Drucker’s Err – The Purpose of Business
Tanmay Vora
Drucker got it wrong.
Drucker famously wrote that “the purpose of business is to create and keep a customer.” I’m as much a fan of Drucker’s as any management scholar, but I have to part ways with him here. The purpose of business is NOT to create or to keep a customer. Certainly it is an objective, even THE primary objective of business. If a business can not create or keep customers, then soon there is no business.
Still, objectives are not purpose.
Some have suggested that the purpose of business is profits, increase profit and shareholder value. For obvious reasons, this view is held by a majority of shareholders. The overwhelming majority of companies, though, are not publicly traded, even if the majority of wealth is in public traded companies. Most business are small, owned by a sole proprietor or small partnership. Sure profits are a part of any business, but it’s typically not the reason entrepreneurs start a business. Profits are a measurement. Charles Handy makes the case that measurement can NOT be purpose. No one plays baseball in order to increase their batting average. They increase their batting average in order to keep playing baseball. Profits are a measurement.
Measurement is not purpose.
Customers, Profits, Shareholder values. These are the measurements that determine if you can keep playing. Profits keep you in business so you can keep making or doing something. Every business was started by someone who wanted to make or do something and be able to eat at the same time.
Don’t confuse what keeps you in business, with why you’re in business.
– – – – –
Today’s guest post comes from David Burkus – author of The Portable Guide to Leading Organizations and the editor of LeaderLab, a community of resources dedicated to promoting the practice of leadership theory. He is a consultant, a speaker and an adjunct professor of business at several universities. He can be reached at david@davidburkus.com.
I suggest the two words are synonymous, and can usually be used interchangeably. “Purpose” is the more serious word, although they are both fairly serious, and “objective” is often used by the military, so it can give that sort of feeling to your writing. If you are talking about a spy mission, objective would work better, and if you are talking about something religious, purpose would probably work better. Similarly, purpose could mean the reason for the undertaking while
objective could be the main goal of the undertaking;
What the person wants to achieve or accomplish through the undertaking.
Example: Purpose of Sachin when he pads on is to score runs, but the objective of Sachin Whenever is pads on is to win the game for his country.
Drukker didnt got it wrong I suppose,
Drukker says the purpose of business is to create and keep a customer. Objective can be specific to individuals, Ex.Growing 500% in next 5 years, someone might have 200% or any value for that matter.
Creating and keeping a customer is as basic as Scoring Runs for Sachin, he has to keep scoring till the team wins and for business, One has to keep creating and keeping a customer till one reaches his objective.
In my opinion Drukker was correct.
The dictionary defines Purpose as – An anticipated outcome that is intended or that guides your planned actions.
If this is the case, can I say the purpose of each and every business will be different?
Someone might want to make a name for himself or herself, someone might want to make money, someone might want to grow onto bigger things, someone might want to make exceptional products – the list can be endless.
Can we say that the customers, Profits, Shareholder values and other such things which prop up your business and keep it going are the means to the ends?
The headline “made me look” since not too many people would dare to challenge the most basic of Druckerisms.
I would suggest there is a little confusion on the purpose “of business” versus the purpose for being in business.
I would contend that you can serve your purpose at any time. When you decide you want to be paid for “your purpose”, you enter the world of business. You need a customer and to continue “eating” you need to learn how to keep them. That is the purpose of business.
It was an enjoyable read and certainly got me thinking anyway – on a Monday morning of all things. Thanks.
David, when I read your title I was loaded for bear. But after reading the post, I applaud you. Purpose is about why and not what. I think Drucker was still very right about the absolute need to create customers, but to label that purpose of a business might not be the best way to say it. Well done.
Wow. Quite the discussion. Thanks for all the comments. I’ll work in reverse order.
Bret, I’m with you. I think Drucker’s “purpose of business” quote is a hyperbole used to focus your attention on the customer. In that way, he’s absolutely right. The danger is focusing too much on gaining customers as a means for profit. I believe when companies focus too much on the money side and gaining customers, they can lose sight of the initial reason they created the business…and will likely lose customers.
Redge, you make a good point. Each business will have an individual purpose and you can separate that from the purpose of business as a whole. However, if every business believes that the purpose is beyond profits…then is the general purpose of business as a whole still profits and finding a customer.
Vyankatesh, excellent. As Redge also pointed out, each business needs to decide for itself what mark it wants to make on the world. Money is just a measurement, not the mark itself.
Sarang, I’m sorry. I just don’t agree with you. Purpose and Objective are not synonymous and shouldn’t be used interchangeable. Simple put, purpose covers the why behind and actions, whereas objective covers the how. An objective can be devoid of motive, a purpose can’t.
Thanks again for the awesome feedback. I’m loving this discussion.
[…] Lastly, he asked if one of Drucker’s more famous maxims should be re-evaluated in Drucker’s Err on the QASpire […]
Great discussion. I still use the Lazier & Collins model from Beyond Entrepreneuship:
Vision (Goals based on Purpose based on Values) is the Why;
Strategy is the What;
Tactics/Actions are the How.
So Goals/objectives are related to Purpose, they are formed afterwards.
Organisations often get stuck in Strategy or Tactics … Values is the place to start.
http://niceqoute.com/peter_drucker.html
I believe there are two “good” customers you must create and try to keep for life.
Internal and external.
Without the 2 you have an imbalance which will create variation in delivering consistent value to both. When this happens the death spiral begins.
[…] Drucker DIDN’T get it wrong. If the purpose of your business isn’t to create and keep a customer, it’s not a business, it’s a hobby. […]
Erm… isn’t that exactly the point that Drucker made?
Don’t confuse “your” purpose with the “business’s” purpose. Your purpose might be to eat, to grow wealthy, to serve, to try something new, and so you create a business as a tool to meet that purpose. That business’s purpose is to create customers (and sufficient profit) and therefore successfully serve you.
The hammer’s purpose is to drive nails; saying “nails driven is a measurement and can’t be a purpose, you must answer ‘why you are driving nails?’ to find the hammer’s purpose” is the same mistake.
Thanks, you certainly made me think!