THE BLOCKCHAIN IMPERATIVE: Why your business should prioritize blockchain when investing in digital initiatives.
I get it: you’ve heard of blockchain, but it’s not always easy to understand how this technology should be used and/or why it’s supposed to be so significant. But it’s important that you understand blockchain. That’s because considering blockchain technology is essential to any company investing in a new digital platform or retooling one. Letting someone else figure out how to incorporate blockchain puts you at risk for falling behind. I’ve written this post based on my ongoing discussions with executives (both clients and industry practitioners) who have been asking about blockchain and pondering its impact.
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Many executives are waking up to the very real threat of digital invaders, or nimbler businesses that move with the speed of the most successful startups. Some are even beginning to do something about it within their respective businesses as they seek to insulate themselves and their companies from a #KodakMoment.
Here’s the question that always confronts big companies when they try to chart their own digital change agenda:
Is your strategic platform initiative being architected for yesterday or tomorrow?
That question never goes away regardless of the approach you’re taking to launch new lovable products and experiences that thrive in the digital world. Building new experiences using the technologies of yesterday only accelerates the competitive advantage that digital invaders possess.
Only companies that build their digital products and experiences on contemporary, technologies such as blockchain are going to survive. This statement is not hyperbole. Businesses that don’t take actionable steps to combat digital invaders by making the conscious choice to invest to contemporary technologies such as blockchain do so at their own peril. That’s because there are three compounding problems with building experiences on the technologies of yesterday:
1 Higher Prices. You pay more: legacy businesses pay a premium price to buy “proven” technology that, for the most part, their competitors took a risk on three-to-five years ago and now has become the “best practice” within the rest of the herd.
2 Cost to Correct. You’ll eventually have to course correct. Not only will your legacy business pay more now to implement the technologies of yesterday, when you eventually come around to updating the technology (particularly foundational technology such as blockchain) it will take more time and money to rearchitect and rebuild the solution than had you started down the correct contemporary technology path to begin with. This issue will likely be further compounded the longer you wait due to rising commercial prices now that the entire Fortune 1000 herd is gotten onboard with the critical importance of said technology.
3 Talent and Experience Issues. You’ll be a novice competing against experts. In a world where unemployment is at historic lows, this point cannot be emphasized enough.
Your business will struggle to retain talent because you’re not working with contemporary technologies. You’ll struggle to find the talent you need to implement foundational technologies like blockchain in the future. Why? Because:
- A predicted ongoing rise in demand.
- Your solution will appear pedestrian to experienced talent if you’re just getting started with it in the future.
At Moonshot we recognize that technology, while important, is not a silver bullet. We regularly talk about the importance of taking a holistic approach across people, process, and platforms/tools. If your organization has no experience with a foundational technology like blockchain, it will take time and organization-specific experience implementing it to truly unlock the value (which gives your competitors more to continue to widen their lead on you).
But appreciating the need to embrace a technology like blockchain is not the same as understanding it. So let’s break it down for you by answering these questions:
What is blockchain, and why do I need to pay attention to it?
Most definitions of blockchain talk about the technology as a secure electronic ledger that enables multiple parties to distribute data — but not copy it. The ledger creates an unchangeable record of transactions among multiple parties. Each record is time-stamped and linked to the previous one (i.e. chained). Each digital record or transaction in the thread is called a block, hence the name blockchain. The thread allows either an open or controlled set of users to participate in the electronic ledger.
As reported in Computerworld, “The distributed ledger technology, better known as blockchain, has the potential to eliminate huge amounts of record-keeping, save money and disrupt IT in ways not seen since the internet arrived.”
While we can all grasp the significance of a statement like “eliminate huge amounts of record-keeping, save money and disrupt IT in ways not seen since the internet arrived,” the repeated explanations of blockchain as a “distributed ledger” do nothing for me in terms A) actually understanding what the hell blockchain actually is or B) grasping the potential it has in terms of business impact and disruption.
Blockchain’s meaning and value finally clicked for me when I stumbled upon an HBR article that made the analogy between TCP/IP and blockchain as foundational technologies that enable entirely new ways of transacting, architecting business relationships, and supporting a whole new wave of technology innovation that leverages the foundational technology. Below is an excerpt of this powerful comparison:
- Before jumping into blockchain strategy and investment, let’s reflect on what we know about technology adoption and, in particular, the transformation process typical of other foundational technologies. One of the most relevant examples is distributed computer networking technology, seen in the adoption of TCP/IP (transmission control protocol/internet protocol), which laid the groundwork for the development of the internet.
- Introduced in 1972, TCP/IP first gained traction in a single-use case: as the basis for e-mail among the researchers on ARPAnet, the U.S. Department of Defense precursor to the commercial internet. Before TCP/IP, telecommunications architecture was based on “circuit switching,” in which connections between two parties or machines had to be preestablished and sustained throughout an exchange. To ensure that any two nodes could communicate, telecom service providers and equipment manufacturers had invested billions in building dedicated lines.
As an individual who has spent my entire professional career working in a digital industry predicated on the adoption of TCP/IP, I believe that the analogy between and TCP/IP is significant.
I also believe it’s long overdue to shout “WAKE UP!” to the majority of business executives, their agencies, and consultants that clearly don’t understand the significance of this foundational technology. By taking no action and making no forward progress on the path to blockchain adoption, these businesses are literally helping build the moat of their competitors.
As Don Tapscott, coauthor of Blockchain Revolution (Portfolio, 2016) and cofounder of the Blockchain Research Institute said in an interview with McKinsey last year:
If you’re the CEO of a big company, the first thing is to conceptualize this right. This is not like another technology, like AI [artificial intelligence], the cloud, robots, drones, the Internet of Things, and all of the rest of the stuff that are part of this fourth industrial revolution.
This is the transactional platform that will enable all of those things to be part of the economy. When we have autonomous vehicles moving around, all of those transactions, everything from how they power themselves to how people pay for them, will be done through a distributed ledger. The Internet of everything needs a ledger of everything for it to work.
Clearly, McKinsey sees the significance of blockchain given the breadth and depth of the content they devoted to it. In this article, Blockchain beyond the hype: What is the strategic business value?, McKinsey provides an interactive, industry specific two-by-two to help businesses understand both the feasibility and impact of using blockchain for a variety of use-cases:
OK, I get it. What should I do, how do I take action?
So you finally have a better understanding of blockchain and the potential significance to your business (or you were already a blockchain advocate and have made it this far into my post). But perhaps you’re not sure how to proceed in a meaningful way in terms of specific next steps for your company. Don Tapscott, in the same interview referenced earlier, provides the following advice that the team here at Moonshot agrees with 100-percent:
“If you’re a CEO, you also need to get pilot projects going. Most of the big banks are doing this, but this is true in every industry.”
A caveat is in order: there are other senior executives within the enterprise beyond the CEO who are empowered with the budget and decision making authority to move the ball forward.
Is there anything I should consider as I embrace blockchain?
Yes. Blockchain requires a business to shed many old ways of thinking and investing into technology. Here are ways businesses need to think differently:
1 Don’t Be a Follower
Do not be afraid to be a leader. The old strategy of hanging back when it comes to technology innovation and let someone else take the risks does not work anymore. That’s because we now have billions of people connected to the Internet (thank you TCP/IP) using a common framework of web and mobile applications that allows leaders to largely benefit from winner takes all phenomenon.
As Don Tapscott says in the same interview referenced above:
There’s always been this view, in terms of technology innovation — going back over the successive waves of technology — that you shouldn’t be a leader. You should be a fast follower and let the leaders go out and get burned.
But I think this might be different in one sense — that by being a leader you change the game. Amazon was a great example of that. They were ridiculed when they were first launched, everyone made so much fun of them, and their market cap was ridiculous, and all the rest.
But Amazon is well positioned to own a whole bunch of the economy. The other thing is, by taking initiatives, you change your own culture, and you become a more responsive organization that’s capable of innovating better.
Here is a vivid example of the why it’s important to be a leader: recently, I was told by an EVP at a Fortune 1000 company that they were going to create the Carvana of their primarily B2B industry (I assume without the used car vending machine aspect, but addressing both the overall seamless digital experience and even the vehicle delivery service). A compelling vision indeed! The only thing missing — and this is important — is the right technology stack. The business’s technology solution needs to accommodate the incorporation of blockchain because the impact and feasibility of using blockchain within the Automotive as well as Transport & Logistics industries are considered medium to high. Further, blockchain is both feasible and impactful for use cases specific to this project, such as vehicle leasing, register, payments, part tracking, shipping, identity management of transit assets, and maintenance records. To fulfill a compelling vision, this company needs to take a leadership role in using blockchain rather than let someone else outflank them.
2 Think 70/20/10
Companies often over invest into tried-and-true technologies because that’s the comfortable thing to do even if it’s the wrong route. By contrast, investing in blockchain can be scary because it’s largely unknown.
I get it. At the same time, it’s important that any smart business leave room in its investment strategy for new yet unproven innovation. I recently wrote about the wisdom of adopting a 70/20/10 approach. Although my post focused on marketing leaders, the 70/20/10 concept applies to all executives. This rule suggests that executives invest 70 percent of their budgets into mainstream activities that generate revenue growth and are core to one’s day-to-day business competency; 20 percent into a new yet unproven innovation; and 10 percent into pure experimentation.
It’s not that investing into tried-and-true technology is wrong. But as I wrote earlier in 2018, at some point sticking to your knitting delivers, at best, incremental returns, or, at worst, wasted budgets. And perhaps worst of all, you’ll fall behind savvier businesses when those emerging technologies become mainstream — which is where blockchain is headed.
I suggest that businesses think about blockchain in context of the 70/20/10 rule. Maybe you’re not ready to elevate it to the 70 percent category, but it certainly belongs in the 20 percent category. To be clear, though: your goal should be to embed blockchain into that 70 percent category as a core investment. The 70/20/10 rule is simply a way to get started on your way.
3 Don’t Feel Like You Have to Go It Alone
While I firmly believe blockchain is a competency that virtually every company needs to begin their journey to gain and ramp up internally starting yesterday, that does not mean companies need to go it alone. There are a variety of ways to begin acquiring the knowledge, talent and experience that is ultimately required to master this foundational technology. As Don Tapscott says in his interview:
You also need to get yourself informed. There are all kinds of big ways — consortia and partnerships where you can get plugged in.
And he goes on to discuss the necessary talent as well:
The final thing I would say is you need to start to build up some elite talent. It doesn’t necessarily need to be inside your organization. You can partner with others.
OK — so what’s the next step?
Deploying blockchain requires that a business develop a strategy that aligns blockchain across the enterprise. We suggest businesses map how blockchain might improve key processes, especially functions that touch customers and suppliers. To make blockchain more palatable and valuable, we suggest businesses focus on one core function, develop a prototype solution using blockchain, and then develop a blockchain solution. Tools such as Moonshot’s FUEL methodology are designed to help businesses get started in a way that manages risk and cost. Contact Moonshot. We’re here to help.