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Successful blockchain alliance requires planning and cooperation, Deloitte says

08/11/2020 By


It’s hard to deny the growing relevance of blockchain technology to procurement and compliance functions in businesses across industries. In fact, according to Deloitte’s blockchain consortia perspectives article series, 92% of executives who responded to its Global Blockchain Survey said they are already part of a blockchain related alliance or plan to join one within a year, seeking cost savings and technical acceleration.

A blockchain consortium could even include your competitors, but if done correctly, everyone can benefit.

There are a few different ways to organize work around building a blockchain, which is essentially a ledger of accounts for shared data that can’t be changed by anyone after the fact.

It’s important that each member of a blockchain alliance understands the goals of the group. The goals could be deploying an existing blockchain solution for tracking raw materials through the supply chain to drive lower costs or working on theoretical technical advances that could one day automate business processes that are currently performed manually.

A material application will likely need more input from business leaders like the CTO and COO, along with more financial resources to ensure new processes are integrated effectively. A more research-focused alliance could allow a business to enhance its marketing and image as an organization, helping to build the future in its industry. This would result in contributing comparatively little funding and just a small group of researchers or developers who work mostly independent from the day-to-day operations of the company.

Whatever the approach, Deloitte said organizations should be crystal clear on the goals of the blockchain consortium overall and specifically, what their business will be expected to contribute and receive in return.

Deloitte points out that a blockchain alliance cannot succeed without cooperation. However, the required amount of buy-in can be difficult to come by in highly competitive industries that could benefit the most from blockchain solutions. Ocean shipping, food supply and banking are all examples of industries that share a number of common pain points across each individual organization. They might be reluctant to work together in a blockchain alliance for fear of exposing trade secrets or not reaping the same benefits as they perceive others might.

How to prepare for blockchain alliance

Deloitte suggests a number of ways to address these concerns.

It can be helpful to choose a neutral third party to manage the blockchain itself, which requires storage and networking hardware and staff to monitor and upgrade them as needed.

Another solution is to design the blockchain to be fully distributed, where each business is responsible for maintaining their own hardware to keep the blockchain running and give them access to the shared data. This approach adds resilience to the blockchain (ensuring data isn’t lost in the event of a hardware issue in one location) and helps ensure all members of an alliance are engaged in understanding and refining how the blockchain interacts with the rest of their business.

Deloitte also suggests members of a blockchain alliance consider requiring member companies to assign a facilitator within their organization who is committed to channeling the required resources to the right developers and keeping the project on track among the expectations from other members of the group.

In addition to decisions about goals and contributions to a blockchain alliance, Deloitte notes it’s also important to develop a governance structure that facilitates cooperative decision making, accounts for disputes between members and defines how intellectual property will be managed.

Since blockchain alliances are often made up of competitors, Deloitte recommends working on these questions early, as a successful consortium will need to function almost like a separate business with contributors and incentives guided by member organizations. Constructing a separate legal entity is often the most amenable route, with defined contributions and decision-making rights from members and agreements to license IP to all members equally. Defined obligations to this new “client” make it much less likely that individual members of a blockchain alliance will decide to leave the group and could outline negative incentives for doing so to ensure other members are not making their contributions in vain.

Benefits of a blockchain alliance

Blockchain alliances can be a powerful tool for speeding up optimizations in analytics, logistics, fraud prevention and many other key performance metrics. They can also provide a way for businesses to share the cost of developing new technical products and get the most out of a limited pool of individuals with the knowledge and skills required for specialized development. It can lead to a streamlining of business processes and allows individual companies to better leverage the network effects, according to Deloitte.

The most important consideration for any business starting or joining a blockchain alliance, however, is how that consortium will generate value over time.

Shared value is good, but without a plan for how to leverage the results of collaboration, many businesses could end up building blockchains that ultimately benefit competitors more than themselves.

In our next look at blockchains, we’ll share Deloitte’s latest findings on how executives see it as an essential tool to add value, not an experiment that remains untested.