EY recently hosted an event to showcase some of its blockchain products at its Union Square Wavespace facility in New York. Among these were the firm's "Tesseract" mobility platform for vehicle sharing as well as its recently launched "Blockchain Analyzer" for supporting its audit teams' analysis of blockchain-based businesses. The firm was at pains to demonstrate that these platforms for organizing businesses around the distributed ledger technology are out of the prototyping phase and into production. Introducing an audit tool into the mix helps to make the case that there's nothing standing in the way of companies organizing core business processes and even whole operating models around this technology.
Perhaps the most interesting feature of blockchain is the transparency it affords. This manifests in two ways, both of which revolve around the fundamental value-creating production transformation process that is the heart and soul of any business. One is at the product or service level, where blockchain can enable the disaggregation of value-creating components.
Traditionally, as inputs move down each stage of the value chain they are bundled into outputs, with the aggregator taking ownership over the entire assembly. In the auto industry, for example, the assembler owns all the parts in the car even though independent suppliers produce a substantial portion of them. But along with the revenue stream an asset earns comes risk. Aggregation of asset ownership has been a barrier to the efficient allocation of risk to the party most able to manage it, which is essential to value maximization. But now OEMs could retain ownership for the batteries and spark plugs they make that go into cars. By disaggregating assets into their value-creating components, Blockchain opens a new frontier for constructing value-maximizing operating models.
The other way blockchain affords transparency relates to the interaction of business partners. Traditionally, companies cannot directly observe the economics of the value chain beyond their step in it. They know how much they spend for inputs, what it costs to transform them into outputs, and how much they earn for those outputs. The middle part of that equation was always under their control, but their ability to optimize their spending on inputs and earnings from outputs is constrained by that lack of visibility up and downstream in the value chain.
Different value chain participants face a prisoner's dilemma inasmuch as mutual information sharing among them maximizes value but one-sided sharing can diminish it. Blockchain has the potential to elucidate the entire value chain from raw materials to end user consumption and make that visibility real time. This is particularly powerful with respect to the creation and use of data and intellectual property, among the more intangible assets that are at the heart of many emerging business models.
Consultants are directing much of their evangelizing on blockchain towards its potential to facilitate process automation and waste reduction: things consultants have always been good at. Indeed, smart contracts, for example, could yield enormous efficiency gains in sectors like logistics that are still held captive by a cumbersome paper trail. But the bigger opportunity is the transparency afforded by this technology, which can fundamentally alter companies' business models by changing how they cooperate with each other to maximize value.
The power of ecosystems to foster innovation is a hot topic, but consultants have always struggled to work at the interface of independent businesses that can benefit by cooperating more effectively. The consultant-client relationship creates a bias that impedes multi-party solutions, and there is no owner on the client side for a company's system of external cooperation who could hire the consultant.
Cottage consulting industries grew up around helping procurement with supplier relationship management, counseling sales on selling value, and supporting finance in organizing and executing transactions associated with joint ventures and alliances. But heretofore there's been no cross-cutting platform for connecting these capabilities and translating them into real strategies for their clients. Blockchain has the potential to alter the business landscape in a way that either puts consultants at the center of ecosystems or makes them and auditors superfluous.
Nathan Simon is a Senior Director of Research for ALM Intelligence responsible for managing research methodology.
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