Blockchain technology began with Bitcoin, but it has since been coopted by businesses as the preferred brand name for all sorts of cryptographically spruced up databases. Just about every corporate innovation program is experimenting with, or at least eyeing, the trend—look, boss, we’re innovative! But how should companies really approach the technology, if at all?
Answer: with caution and commonsense.
“If you’re a CEO and someone is coming to you with a blockchain project, beware,” warned Julie Sweet, North American CEO for Accenture, the consulting firm, speaking at the Fortune Global Forum in Toronto, Canada, on last Wednesday. Sweet thrust her fingers upward to couch the phrase “blockchain project” in air quotes.
“Blockchain is a technology, not an outcome,” Sweet said. While the tech is “ripe for experimentation and pilots, it has to start with, what’s the business challenge or opportunity?”
The business side of a company should lead any blockchain foray, Sweet said. Businesses must have a “clear ROI,” or return on investment, in mind before partnering with the technology side to move ahead on a pilot.
In March, Accenture teamed up with DHL, the German shipping giant, on a blockchain trial designed to track and trace medicine distribution for the pharmaceutical industry, Sweet said, citing one example. The partnership started by identifying a problem—rooting out counterfeit drugs—and it recognized that blockchain tech presented a “big opportunity” to address the issue, she said.
Sweet’s second piece of advice involved when and how deeply companies should wade into the depths of blockchain experimentation. “Today, given the state of the industry, the technology, and the complexity, for most companies the answer is still going to be monitor and participate as opposed to being a first mover,” she said.
In other words, businesses should maintain their awareness of what’s going on, but shouldn’t upheave their operations in order to be the first out the gate with some ill-considered blockchain stunt. The industry is nascent, and there are plenty of kinks still to work out.
Christine Moy, J.P. Morgan Chase’s blockchain program lead, who spoke on the panel alongside Sweet, agreed with the Accenture CEO’s guidance. Moy described how her team embeds itself with the heads of J.P. Morgan’s various lines of business in order to understand their overall strategies, priorities, and pain points before pursuing a blockchain application.
Moy offered an anecdote about her team’s early experience working with the bank’s treasury services business, which handles trillions of dollars in payments per day. When the group dug into the potential for a blockchain network to revamp cross-border transactions, it realized the cost of implementing such a system would outweigh the benefits.
“Everyone was a little bit bewildered because, from a clearing and settlement standpoint, the actual mechanism of clearing and settling a cross-border payment works just fine,” Moy said. Put another way, the bank did not see a reasonable return on investment.
“Whatever incremental optimization a blockchain could enable when stood up against the business case of having to retire legacy systems and migrate off and build an entirely new system, it just didn’t really make sense,” Moy said.
So Moy’s team reevaluated its approach. Eventually, it identified a real problem that did seem suited to a blockchain-based solution: consolidating international sanctions-related information into a single database shared among correspondent banks.
Sometimes payment instructions “just get stuck in the middle” as they’re passed through a “daisy chain” of intermediary banks, Moy said. The hold-ups are often the result of some bank requesting more information about the recipient of a transaction.
“Then it’s telephone calls, emails back up the chain—who has the information—I’m waiting,” Moy said, mentioning that delays can take anywhere from a “couple days to a couple weeks even.”
Moy’s team viewed this as a perfect fit for blockchain tech. Now the team’s “interbank information network,” which went into production three weeks ago with 90 participants, she said, lets banks swap that information on a blockchain.
In the beginning, everyone thought blockchain was “going to change the world, it’s going to disintermediate everyone—banks and clearing houses and everything,” Moy said. “Now we’ve come to this next level of maturity where we think of it less as disruption and more as transformation.”
Alex Tapscott, another panelist and coauthor of a popular book on the technology called Blockchain Revolution, urged members of the audience not to get too comfortable with the wait-and-see approach, noting that the Internet blindsided—and overturned—many businesses that failed to recognize its potential.
“If I’m in the CEO seat in 1994, I might think the Internet is just a medium for publishing information,” Tapscott said. That mentality led many business leaders to fatally ignore the potential for the technology, he said, citing the recent bankruptcy of Sears, once the nation’s biggest retailer, as proof.
“You have to take a step back and understand what could this could represent down the road,” continued Tapscott, who cofounded the Toronto-based Blockchain Research Institute, a think tank that studies the technology and partners with businesses on projects.
Sweet, however, reiterated that companies must maintain a targeted, business-first focus. “If it doesn’t have an ROI, then it’s not worth doing,” she said.
So, before you go ripping up your legacy systems and diving headfirst into blockchain, first consider these executives’ words of wisdom: What is it good for? How involved should my company be at this moment? And will I end up like Sears if I don’t?