Timothy R. Myers

@TimothyMyers

Blockchain’s Impact on Business Design » Preventor Financial Technology, Inc.

I was fortunate to attend Blockchain Shift in Miami last week. This event was billed as a one-of-a-kind event in the world of blockchain. Their core mission was to raise awareness and educate the world on the power of this transformative technology.

With regards to the event, it was well done and was packed with discussions of crypto, investing, Hyperledger, and blockchain in general; it was attended by a diverse set of professionals from entrepreneurs like the folks from 8base to large enterprises like Bloomberg. All in, a great event.

What We’re Not Talking About

This article isn’t about Blockchain Shift directly or any other event for that matter, including Meetups, local networking gatherings, and conferences that are held daily around the world discussing blockchain, this article is about what’s not being discussed and what I would argue is still one of the biggest and most overlooked aspects of blockchain; the impact of decentralized technology on centralized business designs.

Of course using a decentralized, trust-based architecture like blockchain DLT does not require you to reinvent your entire corporate business model. In order to make it work and get its greatest benefit, it does, however, required implementations to take a long, hard look at what is changing, why it is changing, and how you design a decentralized response around these changes. Any of the large enterprises chasing blockchain do not need to redesign their entire model, however, in order to take full advantage of blockchain capabilities they should:

1. Understand the business “capabilities” that blockchain makes possible,

2. Review business design changes that result from these capabilities,

3. Review operational and financial impacts associated with these changes,

4. Communicate and get executive and organizational buy-in — in the form of a change management outline — for the changes.

To be blunt, what’s being overlooked in all the global discussions is the point that blockchain enables capabilities that allow you to design business operating models that can, and in most cases should, fundamentally change what and how businesses operate, interact, and what services they provide or they need to provide in their respected industry. Capabilities and impacts of these capabilities include:

1. Immutability: An immutable ledger that holds the history of trusted data or transactions — “value not information based” — to be used in enforcing trust. Impact: If everyone in your business design trusts the data, its lineage, and who, what, when, where, why, and how the data evolved over time opens the door to capabilities built on top of data that are not possible in centralized designs.

2. Trust: Trust that historically would be enforced through contractual, paper-based agreements and granted through centralized business process execution. Impact: Because everyone trusts the lineage and history of the data, what it says is law, and therefore decentralized business designs can be built that do not require “people in the middle” to enforce terms and reduce risk.

3. Custody: Undeniable chain-of-custody where ownership and identity are resolute. Impact: Undeniable data lineage produces a transactional master in which chronological documentation and proof of the item being tracked is what it says it is, therefore risk is reduced.

4. Data Accessibility: Options for secure, pseudonymous and openness of data eliminating complex ecosystems of companies and resources required to provide today’s services and offerings. Impact: Reimagining data, who owns and controls it, with the addition of data sources such as IoT devices, etc., allows for a business design that eliminates the need for products and services such as data aggregation solutions that blanket business markets today.

5. Peer-to-peer: Interactions in a network fashion in which peers interact to obtain an outcome directly without an intermediary. Impact: Business models offering peer-based solutions will emerge for the transferring and distributing of risk in which smaller groups of individuals work together to manage risk among participants in the group.

6. Value Management: The fundamental design of blockchain based solutions brings with it a ledger that is perfect for the management and tracking of “value-based interactions” through what is deemed as “asset”, “crypto” and other token-based exchanges. Impact: Creating exchanges for work and value exchange in a peer-to-peer network when monetary tracking, exchange, and compensation for work and value provided can be internally managed by your own ledger and token.

These capabilities are but just a few that are made available by blockchain and as you can see, their potential impacts on your design, operational and financial model are quite extensive.

Business Design Considerations

Why the focus on business design? Think about it, in today’s businesses, business design investment is already a challenge. Most business process implementations are not thought through at the conceptual phase but evolve through process and technology phases mostly implemented by loose collaboration between operations and technology resources. Business Architecture and other similar disciplines are considered a low priority for investment and therefore frequently overlooked or worse ignored.

As outlined above, considering the massive impact on People, Process, and Technology resulting from blockchain. Blockchain projects, regardless if they are MVPs, pilots, tests or production rollouts, MUST be looked at through the lens of the design of the business. Without it, your project will not be successful. Why? It’s simple, centralized does not equal decentralized.

Operational and Financial Considerations

Further, then once your organization redesigns, as a result of blockchain, its people, process and technology, its operations will change and as a result, your resulting finances will change. Understanding, designing, communicating and planning for these changes is important to your initiative.

An example to consider is as follows, a blockchain implementation for a use case where financial data historically recorded in a centralized database required the following:

  • Enforcing Trust, Immutably, and Custody requires 100’s of people to audit, review and reconcile variances, contractual terms and conditions between parties, lawyers, ongoing enforcement of legal agreements through people, process and technology, it also requires process built to manage variances and handle disputes and errors between cooperating companies, departments, etc. because trust, on non-immutable data, is absent.

In a new decentralized model, in which the ledger is decentralized in blockchain across interested parties, the new model:

  • Delivers Trust, Immutably and Custody through data which is trusted, because it’s very creation is built by an algorithm that all parties agree to and agree is law. As a result, people required to oversee, run, argue, correct, reconcile, manage, and enforce terms and conditions between cooperating companies and departments is no longer required because trust, on immutable data, is present.

As you can see, this difference will impact P&L and in many cases can 1) reduce people and operational costs and therefore 2) increases revenues quite dramatically. Do consider, however, in this potential revenue windfall, that competition in the market for similar services will surface quickly to undercut your position, because a startup or entrepreneur does not have quarterly revenue numbers to meet, but markets to build so therefore will have no problem using blockchain to attack your market, and your enterprises position in that market delivering freshly built businesses at a much reduced cost.

Moving Forward

It seems clear to me that until this level of business design and impacts becomes a part of the dialogue in the aforementioned events and therefore the mainstream, progress will be slow.

Understanding, modeling, and assembling the building blocks made available by blockchain into a new-economy, competitive business model takes strong focus from business leaders and an understanding that there is no short-cut.

A top-down, thoughtful and guided approach is the only way to ensure that you’re leaving the baggage of the centralized economy behind in favor of a flatter, distributed design that can live long into the future.

A top-down, thoughtful and guided approach is the only way to ensure that you’re leaving the baggage of the centralized economy behind in favor of a flatter, distributed design that can live long into the future.

If you enjoyed this article, please like or share it with your network so others can benefit from it as well.

Originally published at www.preventor.com on October 22, 2018.

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