System of Record vs System of Engagement: How To Apply It To Your Business

In a long conversation with my friend Apurva this weekend, we discussed the role of each of our products in our customer’s lives, how they engage with the product to serve their business needs, and how we should align our product development and roadmap in order to serve their needs best.

At this point in DelightChat’s journey, the next few months are quite certain in terms of the range of potential outcomes. My big question is how we should prioritise our development keeping the long-term goal of where we want to be in 1 to 3 years.

Almost every problem in the world has previously been faced by many others, and as such frameworks to solve those problems have evolved. These frameworks or mental models are useful in helping you think, because they give you constraints and bounds under which you need to think.

One such framework that Apurva introduced me to this weekend was thinking about a product as a System of record or a System of engagement.

What is a System of Record

From Wikipedia: A system of record (SOR) or source system of record (SSoR) is a data management term for an information storage system (commonly implemented on a computer system running a database management system) that is the authoritative data source for a given data element or piece of information.

LOL, I’m not a sadist who wants to make you read some complex technical definition, so let’s try this again.

A system of record serves as a source of truth about any particular aspect of a business.

I’ll explain with two examples.

Example 1 - In terms of finance, it would be the line items that make up income, expenses, and the corresponding profit calculations.

Example 2 - In terms of marketing or sales, it would be the database of customers and all customer data that the business has collected in order to enhance its operations.

What is a System of Engagement

A system of engagement is what is used to interact with the end customer of a business, either by utilising information available in the system of record or capturing new information to add to the records, or both.

Again, let’s understand its meaning with two examples.

Example 1 - In terms of finance, it would be a tool that allows you to send invoices to companies or individuals who use your service. These invoices and their payment status are ultimately recorded in the company’s financial system of records.

Example 2 - In terms of marketing or sales, it would be a tool that allows you to send messages to your database of customers, such as an email or SMS marketing tool. Based on how customers interact with the messages (or they may even purchase), the new data is recorded in the company’s marketing/sales system of records.

Difference between System of Record and System of Engagement

The only difference that you or I as product people need to care is that a system of record becomes more valuable to an organisation the longer they use it, and the more data they store in it.

Therefore, it gets harder and harder for a company to replace their system of record. The flip side to this is, it also means that they might take longer to decide and pick one solution over another.

Whereas a system of engagement can be easily replaced, as its core functionality can be performed by a viable alternative as long as it can connect to the company’s system of record.

How this framework will shape DelightChat’s future

Until now, we were thinking of product using only the jobs to be done framework, which is great when you want to build really useful B2B products, but it isn’t sufficient if you’re trying to build a long-term strategic advantage into your business.

DelightChat being a communication tool used for customer service is primarily a system of engagement, but there’s existing functionality within our tool that already serves as a system of record.

Our job is to understand how to make the most valuable system of record, one that ecommerce businesses can use increasingly to power their business.

And we can do that by answering this question - Can we be the most valuable system of record of customer data for an ecommerce business?