Buying into Blockchain: What Does It Take to Invest?

March 6, 2020 | By Michael Adkison

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Researcher: Remko van Hoek

Its name strikes fear into the hearts of men, leaving even the strongest among us trembling: blockchain technology. Yet, to paraphrase many analysts, blockchain is the hot, new trend in business: a quick Google search for blockchain turns in more than 100,000,000 results, and the University of Arkansas even has its own Blockchain Center of Excellence. Mary Lacity, center director, said blockchain technology could generate trillions of dollars for businesses. But before your business goes all in on blockchain, you might want to ask a few questions first. How can my business use blockchain technology? Will it play a role in our supply chain? And, frankly, what the heck is blockchain, anyway?

A recent article in Supply Chain Management: An International Journal by Remko van Hoek answers those questions and more. In “Developing a framework for considering blockchain pilots in the supply chain— lessons from early industry adopters,” van Hoek takes a look at both theory and application regarding blockchain adoption. Drawing much of his research from a 2018 article by Peter Verhoeven, Florian Sinn and Tino T. Herden, van Hoek analyzes the different steps a business goes through to adopt a new initiative and applies it to blockchain technology. He then takes a snapshot of three different businesses that have boldly taken that step and piloted blockchain technology into the supply chain.

First Things First

“Blockchain applications use technology to replace the functions traditionally performed by institutions,” according to the University of Arkansas Blockchain Center of Excellence. This functionality includes “verifying identities, making sure accounts are funded before transferring value and attesting to the authenticity of an asset, giving blockchain the potential to make business processes more trustworthy, efficient, and secure.” The technological side of it is a little more complex, but in simplest terms, basic data is stored in a verified “block.” Put a bunch of blocks together, and you have a blockchain, which businesses can use as quick, secure, easy-access container of information.

Blockchain technology took off significantly in the last decade. Van Hoek correctly indicates, though, a lack of empirical study on blockchain adoption. Interestingly enough, he also describes one of the biggest problems in blockchain adoption is its being “a solution looking for a problem.” In other words, business leaders may say, “Stop the presses! Blockchain technology is the future, and anything else is a waste of time!” That may be the truth in a decade or so, but van Hoek says it may be wise to test the waters a little before committing to blockchain.

In “Examples for blockchain implementations in logistics and supply chain management: exploring the mindful use of a new technology,” Verhoeven, Sinn and Herden present a framework entitled “Mindfulness of technology adoption.” This framework asks five basic questions regarding implementing blockchain in a business’s use case, or a description of the interactions between a business, its products, and the products’ users. The five questions, as expounded by van Hoek, are:

  1. Engagement with the technology — Are the technological features named clearly?
  2. Technological novelty seeking — Is there reasoning for the necessity of blockchain technology or can the business problem be solved with an existing technology?
  3. Awareness of local context — How specifically will the use case fit into the supply chain context?
  4. Cognizance of alternative technologies — Are alternatives considered?
  5. Anticipation of technology alteration — Are use cases adaptable?

Van Hoek goes a step further— forming a sixth question for businesses to ask: How does the technology contribute to high-level supply chain objectives? These objectives include “cost reduction, speed, dependability, risk reduction, sustainability, and flexibility.”

Businesses That Pilot Blockchain Tech

Van Hoek extends his article to include specific examinations of businesses that pilot blockchain technology in their supply chain. A pilot serves as a test run to see what works and what doesn’t; if the program seems strong, it may continue. A pilot allows businesses to try out new initiatives, like blockchain, on a small scale. Van Hoek takes an inside peek into three businesses across three different industries and how they’re piloting blockchain into specific programs in their firm.

The first business is a logistics provider that is piloting blockchain in international shipping. Managers in the business say they specifically kept the blockchain pilot small and deliberate: “If you do not pay attention you run the risk that the pilot scope creeps beyond the use case and that you are trying to create a perfect solution rather than trying to pilot and learn fast.”

The second business took an entirely different approach to blockchain: ensuring sustainability. The company deals in consumer products, and it piloted a program which gives consumers the ability to scan barcodes in stores and “gain access to data about the environmental footprint of the product.” Stakeholders, then, get the inside scoop on the supply chain, increasing sales and company reputation. Similarly, the third business tested a product category’s ability to be backtracked for customers to ensure the product’s safety and quality.

Lessons Learned: Managerial Implications

“The pilots,” van Hoek writes, “very much served the purpose of testing, learning, and evaluating if there is proof of concept.” In other words, these businesses didn’t necessarily sell their souls to the blockchain devil after their pilots. They simply tried out some new technology and tested its feasibility within the business. As the manager of Business #3 interestingly notes, “If you develop proof of concept in the pilot you do not have a supply chain adoption yet. For that you need to roll out to a much larger group of stakeholders and this may require altering the application and changing the design.” In other words, if your business is interested in blockchain technology, all you have to do is try. That’s what pilots are for, after all.

But how do you know if your company should try blockchain? Unfortunately, there’s no real answer to that question. But a good start would be those five (or six) questions from earlier; if your business has a specific aspect in the supply chain that could use blockchain to make the chain easier, run a pilot and see if it works. Van Hoek even writes that those questions, or screens, can help develop and design the pilot.

When testing a pilot, there are a lot of easy tips from the three case studies van Hoek cites. First and foremost, keep the pilot team small and focused. Doing so “enabled a fast start and a very affordable setup” within the aforementioned businesses. “In all three case studies,” the researcher continues, “specific added supply chain capability was carried forward from the use case into the pilots. For Case study 1, it was added speed because of earlier availability of documentation. For Case study 2, it was new consumer information, and for Case study 3, it was greater product safety.”

Finally, and perhaps most interestingly, van Hoek notes that blockchain technology is not the messiah of the supply chain. Each of the businesses used existing supply chain technology in their pilots; blockchain might not necessarily replace this technology, but rather it can complement it and ease the process. “What this finding implies is that blockchain may not at all be a ‘be all end all’ technology and that consideration needs to be given to where and how specifically blockchain can help progress supply chain objectives.” Yet, there’s practically no denying the future capabilities of blockchain, and there’s only one way to find out if it’s right for your business. With thorough planning and development, piloting blockchain technology could be the future.

Post Researcher:

Remko Van HoekRemko Van Hoek, Ph.D., is a professor of practice in the Department of Supply Chain Management at the Sam M. Walton College of Business at the University of Arkansas, specializing in sourcing and procurement. He also advises companies on procurement strategy and implementation. Prior to joining Walton, Remko served as CPO of several companies in Europe and the United States, including the Walt Disney Company. He also has worked for PwC and Nike.

Post Author:

Michael AdkisonMichael Adkison is a recent graduate of the University of Arkansas's School of Journalism's MA Program. As well as writing for Walton Insights, he reported and produced for UATV, and he worked as a manager and social media assistant for University of Arkansas Recreation. He currently serves as a multimedia journalist and reporter at KRCG in Jefferson City, Missouri.