At the beginning of each year, Directors & Boards identifies the critical issues that will be “on the table” of upcoming board meetings. Our editors not only recognize those issues that will require heightened board attention, but also uncover those that could disrupt the way business is done. In terms of the former, our editors continue to focus on sexual harassment, gender diversity, and environmental, social and governance (ESG) issues; in terms of the latter, they are delving into the transformational capabilities of digital technology, in particular blockchain.
Blockchain is a shared record of transactions, maintained in an online, distributed ledger, which establishes trust and consensus without the need for a trusted intermediary. Thus blockchain technology can provide great efficiency and high security.
Blockchain is the technology behind the cryptocurrency mania kicked-off by Bitcoin, a peer-to-peer electronic cash system that allows any participant in the network to cheaply and efficiently verify and settle transactions. But Blockchain technology potentially has a multitude of powerful applications far beyond cryptocurrency and could help banks shift money between foreign currencies, which currently requires a cumbersome process involving separate accounts in every country.
In addition to money, anything of value including land, cars, art, insurance and intellectual property can be represented digitally on a blockchain and be transferred, stored and managed very efficiently and very securely.
A few companies have implemented blockchain strategies, primarily in financial exchange and personal payment applications. Many more companies are now exploring possible applications to effect efficiencies and new ways of doing business in areas.
However, companies will need to get all critical participants to enlist in their blockchain “ecosystem,” which in a supply chain application would include suppliers, transporters, manufacturers, distributors and regulators.
Given such scaling challenges, the adoption process will be gradual. 451 Research, a technology business intelligence and market data provider, in which I am an investor, released a survey in November 2017 revealing limited current deployment of blockchain technology, but predicting accelerated adoption as pilot projects are scaled up to full production. The survey found that 12% of large organizations consider blockchain to be a top priority in 2018, though only 4% have implemented the technology.
Boards of directors need to be aware of blockchain technology's potential to create competitive advantages, which can be both internal and external. And boards need to recruit directors who are digital savvy and educate those who are not, so that they can determine whether blockchain technology can provide significant competitive advantages. A first step is to develop a proof of concept and experiment with its application. At the very least, directors need to ask what are the potential risks of ignoring blockchain technology.