We live in a society where resources are centralized, to provide goods and services more efficiently. Governments, institutions, and companies are some resources that are clubbed together. This provides a value proposition to society, thus taking advantage of scale economies.
The limits of these centralization trends have become apparent. Counter-centralization movements such as in the communications and production spaces have questioned such established norms.
The industrial revolution showed us how to mass-produce in central locations. This concentrated all the effort, tooling, and expertise to produce at the required scale. Today, our tooling and knowledge-sharing capacity has evolved exponentially. Anyone can openly download specifications to produce a certain product, print it in a 3D printer, and create said product perfectly.
The blockchain and its surrounding technologies can enable the decentralization of two other important dimensions: Decentralized law and finance. Still, in its infancy, this industry has the potential characteristics to put large corporations at risk of existence. Will the future question the need for such mega-corporations to deliver value to society or the global economy? Definitely!
This is because blockchain is a means of decentralizing resources to generate trust between two parties. So, the notion of a corporation centralizing resources to perform a business activity might die away. The decentralization movement that blockchain can catalyze, might bring in this change.
One thing we believe is that such change is here to stay. Corporations will need to live in an environment of constant change. When such corporations started, the rate of change was not very significant. Now, the pace of change is overwhelming for many corporations to adapt and keep up. How will corporations adapt to a changing reality, given their concentrated resources? How will they upgrade tools and upskill the workforce? This is a struggle that will persist within the corporations.
So, what is it that the blockchain brings that can challenge mega-organizations? The ledger of records is transparent. The consensus algorithm enables transactions between peers, without the requirement of trust between the parties themselves. Global peer-to-peer transactions are possible in a trust-less setting. This is a unique value proposition and has never really existed in the past before without physical interaction, which would therefore not be global. Blockchain brings the ability to match supply and demand between peers across the globe, so long as they have an internet connection.
How would this happen in the past or even today? Transactions connecting individuals across the globe would require a marketplace to exist. An eBay, Amazon, or a stockbroker where these entities aggregate or consolidate the supply and demand together. Thus creating a market that can enable a transaction through their platforms.
For payments, the same structure exists in the form of a payment network. If you’re eligible, you have access to this network and can use it. However, there are millions of people who do not. They either do not have bank accounts, since they have no permanent address, which is a fundamental requirement for a bank account. Or, a payment network does not operate in that jurisdiction. This centralization of the payment network supports the “80%” but still excludes a large number of people.
We argue that the existence of such a powerful peer-to-peer network that enables entities or individuals to interact, without the need for centralization of resources, can undermine the need for intermediary-type corporations and others to exist, in the future. Why bundle so many resources together to develop, manufacture, and sell a product when there are more and more means that do not require the concentration of resources like in the past?
Peer-to-peer networks, coupled with token economics and payments being executed through a blockchain, not centrally controlled by a third party, can allow more people to participate in the trade or the exchange of services. The flexibility of peer-to-peer means that individuals or smaller organizations can be nimbler to adapt and change a process that larger organizations may struggle with, like multinational corporations (MNCs). This is particularly true for the service industry and maybe not so much for goods.
Let’s take for example a start-up competing in the space of MNCs. With the supply of an easier mechanism to collect funding through initial coin offerings or NFT token issuances, startups can reach out and transact with customers easily. Such a cheaper payment network, which is blockchain-based, can significantly reduce the period when start-ups are in the “valley of death”, i.e, before they prosper and grow. A single start-up won’t make much of a dent in the market share of MNCs. However, if the model can be scaled and replicated by other groups of individuals all over the world, then the model can reach new individuals, who are yet to explore the market. It can also have a significant impact on MNCs and will raise some bells. We do not see this as a sudden overnight disruption, but rather a slow decay, as larger organizations resist changing the status quo way of working.
Nevertheless, there are ways for the regular corporation to accommodate these changes into its structure. Let’s take a new service that is being launched. A corporation can also benefit from the lower operational cost structures that the blockchain can provide, which is coupled with a nimbler and more agile capability to adapt to the changing landscape. So long as organizations can find the capabilities required to operate these technologies, and ensure that there are no potential compliance or other conflicts that need to be incorporated within the organization as a result of the poor regulatory environment that surrounds the blockchain industry. As a whole, larger organizations have a possibility of also adopting these technologies, albeit at a higher cost of incorporation.
There is resilience in the corporation to subsist adverse effects they may suffer along its journeys and as seen there are ways that MNC can also adopt the same leaner business models and integrating these new models together with the legacy centralization models. We would also argue that blockchain technologies, when fully implemented, can increase resilience along some of its dimensions within organizations.
Resilience is the ability to respond or react when faced with some sort of disruption and in a business context there can be many dimensions that we can classify resilience, such as its financial resilience or its organizational resilience. We believe that blockchains can positively affect an organization’s financial, operational, technological, reputational, and business model resilience.
Reputationally resilient organizations anticipate that their traditional business model is aging and have paid attention to the process of identifying risks from an outside-in perspective, and can highly benefit by correctly positioning themselves when blockchain technologies reach a turning point of adoption and quickly take advantage to their favor.
Moreover, let’s for argument’s sake assume we are a decade in the future and that corporations have embedded within their operational processes enabling blockchain technology and smart contracts, the following will aim to describe how the resilience of the organization has been enhanced.
It is second nature to all that our payments are processed along with one of the many payment networks that operate on top of a private or public blockchain and therefore settlement times of payments are no longer counted in the days rather in seconds. This exponential reduction in settlement times has freed up capital previously held up in financial intermediaries waiting to be cleared and now organizations have a larger financial cushion through increased liquidity and are able to respond much more swiftly to financial disruptions resulting from hedging raw material or energy prices or even supply chain shocks. Continuing the latter supply chain disruptions example, in situations where understanding the location of products in real time is crucial for regulatory or compliance purposes, blockchain-based track and trace solutions can highly increase the operational business continuity plans of the organization enabling the quick access of information and data as we saw in the previous blog post on blockchain applications in the pharma industry.
The use of public or even private blockchain networks as they are validated across more than a single entity connected peer-to-peer means there is disaster recovery system built-in so if an organization’s server or IT landscape goes down for some reason, they can quickly sync up again based on the information available on other nodes of the network.
The most important dimension that corporations need to pay attention to is the resilience of their business model. The process of successfully interlinking the value proposition and the value chain structure is very much achievable with the economic dimension that token issuing on a blockchain can provide when it comes to materializing value for any asset. non-fungible token issuances can help corporations create communities around their products and services that simply weren’t possible before or by providing liquidity to assets that simply were not possible without this underlying blockchain infrastructure.
So, will these innovations kill off the corporation?Will it disappear suddenly in the ether? The long of the short is probably not. Simply refer to the Lindy effect, where the future life expectancy can be estimated from its current age. As a measure of corporate persistence in the future, one can imagine that corporations will still be around in some shape or form for some time. Just like we still use print newspapers, while getting most of our information through some sort of a digital screen.
As we have advocated, corporations will need to integrate this upcoming technology into their inner workings for survival against the smaller fish that are technologically empowered to become sharks in the big market sea.
The integration of these enabling technologies may constitute an initial struggle to adopt given the philosophical differences that may exist between the legacy and new operating model ways of working. Nevertheless, there is a future where companies can leverage this technology in their benefit and minimize the role which individual players can now play in the market.
Just as corporations have adapted supply to ever-growing demand, just as companies have adapted to the internet and the changes with digitization and offshoring of capabilities, corporations have the resilience to change and adapt to the changes that result from this technological introduction.
The following part 2 of this blog identifies some of the areas within an organization that will need to adapt if we move into a blockchain based Web 3.0 economy.