Point of View

Avoid the blockchain white elephant—that beautiful and useless blockchain proof of concept—by focusing on bringing people together

February 28, 2020

The power and the challenge for enterprise blockchain initiatives stem from the fact that blockchain, by definition, is an inter-organizational technology. In our recent survey of over 300 senior executives who are closely associated with their organizations’ blockchain initiatives, nearly 70% realize the need to build a multi-organizational ecosystem for their blockchain initiative to be successful (see Exhibit 1). Most others will realize (hopefully soon!) that they chose a blockchain use case that did not require blockchain. Blockchains are also ledgers; it’s just that they are distributed, and merely replacing ledgers is pointless. If the whole purpose of blockchain is to replace another ledger with a blockchain “because we can,” then you should smell the distinct scent of blockchain [email protected]#$. If, however, the problem statement arises from the lack of distributed ledgers where multiple organizational entities need to interact, then blockchain offers value.

 

 

Exhibit 1: Blockchain is an inter-organizational technology

 

 

 

* Non-competitive organizations are not direct competitors of the respondent’s organization but play a part in the overall value chain of the blockchain use case

  

Sample: 318 senior executives (including 111 C-level executives) who are closely associated with their organizations’ blockchain initiatives

Source: HFS Research, 2020

 

You can only realize the power of blockchain when you can bring people together with a shared goal or objective. Fifty-four percent (54%) of blockchain initiatives require competitive organizations to be a part of the ecosystem to be successful (see Exhibit 1). Until organizations are convinced of the value proposition of the hyperconnected world and a sharing economy, blockchain will struggle to realize the value potential it promises.

 

Consortiums have become the fashion to create a blockchain network. However, building a consortium is not a novel concept, and consortiums have rarely worked in the past. The blockchain network effect comes into play if all participating entities have a common goal, but the blockchain technology cannot ensure that. It requires complicated collaboration, often across competing organizations—and that is no mean feat to achieve.

 

So we looked at two relatively successful blockchain initiatives – the Walmart Food Safety initiative and we.trade—with a lens of how they were able to bring together an ecosystem. The approaches are at the opposite ends of the spectrum, but these pioneering initiatives offer some interesting lessons to be learned.

 

The Walmart Food Safety initiative—the 800-pound gorilla model to create an ecosystem

 

Walmart has been working with IBM on a food safety blockchain solution and wants all its suppliers of leafy green vegetables for Sam’s and Walmart to upload their data to the blockchain, which will allow Walmart to trace the source of food in near real-time instead of weeks. Such a transparent supply chain is good news for the end consumer. But, imagine the challenge of onboarding a myriad of suppliers to this initiative. While Walmart and IBM are doing their best to make the onboarding process relatively straightforward, the suppliers will mostly agree to comply because they are dealing with Walmart—the 800-pound gorilla of the retail industry. Competition has also noticed Albertsons (one of the largest food and drug retailers in the US) and Carrefour (a leading European grocery chain) also joining IBM’s Food Trust Network. The food trust network is a good example where an industry giant (Walmart) used its power and influence in the right way to try and solve an industry-wide challenge and create meaningful value for the end consumer.

 

The we.trade initiative—the pack of wolves model to create an ecosystem

 

Around three years ago, a group of eight banks in Europe including Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale, and UniCredit joined forces to create a Digital Trade Consortium (DTC). The idea was to use blockchain to simplify international trade for small and medium enterprises, and they hired IBM to build them one. But, soon, this original pack of founding members realized that the solution would not scale if they restricted it among themselves. They hunted for other banking institutions to join them, resulting in the launch of we.trade, which boasts 14 banking partners today.  We.trade has been live in production since 2018 and experienced consistent transaction growth of an average of 38% per month throughout 2019. It’s an excellent example of how a group of companies hunted in a pack to expand their influence and create that elusive network effect.  

 

The Bottom Line: Will you be the 800-pound gorilla or join a pack of wolves? Frankly, both approaches to build ecosystems can work as long as the strategic focus is on bringing the wildlife together.

 

Without a roadmap to build an ecosystem, you’ll be left with a white elephant—a beautiful and useless blockchain POC. These beasts are running amok in the blockchain world! But the underlying technology is not to blame—the lack of a strategic mindset to build an ecosystem is.

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