For several years, there has been a whirlwind of market activity in blockchain, with hundreds of proofs of concept, consortia and start-ups taking off. Press releases and announcements in popular blogs, magazines and social media have generated excitement for many different types of initiatives. However, after the initial headlines, there is often no follow-up coverage about the various successes and failures. R3’s Kevin Rutter and AIA Group’s Georgio Mosis report.
We will start to see production implementations scale in the blockchain space in 2019 with clear winners emerging. What will have distinguished those efforts from the losing ones?
Since embarking on blockchain in 2015, AIA has assembled a range of insight from testimonials, experience and aggregated intelligence. Our partner, R3, has also amassed significant expertise through involvement in over 200 proofs of concept.
Planning for success
The classic advice of Theodore Levitt is as timely as ever: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole.” Successful initiatives start with a business problem and involve an evaluation of what blockchain technology solves that problem.
Most proofs of concept fail before they even begin, due to the lack of a business problem. It’s important not to begin a blockchain project simply for the sake of it, or because it is a ‘cool technology’ – instead, understand the potential and its value to your business.
The best business cases are those that play to the technology’s strengths. For example, strong use cases require information sharing or transacting at an industry level, where different firms coordinate information despite not fully trusting each other. Enterprise blockchains allow mutually distrusting entities to come to and maintain agreement on shared facts directly with each other.
Also, look for situations where inefficiencies in coordination processes exist – whether that be costly reconciliation, inconsistencies, or slow and manual data sharing. Enterprise blockchains help multiple parties maintain a single, live source of truth for contracts held between network participants. Enterprise blockchains are great at facilitating complex inter-firm workflows.
There also often must be an inherent advantage in using a decentralised system, where a single entity does not govern or operate all aspects of the platform. These advantages are not always technical. Sometimes there are political or business reasons to avoid having a central entity governing or operating a solution.
Further advantages from using distributed ledger technologies, smart contracts and cryptography will vary depending on the use case, and will utilise different aspects of the technology.
Assemble the right team
Involving the right balance of internal participants ranging from business, IT, operations, subject matter experts and legal teams can help firms receive the breadth of internal input necessary to address a well-rounded range of considerations. Note that effective delivery of proofs of concept require more than just a technical team – successful efforts also need to consider business KPIs, such as user adoption, active users and daily activities. It’s critical to supplement IT delivery with a business owner and business case analysis of the other.
Have the necessary external network
Blockchain technology derives its value from network effects. The benefits of blockchain exponentially increase as more entities or counterparties participate in its use. AIA and R3 are both part of blockchain consortiums, which afford these institutions the advantage of a wide range of network partners and institutions to collaborate with.
A collaborative approach is particularly valuable in an industry like insurance because of the breadth of entities involved along the lifecycle of an insurance contract. An ideal implementation using blockchain technology would enable insurers, reinsurers and brokers to contribute collectively towards the standards and infrastructure required for commercial success. These contributions must also be balanced, however, as a team driving the proof of concept must have sufficient autonomy and flexibility to move the initiative forward.
Choose the right platform
Blockchain platforms should be scalable and flexible, without compromising performance, data privacy or security. Blockchain architectures that attempt to modify public blockchain architectures to meet enterprise requirements retroactively are generally unsuitable for business transactions.
R3 ran into this very issue in 2016. After a year of building proofs of concept for the financial services industry on other blockchain platforms, R3 and its clients recognised that for systems across highly regulated industries to go into production, a new platform, Corda, had to be designed. Corda is built with data privacy, enterprise integration and interoperability in mind, and is heavily inspired by Bitcoin and Ethereum systems, without the design choices that make these blockchains undesirable for some production use cases.
AIA reviews blockchain platforms depending on the best platform for a particular use case. There may not be one platform to rule them all, so different use cases need a full requirements analysis and platform evaluation before beginning an initiative.
Planning for failure
Start small
Predetermine the scope, objectives and success criteria of proofs of concept early, with a limited scope at the beginning. Blockchain will change the world eventually, but now’s not the time to try to demonstrate that to the world. Resist the temptation to build something bigger or flashier than is needed.
For example, through R3’s work with payments, we have learned that inefficiencies with bank-to-bank cross border payments is a very complex problem. Adequately addressing some of these inefficiencies in a way that is palatable to all market participants may require fundamental structural changes and significant legal progress, requiring work alongside central banks and regulators over a several year period. A better approach in the short term may be to attempt to address niche payment use cases within a domestic market.
Plan to hold retrospectives after project completion
Predetermine the scope, and success criteria of proofs of concept early, to define the objectives of the endeavour and prepare for both failure and success. In the case of failure, do a proper project autopsy to find out why the intended outcome was not achieved. These reasons may range from poorly defined work streams, a lack of business value, unclear next steps, or a lack of engagement with an executive sponsor. In case of success, plan for expansion of scope, increased resource and scaling.
Lessons from the proof of concept graveyard can help increase the chances of success in the coming years. A successful proof of concept involves coordination of the right market participants (and regulators), a well-developed business case along with a technical prototype and support of the C-suite across firms.
In the case of success, plan for expansion and scaling, broader resourcing and more advanced technical work. A failed proof of concept might involve an unsuitable business case, poor coordination amongst participants and a lack of executive sponsor buy-in. Failure requires a re-evaluation of the business problem at hand. On the road to production, winning initiatives will have learned from failures, while continuing to iterate and improve upon the successes. A
Mr Kevin Rutter is the research lead at R3, while Mr Georgio Mosis is head of innovative technologies group digital platforms and innovation at AIA Group.