The Purpose and Objectives of a Business

The other day my computer needed a tune up and for the first time in a long time I had to go through a weekend without the web. Which affected my reading. I always have a book or two in progress but I shift around from my books to the web. So when I was shifting around looking for my web time replacement I went to my book stack and found The Essential Drucker. I’ve always wanted to read it. Now was my chance. (And actually, a book like this is kind of like a blog considering it’s a series of essays.)

The essay that really hooked me was “The Purpose and Objectives of a Business.”

I think it’s valuable to recenter oneself from time to time. Why do companies exist? From cars to luggage to home improvement stores what’s the point of it all?

If you immediately said “profit” I encourage you to read on… (And then I encourage you to watch this and try to be a little less cynical…)

Drucker’s thoughts on profit were as follows:

“Profit is not the explanation, cause, or rationale of business behavior and business decisions, but rather the test of their validity. If archangels instead of business people sat in Directors’ chairs, they would still have to be concerned with profitability, despite their total lack of personal interest in making profits.”

Instead, he says, “there is only one valid definition of business purpose: to create a customer.”

I love that.

And the more you think about it the more true it is.

Consider:

Apple has created a customer who values design and dynamic personal expression from their technology.

Cabela’s has created a customer who believes that the outdoor experience is something deeper than what general sporting good stores can provide.

H&M has created a customer who believes in the idea of cheap chic.

In fact, the best brands are creating new types of customers before our vary eyes all the time: Mini, Facebook, Pixar, Ralph Lauren, Fast Company, the list goes on… And a good question every company should revisit from time to time is:  What type of customer are we creating?

Anyway, because its purpose is to create a customer, Drucker continues, “the business enterprise has two–and only these two–basic functions: marketing and innovation.”

Upon reading that I drew this:

And then I thought about value.

What’s the value of an outsourced marketing partner to a business today? The best value equally straddles both areas. Communicate through creativity and marketing so that the customer clearly understands how the product or service fits them. Then apply creativity with innovation decisions to help a business provide better and more economical goods and services.

I look at the drawing above and immediately companies like IDEO, Naked and Fahrenheit 212 come to mind, primarily moving in from the right. I think many ad agencies and digital firms are finding ways to effectively move in from the left. I know we’re moving more and more this way. And this is where the industry needs to be–providing creative ideas and insights that strengthen the fundamental purpose of a business.

Anyway, I liked the re-centering.

It’s good to put the computer away sometimes.