Business Metamorphosis LLC

Excerpted, with added emphasis, from The Practice of Management - By Peter Drucker

Because it is its purpose to create a customer, any business enterprise has two and only these two-basic functions: Marketing and Innovation. They are the entrepreneurial functions.

Innovation, a critical function

A business enterprise can exist only in an expanding economy, or at least in one which considers change both natural and desirable. And business is the specific organ of growth, expansion and change.

The second function of a business is therefore innovation, that is, the provision of better and more economic goods and services. It is not enough for the business to provide just any economic goods and services; it must provide better and more economic ones. It is not just necessary for a business to grow bigger; but it is necessary that it constantly grow better.

Forms of Innovation

Innovation may take the form of lower price, the form with which the economist has been most concerned, for the simple reason that it is the only one that can be handled by his quantitative tools. But it may also be a new and better product (even at a higher price), a new convenience or the creation of a new want. It may be finding new uses for old products.

Innovation goes right through all phases of business. It may be innovation in design, in product, in marketing techniques. It may be innovation in price or in service to the customer. It may be innovation in management organization or in management methods Or it may be a new insurance policy that makes it possible for a businessman to assume new risks. The most effective innovations in American industry in the last few years were probably not the much publicized new electronic or chemical products and processes but innovations in materials handling and in manager development. .

Innovation extends through all forms of business. It is as important to a bank, an insurance company or a retail store as it is to a manufacturing or engineering business.

Innovation throughout a business

In the organization of business enterprise Innovation can therefore no more be considered a separate function than Marketing. It is not confined to engineering or research but extends across all parts of the business, all functions, all activities. It is not, repeat not, confined to manufacturing business alone. Innovation in distribution has been as important as innovation in manufacturing; and so has been innovation in an insurance company or in a bank.