Cutting through the Blockchain noise
Blockchain technology has come a long way over the past decade. From cryptocurrency to improving global supply chain visibility, this technology continues to inspire innovative solutions for different challenges across a multitude of industries.
A lot has been said about this technology’s promise and potential, but…
- Is it just a solution in search of a problem or does it provide an answer to real-world, enterprise-wide questions?
- How can your business take advantage of what this technology has to offer?
- Do you need to think strategically about how your business might need to evolve both in the short and long terms to do so?
In this article, we look to define Blockchain technology within the Enterprise context and demystify the technology and its use cases within different industries such as financial services and supply chain management.
Blockchain: Evolution or Disruption?
Blockchain technology is often described as a disruptive wave that will take out the middleman. This can be a good thing (unless you’re the middleman) since it would reduce cost and complexity.
Entire industries have evolved to rely on intermediaries. This is because intermediaries provide trust where there is none. For example, they establish ownership that the seller has the right to sell what’s being sold, attest that there’s a clean transaction history, and certify the buyer’s ability to purchase. All of this is very critical to how a lot of industries and firms operate — like eBay or Amazon. You buy from these platforms because you trust them (in theory) more than the stranger selling you the product.
Intermediaries are known and trusted to consumers — their business is based upon it. So, they have no incentive to breach that trust. Blockchain solutions can be a better, cheaper middleman. It can be one that doesn’t add cost, complexity, and chance for error where there are largely human-based processes.
The question is not whether Blockchains can cut out intermediaries in complex transactions, but rather, which intermediaries and when?
Just because most popular blockchains are public by nature, doesn’t mean your enterprise blockchain will be — the entities involved have collective ownership over the network — and keep it private to participants — just like your enterprise applications today. Therefore, all parties can verify and validate data without the need for any 3rd party involvement.
In a private Blockchain, all participants have access to the same transaction details because they are distributed across the private network. They are not contained within a central database at any point. To truly grasp the value a Blockchain solution can provide, let’s examine the following simple supply chain example for produce:
- The farmer/grower manages inventory and tracks their produce using their own systems and databases.
- The produce is sold to a processor who aggregates products and packages them using a completely different set of systems and databases.
- Then, these products are handed off to a distributor who, on their turn, has their own systems and databases for tracking products.
- Finally, the produce finds a place on a supermarket shelf with the “fresh” tag stamped on it.
While there are systems in place to ensure that the different actors in this supply chain are trustworthy and accountable for the products they deliver; these checks and systems add both complexity and cost to the entire process. And, any breakdown anywhere causes food safety concerns for consumers who rightfully start to distrust the “fresh” label.
Blockchain solutions are making it easy for Walmart to track and trace products through its complex supply chain to get visibility into food sources and to identify and quickly thwart outbreaks of food-borne disease.
Furthermore, some Blockchain platforms allow for Smart Contracts. These are self-executing contracts where the agreements between parties are written into code. This code exists within the Blockchain network and executes automatically to control and document legally relevant events and actions according to the terms of a contract or an agreement.
In our supply chain example above, you can imagine the complexity of the billing and returns process at each step of the supply chain. Smart contracts would eliminate a lot of these pain points by introducing automation. Here’s how it would work:
- Produce can be monitored using IoT devices while in transport. If, for example, the temperature inside a given container falls below or above a defined range, a smart contract that has access to the temperature information through the IoT device can notify the parties involved and even issue refunds or start a returns process automatically.
- Money would be held in advance and would be released to the relevant party upon delivery of products. Products can be tracked using GPS, and once they arrive at a certain facility, the smart contract would execute to release money from one side to the other.
Smart contracts render transactions traceable, transparent, and irreversible. Think of this as an opportunity to increase cash flow, by eliminating some of your invoicing headaches. Instead of manual back-and-forth discussions on payment terms based on services rendered — like that pesky supplier that doesn’t pay invoices on time — if the terms are agreed upon ahead of time — the invoices self-execute, reducing accounts receivable delays.
Blockchain databases and records represent an innovative and emerging technology pattern that can radically impact supply chain, banking, and other transaction networks, giving them new opportunities for innovation and growth while reducing cost and risk.
You can also revolutionize your loyalty program, by incentivizing multipliers and tokens — or bolster your customer experience by using blockchain to create a peer-to-peer marketplace for your products and services.
Blockchain for the Enterprise
Here’s what Blockchain technology means in the Enterprise context. Simply put:
Blockchain technology provides a way for participants within a business network to collaborate and share resources and data in a secure and trusted manner.
This network can represent different business units within a single organization. Or, it can span across multiple organizations representing a specific industry. Because of its distributed nature, Blockchain technology can be used to enable inter-organizational cooperation. And, companies such as Walmart and IBM are already implementing solutions with this technology to track, trace, find, and validate data across their end-to-end supply chain.
The main drivers behind this are to find ways to optimize data management costs. Today, when different organizations want to share data for broader reporting purposes, it takes costly and time-consuming ETL and data integration work. Blockchain offers an easier and more cost-effective way, without any one entity controlling access or standards — nor getting stuck with the bill for the cloud resources. This is made possible because the technology provides a distributed ledger that is accessible to all parties, eliminating the need to integrate different systems and build custom solutions based on different cloud providers or database vendors.
Companies are realizing that the full potential value of the collective data and resources cannot be reached without finding a better approach for sharing and collaboration between partners.
Is Blockchain the be-all and end-all solution to these challenges?
The short answer is “No”.
Now more than ever before, there is a big potential for Blockchain technology to be used to connect islands of data that are locked up in central databases either on-prem or on the cloud. Platforms such as Corda allow you to create private and permissioned Blockchain solutions offering a better alternative to building costly custom solutions that try to accomplish that same goal. This will eliminate system integrations headaches and optimize the cost involved in adopting some existing solutions.
These new Blockchain solutions will unlock real business value within industries such as financial services and supply chain management where data privacy and integrity are the keys to growth and improvement.
It is important to note that creating Blockchain-based solutions at scale is a long-term goal that requires resolving cultural, business, and technical issues that exist today. Irrespective of how blockchain is implemented, the hardest part truly is network participation agreements and governance rule alignment between entities — think of your suppliers, or industry consortia peers — Only then can blockchain do the rest and actually becomes the easy part.
Below are ways in which Blockchain technology is being used today to drive innovation across multiple industries:
Supply Chain Management
End-to-end supply chain management means -among other things- that consumer goods companies need to think through the supply chain from an end-customer perspective. They would need to understand what’s happening downstream at the point of sale and upstream at the multi-tier supply chain. This can be complex. And with this complexity come challenges such as traceability, transparency, and costs of data synchronization.
In the past few years, major corporations like Walmart and Maersk have experimented with blockchain for things like tracking produce and cargo. Maersk created TradeLens: an interconnected ecosystem of supply chain partners — cargo owners, ocean and inland carriers, freight forwarders and logistics providers, ports and terminals, customs authorities, and more.
TradeLens is a blockchain-powered digital shipping platform. It was launched to replace peer-to-peer and often unreliable information exchanges related to processes for transporting and trading goods that are costly, in part, due to manual and paper-based systems. The platform enables participants to digitally connect, share information in near real-time, and collaborate across the supply chain within a secured space.
Maersk considers the Blockchain-powered platform to be a game-changer for the industry.
As a secure, transparent, and immutable ledger, Blockchains lend themselves to solving a variety of challenges facing the financial services industry today. Challenges such as data integrity, fraud, and tech integration can be significantly reduced by Blockchain technology. Solutions involving Blockchain technology can be designed to cut costs for clearance and settlement systems, provide faster payments and transform trade finance.
In banking, a variety of consortiums are popping upbringing together big financial institutions and fintech companies to collaborate on commercial applications that leverage Blockchain technology. One example of this collaboration is R3 which counts more than 60 large financial institutions, and it is driving Blockchain solutions for things like clearing and settlement, trade finance, and identity verification.
Blockchain paves the way for new financial products — opening up new revenue streams. For example, Credit-Suisse is building a blockchain-based platform for the investment fund industry called FundsDLT. The platform aims to share data for funds and fund managers in a permissioned fashion, between the asset manager, distributor, and client investor. By sharing data between the three parties, the solution hopes to enhance transparency while saving money and remove redundant processes.
Finally, Blockchain applications can even come with their own self-sufficient audit logs, no setup required — making compliance easy. Further, the evolution of decentralized finance (DeFi) and microservices have bought into blockchain. The networks are sophisticated enough to build-in anti-money-laundering and know-your-customer features.
How can we help?
Blockchain solutions are only as powerful as the business networks they create. Different industry consortia are being created to shape the future of entire industries. The greatest advantage of exploring and experimenting with Blockchain technology is to gain first-mover advantage in leading or joining newly formed industry groups. The opportunity cost can only grow bigger with time.
Our advice is that you don’t need to go “all-in” on blockchain and make a big capital investment. Start small, focus on value, and iterate and mature as needed, to minimize cost outlays and risk.
At Slalom we’re passionate and curious about the ways in which Blockchain technology solutions will shape the future of digitization. We welcome the opportunity to engage in conversations around how you view this technology and its impact on your business or industry.