June 20, 2020

The two basic functions of business

Peter Drucker (1909-2005) was one of the most widely-known and influential thinkers on management. His work continues to be used by managers worldwide. He is widely regarded as the father of management consulting.

Drucker had this to say about the purpose of a business:

“The purpose of business is to create a customer.”

WUT? Create a customer?!

Customers exist already, don’t they?

Wouldn’t it be more accurate to say that the purpose of a business is to attract customers, not create them?

It took me a few years to get my head around Drucker’s quote but eventually I saw the light. He chose the word “create” deliberately, and I believe that he was quite right to do so.

Yes people exist, but customers don’t magically appear out of thin air. You have to make them.

The breadcrumbs that lead me to this belief can be found in his follow-up assertion about the basic functions of business:

“Because the purpose of business is to create a customer, the business enterprise has two--and only two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.”

Notice that he doesn’t say HR or IT or management or accounting or operations or production are basic functions of a business enterprise. Those things matter, but the ballgame is marketing and innovation.

Which raises the question:

What marketing or innovation related activities are you undertaking to grow your business?