Your company may not need blockchain, but you need to know it

CNBC reported about a study that blockchain technology is being considered by more than half of big corporations. Current understanding of this particular distributed ledger technology is said to be higher than a year ago. By now, blockchain news in mainstream media are already a daily thing. At least everybody is familiar with the fashionable word, but diffusion of a particular technology and its particular applications call for more fine-grained and critical discussion. In this text, I will give insights on recent geberal blockchain developments and discuss two critical questions any business should consider. First, is there really something that blockchain could do for them directly? Second, what could be the indirect effects of blockchain diffusion to the core business?

Blockchain is not an exact product or infrastructure, but a technical multi-purpose solution that enables new platforms and sparks innovative experiments, disruption and even new business models. Cryptocurrencies have already shown how value can be transferred fast and relatively reliably around the world without regulation. Distributed ledger makes it extremely difficult to alter data and counterfeit credentials. Not only does it enable easy and anonymous purchases of virtual and even "real" services, but also project finance. On top of that, there have emerged numerous other blockchain projects ranging from smart contracts, autonomous organizations, social media platforms, content creation, cloud storage, polls and bets to logistics, intellectual property validation, exchanges for digital assets and peer credits, just to name some. Creative, ambitious and wild experiments are taking place, but we cannot accurately see what exactly is going to develop out of it eventually.

Recently, some startups with a born-global business plan have gathered notable financing through Initial Coin Offerings. Entrepreneurs issue their own day-traded tokens for valuable and more conventional coins (mostly Bitcoin and Ethereum) that can be easily exchanged for cash and other assets. A conventional reason for token value increase is their role as an exclusive currency for a particular service provided by the startup. Without similar legal characteristics tokens are not equal to shares and equity finance. "Tokenization" is rather in the phase that could be called playground, laboratory or Wild West. In any case, some bankers are already smelling money and jumping in. What comes to the early blockchain applications, they have demonstrated creative and agile ways of doing similar things that were considered possible for only fewer and bigger organizational arrangements. In contrast to these leaps it would already seem a moderate step, if stock exchanges utilized blockchain and perhaps even enabled alternative equity markets for smaller companies.

To conclude the current state, there are numerous opportunities involved in blockchain technology, and a growing interest towards it should not surprise anyone anymore. Blockchain will raise considerations especially for established businesses and other than the giants too. It is true that blockchain systems could not exist without sophisticated capabilities related to mathematics and information technology. Detailed advances and innovations by those professions are likely to define the evolution of overall blockchain. However, I would quite confidently say that the emphasis for a random company should be more on strategic than technical implications. Your company may not need a blockchain system, but that does not mean blockchain would not affect your business.

Rather than rushing to develop technical blockchain expertise and build whatever related to it, conventional organizations should first assess, whether blockchain could essentially improve anything related to their critical activities. Revising existing processes from the benefits and weaknesses of different blockchain solutions may generate valuable insights. For example, careful reflection of the degree of centralization in functionality control, shared access to ledger and third party involvement in a particular context are likely to clarify understanding of own organization and its complex characteristics. Larger organizations can even conduct small blockchain experiments in order to perform this comprehensive task.

On the other hand, blockchain starts to resemble management fads and fashions. As a growing number of credible companies are reported to be searching for competitive advantage from blockchain, its implementation or at least in-house experience will become a way to gain legitimacy. Eventually, does it really boost credibility and sales to say that a company has something to do with a new fashionable technology?

For many industries blockchain sure has potential to increase transparency and efficiency, decrease overhead costs, improve risk management and tear barriers of entry. Thus, more relevant concern is a strategic one. Even current non-adopters of blockchain solutions should pay attention to the characteristics and potential of blockchain to disrupt their business model or their surrounding markets. In that sense, blockchain as a strategic concern is comparable to other major advances in IT, such as open source, cloud computing and even internet. The lesson is not about improvement in separate performance measures, but their indirect effects to changes in competitive advantage.

Porter's five forces framework serves as a good starting point for considerations. Even if blockchain did not provide a source for competitive advantage against rivals now, more distant technological disruption could emerge and eventually feed threat of substitution. In between, blockchain innovations could also change the threat of new entry by affecting time and cost of entry, the role of specialist knowledge, economies of scale, cost advantages, technological protection and other aspects identified as barriers. Blockchain could also introduce changes in the networks and channels of suppliers and buyers. What makes this evaluation complex and yet so important is the multi-purpose nature of blockchain. Recalling what I mentioned at the beginning: it is a technical solution with diverse specific applications and potential for indirect influence.

Wave of innovative blockchain experiments and a potential cycle of creative destruction can be expected to introduce higher environmental velocity. This trend may seem like a vague phenomenon, a black box. Even if you are not among the pioneers of blockchain, attempts to foresee tomorrow's landscape can be guided to some extent. Demystifying blockchain through organization theory enables to analyze its practical developments and impact on neighboring markets. Ongoing observations and interactions may require patience and still generate little to display outside. However, reflecting these insights against own organization, its capabilities and strategy are likely to be of high interest. You can take blockchain as a fashion or you can take it seriously.