When considering blockchain technology, it can be easy to get lost in the technical discussions. As should be the case with any new technology, particularly one like blockchain technology that is easily one of the most hyped in recent memory, you should focus on the real business cases. It is important to evaluate whether embracing blockchain is right for your business—will it live up to the hype, but more importantly, is there a real return on investment?
One of the simpler and more digestible discussions on blockchain for the enterprise is by IBM. The audio presentation discusses how blockchain has the potential to transform hundreds of long-tail processes across all industry verticals.
So, what is a long-tail process? Consider the example of refinancing your home, something I went through recently. The mortgage lender presented me with a big stack of paper with documents from the bank, the mortgage company, the insurance company and the state. It was a long, complex process! There’s mortgage reinsurance, multiple parties, a lengthy timeline, and the transaction needs to be completed accurately and according to a specified timeline. While mortgage companies do a great job of advertising how easy it is to get lower rates, the process was anything but! The process to get to closing took almost two months!
Just like mortgage companies and banks, many businesses and their suppliers/partners own multiple assets and multiple pieces of information, as well as rules and policies on risk parameters, that must all come together when conducting business transactions. When handled manually, all this adds to the time and the cost of processes. Regulations also slow down the process—no one wants to get sued and everyone wants to get paid!
With blockchain, long-tail processes can occur automatically. And the technology further facilitates the process by ensuring the integrity of documents and providing digital proof (and an auditable trail).
Deciding If Blockchain Makes Sense for Your Business
So back to breaking the tension between the business case vs. the use case dilemma. Here are three instances, in which business leaders should make hard quantitative decisions on whether an “as-is” business process is sufficient, or whether it makes sense to join a blockchain network. Blockchain can either be integrated as an extension of a current business process, or you can ‘shadow’ existing systems (such as legacy ERP) in parallel, while you work out the kinks. (More on shadow blockhains in a subsequent blog, but as I said, let’s stay focused on business considerations.)
1. If your enterprise blockchain implementation will reduce time, cost or inefficiencies.
In my experience with mortgage re-financing and my early observations working with clients considering CA—which are experimenting with beta blockchain technology solutions—the number-one reason for businesses to look at blockchain is to gain efficiencies by reducing the time and cost of any process that involves multiple intermediaries.
Here is a great list of questions to ask yourself, from a recent enterprise blockchain meet-up hosted by ChainDigit, a blockchain consulting practice. If your answers to four of the six questions below are <Yes> for one of your workflows, then blockchain technology can probably offer additional savings in time, cost and efficiency gains in comparison to your current process:
- Do you have a process that takes longer when the trust of data is an issue?
- Are you managing contractual relationships between customers or in your supply chain ecosystem?
- Do you have a process where all the parties involved would agree faster if they all have the same information and the ability to run manual audits against each other?
- Do you have a process where new parties get added or removed from the value chain?
- Do you have processes or systems—internal, external or both—where you face integration issues?
- Do you have processes that take too long for data reconciliation due to different system architecture?
You’ll notice that the list above addresses the inefficiencies and long-tail complexities most obvious in insurance, leasing, trade settlements, and banking. Another example is real-estate in countries with looser or less accountable regulations; the pain points for buying and selling property include a lack of transparency during and after transactions.
India’s Aadhaar card for digital identity links every citizen with banking services and a host of other government services, but it also indirectly targets underground black money, fraud prevalent in paper-based systems, and the culture of middle-men. Blockchain offers a way to reduce the need for paper-based record keeping and to speed up transactions—by helping stakeholders improve efficiency and reduce costs on all sides of the transaction and increase transparency for all involved.
2. When there’s an opportunity to introduce a greater level of trust across your business and your partners.
The second most common business case to evaluate, is where trust and risk are paramount, and where trust between parties needs to happen seamlessly. It’s no surprise that such a business case is ideal for law enforcement and government agencies that handle public records.
An interesting example is gun ownership, involving a start-up company called Blocksafe. Blockchain’s distributed ledger offers several opportunities around gun ownership and usage. If gun possession information were logged and connected through blockchain, it could provide a connected infrastructure for tracking where weapons came from and where they end up in the event of unlawful use.
Furthermore, contextual digital identity is a wide-open field. Consider the HR professional conducting employee onboarding and accessing a common employee background check consortium.
3. When decentralization offers an opportunity to disrupt your own industry
The third business case involves disrupting an industry by decentralizing a centralized system. This is related to the holy grail of digital transformation.
Companies often say they have achieved digital transformation. But in reality, they have only tackled the “digital” component, by taking a traditional process and automating it with software. The transformation component, which truly drives new revenue models, will come from disruptive business models that take centralized systems and decentralize them.
This has emerged from the early days of blockchain and offers true promise. TransActive Grid uses blockchain technology to enable customers to transact in “decentralized energy generation schemes,” effectively allowing people to generate, buy and sell energy to their neighbors.
In the cloud arena, enterprises such as Filecoin that offer storage, often secure customer data in a centralized server, which can mean increased network vulnerability from attacks by hackers. Conversely, blockchain cloud storage solutions allow storage to be decentralized—and therefore are less prone to attacks that can cause systemic damage and widespread data loss. (Source:CBInsights)
A Technology Worth Investigating
When considering blockchain, the end game needs to be, of course: “What is the impact on the bottom line?”
Will the efficiencies you gain reduce your costs? Will they help you generate more revenue? Also consider the time-to-value and how much effort you will need to expend to get there. How much work will you and your partners need to put in, and how long will it take to create a blockchain process? What sort of technologies and expertise will you need to invest in?
Another key factor is to assess the risk of deploying blockchain and compare that to the risk of doing nothing. You may discover there’s so much friction in your current processes that you are risking much more by standing pat.
In any event, if you’re a venture capitalist, the head of a business unit, or someone on an entrepreneurial mission, blockchain is clearly worth strong consideration. Who knows? You just may be on the cusp of something big!