Many Blockchain implementations fail because inadequate consideration is given to the complexity of scaling and managing the ecosystem.
Nearly a year ago, I wrote a blog for this publication asking the question, “Are You Fit for Blockchain?” With so much hype and miscommunication surrounding the technology at the time, I offered readers a guide to use when evaluating the technology for supply chain applications.
It was our experience at the Digital Supply Chain Institute (DSCI) that most companies look at the technology all wrong, focused on proving to the doubters and naysays that Blockchain works when what they really need is a clear understanding of the business value Blockchain can bring to their enterprise. That is why we built the Blockchain Fitness Index (BFI), a simple, step-by-step guide to help supply chain managers evaluate if Blockchain is right for the operation they are considering.
Once you’ve discovered that indeed, there is a strong business case for the technology, what do you do next? In other words, what are the next set of questions supply chain executives need to ask?
Based on our two-year experience working with companies on Blockchain strategies, we believe there are five critical questions to consider when starting a Blockchain project.
Why is Blockchain essential for this opportunity? What are the unique Blockchain characteristics required?
For any organization, enterprise Blockchain technology should not be a goal in itself but a tool deployed to achieve specific purposes. Remembering that Blockchain is a business process or workflow automation tool that excels in cross-enterprise scenarios, assessment has to be made as to whether Blockchain is the right tool to address the business need. Also, it is important to consider the perspective of those who are essential participants in your ecosystem. Will they want to invest in Blockchain and view it as the essential technology that you do?
An enterprise Blockchain implementation generally requires a private, permissioned Blockchain solution. However, the specific characteristics of a solution are to be determined by the business leader based on their requirements, feasibility and expected digital transformation results.
If you’re stymied by the first question, then go no further. Or, maybe the answers aren’t worth getting excited about.
What are the Proof of Value (PoV) objectives? What will improve and how will we measure the business benefit?
This is where most organizations fall down. They go off, they say let me try Blockchain but they don’t have a set of business-focused success objectives and overlook involving others that will ultimately be part of their network.
It is important to set clear business objectives and measure those success factors in quantitative as well as qualatative ways across the entire ecosystem. When done properly all participants in the network should see tangible business benefits. If you do not involve your network participants, then you will likely miss some of the key design points that will incentivize them to participate in the future.
If after the proof-of-value, the benefits remain elusive then you should reconsider your approach and the value Blockchain brings to the targeted business objectives.
What is the network model and how will it be governed? Will it be a single party, consortium or joint venture? How will it be managed and funded?
The characteristics of the network will help determine the desired structure. If the network model is a consortium, single party, over even a neutral third party, can your current organization run it? It is important to note that one structure may enable the startup (e.g. single party led and operated) of the network while a different structure may enable scaling it, such as when competitors may participate. Ownership, governance and funding are complex issues that require consideration and stakeholder buy-in to succeed
Why will others join our network? How will we incent others to join?
These two questions go together like cookies and milk. All parties must recognize business benefit from participation in the network. It’s unlikely that anyone will participate if it is additional work for them without clear benefits. An example is the owner or lead client of the supply chain might want to see how their order is moving through the production supply chain which may involve several supply chain layers. The participants at the various layers may not want to share that information as they do not want others to know when they make productivity improvements, reduce safety stock, have excess capacity, or make decisions that deprioritize that client’s work. So, you need to be very clear on what data will be shared and how each participant will benefit in a way that out-weighs the risk.
What data will we share with others? Are we ready as a business to share data on a Blockchain network? Do we have the appropriate corporate standards in place?
This is the mirror version of the previous question. How promiscuous should you be with internal data? What are you willing to put out there that others have access to? What about an information sharing agreement? Who owns our data once we put it out there and what are the appropriate corporate standards? For example, are you willing to share your market data and demand data so that your suppliers are better positioned to respond to your requirements and can deliver quicker and more efficiently?
Navigating these challenges require business owners and project managers to have in depth understanding of the targeted ecosystem and the full-backing of the C-suite executive team. Proper consideration of the ecosystem design and dynamics will not guarantee success, but an ill-conceived ecosystem will almost certainly result in failure.
In fact, inadequate consideration given to the complexity of scaling and managing the ecosystem is the most frequent reason for failure. The power of Blockchain lies in its ability to enable cross-enterprise workflow automation, typically as part of a broader solution. As a result of this, collaboration across all ecosystem stakeholders or what we at DSCI call “collaboration with a purpose,” is a critical success factor that needs prime consideration upfront.
Answering these questions now, can save you from failure.
Shawn Muma is the Technology Research Leader for The Center for Global Enterprise’s Digital Supply Chain Institute (DSCI). His experience includes structuring and managing technology alliances for IBM in the U.S., Europe, Asia, Middle East, and South America in a wide variety of industries including aerospace and defense, investment banking, retail banking, chemical, and public sector.