As the dust settles around the fervent cryptocurrency speculations from 2017, business leaders and innovative entrepreneurs are starting to look more seriously at blockchain technology and examine how it can solve real world problems.
The past 18 months saw extraordinary interest and developments in blockchain technology, cryptocurrencies and alternative models to raise capital and manage transactions. And the pace is in no way set to slow down, with researcher Markets & Markets predicting the market for blockchain-related products and services to reach $7.7 billion in 2022 - a massive leap from $242 million in 2016.
Blockchain has served as the flare that has enabled world economies to grow beyond the traditional frameworks governing and controlling financial transactions and flow of capital. It has become evident to most that blockchain is not a simple technology upgrade to the business, confined to the domain of the IT department. A truly disruptive technology, it has the potential to redefine how a business secures investment, manages its supply chain and quality assurance, interacts with customers and establishes information security, trust and transparency.
As more innovative blockchain solutions are presented for long-standing problems and challenges, a deeper understanding is gained into how much this revolutionary technology can disrupt the status quo. Because the sector is still in its infancy, speculation is rife and only time will tell about the nature and extent of its impact. But the general expectation is that the next few years will see the formation of new giants in this arena who will re-shape many aspects of our lives for decades to come.
For company leaders who are interested in how the technology can serve their business better, there are some important considerations needed before they choose to dive headlong into the deep end.
Blockchain comes with its very own business model
Blockchain is about distribution of control, trust, democratization, consensus and transparency. Entries on the blockchain are permanent, transparent, and searchable, which makes it possible for community members to view transaction histories in their entirety. These values are inherent and embedded within the very nature of the technology, and only business models that adopt a similar set of values can work well with it.
Blockchain offers the technological infrastructure to create institutionalized trust, but the business itself should first be built around this value, and the technology simply used as a mechanism to reinforce these trust-based practices. For example, Walmart’s ‘Food Safety Alliance’ initiative - designed to improve food tracking and safety in China through blockchain technology – can only work if the organization has a culture and the right systems in place for transparency and trust within its supplier chain.
This is also the case for online businesses that enable different customers to exchange points and rewards collected from various loyalty programs, in the form of blockchain based tokens. Because the token value of rewards is assigned by loyalty program providers, the exchange’s fairness relies on these companies exercising honesty in assigning and maintaining the right token values, even when demand for their offerings is low and may lead to their devaluation. This supports the democratization of what once was a closed system, totally under the companies’ control.
Understand the Ultimate Value Offered to the End-user
A value proposition offers substantial benefits to the customer or end-user of the product or service offered by a business. To judge whether it is worthwhile to introduce a blockchain application into the business or possibly undergo a total transformation into a blockchain business model, business leaders need to ultimately measure this decision against the objective of providing new convenience and value to their customer segments.
For instance, one key advantage of blockchain is its ability to often eliminate the middleman, but it is important to understand whether additional value is being created every time this is done. Many enthusiasts are promoting the implementation of blockchain based smart contracts in financial transactions in order to save vast sums in legal and accounting fees by reducing or even eliminating the need for these roles.
In some cases, smart contracts can offer real value in time and cost saving: introducing them to agreements can be very helpful in paying people on time, especially when working with clear machine-recognizable milestones. But these contracts cannot be applied across the board to all transactions, and, in certain instances, the value offered to the end user in having a lawyer facilitating a discussion surpasses the cost savings otherwise.
Know where the technology is at today
The vast majority of articles and conferences around blockchain focus on future outlooks and its transformative potential in business. Many of those expectations and projections may be theoretically achievable, but the readiness of the technology is still not at the same level.
The various blockchain infrastructure projects still have considerable limitations with regard to transaction speed, security, scalability, storage capacity and integration. These issues are being addressed by innovative blockchain pioneers who are developing more powerful infrastructures for decentralized applications and rapidly enhancing the technology as they work with it.
Nevertheless, business leaders looking to move into the blockchain territory need to clearly differentiate between immediate possibilities and future plans. Before any commitment to the technology is made, careful analysis is needed on what can be done with blockchain versus traditional technologies today and how both can work together in an optimum manner.
Take the Next Step
To sum up, blockchain is an exciting technology that shows remarkable promise and has the potential to improve various aspects of business for organizations of all sizes and industries. Having quickly moved from a marginal position to one right in the spotlight, blockchain is on a rapid path to becoming a mainstream technology, making it essential for business leaders to actively explore the advantages it offers. But along with this enthusiasm, there needs to be a sound understanding of the areas that it can be applied to in the business, the current capabilities of the technology and the expected value returned to the organization and its customers.
Mentor Global Consultants provides advisory services to business and technology leaders on blockchain business transformation and change management. We provide direction on key decisions needed relating to business models, technology and talent, to help organizations employ the technology to achieve their visions.