“Only a clear definition of the mission and purpose of the business makes possible clear and realistic business objectives. It is the foundation for priorities, strategies, plans, and work assignments. It is the starting point for the design of managerial jobs and, above all, for the design of managerial structures. Structure follows strategy. Strategy determines what the key activities are in a given business. And strategy requires knowing “what our business is and what it should be.”
For a business to perform, achieve results, and stand the test of time it must be governed by an idea. The idea must include its purpose and mission. All of this requires a business to ask: what is our business? and what should it be?
The first question—what is our business?—must be answered through an analysis of the customer, which is a marketing function. Drucker recommends four questions: Who is the customer? Where is the customer? What does the customer buy? What does the customer consider value?
Drucker provides case studies of businesses like Sears and IBM that became market leaders by asking these questions. For example, as automobiles became prevalent, Sears realized that farmers were shopping in suburbs, motivating the decision to open department stores.
Though these questions have been asked successfully when businesses were struggling, Drucker recommends asking them when a business starts up and whenever objectives have been achieved.
The second question what should our business be? is intended to help businesses change to meet new demands. Businesses should look for changes in population and demographics. They should look for unsatisfied desires. And for changes of perception.
Drucker helps business leaders apply these questions in his business strategy book Managing for Results. He shows what to do to understand the state of a business and what a business should do to see and meet changing demand.
(Management, chapter 7)