July 9th 2018
Understanding the value, strategy, feasibility, returns, and impact involved in creating blockchain solutions requires incredible insight and expertise into how the technology can be used and its potential impact internally and for the public.
Recent reports underestimate the feasibility of logistics, manufacturing, and supply chain, and a large part of that is the coopetition paradox. Multiple points of interaction become necessary for projects such as supply chain, and every competitor wants to be the one setting the rules and standards of the blockchain network for their industry. This is why feasibility is assumed to be so low, but many industries tend to pursue a horizontal network rather than a vertical.
As our BlockchainDriven Solutions Architect, Peter Borovykh explains:
“If you take banks as an example, a horizontal network would make each of the banks equal across the network, but that raises issues since they’ll all be directly competing with one another. It raises the question of who gets to create the architecture. Obviously, competing banks won’t want to join.
Vertical is better in this case since it includes all the stakeholders in a supply chain, including the bank. So if a client buys something from a retail store, that’s one part of the vertical and it goes down the line directly to the bank. It’s the better solution for everyone, customers, retail, hospitality, banks. Whoever realizes that first is going to set the rules and dominate their market.”
- Bitcoinist - Peter Borovykh, Blockchain Solution Architect for BlockchainDriven
Benefits from reductions in transaction complexity and cost, as well as improvements in transparency and fraud controls can be captured by existing institutions and multiparty transactions using appropriate blockchain architecture. The economic incentives to capture value opportunities are driving incumbents to harness blockchain rather than be overtaken by it.
“Unstructured experimentation of blockchain solutions without strategic evaluation of the value at stake or the feasibility of capturing it means that many companies will not see a return on their investments.” - McKinsey
In these early stages of blockchain adoption, this is a frequent mistake we’ve seen. Companies and startups devise a creative use case without the strategic nor technical knowledge on what the results will be, and so they don’t see the return. In the short term, much of what blockchain brings to the table is cost reduction, from there it’s easier to scale up a project.
For example, in supply chain that reduction of cost is incredibly evident as blockchain can eliminate discrepancies, product loss, speed shipping times. Blockchain offers a tamper-proof record of a product’s journey down the supply but in the current system, the further down the supply chain a product travels, the less reliable data becomes. The use case in this regard clearly has short term profitability and can be scaled up to become more transformative in the future.
“Rather than there being a singular form of blockchain, the technology can be configured in multiple ways to meet the objectives and commercial requirements of a particular use case.”
Having a skilled blockchain solution architect who intricately understands blockchain technology to integrate the tech in a way that best matches your use case is the key to increasing feasibility.
For companies, cost reduction is one of the most successful short term goals to achieve early return on investment. This is less easily achieved in finance, government, and healthcare, but for manufacturing, supply chain, logistics, shipping, agriculture, retail, and more, the immediate benefit can be immense and executives should strategize early with capable advisors and consultants who not only understand blockchain architecture, but scalability within the technology.
An example of this would be a pharmaceutical company using blockchain for logistics of storage and distribution of say, medical supplies, drugs, blood, organs. To scale in the future, patients could potentially commercialize data to pharmaceuticals for drug research.
“Over time, the value of blockchain will shift from driving cost reduction to enabling entirely new business models and revenue streams.” - MicKinsey
A company’s optimal strategic approach to blockchain will fundamentally be defined by the following two market factors, which are those they can least affect:
market dominance—the ability of a player to influence the key parties of a use case
standardization and regulatory barriers—the requirement for regulatory approvals or coordination on standards
Blockchain’s value comes from its network effects and interoperability, and all parties need to agree on a common standard to realize this value. As the technology develops, a market standard will emerge, and investments into the nondominant standard will be wasted.
Ultimately, companies will want to identify friction points that blockchain can eliminate for the value from a use case. This ideation stage is a critical point and companies want to get as much insight as possible.
Once you build your blockchain network it will be incredibly difficult and implausible to make changes later. Companies should also assess if their use case will generate return. If not, that particular use case doesn’t need to be built.
Advisors working hand in hand with blockchain engineers or even better, ones that are capable of both strategy and developing, are the ones able to best produce such insights. For a consultation with BlockchainDriven, please contact us about your project details.