After giving it a lot of thought I am going to rank this as the second most asinine thing ever said by a business leader: "Marketing and innovation produce results; all the rest are costs." That was reportedly said by Peter Drucker. It was a really, really dumb thing to say, but I don't think it rises to the top of the stupidity chart. That place still belongs to Thomas Murphy, the GM President who said, "General Motors is not in the business of making cars. General Motors is in the business of making money."
What makes these statements particularly inane is how unsupported they are by the obvious and common sense. What does make a lot of sense is the current ad campaign for Shredded Wheat, in which they claim to "put the 'No' in innovation", boasting that their product has remained unchanged for some 70 years. The reason this strategy makes sense is because cereal is not an innovation driven business. The number one selling product is Cheerio's, largely unchanged since its inception in 1941. Number 2? Frosted Flakes, which has been around since 1952. In spite of all of the noise, this market is almost entirely driven by value. A cereal company that builds its business around Drucker's "Marketing and innovation" adage will fail. Marketing and innovation in this, and many other industries is not the key to the future – it is the road to failure taken by management that does not know how to create value for their customers. And value is created back in those areas Drucker dismissed as merely costs.
Of course innovative technology is critical to the consumer electronics industry. But the fact that Steve Jobs propelled Apple to the stratosphere in that industry does not mean that focus on inventing the cereal equivalent of the iPod is a particularly smart strategy. In fact, it is folly in most businesses.
The article citing the Drucker quote concerned GM and the marketing industry indignation that a product guy like Bob Lutz would be put in charge of the strategic centerpiece of marketing. The Drucker quote is intended to support the theory that the auto industry is just like the MP3 business – that innovation and marketing are the universal strategy for success. Like the cereal business, however, all you have to do is look at the industry leaders to spot the fallacy of this notion. Toyota, Honda, increasingly Hyundai Kia … hardly synonymous with marketing and innovation. They, like the cereal companies, succeed on the strength of providing superior value for their customers.
The 'marketing and innovation is everything crowd' is a lot like this guy – the father of the bride in My Big Fat Greek Wedding who believed that Windex was the universal solution to all of life's problems. It defies common sense. More relevant to most businesses is the old Will Rogers quote, "If advertisers spent the same amount of money on improving their products as they do on advertising then they wouldn't have to advertise them." Value optimization is more the Windex of manufacturing than innovation and marketing will ever be.
My old friends at Wahl Clipper are another example. In the rather spartan lobby of their headquarters they have an exhibit showing their hair clipper models going all the way back to 1920 or so. The most noticeable aspect is that the inner workings of the original models are not that much different from the ones they sell today. Their success is not a story of innovation and marketing. It is one of relentless focus on value. Their advertising budget is a fraction of the budget at their major competitor, Spectrum Brands – the makers of Remington products. Spectrum Brands, by the way, filed for bankruptcy earlier this year, while Wahl continues to grow sales, profits and market share.
The ability of the marketing and innovation proponents to delude themselves cannot be underestimated. The same article with the Drucker quote ascribes the success of Harley-Davidson to the creativeness of their HOG image campaign. In fact, the business literature if crammed with stories of their amazing quality and cost turnaround – the value they began to build into the product. An innovative gimmick, advertising and marketing will lure me into buying a product once – value is what determines whether I buy it again. That, too, is simply a matter of common sense.
Common sense should trump buzz words and management fad every time. Look around your house; look at what you spent your money on last week; walk the aisles at Walmart. Little of it is driven by innovation- clothes, basic foods, furniture, housewares, pet products, auto parts and supplies, and on and on. It is overwhelmingly value driven – not innovation driven.
"Marketing and innovation produce results; all the rest are costs" ??? Not hardly. How you manage those 'costs' determines value for the customer, and how well you do that produces results. Marketing and innovation have little to do with it in the long haul unless you are in a very narrow group of innovation driven businesses, and it doesn't take a genius to figure that out.
Karen Wilhelm says
Let’s see…what did I buy today? A quilt, pillows and at Marshalls, good quality at a good price and the right size and color.
I found a glass butter dish on a clearance rack. Glass butter dishes are hard to find, and the “innovative” ones you find now have been changed to be wider. Sticks of butter haven’t changed size. An unsuccessful innovation, it’s hard to grip. Mike puts two “grips” of clear epoxy on the lid to solve the problem.
At CVS, Neutrogena oil-free sunscreen (on sale, so I bought two)–it’s a formula and package design that’s been out for years.
A gallon of milk (had a coupon for a free gallon, which I couldn’t find in my purse)–value. The only innovation here was the remarkable invention of the plastic blow-molded jug–look into that someday.
(The innovative “customer care” coupons on the receipt provide dubious value to me, since I always forget to take them to the store. Big value to CVS, since scanning your card gives CVS tons of data about your purchasing patterns.)
And I bought Boston contact lens conditioning solution for gas-permeable hard lenses. The innovation, Boston Advance, was less comfortable for me, and probably for many others because, like Coke, consumers liked the standard. That I wear hard lenses speaks for itself. They last forever.
A boring story, but it proves Bill right. Most of our daily expenditures are not going toward innovation–unless you count high-speed internet.
Michael F. Martin says
Drucker had an idiosyncratic definition of “innovation.” For Drucker, innovation meant lower cost of sales or increased sales directly. He was impatient with “big ideas.”
I think you make a good point here. I’m just saying I don’t know if Drucker himself would be in disagreement, however inscrutable he was in how he chose to express himself.
David Foster says
When Drucker refers to innovation, I don’t think he’s restricting it to *product* innovation…surely he intends to count *process* innovation as well. For example, he referred to Sears Roebuck as an innovator for their creation of a business to take advantage of the railroads and the U.S. Mail…even though there was nothing special about their products, there was something special about making them available to rural people at a reasonable cost.
David Foster says
That said, the Ad Age claim that you can’t be an effective marketing executive unless you have an extensive formal marketing background is just silly. One of the great marketeers of the last century, for example, is Steve Jobs…maybe he secretly got an MBA degree in marketing from somewhere, but if so a pretty good job has been done of keeping it quiet.
Walter Reade says
I don’t follow your logic.
Sure, Shredded Wheat may have put the “no in innovation,” but the fact that they’re MARKETING that fact seems to prove Drucker right.
Bill Waddell says
Of course Post has a marketing function. The point is that their product has been successful for 70+ years because it provides a good value for the price charged – not because it is innovative, and not because they have outmarketed the competition for all those years.
Jason Morin says
“Toyota, Honda, increasingly Hyundai Kia … hardly synonymous with marketing and innovation.”
Gee, I don’t know about that, Bill. Was it not Toyota who first brought a hybrid vehicle (Prius) to the market long before anyone else? 1997 I believe. I would call that innovation.
Bill Waddell says
There certainly is merit to viewing the Prius as an example of superior innovation. However, I am not sure where the line is drawn between ‘innovation’ and good old-fashioned R&D. It seems as though since ‘innovation’ became the buzz word, every product change is trumpeted as an innovation.
At any rate, I am sure you would agree that over the last 25 or so years that Toyota has been steadily and relentlessly eating GM’s lunch and marching to the top of the auto industry, the headline of that story would not be superior innvovation or even superior R&D.
Another point is that, while Toyota was first to market with hybrid, I am not sure they started any sooner. You might want to read this:
The article gets at the problem GM and Chrysler face with new products:
“The results have been consistent. For at least ten years, General Motors, Ford (F, Fortune 500), and Chrysler have been slower to renew their fleet, and they have lost the most share. Japanese and Korean manufacturers have more rapidly turned over their fleets and gained the most share.
The latest edition of Car Wars that looks at new models due in 2010 through 2013 tells a similar story — with one glaring exception. Once again, the Asians are at the head of the pack. Hyundai and Kia lead in new model replacement, with Honda in third place, Toyota (TM) in fourth, and Nissan ranked fifth.
The big surprise is the company in second place: Ford.”
It is not that Toyota and the others are more innovative so much as it is that they execute the basic new product concept to market cycle much faster.
Thanks for the comment,
Ron Pereira says
I find absolutes like Drucker’s statement – and yes, even your counter argument – to be slightly dangerous.
They make for good reading… that’s for sure… but they can also lead people down the wrong path if care is not taken.
One thing I definitely believe is Toyota does in fact innovate. In fact, it’s their relentless focus on innovation that’s gotten them to where they are today.
One definition of innovation is, “a creation (a new device or process) resulting from study and experimentation.”
That, I’m sure you’ll agree, pretty much sums up everything Toyota has been, is, and will be about no matter if we’re talking about marketing, operations, or customer support.
Bill Waddell says
I don’t disagree with you at all, Ron. By that definition, Toyota has been nothing but innovative. My quarrel is with the academics, consultants and CEO’s who discuss ‘innovation’ only in terms of game-changing quantum leaps. Among that crowd, existing products and existing operations are viewed as mundane and tapped out. They are searching for the ‘Blue Ocean’ idea that will propel them to the head of the pack, and taking their eye off the ball when it comes to the day-to-day hard work such as the kind Toyota does to make many, many small improvements. It seems to me to be a manifestion of short term thinking. They seek the breakthrough idea that will give them instant results and instant profits, as opposed to the slow, steady innovation of the Toyota style that generates steady, long term results.
I doubt that you and I have much of a difference of opinion on the substance of the issue – perhaps we have a different definition of ‘innovation’. Thanks,
Mark Welch says
I’m surprised that you thought that Toyota’s relentless innovation is what got them there today. I would have thought you would have said that it was Lean that got them where they are today. Perhaps you meant the Lean approach that is engrained across their culture, which also drives their innovation, is what got them where they are today. Would that be more accurate?
Kevin Carson says
The cereal market isn’t almost entirely driven by value, I’m afraid. Read Ralph Borsodi’s *The Distribution Age*, written in the 1920s, about how mushrooming distribution cost had more than offset the modest reduction in production costs over the previous three decades. Cereal was paradigmatic of the overall shift from bulk commodities to brand-name package goods, with brand-name corn flakes and such costing about four times as much as the bulk counterparts previously sold by grocers.
If anything, it illustrates the effect of lean production on cost, when production is geared to orders on a demand-pull basis, and scaled to the local market. The shift from commodity to brand-name marketing was a direct violation of these principles, instead using mass production without regard to demand to minimize unit costs at the point of production, without regard to the enormously increased cost of shipping, warehousing, etc., and the costs of push distribution (canvassing, excess packaging, advertising, etc.) to dispose of stuff that was produced without regard to orders.
General Mills’ initials aren’t GM for nothing.
Paul Todd says
Although the original article about GM contained a lot of consultant gibberish, it did a good job of separating marketing from advertising. I haven’t read the book containing Drucker’s quote (Innovation and Entrepreneurship), but I hope it refers to two of Drucker’s core questions. 1) Who is our customer (a question of marketing, not advertising), and 2) What does our customer value? (a key driver of process and product innovation.) In that context, the quote begins to make sense.