Before jumping on the bandwagon, companies need to carefully consider how ledger technologies fit into their overall strategy.

Distributed ledger technologies — collectively known as blockchain — have burst onto the business scene, accompanied by a significant amount of hype.1 They are widely expected to disrupt existing industries and lead to the creation of new types of companies.

Some of the excitement may indeed be warranted, but only if organizations focus on how these technologies can be used to support their strategy. Without that lens, companies risk making large investments in initiatives that don’t create meaningful value.

However, with careful planning, businesses can use blockchain to gain an edge over rivals in a number of ways. It can provide a foundation for powerful applications that will streamline core operations. Distributed ledger technologies can lower transaction costs and make intellectual property ownership and payments more transparent, seamless, and automated. But companies should resist jumping on the bandwagon until they first understand what specific problems they can solve with blockchain — and for whom. How will it help them reach new customers? How can it improve efficiency or transparency in their supply chains? And most important, what will blockchain enable them to do that competitors and new entrants can’t do? Answering these sorts of practical, targeted questions will allow businesses to cut through the hype and create a blockchain strategy that makes sense for them.

To begin, it’s critical to understand the basic uses and functionalities of blockchains, which tend to get lost in the buzz. So we will provide a quick primer on digital ledgers before discussing how companies should build powerful problem-solving applications that are uniquely configured to their own strategies.

The Power of a Ledger

The first known ledgers date back some 5,000 to 10,000 years to Mesopotamia, where simple clay tokens and stone tablets were used as markers of transactions.2 They were a centralized form of record keeping that helped people keep track of things like the price of barley, who bought the barley from whom, or who owned or purchased a piece of land.3

Over time, such ledgers formed the basis of wide-scale economic development and activity. They allowed people to gauge who could be trusted, leading to the emergence of reputation, credit, and long-distance trade. Moreover, they helped resolve disputes about goods sold and money owed.

In their simplest form, blockchains are the digital equivalent of the old stone ledgers.

References

1. M. Iansiti and K.R. Lakhani, “The Truth About Blockchain,” Harvard Business Review 95, no. 1 (January-February 2017): 118-127.

2. S. Basu, J. Dickhaut, G. Hecht, K. Towry, and G. Waymire, “Recordkeeping Alters Economic History by Promoting Reciprocity,” Proceedings of the National Academy of Sciences of the United States of America 106, no. 4 (2009): 1009-1014; and S. Basu and G.B. Waymire, “Recordkeeping and Human Evolution,” Accounting Horizons 20, no. 3 (2006): 201-229.

3. D. Snell, “Ledgers and Prices: Early Mesopotamian Merchant Accounts” (New Haven, Connecticut: Yale University Press, 1982).

4. J.J. Roberts, “Microsoft and EY Launch Blockchain Tool for Copyright,” Fortune, June 20, 2018.

5. I. Heap, “Smart Contracts for the Music Industry,” Medium, March 14, 2018.

6. A. Alexandre, “Walmart Is Ready to Use Blockchain for Its Live Food Business,” Cointelegraph, April 24, 2018.

7. S. O’Neal, “From Pork to Diamonds: How Blockchain Is Making the Logistics Industry Transparent,” Cointelegraph, April 26, 2018.

8. T. Felin and T.R. Zenger, “Strategy, Problems, and a Theory for the Firm,” Organization Science 27, no. 1 (2016): 222-231; K.R. Lakhani, H. Lifshitz-Assaf, and M.L. Tushman, “Open Innovation and Organizational Boundaries: Task Decomposition, Knowledge Distribution, and the Locus of Innovation,” in “Handbook of Economic Organization,” ed. A. Grandori (Cheltenham, United Kingdom: Edward Elgar, 2013), 355-382; and E. von Hippel and G. von Krogh, “Identifying Viable ‘Need-Solution Pairs’: Problem-Solving Without Problem Formulation,” Organization Science 27, no.1 (2016): 207-221.

9. A. Narayanan and J. Clark, “Bitcoin’s Academic Pedigree,” Communications of the ACM 60, no. 12 (December 2017): 36-45; and A. Narayanan, J. Bonneau, E. Felten, A. Miller, and S. Goldfeder, “Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction” (Princeton, New Jersey: Princeton University Press, 2016).

10. E. Brynjolfsson, “The Productivity Paradox of Information Technology,” Communications of the ACM 36, no. 12 (December 1993): 66-77; and E. Brynjolfsson, D. Rock, and C. Syverson, “Artificial Intelligence and the Modern Productivity Paradox,” working paper no. 24001, National Bureau of Economic Research, Cambridge, Massachusetts, November 2017.

11. T. Felin and T. Zenger, “What Sets Breakthrough Strategies Apart,” MIT Sloan Management Review 59, no. 2 (winter 2018): 86-88.

12. D. Harhoff and K.R. Lakhani, eds., “Revolutionizing Innovation: Users, Communities and Open Innovation” (Cambridge, Massachusetts: MIT Press, 2016); and T. Felin and T. Zenger, “Closed or Open Innovation?: Problem Solving and the Governance Choice,” Research Policy 43, no. 5 (June 2014): 914-925.

1 Comment On: What Problems Will You Solve With Blockchain?

  • Kasumu Salawu | October 2, 2018

    I sense inexhaustible applications of Ledger Technologies to alleviating major economic problems in Third World countries. As a Nigerian-American, I cannot wait to join a Blockchain campaign in economically developing countries! Whereas trust will be difficult to elicit from peoples whose rulers have unfailingly exploited, for starters, demand for strict accountability in distributed systems could curb the back-breaking corruption that condemns most of those people to grinding poverty.

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