Business Strategy: The Three Questions You Must Be Able to Answer
Strategic thinking, according to Drucker, is knowing the right questions to ask. In this week's Drucker Files, Dr. Robert Swaim looks at the three critical questions you and your management team need to ask yourselves to make sure you're on the right track.
Pretend that Drucker were alive today and you were about to engage him - the world’s foremost authority on management - to spend a day at your company with you and your management team. You want advice as to the direction your company should take and the best strategy to consider. You are concerned about how your company can compete in a dynamic and rapidly changing global economy and uncertain as to what the current world economic crisis will mean to your company.
If you do invite Drucker to visit your company - don’t expect any answers from him. Yes, you heard right. After the meeting, he will not even send you a report. If you want a report, it will be double spaced on one page, list 10 or 15 questions you and your management team need to answer, and you will have to pay an additional consulting fee. This had been his standard consulting practice for almost 60 years.
You are therefore probably asking yourself, why should we pay his expenses and his extremely high consulting fee if he is not going to give us any answers? We need answers.
How can your company can compete in a dynamic and rapidly changing global economy?
You know however, that many of the largest corporations, non-profit organizations, and governments in the world continued to request his consulting services even at the age of 95 – why? You decide to contact some of the companies he has consulted with, such as General Electric and other Fortune 500 companies, and they advise you that you will not be disappointed in bringing Drucker to your company. They tell you that he will not provide you with any answers, but with the right questions you and your management team should be asking yourselves – then you will have the answers. He will not give a lecture, but he will provide you with insight on a number of important issues for your company’s management to consider such as, what do we know and not know about the future, and what this might mean for your business strategy? The key questions Drucker asks you to answer are applicable anywhere and therefore as you review this article consider how you would respond to Drucker’s questions relative to your own organization. Are you ready for his visit?
What is the Purpose of Your Business?
You and your management team are in the conference room, Drucker enters and after introductions, he asks you, "What is the purpose of your business?" How would you answer him?
If you said, to make a profit, he laughs and in his Viennese accent, informs you that, "You don’t know anything about business" and adds, "The answer is not only false, it is irrelevant." He then goes on to explain to you that "THE PURPOSE OF A BUSINESS IS TO CREATE A CUSTOMER."
Here’s what he means by this definition of the Purpose of a Business and what he has written on the subject including the key questions that management needs to ask in order to formulate strategies to create and retain customers. We will not ignore your most likely answer to his question, to make a profit, as Drucker puts profit into its proper perspective later in this article.
The 3 Key Questions Drucker Asks You in the Morning Meeting
Drucker goes on with the meeting. "Gentlemen, at the end of today’s meeting you will want to be able to determine how you are going to answer the following three key questions:
- What is our business?
- What will our business be?
- What should our business be?"
What Is Our Business?
Here is some insight from Drucker. "What is our business focuses on defining the Mission of the business. And the first and most critical question to be asked in defining the Mission of the business is, "Who is the customer?" Drucker adds, "That there are usually two or more types of customers for a business. As an example, for a business involved in branded consumer products, the grocer is one customer, getting shelf space in his stores, and the housewife is the other customer, will she buy your product when she is in the store? Each customer defines a different business, has different expectations and values, and buys something different."
Therefore Drucker continues, "We need to look outside from the point of view of the customer and market. Any serious attempt to state, "What is our business?" must start with the customer’s realities, his situation, his behavior, his expectations and values. To satisfy the customer is the Mission and Purpose of every business." Other key questions that also need to be answered include;"Where is the customer?" and "What does the customer buy?" It should be noted that we added "to retain and grow customers" to Drucker’s definition since it is important to recognize that it is estimated to cost five time more to gain new customers than to retain existing customers.
What Will Our Business Be?
In your meeting, Drucker now turns to the second important question you have to ask, "What will our business be?" Drucker points out that this "aims at adaptation to anticipated changes. It aims at modifying, and developing the on-going business." Drucker goes on, "There are four major factors that will determine what you business will be. These are:
- Market Potential and Market Trend
- Changes in Market Structure
- The Consumer."
Drucker expands on these four factors with some additional insight and other questions for you to answer.
Market Potential and Market Trends
- "How large can we expect our market for our business to be in five or ten years – assuming no basic changes in market structure or technology?
- What will be the factors that will determine this development?"
- Drucker asks you to answer the above questions. How would you respond?
Changes in Market Structure
- "What changes in market structure are to be expected as of the result of economic developments, changes in fashion or taste, or moves by competition?"
- Drucker asks you to answer the above question. How would you respond?
- "What innovations will change the customer’s wants, create new ones, extinguish old ones, create new ways of satisfying his wants, change his concepts of value or make it possible to give him greater value satisfaction?"
- Drucker asks you, "What innovations are taking place in your industry?" How would you answer him?
- "What wants does the consumer have that are not being adequately satisfied by the products or services offered to him today?"
- Drucker asks you, "What consumer wants are not being satisfied in your industry?" How would you answer him?
What Should Our Business Be?
Drucker continues by asking the question, "What should our business be?", which involves developing a Vision for the future. One does this by answering the following questions:
- What changes in the environment can be observed that have an impact on characteristics, Mission, and Purpose of the business?
- What opportunities are opening up or can be created to fulfill the Purpose and Mission of the business by making it into a different business?
- How to build these anticipations into the Theory of Business, into objectives, strategies, and work assignments?
- The market, its potential, and its trends are the starting point. Changes in demographics (population shifts) are the only events regarding the future for which true prediction is possible. Management needs to anticipate changes in market structure, fashion or taste and moves from competition. Also, which of the consumer’s wants are not adequately satisfied by the products or services offered him today?"
Drucker adds, "That the ability to ask these questions (consumer’s wants) makes the difference between a growth company and one that depends for its development on the rising tide of the economy or industry. Whoever is content to rise with the tide will also fall with it."
We hope that your morning meeting with Peter Drucker proved to be informative and useful. If you were taking notes during the meeting, these are the key questions you and you management team should now begin to develop information on in order to answer:
- What is our business? (Mission)
- What will our business be? (The changing environment that we are certain about)
- What should our business be? (Vision)
We will have another meeting with Drucker in the afternoon. Topics Drucker will address in the afternoon session will include the importance of objectives and the kind of objectives that are needed, as well as he puts profit into perspective.
Editor's note: Part II of this column will be published Tuesday October 18th and looks at strategic approaches and the process of creating objectives.
This article is an extract of a longer article. The full article is available directly from the author at email@example.com. Dr. Swaim also goes into more detail on the concepts discussed in this article in chapters 2 and 3 of his book The Strategic Drucker.