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The Three Questions You Must Be Able To Answer

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  • 1. Business Strategy: The Three QuestionsYou Must Be Able to AnswerContributor: Robert W. SwaimStrategic thinking, according to Drucker, is knowing the right questions to ask. In thisweeks Drucker Files, Dr. Robert Swaim looks at the three critical questions you andyour management team need to ask yourselves to make sure youre on the right track.Pretend that Drucker were alive today and you were about to engage him - the world’sforemost authority on management - to spend a day at your company with you and yourmanagement team. You want advice as to the direction your company should take and thebest strategy to consider. You are concerned about how your company can compete in adynamic and rapidly changing global economy and uncertain as to what the current worldeconomic crisis will mean to your company.You know however, that many of the largest corporations, non-profit organizations, andgovernments in the world continued to request his consulting services even at the age of95 – why? You decide to contact some of the companies he has consulted with, such asGeneral Electric and other Fortune 500 companies, and they advise you that you will notbe disappointed in bringing Drucker to your company.They tell you that he will not provide you with any answers, but with the right questionsyou and your management team should be asking yourselves – then you will have theanswers. He will not give a lecture, but he will provide you with insight on a number ofimportant issues for your company’s management to consider such as, what do we knowand not know about the future, and what this might mean for your business strategy? Thekey questions Drucker asks you to answer are applicable anywhere and therefore as youreview this article consider how you would respond to Drucker’s questions relative toyour own organization. Are you ready for his visit?
  • 2. What is the Purpose of Your Business?You and your management team are in the conference room, Drucker enters and afterintroductions, he asks you, “What is the purpose of your business?” How would youanswer 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 isirrelevant.” He then goes on to explain to you that “THE PURPOSE OF A BUSINESS ISTO CREATE A CUSTOMER.”Here’s what he means by this definition of the Purpose of a Business and what he haswritten on the subject including the key questions that management needs to ask in orderto formulate strategies to create and retain customers. We will not ignore your most likelyanswer to his question, to make a profit, as Drucker puts profit into its proper perspectivelater in this article.The 3 Key Questions Drucker Asks You in the Morning MeetingDrucker goes on with the meeting. “Gentlemen, at the end of today’s meeting you willwant to be able to determine how you are going to answer the following three keyquestions: • What is our business? • What will our business be? • What should our business be?"Question 1:What Is Our Business?Here is some insight from Drucker. “What is our business focuses on defining theMission of the business. And the first and most critical question to be asked in definingthe Mission of the business is, “Who is the customer?” Drucker adds, “That there areusually two or more types of customers for a business. As an example, for a businessinvolved in branded consumer products, the grocer is one customer, getting shelf space inhis stores, and the housewife is the other customer, will she buy your product when she isin the store? Each customer defines a different business, has different expectations andvalues, and buys something different.”Therefore Drucker continues, “We need to look outside from the point of view of thecustomer and market. Any serious attempt to state, “What is our business?” must startwith the customer’s realities, his situation, his behavior, his expectations and values. Tosatisfy the customer is the Mission and Purpose of every business.” Other key questionsthat also need to be answered include;“Where is the customer?” and “What does thecustomer buy?” It should be noted that we added “to retain and grow customers” to
  • 3. Drucker’s definition since it is important to recognize that it is estimated to cost five timemore to gain new customers than to retain existing customers.Question 2: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 toanticipated changes. It aims at modifying, and developing the on-going business.”Drucker goes on, “There are four major factors that will determine what you businesswill be. These are: • Market Potential and Market Trend • Changes in Market Structure • Innovation • The Consumer.”Drucker expands on these four factors with some additional insight and other questionsfor you to answer. • Market Potential and Market Trends o “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? o What will be the factors that will determine this development?” o Drucker asks you to answer the above questions. How would you respond? • Changes in Market Structure o “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?” o Drucker asks you to answer the above question. How would you respond? • Innovation o “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?” o Drucker asks you, “What innovations are taking place in your industry?” How would you answer him? • The Consumer o “What wants does the consumer have that are not being adequately satisfied by the products or services offered to him today?” o Drucker asks you, “What consumer wants are not being satisfied in your industry?” How would you answer him?
  • 4. Question 3: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 thefollowing 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 thedifference between a growth company and one that depends for its development on therising tide of the economy or industry. Whoever is content to rise with the tide will alsofall with it.”ConclusionWe hope that your morning meeting with Peter Drucker proved to be informative anduseful. If you were taking notes during the meeting, these are the key questions you andyou 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 addressin the afternoon session will include the importance of objectives and the kind ofobjectives that are needed, as well as he puts profit into perspective.Editors note: Part II of this column will be published Tuesday October 18th and looks atstrategic approaches and the process of creating objectives.This article is an extract of a longer article. The full article is available directly from theauthor at docswaim@gmail.com. Dr. Swaim also goes into more detail on the conceptsdiscussed in this article in chapters 2 and 3 of his book The Strategic Drucker.