Keeping Up With the (Edward) Joneses

USAPeter Drucker greatly admired the brokerage firm Edward Jones, and he considered its ascendance to be the result of financial innovation based on a keen awareness of demographics.

As of the 1960s, Drucker noted in Managing in the Next Society, Edward Jones was but a “minuscule and totally obscure provincial brokerage firm in St. Louis.” Yet it recognized that the biggest sums being invested came not from the super-rich but the cumulative middle-class. Upon discovering this market, “Edward Jones decided to drop all other business and exclusively serve the individual, middle-class investor,” Drucker explained. “Totally unknown, and with an approach to business, to investment and to customers that was—and still is—new, it found an immediate response.”

Today, the company has more than 13,000 advisers, who manage nearly $800 billion in investments for their clients.

But no approach to business can last forever—at least not without a few tweaks. As The Wall Street Journal reported last week, Edward Jones faces the reality that growth means making bigger inroads beyond the suburbs and smaller towns that have proven particularly well suited to its investment philosophy and neighborly style.

The reason: Nearly 60% of rural counties have seen their populations decline. “Any brokerage that fails to gain an urban foothold risks seeing business not simply stall, but slip,” the Journal asserted. For that reason, according to the paper, Edward Jones is now “expanding in Boston, Chicago, San Francisco and other urban areas as more young adults opt for the city life.”

And that, in turn, requires making some adjustments. “In adapting the Edward Jones strategy to metro markets, some advisers find themselves chasing business in much the same way as their Wall Street-branded competitors,” the Journal reported. “The Edward Jones advisers say they will try to set themselves apart by still emphasizing in-person introductions, rather than working the phones, even if they are at the gym and not at the doorstep.”

Such transitions can work well, if they are done with a clear eye. Drucker was particularly fond of the story of Sears and how it went from being “the farmer’s friend” to a business aimed at urban shoppers with a string of retail stores. This, too, was a change that came about because of close observation of demographics. And, as Drucker wrote in The Practice of Management, “a whole series of innovations had to be undertaken to make this decision possible.”

As for Edward Jones, Drucker seemed to anticipate exactly what the company is trying to pull off as it pursues ongoing growth in major metro areas. As a close adviser to the firm, “he encouraged us to define our clients by mindset, not by geography,” the plaque honoring Drucker at the company’s Hall of Fame reads.

What company do you most admire for successfully adjusting its strategy to meet new market realities?