Understanding Digital Transformation and Blockchain’s Applications
Digital transformation was already a hot topic before 2020.
When the COVID-19 pandemic hit and companies depended on technology to adapt, digital transformation took on even more importance. It went from being an abstract idea or long-term goal to something that companies needed to make major strides toward immediately. Many months later, the transformation plan (or transformation itself) should be well underway.
So what should this plan include? That depends on the digital transformation strategy a company adopts. Each one will mix and match different hardware, software, cloud, and tech-driven capabilities to serve its own business interests. In most cases, though, digital transformation will involve a panoply of emergent technologies that have, in large part, either come online or reached maturity just in the 21st century: Advanced robotics, artificial intelligence, internet-connected devices, 3D printing, 5G wireless, and autonomous vehicles are some of the best-known examples.
Global spending on technologies and processes related to digital transformation topped $1 trillion in 2020 after growing nearly 18% in 2019. Spending has been and will be robust now that so many solutions that looked promising in the past are becoming commercially viable on a large scale. Also driving digital transformation is the never-ending need to improve operational efficiency — something the latest generation of technology excels at. Finally, the fact that early adopters have proven the value of tech like AI or IoT makes holdouts willing to try new things.
Companies serious about using digital transformation to their advantage should consider blockchain’s use cases. Although it’s not as flashy as other technologies (such as an autonomous robot), blockchain applications have the potential to transform industries more than any other solution. In doing so, they could also help companies that currently lag behind the competition and struggle to gain market share leap ahead of others. This highlights the extent to which digital transformation driven by blockchain isn’t just a tech initiative — it’s at the core of the business model and strategy.
Blockchain technology has applications in almost any business, but there are certain environments where a shared ledger is particularly advantageous. Some startups are building forward-thinking products and services around blockchain applications, often using tokenization, decentralized finance, and identity. Other more mature companies are discovering enterprise use cases for blockchain that help organizations become more efficient, productive, agile, or insightful.Given what blockchain applications can and will do, it’s no surprise that a majority of respondents to a Deloitte survey (55%) consider blockchain a top priority. More surprising is that 83% of respondents worried their company would lose competitive advantage if it didn’t adopt blockchain. The case for this technology is compelling, especially in the era of digital transformation. The lingering question for many organizations is how to make use of this technology for real-world applications, and the remainder of this post provides some guidance.
Blockchain Use Cases
Blockchain ledgers come in many forms and accomplish countless objectives. In fact, their flexibility explains why questions still linger about what, exactly, blockchain does. Below, we map out a few blockchain use cases that illustrate the deep impact it can and will have on adopters.
Digitizing Asset Management
Companies like IBM own countless hardware and software assets that power offices around the world. However, tracking these assets across global supply chains and through their entire life cycle (from manufacturing to deployment and finally to disposal) represents a seemingly insurmountable challenge that countless producers in technology and other industries struggle with.
However, tracking and managing them at scale throughout their entire life cycle is no longer a distant possibility — it’s now a reality. And with the advent of blockchain asset management tools, it’s not even particularly challenging.
So how does all of this work?
Put simply, every asset receives an entry in the blockchain ledger that’s updated whenever the asset moves elsewhere. The ledger becomes a single source of truth for everything relevant to asset management, whether that’s an item’s location, condition, or destination. Supply chain partners also contribute to these decentralized blockchain ledgers, as it improves their own product management efforts.
In general, digital transformation strives to improve efficiency by using tech to eliminate friction points and information deficits. When it comes to asset management, blockchain applications accomplish exactly that by integrating everything and everyone in one place. Those applications rely on four primary components — a shared ledger, peer consensus, smart contracts, and privacy — to create an automatic paper trail behind assets that everyone trusts.
IBM is already experimenting with blockchain’s applications in supply chain management — as will many others. As the supply chain undergoes digital transformation, anticipate blockchains (and the expectation to participate in them) to become the standard.
Streamlining Payments and Invoicing
We live in a world of electronic payments, but a startling 80% of companies still pay invoices with paper checks. Of course, an analog payment process slows things down for all involved and leads to more errors along the way. Still, old habits die hard, and many companies still feel more confident dealing with paper checks than they do relying on the various digital B2B payment tools available to them.
A blockchain ledger could finally push things in the other direction. With a shared ledger, two sets of payment records condense into one: Eliminating the back-and-forth part of the payment process with blockchain helped one company reduce its invoice rejection rate from 9% to 0.5%, for example.
In another instance, global bank HSBC leveraged the efficiency of blockchain ledgers to process upwards of 3 million foreign exchange transactions in one year. A vast accounts payable and receivable industry exists to handle payments, and blockchain could support, supplement, or replace much of the work that accounting departments handle, all while improving the results. That’s exactly what digital transformation strives to do.
In addition to automating the core mechanics of the payments process, blockchain ledgers can keep the process itself from breaking down. For example, when a shipment arrives incomplete, incorrect, or damaged, blockchain can quickly amend the invoice in a way that both parties agree upon. The involved parties don’t spend weeks or months resolving a payment dispute — because a blockchain ledger does the same thing instantly (and largely automatically). Given how perfectly suited blockchain is for digital B2B payments, digital transformation around payments appears to be just around the corner.
Improving Supply Chain Management
Global supply chains create as many issues and inefficiencies as they solve. Relying on hundreds or thousands of partners and suppliers located around the world leads to frequent breakdowns in a supply chain that’s supposed to run like clockwork. Blockchain technology prevents supply chain issues in many cases and minimizes damage when it can’t. In the same way that it’s the ideal solution for a vast, complex payment system, blockchain’s supply chain management promises to turn persistent supply chain issues into rarities.
It does so by eliminating the paperwork that’s still common in supply chain management. Instead of stakeholders scribbling down figures, soliciting signatures, and shuffling around documents, everything happens inside a shared ledger. Using blockchain for supply chain transparency yields such excellent results that the participants share (and trust) the same information instead of keeping independent records multiple times over. Disputes, delays, and defective products have fewer consequences and a faster path to resolution when a blockchain ledger is embedded into the core of the process.
On a wider scale, producers that can harness blockchain in their supply chain management have a powerful forecasting and fulfillment tool at their disposal. Shared information between suppliers, producers, and purchasers leads to better demand forecasts. Likewise, it streamlines logistics: All partners know what arrived when and where, as well as the condition it’s in.The need for privacy and security have always been obstacles in a global supply chain that runs on partnerships and predictability. Blockchain technology bridges that gap by making important nonsensitive information visible but immutable, all while keeping sensitive data private. It’s almost like having an independent auditor who tracks everything happening in the supply chain objectively, automatically, and without stopping. In this way, stakeholders get a transparent view of what’s going on and can align their efforts for shared benefit.
How to Implement Blockchain Into Your Digital Strategy
Like any other process change,implementing blockchain in supply chains, payments, or any other aspect of operations takes a clear strategy. Advantageous as blockchain might be, a tool is only as strong as the person using it and the purpose it’s carrying out. Blockchain adoption could be the highlight of digital transformation — but without proper planning, it risks under delivering. With that in mind, consider these points in your blockchain implementation quest:
- Educate decision makers about what blockchain can and can’t do, how it works, and the impacts it could have on your organization’s skill base and culture. Be optimistic but realistic.
- Identify pain points within the organization that blockchain implementation could resolve. Alternately, identify pain points that could inhibit blockchain adoption.
Three examples of areas where blockchain is an obvious choice for consideration are:
- Dispute resolution: Look for operations within your company that spend a significant amount of time focused on dispute resolution and remediation, for instance. If the dispute arises due to differences across company boundaries and ledgers, a shared ledger (such as blockchain) should be considered.
- Removal of intermediaries:Many financial companies look toward blockchain solutions to remove intermediaries in cross-border payment situations. Today’s systems are slow and costly, and blockchain is employed to reduce costs and handle settlements in near real time.
- Process simplification: Claims settlement across institutions often requires a complex exchange of information. These are often delayed in batch mode or prolonged in the quest for more information before payments can be settled. Blockchain can enable near real-time settlement of claims when all the parties share a ledger and the trusted smart contracts within the ecosystem initiate claim settlement processing based upon established rules.
There are also some areas where blockchain isn’t a good fit. Two examples include:
- Entirely private processes: A situation where a process must be centrally controlled with all data required to be private might be inefficient, but blockchain likely isn’t a good consideration for solving the problem.
- Low-quality data: Blockchain can’t improve data quality (and due to it ensuring data’s immutability, it could even exacerbate the situation).
- Reassess the value streams within your organization before analyzing whether blockchain could help or hurt those efforts. Don’t try to force this technology into a digital transformation road map where it’s not appropriate. Similarly, don’t dismiss blockchain for arbitrary reasons
- Investigate different methods for embracing blockchain: build a solution from scratch, adopt an existing solution, develop a blockchain consortium, or join an existing consortium. If you create your own pilot blockchain consortium, ensure you have representatives for vendors, partners, and competitors. Use this program to develop working knowledge, resolve any setbacks, and test the viability of blockchain.
- Be cognizant of what your blockchain journey will entail — both the good and the bad — and dive in with eyes wide open. Remember: This is a rapidly developing area where expectations evolve constantly.
- Commit to using blockchain strategically to gain market share or competitive advantage, not just experimentally. Without the former, you’ll have an exciting yet irrelevant high-tech toy.
- Engage experts who can consult about where, when, why, and how to implement blockchain. Blockchain consulting firms exist for this very reason, and they’d be happy to guide you through the many stages of your blockchain journey.
- Make continual learning a priority while exploring how to further leverage blockchain technologies in conjunction with partners, vendors, and the ecosystem as a whole.
- Lastly, remember that blockchain is just one component of digital transformation. Explore it in the context of other technologies coming online and the big-picture plans developing around your company’s tech-driven future.
Act Boldly With Blockchain
It’s hard to overstate the potential of blockchain. After all, it’s something with the potential to improve sweeping aspects of operations while creating opportunities to revolutionize the business model and strategy from the core of the organization outward. If the digital transformation road map is about turning companies into something totally new and definitively better, blockchain can make a significant impact.
It’s no wonder why Gartner thinks blockchain will create over $176 billion in business value by 2025 before skyrocketing to $3.1 trillion by 2030. And the blockchain use cases outlined above are hardly the only areas where distributed ledgers will elevate expectations; areas such as compliance, cybersecurity, and data-sharing will improve as well, to name just a few. Given what blockchain can do, it’s easy to see why it’s a critical component of any robust digital transformation framework.
Early adopters will reap the rewards of blockchain sooner and see them multiply over time. Holdouts won’t just miss the benefits of blockchain — they’ll also inhibit their own digital transformation efforts in many cases. Put yourself at the front of the pack by leveraging blockchain technologies early and to the fullest extent possible.
Want to learn more about ensuring a viable, realistic, and rewarding blockchain implementation within your own organization? Download our free whitepaper to get started.