
rethinking of the power distribution grid—ataskthat
is both highly technical, drawing on many of the
optimization techniques pioneered by management
scientists, and simultaneously deeply political because
it often requires rethinking the nature of regulation
and the balance of power within and across the in-
dustry. Building a truly circular economy—ensuring
that as much as possible of what we build, manu-
facture, and sell is reused or recycled—requires
everything from rethinking how we design to revo-
lutionizing how we think about the ﬂow of material
throughout our economy. Decarbonizing our trans-
portation system—moving to an entirely renewable
power grid and an electrically powered ﬂeet—opens
up the possibility of a whole range of systemic so-
lutions to the problem of congestion. Should a city, for
example, be able to coordinate the ﬂow of trafﬁc
through its streets? Should we think of a world in
we optimize loading across an entire ﬂeet or an entire
community? In both cases, traditional incremental
innovation will be incredibly important. But without
the ability to put the pieces of the puzzle together in
new ways—to reconﬁgure the social and technical
architecture of the product—we will be unable to
realize the full value of incremental innovation.
In short, I think we need to double down on the
study of architectural or “systemic”innovation. I de-
ﬁne architectural innovation as innovation that changes
the architecture of a product or a system while keeping
many of its components relatively unchanged (Henderson
and Clark 1990). The concept of architectural inno-
vation was originally developed in the context of the
physical architecture of a product. In the case of
photolithographic aligners, for example, relatively
small changes in individual components triggered a
ponents interact with each other that proved to be
sufﬁciently challenging to understand that between
1962 and 1986, new entrants replaced the industry’s
leading ﬁrm on ﬁve separate occasions. However, the
concept has since been applied successfully to changes in
the architecture of entire industries (see, e.g., Brusoni et.
The ﬁrst digital cameras, for example, were es-
sentially conventional cameras ﬁtted with electronic
image sensors rather than conventional ﬁlm. The
image sensors were a radical innovation—acomplete
departure from conventional ﬁlm—but the funda-
mental architecture of the camera remained unchanged.
It is perhaps not surprising that Kodak—the dominant
player in the conventional photography—was an
early pioneer in the development of digital photog-
raphy and indeed dominated the market for digital
cameras for several years. The inclusion of digital
cameras in phones, in contrast, was a signiﬁcant ar-
chitectural innovation that changed not only the
architecture of the product but also the architecture of
the entire industry (Swasy 1997).
In general, ﬁrms appear to ﬁnd architectural in-
novation signiﬁcantly more difﬁcult to handle than
either incremental or radical innovation (the chal-
lenge of creating something entirely different). The
pursuit of incremental innovation—although never
easy—usually can be accommodated within existing
organizational structures and patterns of behavior, al-
though it is well understood that radical innovations are
best pursued through acquisitions or the creation of
stand-alone entities. Architectural innovation, in con-
trast, creates problems because it requires access to
the organization’s current assets and skills while si-
multaneously requiring that both be reconﬁgured
into quite different patterns. In most organizations,
the focus of attention is on component knowledge—
knowledge of how particular pieces of the puzzle
work—and architectural knowledge—knowledge of
how the pieces are put together—often becomes em-
bedded in the tacit routines, structures, and processes
of the organization, in such things as the mental
models of its employees, in patterns of communica-
tion, and in incentives that reinforce particular patters
of attention in ways that make architectural knowl-
edge both difﬁcult to access and resistant to change. In
most ﬁrms, most people know a great deal about their
own jobs but relatively little about exactly what goes
on elsewhere in the organization.
Despite its importance, we know relatively little
about how to handle this kind of innovation. Sig-
niﬁcant progress has been made in understanding
how to create the organizational structures and gover-
nance routines that can increase the odds of mastering
architectural innovation within individual ﬁrms (see,
e.g., Tushman and O’Reilly 2002). But our knowledge
of how ﬁrms can help support the kinds of systemic,
industry-wide transformations inherent in, say, greening
the world’s transportation systems is still radically
incomplete (Gans 2016).
What might further research in this space look like?
How can we go about learning how to support ﬁrms
in handling these kinds of complicated, interrelated
problems in a world in which it is always easier to
study the components than the architecture? Here I
sketch out a way of thinking about these kinds of
problems that I hope might be helpful, focusing
particularly on the ways in which building a better
understanding of the role that purpose and the ability
to build relational contracts might play in making it
easier to handle architectural change.
Purpose and Innovation
My working intuition is that there may be particularly
high returns to focusing more attention on the
Henderson: Innovation in the 21st Century
2Management Science, Articles in Advance, pp. 1–10, © 2020 The Author(s)
so-called softer aspects of management. This is a
suspicion that ﬂows from my own research. I have
spent more than 20 years studying the problem of ar-
chitectural innovation in a wide variety of ﬁrms and have
come to believe that the single most important deter-
minant of whether a ﬁrm is able to master it successfully
is its commitment to a shared purpose or to a goal be-
yond simple proﬁtmaximization.
What does it mean for a commercial ﬁrm to have a
purpose? There are almost as many deﬁnitions of
purpose as there are papers about it in the literature,
but as a ﬁrststep,letmesuggestthatacompanyis
purpose driven if it is publicly committed to a goal
beyond proﬁt maximization and if it routinely sac-
riﬁces short-term proﬁts to the pursuit of this purpose.
This is not to suggest that the embrace of purpose
necessarily implies accepting lower levels of proﬁt-
ability in the long run. As I argue, there is good reason
to believe that the embrace of purpose brings with it a
range of advantages—particularly with respect to the
pursuit of innovation—that are often sufﬁcient to
compensate for the cost of having a purpose in the
Why might the embrace of purpose increase a ﬁrm’s
ability to innovate and, in particular, to enable it to
tackle architectural or systemic innovation signiﬁ-
cantly more effectively than its more conventional
rivals? My own research and the literature suggest
three broad hypotheses.
Purpose Drives Both Vision and Alignment
An extensive literature suggests that managers are
deeply constrained by the frames or schemas through
which they see the world and that shape their diag-
noses of strategic opportunities and threats (see, e.g.,
the review in Kaplan 2011). Path-breaking studies of
strategy formation in photography (Tri psas and Ga vetti
2000) and internet software (Gavetti and Rivkin2007)
suggest that in both cases deeply held mental models
made it difﬁcult for the senior team to respond ef-
fectively to the transformations that were reshaping
A less-developed stream of research further sug-
gests that managers who embrace a widely shared
prosocial purpose may be better positioned to iden-
tify new opportunities because this purpose leads
them to take a more expansive view of the world and
to see opportunities that others may miss. Psychol-
ogist Robert Kegan, for example, suggests that
exceptionally highly psychologically developed indi-
viduals possess what he calls a self-transforming
mind—the ability to see and to act on the knowledge
that people are mutually interdependent and that our
behavior is shaped by the systems in which they are
enmeshed. His work can be read as suggesting that
these kinds of individuals are more likely to be able to
see systems as malleable and to be able to imagine
systemic transformation (Kegan 1982).
The embrace of a shared purpose also plausibly
increases strategic alignment across an organization,
ensuring that the strategy of the ﬁrm is widely un-
derstood and that the ﬁrm’s structure and processes are
designed to support it. Shared purpose may embed
shared views of the world in organizational rituals
and widely accepted ways of behaving that together
make certain patterns of behavior both widely ac-
ceptable and natural (Kreps 1996,Schein1985).
As strategy scholars have stressed since Chester
Barnard (1968), organizational and strategic align-
ment can also increase the odds that units, teams, and
individuals understand how their respective contri-
butions add to the ﬁrm’sperformance,allowingem-
ployees to spend less time managing conﬂicting
objectives or navigating cumbersome organizational
barriers and instead concentrating on executing tasks
more effectively (Baron and Kreps 1999;Kaplanand
Norton 2005; Van den Steen 2010a,b).
Does purpose in fact lead ﬁrms to identify oppor-
tunities that others do not and to greater strategic
alignment? The empirical work in this area is still at a
preliminary stage. Tushman and O’Reilly (2016), in a
richly detailed series of case studies of ﬁrms that have
successfully navigated major architectural transfor-
mations, ﬁnd that a strong sense of shared purpose
plays a central role in identifying new opportunities
and in building alignment across the organization on
the need to address them and the means by which to
do so. My own experience with successful transfor-
mational leaders similarly suggests that a commit-
ment to a purpose beyond simple proﬁt maximization
often alerts them to opportunities for proﬁtable new
businesses that others fail to see (Henderson 2020).
Gartenberg et al. (2019) present compelling evidence
drawn from more than ﬁve million employee surveys
to suggest that when purpose is closely connected to
the strategic goals of the ﬁrm, it is correlated with
ﬁnancial performance. So there’s reason to believe
that there’s something going on here but much that
remains to be understood.
Purpose and Engagement, Effort
In general, people work hard for money, status, and
power—so-called extrinsic motivators. But, for many
people, once their core needs are met, the sheer interest
and joy of the work itself intrinsic motivation—is much
more powerful (Ryan and Deci 2000a,Cerasolietal.
2014). There are a number of mechanisms through
which the adoption of a shared purpose plausibly
increases the odds that employees are intrinsically
motivated. The embrace of an authentic purpose
Henderson: Innovation in the 21st Century
Management Science, Articles in Advance, pp. 1–10, © 2020 The Author(s) 3
increases the odds that one’sworkhasmeaning,oneof
the core drivers of intrinsic motivation and a driver of
higher-quality, more creative work (Pink 2011). It can
also create a strong sense of shared identity—another
important source of intrinsic motivation (Akerlof and
Kranton 2005, Henderson and Van den Steen 2015).
To the degree that shared purpose supports genuine
authenticity—the ability to live a life in accord with
one’s deepest value—it also increases the presence of
positive emotions—something that is strongly cor-
related with the ability to see new connections, to
build new skills, to bounce back after difﬁcult times,
and to be more resistant to challenges or threats
(Amabile et al. 2005, Lyubomirsky et al. 2005,Boiral
et. al. 2009). This is an enormous literature, and I
cannot possibly summarize it here. The Oxford
Handbook of Positive Organizational Scholarship,for
example, includes 79 chapters on topics as diverse as
resourcefulness, spirituality, appreciative inquiry, and
organizational energy (Cameron and Spreitzer 2012).
Much of the research uses methods that may be un-
familiar to readers of Management Science, but it is
deeply thought provoking and, taken together, sug-
gests, I believe, that the employees of purpose-driven
ﬁrms are likely to be signiﬁcantly more productive,
happier, and more creative than those at more con-
ventional ﬁrms. All these qualities plausibly make it
easier to embrace architectural innovation.
Purpose and Trust
The twin ideas that shared purpose might increase
trust and that, in turn, the presence of trust is cor-
related with the ability to tackle architectural inno-
vation are much less developed in the literature. An
abundant literature suggests that trust is correlated
with performance (see, e.g., Bachmann and Zaheer
2008; Edmondson 1999,2014). But this stream of work
has not—so far as I am aware—explored either the
ways in which shared purpose might support the
which trust might enable the pursuit of architectural
innovation. What follows therefore should be taken as
speculation or hypothesis development rather than
My belief that purpose might drive the trust that
might, in turn, drive the ability to handle complex,
systemic problems is rooted in a close engagement
with the literature that has explored the nature and effects
of what is sometimes called the Toyota production system
or, more broadly, high-performance work systems.
An extensive body of research has demonstrated
that there are persistent performance differences among
seemingly similar enterprises (Bartelsman and Doms
2000,Syverson2011). For example, Syverson (2004b)
found that within four-digit Standard Industrial Clas-
siﬁcation industries in the U.S. manufacturing sector, the
average difference in logged total factor productivity
between an industry’s 90th and 10th percentile plants
was 0.651 or that the plant at the 90th percentile of the
productivity distribution made almost twice as much
output with the same measured inputs as the 10th
percentile plant. These ﬁndings have been replicated
in a wide range of time periods and geographies
(Dwyer 1998, Disney et al. 2003,Eslavaetal.2004,
Gibbons and Henderson 2013). They are surprisingly
robust to controls for competition (Syverson 2004a),
for the measurement of output in physical units rather
than revenue (Foster et al. 2008), and for problems of
selection and simultaneity (Olley and Pakes 1996,Van
Thequestionofwhatpreciselycauses these per-
formance differences remains hotly contested, but
there is increasing evidence that one important source
is persistent differences in management practices. A
long tradition among labor economists and others
studying blue-collar work has suggested that high-
performance work systems are closely correlated with
superior organizational performance (e.g., Kochan et al.
1986; Huselid 1995;MacDufﬁe1995; Huselid and
1997;IchniowskiandShaw1999; Appelbaum et al.
et al. 2003; Boning et al. 2007). These largely micro-
and industry-level studies have recently been supple-
mented by an important research program pioneered by
Nicholas Bloom, John Van Reenen, and their collabo-
rators that draws on survey data obtained from thou-
sands of plants across many countries to conﬁrm that a
very signiﬁcant fraction of the variance in productivity
across plants and ﬁrms is driven by variation in the
adoption of management practices (Bloom and Van
Reenan 2007,2010,2011; Bloom et al. 2015).
Thereisnosingledeﬁnition of a high-performance
work system, but three overarching elements can be
identiﬁed in the literature. In general, ﬁrms with high-
performance work systems use high-powered incen-
tives, pay a great deal of attention to skills development,
and do everything they can to support dense commu-
nication and local problem solving. Table 1lists some of
the particular practices identiﬁed by some of the key
studies in the ﬁeld.
But these results raise another, even more puzzling
question, namely why don’ttheydiffuse?Atﬁrst
glance, it seems unlikely that differences in mana-
gerial practices could drive performance because they
have been extensively documented and would ap-
pear to be relatively easy to adopt. For example, the
Toyota production system, an early and spectacularly
successful instantiation of a high-performance work
system, has been explored in hundreds of books and
thousands of academic articles. If the adoption of
Henderson: Innovation in the 21st Century
4Management Science, Articles in Advance, pp. 1–10, © 2020 The Author(s)
these work practices can make such a difference to
performance, why don’t they diffuse more quickly?
One possibility is that managers simply don’t“see”
that they are behind. We know that the cognitive
frames of individual managers and the ways in which
information processing is structured within the ﬁrm
may lead ﬁrms to have quite different perceptions of
their environments and the capabilities of their com-
petitors (Kaplan et al. 2003, Kaplan 2011). In addition,
much of the knowledge fundamental to building
management practices is tacit or deeply embedded
in individuals or organizational routines, so it is
simply unclear how to mimic a high performer (see,
e.g.,Zollo and Winter 2002). Several studies suggest
that management practices are much easier to “learn”
if one has access to individuals who have experienced
them ﬁrsthand (Lacetera et al. 2004,Breschiand
Another possibility is that managers fail to adopt
better practices because they are insufﬁciently incen-
tivized to do so, and the above-mentioned sequence of
papers by Bloom, Van Reenen, and collaborators does
indeed ﬁnd that family-owned ﬁrms and ﬁrms in less
competitive environments adopt leading-edge prac-
tices more slowly than their rivals. But none of these
explanations can account for the cases in which man-
agers know about the new practices, are convinced that
they would be effective, and have strong incentives to
adopt them. General Motors (GM), for example, took
nearly 20 years to respond effectively to Toyota’sentry
venture with Toyota that gave it deep insight into
Toyota’s practices (Henderson and Helper 2014).
Gibbons and Henderson (2013)arguethatoneof
the reasons these kinds of implementation failures
ariseisbecausetheadoption of high-performance
work systems requires the development of deep levels
of trust across the organization or the development of
relational contracts—contracts predicated on subjec-
tive metrics that can only be enforced by the shadow
of the future. For example, one important source of
the extraordinary levels of productivity and quality
obtained by Toyota in the late 1980s and 1990s was the
ﬁrm’s ability to make continuous improvements to its
production processes. Shop-ﬂoor workers were grouped
into problem-solving teams that were encouraged to
identify bottlenecks and inefﬁciencies in the production
process and to explore potential solutions to them.
Workers were asked to be alert for potential opportu-
nities for improvement and to be creative and innovative
in their search for solutions. Gibbons and Henderson
(2013) argue that successful participation in these
kinds of activities relies on a set of behaviors that
could not be articulated ex ante or veriﬁed ex post
and, hence, could not be rewarded through a for-
mal contract and that this made them almost
impossible for GM to imitate (see also Henderson and
Table 1. Management Practices Underlying High-Performance Work Systems
et al. (2000)
et al. (1997)
Bloom and Van
Reenen (2007) MacDufﬁe(1995) Pfeffer (1998) Huselid (1995)
Incentive pay X X X X X X X
Employment security X X X X X
Performance review X X
Skills training X X X X X X X
Selective recruiting X X X X X X X
Flexible job assignment X X X
Dense communication and local problem solving
Teamwork X X X X X X X
Communication X X X
Information sharing X X X
Source. Gibbons and Henderson (2013).
These practices are not necessarily mutually exclusive. For instance, some authors speciﬁcally focus on the importance of communication and
information sharing in developing well-functioning teams, others directly measure the use of such teams, and still others measure a speciﬁc type
of team that might be used in lean manufacturing, total quality management programs, or statistical process control. These may all be capturing
similar successful work practices.
Henderson: Innovation in the 21st Century
Management Science, Articles in Advance, pp. 1–10, © 2020 The Author(s) 5
The idea that the presence of relational contracts—
contracts that rely on subjective measures enforced
through the shadow of the future rather than through
the courts—might improve performance is well estab-
lished in the literature, but we have much less under-
standing of why new relational contracts cannot simply
be declared. Why could GM not just announce that it
had recently learned that high levels of mutual trust
would increase performance and that, therefore, from
henceforth, it had decided to perform in a trustworthy
manner? An intriguing sequence of recent papers that
model the conditions under which a relational con-
tract develops suggests that if the subjective measures
on which they must be built can only be communi-
cated over time, relational contracts can only be built
through shared experience (see, e.g., Chassung 2010,
Halac 2012, Bachmann and Zaheer 2008).
I believe that these ideas are consistent with the idea
that the adoption of authentic purpose greatly ac-
celerates the adoption of high-performance man-
agement practices because the presence of purpose
greatly increases the ability to build trust and hence
relational contracts within the organization. Gibbons
and Henderson (2013) speculate that it is useful to
being predicated on the development of clarity and
credibility, where clarity is a shared set of beliefs
about the nature of the world, the strategy of the ﬁrm,
and the likely effects of a set of plausible actions on
possible outcomes, and credibility is an informed
belief that—all other things equal—the parties to the re-
lational contract are likely to live up to their commitments.
As I have explored, there are good reasons to be-
lieve that the adoption of shared purpose increases
clarity within an organization, and I think that it is
also plausible to assume that it increases credibility.
Purpose-driven ﬁrms are more likely to attract pro-
social individuals, and it is much easier to build co-
operationwhensomesigniﬁcant number of the parties
involved has a positive preference for cooperation
(Moorman and Blakely 1995,DeCremerandVan
Lange 2001). Similarly, ﬁrms can only build a repu-
tation for being authentically purpose driven if they
deeply embed their purpose in the strategy and
processes of the ﬁrm and if they consistently show
themselves to be willing to accept lower returns (at
least in the short term) in its service. All of this feels
like the kind of demonstrable commitment to “doing
the right thing”that is likely to build credibility. In
short, I suspect that purpose may play an important
role in enabling the adoption of high-performance
Here again, the empirical evidence as to whether
this is indeed the case is more intriguing than de-
ﬁnitive. Zeynep Ton (2014), who has studied the
adoption of high-performance work systems in retail,
argues that shared purpose may be an important
complement to their success, citing the experience of
Scholars who study Toyota often stress the fact that
Toyota’s culture is central to the successful working
of the Toyota production system (Liker and Hoseus
2008, Ledbetter 2018). In my own experience, ﬁrms
that have succeeded in adopting high-performance
work systems are nearly always run by senior teams
who have, at the very least, committed to the idea
that the well-being of their employees is at least as
important as maximizing proﬁt(Henderson2020).
But this an area ripe for more systematic research.
Of course, making the case that shared purpose
makes development of the trust that underlies the
adoption of high-performance work systems possible
is not the same thing as making the case that this kind
of trust is likely to make tackling architectural in-
novation easier. But, here again, I believe that it to be a
The relational contracts that support high-performance
work systems are, by their very nature, deeply ambiguous
and very much subject to interpretation. The case of
Nordstrom’s employee handbook, which, for many
years, was a single sheet of paper on which was written
Welcome to Nordstrom
We’re glad to have you with our Company. Our number
one goal is to provide outstanding customer service. Set
both your personal and professional goals high. We
have great conﬁdence in your ability to achieve them.
Nordstrom Rules: Rule #1: Use good judgment in
There will be no additional rules.
Please feel free to ask your department manager, store
manager, or division general manager any question at
The company meant it. Nordstrom is in the retail
business and built an impressive track record on the
basis of employees who used good judgment. In a
series of famous cases, one sales associate accepted
the return of snow tires (Nordstrom does not sell
snow tires), another drove for hours to deliver a set of
clothes so that a customer could attend a family oc-
casion, and a third changed the tires of customers
stranded in the company parking lot. Stories such as
these gave Nordstrom a reputation for excellent cus-
tomer service that was the envy of its competitors and
created deep customer loyalty. (And, yes, for many
years, Nordstrom has been regarded as a highly purpose-
Tackling architectural innovation requires precisely
the ability to deal with this kind of ambiguity—to be able
to tell employees to do the right thing even when
there’s no easy way to credibly commit to rewarding
them if they do. We know from years of research that
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6Management Science, Articles in Advance, pp. 1–10, © 2020 The Author(s)
ﬁrms that master architectural innovation are ambi-
dextrous, that is, that they combine the ability to
manage conventionally operationally focused orga-
nizations with much more dynamic, faster-moving
units and that this ability is rooted in the ability of
the senior team to develop a shared understanding of
the world and the ﬁrm’sstrategysoastocommunicate
this to the rest of the organization and to manage the
organization through a judicious mix of subjective
and objective measures that must be constantly revisited
(see, e.g., Tushman and O’Reilly 2002). In short, man-
aging architectural change requires the ability to build and
modify new relational contracts on the ﬂy—something
that is likely to be, I believe, much easier in an or-
ganization characterized by authentic purpose.
Complements?. In short, authentic purpose seems
likely to increase the odds that an organization will
“see”the need for architectural innovation as it emerges,
that it will develop a shared sense of strategy and an
organization aligned with that strategy, that its em-
ployees will work harder and be signiﬁcantly more
engaged and productive than those in conventional
ﬁrms, and that it will have an advantage in developing
the trust that is essential to effective action under am-
biguity. (See Figure 1and Table 2for an overview of
the linkages I have outlined.)
What is the evidence that this is indeed the case?
There is a large and lively debate as to whether the
quantitative evidence suggests that the adoption of a
purpose is correlated with improvements in ﬁnan-
cial returns (see, e.g., the excellent summary in
Edmans (2020) and the research available at https://
my purposes here, however, this is not a useful de-
bate. In the ﬁrstplace,Isuspectthatiftheadoptionof
purpose were obviously correlated with ﬁnancial
performance, we would see a lot more of it. In the
second place, I am much more interested in the degree
to which purpose might drive the ability to innovate—
particularly in the face of architectural or systemic
innovation—something that may or may not be sys-
tematically correlated with ﬁnancial returns, and here
again, I cannot offer much beyond qualitative evidence.
Research in transformational leadership contrasts
transformational leaders—leaders who internalize
purpose, reinforce collective commitment, build com-
mon interests, and change the way that followers see
themselves—with transactional leaders—leaders who
are motivated primarily by self-interest and appeal
to followers’self-interest through incentives (Kaiser
et al. 2008). This literature suggests that because
transformational leaders have a strong set of inter-
nalized values, they make exceptional managers who
can help the ﬁrm navigate short- versus long-term
pressures and manage the balance of both social and
ﬁnancial responsibilities (Boiral et. al. 2009). These
qualities also serve to inspire other employees to
identify with the ﬁrm’s purpose and to cooperate in the
pursuit of organizational goals, which, in turn, leads
to improved performance (Kuhnert and Lewis 1987).
The presence of authentic leadership has been cor-
related with performance in retail (Clapp-Smith et al.
2009)andtechnologyﬁrms (Peterson et al. 2009), and
the idea is consistent with an intriguing literature that
suggests that the qualities I have identiﬁed—meaning,
identity, authenticity, and prosociality—are comple-
ments in driving performance (see, e.g., Grant 2008,
Clapp-Smith et al. 2009, Grant and Berry 2011). Here
again, though, performance is often measured as ﬁ-
nancial performance rather than as a superior ability
Allofthisisbywayofending—as you might
expect—in a call for further research. We will not
solve the massive global problems we face without
being able to catalyze great waves of architectural
innovation. Developing a deeper understanding of
the forces that enable ﬁrms to move in this direction
is thus potentially of enormous value. I am not sug-
gesting that we abandon proﬁt maximization or the
tools of quantitative analysis, but I have come to
believe that a richer focus on issues that have his-
torically been considered “soft”—and, in particular,
Figure 1. (Color online) Links Between Purpose and Performance
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Management Science, Articles in Advance, pp. 1–10, © 2020 The Author(s) 7
on questions of meaning and purpose and how they
might shape organizational capability—might pay
off handsomely in both refereed journal articles and
truly useful knowledge.
What might research in this area look like? Clearly,
there will always be a role for the kinds of detailed,
qualitative studies of particular ﬁrms and single in-
dustries that have always been central to work in
innovation. I suspect that longitudinal studies ex-
ploring the development and rollout of electric ve-
hicles and renewable energy, for example, may prove
to be particularly fruitful. Similarly, studies of the
public–private partnerships that are emerging to tackle
problems such as labor conditions in the supply chain
and the continuing challenge of deforestation, and the
slew of innovations they are attempting to coordinate in
response, are also likely to yield important insights.
But I suspect that these issues are also amenable to
more conventional modes of research. Research in
behavioral economics is increasingly demonstrating
that human motivation is much more complex than
many classical models assume. Might it be possible to
bring some of these methods into ﬁeld settings to
explore the degree to which so-called purpose-driven
ﬁrms do indeed succeed in changing the perceptions
and motivations of their employees? Advances in
textual analysis applied at scale are increasingly
generating new measures of the culture of organi-
zations and the ways in which work is structured.
Could they be applied to track the evolution of culture
over time, potentially exploring the interaction be-
tween the adoption of purpose by a senior team and
its diffusion—or not—within an organization? Could
both be combined with additional measures to ex-
plore the degree to which they help drive innovation?
Let me close by making the case for taking more
risks in our professional lives. Doctoral students are
told to focus, to pick problems that are well bounded
and that are likely to advance the state of the art. They
are also taught that the process of research is a deeply
ethical endeavor, that a commitment to truth and to
the good of the community is fundamental to the
progress of science. But, in general, those of us who
are more established do not spend much time en-
couraging them to think through the broader con-
sequences of the work they do or suggesting that they
choose problems not only for their own inherent in-
terest and tractability but also because they offer the
opportunity to tackle our most pressing problems.
Perhaps we should.
This is not a matter of losing our analytic selves.
This is a matter of integrating into our analytics the
awareness that humans are driven by much more
than short-term interest and much more than simply
money and power, and the recognition that tapping
into this kind of motivation may have signiﬁcant
effects on behavior. If we can help ﬁrms harness this
additional motivation, we can perhaps help them to
take more risks and, in so doing, increase the odds
that they will innovate in the ways we so desperately
need as a society to deal with the problems we face.
I do not believe, of course, that private-sector action
will be enough to solve problems such as climate change
or inequality. But I suspect that purpose-driven ﬁrms
may have the ability to catalyze transformational change
across industries and regions and perhaps even at the
national and global scales (see Henderson 2020).
Tom Magnanti’s paper in this volume (2020)is
emblematic of the power of mathematics and ana-
lytics and the enormous difference they have made in
advancing human well-being over the last 50 years. In
thing we know about quantiﬁcation and careful re-
search. Moreover, I believe that we need to combine
this with a larger concern for human ﬂourishing and
human well-being and with an increasing sense of the
Table 2. Unpacking Purpose
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Van den Steen (2015)
Shared beliefs Alignment 4 Kreps (1996), Rotemberg and Saloner (2000)
Trust 5 De Cremer and Van Lange (2001), Gibbons and Henderson (2013)
Authenticity and meaning Intrinsic motivation 6 Deci and Flaste (1995), Ryan and Deci (2000a,b), Zhu et al. (2004)
Trust 7 Moorman and Blakely (1995), Henrich et al. (2001)
Identity and prosociality Intrinsic motivation 8 Deci and Flaste (1995), Ryan and Deci (2000a), Grant (2008), Pink (2011),
Henderson and Van den Steen (2015)
Trust 9 Moorman and Blakely (1995), Henrich et al. (2001), Tyler (2001)
Alignment Performance 10 Baetz and Kenneth (1998), Baron and Kreps (1999), Kaplan and
Norton (2005), Desmidt et al. (2011)
Intrinsic motivation Performance 11 Deci and Flaste (1995), Ryan and Deci (2000a,b), Osterloch and
Frey (2000), Cerasoli et al. (2014)
Trust Performance 12 Edmondson (1999), Baer and Frese (2003), Gibbons and Henderson (2013)
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power of unfamiliar concepts, such as purpose, trust,
and meaning, if we are to make the kind of difference
we need to make.
Let’s do the research that helps ﬁrms change
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