Marketing alone does not make a business enterprise. In a static economy there are no “business enterprises.” There are not even “businessmen”. The “middleman” of a static society is simply a “broker” who receives his compensation in the form of a fee.
A business enterprise can exist only in an expanding economy or at least in one which considers change both natural and desirable. Business is specific organ of growth, expansion and change.
The second function of a business is therefore innovation, that is, the provision of better and more economic goods and services. It is not enough for the business to provide just any economic goods and services; it must provide better and more economic ones. It is not necessary for a business to grow bigger; but it is necessary that it constantly grow better.
Innovation may take the form of lower price in the form with which the economist has been concerned for the simple reason that it is the only one that can be handled by his quantitative tools. But it may also be a new and better product (even at a higher price) a new convenience or the creation of a new want. It may be finding new uses for old products. A salesman who succeeded in selling refrigerators to the Eskimos to prevent food from freezing would be an “innovator” quite as much as if he had developed brand new processes or invented a new product. To sell the Eskimos a refrigerator to keep food cold, is finding a new market; to sell a refrigerator to keep food from getting too cold is actually creating a new product. Technologically there is, of course, only the same old product; but economically there is innovation.
Innovation goes right through all phases of business. It may be innovation in design in product, in marketing techniques. It may be innovative in price or in service to the customer. It may be innovation in management organization or in management methods. Or it may be a new insurance policy that makes it possible for a business to assume new risks. The most effective innovation in American industry few years ago was probably not the much publicized new electronic or chemical products and processes but innovations in materials handling and in manager development.
Innovation extends through all forms of business. It is as important to a bank and insurance company or a retail store as it is to a manufacturing, or engineering business.
In the organization of business enterprise innovation can therefore no more is considered as a separate function than marketing. It is not confined to engineering or research but extends across all parts of the business, all functions and all activities. It is not, top repeat, confined to manufacturing business alone. Innovation in distribution has been as important as innovation in manufacturing; and so has been innovation in an insurance company or in a bank.
The leadership in innovation with respect to product and service can normally be focused in one functional activity which is responsible for nothing else. This is always true in a business with a strong engineering or chemical flavor. In an insurance company, too, a special department charged with leadership responsibility for the development of new kinds of coverage is in order; and there might well be another such department charged with innovation in the organization of sales, the administration of policies and the settling of claims. Both together are the insurance company’s business.