Drucker, Meet Socrates

My first speech to more than 300 people was almost my last. (I can hear literally tens of thousands of people who have been subjected to my public speaking since then asking, “why didn’t they end it right there?)

In a nutshell, it didn’t go well. My opening was – I kid you not – “Socrates says that ‘the beginning of wisdom is the definition of terms’ but (scripted pregnant pause) . . ..I’d like to disagree with Socrates.” 

Believe it or not, it got worse. Very few speeches mention both Where the Wild Things Are and John Hull’s seminal work on options theory. This one did.

Other topics I worked in were: the Treaty of Ghent and the Battle of New Orleans, Monte Carlo Simulation, and Kramerica Industries.  There’s more, but they would just add to the scatterplot.  The best part: I can barely remember what the speech was about (customer profitability in retail banking, I believe).

To make a long story, and even longer speech, short, I’ll cut to the chase. The day after this disaster a group of colleagues gathered to give me feedback. One of them opened the meeting with a charitable: “where to start?” My colleague and friend @Derek van Bever, offered gently, “well, how about the beginning?” Then slowly asked the question: “is Tom Monahan versus Socrates really the best way for us to start in on this?”

Point taken. My uneven academic record didn’t exactly have anyone arguing to include me in the Pantheon of Western thought. Yet twenty-plus years later, I’m at it again. This time I’d like to disagree with Peter Drucker. I think here I may be on firmer ground. 

In The Practice of Management, Drucker famously asserted that “There is only one valid definition of business purpose: to create a customer.” 

It’s a powerful quote, as it cuts through a miasma of corporate activity and refocuses the task of every individual, group and function on creating, communicating, and capturing value for a specific decisionmaker.  Drucker goes on to – in essence – redraw the corporate org chart, placing the customer squarely at the top. 

The power of this recentering has become ever more important across the last decades as large companies have gotten, well, larger. That sounds like a truism, but is actually astounding when you dig into the data. If you assume that being in the Fortune 500 is a pretty good proxy for being a big company, the size required to be “big” has risen at a much faster rate than the economy. In 1989, the smallest “big” company had about 500 million in revenue, today it is more than 10 times that. The U.S. economy – on a nominal basis – is only about 4 times the size it was in 1989. I’ll leave it to the economists and competition types to debate the causes (scale returns from technology investments, global competition, cheap capital facilitating consolidation) and consequences of this dynamic. But for leaders, the challenge of creating alignment across larger organizations – with an increasingly bewildering array of functions and c-level titles – has gotten ever harder. Drucker’s assertion is a bolt of clarity here, helping the CEO find a lever to unite the work of the Chief Data Privacy Officer, the Chief Supply Chain Officer, and the Chief Marketing officer. (Not to mention the Chief Fun Officer.)

If Drucker’s statement has such power, why am I disagreeing with him? Because simply creating a customer sets the bar too low. All sorts of activities can create a customer – and many of them destroy value: for the business, the customer or both. A pricing mistake can create a customer. So can a misleading marketing campaign. Or a single well-timed product that leaves you with a decade’s worth of spare capacity. (Judging from the assembly of sweatshirts from regional breweries in my closet, it appears that a second pint of IPA creates a pretty good sweatshirt customer.) 

My quibble with Drucker is that he left out an important word. I’d make a strong case that he meant the purpose of business is to create a loyal customer – to create a mutually beneficial economic relationship that transcends a transaction or a single accounting period. Ideally, it will transcend a single product or market cycle. Loyal customers – who routinely seek and find value from a given company – are potentially the cleanest referendum on the health of that company. And the work of targeting customers with whom to build uniquely, mutually beneficial relationships tests a company’s abilities across the board.  

Creating loyal customers has always been hard, but may have gotten even harder in a digital era. While organizations seek customer centricity, most technology platforms are actually built up from the workflow of the business, not back from the customer experience (a cook’s tour of the categories illustrates this: sales automation, marketing automation, commerce, content management). This makes a ton of sense as it helps companies leverage existing organizations and workflows. But as a result, customers show up as data elements in most of the major technologies that power business today, and sometimes only as a data elements. 

In an era of digitally-powered relationships, the ability to conceive and credibly execute on a loyalty-based strategy requires a company to blend left and right brain capabilities that span such disparate disciplines as strategy, design, real-time analytics, api management, IOT, and hardcore engineering. Doing this well is (obviously) important, but also incredibly challenging in that it unites so many divergent business disciplines and skills. In that spirit, I was delighted to see my ProKarma and Lenati colleagues honored by Forrester for being a leader in the loyalty services category. Read more about that here, and learn more about what it takes to architect a strategy that treats loyalty as a critical outcome here.

And – for fans of Drucker – don’t be too upset. He’s in pretty good company with Socrates.