Drucker and the Functions of Business

by Aaron ShieldsOct 07, 2010

“Because its purpose is to create a customer, the business enterprise has two–and only two–base functions: marketing and innovation.”
– Peter Drucker

Pretty simple right? Yet how many companies truly “get it” and can execute with such clarity?

In the three and a half decades since Drucker summed up the goal of business and the tools necessary to achieve the goal in one sentence, business gurus have overcomplicated the purpose and processes of business and buried them so deep in heaps of tactical bullshit that’s its not surprising why so many businesses feel lost.

Marketing and innovation point to the same purpose: fulfilling the human biological and psychological needs of your customers in a way no one else can.

1. Marketing helps you carve out a unique niche and constantly reinforce your unique offering and the emotional payout customers get from doing business with you (advertising, building brand communities, and social media are just touchpoints that should point to the same overall purpose).
2. Innovation allows you to develop products that don’t just meet your but exceed the expectations of your customers, showing them that you both know what they want and care. Every time they purchase from you they fall in love with your brand again.

Being able to execute effective marketing and innovation requires a deep understanding of the customer that few businesses have.

Apple excels at surpassing customer needs. In a 1989 Inc. interview Steve Jobs said, “You can’t just ask customers what they want and then try to give that to them. By the time you get it built, they’ll want something new … If we’d given customers what they said they wanted, we’d have built a computer they have been happy with a year after we spoke to them—not something they want now.”

Only by having deep insights into your customers can you look into the future with a crystal ball and know what they want before they can tell you.

And, this is what Apple did with the iPhone. Despite hype that led to bloggers dubbing it the Jesus Phone, Apple was able to escape the pitfalls of disappointment by doing what it always does: excelling on the user interface and beautiful design. The beauty of the design inspired users own creativity and the ease of use enabled them to have an easy path towards achieving their goals. Unlike other multi-functional devices, Apple didn’t play to the business audiences, it played to their core group of customers who consume and create media.

Instead of other brands looking to the hearts of their businesses through the eyes of their best customers—their Brand Lovers—and predicting what their customers would want, they envied Apple, solidifying Apple’s reputation as the John Holmes of the technology industry (for a fun look from Fast Company at Apple envy check out The iWannabe Chronicles). Through their envy, they copied and mimicked what Apple did and attempted to intrude on Apple’s space, instead of carving out their own, leading to a barrage of copycats, the so-called “iPhone killers.” Nearly two years later, everyone is still trying to play catch up and the closest any killer came was to being a kamikaze with bad aim.

The most effective thing any of these phones have done is to create free advertising for Apple: as soon as you see one of the phones, what do you think? My guess is, “Apple iPhone.”

The latest entry into the foray and the one with the “best chance” (like we haven’t heard that before) is the Palm Pre. When the iPhone launched, Palm thought Apple would be hurt by returns. Since those mass returns never happened, Palm decided to hop on the bandwagon. The Palm Pre was released June 6th, 2009, two days before Apple made announcements at the World Wide Developers Conference (WWDC).

The Palm Pre offered a multi-touch interface like Apple, but also using a sliding keyboard presumably because “that’s what people want” (like that’s really helped other “iPhone Killers) and cut and paste (which was released on the next update by Apple). The only unique offering has nothing to do with the phone itself: a charging device that works wireless, but that’s going to cost extra. And, to obviously compete with Apple on price, the phone will cost you $199, but only after a $100 mail-in rebate.

When the buzz of the Palm Pre died down, Apple was still, clearly, the industry leader because it continues to focus on its best customers’ needs with both is marketing and innovations, rather than imitating its competitors.

Next time you make a product or design a new marketing strategy, instead of trying to outdo the main competition look to what you do best and what your best customers love about you and innovate from there.

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