When Does Blockchain Truly Add Value Over Simple Digitalisation in Enterprise?

Introduction

The hype around blockchain technology is unmistakable, with evangelists claiming it to be the panacea for virtually every sector, from finance and supply chain management to healthcare and real estate. However, one of the most pressing questions is: When does blockchain actually add more value than simple digitalisation or automation through existing web 2.0 technologies, ERP systems, or even legacy systems? In this article, we will explore this question, arguing that the value proposition of blockchain exponentially increases as the number of parties involved in an enterprise ecosystem grows.

Blockchain vs. Digitalisation

Before diving into specifics, let's quickly distinguish between blockchain and digitalisation. Digitalisation encompasses a broad range of technologies designed to streamline operations, automate processes, and improve decision-making. Blockchain is a subset of digitalisation that focuses on enabling decentralised, transparent, and immutable transactions.

The Fallacy of "Blockchain for Everything"

A mistake many enterprises make is the assumption that blockchain can, and should, be used for everything. Contrary to this belief, the more confined the operations are to a single organisation, the less likely blockchain will introduce value over traditional digitalisation. Why? Blockchain's strengths—decentralisation, transparency, and immutability—are not significant advantages in processes that a single organisation can control end-to-end.

Case in Point: Internal Accounting

Take the case of internal accounting within a corporation. Although it’s a process-intensive and critical function, there is a single point of trust (the corporation itself), and therefore, the decentralised nature of blockchain would add complexity without substantial benefits. In contrast, modern ERP systems can manage these functions more effectively, with the ability to offer customised modules and features tailored to the enterprise.

When Blockchain Shines: Multi-party Systems

The utility of blockchain technology increases with the number of parties involved in a process. Its decentralised nature, coupled with the ability to create trust without intermediaries, makes blockchain an excellent solution for multi-stakeholder environments.

Use Cases

1.???? Supply Chain Management: When multiple vendors, suppliers, and logistic partners are involved, blockchain can introduce transparency and traceability that are nearly impossible to achieve with traditional digital systems.

2.???? Procurement and Contract Management: In complex procurement processes that involve numerous parties such as suppliers, subcontractors, internal departments, and regulators, blockchain can enhance trust and efficiency. By automating workflows and offering an immutable record of contracts and transaction history, blockchain minimises the risk of disputes, delays, and fraud, making the procurement and contract management process more transparent and effective.

3.???? Cross-border Payments: Involving multiple banks across various jurisdictions with different regulatory requirements, blockchain can streamline the process, providing transparency, traceability, and reduced costs.

4.???? Intellectual Property Rights and Royalties: Blockchain can simplify the management and disbursement of intellectual property rights and royalties, especially in industries like music, where multiple stakeholders like composers, artists, and producers are involved.

5.???? Regulatory Compliance: In sectors such as healthcare and finance, which require compliance with complex multi-party regulatory requirements, blockchain can provide an immutable audit trail.

Conclusion

As we have argued, the real value proposition of blockchain comes into play when multiple parties are involved in a business process, bridging operational gaps spanning over finance, legal, and operations. While blockchain is a powerful technology, its true potential is unlocked not when it's used to replace traditional digital systems within a single enterprise, but rather when it's applied to complex ecosystems that involve multiple stakeholders.

By understanding when and where to deploy blockchain, organisations can leverage its full potential, avoiding the pitfalls of unnecessary complexity and cost.