Tuesday, December 06, 2005

Drucker, Core Functions, and Economic Development

Peter Drucker's point about real business functions (see below) and cost centers is of crucial significance for local officials concerned about business development. New call centers, logistics terminals, or assembly plants provide a one-time boost to employment. However, they suffer from two signal weaknesses in Drucknerian terms. First, because they are expenses, not functions, they are under constant threat of outsourcing and retrenchment. Smart companies always try to manage expenses lower.

Second, they lack the vital "DNA" to create spin-offs and start-ups. That resides in the marketing and innovation functions. Where this DNA is present and concentrated, a self-sustaining industry cluster can take shape (e.g. Silicon Valley). If it is absent, new business creation will be limited.

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