Krystal Webber is the Global Design & Strategy Leader at IBM Blockchain Services. She helps her clients understand how blockchain might solve their business problems in a way that maximises benefits in the shortest amount of time. In this podcast she shares her deep experience in blockchain network design from a governance, business value and technology design. A must listen for anyone looking to launch and scale a blockchain network.
What is blockchain?
Krystal calls answering that question her “blockchain party pitch”.
In today’s world we do business with each other. Where two companies, who have a business relationship, will each keep a record of the work they do together. From time to time records don’t match up. This can create disputes which are both time consuming and frustrating.
Blockchain is about having a shared set of records where both parties agree on the correctness of records before they get written onto that shared ledger. Once you have a trusted shared set of records you can start to automate business processes on top of it. With consensus you have records which are valid, true and trusted. Encryption ensures that the whole blockchain is super secure.
What is design?
Design means a lot of different things to different people, from graphic design, to fashion design or how things look. The Oxford English Dictionary definition of design is the “purpose, planning, or intention that exists behind an action, fact, or material object.” Said another way, design is the intent behind an outcome. Design is about being intentional.
Krystal and her team when they think about design what they are thinking is “what is it that we’re trying to achieve? And how do we strategically and intentionally achieve that?”
What is a blockchain network design?
There are three elements to a blockchain network design:
- Governance design – is the strategy and the operational model behind a business network.
- Business value design – is the monetization strategy that is underpinned by an incentive strategy which allows the realisation of revenue, efficiencies or savings from the network. It’s also about stimulating collaboration between members to creating network effects.
- Technology design – creating digital products that are human centered, easy to use, scalable and stable on the back end to reach the business objectives for that network.
What is important to understand is that these three elements are very interrelated. So, decisions made in one work stream really impact decisions made in another work stream.
At IBM they use an acronym called BOLT which stands for: Business, Operations, Legal and Technology. They believe that when looking at governance you need to look at it from those three areas.
Business from a governance perspective
This begins with the network of intent where the aspiring network have to answer the questions of “why are you here?”, “Why do you exist?”, “What are you trying to accomplish in the marketplace?” Then there are questions on the “network model”. “Are you trying to be differentiated in the market?”, “Are you creating some level of market utility?”, “Are you trying to create an entire new market?”.
Answering these questions will provide the strategic direction when looking at governance design, business value design and technology design. It will also influence the branding of the platform, sales, recruitment, adopt and what’s going to get participants to join the platform. Metrics and measurements will have to be put in place to determine what is important to be measured.
Operations from a governance perspective
There are a number of questions around operations that need to be answered;
- How are the members going to act together in good faith?
- Will there be committees, an advisory council, a CEO, working groups?
- How will each of those groups look like?
- How will they all work together?
- What type of members will populate those groups?
- How will they make decisions? Will there be voting?
One of Krystal’s favourite are the rules to change the rules.
Legal from a governance perspective
It means looking at how to manage anti-trust concerns and intellectual property. What will the legal structure of the consortium look like? As businesses operate within a regulatory environment compliance considerations need to be looked at.
Technology from a governance perspective
Technical governance looks at deployment processes, data standards and security standards. How will the network’s help desk look like and how will it be run once a significant number of transactions go through the network.
Will the network enable third parties to build apps onto the network platform? If yes how will the quality be maintained?
Blockchain consortiums and IP
There are four types of intellectual properties (IP) to consider:
- Founding member IP
- Network IP
- Platform IP
- 3rd Party IP
Intellectual property may be owned by the founding members, typically known as founding member IP. This is where different entities launch a network together by bringing in their own IP to the network.
Network IP. Once a consortium is formed and it starts building new technology and or services that generates some IP that belongs to the new network.
Platform IP is IP provided by one or more vendor that is building out the network.
The final type of IP is the 3rd party IP where for example third party vendors build applications on top of the network.
Each of those IPs need special consideration and understanding with the help of legal counsel.
Business value design
Business value design is thinking about how to be financially successful in the network and support the technology to be sustainable over time with a revenue model. What this entails is also ensuring that each member of the consortium is getting value out of it. For the founders it is financial in most cases. For others within the network that may be some more intangible benefits such as brand benefits and efficiency play.
Non-monetary incentives to stimulate collaboration between members
There are a number of non-monetary incentives that are here to stimulate collaboration between members. For some smaller players it is being able to seat at the table of a network. It’s being part of a governing board or part of an advisory group and having a say in decisions about the future of the network and the direction of the technology can be a strong driver.
For others it could be brand reputation and being seen as a leader is a strong incentive. Having innovation as part of an initiative as a company is a strong driver to join a network. New markets and collaboration with cross industry players can open up new customers to members of a network.
Technology design is about developing the next generation of human-centered experiences, driving adoption of new products and services with privacy, security, and most importantly, trust.
Technology design is also the recognition that new products are being designed for a number of different types of users and entities. They may have different goals and different parts of the process that they’re interested in. Different metrics that they want to measure. All of these goals and metrics need to be brought together and at a macro level that data needs to be aggregated and presented in a user centered manner.
This creates important considerations from a front-end perspective and ones of scalability and reliability of the back end as well.
Design lead companies and design lead products are twice as fast to market. They are 75% faster in going through the development cycle when human centered experience are part of it. They are also much more successful in the market because they’re building services that people want to use. They provide an emotional connection with the service and an ease of use to drive interactions on the platform.
Design lead companies also take a user centric approach by constantly putting the customer at the centre of all decisions and running workshops with an iterative approach to growing the product.
Blockchain consortium & members’ digitisation journey
Krystal recognises that they often have conversations with aspiring blockchain consortiums on the different levels of digitisation members of that consortium have. For example, some of them may be stuck in ancient legacy system or still have paper processes enabled.
Krystal gives the case of market utilities where a number of competitors are coming together for the industry good that can drive acceleration of digitisation initiatives. However sometimes workarounds may need to be designed at the start of the consortium. That means parts of the process that are digitised and parts that are manual. That is part of the growth journey that members of a network have to go through.
At IBM they have a metaphor: a cupcake, a birthday cake and a wedding cake. Where the wedding cake is full digitisation and the cupcake is parts of the process is manual and paper based.
Variations in the design principles across consortiums
Krystal points out that she often gets this question and the reality is that there is not a perfect way in designing a network. Whilst her team at IBM use the same underlying principles the execution looks really different.
All networks need governance design, business value design and strong technology. The decisions they make within each one of those areas will look different to those of other consortiums. In addition, they may have varying levels of maturity within each of those areas.
In some industries, it may be important that they have a working product to show to be able to recruit members, and so they may need to be further advanced on their technology than they are on their governance. The technology is going to drive some of their member recruitment activities.
Other networks having agreement among a large set of players to do something may be critical to success and adoption. In those cases, governance is more important than technology because getting consensus and agreement in place is critical.
In each circumstance there is a varying level of risk to doing that and being able to navigate the intersection of all these points is very important.