As the technological foundation for cryptocurrency, blockchain has been front and center during the volatile ups and downs of the digital currency age. Yet blockchain has yet to play a prominent role in most enterprises, with only a few established pilot applications and tepid enthusiasm from business.
Blockchain adoption hinges on finding the right use cases, creating a strategy and focus, and galvanizing people, Northeastern University professor Ravi Sarathy said during a recent MIT Sloan Management Review webinar about the business case for blockchain.
With the right tactics, companies can overcome the organizational, economic, and interoperability challenges of incorporating blockchain into operations, said Sarathy, the author of a new book about blockchain and business. Enterprises need to make a serious effort to advance the technology, he said, though building an effective cost-benefit case for blockchain requires consideration beyond the usual return on investment.
There are still only a handful of enterprise blockchain initiatives, and Sarathy pointed to a few he believes are harbingers of what’s to come. One was IBM and container company Maersk’s TradeLens partnership, a blockchain-based supply chain monitoring application used to track shipments and help global trading partners share information and collaborate securely. (The companies announced this week that they are discontinuing the platform.)
Other notable use cases that depict the power of blockchain at scale include NBA Top Shot, which lets fans buy, sell, and collect NBA non-fungible tokens (NFTs) minted on the Flow blockchain platform; Filecoin, a blockchain-based decentralized digital storage and data retrieval marketplace; and Axie Infinity, an NFT-based online video game.
“Even though blockchain has not been adopted by enterprises at scale, there’s significant promise and it’s only a matter of time,” Sarathy said. Based on current market activity and factoring in existing challenges, Sarathy said he expects large enterprise blockchain applications to become commonplace by 2030. “Advances are making it more and more feasible for enterprises to begin piloting and developing internal applications,” he said.
Barriers to blockchain adoption
Despite its advantages, such as greater trust and traceability, enterprise blockchain deployments have lagged due to several technological, economic, and organizational hurdles.
- On the technology front, challenges include interoperability; the need to manage tradeoffs between scalability, security, and the degree of decentralization; and difficulties tokenizing real assets, Sarathy said.
- Economic concerns mostly surround how to quantify revenues, benefits, and risks as well as the need to coexist with legacy systems, which can quickly add to the cost of blockchain deployment.
- From an organizational standpoint, blockchain is new and still emerging, which emphasizes the need to shift corporate culture while managing the perennial resistance to change. “When you move to a blockchain, you’re really moving to decentralized nodes,” Sarathy said. “Very often you’re going to be decentralized within the organization, but also decentralized in terms of nodes connecting with people outside of your organization. It’s an uncomfortable approach to doing business.”
How to advance blockchain in the enterprise
While there is no one-size-fits-all recipe for success, Sarathy highlighted some steps that can help blockchain gain traction in the enterprise. Among them:
Large enterprise blockchain applications are expected to become commonplace by 2030, according to Ravi Sarathy.
Find the right use case. There are clear areas where blockchain can deliver based on its unique capabilities. These include security and verified identities, decentralization, an immutable audit trail, and ability to execute smart contracts. Blockchain fits naturally with data-intensive applications that need a high level of resiliency and cyber protections as well as for use cases looking to prevent double-spend or eliminate an intermediary.
“Create a checklist of all the characteristics of that use case and see if it matches with the kind of capabilities blockchain offers,” Sarathy said. “That would be one way to think about which use cases should be pushed to the top.”
Create a strategy for legacy systems. If legacy systems are working well, a decision needs to be made about whether to replace that system or, alternatively, how the two will complement each other or at least work in parallel. This is a critical but sometimes overlooked component of developing an implementation strategy.
Establish whether the focus is internal or external. Blockchain can be used to track parts being worked on inside a company — for example, proving certain processes or safety steps have been followed during the manufacturing process. Alternatively, the blockchain can be aimed at information sharing across external parties — such as electronic health care records across an ecosystem of multiple providers, insurance companies, payers, or specialists. The scope and directional focus of the blockchain is crucial to the adoption and implementation strategy. “Once you start thinking about cross-organizational applications, you need cooperation,” Sarathy said. “Whereas in an internal application, there is more ability to use hierarchy and gently, if not forcibly, persuade users of that company to join that blockchain.”
Do a cost-benefit analysis. An analysis could consider total cost of ownership, costs avoided, or ROI if there is revenue being generated by blockchain initiatives. Regardless of the approach, a formal analysis needs to be conducted to secure budgets and garner executive and enterprise support for the project.
Galvanize the right people. Organizations need to prepare for blockchain by bringing in the requisite talent, from programmers to blockchain specialists in legal and project management issues. It’s also important to cultivate support from top management who fully understand what it takes to move a blockchain pilot into a fully functioning application at scale. “You need to be able to freely develop the prototype, run the pilots, and develop the results without feeling pressure because there’s a certain window of time in which to show results,” Sarathy said.
Learn from pilots. This is a critical step for iterative improvement while reaching commercial scale of a blockchain-enabled application. Consider the role of data and analytics. Given that the blockchain is likely to generate substantial data, there is ample opportunity to add analytics, artificial intelligence, and even Internet of Things capabilities to the mix to deliver significant business value.
Don’t start with information technology. Like any complex technology initiative, IT can’t be the driver. Blockchain applications need to be rooted in business needs and calibrated to address key pain points. It’s important to engage lines of business to identify problem areas and possible opportunities where blockchain can make a difference. It’s equally important to enlist organizational champions, including top executives who are willing to take the risk and greenlight resources. “You need a strategic perspective,” Sarathy says. “You need management involvement before it makes sense to proceed.”