Recently, I was a panelist on the Zycus/BG Webinar on AI in procurement, and I enjoyed speaking with Jon Hansen from Procurement Insights, Sally Hughes from IACCM, and Jack Shaw from the American Blockchain Council.
Although our discussion focused primarily on the application of AI in procurement, the topic of blockchain also came out. It triggered some thoughts based on a conversation I had with a group of my MBA students, who were working with American Red Cross on thinking through applications for blockchain technology.
In a sense, all of these “hyped-up” discussions of technology (blockchain, AI, predictive analytics), are just that – discussions of technologies. Technologies are neither good nor bad, critical or useless, in and of themselves – but they must be carefully thought through in terms of their application.
A good model for assessing the diffusion of technology has been around for years and was developed by Rogers and Shoemaker, on the Diffusion of Technology (1971). The authors, in their research, suggest that technologies are likely to be diffused more quickly as a function of five major criteria: relative advantage, compatibility, complexity, trialability, and observability.
These criteria are a useful mechanism for executives to apply when considering whether to develop proof-of-concept investments in emerging technologies in the supply chain. In fact, I advocated to my students that this would be a useful approach to consider when advising any company on the application of blockchain to the business. I think the approach would be to identify specific business applications where the technology might be useful on the X-axis of a matrix, and the benefits/disadvantages of the technology on the Y-axis, and then conduct a full assessment using the relative criteria. Such an assessment would help identify potential applications of blockchain that would be the best candidate for a proof of concept. For example, consider the following criteria:
Relative advantage – refers to the advantages of the current technology relative to others. As noted in a recent Economist review of blockchain, there are several relative advantages that blockchain and cryptography can provide. For instance, it may help to streamline supply chains, make dispute resolution easier when supply chains cross international boundaries and provide a single distributed database for everyone use. This could replace the proprietary systems that all parties in a chain might have, which take different formats and exist in different places, and perhaps help streamline international payments. It might also be used to address potential counterfeiting.
On the other hand, major consideration should be given to the security of blockchains. They can be hacked, like any other technology. And no one is claiming that blockchains are more secure than any other procurement systems between partners in the supply chain. In fact, one blockchain system, Ethereum, has been hacked and millions of dollars lost.
Compatibility – refers the extent to which the technology is compatible with existing technologies. In a sense, this is a big question mark for blockchain. The ideas around blockchain are hardly new, as cryptographic linkages that secure entries in a block, known as Merkle trees, were first proposed in 1979. But experts also agree that companies will still need to resolve the same sorts of problems as for any other big IT project. So the barriers here are still present for the adoption of any new IT innovation.
Complexity – refers to how complex the technology is to use by managers. Blockchain is not all that complex – many providers have pilots they can demonstrate, and it is simply a function of programming on distributed ledgers, joined by a key. Pilots have focused on diamonds or luxury handbags, which already have certificates of authenticity, and blockchains could potentially reassure buyers that those certificates are worth the paper they are printed on. But most buyers wouldn’t know how to employ blockchain so the mechanisms to use it would need to be simplified for the average person. In the procurement world, it is unclear how blockchain systems would interact with existing procurement systems like Coupa, Ariba, and others that many companies have already invested in.
Trialability – refers to the extent to which the technology can be tested on a trial basis. To my knowledge, there aren’t a lot of blockchain “trials” that people can go out and try for themselves, although many companies claim to provide access to blockchains. In addition, David Gerard, from the British Medical Journal, noted, ”Blockchains don’t solve the underlying problem of agreeing on what you want to do and how.”
To develop a trial, there must be a specific application of how the technology will be used to solve a business problem or transaction. To address this requirement, blockchain technology providers and consultants will need to work with companies to launch proof of concepts to overcome the doubts that exist on how the technology will work.
Observability – refers to the extent to which others have successfully used the technology and can be observed as successful. Blockchain has very few observability opportunities for users to look at. There have been some discussions around how blockchain could improve global logistics, and pilots with Walmart and Maersk are underway. There have also been some initial pilots in the financial services sector that involve linking them to smart contracts. These pilots certainly have potential, but to make blockchain a technology in use, more use cases will be needed.
While the promise of blockchains in supply chains is clear, the likelihood of quick diffusion of the technology is low, base on the Rogers and Shoemaker criteria. To advance diffusion, providers of the technology, consultants, and organizations need to start to run pilots to advance each of these elements.
For more on emerging technology in business, see So Many Technologies, So Little Time.