The topic of Blockchain is all over business and technology news but, if you ask an operational executive to explain why all the hype, chances are they will have a difficult time explaining its value. This response is not unusual because the technology is a bit complex, and it’s only proven use case is cryptocurrencies like Bitcoin….however it does appear to have a lot of potential.
From recent polls of technology executives, it appears they are ALL interested in understanding the use cases for Blockchain and the value it may offer my business; however, many are waiting to see what shakes out from the experience of the “early adopters.” Listen to a few of these stats: per the NY Times over $1.3B has poured into Blockchain startups in 2018 thus far, per McKinsey IBM has over 1000 staff in a separate Blockchain division and others such as Accenture and PwC have large investments as well, and Gartner forecasts a business-value add of $3.1 trillion by 2030 due to Blockchain. Obviously, it appears there’s a lot of interest and potential, so let me explain what is blockchain, some of its current/future use cases, and how you may want to get started.
What is Blockchain?
People often use the terms Blockchain and Bitcoin synonymously, but they are clearly not the same. Blockchain is the platform being used to record and store bitcoin transactions, and it has many use cases beyond bitcoin which we will discuss later. Bitcoin was the first “commercial” use case for blockchain technology.
More specifically, Blockchain provides the means for recording bitcoin transactions (as an example) in a distributed ledger or database that is shared across a computing network. Each node or computer in the network has a copy of the ledger, so there is no single point of failure. Every piece of information is encrypted and added as a new “block” to the chain of historical records. Then various validations are utilized for each new block (with the other participants) before it can be added to the chain, minimizing fraud or other negative outcomes. So, this all sounds interesting and a bit complex, but still why all the hype? Well, blockchain has the potential to address one of the more challenging problems of the digital era. The Economist puts it this way,
Blockchain addresses how to transfer something of value from one person to another without “middlemen” having to make sure that the item is not copied or, in the case of money, spent more than once! And it does it while being open unlike other existing mechanisms!https://www.economist.com/finance-and-economics/2014/03/13/hidden-flipside
A great example shared by HPe, is the simple credit card charge which requires 5 or more parties to complete, and may take up to 17 steps to complete over multiple days from your initial swipe to clearing and settlement. And of course, all parties takes a “cut” along the way. A “private” blockchain could clear out the intermediaries and transform the process to a one-step transaction between two banks that takes just one hour to clear, drastically reducing costs!
Let’s be clear, it is “early days” for Blockchain technology (used outside the cryptocurrency space) and as a result there are still some challenges with the technology that still need to be addressed (i.e., high setup costs, legacy system integration, etc.), but that hasn’t stopped the players from developing a myriad of use cases. McKinsey, recently performed an “In-depth” industry-by-industry analysis, combined with expert and company interviews, which revealed more than 90 discrete use cases of varying maturity for blockchain across major industries. Other organizations have done similar analyses. I’ve highlighted a few use cases that are gaining significant traction:
- Financial Services – There are several “active” use cases in the financial space including International payments (i.e., foreign exchange transactions), capital markets, and trade finance (moving from letters of credit to smart contracts and digitizing printed documents). Many of the major banks have publicly shared that they have started their blockchain journeys, partnering with startups and even patenting capabilities. Last Fall IBM communicated a new venture designed to reduce the settlement time (from days to near real-time) and lower the cost of completing global “cross-border” payments for businesses and consumers.
- Supply Chain – Blockchain technology is well suited for tracking goods as they move and change hands in the supply chain. Last December WalMart and IBM announced a Food Safety Alliance collaboration with JD.com and Tsinghua University’s National Engineering Laboratory for E-Commerce Technologies to improve food tracking and safety in China, while adding improved traceability and transparency. This alliance builds on another venture (announced 3 months earlier) featuring the world’s leading retailers and food companies (i.e., Unilever, Kroger, etc.) that are working with IBM to explore how blockchain technology can be used to make the food supply chain safer.
- Healthcare – A Deloitte white paper that won a blockchain ideation challenge sponsored by the Department of Health and Human Services, provides a good summary of ways blockchain technology might be used in health and health IT, to protect, manage, and exchange electronic health information. One example, a Boston hospital and MIT’s Media Lab created a proof-of-concept application called MedRec to track medications and maintain the integrity of electronic health records using a blockchain.
- Government – Clearly governments around the world have the ability to drive utilization of new platforms like blockchain. The Mission highlighted a few countries who are “early adopters.” The Eastern European nation of Estonia was one of the first to adopt blockchain technology for government use. The government has developed sustainable blockchain-based solutions for many government activities including the registry database across several sectors such as security, legislative, health, and the judiciary, as well as creation of ID-karts, a blockchain-based national identity management system. Dubai has a number of big dreams for the future and one is to become the first-ever blockchain-powered government by the year 2020, leveraging blockchain technology in facilitating license renewals, payment of bills, and visa applications. The state of Illinois recently launched a trial of their proposed birth registry and identification system, that will be powered by blockchain technology driving enhanced improvement of the security of identities.
There are several use cases within the four areas above, and several others outside those areas such as Insurance and the Internet of Things (IOT). With the plethora of use cases, the key question is where do I start?
Since it is early days in the maturity of Blockchain technology, there are some things that still need to “shake out” including which providers will survive, which use cases should be pursued and when, and when will (my) industry/customers/vendors make the shift. However, it is not too early to incorporate blockchain into your company/digital strategy. In a recent study of 3000 senior leaders by Cognizant, 68% said they are in the process of developing a blockchain strategy and 52% of C-suite execs said they have already defined a Blockchain strategy.
So, if you haven’t started the journey yet, I recommend the following steps:
- Educate Yourself & Executive Team – the technology is a bit complex so taking the time to grasp the fundamentals, disruptive potential, how it may add value, pros/cons and use cases is absolutely critical.
- Partner Selection – Internal collaboration w/ IT along with an external “expert” will speed the process along. At this stage, there few that have a holistic picture of blockchain potential and they are the big guys like IBM, Accenture, PwC, etc. If you are targeting a specific or few processes, that will open the door to more options.
- Strategy Development – key elements include developing an optimized strategy based on market position, followed by operating methodology, technology road map, business case, linkage with other automation technologies (RPA/AI), as well as other elements. Your strategy must be linked to business outcomes.
- Proof of Concept – all the companies and their technology partners are starting with small “pilots” to build confidence and momentum, before scaling and building enterprise capability.
These steps are similar to what you would use for any strategic enterprise-level transformation, with a focus on how to deliver value to the customer. This space is changing so fast due to its disruptive market potential, so don’t wait too long to get started….
Art Anderson is Managing Principal for AH Anderson Consulting, LLC, which focuses on helping companies be more productive, efficient and competitive. He has 25+ years of experience in various end-markets including industrial and specialty chemicals, manufacturing, semiconductors, consumer products, aerospace and several others. Specific expertise in strategic transformation and planning, intelligent automation, shared/global service delivery strategy, optimizing commercial operations and leveraging process excellence tools. Prior to consulting, Art had a successful career at a Fortune 300 in a variety of business and functional leadership roles. Most recently, as Director and member of the executive team leading the transformation from Shared Services to a Global Business Services framework, leveraging a host of intelligent automation technologies. Learn more at www.ahandersonconsulting.com. Art can be reached directly at firstname.lastname@example.org.