January 11, 2005

News & Opinion: Drucker on Customers

By: 800-CEO-READ @ 3:53 PM – Filed under: Management & Workplace Culture

"To know what a business is we have to start with its purpose. Its purpose
must lie outside of the business itself. In fact, it must lie in society
since business enterprise is an organ of society. There is only one valid
definition of business purpose: to create a customer.
"Markets are not created by God, nature, or economic forces but by
businessmen. The want a business satisfies may have been felt by the
customer before he was offered the means of satisfying it. Like food in a
famine, it may have dominated the customer's life and filled all his waking
moments, but it remained a potential want until the action of businessmen
converted it into effective demand. Only then is there a customer and a
market. The want may have been unfelt by the potential customer; no one knew
that he wanted a Xerox machine or a computer until these became available.
There may have been no want at all until business action created it--by
innovation, by credit, by advertising, by salesmanship. In every case, it is
business action that creates a customer.
"It is the customer who determines what a business is. It is the customer
alone whose willingness to pay for a good or for a service converts economic
resources into wealth, things into goods. What the business thinks it
produces is not of first importance--especially not to the future of the
business and to its success. The typical engineering definition of quality
is something that is hard to do, is complicated, and costs a lot of money!
But that isn't quality; it's incompetence. What the customer thinks he is
buying, what he considers value, is decisive--it determines what a business
is, what it produces, and whether it will prosper. And what the customer
buys and considers value is never a product. It is always utility, that is,
what a product or service does for him. And what is value for the customer
is, as we shall see, anything but obvious.
"The customer is the foundation of a business and keeps it in existence. He
alone gives employment. To supply the wants and needs of a consumer, society
entrusts wealth-producing resources to the business enterprise.
Peter Drucker, Management: Tasks, Responsibilities, Practices