Once you get those answers, find out how the executive would define: 1. your company’s primary competitive differentiator today; 2. its best chance for equal or greater differentiation tomorrow; and 3. the most important business initiatives under way to create that future competitive differentiation.

Stop there. Once you have this input, thank the executive for his time and explain that you would like to think about the IT implications of this strategy and come back with a plan to maximize the value from IT investments going forward. Back in your office, gather your best and brightest around you for the following exercise, which we will call core/context analysis.

Identifying Your Core Functions

In this exercise, something is core if, and only if, it contributes to the corporation’s primary effort to create competitive differentiation. All other activities, by definition, are context. For example, at Southwest

Airlines low-cost fares are core, and customer amenities are context.

Conversely, at United Air Lines customer amenities are core, and low-cost fares are context. At Domino’s Pizza, customer delivery is core; at Pizza Hut, it’s context. At Volvo, safety is core; at Ford it is context.

Now many context activities are extremely important, even if they are not differentiating. So to make sure we register this dimension as well, we also ask whether a given activity is mission-critical. Mission-critical activities may be core or context; their key feature is that falling short in their execution has severe negative consequences. For example, not losing customers’ luggage is a mission-critical task for all airlines, but core to none. Same goes for building a safe car; at Ford, hybrid fuel economy may be core, but the consequences of unsafe vehicles are totally unacceptable.

In light of this model, the most important processes to support are those that are both core and mission-critical. Even here, there is a subtlety that can be lost. Often, the goal of minimizing mission-critical risk can be at odds with increasing competitive differentiation. For example, suppose you could ship an ugly iPod by Christmas but would risk missing the holiday sales window to make a beautiful one. It is crucial that differentiation be given the priority. That is, if style is core (and at Apple it surely is) then one cannot sacrifice it, despite the risk. The reason is simple: Without competitive differentiation, the entire corporate strategy is bankrupt.

This doesn’t mean you can abrogate your responsibility to manage mission-critical risk, only that you must go out of your way to make sure it does not interfere with creating core processes. IT can help you create new core initiatives, but they are not always understood to be strategic at first.