In my approximately two-decade career at Microsoft, I had the privilege and the opportunity to first work on the company’s emerging enterprise strategy, to architect and ship key enterprise technologies, and to build a strategic enterprise business and profit and loss. I think I can say with some level of credibility that I understand the enterprise software business well, and this is what leads me to the question of why enterprise blockchain adoption is still gently meandering along.
First, let us start with the question of how emerging technologies typically get adopted by an enterprise.
How does enterprise adoption typically work?
The key motivators and imperatives that drive enterprise adoption span the gamut from improving agility and time-to-market to reducing costs, as well as consolidating capabilities and workloads, increasing workforce productivity, improving security, and, of course, the recent buzz to digitally transform people, processes and technology in order to be ready for the so-called Fourth Industrial Revolution.
If we examine the cloud migration wave, we can see that it was triggered and initially driven by cost — and by the opportunity to decrease capital expenses at the expense of the cloud providers. Early workloads that shifted to the cloud included testing, archival and secondary storage, compute resources for spiky workloads, etc. Subsequently, as the pace of innovation by cloud platform vendors began to exceed that of the on-premise vendors with the likes of serverless computing, for example, enterprises began to experience and benefit from the enormous time-to-market advantages and the business and IT agility that these platforms were now offering.
Along the way, of course, was the realization that the cloud stacks were often significantly more secure than on-premise data centers and that migrating to the cloud services provided an opportunity to re-evaluate the enterprise architecture(s) and to consolidate workloads, further saving costs.
Why has enterprise blockchain adoption been slow?
The keyword in the previous paragraph is “migration.” Ever since the mid-90s migration wave of PC-based applications to the client-server model, the enterprise IT mindset has been one of migration or “re-platforming” at the expense of re-architecting. Cloud migration was first and foremost a cost-driven decision to lift-and-shift as opposed to re-architecting, which came much later.
Blockchain platforms are unique because, for the first time in history, we have a technology stack that has an innate economic model — incentives, rewards and penalties for each entity, system and user, “baked” in the architecture. Blockchains are the first “economic platform” in the history of computing.
With blockchain platforms, migration is a non-trivial exercise, let alone being able to lift-and-shift legacy applications. Remember, the era of virtual machine architectures and containerization was key to simplify and to accelerate cloud migration; there is just no comparable capability for blockchain platforms. Blockchain platforms do not just serve up a new set of “plumbing” capabilities for IT to migrate to or to re-platform, and therein lies a critical stumbling block for adoption, leading to myriad stalled pilot projects and proof-of-concepts that eventually drop off the IT roadmap.
How will enterprise blockchain adoption accelerate?
Based on my experience spanning the enterprise software industry and the blockchain sector, I will outline seven key steps and activities that will need to happen in order to accelerate the adoption of blockchain capabilities for enterprises, — and for businesses and IT to reap the immense benefits from doing so.
1. Incentives: This is an economic platform.
In the history of computing, there has never been a true economic platform. We have seen previous waves of platforms, from the mainframe, through the PC and client-server, to service-oriented architecture, or SOA, and more recently, cloud computing. However, they are all, in some fashion, a container for infrastructure and application capabilities, serving up a stack for applications to be migrated to and to be built upon and deployed.
Blockchain, not crypto, has often been the rallying cry for enterprises. The challenge is that it is the innate crypto-economic protocols that power and enable unique business benefits. The IT industry does not need to understand the initial coin offering, security token offering or initial exchange offering models. However, any business and/or IT organization that ignores the intrinsic economic platform is at best attempting to benefit from “half” of the blockchain stack capabilities.
It is imperative that businesses and IT comprehend the economic nature of the blockchain stack and objectively quantify the role that (economic) incentives play in their blockchain applications and systems. This is the single most important reason holding back adoption in the enterprise sector.
2. More than a “stack”: You are NOT re-platforming legacy applications.
From its heritage and building up from the core distributed ledger capabilities, blockchain platforms are by nature “multi-party” stacks, inherently designed to bring together multiple entities, both systems and people. While people can squint their eyes and see just the (perhaps centralized) ledger, this defeats the entire purpose.
If there is a business case for building on a blockchain platform, then ergo, there is a business case to re-architect your legacy application. IT should not attempt to re-platform existing centralized cloud applications as-is, or even with a veneer of decentralization. This is not the path to demonstrate return on investment to the business.
3. You have a business architecture: Do you have an economic architecture?
Enterprise IT is fluent with architectures’ ontologies and frameworks, such as the Zachman Framework, the Business, Information, Application, Technical model, or BIAT, among others, and can bring up their portfolio of business architecture artifacts, information architecture artifacts, application architecture artifacts and technology architecture artifacts on short notice.
Having a business architecture is necessary, but not sufficient. In order to successfully navigate the disruptive opportunities enabled by blockchain platforms, businesses and IT need to work together to create and maintain an economic architecture built on a core set of incentive models.
4. Beyond design patterns: Where is your token taxonomy?
In general, the architecture represents the skeleton of a system, but it also displays the underlying design patterns; and design patterns represent a way to structure classes to solve common problems. They function at distinct and separate levels of abstraction and provide the objective clarity to build and manage applications and systems at scale.
Businesses and IT need to work together to design and evolve the token taxonomies for their organizations (and partners) and the underlying token definitions that are then surfaced in their economic architectures. Token definitions should have clear and well-understood requirements that are then codified into executable software artifacts.
5. Adoption and change management: Does your IT understand game theory?
Adoption and change management has almost always been a mega boondoggle for large enterprises, comprising an on-going set of processes accompanied by expensive consultants — all trying to find ways and means to get users to adopt new applications and tools.
Blockchain stacks, being the economic platforms that they are, are able to exploit the built-in incentive model to catalyze user adoption and drive change. The imperative is for IT to understand and to utilize game-theory approaches built on the underlying incentive models.
6. Governance: Yes, institutional economics is key to aligning IT and businesses.
If adoption and change management has been a boondoggle, then aligning businesses and IT to drive governance has been the perennial bugbear for IT and business executives.
Governance for much of the IT portfolio today is an extrinsic set of tasks and activities — again accompanied by expensive consultants attempting to minimize the visible divide. With blockchain platforms, the underlying crypto-economic protocols bring governance inline into the systems and applications themselves. However, businesses and IT now need a new lens to look at their IT portfolio. These emerging systems and the IT portfolios that they are a part of are more institutions than applications, and principles and practices from the field of institutional economics serve to drive intrinsic business and IT alignment.
7. Tokenize your value chains: In-network tokens are the new moat.
Businesses compete for market success and for customers not as islands, but as value-chains. The activities and the all-up value chain, in which the activities are embedded, serve as the core building blocks of competitive advantage.
Blockchain platforms provide a fundamentally different way to advance competitive strategy. In-network tokens — or privately labeled/branded stable-coins — have the potential to re-imagine the value chain and to rebuild the customer acquisition and support funnels, building new levels of supplier and vendor network effects and establishing unparalleled levels of affinity and loyalty on a global scale.
The disruptive nature of blockchain platforms is clear: Their enormous potential for value creation is evident, and the role that they can play in re-shaping and re-imaging business ecosystems is manifest in their recurring appearance in the corporate executive and board-level mandates.
This article provides a seven-step approach to accelerate the adoption of blockchain capabilities and to maximize business value in the enterprise.