The distinction between Geoffrey Moore’s Systems of Record and Systems of Engagement concepts is a hot topic amongst organizational leaders today. A quick primer, courtesy Wikipedia: Whilst a system of record (SOR) is the authoritative data source for a given data element (e.g. CRM, ERP and Supply Chain Management), systems of engagement (SOE) “focus on people, not processes”. Texting, Twitter, Facebook and other forms of customer communities are cited as examples of the latter.
Whilst the pundits duke it out about what’s more important between the two, entire industries are going through massive and decisive Digital Transformation. And at the nucleus of this transformation is neither of these but Networks of Record. Networks of Record are definitive market places that foster contextual engagement and commerce amongst buyers and sellers at much higher velocity than the traditional sales models that add extensive friction to the intended customer experience.
Evolving expectations of CRM
The first three are table stakes plumbing requirements of the new digital economy. But it’s the last one – networks of record – that is ultimately the real battleground. Buyers and sellers are storming to form and engage in very purpose-built networks that connect them to each other with almost zero latency or information arbitrage. In turn, the smartest businesses are leveraging these networks as data goldmines to understand individualistic buyer expectations and behavior to build relationships and to drive commerce. Noted analyst R “Ray” Wang of Constellation Research astutely characterized the importance of data as follows:
“Data is the foundation of digital business. Every touch point, every click, every digital exhaust is relevant insight.”
And Paul Greenberg, the godfather of CRM even emphasizes the importance of human interaction in his definition:
“CRM is a philosophy and a business strategy supported by a system and a technology designed to improve human interaction in a business environment”.
Driving meaningful human interaction in a business environment is the foundational design principle of Networks of Record. This is the customer’s and increasingly, the seller’s evolving expectation of what customer relationship management must entail.
Networks of Records drive Industry Transformation.
Much of the conversation around customer engagement today is heavily centered on forums that enable conversations or drive operational efficiency such as lowering customer support cost but with little to no relevance to creating new, more efficient commercial models. In contrast, Networks of Record center on very contextual engagement that can drive industry transformation, be that new data-driven operating models or even new products altogether. Consider these and other examples of highly contextual engagement models that drive tangible results:
Consumer Electronics: Fully engaged shoppers make 44% more visits per year to their preferred retailer than do actively disengaged shoppers.
Insurance: Fully engaged policy owners purchase 22% more types of insurance products than actively disengaged policy owners do.
Retail: More shoppers are looking to take advantage of seamless retail services, involving the store: 19% of shoppers said they, are using “click and collect” services.
Hospitality: Fully engaged hotel guests spend 46% more per year than actively, disengaged hospitality industry guests spend.
Banking: In the retail banking industry, customers who are fully engaged bring 37% more annual revenue to their primary bank than do customers who are actively disengaged.
Networks of Record are here.
The movement to establish definitive networks of record is well underway and you are a likely participant already, whether you use Uber or Airbnb or Tripit or other examples:
- Consider Ariba that connects 1.2 million businesses and gets paid on a half a trillion dollars that exchanges hands on the network. This is the Network of Record for Procurement
- Or Uber that has a market cap of $18 Billion build off a well-informed network of drivers and passengers and a mobile app, without owning a single cab. This is the Network of Record for Personal Transportation
- Or Fieldglass that connects free-lancers to customers and gets compensated on facilitating $27 Billion in annual flexible workforce spend. This is the Network of Record for Contingent Human Capital
- Or Concur and Tripit that connect over 25 million travellers and the ecosystem of car rentals, airlines and hotels. This is the Network of Record for Business Travel
- Or SAP Jam that connects over 15 million employees, partners and customers at leading organizations around core business activities. This is the Network of Record for Business Collaboration
Systems of Record are critical no doubt – they serve as the definitive source of truth about your investments, revenue and earnings and are the underpinnings of commercial activity. Systems of Engagement on the other hand largely help with driving operational efficiency. What’s underway right now, though, is much much larger – it’s wholesale commerce and industry transformation – both with respect to a move to network-first operating models and the sheer velocity at which buyers and sellers are participating and transacting in these new networks for the commercial benefit of both parties.
Are you in?
(Cross-posted @ Pretzel Logic – @sameerpatel)