Playing the long game

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"Because the purpose of business is to create a customer, the business enterprise has two – and only two – basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs."

It’s a famous quotation but I think Peter Drucker misses one important final conceptual leap – when you define them properly, marketing and innovation are the same thing. Or, at the very least, two sides of the same coin.

Two years ago, Stewart Butterfield, a Silicon Valley innovator and co-founder of Flickr and Slack, told colleagues: “The best – maybe the only – real, direct measure of ‘innovation’ is change in human behaviour…Innovation is the sum of change across the whole system, not a thing which causes a change in how people behave. No small innovation ever caused a large shift in how people spend their time and no large one has ever failed to do so.”

Butterfield is almost certainly right. Marketing and innovation are simply two complementary means of achieving the same end: to give people the technological and psychological conditions under which they can satisfy new desires. Achieving this by creating new products or new desires (or both) is an irrelevant distinction.

Thinking this way both enhances the stature of marketing and increases its scope. It also changes the ways we should measure the efficacy of what we do. Traditional financial metrics focus on a narrow measure of success. An online ad that encourages me to stay at the Crowne Plaza rather than the Marriott is notionally just as ‘effective’ as one that encourages me to stay at the Crowne Plaza rather than taking a taxi home. More broadly, the second ad creates a far more significant change in behaviour. Current online metrics seem blind to this distinction – and often define as ‘effective’ communications that simply reach people who are disposed to buy the product in any case. 

A similar debate is emerging in transport policy and infrastructure investment.

I have long been baffled by the logic of  building HS2. (I don’t dispute more capacity is needed on that route – but I would favour slower trains, which could stop at intermediate stations.)

My great beef with spending £60 billion on reducing the journey time from London to Manchester is that, nice though it would be for the travelling public, it would not change behaviour much. I have never woken up and thought: “Hmm, I would travel to Manchester today, but alas it takes 40 minutes too long”.

The economic case for investment in transport infrastructure is predicated on cuts in journey times. Time spent on a train now is rarely wasted, so time saved is a poor metric for assessing the value of transport investment. 

By obsessing over journey time, you end up focusing on reducing the duration of journeys that people are already making. By contrast, real economic value from transport comes from behaviour change – getting people to go on journeys they would otherwise not make. What really makes transport valuable to the economy is when people can establish homes and workplaces where it was previously impossible for them to do so. Speed has little effect on the likelihood of undertaking infrequent journeys. 

On the other hand, a minor innovation like Advance First Class tickets has had a huge effect on my behaviour. Now this ticket exists, I use trains for most long journeys. (Put bluntly, first class rail is generally nicer than driving, while standard class rail isn’t). 

If you want to see the economic value of HS1, don’t look at time savings for people already living in Canterbury; focus instead on what has happened to property prices in Canterbury or Folkestone – a 90-minute commute was reduced to 57 minutes. It took a decade but it is here that the real gains lay.

Marketers and transport economists may be guilty of the same vice – rather than focusing on change in the long term, they concentrate on easily measurable effects in the short term. At least it’s good to know that we’re not alone in this failing, I suppose. 

Rory Sutherland is vice-chairman, Ogilvy & Mather UK