The only advice CEOs are getting nowadays is to cut costs and be more frugal. This is a good advice but I don’t think there is any CEO with a pulse that hasn’t heard it before. The other issue with cutting costs is that at best, it will allow you to survive 2009 and show vital signs when the economy is back on track. It would not create a competitive advantage nor will it help you deal with the next crisis or external change in the market place. The real test for a CEO is not cutting costs in time of crisis but rather finding a repetitive way to reinvent her company as market conditions change.

Take Salesforce.com. Not too many companies were able to grow from zero to billion dollars a year in less than a decade. Even mighty SAP took 20 years or so to touch the billion dollar marker. Do you remember how it all started? Salesforce.com started as, yes, sales force Automation company with a very narrow focus and commitment. Later it has expended to become a full CRM package (and picked “CRM” as its NYSE ticker). Nevertheless, in the last 3 years salesforce is becoming a platform company and pushing initiatives like force.com and App Exchange. Without judging the wisdom behind the changes, Mark Benioff built a company with “change” in its DNA. Not only does it want to change every few years, the company knows how to change and it is doing it enough to get really good at it.

Here is the theory behind it: in his great book Dealing with Darwin, Geoff Moore explained that every company can divide its activities to “Core” activities, the ones that create sustainable competitive advantage, and “Context”- the ones that are needed, but don’t differentiate the business from others. For example, an airline circa 2009 may have core activities like 5 additional inches and an on demand video system in coach and context activities like landing in one peace. While the latter is much more important, we assume all airlines are safe and we ignore it as a factor when selecting an airline.

The most important thing about core and context is remembering that what was core in the past is likely to become context over time. If online check in was core and innovative only few years ago, it is now a context item for every airline. Great food, once a differentiator -is now such a context item, that airlines can get away with not serving it at all…

Companies fail when they are not used to build a new core all the time, and shift resources accordingly. When Toyota figured out that green is the new core, GM was still protecting the old core of size and convenience. When Google figured out that the new core is speed of getting the data you need, yahoo protected the old core of “a portal to the internet”, full with unneeded data for you to choose from. When Apple figured out that the new core is design, Dell still pushed “make to order”.

What’s great about Google, Apple, Saleforce, Toyota and many others is not the fact they have a better strategy or the right product. The competitive advantage they have is change- the ability to listen to the market and quickly shift resources to support the new core.

5 steps to start your own core/context analysis:

• Read the book…
• List your company’s activities and split them into core and context
• List the context activities that are no longer mission critical (like food in flights)
• List your resources (budget/people) and assign them to the list of activities
• Use the map to reassign resources. Think not only on quantity but on quality as well. For example, you may want to assign the most innovative people to your non profitable core activities and the “deployers” that get the job done to the money making context activities.