Organizations need to see new technology as valuable before they deploy it. To see the value they need to understand how technology in question will help them grow. This is a business process known as value creation and can be key in creating or sustaining a competitive advantage. The more businesses that recognize this, the more this new technology will get adopted. Therefore, businesses understanding the value of a technology is determinant of more time and capital being dedicated to its innovation. An emerging technology might be very “cool looking: at its core. But, if it is not helping businesses do what it is designed to do, it isn’t a worthwhile investment. The same process happens in any technology, not just blockchain. This leads us to ask, “why is value creation the key to making or breaking blockchain innovation?”
We saw this happen in the example of the Internet. Although the Internet was a powerful tool, it took today’s businesses to understand how they could create value. Consider the example of the Internet way back when. As companies continued to spend time and resources exploring the potential use of technology they found new opportunities. At times, companies choose to work together to make joint investments in R&D. A technical name for this is a consortium. In doing so, several companies like Google came out to be industry leaders, greatly disrupting the world of search. That’s why in this article we will also cover how companies today can derive business value from the technology. We will also consider a three-step process to do so and how this correlates to the strategic value of blockchain.
What is Value Creation?
At a foundational level, value creation occurs when a business or organization uses its abilities and resources to create an offering that people believe is valuable. Since people see the offering as valuable, they readily pay for it. The business sees profits as a result. However, for a business to provide value, it must also derive it from somewhere. If the value is equivalent to profits, businesses can look at ways to maximize operational efficiencies, reduce product costs, or further showcase the value by increasing the cost. In this example, businesses can derive value by creating a case that represents the added profits they can earn by leveraging blockchain technology.
The idea is abstract now and has is limited to having potential uses. Therefore, it can be hard for a business to present blockchain’s use as a value-added activity. That’s why businesses with capital that can invest in new technology have a unique opportunity to create value and show proof of it to their business. Industry followers might not be able to invest initially, but they can see how other businesses take the lead and create value. The team can then present the value as a case study. Regardless of the market position of your business, the bottom line is businesses create value by deriving value from their available resources. But for businesses to take the plunge into a new potential area of value they must see a reason to do so. In other words, they must see the value potential of blockchain technology.
The Value Potential of Blockchain
As a recap, blockchain technology refers to a database that is decentralized in that authority is distributed across a network. Since it is a ledger of sorts, it sometimes is referred to as “Distributed Ledger Technology” or DLT for short. This ledger is made up of many blocks that form a chain of digital information that is then stored on a public database. Each time a block is added to the chain, a transaction occurs, receives verification, goes into storage in a block, and receives a hash. These transactions are all verified through consensus of the network to ensure accuracy, adherence to blockchain protocols, and security. Each node then shares a copy of the ledger. Therefore, any changes made can be seen by the rest of the network.
To ensure security, sophisticated cryptography, and key management ensure data integrity and authenticate participants. This is done through a public key and a private key. A public key encrypts data and can be shared freely among people since it can’t decode the data. The private key, as its name states, decrypts data and should, therefore, be kept private.
This technology is believed to be revolutionary. Why? Most businesses rely on one central authority to maintain control over the data and the database. Therefore, those using the database must learn to accept that the central authority is trustworthy. They must also accept that their data is being used for what they said it would be used for.
Programmable Properties of the Blockchain
Last but not least, another key blockchain capability should be noted. That is the autonomous services that have the ability to create a standardized and reliable infrastructure. This is where the smart contract comes in. With a smart contract, self-enforcing agreements containing a set of rules can be automatically enforced. This can greatly reduce the costs of a third party to enforce the terms of the agreement. This alternative requires only a few lines of code to execute.
Smart contracts turn legal obligations into an automated process. The result is increased security, reducing reliance on intermediaries, and lowering transaction costs. For any business that must make agreements with suppliers, customers, or partners, this type of technology can be referenced.
Furthermore, blockchain technology uses a consensus mechanism to ensure that copies of the data cannot be altered and authenticates the digital assets underlying each transaction. Therefore, the blockchain acts as a single source of truth in which one central authority does not have all the power. While this sounds great for consumers, this also sounds like it is taking away from the value of a business.
Disrupting The Industry
Blockchain actually derives a lot of its value from being a network effect model. Again, let’s look at the Internet as an example. In this phenomenon, the hope is as many people begin to use the technology as possible. The more people that begin to use it, the more offerings that become available. As a result, there is a higher quality of products and services for consumers to choose from. When more users continued to use the Internet, more content was being produced at a higher pace, and the quality of the sources increased as well. This is also believed to be what makes blockchain a true industry disruptor and therefore, should be where businesses like yours are focusing their attention.
However, there is a long way to go until technology reaches this point. Therefore, other organizations have the opportunity for individual organizations to become a “true-disruptor” use case. This is because, amongst all the excitement, blockchain is technically still an immature technology without a clear path for success. At this stage, businesses that want to disrupt the industry will require significant financial and technical resources and a high tolerance for risk. As well, they will require a convincing case to convince people to abandon what they understand for an unknown. Regulations will also need to be created to guide the new usage.
The unstructured and undefined experimentation of blockchain solutions means many companies might not yet see the potential return on investment (ROI). However, this does not mean it isn’t impossible to do so. Companies must instead learn how they can justify these major investments and show business value in the transformation.
Derive Value From the Blockchain
This might not seem doable for your business specifically, but hear us out on this one. There is actually a fairly simple approach that your business can follow to derive value from the blockchain. These steps are:
The first step is ideation. This can be done by looking at the industry value chain. This means considering the current processes that exist. After doing so, you can begin to look for the areas that are currently difficult or lack efficiency. These are called pain points. Pain points also act as areas of opportunity which can be improved with innovative solutions like blockchain technology. The ideation team can then determine which blockchain specific capabilities can create value at a granular level. These pain points can be addressed with specific use cases in selected industries.
The second step in this process is validation. Organizations will need to assess whether blockchain is the best possible solution for the identified pain points. This includes weighing alternatives based on criteria such as feasibility and cost. If the solution meets these criteria, use cases can move to the prototyping stage. While prototyping is great for a failing fast mentality, that doesn’t mean success will be found quickly. It will still take time to set standards for data and governance, find a team of superusers who are onboard with the concept, and create a technical foundation for the solution. All stakeholders will also need to be on board with this idea, even those external to the company.
Building Your Team
Third, you will require a team that will get your solution off the ground. This means finding a group of people with a skill set that reflects the complex technical expertise in blockchain architecture, data analytics, cryptography, and coding. You will also require a team of business experts that understand the industry, the use cases, and how they can monetize a solution. Like any technology implementation, you will also need strong executive sponsorship from your leadership team. This will ensure that the rest of your organization will be following close behind.
Blockchain’s Strategic Value
Not only will blockchain technology need to present its business value, but it will also need to prove its strategic value. According to Mckinsey, the strategic value of blockchain is believed to only be realized if commercially viable solutions can be deployed at scale. While companies continue to experiment with unique use cases, it is still believed that any sort of scaling still remains three to five years in the future. One of the main reasons for this is the lack of common standards and clear regulations in the industry. However, with many players in the industry, establishing these standards should be relatively easy if one dominant player or government agency is willing to take the lead. In recent times, with the exploration of digital currency, it appears national banks might be the ones to take on this role.
Furthermore, another barrier that exists is the lack of knowledge around blockchain right now. Most businesses still continue to view blockchain as the thing to do with bitcoin. However, it is much more than that. Other misconceptions, including its large energy consumption and transaction speed that cannot be scaled to meet the needs of a growing business. More realistically, the technical configurations are a series of design choices where security, speed, storage can be chosen and made commercially viable. The technology continues to develop, greatly improving what we know to be an optimal solution.
Finally, another barrier that scaling faces is the digitization of assets. Many today are still uncertain about the concept of digitally recording an asset. Taken together, if scaling constraints can be addressed, blockchain will be able to prove its strategic value to many new industries.
For a business to achieve this strategic value themselves, it often comes down to their unique position in the market.
Blockchain Strategic Value Based on Market Position
Depending on where you fit in the marketplace, your strategy may differ slightly. That’s why we’ve outlined the different ways to derive strategic value as a leader, fast follower, administrator, or infiltrator.
Those who are already a leader in their respective industry will likely be looking for ways to keep their position. With power in their industry, the opportunity to set the industry standard for what is to come should be considered. For these businesses, the greatest risk is to not take action and lose the opportunity to maintain or increase their competitive advantage.
Perhaps your business is a smaller player in the industry. If this is true, you may lack the resources and capital necessary to make industry-wide disruptions. However, while you may not be able to be the first to try something in case it fails, you should be aware of what some of the larger players are doing. As soon as new technology becomes standard, fast followers should be quick to adopt these standards into their own business to remain competitive. Being a fast follower is believed to be risky since a lot of the technology can be restricted to those involved in a proof of concept. To avoid being left behind, fast followers might decide to join a consortium before it comes popular. This will make it a more affordable investment.
Alternatively, you might not be a leader. But you may have the ideas to drive change without having the resources to do so. In this case, your business might fall in the administrator role and be in the position to drive consortiums. This gives these businesses the opportunity to shape the future of blockchain technology and the standards for high-value use cases.
Finally, your business might best be defined as an infiltrator. These ones are typically new market entrants that don’t currently operate as a business. This means they have nothing to lose and are often seeking out the most innovative opportunity to disrupt an industry. This is also common if a business decides to create a separate entity to take on this unique business challenge. In the province of Alberta in Canada, one example stands out. Consider, their regional bank ATB Financial. In an attempt to disrupt a new industry they created a digital operation under the name Brightside. In the blockchain, the BaaS or blockchain as a service provider typically uses the attack strategy to enter industries they currently don’t operate in, at times seeking partnership with a company considered a leader.
Shared Value Creation
So what if you aren’t a leader in the industry? Does that mean you must sit idle while others take the lead in blockchain adoption? Not necessarily. If this situation fits your business, you might want to consider the concept of shared value creation. In this way, businesses can work together to rethink business models around pivotal societal and environmental issues. This can help businesses to share value with customers and help them to feel as though they have been a part of the journey. In many cases, they result in more loyal and dedicated customers who believe in the business’s values and goals. This can check more boxes than simply meeting a need, and can reach the highest point of Maslow’s hierarchical framework. Furthermore, in an article from Harvard Business Review, it can be noted that,
“Companies that turn to collective impact will not only advance social progress but also find economic opportunities that their competitors miss.”
This proves to be a mutually beneficial opportunity for both stakeholder groups.
In concept, this might sound like a simple solution. Unfortunately, in practice, it isn’t quite the same. This is because natural competitors, who might have been competing for decades will be forced to cooperate. Finding competitors that can work together, will require the alignment of initiatives in team members that can see the bigger picture. At times, a third party might be necessary. In this case, their role will be to produce a governance framework in which parties are to follow for collaborative work environments.
Lack of Value Creation Can Break An Organization
Shared value creation might sound like a daunting task, one that your business is still trying to weigh the pros and cons. Regardless of whether this method of creating value is right for your business’ unique market position, one thing is certain. That is, failing to create value can break blockchain innovation altogether. How so? Without businesses seeing how this technology will apply and adapt it to their own practices, the technology will continue to be a cool innovation. This is because businesses need value creation since it provides financial well-being and keeps them competitive in the marketplace. And consumers need value creation because it provides products and services that meet a need.
Therefore, technology needs value creation for it to be adopted and used. Businesses and people won’t invest in something that doesn’t help them to achieve what they need to achieve. What a business hopes to achieve might vary from accumulating profits or helping a human to achieve happiness.
Technology is simply a tool to help businesses achieve their goals. In the best cases, technology will also accelerate their ability to do so. A business must see opportunities to create value. So blockchain technology being adopted by businesses will need to show its value.
Creating Competitive Advantage
Value is a broad term. However, to boil it down, value is important for businesses because it can create and sustain a competitive advantage. In theory, while there are many good ideas to derive value from the blockchain, it doesn’t say much for the guidelines that other businesses should follow. It is suggested that businesses must select and excel in one of the three value disciplines. These disciplines are Product Leadership, Customer Intimacy, or Operational Excellence. Your business should choose one of these three disciplines to be the focus of the business. However, the other two are still areas in which the company should not put on the backburner.
One research study shares that three key areas can be approached as the main competitive advantage. These are:
Distributed Product Innovation
If distributed product innovation is the emphasis, the study suggests making innovation the focus rather than your business. This means actively looking for opportunities to focus on a new ecosystem by working alongside other businesses. This might mean looking for consortiums that want to achieve improvements industry-wide. Therefore, the customer must not have a tie to a specific business. Rather, the customer must be willing to focus on the underlying solutions and intersections between businesses.
Customer Relationships and Trust
Alternatively, if customer relationships and trust are going to be the primary competitive advantage, the focus will differ slightly. In this case, the business must look at the existing relationships customers currently have with their business. Alternatively, they could also look at the industry segment as a whole. Using these observations, they can consider how trust can be built to ensure that blockchain technology becomes a benefit in the eyes of the consumer.
Finally, your business might decide to target shared operational efficiency. This will require finding processes within your business or across your industry that currently bottlenecks. These bottlenecks will provide starting use cases for blockchain technology and will help your business to reach its full potential.
By identifying the area where your business will have the best chance to compete, you will be able to truly capture business value. Depending on your business this will depend on your market position, your ability to shape the ecosystem, establish standards, and address regulatory barriers.
The Making of a Killer App
One way people believe value can be created is by determining what blockchain’s killer app is. As a reminder, a killer app is an application of new technology that is seen as superior to the market’s current offerings. In other words, we would describe this as “the be all end all” technology to solve a real-world problem. The application would then prove to consumers that the technology is indispensable and will help to show its value in other industries. Furthermore, the making of blockchain’s killer app will help organizations see what the technology can be used for. This makes it easier for businesses of a given industry to deploy a “killer app”.
A killer app gives businesses the opportunity to get comfortable with the technology. This is similar to a stepping stone. As businesses continue to see how their processes are improved in one area, they can begin investing in other areas.
This might be easier said than done. Keep in mind, there are many perceived use cases for blockchain. Therefore, finding just one that will drive mainstream adoption can be difficult. Some areas for your business to consider have been included below.
Opportunities For Innovation
The goals of your business are the key defining factors for deriving value. This means there is not a single one-size-fits-all approach. To do so, the first step is to determine what your business is trying to achieve. These goals should in some way or another benefit every stakeholder. Now, based on this list, you can rank these goals in order of importance. For the most important goal in your list, you can now determine the process that begins at the consumer and ends at the product or service delivery (the thing your business does). In most cases, technology (like blockchain) is aimed to simplify repetitive processes. So the items in your value chain, that are currently repetitive, should be the first areas you look to in implementing a new technology solution.
Don’t start developing an in-depth use case just yet. Before you begin, it is important to do a financial analysis between the current costs of this step and the operating costs involved in the new solution. This is because while operations are the most common use case, the result is actually a cost advantage. A reduction in costs correlates directly to the mission of any business, which is to produce profits. This benefit can help to define milestones that your business and all stakeholders will notice.
Real World Use Cases
For businesses today, there are several areas where blockchain can revolutionize an industry. One is in the handling and tracing of food. This system is still greatly dependent on paper processes. These processes continue to be subject to human error, a lack of visibility, and transparency. This makes answering questions about where food has come from difficult. It can also result in an increased spread of foodborne illnesses. Processes are hard to track which means any outbreaks of the virus cannot be contained quickly since minimal information is available. Using blockchain technology, those involved in the food distribution process can provide consumers with detailed documentation. This also means that consumers will know if food locally sourced. Factories will also be held accountable to ensure ethical practices are being followed in production.
Secondly, many have looked to blockchain for its use in supply chain management which is a complicated system regardless of the size. That’s why businesses like Walmart have already begun to consider how they can further derive value from blockchain architecture. The result? Reduced counterfeiting and associated health and safety issues from fraudulent parts. This will mitigate financial and reputational damage and position companies in a stronger position to maintain their customer loyalty moving forward.
Another real-world use case is under-collateralized loans on DeFi (decentralized finance). There are times that, in the progression of any business or student’s operations, they will need unsecured debt to achieve their next milestone. While this might not have been possible prior to blockchain technology, the opportunity for the banking industry to leverage this form of loan can improve the business landscape as a whole. It can also bring light to undervalued businesses or individuals who would have struggled to get a loan otherwise.
Covid Use Cases
The third area for consideration is increasingly applicable in the wake of Covid-19. That is the immunity passport. As a recap, this is a document that contains all of the health information of an individual, including the antibodies they might possess for a certain disease. This can suggest a patient’s immunity to a virus and may suggest when protocols can be lifted. While this may be a little harder to implement, businesses can still be successful with this tactic taking on customer relationships and trust as their competitive advantage. This would eliminate the need for government intervention in this idea and could pave the way for a smoother re-transition into a post-COVID world.
Taken together, these are just four of the use cases other businesses have used to derive value from the blockchain. However, actually implementing these ideas is a whole different ballpark. While use cases can help present the feasibility of these options, your team will also need to adapt to a new way of working and be willing to do so. For your team to continue supporting your business value, you will also need to create an environment that not only supports change but also drives it.
Creating an Environment That Drives Change
New technology will change the way people work. This means successful organizations must combine technology change, business model change, and cultural change within their organization. According to Prosci Change Management,
The result is a true innovation and sustained competitive advantage. This means alongside value creation, comes change management and role mapping to show team members they are not indispensable to an organization. As roles change, team members must continue to embrace new ways of doing things while remaining open-minded for other opportunities to meet and exceed customer expectations. This means making change more than just something your IT team is pushing for. It means allowing your innovative team to present the value behind the new technology.
This can be done in a couple of different ways.
Your Innovation Team Must Drive Value
First, your team must prove that it is properly equipped to handle any new technologies being introduced. This means your business will have to determine if you have the right people, culture, and processes fit for blockchain technology prior to trying to implement anything. This will ensure your business is equipped with the right information long before any major transformations are being made. Furthermore, if your business has previously operated with a clear chain of command, it might be worthwhile to decentralize your operations. This encourages widespread interest in the project which in turn will result in company-wide adoption. It can also help bring new ideas and opportunities to the table since more perspectives will be included. Especially those of the end-users.
Additionally, others have also recommended that value-driven changes might not be the safe, incremental ones you had planned. Sometimes making the changes that need to be made, will drive a bold vision. This vision must be accompanied by quick value milestones that keep the momentum going. This means small changes might not always be the best representation of the value that is being added. So at times, your leadership and project teams will need to make bold moves to reach bold milestones. Your team will see the progress and understand the path your business is taking towards achieving long-term growth.
However, with big changes, come big failures. Your team must also recognize that failing fast is a part of the process and will create value in the long run.
This concept is not new by any means. However, more so than ever, it applies to major company undertakings. While you want your team to see the vision and appreciate all that blockchain has to offer, you must keep realistic expectations in mind. Investments into the development of blockchain will be expensive and time-consuming and your team should know that, going into the project. You may worry that this will lose your team’s support. However, even worse, you might deploy the new blockchain technology and find your team unwilling to make the transition after all the time and money has been spent.
This means it is better to slightly underpromise on the perceived benefits of the technology. Blockchain is amazing and will surely overdeliver and gain your team’s support as a result. This way they won’t be disappointed when lofty milestones aren’t met and will continue to support any R & D efforts along the way.
It’s All About UX
Regardless of the intricacies of your backend technology, users will take note of how their day to day activities will be affected. This is where the user experience (UX) design comes in. Currently, most blockchain projects are behind current design trends and are more well known for its use, not its simplicity. However, for people to be willing to adopt a new way of doing things, it is important that the front end of your technology is intuitive and simple to use. The less training needed for these new processes, the better.
Therefore, it will be worthwhile to take advantage of a UX designer early to prove to the less techy people on your team that blockchain isn’t just complex numbers and algorithms. This is one of the biggest barriers for the majority of the public since it appears that the majority of people who use technology have a very good understanding of its systems. Back to our internet example used earlier, blockchain is currently like the first generation internet. All the technical pieces are there but it isn’t necessarily easy to use. This is unfortunate because blockchain can create value through products that greatly improve the way that people work. A UX designer can help provide the interface that helps remove this existing barrier.
The early adopters of the technology will be more technical and are willing to work with lines of code and bare applications. However, when deploying this in your business, users are looking for an easy onboarding process, prompts, and a similar usability level as what they already use.
The Time To Be An Early Adopter Is Now
While there are many unknowns in this industry, it is no secret that early adopters are often the ones that gain market share early and become true disruptors. This means for your business it might pay off, to put the money and time in now to explore these high-value use cases. Doing so will likely give you the greatest payoff. The success of early adopters will also be in look for opportunities to be a fast follower in secondary areas, including blockchain as a service and tokenization, which are currently being used today.
Even if your business doesn’t want to bite the bullet and be the first, there is also a compelling reason to not be in the laggard category. This is because companies who miss out on opportunities to jump the curve may be left behind as their existing business models become obsolete.
To ensure you are looking at all of the opportunities available to create value and leverage blockchain innovation, look no further than the Hedgetrade site. This is a great starting place to see the implications of blockchain technology in an application setting. Here, you can learn about smart contracts in action, cryptocurrency, and even monetize some of your own predictions as practice. To get started, visit app.hedgetrade.com/signup today.