The Shifting Software Moat: From Systems of Record to Workflows

Unlocking the New Competitive Advantage: Why Workflows Are the Future of Enterprise Software

Introduction

The landscape of business software has undergone a seismic shift over the last decade. Previously, the focus was on Systems of Record—think ERP (Enterprise Resource Planning), CRM (Customer Relationship Management), HRMS (Human Resource Management System), and more. Companies found their competitive moat in owning these monolithic systems that stored critical data. Fast forward to today, and the moat is increasingly built around workflows rather than systems of record.

Examples of Workflow-Centric Ecosystems:

• Sales Funnel: A lead moves from a marketing platform like Mailchimp to a CRM system like Salesforce, to a quoting tool like CPQ software, and finally to the billing system. It's not just the data that's important, it's the nuanced process connecting these systems.

• Customer Support: A customer's query could start in a chatbot, move to a support agent through Zendesk, be discussed in internal communications on Slack, and result in an engineering ticket in JIRA.

• Inventory Management: A product's lifecycle may start from a supplier managed in an ERP, to an inventory management system, to an e-commerce platform, and finally to a shipping partner.

• Recruitment: A candidate’s journey through an ATS (Applicant Tracking System), to interviews scheduled via an HRMS, and finally to onboarding managed through a dedicated onboarding portal.

Costs of switching

Let’s talk about the migration of these 2 types of software. There could be multiple reasons for migrations of SaaS tools, the main reasons for any migration are the following

1. The existing tool doesn’t solve the intended usecases

2. The existing tool has become too expensive

3. The new tool helps replace 2-3 of your existing tools

However when it comes to migration we have to account for a few things.

Replacing a Workflow Tool is Like Rewriting a Legacy Codebase

Think of your Workflow Tool like a massive library of code. Changing it is like rewriting a legacy codebase. Folks who have done this understand what an insane initiative this is in practice.

Workflow Tools deeply integrate into your processes. Teams customize them to fit their needs. Replacing them disrupts workflows, demands retraining, and causes downtime. It's like rewriting years of code.

Changing a CRM is Like Changing the Underlying Database or Library

Now, consider changing your CRM. It's similar to swapping the core database of an application. CRMs manage customer relationships but aren't as deeply tied to daily workflows as Workflow Tools. Changing CRMs involves data migration and system reconfiguration but causes less disruption. While certainly not easy.

The Data Migration Revolution: Thanks to Language Models

In the above analogies, worklow tools are like the code that glues various databases and libraries together, also known as Systems of Record. It is much easier to change and have drop in replacement for the latter.

Another thing to consider is with regard to migration is the introduction of LLMs.

Moving data between systems used to be a cumbersome task, involving transformation processes and often a change in schema. Today, with the aid of Large Language Models, data schema migration has become much easier. The models can understand the schema from one system, translate it, and help to map it to another system, drastically reducing the time and effort needed.

The Workflow Challenge

However, as straightforward as it is to move data, it's much more complex to move workflows. Here's why:

1. Customization: Every business tailors its workflow to specific needs. Custom-built integrations between systems are not easily replicated.

2. Human Element: Workflows often have manual approval steps, decision-making forks, or require specific timing. These nuances are often undocumented and deeply ingrained into a team’s process.

3. Dependencies: Workflows are often dependent on conditional triggers, time-based actions, and parallel processes that are specific to the software tools in use.

4. Error Management: A faulty workflow could result in bad data, duplicated effort, or missed opportunities. Maintaining the workflow is a constant task that involves debugging, iteration, and updates.

Workflows once implemented in an organization can potentially shape the everyday working of 1000s of people. These workflows eventually become habits in the org. The failure of switching comes down to not being able to change these habits very easily.

The New Moat: Owning the Workflow

The Critical Role of Workflow Orchestration

With this growing arsenal of tools, the real challenge becomes workflow orchestration—how to make these 200 different tools talk to each other, work in harmony, and, most importantly, automate actions across them

Owning this orchestration layer, therefore, becomes incredibly strategic. The companies that can best facilitate the flow of data, automate actions, and improve processes between these tools will own the next generation's competitive moat.

Coupled with the following additional benefits that workflows provide, owning it becomes even more important

1. Vendor Lock-in: Companies providing workflow automation tools, like Zapier or Integromat, are becoming increasingly indispensable. They glue together different systems of record, creating a new form of lock-in.

2. Workflow Analytics: Companies like Nanonets are building on this by not only facilitating workflow but also providing deep analytics into workflow efficiency. The analytical layer adds another level of indispensability.

3. Data Enrichment: Workflows often improve the data by adding context or by amalgamating data from multiple sources. The enriched data is often more valuable than the original data, making the workflow even more critical.

One-Click Switch but No Easy Workflow Transfer

Software vendors are making it incredibly easy to migrate data with "one-click" switches. A new tool comes along, promising a sleeker UI or a groundbreaking feature, and the temptation to switch is hard to resist. Migrating the data might be simple, but the intricate workflow that runs your business isn't so easily moved.

In conclusion, as the number of specialized software tools balloons, the workflows that connect them are becoming the critical backbone of the enterprise. While migrating data has become simpler, workflows are harder to replace, and their orchestration becomes more complex yet invaluable. This makes workflow management and orchestration the new competitive moat, dictating not just operational efficiency but also strategic advantage.