The Third Era of Enterprise IT: Why companies need to develop a new resource allocation strategy and game plan

The last 10 years have seen the emergence of consumer IT and its impact on how companies need to fundamentally change the way they engage with their employees, customers, supply chain partners and other key stakeholders. Driven by the oft-used acronym SMAC (Social, Mobile, Analytics & Cloud), these new models and tools are ushering in the Third Era of Enterprise IT as the chart below which was developed by my brother, Geoffrey Moore, illustrates.

The First Era was dominated by the massive build-out of the hardware and software needed to put the core enterprise IT architecture and infrastructure in place that ran companies of all size around the globe. This build-out resulted in a comprehensive, well-aligned hardware and software stack that supported all of these Systems of Record (SORs). As the chart below illustrates, these Systems of Record are used to carry out a series of critical business functions including order processing, inventory and supply chain management, CRM, HR and the company’s financials.

The Second Era was focused on optimizing the costs of maintaining those enterprise IT platforms and outsourcing a number of their maintenance and operating functions to achieve significant consolidation and productivity gains.

The Third Era is assembling a new stack of hardware and software tools that support the development and utilization of Systems of Engagement (SOEs) as the chart below illustrates.

Two Core Challenges for IT:

1. Resource Allocation Imbalance

The first challenge the emergence of this new stack presents to companies is that they have a significant resource allocation imbalance between maintaining SORs and developing and deploying in SOEs. A critical source of future competitive advantage will be a company’s ability to successfully leverage technology-enabled innovations that create powerful user experiences. As such, the more resources you can redeploy away from maintaining SORs and toward developing SOEs the better your ROI will be on future technology investments.

80% of Corporate IT Budgets Are Allocated to Maintaining SORs: The emerging reality is that every dollar invested in SOR-supported systems and software produces a diluted return to the company in terms of competitive differentiation. The reason being is that 95% of the lifetime value of these investments has already been received and as such no longer delivers competitive differentiation.

20% of Corporate IT Budgets Are Allocated to Developing SOEs: By contrast, every dollar invested in SOE-supported software and systems offer a much higher future revenue and profit stream because they will be the primary source of future competitive differentiation. Simply put, the sooner your company can begin to create and deliver SOEs, the sooner you can deliver both significantly greater ROI on your IT investments as well as on competitively differentiated B2B and B2C products and services.

2. Building a Bridge to Connect SOEs And SORs

The second challenge is how to develop and deploy a stable architecture that organizes and manages seamless interfaces between human assets armed with SOEs and data assets managed by SORs. Systems of Record are transactional and organized around data while Systems of Engagement are behavioral and organized around user experiences. These are two very different kettles of fish.

Thus far, there is no comprehensive architecture model around which to plan how to design and deploy these new solutions. Currently, there is a limited talent pool to draw on for user experience design which is the cornerstone of all SOEs. Lastly, to date no enterprise vendor has stepped up to fill this void, so CIOs and their colleagues are trying to ferret out on their own what few best practices are starting to emerge.

The New Hybrid Stack: What companies are now beginning to confront is how to efficiently and effectively allocate resources across the new hybrid stack that supports both SORs and SOEs as shown in the chart below:


In the majority of discussions I’ve had with CIOs over the past 18 months, most have stated that they do not have people on their IT teams that can oversee the development and deployment of the SOEs in the right hand column. The good news is that we are in the early stages of the emergence of this new hybrid stack, and therefore, forward-thinking, open-minded CIOs still have time to help their companies take the necessary resource allocation steps to manage it.

How to Get Started: Historically IT has started with the technology the company has already in place and added to it. In order to gain competitive advantage from the deployment of systems of engagement, you have to start with the user experience you want to create for your customers and other key stakeholders. Here is a suggested approach:

Use key moments of customer engagement to prioritize future investments in systems of engagement:

1. What are the key moments of customer engagement that define the success or failure of your business or company?
2. Who or what represents your enterprise during these moments of engagement?
3. How could a system of engagement make these customer engagements more powerful and enduring?

In order to successfully deploy this approach, it will entail both reassigning current employees, along with the appropriate training, to take on the new challenges of developing and implementing SOEs, as well as recruiting outside talent that already has these skills and capabilities and integrating them into your company’s culture and operating processes. Part of this process should also include a complete review of the job descriptions for your senior IT leadership positions to make sure their skills and capabilities are a good match for this new process and environment.

What this is leading to next is a new User -Centric IT design model which is in its early stages of development. I will write more about its development in future blogs.

As always, I am interested in your comments, feedback and perspective on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.