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Set Yourself Up for Success

Companies typically start their blockchain journey by learning with the community and running proof of concepts (POCs). As they get to know more about blockchain, they realize that it is a team sport, so they go about strengthening relationships in the industry and focus on building a business network, perhaps in the form of a consortium. Next, they get to a point where they can run a pilot and commercialize the solution. With that backdrop, let’s look at a few items that have shown up in my conversations as ideas that can help make that journey smoother.

Managing Perceptions

As I learned more about blockchain, I reached a point where I was looking to define a financial engine to power my blockchain business. I wanted to join a mastermind group that could act as an advisory system and a support group to stay on track. After a few web searches, I decided to approach a company that would bring together a group of people in cohorts to start mastermind groups.

To their credit, they were very meticulous in their approach to forming a group. The first part of their process included filling out a questionnaire, followed by an interview. One question was to link a web page describing my company’s services. I gave my blog as the link. As the interview started, the first thing the woman tentatively asked me was, “So you do something with Bitcoin?”

At the time, I found it funny because, on my blog, there is not one single mention of the word “Bitcoin.” Instead, it is all plastered with the term blockchain. The title of the blog was The Blockchain Stream of Consciousness. And yet, she had registered Bitcoin in her mind.

As I am talking to more and more people, it is clear that projects centered around blockchain technology face headwinds of perception.

Blockchain and Bitcoin are tightly intertwined in general perception. And by extension, blockchain has to fight Bitcoin’s tainted connections with nefarious activities like money laundering, funding of terrorist activities, the dark web, Silk Road, etc.

As the early enthusiasts of blockchain start conversations with folks in their companies, it is necessary to manage this association and perception about a blockchain project. Be prepared to answer the question: “Isn’t blockchain the same as Bitcoin?”

“One barrier is perception. When you use the term blockchain, people hear cryptocurrency. They hear Bitcoin, and they don’t hear blockchain. We just started calling it ‘Digital Identity’ and not so much blockchain because it distracts people,” says Doug McCollough.

Doug is the CIO of Dublin, Ohio, and is currently leading the charge for the city to integrate emerging technologies into its daily operations. Dublin is a small community of around fifty thousand people in the northwest corner of Ohio. It is a technocentric city that has embraced using technology to advance its economic development interests. And from there, they have embraced the idea of being a leader and innovator in smart cities.

Doug is very aware of the possibilities of digital disruption to the government. He tries to keep his city ahead of the curve by embracing emerging technologies in city operations. But nobody sees disruption coming. Most of the time, the prevalent narrative is of the status quo with incremental changes.

One example of government disruption is how people now trust map services in deciding whether or not to travel on the road. If your GPS and mapping service says a road is open, you think it is open. However, somebody might have removed a sign that city officials put up. If mapping services advise people to undertake actions according to themselves—that is a disruption.

Cities are moving onward in their journey to become smart cities and rely on data-driven decisions. Software companies, not the government, pioneer all the technology that is going into making connected vehicles. And when software companies get better at directing people’s traffic and keeping them safer, governments are no longer doing it. The government is no longer the primary safety partner in citizen’s lives—that is a disruption.

“We tend to look at cities and say, ‘Stay in your lane, plow the snow, mow the grass, fix the potholes, cut my taxes, and I’ll be happy.’ We don’t think about all of the various services and things that a city does and has been doing. If cities do not innovate, then we are going to be disrupted just like any other business. . . . We are candidates for innovation just like anybody else. I do believe that there’s going to be a new distributed data environment. Just as the web changed everything, blockchain and distributed data environment are going to change everything,” explains Doug.71 For Dublin, that has been a driver for pursuing the blockchain-based digital identity project—to prepare for possible disruption by the technology.

Besides the challenge of association with Bitcoin, using the word blockchain starts distracting people on other fronts too. They start associating the project with the flavor of the day and associating it with following the hype. The conversation strays away from looking at the merits of the project deliverables. That also starts coming in the way of the funding available for these innovative projects.

Invest in Creating a Community

It helps to create a community of enthusiasts that would help define the use cases. On his part, Doug McCollough started the Dublin blockchain group. He wanted to bring together tech companies and individuals in the Dublin area interested in blockchain, who were probably experimenting behind the scenes. With that effort, a few companies started emerging as the ones who were passionate about blockchain.

The group’s activities helped start the conception of the idea about what would be a great use case for how the government could be using blockchain to create value for its citizens. And now, the Dublin blockchain group helps create a sense of community and accelerates learning among people who are curious about blockchain technology and are experimenting in the background.

Besides community building outside the company, investing in innovation teams internally looking at various use cases for blockchain will go a long way. Organize them into a community of practice or center of excellence. To respond to industry challenges, the Royal Bank of Scotland (RBS) identified an opportunity in blockchain quite early. And they were prepared to spend some budget at the beginning to play with and test blockchain, which was something new that was coming up.

Very early on, they had engineering teams look at the technology and get used to it. It then got to a point where it was clear there were enough use cases to justify investing in a community of practice with its center of excellence around blockchain.

“And that would be my number one piece of advice to any organization early on in their journey or starting to commercialize projects on the blockchain. You’ll have different technological camps sitting there and saying, ‘I like iPhone; I like Samsung.’ You are going to have the same viewpoints to blockchain technology,” says Andrew Speers.

At the beginning of your blockchain journey, your company will have a limited understanding of commercializing new technology. Having it run through a centralized function focusing on blockchain technology helps evaluate the use case more robustly. This will also help identify the proper use cases to pursue as you start your blockchain journey. On their part, State Farm began to look at blockchain in 2016. As Dustin Helland explains, “We were able to pretty quickly identify that the blockchain technology underlying Bitcoin could have applications much broader than just cryptocurrency and we established a group in innovation area to prioritize and explore potential opportunities.”

Because you are working with competitors, you have a need for a new way of organizational thinking for blockchain projects. An approach leading with education and collaboration will help, and the community can help with the whole process. For State Farm, initially, the teams focused on working across multiple business lines—for example, subject matter experts in the claims department, underwriting, financial services, etc.—to educate them on the capabilities of the technology. They also worked to identify and evaluate any potential use cases that State Farm thought might be of value.

The focus then shifted into learning by aligning a few of the identified business opportunities with some development teams and created early prototypes. Eventually, they moved to a stage where the focus was on product delivery and business value realization based on the technology. The flagship project out of those efforts is Auto Claims Subrogation, built collaboratively with USAA.

In addition to community, it takes a change agent who can be one of the early people in a company that is evangelizing the emerging technology forward. It helps if they are trusted and knowledgeable within the organization. They need to be subject matter experts who understand this technology and what it makes possible. Blockchain technology reaches into the depths of an organization’s plumbing. It’s essential to take the time to spread the gospel of blockchain.

As Shahar Steiff from PCCW pointed out to me, it helps to have the person at the top, with the executive behind the project. Communication of a clear vision goes a long way, and that needs to be done with patience and persistence.

“For most participants, this is not just technical evolution; it is also some sort of internal revolution within the company. Telcos and cloud providers today understand they are no longer delivering a service; they’re delivering an environment and an experience. They are becoming a technology company. And it is not easy to take a legacy telco and turn it into a technology company. It needs to be a complete mindset shift. It needs to be driven by management,” explained Shahar.

Shahar Steiff has been leading PCCW Global’s development of blockchain-based platforms to support automated-service life cycle. PCCW Global is a leading communications service provider participating in the Communications Business Automation Network (CBAN). CBAN is a network of telecom industry leaders collaborating around emerging technologies to benefit the global carrier ecosystem. And one of the initiatives underway is blockchain-assisted automated settlement.

Consumers generally identify the telecom industry as a single entity. Even though, to deliver services across countries, multiple operators need to come together behind the scenes. The data traffic has to flow through one carrier’s infrastructure to another before reaching the consumers’ devices. When you and I, as users, make a telephone call, we pay our telecom company for the services rendered. In turn, our telecom company pays the various information and communication technologies (ICT) providers along the telecom supply chain. This telecom supply chain eventually establishes an end-to-end connection from a phone in one country to a phone in another country. ICT providers complete the settlement for all these transactions. We, as consumers, have no visibility into what’s happening behind the scenes.

To activate a business relationship that serves us, the consumers and two ICT companies will typically sign a master services agreement (MSA). The agreements are still commonly done manually. The MSA defines the terms and conditions of their relationship. Based on these agreements, to deliver a service to the customer, a price quote is configured. Service delivery gets set up after understanding the customer requirements, designing the solution, submitting the quote, and securing an order. And this delivery can take anywhere from a few seconds to a few months. Data can start flowing to service the customer only after the service delivery setup is complete.

As the customer starts using the service, all the data usage is recorded, and the telecom providers generate invoices. As the operators verify the invoice charges submitted to them, they typically find incorrect charges. The discrepancy could be because of various reasons, like miscalculation of time service or use of the wrong rate. After identifying these disputes, they go into the dispute resolution process to settle the amounts. The actual time varies a lot, but it takes about three months to get the service up and running. From the time they provide the service to the time they get paid after the invoices’ settlement, it takes about eight weeks. These extended times are primarily caused by the manual processes involved; they reduce the company’s profitability and create a negative customer experience.

With the blockchain-assisted automated settlement, disputes due to record mismatch were eliminated. The usage is measured and compared through blockchain in real-time, drastically reducing the chances of discrepancies. All in all, they can reduce the time for the price quotation process from days to seconds. Service delivery timelines are reduced from months to minutes. Traffic measurement and reconciliation have been reduced from days to seconds. And the settlement itself has been reduced from weeks to seconds. Overall, they have achieved cost reduction, acceleration of processes, and the ability to build new revenue streams from services that they were not able to deliver earlier.

As I marveled at their results and asked Shahar about the lessons he gleaned going through the experience, he explained, “The companies that joined forces in that project were very much driven by CxO-level executives to make it happen. They were driving the product teams and development teams. Industry adopts three horizons. Horizon one is our existing services. Horizon two is what we are building today, i.e., tomorrow’s services. And horizon three is what will happen three to four years from today. Horizon three is something that really needs management with the right mindset. With a mindset to push toward something that will only realize and give revenues in a few years. Maybe by the time that the respective executives will not even be working at the company.”

Try and Choose Low-Risk Processes

as the First Use Case “We chose a very small process. Spunta is an internal process. It doesn’t involve external customers. And it’s not particularly known. So it was a good, a sort of, natural sandbox,” explains Silvia Attanasio.74 Silvia is the head of innovation at ABI (Italian Banking Association) to support innovation among the banks in the Italian Banking Association. ABI lab is a consortium owned by 150 banks. They work with the banks and for the banks.

It helps lower the risk with anything new by choosing low-impact processes to start with so that it doesn’t ruffle any feathers even if there is an issue. In December 2017, ABI labs began working on a project to address the interbank reconciliations process (also known as Spunta) using blockchain technology. To understand if blockchain technology could help, the team visited fourteen different back offices in various cities in Italy. They analyzed traditional processes based on how decisions are made and the organizational structure of these offices. They also focused on the interaction of one bank to another and the resulting flow of activities.

Spunta is this incredibly complex Italian interbank reconciliation process chosen as the subject of the blockchain project. This process has been in place for decades, based on interbank agreements beginning 1978. In Italy, these are bilateral accounts that are co-owned by two banks. Ownership of this account switches from one to the other bank every three years. When the account is Nostro and the bank has ownership of the account, they can see all the account details like balance, transfers, etc. But when the ownership switches to Vostro and the other bank has ownership, Bank A cannot see any details regarding the account.

Suppose Bank A needs any information in a vostro account. In that case, they need to connect with the other bank using traditional communication mechanisms and ask for the information. Back offices of the banks run the process to clear mismatches in the double-entry bookkeeping and make sure that the banks at both ends of a transaction agree on all aspects of the transaction. It gets complex because it is a single account that tries to reconcile the viewpoints of counterparties on the same ledger. And, what happens if there is a mismatch? Resolving these mismatches requires a lot of time and effort.

For ABI, the Spunta process seemed like a perfect use case for blockchain. People in the Spunta process were asking for improvement. There was a willingness to spend time modernizing Spunta and its associated agreements. It was essential to get the right people from the right organizations to participate. The conditions were right for that to happen. On the other side, the innovation team wanted to explore this emerging technology’s potential using a low-risk process. It was essential to choose a relatively small internal process that does not impact the customers. It was important to select a process on which the team had the authority to make decisions. There was no reason to include other regulatory bodies or the government in making any changes.

There would be various considerations in choosing a particular use case to implement with blockchain. Factors to look at would include the potential business value opportunity presented to you with the proper use of blockchain technology. You would also need interest from other partners in the industry because, after all, you are working with WE technology. One thing to look at is the hurdles you need to jump through to drive the solution to completion. That impacts the pace at which you can move the project forward. If we use a low-risk process, we can have better control over the pace of the project.

As Dustin Helland explains, “So, net subrogation as we built it includes data that organizations are primarily already sharing, and it also doesn’t include highly sensitive customer information. While we’re not necessarily avoiding those challenges, we just wanted to be intentional about which ones we chose to take on.”

Early Focus on Education

Blockchain projects need a new way of organizational thinking because you will now be focusing on collaborating with your competitors. An approach leading with education and collaboration helps. Investing in building the community also helps with the whole process. For ABI, The business side did not know of blockchain technology. At the same time, the technical side of the house did not know of the Spunta process.

The first order of business, then, was to get them together. The intent was to help the business understand different competencies of the technology and the technologists to understand the ways of the business process. To further cement this cross-pollination and help gain confidence in the technology and avoid any reluctance amongst the participants, they decided to conduct a POC.

As Silvia explains, “One of the main goals of the project was to fully understand the technology, the potential and the way this technology could change traditional banking. So, we incorporate in the project also some learning phases. We’ve got learning sessions with the experts . . . to an audience of fifty or sixty people from back offices, from innovation and from IT of fourteen different banks.”76 That investment in learning helped with increased participation from the consortium members.

A blockchain project needs very different thinking, for one, because you end up working directly with competitors. But, internally also, many other groups need to get involved. Beyond the technical and business teams, to manage all the consortium-related aspects, teams such as legal, security, risk, compliance, public affairs, etc., will also need to get involved. As Dustin Helland explained for State Farm, “The way that we got the support and buy-in has been through education, collaboration, working side by side, and consistent transparency.”77

Careful Thought Leadership to Decide on the Use of Public vs. Private Blockchain: One critical decision in our blockchain journey will be about the choice of public versus private blockchain—more importantly, the choice to proceed with either an open public or closed private network. Or maybe—a hybrid? Focus on deciding whether you will use a private or public blockchain network is necessary because tools matter. For enterprises, privacy and security are essential aspects to keep in mind.

Here are a few terms to help us better frame the conversation. It is good to understand these as they are not always accurately used in discussions.

Public vs. Private: This is defined based on who can write data to the blockchain. If anyone can write to the blockchain, then it is a public blockchain. Bitcoin and Ethereum are good examples of a public blockchain. On the other hand, it is a private blockchain if the write access is controlled.

Open vs. Closed: This is defined based on who can read data from the blockchain. Open blockchains allow the general public to consume data. Closed blockchains control access through permissions.

Permissioned vs. Permissionless: Role-based access defines this aspect. Permissioned blockchains have the native ability to track and manage the identity of entities accessing the blockchain.

As per a PricewaterhouseCoopers survey on how businesses are managing blockchains, companies are adopting both approaches; while 40 percent are using permissioned blockchains, 34 percent are working with permissionless chains, and 26 percent are taking a hybrid approach.

Looking to use case considerations, companies will decide what path to take.

Coadjute first started working on their project by participating in the UK Land Registry’s procurement process. They realized that “for a government use case, a public platform enabled by cryptocurrency practically wasn’t feasible. The data would need to be in the UK.”

For SCB, one major decision they needed to explore was this: Are you going to use a private blockchain network or a public blockchain network? The deciding factor was the visibility of transacting parties. As Orapong explained, “With the procure-to-pay application, you normally deal with a closed loop—a limited number of suppliers and a limited number of buyers. You cannot even identify who’s the one who executed the trade. But the fact that you see information in the trade is a risk. If you see the price, even if you don’t know who buys that product, but you see a different price, and you see a buy, that creates trade issues. That’s why first we assess: Are we going public blockchain? Are we going private blockchain? And we decided private blockchain.

For Optum, managing the politics of technology and support for tokenization were driving factors in deciding to go with a public blockchain network. “There are three legs to the stool. It’s politics, economics, and technology. If you decide to make your own network, you have to tackle all three simultaneously. If you decide to piggyback on public Ethereum, and you can have a use case that runs on that, then you’ve essentially removed a lot of the politics around the actual execution of the network. And there are already network effects. So there’s a huge advantage to moving every private permissioned blockchain to a public permissioned blockchain, as quickly as possible.” That’s how Tony Little explained it to me.

It makes sense to follow the general investment of dollars and time as criteria in choosing the technology. Investment of dollars by different players in a protocol and investment of time by developers in building the protocol means a robust ecosystem. That will help you connect your stack to proven technology. If the protocol supports tokenization, it helps you view data as an asset that can be the basis of microtransactions powering your consortium. Otherwise, you’ll end up using a third party and adding transaction cost to the consortium’s economy. “I think there’s a whole lot of work that’s being done out there today that just ends up falling flat because they don’t think about this multidimensionality,” explains Tony.

State Farm also looked at multiple blockchain protocols. As Dustin Helland explains, “Early on we did take a look at some of the capabilities of the public blockchains, but then like most large enterprises, quickly latched on to the need for privacy and protection.”

State Farm is using Quorum, which allows for an Ethereum-based private permissioned enterprise blockchain. It is an open-source technology that was initially released and governed by JP Morgan. Quorum enables permissioned network and private transactions within the Ethereum network, so they are not using the public Ethereum network in their solution. There were a few key factors that they took into account when they were deciding on a specific blockchain network.

First, they needed a permissioned blockchain as transaction privacy was essential for them. Second, they looked at the maturity of different platforms at the time of evaluation. One thing that made them comfortable about Ethereum was that it had gone through public network adoption for quite some time. Third, they also took input from their developers to understand the developer’s point of view. What were the developers more comfortable working on? Developers look at different things like available documentation and contributions made between various individuals, companies, etc.

One notable thing to look at is how the three leading platforms’ available architecture influenced their decision. For both R3 Corda and Hyperledger, the network architecture allowed for a master node, potentially having more power and authority. Whereas in Quorum, every node has the same privileges. As State Farm started on the project, choosing the architecture provided by Quorum was essential. The choice would help avoid any perception that one network participant is trying to gain some sort of an advantage over the others.

Look at Ways to Fund the Project Creatively

For emerging technologies with no clear ROI, funding can always be an issue. You may have to get creative in getting the projects off the ground. Doug McCollough, with the city of Dublin, was well aware of scarce funding in public space. There is not much funding available for innovative projects. The public sector project environment is also very risk-averse (which could also be true for very large companies).

Instead of using startup principles and modern IT practices like agile development and iterative processes, the approach in public sector funding is to have fully baked ideas that fit into a budget. That approach helps secure budget allocations. After that, the focus is on the project’s success rather than experimenting with innovative technologies. As Doug explains, “We don’t have a lot of funding. There’s no funding for these kinds of innovations. So you kind of have to partner and do public-private partnerships and explore a really low-budget kind of experiment. And that’s why we’ve done a proof of concept in a very limited way.”

In the case of Coadjute, it was quite a joint effort where all the participants contributed. At the same time, Coadjute used its resources to build the core platform. As John Reynolds explained, “It genuinely was kind of a collaborative effort. If any one organization had tried to do it, it would have been a really expensive project. But when you spread the cost of the project across forty businesses or so, it was affordable.” It ended up being quite the decentralized funding model. Very much in line with the blockchain’s decentralized ethos.

Prepare for Challenges with Data Standards

Data standards will play a significant role in how the project will move forward toward success. If there are existing industry standards, it’s better to adopt those instead of reinventing the wheel. For Jon Kuiper and Vinturas in the FVL space, the industry has a history of multiple costly EDI connections spread around, which leads to a lack of standards in transactional processes.

They focused on the proof of delivery document (CMR), which is the document used to hand over the vehicle, e.g., from a transport company to the dealer, and is ordinarily paper-based and handwritten. They relied on the electronic CMR protocol approved by most European countries and created by regulatory bodies. Providing this document on the blockchain becomes essential from a fraud perspective.

As Jon Kuiper explains, “We are providing our infrastructure for these electronic CMR documents. And of course, it’s blockchain, it is immutable, it’s a legal document, and we can provide it to the industry stakeholders because the standard has been defined from a governmental and regulatory perspective and will be implemented in the coming years in all countries of Europe. . . . We think it’s very powerful, because an electronic CMR, coming back to the fraud discussion again, for people who are shipping, it’s very important that it is legal and yet not a paper-based, but electronic document.”

As I was talking to Jesús Pizarro about standards, he commented, “The reason I like working with IBM Food Trust is that IBM is using international standards.” Jesús is the VP of financial innovation at Heifer International. He is leading strategy at Heifer Lab’s blockchain offerings for agricultural development and financial inclusion. Heifer International is an international NGO with a mission to end world hunger and poverty while taking care of the earth.

Heifer is using blockchain to accelerate its mission, which is ending hunger and poverty while they take care of the earth. As they started working with blockchain, they stipulated their vision to create a blockchain network in the agricultural sector where a farmer can access working capital, technical assistance, and fair markets. Their approach is one of partnership with government, universities, and other organizations.

Heifer partners with others to use blockchain to fast-track their mission. They are involved with three different projects in the supply chain: poultry, cocoa, and coffee. In poultry, they are working on the Ethereum blockchain. For coffee and cocoa, they are partnering with IBM Food Trust and the International Development Bank (IDB) on various other projects.

Heifer wants to use blockchain to improve market transparency. In agriculture, the small farmer is invisible, and the consumer is blind. The consumer doesn’t know where their food came from, nor do they know how it was prepared. And we, as consumers, of course, do not know anything about the small farmer. It is the same situation with the small farmer as far as their visibility into their product’s consumption is concerned. For Heifer, blockchain gives the possibility of transparency, which, in the end, will improve the markets.

As Heifer worked through the various blockchain projects, amongst other things, one of the important lessons they learned has been about the standardization process. As Jesús explained to me, “One of the problems is that we also need to do the standardization of standards. Even if you use GS1, you will find that GS1 is also very flexible. There are different ways to do the implementation of the standard. For blockchain projects to be successful, we need to be using the same standards. I would say this is the top lesson learned.”

Of course, much more goes into making a blockchain journey successful. A few things are unique to blockchain due to its nature and because it is in the very early stages of its development.

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