Drucker’s Err – The Purpose of Business

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.

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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.