When you meet with senior executives at companies, they give a variety of excuses for why they don't or can't innovate. The most commonly repeated excuse is that they simply don't have the budget. So how do you address this challenge? Where should you cut costs and where should you innovate?
A surprising 80% of an organization's processes are not industry specific. Whether you think about HR, finance, forecasting, marketing, or any other department, most of the processes and functions within those functions are not industry specific. It's the same for everything from Costco to JP Morgan Chase to IBM. Even areas that are considered core areas, like manufacturing, are often not industry specific. After all, the same types of robots and machines that manufacture products for other industries manufacture your products.
These types of processes and capabilities are Non-Core ActivitiesAnd the key point is that these areas are not industry specific, so further investment will not create competitive advantage — further investment will usually only lead to greater efficiency or cost savings, resulting in incremental improvements.
Your organization has Main activities: These are industry specific and areas where you have relative strength, but you are competing directly with other companies here and are not better than them.
These are your Differentiation AreasThese are the activities that make you different from other organizations and are areas that give you competitive advantage. These differentiating activities (i.e. assets and capabilities) typically account for a small percentage of your total activities (approximately 2%-5%).
The distinction between core and non-core is important, and most companies don't think about it, but it allows us to understand: Where to cut costs, where to invest, where to create competitive advantage, where to standardize.
Why you shouldn't cut costs across the board during a crisis
A typical mistake companies make during a crisis is to implement cost-cutting measures across the board. While this approach may provide immediate financial relief, it unintentionally undermines long-term strategic positioning. When costs are cut indiscriminately, key differentiating activities are also affected – the unique aspects that differentiate an organization from its competitors and underpin its competitive advantage. Cutting investments in these areas reduces an organization’s ability to innovate and maintain market leadership, ultimately eroding the competitive advantage that is crucial for recovery and future growth. Therefore, a more nuanced approach that protects and even strengthens differentiating capabilities while optimizing or outsourcing non-core functions is essential for sustainable success.
Developing macro business strategies for the organization's non-core, core and differentiation areas
You can now map your non-core, core and differentiation areas to your unique business and IT strategies. The UNITE Strategy Execution Framework uniquely categorizes your organization's activities into non-core, core and differentiation areas and helps your organization align its strategy, business objectives and IT with them.
Understanding these categories is essential to making informed decisions about where to allocate resources and how to achieve defined strategic objectives.

Reduce costs of non-core activities
Non-core activities are areas of business that, while necessary, do not contribute to the differentiation or strength of the core business. These activities often represent a significant portion of operational costs but do not directly enhance an organization's competitive position.
Cost reduction strategies:
1. Standardization: Implement standardized processes to ensure consistency and reduce complexity. Standardize by implementing so-called “best practices”. Whenever we hear the word “best practices”, we think of “standard practices”. Since everyone is applying those “best practices”, they are effectively “standard practices” because they have no potential to create a competitive advantage.
2. Automation: Automate repetitive, routine tasks to improve efficiency and reduce labor costs.
3. Outsourcing: Outsource non-core functions to specialized third-party providers who can perform the tasks more cost-effectively.
4. Operational Excellence: Focus on continuous improvement methodologies such as Lean and Six Sigma to streamline operations and eliminate waste.
Innovation in our core activities
Core activities are business-critical and involve functions where an organization competes directly with other companies. Typically, core activities account for about 15% of all activities a company performs. Although these areas do not inherently provide a competitive advantage, they are critical to maintaining and enhancing a competitive position.
Strategies to advance core activities:
1. Process Improvement: Continually seek ways to enhance processes to improve efficiency and effectiveness.
2. Adjacent Opportunities: Explore opportunities in adjacent markets or segments where you can leverage your existing core capabilities.
3. Technology IntegrationIntegrate new technologies to increase productivity and stay competitive.
Differentiation Activities
Differentiating activities are unique aspects of your business that differentiate you from your competitors and provide a significant competitive advantage. These activities typically represent a small portion of your overall business (usually only 2-5% of an organization's activities) but are essential to maintaining premium prices and ensuring market leadership.
Innovation strategy in differentiation activities:
Ultimately, you need to differentiate your organization and establish a competitive advantage by creating best-in-class or best-in-the-world experiences, which means you need to innovate here with everything you have.
1. Business model innovation: Continually explore and implement new business models that can create added value and differentiation.
2. Customer Experience and Service Innovation: Invest in improved customer experience and new services to build loyalty and differentiate your brand.
3. Product Innovation: Focus on developing innovative new products that meet new customer needs and differentiate us from others in the marketplace.
4. Research and DevelopmentWe allocate significant resources to research and development to drive breakthrough innovations that can redefine markets.
Practical steps for applying the framework
1. EvaluationEvaluate all activities and categorize them as non-core, core, or differentiated.
2. Resource Allocation: Allocate resources based on classification to ensure cost efficiency in non-core areas and aggressive investment in differentiation activities.
3. Ongoing reviewRegularly review and adjust your strategy to align with market changes and organizational goals.
In today's competitive environment, knowing where to cut costs and where to innovate is critical to long-term success. Leveraging the UNITE Strategy Execution Framework, organizations can strategically allocate resources, streamline operations, and drive innovation in the areas that provide the most critical competitive advantage. This balanced approach ensures sustainable growth and market leadership.