Building business cases for blockchain - Blog number 1

Two questions you might ask are: “what’s different about building a case for blockchain”, and conversely “what’s the same compared to what’s gone before?”

I have 20 years of Business Value Assessment (BVA) experience going from Package Enabled Business Transformation to e-business, to Enterprise Application Integration, Service orientated architecture and Enterprise Service Bus to dynamic SOA and BPM and now blockchain. I can tell you that a lot is just the same. You need someplace to start and a roadmap of projects to follow. Projects to select are informed by use cases, references and the benefits others have achieved. You need to align your projects against the business issues, strategy and drivers of your client and sometimes the technology is disruptive enough to even inform what the business strategy should be. You prioritise in a “two by two” going from easy/low cost and quick benefits to harder/more costly but strategic impact. You break something difficult into easier, smaller “chunks”. You need a “before” and “after” picture to visualise how the process will change and you design with your users’ experience in mind. You need benefit categories with Key Performance Indicators and benchmarks and targets of best in class improvements that can be achieved. You model high, medium or low benefits. You quantify benefits into a Cashflow benefits stream. You apply costs which could be “Buy” or “Build”, which include software, services and infrastructure and you get a payback (breakeven), Return on Investment and Net Present Value (Internal Rate of Return) for your Cashflow.

So, what’s different? Well, you are now building a case at the level of an eco-system for a network. The basis of competition has moved from “company vs. company” to “ecosystem vs. ecosystem”. Your network can only work if there are enough members on the network to get a “network effect”. The first difference is to identify who are the members you need on your network. Next you need to consider the market or more likely an initial market segment. How big is the market opportunity if you add up the benefits for all the potential members? Can you identify a segment of the market where you can get 100% of the market? A single Port doesn’t want to deal with 10 blockchains for digitising global trade. Is there a control point? Chances are, there are not going to be two blockchain solutions for KYC/AML for large corporate banking clients – it makes sense for there to be just one blockchain for that.

Next you need to consider the entry point. There are three top level entry points:

1. Private “Business Differentiation” Network. Collaborate with non-competitors to enhance today’s differentiating processes B2B-2C

2. Industry “Marketplace Utility” Network. Industry utility solving common industry problems. Collaborate with competitors to consume (buy) or build market utilities to optimise shared B2B processes

3. “New Market Model Network. Collaborate with non-traditional partners to innovate to build new value propositions, digital platforms and marketplaces

If your use case is a Private “business differentiation network” then chances are that you have a big powerful client that can encourage upstream (its suppliers) and maybe downstream (its customers) members of its supply chain to join its private network. However, there must be benefits for each member type to encourage them to join. What’s in it for me? This is the incentive model, for mutual benefits, the costs will be carried by the founder and the members may join for free or, if the benefits are high enough the founder may be able to charge a fee.

If your use case is an Industry “Market Utility” Network then a consortium of equals is a good approach. For example, there's a ton of duplicated effort in the processing of guarantees between banks, and owners or users of the asset to be leased. With a shared view of the truth most of this admin effort falls away and everyone wins. But - this only works if there are most if not all the market players on the same blockchain as a marketplace utility. You might want to form a new legal entity as you set out to achieve that magic 100% market share. In this case economies of scale are achieved as costs are spread across the community probably via a “joining fee”. In addition, members pay a transaction or monthly fee. Alternatively, a private network from type 1 could evolve into a marketplace utility. Here a solution is being offered to the market. New entrants to the market must decide if they are to “build” their own competing solution or if they will simply “buy” and on-board to the existing blockchain solution and just pay a fee to someone else.

Finally, you could have a type 3 where you are looking to start something entirely new. You are looking to build a brand-new market. Perhaps there is some market that is underserved or not served at all today but where blockchain makes a brand-new approach possible. Here you need to know – how big might the market be and how can the solution be monetised? What are the various ways that the solution can be charged for and who would pay what? An example is the Plastic Bank which turns waste plastic bottles into a token that can be exchanged for useful things like heating oil or school fees. Plastic is turned into pellets to be sold to brands as “social plastic” or to be used to create 3-D printed objects.

Your project roadmap starts with a Minimum Viable Ecosystem and grows from there to that magic 100% market share of the market segment you are targeting.

On the cost side of the business case there are differences too. Here you need to deal with Develop, Govern and Operate. Develop is not so different from our experience save for the fact that the blockchain is only likely to be 15-20% of the overall solution. In one well known blockchain there are 26 services of which only 6 are directly blockchain. Govern is a key cost. This is where you on-board new members which could be anything from giving them an iPad to key in data to a large integration and fit-gap services project. And who pays that cost? Is there a split between a central and a local element? Operate can be largely passed to a provider if the network is using a Blockchain as a service.

Integration challenges will grow from blockchain to legacy systems to “blockchain to blockchain” as networks of networks start to form.

The final thing that is different with blockchain are the various roles that a service provider can play in the network. Are you looking for a technology provider: or a services partner, or a system orchestrator?