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7 Process Characteristics That Are Key to Blockchain Adoption

 

With the rise of every new technology, there is a parallel rush among enterprises to incorporate it into the near-term IT roadmap, and for good reason: new technologies offer cost savings, CX improvement, better risk management, and a host of other benefits that look terrific in annual reports and quarterly earnings documentation.

Nowhere is that trend more prevalent than in blockchain, a technology that has created significant adoption pressure for enterprise clients amid a flurry of questions regarding platform selection, process redesign, and partner engagement. Blockchain’s benefits are much vaunted (security, immutability, fault tolerance, decentralization), but then there is no shortage of drawbacks (throughput speed, fragmented platform landscape, interoperability). Moreover, there is already talk of technologies that could replace or bypass the benefits of blockchain, from hashgraph to quantum computing, adding further to the murk surrounding the process of evaluating blockchain for organizational use.

In an environment spurring on organizations to adopt blockchain, there’s actually good cause to slow the overall technological rush and ensure that a blockchain solution is the right choice for a specific business challenge and commercial ecosystem. Blockchain is a transformative technology; it changes the fundamental way that transactions are encoded, stored, and tracked. In the right setting, it can be a material lever for unlocking value within the organization, in the supply chain, and among banking and regulatory interactors. In the wrong setting, it can be an expensive dead-end that diverts resources and time from a broader slate of digital transformation activities.

So how can organizations correctly sort the real blockchain opportunities out? In the course of my research in this area, I’ve identified seven key characteristics of business processes that form the basis of an organizational blockchain ‘goodness of fit’ checklist:

1. Transactional processes

Note that this is not the same as being financially transactional; any process where information changes hands between parties, even if compensation is not a part of the exchange, can be a candidate for blockchain deployment. Blockchain excels at documenting the transfer of value or information, and fiscal gains tend to accumulate with greater volumes of handshakes. As a result, the higher the transaction count in one cycle of a given process task, the more relevant blockchain becomes.

2. Frictional processes

Process friction can take many forms – from time delays in passing information from one party to the next, to per-message costs (such as SWIFT messaging expenses in financial services), to partner fatigue in disputing invoices or claims. The more time and expense accumulates within the process, the better a fit for blockchain technology a process is.

3. Non real-time, low-volume processes

Speed is not currently a significant blockchain platform strength, so processes that need to happen in real-time at scale may be a poor fit for the technology in its current form. While some specialized platforms – most notably Digital Asset, Symbiont, and Waves – offer compelling speed at scale, most of the big names in the platform space are not yet performing at speeds comparable to a relational database, so real-time processes happening in volume may be good candidates to consider when blockchain catches up in the next two years.

4. Simpler processes

The term smart contracts tends to be a confusing one in blockchain, as it suggests more intelligence than is really present in the technology currently. Smart contracts are smart in their management of the tasks surrounding a transaction, like document processing, notarization, and approval; a smart contract is self-executing in these areas and does not require additional input.

But for all that transactional intelligence, smart contracts remain relatively ‘dumb’ in terms of overall contract complexity. So, while most can follow relatively simple ‘if-then’ logic, complicated transactions with multiple forks and ‘fuzzy’ interpretation are beyond the current reach of most smart contract platforms. Again, this is a development priority for many platform providers, so expect to see this evolve swiftly in parallel with developments in AI – but at the time of writing, simpler processes are a better fit for blockchain implementation.

5. Oppositional processes

Transparency and trust are cornerstone components of an effective blockchain implementation, particularly so when there is an element of opposed goals in a process environment (payor versus payee being the most common such example). When all parties can monitor and oversee the documented process of content or payment through a process transparently from end to end, trust is improved and disputes tend to decline both in volume and in time required for resolution.

6. Fragmented processes

Intra-organizational applications of blockchain can produce meaningful benefits, but the real value is unlocked when a blockchain connects multiple parties operating in different domains – for example, in an ocean cargo management setting, exporters, banks, insurers, regulators, shipping providers, importers, and distributors. In such an environment, where responsibility and input are being passed among many organizations, the relevance of a blockchain solution increases considerably.           

7. Risk-accumulative processes

Corporate risk management is an accumulative function to begin with, as the audit task normally demands a large volume of signed and documented data – so the ability to produce the supporting documentation without significant organizational effort or data reconstruction is a vital task. Blockchain offers historically unparalleled data immutability and signed witness status, making it an exceptionally good fit for processes that accumulate large volumes of risk-relevant exchanges over time.

In conclusion

What can operations and IT executives take from this in planning for blockchain deployment? Currently, the most compelling fiscal and performance returns are coming from highly transactional processes with considerable process friction, prioritizing real-time transparency in low transaction volume, with minimal complexity, high levels of fragmentation, and considerable risk exposure.

However, it is critical to maintain a perspective on the role of implementing blockchain for these processes within the scope of a broader digital transformation initiative; blockchain demands many of the same transformation readiness checkpoints (big data capability, master data management and hygiene, and automation readiness) that other transformational initiatives do.

Finally, in assessing blockchain’s weaknesses, keep a weather eye on the horizon: blockchain’s two principal shortcomings to date (managing real-time transaction volume at scale and handling complex smart contracts) will increasingly become priorities for the major platform providers over the next two years.

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