Tek Savvy: How Blockchains Could Transform Management

Blockchain technology has so many uses that trying to summarize them can make veteran tech experts sound like PR hacks. What we haven't heard very much about is how blockchain could fundamentally change how companies are managed and operate.
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Re-architecting the firm with blockchain: Is Craig Wright really Satoshi Nakamoto, the mysterious creator of Bitcoin? Who knows -- and really, who cares? The bigger issue is blockchains, the distributed ledgers that underpin cryptocurrencies like Bitcoin.

Blockchain technology has so many uses that trying to summarize them can make veteran tech experts sound like PR hacks. "As such, it holds the potential for unleashing countless new applications and as yet unrealized capabilities that have the potential to change everything," write Don Tapscott and his co-author and son Alex Tapscott in their new book, Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World.
That might sound like hyperbole, but it seems like everywhere you turn these days you run into blockchains. Banks are trying to harness blockchain before its blows up their business models. IBM is betting on blockchains to give its revenues a bump. Disney has a blockchain team doing ... well, who knows what.

What we haven't heard very much about is how blockchain could fundamentally change how companies are managed and operate. That's a good reason to take a closer look at Blockchain Revolution, in which the Tapscotts devote a chapter to the topic. "Blockchain technology is enabling new forms of economic organization and new portfolios of value," they write. "There are distributed models of the firm emerging -- ownership, structure, operations, reward, and governance -- that go far beyond enhancing innovation, employee motivation, and collective action."

Intrigued? If you'd like read more about how blockchains might change the everyday operation of a business, check out the excerpt from the chapter, reprinted with permission, below.


How Do We Find New Talent and New Customers?

How do we find the people and information we need? How do we determine if their services, goods, and capabilities are best for us as we seek to bring the tonic of the market to bear on our internal operations?

Although the architecture of the firm is basically intact, the first era of the Internet dropped such costs significantly and enabled important changes. Outsourcing was really just the beginning. Tapping into ideagoras (open markets for brainpower), companies like Procter & Gamble are finding uniquely qualified minds to innovate a new product or process. In fact, 60 percent of P&G's innovations come from outside the company, by building or harnessing ideagoras like InnoCentive or inno360. Other firms like Goldcorp have created global challenges to search for the best minds to solve their toughest problems. Goldcorp, which published its geological data and talent outside its boundaries, discovered $3.4 billion worth of gold, resulting in a hundredfold increase in the company's market value.

Now imagine the opportunities that arise from the ability to search the World Wide Ledger, a decentralized database of much of the world's structured information. Who sold which discovery to whom? At what price? Who owns this intellectual property? Who is qualified to handle this project? What medical skills does our hospital have on staff? Who performed what type of surgery with what outcomes? How many carbon credits has this company saved? Which suppliers have experience in China? What subcontractors delivered on time and on budget according to their smart contracts? The results of these queries won't be resumes, advertising links, or other pushed content; they'll be transaction histories, proven track records of individuals and enterprises, ranked perhaps by reputation score. Get the picture? Said Vitalik Buterin, founder of the Ethereum blockchain, "Blockchains will drop search costs, causing a kind of decomposition that allows you to have markets of entities that are horizontally segregated and vertically segregated. That never really existed before. Instead you had kind of monoliths that do everything."

Several companies are working on search engines for blockchains, given the potential bonanza. Google's mission is to organize the world's information, so it would make sense for it to assign considerable manpower to investigate this.

There are three key distinctions between Internet search and blockchain search. First is user privacy. While transactions are transparent, people own their personal data and can decide what to do with it. They can participate anonymously or at least pseudonymously (anonymity through a false name) or quasinymously (partial anonymity). Interested parties will be able to search for information that users have made open. Andreas Antonopoulos said, "Transactions are anonymous if you want them to be anonymous ... but the blockchain enables radical transparency a lot easier than it enables radical anonymity."

Many firms will need to rethink and redesign the recruiting process. For example, human resources or personnel staff will need to learn how to query the blockchain with yes/no questions: Are you a human being? Have you earned a PhD in applied mathematics? Can you code in Scrypt, Python, Java, C++? Are you available to work full time from January through June next year? And other qualifications. These queries will scurry about the black boxes of people on the job market and yield a list of people who meet these qualifications. They could also pay prospective talent to place pertinent professional information on a blockchain platform where they can sort through it. HR staff must master the use of reputation systems, moving forward with candidates without knowing anything irrelevant to the job, such as age, gender, race, country of origin. They also need search engines that can navigate various degrees of openness, from fully private to fully public information. The upside is an end to subconscious or even institutional bias and headhunter or executive recruiting fees. The downside is that precise queries lead to precise results. There is less possibility of serendipity, the discovery of a candidate who lacks the qualifications but has great capacity to learn and to make the random creative connections that a firm desperately needs.

Ditto for marketing. Firms may have to pay just to query a prospective customer's black box, to see whether that customer meets a firm's target audience. That customer may decide globally to withhold certain data such as gender, because a no answer is still valuable. But in so doing, the firm will learn nothing more about the prospect beyond the yes/no results of the query. Chief marketing officers and marketing agencies will need to rethink any strategy based on e-mail, social media, and mobile marketing: where the infrastructure may lower communications costs to zero, customers will raise costs to a figure that makes reading a firm's message worth their while. In other words, you'll be paying customers to listen to your elevator pitch, but you will have tailored your query to pitch only to a sharply defined audience so that you will be reaching exactly the people you want to reach without invading their privacy. You can test different queries to learn about different microniches at every stage of new product development. Let's call it black box marketing.

The second distinction is that search can be multidimensional. When you search the World Wide Web today, you search a snapshot in time, as indexed over the last several weeks. Computer theorist Antonopoulos called this two-dimensional search: horizontal, a wide search across the Web, and vertical, a deep search of a particular Web site. The third dimension is sequence, to see these in the order of uploading over time. "The blockchain can add the additional dimension of time," he said. The opportunity to search a complete record of everything that ever happened in three dimensions is profound. To make his point, Antonopoulos searched the bitcoin blockchain to find its famous first commercial transaction, the purchase of two pizzas done by someone named "Laslo" for 10,000 bitcoins. "The blockchain provides an almost archaeological record, a deep find, preserving information forever." (To save you from doing the math, if the pizza costs $5 when $1 was equal to 2,500 bitcoins, that would be worth $3.5 million as of the writing of this book ... but we digress.)

For firms, this means a need for better judgment: managers need to hire people who have demonstrated good judgment, because there's no walking back poor decisions, no spinning the order of events, no denying an executive's disreputable behavior. For really important decisions, firms could implement internal consensus mechanisms whereby all stakeholders vote on mission-critical decisions to end the chorus of ignorance and denial of prior knowledge. Or use prediction markets to test scenarios. If you're an executive of a future Enron, no scapegoating. As for New Jersey governor Chris Christie, good luck telling a prosecutor that you knew nothing of plans to close the George Washington Bridge.

The third distinction is value: where information on the Internet is abundant, unreliable, and perishable, it is scarce, tamperproof, and permanent on the blockchain. To this last characteristic, Antonopoulos notes: "If there is enough financial incentive to preserve this blockchain into the future, the possibility of it existing for tens, hundreds, or even thousands of years cannot be discounted."

What an amazing concept. The blockchain as part of the archaeological record, like the original stone tablets of Mesopotamia. Paper records are ephemeral and temporary, whereas (ironically) the oldest form of recording information, tablets, is the most permanent. The implications for corporate architecture are considerable. Imagine a permanent, searchable record of important historical information, like the history of finance. Corporate staff responsible for developing financial statements, annual reports, reports to governments or donors, marketing materials for prospective employees, clients, and consumers--will start with this public, indisputable view of their firm, maybe even creating a filter that enables stakeholders to see what they see at the press of a button. Companies could have transaction ticker tapes and dashboards, some for internal managerial use and some public. Rest assured: All your competitors will construct such feeds and dashboards of your firm as part of their competitive intelligence programs. So why not put those on your Web site and draw everyone to you?

This provides enormous incentive for firms to look for resources outside their boundaries, as they have almost infinitely better information about the qualities and record of candidates, be they individuals or companies.

Companies like ConsenSys are developing identity systems where job prospects or prospective contractors will program their own personal avatars to disclose pertinent information to employers. They can't be hacked like a centralized database can. Users are motivated to contribute information to their own avatars because they own and control them, their privacy is completely configurable, and they can monetize their own data. This is very different from, say, LinkedIn, a central database owned, monetized, and yet not entirely secured by a powerful corporation.

[Who could] have imagined a platform that could drop search costs so that firms could find capability outside their boundaries that cost less and could perform better?

The innovation hub -- same as it ever was?

The Internet has wrought significant changes in how we work, but some things -- innovation hubs, for example -- remain remarkably durable. "For hundreds of years," writes freelance journalist Emily Sohn inNature, "regions developed specialities that often arose from access to a natural resource, but then intensified as people moved to the regions to be among the expertise. The Internet was supposed to change all that. Around-the-clock connectivity that allowed researchers and entrepreneurs to collaborate from anywhere at any time meant that distance would no longer be an issue, predicted popular economic theory of the early 2000s. A decade later, it hasn't panned out that way."

Sohn reports that global connectivity seems to have stimulated the growth of innovation hubs, like Silicon Valley, rather than shrunk them. "Innovators and PhD students are now clumped together in fewer places, often in big cities," she says. "And collaborations are more likely to happen between researchers who live, or have lived, close to each other."

New and existing companies can't afford to buck this finding. Locating in innovation hubs gives them greater access to talent. It also boosts their performance: Sohn cites studies that show start-ups located in hubs are more likely to survive, and firms in hubs are more likely to file patents than companies outside hubs.

It turns out that no matter how easy it is to collaborate at a distance, proximity remains an essential element in stimulating innovation. It sets the stage for serendipitous meetings. Face-to-face interaction also creates feel-good reactions in our brains that promote trust and more effective collaboration.

It's not that digital connectivity inhibits innovation. Far from it, reports Sohn. Rather, it stimulates the enhanced innovation that is already taking place within innovation hubs -- in effect, supercharging it. It's a finding worth keeping in mind that next time your company is considering where to locate a new business unit or research facility.

Putting data to work with knowledge graphs:

A brief story popped up in The Seattle Times last week: A data analytics company named Maana announced it had raised $26 million in Series B funding from the investment arms of Saudi Aramco and Shell. In these (waning) days of billion-dollar start-up valuations, $26 million isn't especially jaw-dropping. But the company does have has an interesting approach to data analytics, which uses "enterprise knowledge graphs."
There are a couple of problems with data in big companies. First, there's lots of it, and it's often stashed in separate silos. "A single division could have over 60 different information systems that they work with," CTO Donald Thompson told tech reporter Rachel Lerman. Second, you need to turn the data into useful insights and recommendations. Third, you have get those into the hands of people who can use them to enhance results.

Bearing in mind that I'm a layman at best, here's how Maana approach works: Instead of placing the company's data into a common pool, it sends out a search engine to crawl the various data silos in your company. Then, instead of simply delivering a list of results, it uses analytics and machine learning to construct knowledge graphs -- kind of like the ones that Google introduced a few years back -- that provide actionable recommendations based on the goals and needs of the business and delivers them to line-of-business applications. Maana has used cases on its website that show how this approach works and the results it has produced in operational settings in industrial and oil and gas companies.


This post is adapted from Don & Alex Tapscott's new book, BLOCKCHAIN REVOLUTION: How the Technology Behind Bitcoin is Changing Money, Business, and the World and originally appeared in the MIT Sloan Management Review.

Follow Don on Twitter @dtapscott and Alex on Twitter @alextapscott

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