Why businesses struggle to scale their blockchain projects

NOBODY doubts the fact that blockchain has great potential. Yet, no company has been able to fully leverage the power of blockchain to scale ambitious projects beyond the pilot phase.

Whether you consider real estate, supply chain, or even human resources, there are quite a few blockchain use cases in the market but none have seen enterprise-wide adoption so far.

Except for the financial services space, there are hardly any blockchain solutions that are actually being rolled out to consumers — and that’s reflected in the spending forecasts for the technology.

According to IDC, spending on IoT is forecast to reach US$745 billion in 2019, an increase of 15.4 percent over the US$646 billion spent in 2018. Worldwide blockchain spending, on the other hand, was expected to reach US$1.5 billion in 2018, and grow quickly to touch US$11.7 billion in 2022.

Obviously, the comparison isn’t like for like, but it is indicative of how much (or little) is actually being spent on the technology.

“The bottom line is that despite billions of dollars of investment, and nearly as many headlines, evidence for a practical, scalable use for blockchain is thin on the ground,” said a recently published blogpost by McKinsey & Co Consultants Matt Higginson, Marie-Claude Nadeau, and Kausik Rajgopal.

According to the McKinsey trio, blockchain’s practical value is mainly located in three specific areas:

# 1 | Niche applications

In a few use cases, blockchain is the most suitable solution, and that’s exactly where they’re most suitable.

Take the logistics or the financial services industry for example. The former is where blockchain makes tracking asset ownership and status possible, and in the latter, blockchain breaks down barriers to cross-border financial transactions.

In the most successful use cases, blockchain isn’t one of the solutions. It’s usually the only feasible solution.

# 2 | Modernization value

The projects and use cases that gain from blockchain are those that help spearhead the modernization of a particular department, division, or process within a business — or an entire industry.

Take the trade finance space, for example. Although existing processes work well, they fail to deliver on modern customer expectations. Traditional processes create room for significant delays, errors, and make settlements quite painful.

However, using blockchain not only streamlines the entire process but brings in a whole new level of accountability and transparency that wouldn’t be otherwise possible.

It jumpstarts the modernization engine for the entire trade finance industry, which is precisely why the technology is perceived to be valuable — although, it’s hard to claim that the technology alone could fuel modernization.

# 3 | Reputational value

Oftentimes, companies pursue blockchain projects purely because they want to prove to their shareholders that they can innovate.

This is what we’ve seen quite a bit of last year with several dozen companies sending out press releases and making headlines every month, announcing and sharing the progress of their new projects.

“Arguably blockchains focused on customer loyalty, IoT networking and voting fall into this category. In this context, claims of being “blockchain enabled” sound hollow,” claim the consultants from McKinsey in their blog.

How to succeed with blockchain?

From the three types of projects mentioned above, it’s quite obvious that niche applications have a far better chance of being successful than those that are driven purely by a need to trump up the company’s reputation.

According to McKinsey’s trio, in order for companies to succeed with blockchain projects, they must start with a problem, create a clear business case and target ROI, and agree to a mandate and commit to a path to (enterprise-wide) adoption.

The key is to make sure that companies only dive headfirst into blockchains when no other technology can provide a solution. It’s why blockchain has actually seen a fair bit of progress in the financial services industry as compared to any other.

Further, in order for companies to actually scale their blockchain project to gain critical mass, they must make sure that their business case is able to influence those in their value chain — blockchain, after all, is only useful when it is scaled to a large(r) network.

At the end of the day, the blockchain has potential, but companies keen on benefiting from it must explore the right kinds of projects.

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