CIOs of companies are increasingly showing their interest in blockchain technology. In PwCs 2018 survey amongst a large number of business executives from 15 different industries in various countries, more than 80% of the respondents said their company was
actively involved with blockchain technology. Some more than others. This is not surprising given the fact that blockchain may bring a number of great opportunities for enterprises, ranging from improvements in business processes to a complete overhaul of
CIOs are under growing pressure to give guidance to decisions on ‘if’ and ‘how’ they should implement blockchain in their company. Within corporates there is a growing focus on the business challenges that blockchain could solve. CIOs however struggle with
the issue of how and where to apply this technology as understanding is far from complete. While this technology is developing and changing fast, the features of blockchain are not (yet) fully mature, and current frameworks are far from adequate.
Looking at the various blockchain solutions that are coming to the market there is a lot of confusion which one would really meet the needs of companies when making up their decisions. This makes it for CIOs a very complex exercise.
Gartner recently launched its Blockchain Spectrum that should enable CIOs to take the right decisions and “make the right investments at the right time”.
PwC Survey: present attitude of CIOs
PwC (PricewaterhouseCoopers) recently launched a survey amongst a large number of CIOs from various industries on their attitude towards blockchain. It gives us some interesting insights about the CIOs present view on blockchain technology.
This survey shows that many CIOs embrace blockchain. One of their findings was that 84% of the surveyed had at least some interest around blockchain. Not surprising given the enormous hype surrounding this technology. But the idea what blockchain really
means for their company and how it should be implemented is still rather limited.
Looking more detailed into the survey results a very diverse picture of how companies are involved arises. For many CIOs blockchain is not yet a priority, at least compared to other new technologies including AI, Big Data analytics, and cloud. Only 15% has
gone live while 10% is in the pilot stage. The large majority has just started in terms of research (20%) and development (32%).
The industries that are thereby leading are financial services (46%) and industrial products and manufacturing (46%). It should be mentioned that the financial services sector fell back from 82% in 2017. The survey respondents however still believe that
financial services will remain the “current and near-term leader” of blockchain adoption. But there is increased potential in other areas such as energy & utilities, and healthcare.
Non-optimal blockchain solutions
Most blockchain initiatives today are Proof of Concepts (PoCs) that do not have real value. The existing models for blockchain that corporates operate are immature and therefore not suited to realise the various capabilities of blockchain technology. Most
trials do not account for the evolutionary nature of blockchain “that leads to a spectrum of possibilities over time”.
“Inadequate understanding, lack of proven scalable models, inability to think beyond today’s business paradigms, lack of talent, and internal and external pressure to do something lead to tepid proofs of concept (POCs).” Gartner
Only 5% to 10% of current PoCs is expected to eventually “graduate to a preproduction” solution, with “major refactoring of requirements and architecture”. Even the ones that move beyond PoCs use just a “subset of blockchain capabilities” and that within
current business models. They offer little or no decentralization and tokenization, being the most valuable features of blockchain.
This has much to do with “unwillingness or inability” to think beyond today’s business models and processes, according to Gartner.
Barriers to blockchain adoption
As with any emerging technology, and notwithstanding the great potentials blockchain could bring, ICOs however see a large number of challenges, having doubts and concerns thereby creating barriers to blockchain adoption.
Even now, many executives are unclear on what blockchain really is and how it is changing the way they execute their of business. Many interpretations of blockchain today suffer from an incomplete understanding of its capabilities. When looking more into
detail, many CIOs have no real idea (inadequate or incorrect understanding of capabilities) of the scope of its impact on their business and what is needed to realise that, making them reluctant.
According to the PwC Survey respondents the biggest barriers for quick acceptance are regulatory uncertainty (48%), lack of trust among users (45%) and the ability to bring the network together (44%). And there are concerns regarding a lack of standardisation,
the potential lack of interoperability with other blockchains and the inability to scale.
The Gartner Hype Cycle 2018
And what does the well-known Gartner Hype Cycle 2018 tells us. While “interest in blockchain continues unabated among enterprises”, much of the focus is “however just educational and experimental” as CIOs struggle to understand concepts and applicability.
Industries have made some progress, but maturity timelines are uncertain, and adoption at scale remains very scarce.
Although blockchain technical capabilities are further evolving, they are not yet sufficient for “mission-critical” enterprise use. The market will traverse the “Trough of Disillusionment” stage before significant value is realized.
What do CIOs need?
So CIO’s need help in overcoming these challenges. CIOs who want to make good investments in blockchain need a clear model of the blockchain universe, its evolution, and various aspects of technologies and their importance. CIOs must understand the full
spectrum of blockchain possibilities. They thereby need to investigate their impact on both the enterprise’s operating model initially and its business models, in parallel and conjunction to other technologies such as Artificial Intelligence, Big Data Analytics
and others. This in order to maximize success.
Gartner Blockchain Tools for CIOs
In order to give CIOs of companies that are making up their mind for blockchain introduction a tool that could help them in their journey towards a well-defined solution, Gartner has introduced the Blockchain Spectrum and the Blockchain Conceptual Model.
Gartner’s Blockchain Spectrum provides a model for examining the evolution of blockchain solutions and how its phases align to the anticipated value businesses can derive. The Spectrum will thereby clarify different solutions for four main phases: blockchain-enabled,
blockchain-inspired, blockchain-complete and blockchain-enhanced solutions. This tool should give CIOs a better understanding of where we really are in the Gartner Blockchain Hype Cycle and its future evolution.
“When considering the use of blockchain, CIOs are in need of a model that can enable them to easily and accurately align the needs of their enterprise with the appropriate blockchain solution or alternate technology.” David Furlonger, VP Analyst,
Blockchain Conceptual Model
Next to its Blockchain Spectrum, Gartner created the Blockchain Conceptual Model that should help CIOs to explore business and technology possibilities. This Conceptual Model shows the scope of transformation enabled by blockchain and its key aspects. Blockchain
technologies offer a set of technology infrastructure components (such as distributed ledger, decentralised consensus, connectivity, connectivity encryption, protocols and tokenization). These allow for a set of capabilities to build digital systems, including
DApps, self-sovereign identity, smart contracts, smart assets, DAOs, and others. These capabilities, while influenced and constrained by a set of externalities (industry, geography, regulation, customer), can be used to achieve a set of pre-defined outcomes
for the company and the blockchain ecosystem.
The Four Phases of the Blockchain Spectrum
The Blockchain Spectrum is made up of four 4 phases of blockchain evolution mentioned before, broken down by offerings and characteristics, “some of which won’t fully develop for years”. The solutions in the first and second phase are only limited in their
use. More interesting for CIOs are the third phase of blockchain-complete solutions and the fourth one named the blockchain-enhanced phase. Each of these phases offers opportunities and risks, but CIOs should begin experimenting at some level.
Blockchain enabling experiments: 2009-2020
This early phase of blockchain-enabled experiments are built on top of existing systems to “reduce cost and friction in private, proprietary activities”. These blocks can also be used as part of non-blockchain solutions, for example, to improve the operational
efficiency of distributed data management systems. There they have only limited distribution capabilities to a small number of nodes either within or between enterprises. These technologies may provide the building block foundation upon which future blockchain
solutions can be created.
Blockchain-inspired solutions: 2016-2023
We are now in the phase of blockchain-inspired solutions. These are usually designed to address a specific operational issue. Most enterprise blockchain solutions available today fall into this category. They use components from the blockchain-enabling phase
to create “limited-scope projects”, thereby still heavily relying on existing architectures. In fact they largely replicate existing centralized enterprise systems. While this enables enterprises to experiment with blockchain, and could potentially solve challenges
like fraud mitigation and reconciliation reduction, they do not take advantage of the great potential of blockchain in terms of decentralisation. CIOs therefor need to investigate if the investment actually offers a better solution than traditional options.
Blockchain-complete solutions: 2020s
Blockchain-complete solutions, are expected to start in the early 2020s. They will feature all the key capabilities of blockchain and attempt to deliver a full value proposition including tokenization and decentralized operational structures. These solutions
will open the way to completely new business models that use smart contracts. To distinguish these solutions from blockchain-inspired solutions, CIOs should investigate “how the technology is implemented, how the solution handles data, where the data controls
sit, whether tokenization is a design facet, how transaction governance is enabled and how on-chain/off-chain data synchronization occurs”.
Blockchain-enhanced solutions: Post 2025
In this fourth phase (but that is still rather far away), blockchain solutions will be brought to the market that will fundamentally change business models. In these solutions smart contracts will have real autonomy and advanced technologies will enable exchanges
and transactions that are not possible yet. This phase will start to see Decentralized Autonomous Organizations (DAOs) and micro transactions performed by machines.
“Blockchain’s decentralized economic power and microtransactions, combined with the intelligent decision-making ability of AI and the sensory powers of IoT, will create never-before-possible technology constructs for business and society,” Christophe
Uzureau, VP Analyst at Gartner.
How should CIOs approach the blockchain issue?
It is however not a good idea for CIOs to simply wait for full-blown fledged blockchain solutions to appear. Unlike most emerging technologies, blockchain can bring dramatic changes to their business and operating models and they have to prepare for that.
Given the far-away horizon for complete and inspired blockchain solutions, CIOs take a carefully thought-out approach with blockchain. They should be careful about the assumptions they have going into various use cases. It is therefore very important for
CIOs to understand how blockchain will evolve until 2030.
One first step is to develop a clear understanding of blockchain’s capabilities and apply systematic approaches to determine potential use cases. They need to evaluate blockchain technologies sceptically, category by category, and product by product. CIOs
should thereby seriously consider how blockchain fits into their organization’s risk profile and investment scenarios. They will also need to understand the impact of these capabilities on the enterprise’s operating model and its business models. CIOs need
to should ask a large number questions about “tools, integration capabilities, data management, scalability and other fundamentals like who will be in the blockchain, who will be your customers, are you comfortable collaborating with your competitors etc.”
New business model: Strategic approach
The greatest challenge for CIOs will be thinking about and working towards a new blockchain-based business model. As blockchain is a collaborative issue, main question is: “How do you come up with a business model in which companies in an industry can agree
on common standards and operate together”?
PwC has come up with a strategic approach. By focusing on a number of key areas early in their blockchain efforts, CIOs can lay the foundation toward successful execution. These areas include: make the blockchain business case, build an industry ecosystem,
determine the rules of engagement, and, navigate regulatory uncertainty Make the blockchain business case
Make the business case
First of all CIOs should give strategic clarity when presenting their business case. This should ensure that their blockchain initiative has a business purpose around which they and other participants can align. For that it is needed to identify the business
value.Build an industry ecosystem
Build an industry ecosystem
In order to get the most out of blockchain, collaboration between (previous) competitors is key. This should result in building an industry ecosystem, aimed to meet industry-wide challenges. For that it is important that CIOs discover the benefits of collaboration.
Determine the rules of engagement
A third area of attention is determine the rules of engagement. Every blockchain will require rules and standards, particularly around what various participants will be able to access and how they can engage. CIOs should thereby explore potential blockchain
models and chose that one that fits best. Navigate regulatory uncertainty
Navigate regulatory uncertainty
Finally, CIOs need to “stay agile” to meet regulatory requirements as they evolve in the years to come. They should understand the shifting regulatory landscape.
Though blockchain provides for a great number of opportunities, present solutions do not justify great investments at this time. Today’s business and technology may be unable to optimally make use of the capabilities of blockchain technologies. Although
developing fast, it still has significant gaps in meeting business challenges to generate value.
“We have yet to find anyone who can produce a cost benefit analysts that shows positive return for private deployment.” Furlonger
“Blockchain is however more than a set of technologies. The concept provides new paradigms in how business can interact, transact or how assets are represented”.
Therefore CIOs should keep their finger on the pulse. Gartner Blockchain Spectrum could be a great tool for them, to come to the best decisions.