Marketing in Crisis

In a 4.17.06 Forbes.com article Jack Trout offered his observations on the situation in which many big brands and chief marketing officers find themselves.

He began the article with an idea he said Peter Drucker wrote: "since the purpose of business is to generate customers, only two functions do this: marketing and innovation. All other business functions are expenses. That said, one could argue that this advice is being ignored as marketing appears to not be getting the kind of attention it deserves."

More from the article: "The average tenure of chief marketing officers is less than 23 months. (That's a quicker turnover than NFL coaches.) Then there's the phenomenon of some of America's big brands being in big trouble. Some have disappeared; some are in financial difficulty; and some are watching their competitors eat their lunch—or, shall we say, market share. Why are some brands losing their long-lived integrity? Where has marketing gone wrong in guiding these businesses? General Motors, Sears, Kodak and AT&T are shells of what they once were.

There are many reasons for this state of affairs. For openers, there is a level of competition that is mind-boggling. The last time I counted, there were 180 brands of dog food. A simple product like water had 50 brands. Got a cough or cold? You have 134 brands of medicine to choose from. This introduces what I call the tyranny of choice. If you make a mistake, your customers simply move on to any of a number of other options. In other words, if you make a mistake, your competitor quickly gets your business—and you never get it back.

Then there's Wall Street with its relentless pressure on companies to keep growing, despite the fact that there is no need—only a desire—to continually expand. This leads to endless line-extensions that tinker with and chase business in categories already populated by other, well-established companies. This often results in categories becoming more and more commoditized, which in turn leads to selling on price rather than on a point of difference. This is not a happy place to reside, as all your competitors have pencils they can easily employ to mark things down. Finally, there is onrushing technology that can make you either obsolete or quickly threatened. If you're not on top of the technology in your category, trust me, someone else out there is trying to nail you. You have to be willing to attack yourself with a better idea and not let your competitor do it for you."

Peter Drucker on basic business functions

The narrow view of functions expressed above is a misrepresentation or misunderstanding of what I think Peter Drucker was trying to convey. This misunderstanding can be found in a number of discussions attempting to promote marketing activities. The result of which is an economy wide misdirection of energy and resources and the attendant side-effects on capital formation, underemployment, employee mega-stress, over-priced consumer offerings and anything else that is the result of a misdirected mega-system where the prime actors misunderstand the functioning of the system.

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In chapter 6 of Peter Drucker's Management: Tasks, Responsibilities, Practices, (What is a Business?), he wrote: "Because its purpose is to create (not generate) a customer, the business enterprise has two—and only these two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are "costs." He is using the term "function" to refer to special purposes not functional activities—the function of a light switch is to turn lights on or off. Moreover this quotation is taken out of context when quoters fail to mention that it appeared in an analysis of "What is a business?" that is part of a six chapter exploration of business performance that is part of a discussion of the tasks and dimensions (chapter 4 below) of management. See the table of contents to view the entire scope of book.

Chapter 6 (which contains the actual quote) also explores:

"Business Created and Managed by People, Not by Forces; The Fallacy of Profit Maximization; Profit: An Objective Condition of Economic Activity, Not Its Rationale; The Purpose of a Business: To Create a Customer; The Two Entrepreneurial Functions: Marketing and Innovation; The Marketing Revolution in America, Europe, and Japan; Marketing Not a Specialized Activity—IBM as an Example; Consumerism, the "Shame of Marketing"; From Selling to Marketing; The Enterprise as the Organ of Economic Growth and Development; Innovation as an Economic Function; as a Dimension of the Total Business; The Productive Utilization of All Wealth-Producing Resources; What Is Productive Labor?; Knowledge, Time, Product-Mix, Process Mix, and Organization Structure as Factors in Productivity; Making Knowledge Productive; The Functions of Profit; Profit as a Social Responsibility; How Much Profit Is Required?; Business Management a Rational Activity"

Chapter 6 concludes with the following:

"What then is managing the business? It follows from the analysis of business activity as the creation of a customer through marketing and innovation that managing a business must always be entrepreneurial in character. There is need for administrative performance. But it follows the entrepreneurial objectives. Structure follows strategy.

It also follows that managing a business must be a creative rather than a adaptive task. The more a management creates economic conditions or changes them rather than passively adapts to them, the more it manages the business.

But an analysis of the nature of a business also shows that management, while ultimately tested by performance alone, is a rational activity. Concretely this means that a business must set objectives that express what is desirable of attainment rather than (as the maximization-of-profit theorem implies) aim at accommodation to the possible. Once objectives have been set by fixing one's sights on the desirable, the question can be raised what concessions to the possible have to be made. This requires management to decide what business the enterprise is engaged in, and what business it should be engaged in."

Chapter 4 on the Dimensions of Management contains:

"Management Is an Organ—It Exists Only in Contemplation of Performance—The Three Primary Tasks: Economic Performance; Making Work Productive and the Worker Achieving; Managing Social Impacts and Social Responsibilities—The Time Dimensions—Administration and Entrepreneurship—Efficiency and Effectiveness—Optimization and Innovation—The Specific Work of Management: Managing Managers—Focus on Tasks"

Chapter 4 begins:

"Business enterprises—and public-service institutions as well—are organs of society. They do not exist for their own sake, but to fulfill a specific social purpose and to satisfy a specific need of society, community, or individual. They are not ends in themselves, but means. The right question to ask in respect to them is not, What are they? but, What are they supposed to be doing and what are their tasks?

Management, in turn, is the organ of the institution. It has no function in itself, indeed, no existence in itself. Management divorced from the institution it serves is not management.

What people mean by bureaucracy, and rightly condemn, is a management that has come to misconceive itself as an end and the institution as a means. This is the degenerative disease to which managements are prone, and especially those managements that do not stand under the discipline of the market test. To prevent this disease, to arrest it, and, if possible, to cure it, must be a first purpose of any effective manager—but also of an effective book on management.

The question, What is management? comes second. First we have to define management in and through its tasks."

Chapter 7, "Business Purpose and Business Mission" moves from discussing business in general (chapter 6) to individual organizations. The chapter includes:

The Theory of the Business; The Fallacy of the Unternehmer; Why a Theory of the Business Is Needed; Especially in Today's Knowledge Organization; "What Is Our Business?" Neither Simple nor Obvious; Theodore Vail and the Telephone Company; Top Management's First Responsibility; Failure to Define Business Purpose and Business Mission a Major Cause of Business Frustration and Business Failure; Why "What Is Our Business?" Is So Rarely Asked; The Need for Dissent; The Customer Defines the Business; Who Is Our Customer?; Customer and Consumer ; The Carpet-Industry Story; Where Is the Customer?; What Does He Buy?; What Is Value to the Customer?; There Are No Irrational Customers; The Economist's Concept of Value; What Is Price?; When to Ask, "What Is Our Business?"; Most Important: When a Business Is Successful ; "What Will Our Business Be?"; The Importance of Population Trends ; Changes in Economy, Fashion, and Competition; Anticipating Innovation; The Consumer's Unsatisfied Wants; "What Should Our Business Be?"; The Need for Planned Abandonment

Chapter 7 concludes with the following:

Defining the purpose and mission of the business is difficult, painful, and risky. But it alone enables a business to set objectives, to develop strategies, to concentrate its resources and to go to work. It alone enables a business to be managed for performance.

The foregoing paragraphs are the supra-context within which the initial quote is contained. Without awareness and acceptance of this supra-context the quote misdirects and misleads. It is also part of the explanation of "marketing in crisis."

The quoted material above was written before 1975 and it is not the end or sum of Peter Drucker's written thinking or his mentorship. One of the evolutionary challenges facing all of us is making the transition from the worldS he saw then to the worldS he foresaw in the next society (Management Challenges for the Twenty-First Century and Managing in the Next Society). My about Peter Drucker page is a resource for working on that challenge.

As further clarification, Peter Drucker pointed out that most organizations do too much (too many activities) and too little (they do things half-heartedly) plus they don't systematically practice abandonment.