As the whipsaw volatility of Bitcoin’s cryptocurrency simultaneously excites and generates fear among digitally-minded investors, a movement is quietly taking hold at organizations worldwide: applying Bitcoin’s underlying technology — blockchain — to resolve the essential business challenges of trust and transactional integrity that have vexed e-commerce decision makers for a better part of this millennium.
While still in the “prove it” phase, many business and technology leaders worldwide see blockchain’s distributed ledger technology and built-in encryption capabilities on private and public networks as fundamental to enabling virtual business — from R&D, supply chain management and assembly, through sales, distribution and after-market support — to take on many of the same characteristics as physical business by essentially guaranteeing that all trading parties are who they say they are, and enforcing their contractual obligations. And via the technology’s encryption and immutable records, they also hope to keep out prying eyes and ne’er-do-wells who seek to inflict harm on the digital value chains proliferating throughout the globe.
Our recent global study of 3,000-plus senior executives found that a vast majority see blockchain as critical to reducing operating costs by allowing their organization to plug-and-play on shared IT infrastructure (private and public); automating key business processes with smart contract technology; and pursuing business opportunities that emerge from new collaborative ecosystems worldwide.
In fact, an overwhelming majority of our respondents across banking and financial services, manufacturing, retail, healthcare and insurance, and spanning IT, operations, innovation and functional business roles in Asia-Pac, Europe and North America, see blockchain as a significant force that will impact their company (92%) and industry (86%) in the years to come. They believe blockchain will empower their organization to reimagine and reinvent their business.
Many see blockchain’s ability to unlock business opportunities in new markets (53%), service lines (56%) and customer segments (52%). Their rationale: Blockchain provides the technological wherewithal to stay ahead of the competition and mitigate the threat of digital disruption. They estimate that in the short term, blockchain will generate cost savings of 2.5%-plus, and lead to revenue growth of 5% to 10%.
The blockchain adoption journey is well underway, with most organizations deep into defining a blockchain strategy, finalizing budgets and organizing teams. Most respondents estimate their blockchain budgets to equal 2.5% to 10% of total IT spending and report that they have established teams (of six to 15 people) dedicated to blockchain initiatives. Respondents expect to encounter skill gaps arising from blockchain’s growing impact and have drawn up action plans that combine traditional training and innovation lab approaches.
When asked about their strategy, respondents revealed that they are embracing a multifaceted approach (see Figure 1). In order of priority, the components include identifying innovation opportunities; assessing impact on existing systems; evaluating blockchain along with other emerging technologies such as Internet of Things (IoT), advanced analytics and robotic process automation; and identifying processes to which smart contracts can be applied.
Paradoxically, despite recognizing the potential for breakthrough innovations, only 12% cite altered or new business models as a strategy component of their move-forward thinking. This is further corroborated by the majority view that blockchain is unlikely to affect their current operating models (47%) or fuel new operating models (13%).
Given the nascent stage of the technology, most organizations are carefully testing the waters with proofs of concept (PoCs), pilots and prototypes. Choice of platform also reveals an interesting mix. A majority of respondents indicated interest in permissioned (40%) and open (37%) blockchain networks, while the choice of private blockchain networks garnered a small percentage. This is indicative of the fact that organizations realize that the value of blockchain is in supporting multi-party ecosystems, not internal operations. The preference for closed or permissioned platforms in their current projects seems to stem from a lack of trust across existing ecosystems, with half of the surveyed respondents saying they have only a “medium level” of trust in their partners.
Hurdles Along the Path
Change management is critical to embracing the collaborative culture that is core to blockchain’s shared technology and operating models. This appears to be a work in progress, according to respondents. Legacy systems integration is another key challenge that respondents are contending with via a mix of approaches that include outright system replacements, workarounds or hybrid models.
Topping the chart of internal barriers to blockchain adoption are understanding blockchain and relevant use cases that demonstrate business benefits, followed by communicating blockchain’s business value to key decision makers. External roadblocks, meanwhile, include perceived concerns about privacy and security, scalability, standards and interoperability.
The Road Ahead
Organizations embracing blockchain would do well to create a cohesive strategy that positions the distributed ledger technology as radically transformative rather than as just another architectural layer. Strategy, therefore, should be focused on developing a blueprint, generating top management buy-in and spotting ways to create new approaches for interacting and transacting.
Given that material benefits of blockchain can only be unlocked through shared business and technology models, organizations must learn to work with partners on developing and adopting mutually agreeable standards that become the foundation for collaborative ecosystems. Learning to play in an environment comprised of shared infrastructure and data is critical to unlocking value.
Other critical success factors include building cross-functional blockchain project teams that transcend IT, setting clear goals around business issues and objectives to be achieved, iterating and learning on the go without waiting until costs and benefits are clear, staying flexible and adapting to the likely business-technology challenges that will occur as blockchain takes root (such as integrating legacy with blockchain platforms), and experimenting with a variety of networks, both permissioned and permissionless.
Perhaps most critically, organizations need to use business needs and desires as their yardstick to guide planning and success metrics, rather than being influenced by the blockchain buzz emanating from the cryptocurrency trading craziness that has even the most savvy investors perplexed.
Rajeshwer Chigullapalli is an Associate Director within Cognizant’s thought leadership program. He has over 25 years of experience in the areas of business research and publishing. Previously, he was the Head of ICFAI University Press and Chief Editor, SPG Media, India. He can be reached at Rajeshwer.Chigullapalli@cognizant.com.
The author would like to thank the team at Cognizant’s Blockchain and Distributed Ledger Consulting Practice for their valuable contributions to this article, including Fletcher McCraw, Partnerships and Alliance Lead, and Lata Varghese, Assistant Vice-President at Cognizant, who oversees the company’s Blockchain and Distributed Ledger Practice. For more blockchain insights, and to read our industry-specific reports, visit https://www.cognizant.com/blockchain.