How will Blockchain Impact your Company’s Business Model?
I am often asked how blockchain will impact the business models of companies. It is not an easy question to answer. Imagine being asked in 1990 how the internet would impact organisational business models? New technological developments in cloud computing, artificial intelligence, social media, data analytics, virtual reality, and blockchain have impacted businesses enormously in terms of digital transformation. Even during these Covid19 challenging times, we are witnessing companies undergo significant digital transformation pertaining to remote working. This article aims to provide organisations with a foundational understanding of what blockchain is and to provide a framework that I have developed after a decade of studying digital transformation, business models, and the impact of new and disruptive technologies on organisations.
Blockchain 101
Blockchain is defined by the National Institute of Standards and Technology (NIST) as “tamper evident and tamper resistant digital ledgers implemented in a distributed fashion (e.g. without a central repository) and usually without a central authority (e.g. a bank, company, or government). At their basic level, they enable a community of users to record transactions in a shared ledger within that community, such that under normal operation of the blockchain network no transaction can be changed once published. Each participant owns an identical copy of the ledger. Companies traditionally use in-house centralized databases for record-keeping purposes. Blockchain uses distributed digital ledgers.
Digital Transformation and Business Models
Digital transformation refers to the manner with which new and disruptive technologies create new and innovative business models. A business model enables companies to create and capture value by providing unique value propositions to customers. The more unique a value proposition is the more returns on investment and profit the company can make. Take Netflix, Disney plus and Amazon Prime for example. Their business models create and capture value by providing cloud based streaming services to customers for an annual or monthly fee. If you juxtapose the value propositions of each streaming services you can clearly see the well defined value each service provides. For example, if you want Disney related content you would sign up to Disney plus. The unique value proposition dictates which service a customer will sign up to.
Now let us look at the value propositions afforded by blockchain. Blockchain enables secure, fast, decentralized, immutable, consensus based transactions in a supply chain. The use of these decentralized digital ledgers in supply chains is becoming a strategic priority for many global organisations. But let me revert to my original question posed at the start of this article. How will blockchain impact your company’s business model? How will you be able to leverage this new technology to create value for your organisation, for your customers and your supply chain partners? Well, the answer is that blockchain will fundamentally change your existing business model which is more than likely centralized. You may have to create new and innovative decentralized business models.
The Blockchain Business Model Strategyzer Grid
A business model encompasses a number of core fundamental constructs that I have encapsulated in the framework below. While traditional business models frameworks work well for centralized services or products business models they fail to capture the nuances of decentralized blockchain products and services business models. That is why I have created a grid framework which organisations can use to map out how blockchain could be used to create and capture value for their organisation. But most importantly identify how they can construct unique value propositions using blockchain technology.
Figure 1 provides an overview of the framework which contains four main business model grids: Block, Technology, Supply Chain, and Financial. Each of these grids is interconnected and their main mission is to work together to unlock value for the company, their customers, and their supply chain partners using blockchain technology. Organisations can use these grids to iterate their business models on an ongoing as they trial and research how they impact their business.
Each grid contains a set of questions that a company must answer when creating a blockchain business model (Figure 2). For further information regarding the blockchain characteristics table highlighted in the Technology Grid below please contact me.
In the example below (figure 3) I have used the the Blockchain Business Model Strategyzer Grid to map out a summary of the core features of a new secure token offering (STO) blockchain technology called Sports Ledger.
Finally, I recommend that organisations adopt a caveat emptor mantra. History suggests there are two dimensions that impact how new technological business models evolve:
Dimension 1: Complexity: Describes the level of coordination required by the organisation to produce value with new technology.
Dimension 2: Novelty: Describes the level of effort a user requires to understand the problems that the new technological trend can solve. The more novel a concept is, the greater the learning curve.
I encourage both small & large organisations to develop adoption strategies that map possible blockchain implementations against these dimensions (Figure 4). Complexity and novelty can vary from low to high in terms of the stage of technology development. For instance, organisations new to the blockchain concept may want to introduce a pilot initiative that is low in novelty and low in complexity. One such initiative could encompass the inclusion of cryptocurrency transactions in a firm’s transaction processes (example: accepting Bitcoin payments). The highest risk project for an organisation, who is new to blockchain, is a project which is high in novelty and high in complexity (example: creating a blockchain service underpinned by AI).
