Blockchain technology can help the C-suite implement robust digital systems that reduce fraud and increase data reliability. But preventing scandals is secondary to meeting revenue and EBIT targets. With enterprises still busy switching from paper to bytes (read digitization), the enterprise blockchain can use this phase to polish its technology and demonstrate its value added.
The challenge — connecting to the bottom line
What does blockchain do 10x better?
Technology usually makes things faster (broadband speed), require less effort (check your email on your mobile phone), more efficient (a car engine uses less fuel per kilometer), or safer (your bicycle helmet).
After reading quite few articles about enterprise blockchain, one thing that stands out is the ‘safer’ value attribute of the technology. But how much safer? It’s a hard question to answer. I don’t use a bicycle helmet, because I think I drive safely and rarely come, if at all, in situations where a helmet would create value. Should I use a bicycle helmet?
Trust is the word that perhaps is closer to defining the improvement that blockchain technology brings. Trust that the data is accurate (the chain of cryptographically linked blocks), trust that the rules of the game won’t change under my feet (governance), trust that my data won’t disappear (distributed and redundant).
How much can trust improve the bottom line of a business? Outside of the enterprise, blockchain enables cryptocurrencies, ‘trust’ allowed us to do something that couldn’t be done before. But in day-to-day business, trust is a currency that takes time to build and governance sounds like a lengthy business negotiation. Taken together, it doesn’t sound like blockchain will help meet revenue and/or cost reduction targets by the end of the year, and this inevitably moves blockchain technology down the priority list.
The sustainable path to the enterprise blockchain platform
The digital revolution is still underway and there is no end in sight. Enterprises are quite busy digitizing their processes. The drive to digitize stems from the financial rewards that can be achieved. In the last year alone I’ve learned about examples that reduced costs from 30% to 99% percent. Some of these processes might be excellent candidates for a blockchain backend.
Keep it simple, start small. Many of the advertised blockchain solutions digitize a process on top of a blockchain network. Of course, digitization is a requirement for a blockchain system, but they are two different projects, and doing both at the same time involves two risks, the risk of digitizing the process plus the risk of using an emerging technology, blockchain. Separating these two risks can reduce the barrier to entry for blockchain adoption.
For example, blockchain for the supply chain so that goods and their data can flow together through the supply chain sounds like a very promising idea. Why hasn’t the supply chain digitized this process already? The answer is not that the technology to digitize the supply chain was not available. The answer has to do with process and people. While blockchain may be an argument in the ‘people’ side of the equation by addressing the issue of trust, it’s not a killer argument.
What if we decouple digitization from blockchain? Could this be a way forward? Surely it is not the most efficient approach for deployment of a blockchain based solution, since a digital system would need to be modified/extended to use a blockchain network. But perhaps it is a more practical one, one that allows us to takle one problem after the other. First go digital, then go robust and trustworthy digital.
Following this strategy, enterprise blockchain platforms should target existing digital processes that might lack redundancy, and therefore have single points of failure. While finding these systems will not be easy (everyone has them, but who likes to advertise their ‘poorly architected’ digital system), blockchain has a real value proposition for them. This makes the next steps much easier to take: moving the business logic to code running on the blockchain platform itself, sharing a blockchain system (and data) with a different department, business unit, and, ultimately, a separate corporation.
Additional advantages of this entry strategy are, for example, that the blockchain technology itself can be tested within a real context at lower risk, since the systems it serves are using it as a ‘supporting’ technology. Also, the teams that build the blockchain platform can focus on one thing, the blockchain platform, and move faster. And, when more complex business logic is ready to move to the blockchain platform, it can be modeled and benchmarked against its non-blockchain counterpart, significantly reducing risk and allowing us to better measure the value created for the business.
A coupe of weeks ago I was at the Frankfurt School of Finance at the Blockchain Startup Summit and listened to what startups are trying to build with blockchain technology. For the most part the narrative is “Connect party A, B, C… and so forth to have [more transparency, a new business model, … ]”. The question that kept coming up was: distribution. How do you reach the customer, how do you compel them to use your system for a business critical process, how do you convince them to willingly share their data with a blockchain platform?
All these questions are harder to answer when the market is still chewing on digital and mobile, which means blockchain solutions try to convince its users to digitize and ‘blockchain’ a business processes. For now, blockchain projects can thrive by joining innovation initiatives and acquiring budgets set out for experimentation. In these projects, the technology should consider addressing the human-computer interface issues that make blockchain hard to grasp. A technology whose benefits are invisible, is harder to understand and love. Blockchain delivers but invisible benefits: trustworthiness with cryptography, control with governance, robustness with a distributed architecture.
— For those new to Blockchain, welcome! The section below, is for you.
The intrinsic value of the technology
For the enterprise, blockchain technology delivers the following value
- It has a distributed application architecture. This means that you can create redundancy and eliminate single points of failure, e.g. your data is harder to get lost if you have 3 or more copies distributed between 3 different geographic locations. Standard (non-blockchain) web applications can also use this architecture type.
- It offers a tamper-resistant history. “The blockchain” is a data structure that makes it harder to tamper with the data, so much harder that in the right configuration it can be considerer tamper-proof. This can be useful to build “reality” like digital systems where important business inputs, like sensor data, can be reliably stored.
- Governance features for multi-organization systems. Sharing data is like regularly doing sports, most businesses know they should do it, but few actually do. When sharing digital data, who controls the system? Is it a third party? If so, is the third party neutral? Trust is a major concern when sharing data and blockchain based systems allow setting rules for who can see what information and when.
For completeness, I don’t mention ‘software’ (alias Smart Contract, Chaincode) as a key value of Blockchain technology because standard enterprise applications are composed of software. I believe the real value is the governance of how, when, and by who can the software be updated, added, or removed, especially in a mutli-organization network.