Small Business by Donald A. Smith: Companies must fight to stay focused on customers

DONALD A. SMITH, SCORE volunteer. Consults internationally in organizational performance, process improvement and business systems.July 30, 2013 

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Donald A. Smith

Why is it that once- great companies like Blockbuster and Sears ride the wave of success for a time and then wither to a whisper of their former selves? Or in the case of Eastman Kodak, close the doors forever?

Why is it that almost every company, no matter how successful, eventually struggles to maintain the levels of performance previously reached?

Professor Peter Drucker articulated this problem and a solution almost 60 years ago. His insight on this topic centered on how the term "business" is defined.

Most of us tend to think of our business as the organization, its buildings and equipment, employees, processes and such. Drucker didn't see it that way. In his book "The Practice of Management," he wrote, "If we want to know what a business is, we have to start with its purpose. … There is only one valid definition of business purpose: to create a customer."

Drucker went on: "It is the customer who determines what a business is."

How does Drucker's definition of a business help keep companies at the top of their game?

Drucker offered another viewpoint. He wrote, "The question, 'What is our business?' can be answered only by looking at the business from the outside, from the point of view of customer and market." He then wrote, "All the customer is interested in are his or her own values, wants and reality. For this reason alone, any serious attempt to state 'what our business is' must start with the customer's realities, his situation, his behavior, his expectations and his values."

Understanding our business requires us to get outside our organizations to clearly understand what our customers think, see, hear, feel, desire, fear and, more importantly, find valuable. We call that point of view "outside-in." The opposing view, inside-out, is the norm in most organizations.

Most companies begin with the outside-in perspective during startup. Time and growth have a way of shifting the perspective to inside-out. Daily problem-solving causes every organization to lose sight of the fact that its original purpose was to solve customer problems. The perspective shift occurs slowly to a point where the organization's problems take precedence over customer problems, thereby pushing work and risk back onto its customers. If these behaviors continue, customers will eventually defect.

As organizations grow, layers of management are introduced, and employees become more specialized to achieve efficiencies. This evolution increases distance between the people making strategic decisions and the customers they serve. This distance also creates signal loss from the "voice of the customer" that is necessary to maintain relevance. Market change is a constant for every organization, and the largess of success is seldom an ally in maintaining customer relevance. Decision makers need to close the gap.

The outside-in perspective is not easy to maintain but is absolutely necessary in creating consistent organizational success. It's a discipline that requires diligence to relentlessly question every assumption we have about our business, or, as Drucker would say, "our customer."


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