Blockchain and the learning organization

[Curt_Hopkins]

By Sandeep Panda, HPE Blockchain Strategy Lead

A while ago, I shared some early thoughts on how the changing role of intermediaries due to automation and decentralization in The New Rules of Commerce. The short article discusses the theory from Nobel Prize winning economist Ronald Coase that firms exist because it is too expensive to go to the free-market for every single transaction.

Some foundational economics

The two factors that make going to the free market expensive are search costs (cost of matching a willing buyer with a willing seller) and transaction costs (cost of the mechanics of the exchange, e.g., validation, exchange, mediation). This philosophy is one of the bedrocks of modern economic theory and the reason firms exist.

Over the past 30 years, the internet has taken search costs down to near-zero. This has enabled Uber, Airbnb, and Amazon to build large businesses by creating low-cost search engines. Automation technologies like robotics, artificial intelligence (AI), the Internet of Things (IoT), and blockchain now promise to take down transaction costs by a similar magnitude.

A corollary of the Coase Theorem is that aside from transaction costs, all institutions are capable of achieving the same "efficient outcome” regardless of ownership. This means a market with near-zero search and transaction costs can enable service oriented business models (a business analog of service-oriented architecture — SOA). Every participant in this business model can deliver value-add on a product without the need for a broker or a single owner for the assets (vertical integration).

A thought experiment

Imagine browsing through a website admiring cars — trucks, Teslas, and everything in between — when you run into Jim's shop. Jim is a car designer who builds custom car designs with his engineer pal Sam. You run into this design that Jim and Sam have thought up which basically sums up your dream car. You impulsively buy it in azure blue with metal rims and a V6 engine, unperturbed that you just added a few blueprints and renderings to your cart.

The moment you submit your first payment online, three different parties are triggered into action.

1. A custom car manufacturer who has certified Jim's designs and owns an assembly line to make the car
2. A plethora of parts suppliers corresponding to the parts that need to be assembled to make your custom design
3. A set of financiers who can bid on a monthly payment based on some generic parameters (credit score, down payment etc.) without ever knowing who you are

In about 24 hours, your parts have been shipped from various parts of the world and assembly has been scheduled for the following week. The lowest cost financier has reached out to you for some personal information because, well, there are forms in any future we can imagine.

In a week, you swing by the manufacturer to pick up your finished car and maybe get a picture taken to prove you are really you. You have essentially subscribed to a custom car from a bunch of rag-tag companies with an experience Ford or GM would kill for. Sounds surreal, doesn't it?

Under the hood

If you take a step back from your amazement at this science fiction scenario and think about the technologies that enable such a business model, you would be surprised. Here is a breakdown.

1. Advanced design and simulation software running on large-memory, high performance systems

2. Digital twins, smart manufacturing and 3D Printing technologies that allow manufacturing with a lot size of one
3. Blockchain technology that allows seamless transactions on immutable and shared records between multiple parties in an open marketplace
4. AI based risk management and robotic process automation to streamline commercial banking

All these technologies are functioning in real-life business scenarios today! Granted that they are at different stages of maturity and bottlenecks still exist. But this scenario is not as far-fetched as you imagined.

Getting ready

These business models require common platforms with a critical mass before they can become viable. As we learned from the internet era, bubbles can be hard to predict and ecosystem development is a kind of voodoo. So the right recipe for success in this new world is difficult to determine.

But the speed at which these models are evolving mandate that you start thinking about it now. You need a learning organization to survive the turbulence of disruption; one that finds new ways to deliver value for its customers (instead of being an entrenched incumbent)

Secondly, in a marketplace with incessant choices, no business can dream of being everything to everybody. Microsoft CEO Sathya Nadella's concept of Frenemies is an often undermined yet important part of modern business ecosystems.

Playing nice with your friends and competitors alike has never been this important.

Photo by Joel Filipe on Unsplash