How to use Blockchain ‘as a service’ in the Operating Model

By Julie Choo

Published: April 21, 2020

Last Update: June 15, 2020

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The Blockchain hype of 2017-2018 along with all the good and bad activities that resulted from the explosion of cryptocurrencies, with Bitcoin leading the charge, has clearly passed.

In the majority of cases, Blockchain only businesses did not have good Business Models and Blockchain is clearly not a Business Model in itself, even if many would-be opportunists tried to convince us otherwise. In 2018, we posted this article on when not to use Blockchain for the sake of it – to implement GDPR.

With many lessons learned, we shall now explore how Blockchain as a technology has been applied well in an enterprise to support its Operating Model, and more importantly, where can it be applied to create more value, better and faster too…

Where can Blockchains be put to good use, to support the right areas in the Operating Model of a business, to deliver the most innovative services to customers?

Discover: 

[Originally posted on November 8, 2017 as Blockchain 1.0 in the Strategy Journey by Eric Leconte]


Before we go into more detail, let’s revisit the basics and explain what is a blockchain, why it is revolutionary as originally explained by our consulting technical advisor, Eric Leconte, the original author of this post. And then we can explore how it can be applied to create value in business.

What is a Blockchain?

Blockchain 1.0 in The Strategy Journey

A blockchain is a time-ordered, list of of transactions (grouped in blocks) linked together, hence forming a chain.

These blocks are secured by cryptographic methods to prevent fraudulent attempts to tamper with the data, and replicated on every computer participating in the blockchain network, wherever these computers are in the world.

The participants of the network are incentivized to validate the transactions and bundle them into blocks. For this they’re rewarded in the form of new coins, transaction fees, or by becoming a stakeholder and having a say in the evolution of the network.

Why is blockchain revolutionary?

The blockchain turns the prevalent paradigm of centralised trust on its head. What does that mean? We live in a world where we rely on organisations to hold data on us and what we do (like banking transactions and currency exchange) for centuries now. We have had to learn to trust our data with these organisations – that they are storing it and maintaining it and not doing bad things with it, or giving it away to others to use, and preventing malicious hacks into that data.

We have already blogged about the rise of data supremacy and the value of data in the digital economy that we live in, and blockchain takes this to another level.

Instead of trusting intermediaries to track and validate the transfer of assets for us (e.g. banks updating a bank account balance after a debit/credit, or a notary vouching for the integrity of a property land title – we will get into many more examples later), Blockchain promotes a form of decentralised trust.

This means trust in an environment where the participants transact directly (peer to peer) between each other, without knowing each other, and therefore without trusting each other. This trust derives from the properties of the blockchain: immutability, transparency and reliability.

  • Transparency: visibility of the data on the blockchain is a precondition for the participants to be able to verify the data stored is valid.
  • Immutability: the data on the blockchain is effectively immutable, once a record is added to the chain it cannot be modified (or at least it cannot be modified without expanding massive computational resources). Which means that falsifying or destroying the data is practically impossible and the participants can trust its content. Really good for audit trails!
  • Reliability: since the data is replicated over all of the computers participating in the blockchain, failure of one of several of these nodes will not prevent other writers to commit to the blockchain

Removal of intermediaries will decrease friction and costs in business transactions, and also decrease any risks of the data being tampered with, either by mistake or fraudulently, once the data is stored on the blockchain. Did I just say ‘removal of intermediaries’? What will that do to certain businesses and organisations who effectively exist in the marketplace as ‘intermediaries’ to provide services along an industry value chain to customers? Yes – we have DISRUPTION!

In THE STRATEGY JOURNEY book, we have indicated that:

“This DISRUPTION is WHAT causes the need to reconsider HOW a business works or runs itself as well as entire industries, who value chains are being disrupted. Blockchain as a technology is disrupting the Operating Models of businesses.”

And so:

“Organisations can just be scared and let themselves get disrupted or they can embrace blockchain by working out how to use it as an enabler in their Operating Models. Blockchain certainly has the ability to replace many manual processes and hence the jobs of people responsible for these tasks. But it is also a job creator too, as it is generating jobs for people who need to understand the processes and data in order to use blockchain.”

The role of blockchain the technology is clearly as a secret power-up tool, in the Operating Model of an enterprise, where it has the ability to increase the business agility of the organization, allowing it to create value better and faster through its processes and data.

When blockchain technology is applied to the right business use cases, you get productivity and you get to support intelligence at the same time through further application of Artificial Intelligence (AI).


When should you use a blockchain?

If you don’t need to share data across multiple untrusted participants then the blockchain is of questionable value compared with a centralized database.

Even if the blockchain is applicable to your business domain, it comes with three major caveats or considerations:

1. Performance and Speed: In terms of performance most implementations lag way behind the performance of the traditional relational databases. While Bitcoin processes a few dozen transactions per second (TPS), Visa ™ processes 24 000/secs, and any modern database can reach a million TPS.

While the performance gap is significant now, there are a several solutions in the works which should help bringing the performance of most blockchain implementations in line with the competition. Again, I will be highlighting some of these in later blogs as I look into the technology.

2. Privacy: Not everyone will be comfortable with storing potentially confidential information on the blockchain, with little to no privacy. Even if the data can be obfuscated, or encrypted, it remains that the more widely it is distributed the broader the scope for a malicious actor to compromise the confidentiality of the data.

Private (also known as “permissioned” or “enterprise”) blockchains could help in that respect. The idea here is to restrict access to the blockchain to a number of known and trusted participants, in charge or verifying (and more controversially, editing) the data on the blockchain. As a side effect, performance is likely improved since the transactions only have to be validated on a relatively small number of nodes running “on premises”, in an internal enterprise network.

3. Regulation: While technically and practically, blockchain and cryptocurrencies remain mostly unregulated today, and that was the point of it all, what happens if governments and central authorities increase intervention? Should they intervene for the greater good of society to ensure that we are all able to leverage the benefits of blockchain, while mitigating all the risks? How can you plan for that? The Chinese government has already put some restrictions on cryptocurrencies. Who next?

All of these questions are key to The Strategy Journey of a business and its organization, in how it runs its Operating Model, where ever it operates in the wider economy, in different supply chains and business ecosystems.

Blockchain as a technology and capability is here to stay… The question is what will you do with it? How will you leverage blockchain in your services?


6 Best-Practice blockchain applications to emulate

In THE STRATEGY JOURNEY Book and as part of the Strategy Journey method, we have discussed the advantages of designing unique services that are truly differentiated, through the process of innovation. This is how an enterprise can not only overcome continuous disruption, but become a disruptor in its own right – through unique service propositions.

This service design process includes the use of specific capabilities and processes to enable and deliver value within business use cases where customer’s problems are being solved – this is where Blockchain as a technology comes in. Blockchain is an enabler, and hence a capability that an organization can develop, and leverage in its Operating Model to support whatever business models it intends to trial and use in the marketplace.

Some of the best applications of blockchain (as at 2020) include:

1. Cryptocurrencies

Blockchain in the Strategy Journey

Here Blockchain is used as a permanent record of all historic transactions in the currency.

As at January 2020, the total market capitalisation for cryptocurrencies has exceeded $300billion USD, of which Bitcoin still holds the majority share.

The trading and use of bitcoin in everyday life, grew much bigger than many had expected:

Launching new cryptocurrencies or coins was certainly all the rage back in 2017-2018. Since the hype, many new coins have come and gone. Those that remain, that are still traded today are clearly here to stay because they have underlying foundations that support their existence – solid business models backed by solid operating models.


2. Cross border payments

While remittance charges have been on a steady decline over the last few years, they remain relatively high. The World Bank estimates the average remittance charge to be around 7%, with notable spikes at 16% when sending remittances from South Africa, and 10% from Japan.

A blockchain-based remittance could drastically disrupt this market by reducing merchant fees below 1% and guaranteeing transfer within the same day(or same hour). I wonder what these guys are all doing right now? Maybe they are investing in blockchain as part of their Operating Models. I hope so, as lower payment transaction fees means EVERYONE from merchants, operations, and customers WIN.

Examples :
Abra
Everex 


3. Real Estate

Blockchain 1.0 in The Strategy Journey

Traditionally real estate is mostly paper based and involves multiple third-party entities (governments, brokers, banks.)This is a breeding ground for high transaction fees, and in some cases corruption and land ownership fraud (eg. rental scams.)

Blockchain would reduce the number of intermediaries and therefore reduce costs and speed up transactions. Additionally by storing digital proof of ownership in an effectively incorruptible database it would cut down on fraud drastically. Going back in time and falsifying a transaction in not an option in a public and transparent ledger.

Examples
Placing the entire Dubai land register on a blockchain
Sweden trials blockchain for land registry management


4. Accounting and Audit

As its core the blockchain produces a trail, where every transaction posted to the blockchain is verified, time-stamped and irreversibly recorded.

This could reduce a lot of the paper-based, manual checks and therefore decrease the probability of errors. In addition blockchain would guarantee the integrity of financial records and attempts at manipulating the records would become a thing of the past

Examples
Fizcal – accounting software that uses the blockchain technology


5. Digital identity

Blockchain 1.0 in The Strategy Journey

Most of us have face the age-old problem of banks and other financial intermediaries taking too long to validate our identity and opening our accounts with them.

With many of the co-creators of THE STRATEGY JOURNEY Book having worked in the banking industry with roles involving the rearchitecting of Operating Models and the re-engineering of processes, we have it on good authority that in some cases banks (the older incumbants who still have many legacy systems that they are trying to consolidate) are taking over 280 days to onboard a customer and open their bank account. No kidding, and of course we can’t name and shame that bank because it’s a common problem and we know they are actively trying their best to fix that.

In fact, every single business out there has the need for identity checks, as part of the staff hiring process, to ensure you aren’t hiring a fraudster who might steal from you, or worse, from your customers, leading to lots of legal problems.

Yes, blockchain can really change the game here for recruiters and, well, everyone too in the employment process. You won’t have to keep using those low-cost people solutions offshore to do employment checks, where the very manual process frustrates the hell out of everyone including the employer, manager and employee.

What’s clear is that a large number of companies are working on a digital identity solutions right now and, we expect, will be for a long time to come. This is testament to the enormous benefits that could be achieved by improving on the current KYC (Know Your Customer) processes which are expensive, low-tech and mostly (if not exclusively) paper-based.

Examples
Civic
Shocard


6. Ticketing

Track the movements of tickets and prove to the end purchaser that the ticket is valid.

Examples
Guts.tickets
Aventus.io


What OPPORTUNITIES exist to apply blockchain in business?

The list of possible blockchain applications can go on and on… Virtually any domain (overly?) reliant on third-parties to manage their transactional data records can be disrupted by the blockchain.

What role does blockchain have to play in the strategy journey and business lifecycle of a business or organization?

It is a key enabler of the Operating Model of any business and organisation. With so many applications, implementing blockchain can clearly cut costs and save a lot of time and money for businesses and organisations.

And it’s not just big businesses or large corporate with the heavy processes that will benefit. When blockchain is used with SaSS (software as a service) solutions, it can be made available to small businesses too in a cost effective way.

In fact, our large cloud service providers including AWS, GOOGLE, IBM and Microsoft Azure are already providing various ‘Blockchain as a Service’ (BaaS) offerings to their customers, the many millions of businesses both big and small.

How to discover blockchain service innovation opportunities?

Blockchain as a Service (BaaS)… is where the big opportunities exist and through service design with THE STRATEGY JOURNEY method you can work out where in your Target Operating Model to apply and implement Blockchain, to build your Blockchain capability and even develop your Blockchain-based services.

Julie Choo

About the author

Julie Choo is lead author of THE STRATEGY JOURNEY book and the founder of STRATABILITY ACADEMY. She speaks regularly at numerous tech, careers and entrepreneur events globally. Julie continues to consult at large Fortune 500 companies, Global Banks and tech start-ups. As a lover of all things strategic, she is a keen Formula One fan who named her dog, Kimi (after Raikkonnen), and follows football - favourite club changes based on where she calls home.

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