Core vs Non Core Activities

Core vs Non-Core Activities

After winning my first novice bodybuilding competition, I set my BHAG of becoming Mr. New Zealand in five years, I knew there were hard things I had to do. I had to follow a strict training and dietary regimen every day. Those were the right things to do so I could achieve my goal.

To get the results you want, you have to do the right things. Everybody tells you that. What you don’t hear often enough is that you also have to stop doing anything that isn’t the best choice for getting the results you want.

The biggest thing I had to give up was winning competitions. My strategy required that I abstain totally from competing from 1989 to 1992. I needed one long cycle of bulking up and dieting down, and that meant not competing at all for three years. That was very hard for me.

Frankly, I liked competitions – feeling the thrill of victory and standing there on the stage, receiving the applause from the audience. I would have loved winning more trophies and working my way up the rankings, but I had to say no to that experience if I wanted to achieve my goal by the fastest, most efficient route possible. So I sat at the back of the bodybuilding shows every year, muttering under my breath and telling myself to be patient and that my time would come. Saying no to some things was just as important as saying yes to other things. Here are two more examples:

Yes: Heavy weight training

No: Aerobic exercise and other sports like rugby, tennis, swimming, and hiking

Yes: Plenty of rest and recovery, early to bed, and diet soda.

No: Late nights, nightclubs, partying, or alcohol

Achieving your BHAG (Big Hairy Audacious Goal) often means saying NO to things you like doing but which aren’t the fastest route to achieving your goal. We call those necessary things “Core Activities” and those unnecessary things “Non-Core Activities.”

Strategy is making wise choices about what to do and what not to do so that you ensure your future success. The “not to do” part doesn’t get discussed that much, but the top experts in creating a winning strategy think it’s just as important. Here’s Peter Drucker:

Leaders must decide:

  • What is our business?
  • What should it be?
  • What is not our business?
  • What should it not be?

And Jeff Immelt, CEO of General Electric:

  • Strategy is resource allocation.
  • Strategy means making clear-cut choices about how to compete. 
  • You cannot be everything to everybody.
  • You have to figure out what to say NO to.

And Michael Porter:

  • Many managers do not understand the importance of having a clear strategy. 
  • Strategy is about making trade-offs.
  • The essence of strategy is choosing what NOT to do.

You get the idea. Deciding what NOT to do is every bit as important as deciding what to do. That’s what this chapter is all about. You’ll take a look at what you’re doing now as a company and then decide what you should be doing and not doing. When you’re done, your activities will be in three groups:

  • Core Activities: Activities that are necessary to gain strategic advantage and achieve your BHAG. These are the must-do activities. You want to allocate resources to these activities. If there are Core Activities that you aren’t doing now, you must develop them or acquire the capability of developing them. 
  • Context Activities: Activities that you can do effectively in-house, but where you don’t need to be superior. A minimum acceptable level is good enough.
  • Non-Core Activities: Activities you should not be doing at all. If you’re doing them now, you need to stop doing them, or outsource them, or divest them. This is, by far, the hardest thing to do, but it’s something that sets great performers apart from the pack. Everything you stop doing frees up time and money and attention for your essential Core Activities.

Start by making a list of everything you do as a company. Include products or services you sell and markets you serve and all the necessary support activities you can think of. Have all members of your team make their own lists, then combine them. Later, you’ll sort them into different kinds of activities.

Don’t worry about getting this right all at once. Team members should revise their lists as they get ideas. Have a few sessions to combine lists. Stop when you’ve got a list that isn’t changing much from one session to another.

Look at your combined list of activities. Use the following flow chart as a quick overview of how to sort activities into Core, Context, and Non-Core.

Which activities are really Core?

Figure 8: Which activities are really Core?

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Now, go through your list and highlight everything you do that is essential to success, that differentiates you in a meaningful way, and that you’re good at. That’s your first pass at a list of Core Activities.

Review the activities that are left. Mark everything that’s important to helping you achieve your goal using the Value Discipline you selected. If you chose Customer Intimacy, then customer service activities would be important. If you chose Operational Excellence, logistics is usually a key activity. For Product Leadership, product development is core. If you improve the way you carry out these activities, it should have a big impact on your performance.

Let’s go back to what’s left on your original list. Some of the activities there are necessary for your business to function but are not activities that differentiate you. For instance, keeping records of my food intake was critical for me when I was dieting down in preparation for the Mr. New Zealand bodybuilding title. 

I weighed myself every week on the same scale. I measured body fat as well, with the same person and method every time. I weighed every food item I consumed every day, referring to the nutrition almanac to determine the exact number of grams of protein, carbohydrates, and fats and how many calories I ate daily. I plotted these four data points on a graph every day and plotted my body weight and body fat on a graph every week. Monitoring my nutrition became a science.

Tracking my food intake was my “accounting” function. Accounting includes a number of activities that are necessary. But no company ever became a market leader because of their accounting. The same is true for most companies when you think about benefits administration or building maintenance. Those are good examples of activities that have to be done, but they’re not Core Activities; they’re Context Activities. We’ll come back to activities like that in a little bit. Now I want you to look at what’s left.

What’s left are the activities that aren’t unique, special abilities you possess and that don’t help you stand out from your competition. They’re your Non-Core Activities. You should stop doing them.

The hardest things to stop doing are those that aren’t part of the new company you’re creating but that you’ve done superbly for a long time. That’s when you should read and reread this quote from Peter Drucker:

“There is nothing so useless as doing efficiently that which should not be done at all.”

Activities that make money or that could make money can probably be sold off. If you keep them, they’ll use up time, resources, and attention you should use for Core Activities. It’s tough to get rid of these Non-Core Activities, but it’s essential if you want to be your best. Don’t wait. Avoid the trap of hanging on to non-essential activities too long.

I know this is hard. It works against human nature. We like to stay with the familiar and, especially, with pursuits that made us successful in the past. But you have to eliminate those activities if you want to seize the future. I’m going to bring in the experts to underline this. First, here’s Philip Kotler:

“Long term is NOT about performance improvement. It is about forgetting the past and reshaping the business to compete more effectively in the future.”

And Gary Hamel:

“The single biggest reason businesses fail is that they overinvest in what is.”

And Peter Drucker:

“Yesterday’s star product may produce profits now, but it soon becomes a barrier to the introduction and success of tomorrow’s breadwinner. One should, therefore, abandon yesterday’s breadwinner before one really wants to, let alone before one has to. Of course innovation is risky. But defending yesterday is far more risky than making tomorrow.”

Go through your list and resolve what to do with every item that won’t accelerate your success in the future. Decide what to simply abandon. Decide what you will divest or sell.

This is the point where many companies suggest that we should look for cash cows to milk. That’s a reference to the famous Boston Consulting Group (BCG) matrix that includes the box labelled “Cash Cow.” A Cash Cow is a business that owns high market share in a slow-growing industry.

BCG recommends that you milk that Cash Cow to provide funds for other growing operations. I disagree. The Cash Cow theory looks great on paper but doesn’t work out in most companies.

Even mature businesses are rarely stable for long, and they require constant investment of management time and money. Most important, they give you one more thing to pay attention to instead of your Core Activities and key Strategic Moves. That’s a temptation, not a good strategy. Heed this warning from Peter Drucker:

“The temptation of business is always to feed yesterday and starve tomorrow.”

Keep that in mind as you work through this chapter, but don’t stop there. Make it part of the way you conduct your business. You should review your activities every year to identify things you should stop doing. Jim Collins calls this making a “Stop Doing List.” Peter Drucker originally referred to the process as “purposeful abandonment.”

Now you’re ready to look at your lists. Start with the list of Core, differentiating activities. Are there any activities that should be there, but that you’re not doing now? You will need to add that capability or acquire it. These activities must be inside your walls if you want to achieve your BHAG.

You have two choices with activities that don’t differentiate you or don’t give you competitive advantage, but which are necessary to run the company: You can do them in-house, or you can outsource them.

If you decide to handle these activities yourself, you need to perform to a minimum acceptable standard. These activities should be done well, but they shouldn’t receive the same attention, effort, and investment as Core Activities. These are your Context Activities.

Outsourcing has been a popular tactic since General Electric outsourced some activities to India in the 1990s. Pick any business process, and you’ll probably be able to find a company that’s outsourcing it. But many do it for the wrong reasons.

Most companies understand outsourcing as a way to cut costs. That can get you in trouble in two ways: First, the cost “savings” may not be real, especially when you account for shipping delays, communication errors, or service failures. Second, the risk of poor performance goes up when you don’t directly control an activity. Dell learned about that first-hand.

Dell is an Operational Excellence company, so there was logic behind their decision to reduce expenses by outsourcing customer service for their computers. In fact, they were among the first computer companies to outsource customer service.

They did save money on their customer service operations, but the move created lots of problems. Customer service complaints tripled. Dell brought back some customer support functions, but then faced the task of rehiring support techs who were fired when service was outsourced. The net result was that Dell wound up losing customers and goodwill.

Follow Peter Drucker’s advice: “Your aim is to enhance effectiveness, not to try to lower expenses. Outsourcing, properly executed, might even increase costs.”

Make the decision about whether to outsource an activity based on your company, your situation, and your strategy. Every company will do things differently.

Both Apple and W.L. Gore are Product Leadership companies. For Apple, product development is a Core Activity carried out by a small group at headquarters. Manufacturing is a Non-Core Activity, so they decided to outsource it. W.L. Gore has a different success model.

W.L. Gore is best known as the developer of waterproof, breathable Gore-Tex fabrics. At W.L. Gore, product development and innovation are activities in which everyone participates. They generate product leadership through a system that gives product champions everything they need to succeed, except formal support. They have to win support by enrolling volunteers to help them with a project.

There’s another way in which Gore differs from Apple: At Gore, they see the manufacturing process as a key source of innovation. So the company clusters manufacturing facilities, making it easy for people to run into each other and exchange ideas. Design and engineering expertise is within walking distance of the factory floor. W.L. Gore defines manufacturing as a Core Activity, so outsourcing is not an option, even if it would create cost savings on paper.

Figure 9: Where do activities belong?

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Use this chart as a template: In the left hand column, list your Core Activities, those things in which you demonstrate special abilities and which differentiate you in the mind of your target customer. Look at this over two different time periods: What are your Core Activities now, and, down at the bottom left, what activities will be Core within the next three to five years?

Think about what could change in the coming years. Activities can shift over time into different columns based on the strategic decisions you make.

In the middle column, list Context Activities, those activities that you will perform in-house to the minimum standard. List your Context Activities today and those that will be in that group within three to five years.

Now for the right hand column: This where you need to make some tough decisions. What will you stop doing? You should divest or outsource those activities or maybe even partner with another firm that handles them well. Just stop doing them. Which ones will you stop doing now? Within three to five years?

Business Execution for RESULTS requires courage. These decisions are where you demonstrate true strategic leadership. It is easy to keep adding products and services. It takes real courage to say no. I have a saying that I often share with clients, “You have to constantly prune the rose bush to create beautiful blooms.”

That’s not easy, and it goes against the grain for many business leaders, but it’s one of the keys to creating a winning strategy. We are conditioned to want to fix and grow things. It’s hard to pull the plug on endeavors that are no longer working, or pursuits that worked in the past but are not part of the company you need to create to be successful in the future.

You’ve made key strategic decisions about your Value Discipline and your Core and Non-Core Activities. Next, you’ll make some decisions about how to Strategically Position your brand in the marketplace.

Excerpted from the book: Business Execution for RESULTS, by Stephen Lynch

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Until next time…
Stephen

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