True or False: Blockchain Will Disrupt Everything

Blockchain is going to be the biggest innovation since the Internet. What’s your first reaction? Truth? Or will you reject it as just another hyped-up technology claim? After all, if the full potential of the Internet has yet to be realized, it’s difficult to imagine that we could be witnessing another grand idea that promises to transform the world. At the same time, blockchain has certainly generated not just interest but serious investment as well.

And so, business leaders are asking themselves two important questions:

  1. How do I know if blockchain is hype or a transformation opportunity? Or somewhere in between?
  2. Should I be an early adopter or wait for the technology to mature?

Blockchain and the spectrum of innovation

Every organization uses a different framework to answer these questions and make decisions, but such guidance is typically constrained by precedents and short-term returns. While an organization’s checks and balances are required to ensure efficient allocation of capital, it also runs the risk of missing the next big innovation. Therefore, for effective decision making, every large decision needs to be measured against a spectrum of innovations ranging from incremental to foundational.

  • Incremental innovations moderately improve the status quo, provide quick returns, have limited scope, and are typically short-lived (less than 10 years). Examples include new product launches or new software implementations.
  • Foundational innovations transform the way things are done at the fundamental level, have a wide scope, and continue to offer returns for a long time. Examples include the invention of the wheel, invention of the steam engine, and the invention of the Internet.

Most innovations fall somewhere in between these two categories. While a majority of innovations are important to an organization’s success, they need to be viewed through different lenses depending on where they fall on the spectrum. Wit

h regards to blockchain, let’s examine some characteristics of foundational innovations in detail.

  • The impact of change: Foundational innovations change the way things have been done for a long time. The steam engine changed how work was performed for centuries, and more recently, the Internet changed the way in which information had been exchanged for hundreds of years.
  • Birth of an ecosystem: The real benefit of foundational innovation is not the innovation itself, but what comes from the ecosystem it births. The real benefit of the steam engine occurred in the other inventions, such as the automobile, that it facilitated. Similarly, the real benefit of the computer has been in the development of software applications and the rise of the Internet. As part of this ecosystem, foundational innovations are supported by incremental innovations.
  • Scope of use: Foundational innovations’ applications are not limited to one area or industry. Their use is widespread and affects not only industries but also society. The use of the wheel is not limited to transportation, and the Internet has become part of people’s daily lives).

Now let’s evaluate blockchain in terms of these three characteristics to determine if it can be categorized as a foundational innovation.

  1. Impact of change: Blockchain promises to change the way we interact and transact with each other, without the need for trust in the system. With its distributed ledger technology, it will eliminate the need for a third-party intermediary and enable person-to-person (P2P) transactions like never before.
  2. Birth of an ecosystem: The real value of blockchain lies not in the technology itself but in how it is providing a foundational layer to create decentralized applications, P2P payments, provenance in the supply chain, and assurance in the service economy.
  3. Scope of use: Blockchain applications are not limited to one industry but will have impacts in finance, healthcare, and trade as well as in how governments are run and the ways in which individuals transact.

Adopt or wait?

So should we be an early adopter or wait for blockchain to mature? Again, before you make that decision, consider a few characteristics of foundational innovations and how they affect industries.

  • Potential for disruption: Foundational innovations are disruptive by nature. They do not affect businesses in moderation (high growth versus low growth) but rather can determine an organization’s existence or nonexistence. For example, many companies that did not adapt to the Internet wave are no longer in business today.
  • No off-the-shelf solutions: There are no off-the-shelf solutions for foundational innovations. These types of innovations fundamentally change how organizations work. As a result, any organization looking to transform has to drink from the fire hose. Some marginal benefits can be derived by waiting for the market to mature, but those benefits come at the expense of late adoption, which itself poses a risk of failure.
  • Early adopters are the biggest winners: Foundational innovations are complex and difficult to implement. They have a large learning and experimental curve for any organization, and late entrants are likely to fall behind and spend years trying to catch up to the competition. Early adopters capture most of the value, and late adopters either struggle or fail. Another interesting change over the course of history is the time it takes for the impact to be felt for a foundational innovation. While it took decades to differentiate between the winners and losers with regards to the steam engine (which gave late adopters enough time to catch up), for the Internet, it took less than 10 years to determine which organizations succeeded or failed. With blockchain, the time to impact seems to be even shorter.

The road ahead

Although the mainstream adoption of blockchain may be years away, the technology’s potential and the amount of interest it has generated make it likely to become a foundational innovation that will transform the way businesses and society interact and transact. Like any other foundational innovation, blockchain is bound to create some winners and losers along the way, but the time to impact seems to be faster than anyone expected.

Your thoughts? Send me a message, and let’s talk.

Opinions expressed in this blog are of the author and may not represent Cognizant’s point of view.


Originally published at digitally.cognizant.com on March 24, 2016.

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