3 Advantages Boards Need to Know About Blockchain
By Jay Schulman

Middle market companies and their boards need to understand blockchain technology.

Blockchain will change the rules for middle-market companies. The technology creates immutable records, thereby reducing fraud risk, enabling smart contracts and digital currency, and streamlining processes for records, recall information and myriad transactions — across distances.

In a fundamental way, this disruptive technology will change how companies operate and that means the oversight responsibilities of board members dictate that they understand just how blockchain could affect enterprise operations. As boards and management work together to examine what the technology offers, and develop their digital strategy, here are three perspectives to keep in mind:

1. Blockchain strengthens the relationship a company has with vendors and suppliers

Historically, data that companies use was proprietary and stored on internal information technology systems. With blockchain technology, there is a dynamic shift: the data comes from multiple, verifiable sources in the broader industry ecosystem in which the company operates. Management need no longer rely solely on internal records to base decisions. At the same time, blockchain integrates a range of systems and data technologies, across multiple company networks, allowing for increased coordination and compatibility.

Blockchain offers a unified, decentralized system to record, track and report empirical data. As a result, inventory can be traced from manufacturer to shipper to retailer; supplies can be purchased—and priced — based on their location; and smart contracts can be created that execute provisions automatically using workflow and tracking technology.

Additionally, blockchain is highly fault-tolerant and eliminates system malfunctions and day-to-day technology shortcomings. A computer server may crash, but the blockchain multinode system will stay intact.

2. Blockchain is more about business processes than technology

When it comes to using blockchain technology, it is just as appropriate to engage a vice president of supply chain management as the chief information officer — to form a team, if possible. Blockchain is a business enabler, a technology-based tool designed to improve business processes. It is a collaborative technology, which means companies must adopt the standards of the blockchain network. There will be a tradeoff — companies will lose some process control, but they likely will gain cost reductions and efficiency.

The effects of blockchain on processes vary by industry. For example, manufacturers, distributors, and retailers can see faster and improved traceability of product and raw material information. For nonprofits, it can provide better visibility and reduce processing time for grants. The blockchain advantage for retailers, especially with the current challenging consumer market dynamics, is that product recalls and specialized certifications — such as organic, is readily effected. Across industries, companies will see a reduction in paperwork and input errors, an increase in transparency and transaction speed, and a decrease in the costs associated with recalls and supply chain platforms.

3. Blockchain offers a competitive advantage

Should a company invest in blockchain technology? Not usually the first movers, middle market companies are understandably risk averse. They often show reluctance to invest in innovative technology until it has been fully vetted — which usually means it has been adopted by competitors first.

Walmart, for example, was a leader in its use of blockchain technology, and was therefore able to set the standards used in its ecosystem. The company now requires the 2,000 entities, mostly middle market companies, that provide leafy green products such as spinach and arugula, to conform to the Walmart food traceability initiative for direct suppliers. Through this blockchain effort, data is tracked to understand where the food comes from, including country of origin, region and potentially the grower’s field plot. This can validate that the food is safe to consume; should there be any issues along that blockchain, Walmart can quickly trace it back.

While Walmart has spent millions building out this ecosystem, members of the blockchain would typically pay a subscription fee to write their data to the blockchain. While the subscription fees could be low, they can also be the difference between a profitable and unprofitable relationship. So while Walmart demands its use, smaller companies may find the subscription fees to be the reason they discontinue working with their customer.

Unless a company is a leader or a “fast follower,” there can be a huge risk to being the last to market.

See the big picture

With these perspectives in mind, considering blockchain in a vacuum, would increase enterprise risk. Management needs to know how it fits into the company’s overall digital transformation — products, automation, security — as well as how their competitors are using it.

Blockchain is changing the rules of the game. Middle market companies and their boards need to learn those rules and make them work to their advantage.

Jay Schulman is national leader of blockchain and digital asset services for RSM US LLP.


Other related articles

  • Purpose, Human Capital and Profits: Five factors to drive enduring shareholder value
    Published February 19, 2020
    By John Bremen, Don Delves and Amy DeVyler Levanat
    Regardless of a boards position on the purpose versus profits debate human capital issues are an essential component of their discussions on how to drive shareholder valuenbspWhy There are welldocumen ...
  • ESG Disclosure and Compliance: Navigating the Confusion
    Published February 19, 2020
    By Ken C. Joseph and Nicole Y. Lamb-Hale
    Shifts in the social economic and geopolitical landscape place boards under pressure to expand their obligations well beyond the direct needs of their corporation and its shareholders In addition to g ...
  • An Action Plan for a Purposeful Board
    Published February 19, 2020
    By Ram Charan
    There is a drumbeat growing in support of the idea that investing in employees the community and all stakeholders as the Business Roundtable BRT chairman Jamie Dimon has said is the only way to be suc ...
  • They Had One Job
    Published February 19, 2020
    By Doug Raymond
    Corporate directors are justifiably concerned about their potential liability when agreeing to serve on a board particularly that of a public company It would be naïve for a director to dismiss the p ...