“The purpose of business is to create and keep a customer.” – Peter Drucker
“There is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits.” – Milton Friedman
These two quotations share divergent views of the purpose of business. Peter Drucker, the man many call the father of modern management, presents the view that business is here for customers. He points us in a direction where business is first and foremost about providing value. Friedman, the well-known economist and Nobel Prize winner, however, comes from an entirely different angle. Friedman says that business primarily functions to increase profits, presumably in order to provide the best return to investors.
So, this presents us with a dilemma. Is business’s fundamental purpose to provide value to customers or money to investors? It is a question that often creates heated debate.
But I do not understand the debate because it would seem the argument to provide return to investors is so obviously misguided. I mean, without customers, there is no return. One comes only out of the other and cannot be the other way around. You cannot have profit with customers coming second. It just doesn’t work. You must provide something for customers that they find valuable enough to pay for and then manage your operation in a way where you are left with profit. If you want more profit, you must innovate to provide more value and then manage better, that is it, and it all starts with customers.
Given that, it would seem that the best way to make everyone happy, customers and investors, is to focus on customers. Yet, our modern age, hungry for quick results, seems obsessed with the Friedman view. So many companies run things by putting customers second at best. They build products on the cheap and create processes that make life difficult for customers but easy for the company. They cut corners and then say they broke no laws as if that makes everything right regardless of how ethically or morally questionable. In addition, they make these decisions so obviously to support the wealth of a small minority while the working class does the hard yards to make it happen.
On the flip side, there are a few organizations who obviously get it and know that the true purpose of business is to help customers achieve the results they want and/or need. This is what Drucker was saying. Business exists to provide for others – to serve. It exists to make our world better. And that better is for a wide audience, not just a few. And…if helping others is the focus, profit will come, it just takes a little longer, but it does come.
So, the key difference comes down to whether we want to be known for doing just about anything for quick profit or for delivering value and service that lasts and provides consistent long-term profit. And deciding which way to go means coming to terms with whether business is fundamentally about Friedman’s belief in a taking force for selfish gain or Drucker’s belief in a giving force for good.
So here’s the bottom line (pun intended), which paradigm will you support, Friedman or Drucker? The answer will define how you do business and potentially how long you stay in business.
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