A system of record is a core system that an organization uses to run its business, such as finance applications or email provision. While a system of record is vital to the operations of the company, it provides no competitive advantage. Systems of record are classically Mode 1. These projects tend to be more knowable both in clear outcomes and clear approaches to achieving these outcomes, which ultimately amounts to doing the process as well as any competitor. Once this is achieved, there is little incentive to improve further or change the process unless conditions or regulations change.
Systems of differentiation are generally Mode 2 projects, because their value resides in providing capabilities that competitors don’t have. Since the nature of competition is that competitors will copy successful innovations, these capabilities need to constantly improve. The project will likely have a long-term goal that is achieved through several iterative steps that build on one another as success is demonstrated. The exploratory nature of Mode 2 projects is important to their long-term success.
A system of innovation is essentially an experiment. It needs a Mode 2 approach because it is a brand-new idea and there is no established way to plan the details of what will be done.