Our latest Global FinTech Survey supports the view that blockchain is rapidly moving out of the laboratory and Proof of Concept and into the launch of production systems – and the UK is ahead of the game. According to the survey, 35% of UK respondents are very or extremely familiar with the technology, compared with 24% globally. And most importantly, every respondent taking part in the survey said they plan to adopt blockchain in their business by 2020.
That’s just two and a half years away – and yet 43% of respondents said that blockchain doesn’t currently form part of their strategic plan. That this statistic is surprising is something of an understatement. Even if companies don’t intend to implement blockchain right now, it should at the very least be considered in their five-year plan in particular if it is expected to be in production by 2020. The technology will drive radical change and innovation that will take years to fully implement – you need start planning for it now or risk both being left behind and wasting investment in legacy technologies.
In many ways, the reluctance to take the blockchain leap is understandable. The cost-conscious CIO faces a huge challenge: how to identify not only the areas that will be most disrupted, but also the speed at which they will happen. If we look at the latest blockchain developments, for example, the CIO may conclude that major investment in the bank’s trade finance platforms should be postponed until the impact of the numerous blockchain initiatives in this area are better understood. Unfortunately, next week or the week after, a new wave of stories will focus on another area altogether – perhaps the use of blockchain in settlement, syndicated loans or payments. The list could go on and on. The same will be true for an insurance CIO seeing stories about policy placement, claims management and smart contract catastrophe bonds.
Throughout all this change, CIOs in every industry need to keep the lights on. No matter how fast the new technology comes to market, firms will be living with their vast legacy technology environment for many years to come. Maintaining what they have and implementing updates to meet new requirements will continue to account for the larger part of the CIO’s budget. So how can CIOs plan for the future while managing today?
The first thing I’d say is that in any technology organisation a certain amount of ‘regret spend’ – on making updates to applications that are soon replaced, retired or changed – is inevitable. Smart architectural decisions and well-managed portfolio planning processes can help minimise the wasted budget but even so, 15% to 25% is typical. However when you’re dealing with a major transformative force like blockchain being adopted over the next three to five years the possible scale of regret spend becomes unacceptably high.
So here are a few steps that will help. These won’t eliminate the problem altogether but should put a CIO in a position to make informed decisions:
- Develop a disruption radar: Understand the areas where blockchain initiatives are most focussed and making most rapid progress.
- Identify missed opportunities: The areas with high potential that have so far been ignored. Define the attributes that define a prime blockchain use case and map this to the current business. This helps to look forward beyond the current radar and identify ‘the next big thing’.
- Categorise adoption complexity: Adoption complexity will be one of the primary drivers for the timeline of new technologies. The number of parties that need to cooperate and align their interests will play a huge role.
- Map the current environment: Mapping the current technology landscape to the three considerations above identifies those applications that are most likely to be impacted in the short to medium term.
- Develop architectural options that segregate internally-focussed functionality from the processes that interact with external stakeholders. Technology teams from the traditional legacy business and the developers and architects that are working on blockchain should work hand in hand.
It’s won’t be easy, but putting in the effort – and allocating a budget – now is the only way to avoid living with regret.