How to know if, when and how to pursue blockchain projects
Forrester Research analyst Martha Bennett gives CIOs a cogent framework for thinking about distributed ledger technology and potential blockchain projects for the enterprise.
BOSTON -- There is no shortage of blockchain platforms out there; the numbers now run in the dozens. As for enumerating potential blockchain projects, it may be easier to list the blockchain use cases companies are currently not exploring. Moreover, although blockchain's approach to verifying and sharing data is novel, many of the technologies used in blockchain projects have been around for a long time, said Martha Bennett, a CIO analyst at Forrester Research who's been researching blockchain since 2014.
Even the language around blockchain is settling down. Bennett said she uses the terms blockchain and distributed ledger technology interchangeably.
But the growth and interest in blockchain projects doesn't mean the technology is mature or that we know where it is headed, Bennett told an audience of IT executives at the Forrester New Tech & Innovation 2018 Forum. Just as in the early days of the internet when few anticipated how radically a network of networks would alter the status quo, today we don't know how blockchain will play out.
"It is still a little bit of a Wild West. I should clarify that and say, it is the Wild West," she said. Additionally, no matter how revolutionary distributed ledger technology may prove to be, Bennett said "nothing is being revolutionized today from an enterprise perspective," because distributed ledger technology is not yet being deployed at scale.
Indeed, IT leaders have their work cut out for them just figuring out how these nascent distributed ledger platforms perform at enterprise scale, and where they would be of use in the businesses they serve.
"At this stage, you really need to open up the covers and understand what a platform offers and what is in there. You have to get your hands dirty," she said.
Blockchain projects today are about "thinking really big but starting small," she said. If what gets accomplished is "inventing a faster horse" -- that is, taking an existing process and making it a bit better -- the endeavor will help IT leaders learn about how blockchain architectures work. That's important because it's hard "to catch up on innovation," she said. "If you wait until things are settled it may be too late."
While CIOs get up to speed, they also need to think about using blockchain to reinvent how their companies function internally and how they do business. "That is the big bang," she said, but added it may take decades for blockchain to give birth to a new order.
In a 90-minute session that included a talk by the IT director of the Federal Reserve Bank of Boston about how the Fed is approaching blockchain (blogged about here), Bennett ticked through:
- Forrester's definition of blockchain and why the wording merited close attention;
- why blockchain projects remain in pilot phase;
- a checklist to assess if you have a viable blockchain use case; and
- situations when blockchain can help.
Here are some of the salient pointers for CIOs:
What is blockchain?
Blockchain, or distributed ledger technology, as defined by Forrester, "is a software architecture that supports collaborative processes around trusted data that is shared across organizational and potentially national boundaries."
The wording is important. Architecture, because blockchain is a technology principle and not about any one platform. Collaborative, because blockchain is a "team sport, not something you do for yourself," Bennett said, requiring anywhere between three and 10 partners. (Under three will not provide the diversity of views blockchain projects need, while more than 10 is "like herding cats.") Blockchain requires data you can "trust to the highest degree," she said, and it is about sharing. In many cases, CIOs will find they can deliver the service in question "better, faster, cheaper with existing technologies," she said. "But what you don't get is that collaborative aspect, extending processes across organizational boundaries."
What factors hold back enterprise-scale deployment?
Companies are exploring a plethora of blockchain projects, from car sharing and tracking digital assets to securities lending, corporate loans and data integrity. Full deployment can't happen until experimenters figure out if the software can scale; if it needs to integrate with existing systems and if so, how to do that; what regulatory and compliance requirements must be met; and what business process changes are required both internally and at partner organizations in the blockchain, among other hurdles.
"We are seeing projects transition beyond the POC [proof of concept] and pilot phase, but that is not the same as full-scale rollout," Bennett said.
How to decide whether to take on a blockchain use case
"If you don't have a use case, don't even start," Bennett said. A company can come to Forrester and ask for examples of good use cases, she said, but ultimately only the company knows its organization and industry well enough to be able to pinpoint how blockchain might make the process better. She suggested asking these questions to help clarify the use case:
- What problem are you trying to solve with blockchain?
- Do other ecosystem participants have the same or related issues?
- What opportunity are you trying to capture?
- Do you have your ecosystem (which can comprise competitors) on board?
On the last question, Bennett explained that even rich industries like investment banking need to address process efficiency. "Everybody needs to worry about how much it costs to run IT operations," she said. If competitors have common processes that are costly and cumbersome, why not consider sharing them using blockchain?
How to know when blockchain helps
Here is Bennett's checklist for identifying when blockchain can be of use:
- Are there multiple parties that need access to the same data store?
- Does everybody need assurance that the data is valid and hasn't been tampered with?
- What are the conditions of the current system -- is it error-prone, incredibly complex, unreliable, filled with friction?
- Are there good reasons not to have a single, centralized system? Distributed ledger technology introduces complexity and risk precisely for reasons listed above. In addition to making the technology scale, adopters still are wrestling with how to balance transparency and privacy, and how to handle exceptions.
Avoid preserving 'garbage in a more persistent way'
Distributed ledger technology, Bennett stressed, also cannot fix problems with the data. "If your data is bad to start with, it will still be bad. You're just preserving garbage in a more persistent way," she said. A lot of blockchain projects target tracking and provenance of goods to take cost out of the supply chain and reduce fraud. Those are "great use cases," she said. But if the object being tracked has been tampered with -- even if you have established an unbreakable link between the physical object and the data on the blockchain -- "the representation on the blockchain is a problem because suddenly you are tracking a fake item," she said. Physical fraud issues need to be fixed for the blockchain to be of value.
The 80/20 rule
The digitization of paper processes has been the "real breakthrough," but blockchain cannot "turn paper into anything digital," Bennett said. If processes haven't been digitized yet, CIOs need to get their enterprises to ask themselves why because that is the starting point.
Finally, CIOs must understand that technology problems notwithstanding, blockchain projects are 80% about the business and 20% about technology.
"Technology problems have a habit of being addressed and of being resolved," Bennett said. Business issues -- digitizing, dismantling internal silos, redesigning processes -- can take far longer."