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Understand the Five Most Important Questions to Ask About Your Business

Learning Objectives

After completing this unit, you’ll be able to:

  • Determine the focus of your organization by examining the Five Most Important Questions developed by Peter Drucker.
  • Explain the value of each of these five questions.
  • Apply these questions to your role as an admin.

Introduction

The most serious mistakes are not being made as a result of wrong answers. Peter F. Drucker

In this unit, we examine Drucker’s Five Most Important Questions designed to help companies reflect deeply on the nature of their business and the value they provide to customers.

By developing clear, concise answers to these five questions, organizations can focus resources on what really matters to customers and, therefore, to the business (Figure 3).

Every executive team member and senior manager should be able to answer these questions in detail, and every employee should have a basic understanding of them.

Drucker's 5 Most Important Questions

Figure 3. Drucker’s Five Most Important Questions

A word of caution: These questions might seem obvious, but are challenging to answer because customers and markets are constantly changing. The questions need to be continuously reexamined.

Question 1: What Is the Purpose of the Business?

Question 1: What is the Purpose of Our Business?

Seems like a pretty easy question, right? Actually, it’s deceivingly hard. The business purpose is not “to make money” or to “satisfy customers”—every business must do these to survive. The purpose of the business is why the company exists—that is, the difference it makes in the eyes of its customers.

We have an alumnus of our school who works on Wall Street. He recently told us that he thinks about this question all the time when working with new businesses. Often there are new technologies or innovations that can spur interest, but the fundamental question remains: What exactly is the value proposition of the company, and how enduring is this value to customers?

For example, let’s take a business we all know—Southwest Airlines. When it was started over 40 years ago, the founders declared:

If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline.

How right they were!

High-performing organizations understand their purpose and use it to develop a compelling vision and mission. These can galvanize the workforce and be used to align departments and resources, guide decision-making and action-taking, and empower and motivate individuals at all levels.

The question of purpose also raises basic issues for senior managers. If the purpose is unclear, or not meaningful in the eyes of customers, it can be hard to focus resources in the proper direction. It can also make it hard to understand the type of information managers need to guide the enterprise and execute activities.

Finally, the purpose of the business can shift as customers and markets change. If not detected, these can lead to a misalignment or missed opportunity. Conversely, they can lead to great opportunities if attention is paid to how to enhance the purpose of the business.

That’s what a little organic coffee company in Waitsfield, Vermont did when it was approached by someone who was developing a single-serving coffee maker. Green Mountain Coffee’s investment in Keurig has gone on to evolve its purpose and its value.

As they note on their website, “We’ve blended the disruptive innovation of a leading-edge technology company with the consumer focus of a socially conscious, premium coffee company to become what Keurig Green Mountain is today: an innovative, technology- and values-based, personal beverage system company.” Oh, and one with almost $5 billion in annual revenues.

Let’s start thinking about how this question might apply to your organization. Check out the tips in Figure 4.

Q1. What is our purpose?

“Purpose … is like a guiding star on the horizon—forever pursued but never reached. Yet although purpose itself does not change, it does inspire change.” Jim Collins

Examine your organization’s vision, mission, and values statements. What clues do these provide about the defining purpose of the organization?

Put yourself in the customer’s good-smelling shoes, and ask yourself the following: Why am I a customer of this organization? What do their products or services do to enhance my life?

Then jot down the organization’s reason for being in 1–3 sentences.

Figure 4. Tips for determining organizational purpose

Question 2: Who Is Our Customer?

Question 2: Who is Our Customer?

Looks like another simple question. But again, not so fast. Instead of specifically naming customers (for example, “our customer is Costco”), we want to describe the customer in more abstract terms to define a category or group of customers (such as, “our customers are warehouse-style, discount retailers of consumer products”).

These groups or categories of customers are called segments. The specific segments that a company chooses to focus on are called target segments . It is important to know the defining features of your target segments so that you can connect with them and develop solutions they love.

Back when Edward Jones was a relatively modest investment company, they contacted Peter Drucker for advice. Through a series of letters (that’s right, snail mail) and then meetings in the mid 1980s, they honed in on the target market segment, which enabled worldwide growth of the company. Specifically, Edward Jones started as a company focused on and styled for rural-based, conservative, long-term individual investors. Drucker persuaded them that there were such customers in metropolitan areas—and lots of them! From there, Edward Jones quickly opened in major metropolitan markets and now has over 11,000 offices serving more than 7 million individual investors.

Of course, customers are not fixed targets. Rather, they are constantly changing and evolving. Even if you know your customers well, they can sometimes surprise you. So the organization must continually ask, “Who are our customers now? Are they changing, and what does that mean for the organization?”

Let’s look at art museums. They are constantly under pressure to understand the changing mix of their market and successfully adjust. For example, the Denver Museum of Art went through a multi-year process to identify the interests of millennial visitors and evolved their programs to be more millennial-friendly. Perhaps this has happened in your city, too, with music, evening events, and interactive effects now becoming the norm in the museum world. Why? Because they see value in repositioning art museums as a destination of choice for a younger generation of customers.

Take a look at the tips in Figure 5 for ways to come up with a solid answer to this question for your organization.

Q2. Who is our customer?

“The first step toward finding out what our business is, is to raise the question: ‘Who is the customer?’—the actual customer and the potential customer.” Peter Drucker

A good place to start is often the managers in the sales, marketing, or product management departments. Who do they think are the primary customers? How is the customer profile changing in their eyes? Are certain segments growing or shrinking?

A second place might be the social media department (or person!). Where do they target their social media activities? What kind of customers are most active on social media?

Then write down who you think are the primary customers of your organizations. Are you tracking or could you track those customers in Salesforce?

Figure 5. Tips for identifying and defining customers

Question 3: What Does Our Customer Value?

Question 3: What Does Our Customer Value?

Unlike previous questions, this question can only be answered by the customers themselves.

Drucker’s key insight is that what customers value—and what a company thinks they value—are often quite different. The only thing that matters is what customers believe. There is a danger in assuming that you know what customers value. Senior management needs to make sure that people systematically work directly with customers to figure out what matters and how to deliver this value better than the competition.

A great example of this is the groundbreaking work of the Cleveland Clinic to focus on patient experience. Their patient surveys revealed that while the patients were generally satisfied with the clinical performance of Cleveland Clinic hospitals, they expected better interpersonal treatment by nurses, attendants, and physicians during their stay. Focusing directly on the perceptions of patients, the Clinic came to understand that patients valued (assessed) the entire experience as caregiving, which is a deeper meaning than satisfaction (see Figure 6).

Patient experience is not the same as patient satisfaction.

Figure 6. The Cleveland Clinic focuses on what customers value

The Clinic then went on to create an industry-leading Office of Patient Experience, lead by a Chief Experience Officer, that manages, assesses, and trains to ensure that the clinic is “patient first.” Their commitment to understanding what their patients value and developing that value is now being evaluated throughout the United States and internationally.

Tips for developing and finding out what customers value in your organization are provided in Figure 7.

Q3. What do customers value?

“What satisfies their needs, wants, aspirations is so complicated that it can only be answered by the customers themselves.” Peter Drucker

The best way to capture this is to ask the customers directly through interviews, surveys, focus groups, social media, and so on. Your marketing and sales teams should have these.

It’s also helpful to review customer feedback and reports and go on your social media sites if you have them.

Then try to jot down 1–3 customer quotes or comments that best capture their value perceptions. Has Salesforce helped or could it help in finding this information?

Figure 7. Tips for figuring out what customers value

Question 4: What Are Our Results?

Question 4: What Are Our Results?

How does a company really know if it is doing a good job? Ideally, results measure the extent to which the company is meeting its purpose (see Question 1). Measuring the delivery of purpose is the hard part. A framework, such as the Balanced Scorecard (covered later in this trail), can help guide your efforts.

In practice, most companies find it necessary to set performance objectives and metrics and then use benchmarking and judgment to assess results (Figure 8).

Business metrics: sales customer market financial people solutions service social

Figure 8. Common areas for metrics and benchmarking

To be successful, two areas that need careful attention are:

  • Setting the right metrics

    Your metrics obviously need to capture what you’re trying to measure, which can be tricky and require a lot of thought.

    Hastily crafted metrics have a tendency to backfire. If people have it in their performance objectives to hit a metric, be careful, they might just do it!

    For example, a company that shall remain nameless repeatedly heard from customers that their customer service hold times were too long. So they set the customer service department performance metric to lower average hold times. And they put bonus money behind it. What happened? Customer service representatives answered every phone call quickly, took the customers names and phone numbers, and then hung up. The average hold times dropped dramatically, but the time to resolution worsened. Customers were even more unhappy. Yes, the VP of customer service was let go, but only after the damage was done.

  • Properly interpreting results

    This requires a deep understanding of the business. Communicating insights and context along with the numbers typically helps everyone make better decisions.

    Going strictly by the metrics, without context or understanding of the measures, can be disastrous. For example, not everything should be looked at “on average.” A company that has horrible results in its core products and better than expected results in a dying portion of its business might appear OK on average, but it’s far from OK.

In summary, it is important to spend time defining what good looks like and coming up with the correct performance metrics. Effective management requires that everyone knows what the metrics represent and how to read and interpret the results. The tips in Figure 9 can get you started.

Q4. What are our results?

“To obtain balanced efforts, the objectives of all managers on all levels should be keyed to both short-range and long-range considerations.” Peter Drucker

A best practice is for your performance metrics to follow a balanced approach, with measures falling into categories such as:

  • Customers perceptions
  • Financial performance
  • Operations (efficiency and effectiveness measures)
  • Organizational knowledge and capabilities
  • Social contribution

Review your organization’s last annual report and jot down 1–3 key results. How do you think Salesforce has informed or could inform these results?

Figure 9. Tips determining organizational results

Question 5: What Is Our Plan?

Question 5: What Is Our Plan

Answering the prior questions might seem like enough, but it’s not. You need a plan, and there’s a simple reason why.

'A goal without a plan is just a wish.' Saint Exupéry (attributed)

The plan for the organization describes where it wants to be, how it intends to get there, and the resources required to be successful. The plan also needs to fit reality; otherwise, it too is just a wish.

Developing a plan is hard work requiring tough decisions be made. A good plan includes the mission and vision of the company, goals and objectives, strategy, activities, and action steps.

The plan also includes a realistic budget. Without deep diving into finance and accounting, the financial portion of the plan shows how the company will profitably do what it says it will do. Financial plans are forward-looking projections built on estimations (and some assumptions) of future sales, cost of operations, and so on.

Plans ultimately need to be effectively executed, so the specifics need to be understood and embraced by everyone in the organization. This takes work! But as Drucker noted, this is the true calling of the management practice—to build a team all moving in the same direction.

Looking to understand more about your organization’s plan? Take a look at the tips in Figure 10 to get started.

Q5. What is our plan?

“Planning does not substitute facts for judgment nor science for leadership. It recognizes the importance of analysis, courage, experience, intuition—even hunch. It is responsibility rather than technique.” Peter Drucker

Review your organization’s strategic plan or other executive communications on the subject.

Then jot down 1–3 areas where you think Salesforce has been or could be most useful in determining and tracking results, and enabling the plan.

Figure 10. Tips understanding the organizational plan

Summary

The Five Most Important Questions are a fundamental mechanism for understanding and focusing resources to achieve organizational success. The method has been used all over the world and allows for a set of activities that provides tangible value to organizations.

In the next units, we examine a case to show how Salesforce can contribute to an organization seeking to enhance its value along the lines suggested by the five questions, and explore ways admins can help.

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