We’ve all heard that blockchain will revolutionize business, but it’s going to take a lot longer than many people claim. Like TCP/IP (on which the internet was built), blockchain is a foundational technology that will require broad coordination. The level of complexity – technological, regulatory and social – will be unprecedented. The adoption of TCP/IP suggests blockchain will follow a fairly predictable path. While the journey will take years, it’s not too early for businesses to start planning.
Blockchain – a peer-to-peer network that sits on top of the internet – was introduced in October 2008 as part of a proposal for bitcoin, a virtual currency system that eschewed a central authority for issuing currency, transferring ownership, and confirming transactions. Bitcoin is the first application of blockchain technology. The parallels between blockchain and TCP/IP are clear. Just as email enabled bilateral messaging, bitcoins enables financial transactions. TCP/IP unlocked new economic value by dramatically lowering the cost of connections. Similarily, blockchain could dramatically reduce the cost of transactions. It has the potential to become the system of record for all transactions. If that happens, the economy will once again undergo a radical shift, as new, blockchain-based sources of influence and control emerge. The Internet of Things (“IoT”) will be key enabler in this revolution.
What is the “Internet of Things”
The Internet of Things is only a fancy word, a catchy phrase, for smart connected products. The smart connected products have evolved over the last 20 plus years. Michael E. Porter and James E. Heppelmann (HBR, November 2014) conceptualize how IoT is requiring companies to build and support an entirely new technology infrastructure. This new “technology stack” will enable the connectivity of many devices whereas it could change the very nature of economic, social, and political systems. Pause a second, and think about “smart contracts”. This blockchain application automates payments and the transfer of currency or other assets as negotiated conditions are met. For example, a smart contract might send a payment to a supplier as soon as a shipment is delivered. A firm could signal via blockchain that a particular good has been received – or the produce could have GPS functionality, which would automatically log a location update that, in turn, triggered a payment. Before we get too excited here, though, let’s remember that we are probably decades away from the widespread adoption of smart contracts. They may not be effective, for instance, without institutional buy-in. Nonetheless, the question becomes if why you should prioritize blockchain applications now, before you are too late. There’s a strong possibility that blockchain will affect your business. The very big question is when. Financial services companies are already well down the road to blockchain adoption. Manufacturing is not.
When to use the “IoT” tool
A.) Each organization, each executive should know their position in the value chain of their own industry. Dependent on the “clockspeed” in your in your industry, you understand if product or service lifecycles are 6 months, 3 years or 10 years. This is the key role of an executive, to assess its position in the value chain and to determine if it has to invest in new or adjacent capabilities to serve the market and customer changing needs. B.) Once you have determined a gap in customer need and your own capabilities, then you can take the next step to asses if IoT will be right tool to fill that gap. The Internet of Things is not a solution in my view. Again, IoT and Blockchain are mere enablers to serve a need. IoT is not a goal on itself. IoT is another tool to solve complex problems. I’ve experienced three times within my career that Smart Connected Product is offered as a solution while the marketing team or the business does not even know what the problem is their trying to solve. They were pushing technology instead of letting the market pull the solution. C.) Lastly, if you are sure that IoT will be the correct tool, or part of the toolbox, to solve a customer problem, then it’s the question if you should build the capabilities in-house or outsource the capability and related activities to an experienced 3rd party partner. The explosiveness of the IoT market has created a vast majority of players in the market. There is no player in the market that offers the complete “technology stack” or is vertically integrated across the value chain. This current state of the market confirms that some portion will have to be outsourced, and your company has to select the right partner to develop, launch and support the new “technology stack”.
How can I help you?
Technology and the passion to solve complex problem is the core of my being. At the early age of 14 I was solving complex mathematical problems. I turned 18 and I figure out that I should be going to the Technical University of Eindhoven to get my master’s degree in Applied Mathematics. Here I am 15 years later, and I did not turn out to be an engineer. No way! I’ve learned a couple of things in life. The most fundamental is that there’s nothing more complex than the human being, and there’s no mathematical model that is able to deduct the human being to an abstract simulation model. There are too many variables to be captured in linear programming or calculus model. Human beings are far more fascinating than discrete algebra or numerical complex problems. Humans respond to the environment, each human being is a unique, each a blend of physical, emotional and transcending substance. Complex is now both technical as human. A complex problem consists of a technical challenge that needs to be resolved, but even if the technical portion is solved, the problem is not solved yet. You need to convince, persuade and influence the humans to use the technical solution to solve their problem. You need to change the perception of humans that the problem, the gap between “ist” and “soll” is closed. In some cases, you can solve a problem by only changing the perception without providing a technical solution. In essence, defining the problem, collecting the requirements, the constraints, investigating the needs and wants, is the most important part of solving any complex problem.
If you have questions or comments, feel free to reach me.