have met a lot of entrepreneurs recently who have told me how superior their product or technology is compared to their

competitors. But their competitors have far more customers and market penetration. As a result, in the last several months I have found myself sharing some or all of the following quote from the great management thought-leader, Peter Drucker: Because the purpose of business is to create and keep a customer, the business enterprise has twoand only two basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of business. This may be a painful realization for some, but the best product or service doesnt always win. In business, usually the best marketer wins. So, here are some general recommendations for any entrepreneur who thinks their infatuation with their product is blinding them from being the best marketer among their competitors. - Complete a market analysis relative to your competitors and your product, preferably with clear recommendations on the best segments of the market and the most valuable positioning in that/those markets - Get someone on your team now who has marketed and sold to the same customers. This addition to your team should also get the hands-on, roll-up-your-shirt-sleeve mentality your entrepreneurial company was founded upon. - Care more about how best to solve your customers needs than your technology or product. Many entrepreneurs really struggle with this one, thinking that they know whats best for the customer. The challenge is always getting the customer to believe that. So get their feedback throughout your product life-cycle and be willing to shed features and design elements that youre holding onto because of your love affair with the product, not because of what is best for the customer. - Have fun. Marketing is one of the most exciting parts of business. When done correctly, it is quantitatively based and often more measurable than many other things you do in your company. This is just a starter list. Does anyone want to add any more to the list? These thoughts dont apply to products only. The same concepts can help in marketing services and can help in marketing you if you are looking for a new job or need to position yourself for a promotion. For more than a decade Ken has built a reputation as a leader who is respected for his integrity, work ethic, and commitment to lifting people and companies to new levels of achievement. Ken has served in several leadership roles, including CFO, COO, VP of Administration, and VP of Sales, in start-ups, mid-stage companies, and large multi-national corporations. 2. Peter Drucker, perhaps the most noted business professor and philosopher of our time, continued, everything else is just cost. This really provides a different perspective for most businesses where production, finance and accounting rule the roost. Yet it is clear that the innovators are the really big winners. We see it all around us; Apple Iphone, following the Ipod, following on the MacIntosh, following on the GUI (graphical User interface). Or Google with its completely original notion of organizing the worlds information, then inventing a new advertising industry too boot.

And innovation enabling wealth creation is not new. Ford invented a new way to mass- produce cars for lower selling prices, Carnegie developed the Bessemer furnace in the US and drove steal prices ever downward. DuPont developed better gunpowder. Market domination or even creation; provide great opportunities for wealth creation, as well as many times increasing our standard of living. So why is it that so many business people concentrate on cost cutting, financial leverage and tax avoidance instead of finding customers and innovating? It is a question that still escapes me too. My three decades of business consulting tells me that many choose to preserve existing wealth rather than risk greater riches. This is not a fault and can lead to comfortable circumstance and company stability. But at the same time if Drucker was right, if the company is not creating a customer, how long will the stability continue? Recessions usually cause companies to pull back on creating customers. This is a curious circumstance, because new customers can mitigate tough business from existing customers. I find that businesses that make great cuts to advertising and marketing during a recession, really dont understand why they advertise and how it works in the best times either. Many of these businesses simply do not know the best ways their companies create customers. Instead they put out a shingle and throw money away with wasteful ad spending and are too busy to measure for success. What intelligent business person would cut back on an activity when they know it creates business? Not many, but very few really know what works. Recessions take out the ones that dont understand this first reason to be in business-to create a customer. This could be a long recession so its not too late to start, measure the effectiveness of all marketing activates, advertising, distribution, sales, materials and direct mail, website visits and closes, and everything else you can. Pay attention to why each customer is doing business with you. Then just do more of what works, and stop what is less productive. Tell your CFO or controller, to measure it all, or the financial measurement wont matter anyway! Nothing happens until the cash register rings. 3. In a 4.17.06 Forbes.com article Jack Trout offered his observations on the situation in which many big brands and chief marketing officers find themselves. He began the article with an idea he said Peter Drucker wrote: "since the purpose of business is to generate customers, only two functions do this: marketing and innovation. All other business functions are expenses. That said, one could argue that this advice is being ignored as marketing appears to not be getting the kind of attention it deserves." Peter Drucker on basic business functions The narrow view of functions expressed above is a misrepresentation or misunderstanding of what I think Peter Drucker was trying to convey. This misunderstanding can be found in a number of discussions attempting to promotemarketing activities. The result of which is an economy wide misdirection of energy and resources and the attendant side-effects on capital formation, underemployment, employee mega-stress, over-priced consumer offerings and anything else that is the result of a misdirected mega-system where the prime actors misunderstand the functioning of the system.

In chapter 6 of Peter Drucker's Management: Tasks, Responsibilities, Practices, (What is a Business?), he wrote: "Because its purpose is to create (not generate) a customer, the

business enterprise has twoand only these twobasic functions: marketing and innovation. Marketing and innovation produce results; all the rest are "costs." He is using the term "function" to refer to special purposes not functional activitiesthefunction of a light switch is to turn lights on or off. (Drucker sometimes uses the word "function" to apply to parts of an organization but not in this case.) Moreover this quotation is taken out of context when quoters fail to mention that it appeared in an analysis of "What is a business?" that is part of a six chapter exploration of business performance that is part of a discussion of the tasks and dimensions (chapter 4 below) of management. See the table of contents to view the entire scope of book. Chapter 6 (which contains the actual quote) also explores: "Business Created and Managed by People, Not by Forces; The Fallacy of Profit Maximization; Profit: An Objective Condition of Economic Activity, Not Its Rationale; The Purpose of a Business: To Create a Customer; The Two Entrepreneurial Functions: Marketing and Innovation; The Marketing Revolution in America, Europe, and Japan; Marketing Not a Specialized ActivityIBM as an Example; Consumerism, the "Shame of Marketing"; From Selling to Marketing; The Enterprise as the Organ of Economic Growth and Development; Innovation as an Economic Function; as a Dimension of the Total Business; The Productive Utilization of All Wealth-Producing Resources; What Is Productive Labor?; Knowledge, Time, Product-Mix, Process Mix, and Organization Structure as Factors in Productivity; Making Knowledge Productive; The Functions of Profit; Profit as a Social Responsibility; How Much Profit Is Required?; Business Management a Rational Activity" 4. Theres a quote by Czech author Milan Kundera that Im fond of. He states, Business has only two functions marketing and innovation. While this assertion is easier said than done, its certainly a powerful idea that can help us understand what it is that generates customers for a business. To delve a little deeper, lets look at some examples of companies that truly take this idea to heart. To start with, innovation is what moves businesses forward. If you dont innovate, youll get left in the dust. Google has made a living off coming up with the newest, coolest technology that consistently meets its customers needs. Apple, too, is infamous for coming out with innovative, high-tech products so sleek and user-friendly that some people go fanatic over them. On the other hand, Blockbuster is a business which is failing because of its inability to innovate. Once the leading video rental store in the country, Blockbuster failed to adapt to new technology, and as a result, has seriously struggled to compete with newer companies such as Netflix and Redbox. Now Blockbuster is close to bankruptcy. The other function of businessmarketingcan do wonders in attracting more customers, especially in industries where its difficult to innovate. Take The Coca-Cola Company, for example, which has kept its same signature drink for nearly all of its 118-year history, but has continued to grow its business through creative and effective marketing. True, theyve done some innovating as well with their new product lines, but its their genius marketing strategy over the years that has established them as arguably the #1 brand in the world. To see this truth in action today, just look at Proctor & Gamble (P&G) and its latest Old Spice advertisements. Theres not much Old Spice could do in terms of innovating their deodorant and body wash lines, but through a funny and creative viral marketing campaign, they still significantly boosted their product sales. So next time youre pondering over how you can grow your business, you better start thinking of ways you can innovate or a new marketing campaign because those are the only ways you can differentiate your product or service. You can either make your product better, faster, or cooler through innovation, or convince your customers its better, faster, or cooler through marketing. Or do both.

5. Any time Google introduces a new service, or even announces its plans to do so, a familiar echo is heard by Internet users and industry experts across the globe: Google is taking over the world. Of course very few people actually think Google is trying to control the world, but it seems very clear that they have plans to expand their business into virtually every market on the Internet (and then some!). To track how this all happened, lets go back 12 years ago to when Google first incorporated in September, 1998. What Google did to become so successful was simply create a superior algorithm that could capture significantly more relevant search results than any other search engine on the market. By 2000, just two years later, Google became the largest search engine in the world with over one billion pages indexed. But the company didnt stop there. Within another two years, Google developed Google Images, Froogle (now called Google Product Search), Google News, and most notably AdWords, Googles innovative selfservice advertising program that soon became its primary source of revenue through its Pay-Per-Click pricing system. Since then, Google has continued to relentlessly expand its offerings of Internet-based services and products. Some more notable ones include Google Maps, Google Earth, Google Videos (in 2006, Google acquired YouTube), Gmail (the third most popular e-mail service on the web), Google Finance, Google Calendar, Google Docs, Google Analytics (one of the best tools used in Search Engine Marketing and online advertising), Google Chrome (their web browser), and the Android operating system for mobile devices. In addition to their big push in the smartphone market recently, Google has discussed major plans to introduce an ultra-high speed broadband service, which can go up to 100 times faster than regular broadband. Even more intriguing, however, are Googles frequent attempts at entering the social networking market with products such as Google Buzz, Google Wave, and Orkut. While none of these have been too successful, rumors have started that Google plans to introduce a new product which will finally compete with the social networking colossal, Facebook. Although this social networking site, referred to as Google Me, is just a rumor for now, the thought of Google becoming a major player in that market is astonishing. While Facebook currently has a dominant share of the social networking market, it wouldnt be the first time Google prevailed over impossible odds to overtake the industry leader (see Yahoo! Search Engine). Googles ability to thrive with so many products and services results from the simple fact that they consistently develop technology thats innovative, user-friendly, and advantageous.

How advantageous, you ask? Think about the last time you looked through the Yellow Pages to find a business. Cant remember? Thats because more and more people are using the Internet for their directory and information needs. Why wouldnt you? Its easy, fast, and accurate. And according comScore, Google has an approximate 65% share of the search engine market, making it the crme de la crme of the information industry. So bottom line, is Google really taking over the world? Highly doubtful. While it seems to have cemented its position as the worlds best search engine, its still miles behind its competitors in most of its other offerings. Yahoo! Mail dominates Gmail, in terms of users. Google Buzz cant touch Facebook, MySpace, or Twitter in popularity. And while Google Docs and Google Chrome are becoming more widely used every day, most businesses have yet to switch away from Microsoft Office or Internet Explorer.

6. Whats most impressive about the campaign isnt how humorous or unique its ads are, but rather how quickly it generated huge viral buzz stemming from Old Spice going out of its way to interact with fans all over the Internet. On July 14, Isaiah Mustafa, the Old Spice guy himself, replied to comments and questions on Twitter, Facebook, and other social networks via personalized YouTube videos. Within 24 hours there were 181 reply videos posted on YouTube, producing over 6 million views. The campaign has become a viral marketing success that we seldom see these days. The secret? For one thing, the commercials are hysterical and different. Most importantly, though, their utter absurdness got people talking. Before you knew it, they became the new must-see Internet videos. Old Spice then proceeded to take it to a whole new level by personally replying to individual fans, thus surely setting the bar high for companies viral marketing campaigns in the future. The success and creativity of this campaign should not come as a surprise, however, given that it was launched by Proctor and Gamble (P&G), the consumer goods manufacturing giant that owns the Old Spice brand. P&G has long been a leader in advertising and marketing. In fact, they created the concept of brand management and soap operas, and they consistently spend the most money on advertising every year. So how will these Old Spice commercials and this viral marketing campaign result in more sales for Old Spice? They have a distinctly beneficial impact on branding. Consumers will now positively associate the Old Spice brand with humor, fun, adventure, manliness, confidence, and good looks. Furthermore, Old Spice ensured success by reaching their market in an extremely personal manner through social media, an advertising channel that is all too frequently not utilized to its full potential. Old Spice showed us that to make the most of social media you really must connect with your customers. Its clear as day that people use social media sites for connecting with others, but often most companies try to remain separate from the action. If your business is simply advertising on these Websites and not participating in them, your messaging is just getting in the way of what users are looking for. Consequently, no one will pay attention to your ad content. So when its all said and done, what insight can we gain from Old Spices marketing campaign? If theres one thing to learn, it would be to get creative and start doing some serious connecting with your customers through social media. Just dont be afraid to swan dive right in! 7. Peter Drucker, one of the most highly respected business thinkers of the late 20th century wrote:

"Because its purpose is to create a customer, the business has two - and only two - functions: marketing and innovation. Marketing and innovation create value, all the rest are costs." If Drucker is right and only marketing and innovation create value - then surely your business should be based around these two functions. However, how much of your time as a business owner is spent on these two wealth creating functions, and how much is spent on order taking and fulfillment? Have you even thought about how you innovate in your business? Before we answer that question, I think we should define what innovation is. Many people, when they hear this word, think of high-tech. However, as I would define it, innovation is simply offering superior value to the end user. If you are a pizza delivery company and you have the best pizza, then thats innovation. If you can deliver pizza in 30 minutes and all your competitors take 60 minutes, thats innovation. If you have the cheapest pizza in town, thats innovation. Innovation is any superior benefit that customers would value. Why is this important? When Im consulting with a client, one of the first questions I ask is: "why should someone do business with you ahead of any and all other options, including doing what theyre already doing or doing nothing at all? Usually I get a blank look followed by something like service or quality. But, when I ask what does that mean specifically to the end result I, as a customer, would experience?, theyre stumped. This is because most businesses dont innovate. They dont promise anything unique other than perhaps a convenient location. All they have is a me too, non-descript business that is dependent on a lack of competition. These businesses are lucky they have any business at all. Whats why its no surprise that so many businesses are merely getting by. Nor should it be a surprise that those businesses so often go from getting by to going broke. Think of yourself as a customer. Do you want to do business with a business that offers you nothing special? Just the same prices, selection, service as everyone else? Have you ever picked up the Yellow Pages for a service and felt all the ads were just saying the same thing? Didnt you wish that one of them actually offered something different? If you ended up doing business with one of those non-descript businesses, that business was lucky to get your business. They certainly never earned it and it could have just as easily gone to one of their competitors. Your clients are no different to you. Youve got to offer them something special, so theyve got a reason to come to you. Otherwise, theyre likely to go elsewhere.

I believe that, deep down, we all know this. However, how many of us have gone out and successfully created a unique offer for our market? Ok. So Ive made my point. Now, how do we take this and make it happen in our businesses? One way to do it is to ask the question: what is the biggest complaint people have about your competitors? Knowing the answer to that means knowing what your prospects want but arent getting. And that can be the key hot button thats going to get them to dump your competitors and come knocking at your door. Lets look at an example of a business that became a huge household name by doing exactly this. Dominos pizza. What was the problem with their competitors? That the pizza would often takes ages to arrive (and often arrived cold). So, Dominos built their business around a promise that addressed this. hot fresh pizza delivered to your door in 30 minutes or less or its free. They offered the market what it was missing and put their money where their mouths were by backing up their innovation with a very powerful and specific guarantee. Closer to home, in my own business, I saw that the biggest complaints about marketing consultants were: (1) they expect to get paid, whether they make their clients money or not. (2) they typically want the client to invest large sums in marketing or advertising campaigns, which may or may not work. So, I took the opposite approach. I dealt with the first point by guaranteeing my work. And I dealt with the second by offering to help businesses get a greater return from the money theyre already spending on their marketing. This has helped me carve out a niche where I signed up a lot of clients that were unwilling or unable to gamble their money on a typical consultant. How can you use the same approach to stand out in your market? If you havent already developed a unique selling point, go out into your market place and do some research. Why do people buy from you? Why do they buy from your competitors? Why dont they buy at all? What pleases them about the business they buy from? What isnt as good as they want and what would they like instead? Whats a hassle or inconvenience? What risks do they feel they have to take to do business with your industry and how could you remove that risk with guarantees? Once youve gathered this information, its time to think about how you can turn this into a market advantage. Ive got a process I take businesses through to identify and create a unique selling point and, in a future newsletter, Ill take one of my subscribers through this process to show you how it works.

Best wishes. Steve Gibson 7. Once you have started a business, the next step is to market your business to as many possible consumers as you can. 8. Today, when top management is surveyed, their priorities in order are: finance, sales, production, management, legal and people. Missing from the list: marketing and innovation. When one considers the trouble that many of our icons have run into in recent years, it is not easy to surmise that Druckers advice would have perhaps helped management to avoid the problems they face today. 9. Marketing and innovation define each other in yin-yang ways. Thinking about the fundamentals of this dual pair of concepts led me to a curious definition of the most important word in business: customer. Let me first treat you to two lists of weird symmetries and similarities between marketing and innovation, in the Lincoln-Kennedy-assassination similarities mode. I want to convince you there is a pattern here and, unlike the Lincoln-Kennedy stuff, that there is a reason for the pattern. Lets start with the similarities, and then look at the polarities. Similarities Both functions are systematically misunderstood, compared to other business functions. Innovation is often reductively understood as invention and R&D, while marketing is often reductively understood as promotion and advertising. By contrast, nobody seriously misunderstands what HR, accounting or manufacturing are about. Ideally, both are in a balance: the optimal ratio of marketing spend to engineering spend in a Both functions lay claim to the DNA of the organization. Marketing owns the overt form, the product launch (known as the Grabowski Ratio) is 1. brand, that integrates the self-image and story of the company, while innovation owns the individuation behind the brand, within the society of corporations. Both functions frame their basic processes in terms of an increasing certainty funnel metaphor. In innovation, the funnel narrows from basic R&D through various stage gates to successful commercialized product/service while in marketing, the funnel narrows from a customer who is unaware of your offering, through stages of awareness, interest, purchase, repeat purchase and the ultimate stage, loyalty. In both cases, the fundamental dynamic is a weeding out, a filtration. Of ideas in one case, of people in the other. Both functions are numbers games by definition. You try to factor in all the information you have, and are still left with a situation of incomplete information, at which point you have to make a leap of faith and push a button. The prototype either flies, or it does not. The customer either pays attention, or s/he does not. By contrast, every other function in business can reach much higher levels of certainty. Both functions revolve around the concept of differentiation. Innovators deal in differentiation in product/service features, while marketers deal in differentiation in customer perceptions.

A notion of creativity is at the heart of both functions. The idea that it is easier to invent the future than to predict it applies to both marketing and innovation. Innovators seek to shape future material realities. Marketers seek to shape perceptions.

Both have a love/hate relationship with a downstream partner function (production and sales respectively) that deals in scale and repetition. One design, a production run of a thousand. One user-story, a thousand registered users. One advertisement, a thousand sales calls. Even in the age of mass customization, you can always tell the two sides apart. Production and sales are always repeating something (indeed, their raison detre is skill in creating perfect repetitions efficiently, even if the repetition is at a level of abstraction above mass customization). Marketing and innovation, on the other hand, depend on novelty and uniqueness to add value. This is necessary. If innovation and marketing did not create repetition opportunities downstream, you would not have a business. Youd have a one-off project.

This explains why customers need to be created, and what innovations really are. Innovation isnt about creating novel products or services.

An innovation is a stimulus that causes a novel and stable pattern of human behavior to emerge. Google isnt fundamentally an innovative search engine. It is a stimulus that creates a novel pattern of information-discovery behavior known as Googling that is different from what searching used to be before Google. Cars arent products that replace horses. They are novel patterns of human movement and settlement. That then is at why marketing and innovation are deeply linked in a yin-yang pattern. They are both exploring the same uncertainties in free human behavior, and seeking ways to stabilize it into predictable patterns. When both look at uncertainties in human behavior, or uncertainties in potential stimuli, you get similarities and harmonies. When they are looking in different directions (typically, marketing looking at the customer, while innovation is looking at the stimulus), you get polarities. This tension is necessary. If ever innovation became truly customerled youll be in a universe of faster horses. If ever marketing becomes truly product-led, youll be in a universe of stuff nobody will buy. The Death of the Customer This definition of a customer also explains the life cycle of a product. With every enhancement of the stimulus, the pattern that is the customer evolves and becomes more complex. At some point though, there is no more novelty emerging in the pattern. The customer is rather predictably asking for a faster horse, and it is costing you a lot more to add every extra bit of speed to your horses. At this point, you either have to look for less mature patterns on the periphery (disruption-ready categories) or look for new base patterns. The category is dead from the point of

view of innovation and marketing. The product/service is end-of-life, and more importantly, the customer is end-of-life. The pattern cannot sustain itself. You put both in a hospice, and harvest residual value

11. ter Drucker, the father of modern management once wrote that, the purpose of a business is to generate new customers, and only two functions do that, marketing and innovation. All other business functions are expenses. We only have to look at the recent success of Apple's iPad and iPhone 4 product launches to see how powerful it can be when great marketing is combined with great innovation. I definitely think marketing is too important a decision to be left just to marketers, which is why I prefer to work with business leaders. Marketing defines our businesses in the eyes of our audience. If our marketing is not strictly in alignment with the vision of our business then we begin to dilute our brand and our message. As I see it the business leader's role is to hold the vision and role of a good marketing communication strategy is to extract the essence of that vision and inspiration and communicate it in a way that speaks your audience's language 12. ver the past few years, the terms innovation and design thinking have taken on a life of their own through a variety of channels and media. Millions of words have been written on these topics by journalists, consultants, practitioners, and curious bystanders. Then throw in discussions about design itself and an even wider range of opinions emerge. What, then is a business leader supposed to make of all of this? Years ago and much earlier than the current hype cycle, Peter Drucker wrote that the two main functions of a business are marketing and innovation. Drucker did a superb job defining both areas. Over the past 30 years, many business leaders seemed to have forgotten that their purpose as a business is to get customers and not focusing on cost-cutting, off-shoring jobs, and maximizing shareholder value. To my mind, marketing and design both share the same business objective. That objective is to find customer problems and solve them with new offerings. A positive result of the renewed focus on innovation has shown that anything new (not just products or services alone) that generates economic value can generate growth and increased customer value. New business models, processes or partnerships, product or service platforms, channels, brands, or customer experiences can all generate new economic value. Business leaders must decide how to throttle their innovation efforts, from incremental to transformational, in order to direct the future vision and strategic intent of the organization. Innovation is a result. Achieving innovation requires a combination of user research, competitor research, and market driver research (i.e. social, technical, economic, environmental, and political/legal evolutions) and analysis of these elements to make sense of the customers world and then creatively solve the challenges people have while operating in these worlds. Effective solution development and delivery requires the skills and talents of both marketers and designers, not to mention engineers, accountants,

and customer service people as well. It is marketing and design people, though, who should be on the leading edge of opportunity discovery and customer problem framing. Just as strategic marketing is more than just messaging, strategic design is more than just making things look good. A key strength of marketing is to understand customers and markets, and some key strengths of design are to look at the customers world differently, to break out of constraining biases, and to invent the future. A high level integration of these two disciplines should make any company stronger and more effective over the long haul. The concept of design thinking seeks to merge the creativity of the designer with the realities of the market. While I both appreciate and dislike this phrase at the same time, so far it is the best description available to help business leaders see that creating an organizational future requires the combination of both marketing and design skills in order to deliver innovation. "Thinking" like a designer, or taking a design approach, extends research and analysis toward experimenting with a variety of concepts in order to create desirable, feasible, and viable new solutions. Taking this type of approach combines critical thinking and systems thinking in order to invent a future state. Imbedding this approach into the marketing function will help create a future state that breaks free of current reality and discovers "what could be." Another positive result of all this discussion is there appears to be a change underway in business education. Design approaches for discovering and meeting customer opportunities are increasingly showing up in MBA programs. This is very exciting because a wider range of people are gaining insight into how marketing and design can be blended together to not only improve on products and services, but also to make the lives of their customers better. This blend of skills can find new ways of improving customer experiences; from the way people are attracted to a company, through the occasion of use, to an extended relationship using new digital approaches. The Design Management Institutes LinkedIn group has highlighted discussions recently on designs value to the organization, where design ought to reside in an organization, and how design could work more effectively within marketing groups. There appears to be strong potential for merging these two disciplines together at a strategic level. Marketing and design both have the objective of meeting the customers needs, and both can support the business strategic intent and drive toward achieving sustainable competitive advantage. There are tactical challenges in linking marketing and design more closely together, especially with so many specialties existing within each domain. Marketing groups include advertising, public relations, event planning, channel management, etc. Design consists of industrial design, graphic design, packaging design, web design, systems design, etc. Product management and product marketing also exist in many organizations separately from corporate marketing. Depending on the size and type of company, design may also exist as a separate department as well. There are many different political agendas within individual companies, and all of this makes for a very challenging organizational design effort. One of the biggest self-inflicted obstacles in many companies is that people at the tactical levels of an organization have been trying to push a strategic change from the bottom-up. Just as the CEO of a business needs to be the key driver in developing an effective innovation process and culture, it is the CEO who needs to see the strategic side of design and learn to incorporate that value with marketing and create a new type of marketing organization. This type of organization would be much more in line with Druckers view of a business, and could help companies create more useful offerings, business models, and processes. It could help lead organizations to be more socially relevant and environmentally sound. Design and marketing should be closely tied together to ensure the delivery of innovation to the market. It only makes sense to have them working more closely to achieve the strategic intent of a business, and

conversely, to help develop strategic alternatives that can affect the evolution of strategic intent. All that is needed is getting the CEO to take the lead.

13. Peter Drucker believed that business had two primary functions: marketing and innovation. And he was very clear about this is his various writings. "A company's primary responsibility is to serve its customers, to provide the goods or services which the company exists to produce. Profit is not the primary goal but rather an essential condition for the company's continued existence. Other responsibilities, e.g., to employees and society, exist to support the company's continued ability to carry out its primary purpose. And because the purpose of business is to create a customer, the business enterprise has two--and only two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of business 14. While nearly everything has changed in the world since that statement; its meaning for businesses of all sizes has not. Times are tough; and the time for businesses to innovate their offerings as well as their marketing tactics and action plans couldnt be more eminent. 15. Peter Drucker famously said many years ago that business has only two functions marketing and innovation. Innovation involves product development, market need, design, engineering, production, and all the blood, sweat, and tears it takes to bring great offerings to the market. Everything else is marketing. Sure, companies need people to support all that innovation and marketing (handled by Finance, Accounting, HR and Admin), but Druckers point is clear. Sales is a part of marketing. Its the back-end of the marketing process. But far too many companies make the mistake of having their sales reps handle both the marketing and sales roles. How common is it to look at any $5-$10 million B2B company and find that the sales team is responsible for generating their own leads, closing their own deals, and supporting their own customers? After working with hundreds of companies over the last 15 years, I believe marketing would get the respect it deserves if CEOs would embrace this single distinction: Marketing covers the one-to-many communication. It could be one to a thousand or one to a Sales covers one-to-one communication, company to company, to get the deal.

million. The latter is more important for short-term revenue, but the former is more important for long-term growth. Typically, a company that does not respect the marketing function simply increases their sales force to try to get more one-to-one conversations in order to achieve a few more deals and tepid revenue growth.

Respecting the marketing function means committing to a defined, continual process of developing and communicating value to the marketplace. Its communicating value to the masses AND to the ones who are ready to buy. Its a strategy. And it should be implemented continuously. By making a decision to treat marketing as strategy instead of an ad hoc expense, companies can avoid the myriad of problems I listed earlier. Its a simple but effective change, and its driven by respect. If youre not convinced, heres an example of a rare CEO that treated the marketing function as strategy from the day he founded his company. That strategy was a key driver of his growth from zero to $1 billion in revenue in only 10 years. Read about it in his book Behind the Cloud. 16. Marketing Disciplines In Innovation

A Key Source Of Innovation Toolkits Innovation is a powerful concept, yet it stands on the shoulders of other disciplines. Just to develop ideas into prototypes worthy of evaluation, we need creativity, science, engineering, design, and testing. Management of new product development includes disciplines for management of pipelines, platforms, portfolios, processes, and projects. When we refer to innovating a business or a product, however, we are actually talking about marketing. Not marketing as advertising, but marketing as both strategy and toolkit for defining, designing, branding, developing, and launching businesses and products.

Marketing Many organizations equate marketing with communications: websites, brochures, advertising, PR, and trade shows. That limited view creates disadvantage as bad as going into a boxing match with blinders on and one hand tied behind our back. Consider this definition of marketing. Marketing: The science of making and keeping satisfied stakeholders, at a profit, over time, in a competitive environment Note first that marketing is very strategic. Satisfaction, revenues, and competition involve whole businesses and most functions within businesses. Marketing is not a side issue, but a best-inclass way of doing business a core competency essential at every stage. Second, marketing is a leadership function the science of creating durable visions, building consensus, and initiating change at business and product levels. In a world of increasing complexity, leadership requires a much broader view than, say, technology or finance. Third, marketing is an ongoing resource and influence over time. To match up to its definition, marketing begins early in any innovation cycle and continues through monitoring of post-launch market impact. Fourth, marketing is a science, not an art form. Marketing is a suite of logical, manageable, repeatable processes. With appropriate tools, good marketing can be engineered just like good technology. Indeed, marketing is a natural extension of the perspectives and skills of every type of technical professional, including legal and management. Fifth, everything in our definition changes, both directly and in response to the forces of economics, politics, technology, cultures, and globalization. Marketing provides structure and methods for gathering and absorbing information, making decisions, developing buy-in, and taking action. Sixth, marketing applies to all exchange relationships. Even R&D scientists must gain funding to support new work. Marketing applies as much to alliance and distributor relationships as to investors and customers. We all do marketing every day, though few of us do it well. Finally, marketing is a mindset a powerful way of looking at the world that puts customers and other stakeholders at the center. Marketing recognizes that the best way to create wealth is to satisfy those relationship partners so well that they gladly invest and come back for more.

17. Innovation depends on marketing. In many ways, innovation is marketing. Marketing needs the ideas and prototypes of invention and R&D. Neither is complete without the other. The sum requires other business functions to complete a business capable of profits in todays complex environment. Marketing is clearly the optimum paradigm for leading and managing innovation of businesses and products. Look at the definition again: The science of making and keeping satisfied customers, at a profit, over time, in a competitive environment. This definition defines all of business. Marketing is that close to the core of every organization that serves customers. At paradigm level, marketing outperforms technology, finance, manufacturing, and/or sales as starting place for any level of innovation. Why? Because marketing is a better way to perceive and approach markets. Customer satisfaction and a focus on value guide both business and product development, then produce the revenues managed by finance. Marketing isnt an option in any practical sense. We all do marketing every day, whether we know it or not. Yet marketing is an option at the mindset level. The choice of a marketing perspective delivers a more useful picture of markets, customers, competitors, and our interactions with them. We cant innovate without marketing, so we need to understand and leverage the power of marketing every day. The time for change is now, and it always will be. 18. Struggling with Druckers recommendations on marketing, I decided to investigate what Drucker really meant about innovation and marketing being the two basic functions of any business. If you look innovation up in a dictionary, youll find descriptive words like improvement, advancement, and originality. The implication being that an innovation is the introduction of something new and better. Drucker also justified the need for something new and better in about as strong as way as he could put it. He said that if any business continued to do what made it successful in the past, it would ultimately fail. This is counterintuitive. It seems logical that if youve been successful, you should keep doing what helped you to succeed. Yet, as usual Drucker was right. There are countless examples to support his thesis. There was a time, not so distant, when every real engineer used a slide-rule for mathematical calculations. In fact, he either carried a miniature slide rule in a shirt pocket, or a full-sized device about a foot long in a holster attached to a belt much as some carry a holstered cell-phone today. The slide rule device originated in 1612 when a Scottish nobleman turned mathematician named John Napier discovered the logarithm. This made it possible to perform multiplications and divisions by addition and subtraction. This basic idea was was refined by others into hardware which consisted of one or more sliding ruler-like bars held in place between other ruled bars encapsulated by a cursor. This constituted the slide rule. By the late 17th century, the slide rule was a common instrument. Engineers for the next three hundred years carried this around to perform calculations on the spot and without paper and pen. The user manipulated bars and cursor to obtain the solution to complicated mathematical calculations in minutes or even seconds. Of course errors could occur due to failing eyesight or cursors which were not perfectly perpendicular to the bars. But to a couple decimal points they were usually in acceptable limits of accuracy for most purposes and no engineer was without one. The companies which manufactured them, K + E, Picket, and others were financially solid and profitable. Their products werent discretionary for engineers. They were essential. Youd think that all they needed to do was to keep doing what made them successful in the past and with improvements these slide rule companies would be successful for another three hundred years. Not so. Within a few months in the early 1970s, these old companies no

longer could sell their products when the handheld electronic calculator was suddenly introduced as a mail order product by Joe Sugarman, the same entrepreneur who later sold the BluBlocker Sun Glasses on TV. A strange, rare, occurrence? Hardly. This sort of thing happens all the time. The vinyl record companies did hundreds of millions of dollars of business, but they all disappeared within two years when CDs came on the scene. Like the slide rules, vinyl records werent overcome by a better vinyl record, but by a totally new product based on a technology which made vinyl records obsolete. That was the innovation. But it isnt only technology that causes such sudden and rapid change. 10. Going into Business without Innovation For many years I headed up a program at a university sponsored by the US Small Business Administration in which professors formed and led teams of business students who did consulting for small local businesses without charge. I was amazed at the numbers of businesses whose owners went into business without understanding that the mere desire to open a retail store, laundry, restaurant, or barbershop did not automatically mean customers. Innovation was always needed. A large number were having difficulties because they didnt consider the question as to why a prospect should buy from them rather than from an established enterprise which was already serving the market in their area. Drucker on Marketing So, innovation is always needed. But why marketing? The answer to this question is bound up in both selling and marketing. If you think marketing and selling are pretty much the same, you have only part of the answer. Drucker knew that not only are they not the same, but that good selling could actually be adversarial to good marketing. How can this be? You need to remember that selling has to do with persuading a prospect to buy something that you have. But marketing has to do with already having what prospects want. Making a decision as in what innovation to invest your time, money and effort is part of marketing. You can see that marketing is much broader and more strategic. Drucker liked to say that if marketing were done perfectly, selling would be unnecessary. Of course, its not and selling is absolutely necessary. However good selling of a product or service that you shouldnt be selling in the first place can encourage you to waste time, money and effort when you should really move on and seek something more valued by your prospect to have, and then to sell easier, at lower cost, and in greater quantities than would be sold in the first instance. How Innovation and Marketing Applies to You and Your Profession If you simply agree from this short analysis that both innovation and marketing are important to a business, what does this have to do with you as a professional? If you are doing a competent job and are successful as an HR professional or a nuclear scientist, you better think about innovating, especially under current economic conditions. As to which innovations in which to invest your efforts, turn to marketing concepts to find out. Innovation and marketing are the ingredients of business success, and they are the essentials of personal success as well. Drucker was right again.

As per our discussion earlier, the reason I believe in Open Innovation is that there is a direct link to the best kind of Marketing, which is insight-driven Marketing. For years, marketers have looked to desk-based market research, phone-based/interview research or focus groups to find patterns, themes, hot & cold topics onto which they can adapt campaigns, company branding, offers, etc to drive business forwards.

With open innovation, the Marketing function gets so much more insight than in any previous era; every day, every language and on broad range of topics and most of them will be unplanned, and therefore surprisingly valuable. You might just get the Aha! moment that you have been looking for, for so long. This is now all about conversations. Listening to conversation, starting conversations, dropping in and out of conversations. It also forces the Marketing function to speak to colleagues in R&D, Legal and Sales, in a much more engaged way and using the language of the conversation and not the language of Marketing! This should NOT make Open Innovation a Marketing-centric phenomena. Its Company-centric, from the C-suite down. But it does bring the company functions together in away which no other approach has done so far. Being a strong advocate that companies need to make innovation happen across more business functions and with more types of innovation in general, there is no surprise that I like this view from a chief marketing officer. What do you think? Any other takes on how marketing functions should view or approach open innovation? 12. Marketing is a term thats described very loosely. Very few truly understand the essence of the word. Ditto with the term Innovation. What do they mean essentially? A simple definition would be that the two of them produce results. Period. A business needs to do two things well to succeed: Marketing and Innovation. All the rest of the business support these two functions. Jack Trout pointed out in an article that he wrote on Forbes a while back: Today, when top management is surveyed, their priorities in order are: finance, sales, production, management, legal and people. Missing from the list: marketing and innovation. So, why are these two key functions at the lower end of the priority list? Perhaps, there is a lack of comprehension about the real meaning of marketing and innovation and the nature of management activities that are necessary to drive and manage these two functions.

Marketing and Innovation are the only things that can sustain a companys continued growth. There are countless examples of companies who could not see opportunities beyond their noses. The Big 3 auto makers in the US ignored innovation and marketing, resulting in increased market share for Japanese car makers. Microsoft ignored innovation and efficient marketing allowing a competitor like Firefox to enter and grab browser share. Xeroxs Palo Alto Research Center were innovative but failed to market (or failed to exploit many of the technologies they developed) many technologies now in use by Apple and others. Fundamentally, marketing and innovation is a philosophy of doing business. It about developing a mindset or a way of thinking that searches for external opportunities and develops an outside-in orientation. All other business functions such as finance, production and distribution, customer services, R&D etc support these two disciplines. Marketing is not just advertising and promotion it means bringing market focus into business decision making. Innovation is not just exploiting technology for marketable products, it is also about changing the internal processes of an organization to serve customers better and to create sustainable competitive advantage. The need is not to grow bigger but to grow better. Innovation is a constant in technology as well as business. But not all innovations are the same. Most innovations can be divided into two broad categories: an evolutionary change (e.g., from the phonograph record to the cassette tape) or a discontinuous innovation (e.g., from the cassette tape to the iPod). Discontinuous innovations are new products or services that require a combination of the end-user and the marketplace to effect a dramatic change in past behavior, with the promise of gaining equally dramatic new benefits. Innovation bring out the New or Better. Marketing commercializes it. Both of them work hand-in-hand. A caveat however, both these disciplines are philosophies that need to be intrinsic to the workings of an organization to succeed. Which means that they need to be fostered from the top. 19. I frequently meet people who are at a quandary of whether their business will be better off with more marketing (traffic to their door) OR with better operating efficiencies and standard procedures. Dr. Drucker reminds me in his quote that it is both and as a consultant, my job is to find the balance of implementing marketing innovation and business innovation in a manner that brings the quickest and most quantifiable ROI to my clients from a financial as well as results perspective.

Heres a quick breakdown on what Marketing and Innovation means for our autobody industry from my point of view.

Marketing, creates brand awareness, trust in the brand, and top-of-mind awareness of your business (brand being your business name). In other words, marketing makes people aware of your companies name, logo, and location. When done well, people will have trust and confidence in doing business with you even if they havent met you before. Social media usage coupled with the recent search engine changes (for your website you have one right?) online marketing vastly extends your word-of-mouth marketing. Marketing is certainly one area where you dont want to put all your eggs into one basket a solid strategy could consist of online, face-to-face, paper, radio, television, social media, community, cause, or guerrilla marketing tactics. The first thing to do is to allocate an annual marketing budget (3% of overall revenue is a good goal) and to put a strategy together. The second step is to stay true to this commitment. Lack of commitment is one of businesses biggest failures motivation is the multiplier to success though, so try your hardest to stay focused and on-task. Innovation is, by definition; the introduction of something new. Nearly everyone will have their own interpretation for what is innovation but to me, its the willingness to continually try something new to better your business results or to provide a greater customer experience Kai-zen in Lean terms. This term also loops-back to the first Marketing, in having the willingness to try different ways of marketing your business. To many, innovation represents Lean, Mobile-Estimating, or Blueprinting reality is, that its usually more simplistic than that. Realistically, having firm business processes alone defines innovation for the majority of the businesses. No matter innovation is innovation, and as long as its centered on your business needs; then youre headed in the right direction. Conclusion In the big picture, marketing brings customers to your door and innovative approaches to customer service, repair quality, and meeting consumer expectations (i.e. cycle time) will bring them back. No doubt about it, Dr. Peter Drucker was right on the mark way back in 1973 with his statement, and nearly 40 years later its still true that marketing and innovation need to play a pivotal part of your daily operations. 20. Marketing and Innovation management are inseparable and integrally linked to business success. Why, then, do so many companies keep these activities separated and segregated into different silos? Now is the time to bring together these interrelated activities into an integrated Strategic Marketing and Innovation group with the remit to optimize the current business for profit and to steer the company to the right future opportunities. In both cases the need is for a detailed and in-depth understanding of the market value chain, business and competitive environment and a strong focus on customer needs and value drivers, led from the top and driven by senior management down through the organization. Ideation and creativity must be encouraged and allowed to flourish as the company seeks to differentiate itself from competition with new offerings, new business models and new marketing approaches.

21. It was Peter Drucker who said that "the purpose of business is to create a customer, the business enterprise has two--and only two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs". If Drucker is right, it is marketing that creates today's money, innovation that creates tomorrow's. Both marketing and innovation are having 'difficulties' in the current climate; marketing is rapidly becoming less effective at persuading customers to buy and invention (which is what much innovation actually is) has never had a good record of success in the market. Part of the problem for marketing and innovation is that they work with too much of the wrong information or not enough of the right information. Marketing is blind-sided by too much historical customer transaction data and invention often ignores customer data completely. To succeed, marketing and innovation need a balanced mixture of information about customers. This includes data about historical transactions, about the context that surrounds purchasing, about those who influence purchasing and of course, about core customer needs in terms of the jobs they are trying to do and the outcomes they desire. Marketings job is to provide customers with products, services and experiences that customers can use to deliver these jobs successfully. Innovations is to create new, better or cheaper products to do the jobs in the future. Maybe the recession will force companies to make their marketing more effective so that they can survive the recession and their innovation more productive so that they can thrive once the recession is over. Both are going to need a balanced scorecard of customer data. Food for thought. Tip of the hat to James Gardner at the very readable BankerVision blog for stimulating this train of thought. Graham Hill Customer-driven Innovator