Beyond the Prompts: Why Context Engineering Is the Next Frontier for Enterprise AI

Enterprise architect Dominik Tomicevic shares recent best practice about a fast-moving area in AI development 

Prompt engineering is powerful but not enough on its own—context is the critical factor here. Graph-based approaches, particularly GraphRAG, are emerging as the next evolution, moving beyond vanilla prompt engineering to what is now called context engineering. 

Here’s the logic, starting with something that sounds, and is, problematic—context rot. Context rot is an emerging challenge in enterprise AI, occurring when a model’s understanding of context degrades over time or across tasks. Repeated queries exacerbate the problem, as outdated or poorly linked context can dominate responses, slowly eroding trust in the AI system. 

Large language models (LLMs) rely heavily on curated context—structured data, knowledge graphs, and other inputs—to generate reliable outputs. But as information accumulates, shifts, or becomes fragmented across multiple sources, the context available to the model can become diluted or inconsistent, reducing the accuracy and relevance of its responses. 

This leads to outputs that are less precise, more prone to hallucinations, and often disconnected from the underlying business reality. Multiple studies confirm that beyond a certain context size, AI model accuracy tends to decline. Essentially, there comes a point where adding more context can actually reduce model performance. 

Surely more context is better?  

To some, this might seem counterintuitive: surely the more a model ‘knows,’ the better it should be at making inferences? But, we’re dealing with AI here, not the human brain. With current architectures, context windows have limits—an LLM’s attention mechanism simply cannot interact with every token in a very large dataset. 

As a result, the larger the context window, the more opportunities for error or misinterpreted information. In a business setting, that’s a real problem in terms of valid inferences: the model may focus on irrelevant facts, and the extra context can actually dilute the relevance of its outputs. 

Bottom line: on their own, an LLM cannot inherently understand an organization’s data schema or the implicit relationships between entities. This knowledge must be explicitly modeled—often through a combination of knowledge graphs and curated datasets. Without this structure, even the most advanced LLM can generate invalid queries or misinterpret the data. 

To be honest, I see this every day with customers trying, and often struggling, to build non-trivial AI applications. The real solution is to focus on relevance, not volume. Counterintuitive as it may seem, the key is to provide the minimum necessary context to solve the task at hand. 

Giving an LLM too many tools or access to excessive datasets can lead to tool overload: the model might select the wrong tool, misuse it, or generate inaccurate outputs. We need ways to limit access to only the essential tools and data for a given task, which may involve training models on tool-specific APIs or query languages. Without this discipline, even well-curated data may produce inaccurate results. 

Why you need to think bigger than ‘prompts’ 

If the search space is appropriately constrained, then, even if that sounds counterintuitive, it becomes highly effective. This is where we need to move beyond the ideas of prompts. While prompts work well for simple ChatGPT-level tasks, real enterprise AI requires engineering the right context rather than endlessly refining prompts. The focus should shift from prompt finesse to deliberately designing the search space the model operates within. 

As you’ll quickly see, this isn’t work that happens in the question box—it’s a programming task focused on what information the model is actually ingesting. Effective context engineering relies on both quantitative and qualitative metrics to find the right balance. Like prompt engineering, it involves iterating on what information helps the model produce useful, reliable outputs—but the iteration happens in code, not text. 

What should be happening at the code level? A key computer science concept to guide us here is recursion. The goal is to structure and filter context by recursively summarizing relevant portions of a graph-structured dataset. Yes—I deliberately smuggled in the word ‘graph’—because best practices suggest that basic RAG isn’t enough to handle this recursion elegantly. Instead, we need the next evolution of Retrieval-Augmented Generation: GraphRAG. 

First developed at Microsoft Research, GraphRAG is our friend here as it’s a very effective way of structuring and filtering context across graph-structured datasets. And yes, we want graphs, not something like SQL, for two key reasons. First, graphs are better suited to capture the nuances of relationships in complex information. Second, they allow complex tasks to be broken into smaller subtasks, each of which can be handled separately, with results aggregated to form a coherent final answer. 

That’s a nicely modular approach that reduces context complexity and ensures that the model’s reasoning is aligned with business logic. This makes GraphRAG an excellent tool for context engineering: it allows us to avoid loading the entire graph—or even a large subgraph—into the model’s context, and instead: 

• expanding from possible relevant nodes out of points that are possible context entries 

• summarizing at each expansion step, and so constantly reminding the LLM to really focus on the task at hand 

• trimming irrelevant information 

• and ensuring that the final context is concise and tailored for the specific user task. 

Top context engineer tips 

From our experience helping organizations start down this path, several practical lessons about context engineering have emerged. 

One: It really helps to pre-process the LLM with smaller amounts of context at a time, preventing it from becoming overwhelmed. Two: Combining prompt engineering—to remind the model of the task and the need for concise, relevant answers—with step-by-step or recursive summarization can significantly improve context quality and reduce that dreaded context rot.  

Three: For complex workflows, context engineering isn’t just about providing the right data, it also involves dynamically selecting which tools and datasets are relevant for each step. For example, a model might need to fetch the latest financial metrics via a specialized query tool while simultaneously consulting a market sentiment model. Effective orchestration is essential to ensure that each submodel only ever sees the context it needs. 

In sum, context rot is a real challenge when working with large context windows in LLMs. Developers tackling this issue consistently report that the most effective mitigation involves structuring, filtering, summarizing, and continuously testing context so that only essential information enters the model’s working memory. 

Mitigating context rot requires deliberate engineering: curating high-quality context, segmenting complex tasks, dynamically managing tool access, and leveraging knowledge graphs to ensure the model always sees the most relevant, well-structured information. 

Without these context-aiding steps, AI workflows risk producing unreliable insights, no matter how large or sophisticated the underlying model is. Growing evidence shows that structuring enterprise data as graphs and applying RAG methods enables AI to reason effectively over large datasets, helping to overcome the limitations of context windows. 

The takeaway for anyone trying to make AI work for their company is that the days of clever prompts are over. The best path forward with LLMs lies in structuring data, leveraging knowledge graphs, and curating tool access—providing your model with the ideal context it needs to reason accurately and reliably across complex enterprise workflows. Doing so ensures the AI produces insights that truly help the business move the needle. 

Dominik Tomicevic is CEO and Co-founder of Memgraph, a high-performance, in-memory graph database that serves as a real-time context engine for AI applications, powering enterprise solutions with richer context, sub-millisecond query performance, and explainable results that developers can trust.