"What is Our Business?" The Fundamental Strategic Question

Definition

"What is our business and what should it be?" is the primary strategic question every institution must answer. It requires looking outward to customer needs and societal contribution, not inward at current products or operations. Without a clear, tested answer to this question, management cannot set coherent objectives, design appropriate structures, or align organizational behavior. The question is asked rarely and seriously, yet asking it is a genuine decision that always leads to changes in objectives, strategies, organization, and behavior.

In the Book

Drucker makes this central: "To manage a business today is to have an answer to the question 'What is our business and what should it be?'" The question is not rhetorical. Most companies, asked directly, cannot give a clear, concise answer. Worse, managements often fail to ask it at all, especially when successful—the very time when asking is most critical.

The critical timing is when success is greatest: "The most important time to ask seriously 'What is our business?' is when a company is successful...A management that does not ask 'What is our business?' when the company is successful is, in effect, already making a decision: the decision that the answer of the past is adequate for the future." This blindness to the future is systematic. Drucker identifies reasons for failing to ask: complacency ("we already know"), fear of disruption, disagreement (there is never one right answer), and reluctance to face change.

Examples throughout the book show the power of clarity. Sears asked this question and concluded its business was not retail goods but providing the buyer service—it was "the buyer for its customers." This conclusion led to decentralization, performance measurement, and organizational structure that would have been wrong for a traditional retailer. General Motors' answer to the question gave it "leadership and outstanding profitability" for decades. Yet "Sooner or later even the most successful answer to the question 'What is our business?' becomes obsolete."

The answer must change over time. Drucker emphasizes: "Above all: when a management attains the company's objectives, it should always ask: What do we now regard as desirable and attainable? Do we now see different markets? Different uses? Different customer groups?...How do we now build these anticipations into our theory of the business, into its objectives, and into our strategies?"

The consequences of not asking are severe. A "hardware manufacturer in the American Midwest" (camouflaged example) failed not because it was doing anything wrong, but because it did not realize its market was disappearing. Another company's answer to the question shaped everything: every decision, every job design, every investment, every compensation plan flowed from the definition of what business they were in.

Why It Matters

This concept cuts through strategy clutter. Strategic planning often becomes forecasting, extrapolating current trends, or copying competitors. This question demands something harder: clarity about purpose that transcends current implementation. A bookstore is not in the book business; it is in the business of helping people discover ideas. A transportation company is not in the truck business; it is in the business of moving goods reliably. A bank is not in the lending business; it is in the business of managing other people's money. The answers differ, and lead to different product choices, technology investments, and organizational structures. For institutions of any kind—schools asking "Are we educating or credentialing?", nonprofits asking "Are we addressing the problem or serving the service provider?", governments asking "Are we enforcing rules or enabling citizens?"—the question reframes what counts as success. The danger is assuming you know the answer without examining it, or inheriting an answer that was true once but no longer fits reality.