Mervyns portrayed itself as a victim of the crummy economy and a miserable retail environment last week as it filed for Chapter 11 bankruptcy protection. But in truth, a key part of the department store chain went bankrupt long ago. It's what Peter Drucker called the "theory of the business."

Every organization rests upon a set of such premises--fundamental notions about customers and competitors, about technology, about a company's own strengths and weaknesses. When an enterprise fails, Drucker explained, it is often because "the assumptions on which the organization has been built and is being run no longer fit reality."

As obvious as this may seem, it can be surprisingly hard to see. Many times, managers become preoccupied with how they are doing things. But what's equally important--maybe even more important--is what they are doing in the first place. As Drucker noted: "There is surely nothing quite so useless as doing with great efficiency what should not be done at all."

In a 1994 Harvard Business Review article, Drucker asserted that when a valid theory of the business is "clear, consistent, and focused," it's bound to be "extraordinarily powerful."

Naming the Mission

It all starts with mission. Drucker cited, for example, Sears Roebuck (SHLD), which "in the years during and following World War I defined its mission as being the informed buyer for the American family. A decade later, Marks and Spencer (MKS) in Britain defined its mission as being the change agent in British society by becoming the first classless retailer."

Mervyns, launched in San Lorenzo, Calif., in 1949, once had its own compelling vision of what it should be: a store that would provide high-quality products at a good value, filling a niche between Sears and Montgomery Ward at the lower end of the market and fancier, white-glove merchants at the upper end.

Through the 1950s and '60s, Mervyns prospered under this formula, even in the face of heavy competition from J.C. Penney and others. In 1971, the company went public, and it soon boasted dozens of stores bringing in hundreds of millions of dollars in revenue. Seven years later Dayton Hudson (now Target (TGT) acquired Mervyns and pushed it into Arizona, Louisiana, New Mexico, Oklahoma, Oregon, and Washington. In 1983, Mervyns opened its 100th store. (It has 177 now.)

But all the while, its basic theory of the business stood still; in fact, Mervyns continues to tout itself as "the prototype for the mid-range department store."

The trouble is, all around it, things changed. More and more players barged into the space that Mervyns had comfortably occupied--Kohl's, most prominently. Meanwhile, the whole idea of "mid-range" had itself become blurry, as those considered lower-tier began carrying trendier goods and designer labels. "There is no middle anymore," says retail consultant George Whalin. "It doesn't exist."

Under such challenging conditions, what should Mervyns' theory of the business have become?

‘That Emotional Connection’

There are no easy answers. But Tom Kelley, a branding expert with Concept Group USA who briefly worked at Mervyns, expressed little doubt when I posed the question to him. He believes that each store should have accentuated its "homespun feel," deeply integrating itself into the community where it operated. He would have recruited store managers from local colleges, encouraged them to be active in civic affairs, and had them serve as a highly visible and welcoming presence for shoppers. "It's all about building that emotional connection with your customer," Kelley says.

In a sense, this is a page from the past. Being community-minded was originally a big part of Mervyns' culture.

In essence, it had been baked into its theory of the business from the get-go. But here, too, Mervyns faltered--so much so that it lost its distinctive identity both inside the organization and among consumers. "Think of Mervyns and what image comes to mind?" asked a 1997 newspaper piece on the company. "If you draw a blank, you're not alone."

Drucker pointed out that it's not uncommon for a company to slip in this way, to take its theory of the business for granted as time passes. Management grows "less and less conscious of it," Drucker wrote. "Then the organization becomes sloppy. It begins to cut corners. It begins to pursue what is expedient rather than what is right. It stops thinking. It stops questioning. It remembers the answers but has forgotten the questions."

It would be unfair to suggest that Mervyns has done nothing to try to remedy its sagging fortunes over the years. It has highlighted its California roots, featured $1 to $5 in-store shops, and fiddled with its mix of name-brand versus private-label goods. But none of this amounted to what the company needed most: a thorough overhaul of its theory of the business. And, as Drucker cautioned, "patching never works."

A Desultory Nature

In 2004, Target sold Mervyns to a consortium of investment firms. Since then, Mervyns has had four chief executives--another sign of its desultory nature when what is called for is decisive action.

The current CEO, a highly regarded Levi Strauss veteran named John Goodman, has spoken in recent months of taking a tack similar to the one Kelley favors: In an era of faceless corporate behemoths, he has indicated that he'd like to turn Mervyns into a real "neighborhood department store" by catering to Latino customers, making strategic hires and investments in staff training, and directing sourcing and buying accordingly.

My fear is that it's too little, too late--that Mervyns didn't recognize soon enough that when a theory of the business becomes obsolete, it is, as Drucker put it, "a degenerative and, indeed, life-threatening disease." And that requires surgery, not Band-Aids.