The purpose of a business

Here are some interesting points from Peter Drucker's book, "The Essential Drucker".

A typical businessman says, "The purpose of a business is to make a profit".

Peter Drucker says that this answer is not wrong, but it is irrelevant. He said that the purpose of a business is to "create a customer". It is the customer who determines what the business is, and is willing to pay a price based on its utility, i.e. what the product or service does for him.

Profit is the final outcome of servicing the customer's needs, collecting the revenue and paying the expenses. It require the business to be runned efficiently.

Making a profit is a condition of business survival. If the business is not profitable, it will cease to exist. It is not the purpose of the business.

In his book, Peter Drucker identified eight important business objectives, covering:

* marketing
* innovation
* human resource
* financial resource
* physical resource
* productivity
* social responsibility
* profit requirement

I share the views stated by Peter Drucker. It is important to have a clear understanding of the purpose of a business, in servicing the customer. They will guide the setting of the other objectives and the implementation of the business strategy.