Let’s imagine that you are talking with your CFO or CEO. These guys understand the processes of how their company works but they don’t really understand technology. So I found this to be a useful model to explain how enterprise software actually works inside an IT department. I usually draw it on a napkin or piece of paper and this explanation is based on Geoffrey Moore’s Core/Context model from his book ‘Dealing with Darwin’.
So basically what you do is to look at the company’s processes and separate them around two axes. In the first axis Geoffrey categorizes the processes as either Core or Context. I don’t really like these names so I usually refer to them as Differentiating and Commodity processes.
Differentiating processes are key to your business. They are a source of differentiation and give your company a competitive advantage.
Commodity processes are the ones you have to do to operate the business. If you don’t do them you’ll go bankrupt or fail. But they are a Commodity; everyone in the industry will do these processes more or less the same way, so you have absolutely no competitive advantage by implementing them.
Second axis is used to evaluate the process as either Mission Critical or Non Mission Critical. What Mission Critical really means is that it has an impact in a very large part of your revenues.
And Non Mission Critical means we are just experimenting so if the process actually doesn’t get correctly implemented it won’t really impact your company substantially.
So now we have 4 quadrants. Geoffrey Moore postulates an idea with these quadrants which I think is really really smart: he says that processes and the software that implements these processes go through a very specific life cycle around these quadrants.
Processes usually first appear in what he calls the Event quadrant, in the bottom left. Here a process is unique because it has been invented by someone in the periphery of the company, in sales, logistics, or any other type of function to solve a particular problem or tap into a market opportunity, making it differentiating or, as he calls it, Core. It is Non Mission Critical because it is a process that was just discovered. These are usually skunk work, experimental projects that from a technology and systems perspective are usually supported by spreadsheets, documents, emails, floating around between people. Eventually these processes grow, become a little more important and they become departmental applications, usually being built by a Shadow IT Team that works within or for the department.
Overtime, some of these departmental processes become important and strategic to the business as a whole. At this point they move out to the top left quadrant which Moore calls the Deploy quadrant or Deploy to Scale. So when these processes move into the Deploy at Scale quadrant, IT takes them over and works to implement them as enterprise business applications. Because these processes are newly invented and unique to the company, they are usually implemented as custom software since there are no viable packages on the market. Eventually, over time, these processes will be copied by the industry and so they will move over in the top right quadrant and become a Commodity. Notice that they are still Mission Critical since part of the operation of the company relies on them but they are no longer a source of differentiation. In fact, the moment they become more of a Commodity there is a sense that they start stabilizing and become standardized, and so change occurs less as a particular process, becomes more of a Commodity.
Now, another alternative that you have when moving from the Event to the Deploy quadrant is to buy a niche package. Niche packages are created by entrepreneurs that come out of the early companies who invented these processes; they create these niche software packages to address this new innovative growing business processes or business functions that are appearing in the industry. But in time, these niche packages become industry standard and are acquired by the large ERP vendors, they get mashed into their ERP suites. So, ERP suites by nature tend to implement Commodity processes because ERP vendors need to address highly repeatable processes so they can target a large customer base.
Moore also postulates that there is a fourth quadrant he calls the Offload quadrant which you should migrate your processes when the function becomes so standardized that you can actually offload it or offshore it to a business process outsourcing company. Usually this is something that we see very little so a lot of the processes get concentrated on the top two quadrants.
Now that you have this framework Core/Context model to explain how business software evolves inside your organizations, you can extend it to help your CEO or CFO understand what are the challenges faced by corporate IT.
In my next video, I will explain why packages aren’t a silver bullet and I’ll give you a framework to help you decide what you should build versus what you should buy.