A few weeks ago I attended the IBM Blockchain Summit 2017 in New York. The Summit included presentations of concrete blockchain use cases in a number of areas, including finance, supply chains and health care. Such real-world use cases are particularly important when introducing a new, complex set of technologies into the marketplace.
Blockchain has the potential to transform our economic and social systems, but such a transformation is still many years away. Like the internet, blockchain is a foundational technology, whose adoption process is gradual, incremental and steady, unlike the hockey stick adoption we typically associate with disruptive technologies as defined by Clayton Christensen 20 years ago. Foundational transformations must overcome many barriers–technological, organizational, governance, political– which is why they take a long time to play out.
Lest we forget, TCP/IP, the communications protocol that defines the internet to this day, was first adopted in the mid-1980s. So were the protocols used in email. It wasn’t until the late 1980s that the internet was first opened up to public, commercial users. General internet adoption took off a few years later with the advent of the World Wide Web and the Web browser, and its transformational power wasn’t fully evident until the late 2000s, with the explosive growth of smartphones and the mobile internet.
The concrete uses cases presented by IBM Corp. as it defines its blockchain strategy brought to mind the approach we took in the early days of formulating IBM’s Internet strategy, which I was closely involved with.
In the Fall of 1995, IBM made the decision to embrace the internet and make it the centerpiece of its strategic directions. At the time, there was a lot of excitement about the internet, but it wasn’t at all clear where things were heading and what the implications would be to the world of business. Our biggest challenge was articulating IBM’s overall internet strategy and then communicating it extensively it to our customers and the wider marketplace.
We did so by establishing an early market presence through highly visible experimental web sites like the 1996 Atlanta Summer Olympics, as well as joint projects with clients such as LL Beans’s first e-commerce site. We developed a number of concrete prototypes working closely with customers across a variety of industries, from which we learned a lot about requirements for products and services. Market experimentation and concrete uses cases were critical to what became our e-business strategy, and they’re now equally important in formulating blockchain strategies. Let me discuss three such blockchain use cases IBM has been working on.
The first is an interesting, easy-to-understand dispute resolution application recently launched by IBM’s Global Financing (IGF) unit. IGF provides over $40 billion of financing to the IT channel annually and processes over 35,000 returned IT assets per week around the world. Its commercial financing business provides working capital to IT suppliers, distributors and business partners through financing of inventory and accounts receivables.
Managing and resolving disputes take considerable time and resources. Every year, around 25,000 disputes take place among IGF’s 4,000 partners and suppliers worldwide, tying up over $100 million of capital at any given time. It takes on average 44 days to resolve a dispute. Suppliers, for example, assume that when products are shipped their task is over and they will soon be paid. But business partners will file disputes and put payments on hold if the product was not delivered on time or at all, or if it’s not the right product. IGF then has to monitor the dispute interactions between partners and suppliers, and recover money financed to partners while doing its best to keep customer satisfaction high.
To address this problem, IGF developed a blockchain solution to significantly improve the resolution time and free up the capital tied up in common customer disputes, which is explained in this short video. The blockchain provides an immutable, non-reputable record of events through the entire transaction cycle to suppliers, business partners and IGF. This increased visibility and trust has reduced the dispute resolution time from over 40 days to under 10, with a 40% reduction in the capital tied up in the dispute.
Another blockchain use case involves IBM’s work with Wal-Mart Stores Inc. on its food supply chain.
The IBM-Walmart partnership aims to track the shipment of foods from their source, so if something goes wrong, such as an E.coli or salmonella outbreak, the foods in question can be quickly identified and pulled off grocery shelves or restaurant menus. As a first step, IBM, Walmart and Tsinghua University, a top research university in Beijing, are using blockchain technologies to track the movement of pork from Chinese farms to Chinese stores.
The third use case is about global trade. Ninety percent of the goods involved in global trade are handled by the ocean shipping industry each year. A project between IBM and A.P. Moller–Maersk Group aims to help the industry by developing a blockchain solution to manage global transactions among networks of shippers, freight forwarders, ocean carriers, ports and custom authorities.
“For Maersk, the problem was not tracking the familiar rectangular shipping containers that sail the world aboard its cargo ships – instead, it was the mountains of paperwork that go with each container,” the New York Times reported. Not only are the costs associated with keeping track of the paperwork often equal to the costs of physically moving the container, but the paper-based system itself is “rife with fraud,” the NYT noted. “The valuable bill of lading is often tampered with or copied to let criminals siphon off goods or circulate counterfeit products, leading to billions of dollars in maritime fraud each year.”
I found these three concrete use cases quite useful to help explain the promised value of blockchain. As a recent Harvard Business Review article noted: “TCP/IP unlocked new economic value by dramatically lowering the cost of connections. Similarly, blockchain could dramatically reduce the cost of transactions. It has the potential to become the system of record for all transactions. If that happens, the economy will once again undergo a radical shift, as new, blockchain-based sources of influence and control emerge.”
Irving Wladawsky-Berger worked at IBM for 37 years and has been a strategic advisor to Citigroup and to HBO. He is affiliated with MIT, NYU and Imperial College, and is a regular contributor to CIO Journal.