Brick and mortar revolution

Brick and mortar revolution

From the Value Chain to a Distributed Value Exchange for industry ecosystems. In 2017 the revolution begins!

Forget Michael Porters value chain concept and even creating sustainable competitive advantage. We are now entering a digital revolution which is accelerating new ways of creating value, even for physical products. This will be possible through industry eco-systems enabled by blockchain based Value Exchanges!

My MBA Professors in 1994, Charles B. Stabell and Øystein D. Fjeldstad, saw weaknesses in Porters value chain already in the early 90’s. They expanded on Porters concept to include value networks and value shops. Now the value chain concept itself must fall if you are to successfully enter the 4th industrial economy. The first signs are already here and within 5 years the impact will hit us so hard that many of todays industrial leaders will not survive! The survivors will be those that can adapt quickly to the change. A change that will result in frictionless industri eco-systems (all actors involved in creating a defined value) enabled by value exchanges with blockchain backbones. For physical products the enormous friction in todays value chains and existing trade models will be removed drastically reducing price of goods sold.

A continuation of existing digitization?

Digital products such as media, music and travel related services have gone through major transformations the last 20 years and will continue to transform but what about physical products? In the same period the flow of physical goods from raw materials to end user has, comparatively, changed little. Even though organisations have invested billions of dollars (10 billion in 2014 ref. Gartner) in related software and even more in internal change initiatives like LEAN (continuous improvement of existing value chain) without reducing the major friction points. The results of these investments are far from impressive as individual organisations have focused on improving their own digital silos, using expensive legacy systems, and legacy to legacy integration, even in the cloud, companies still think existing value chain models. Radical improvements are only possible through new value models that incorporate all parts of the ecosystem.

Blockchain_fig

Friction in todays business models

The substantial internal friction in business operations has not been reduced significantly because companies try to optimize business activities through a defined value chain that does not deal with the actual complexity between todays organisational units and the interaction with external partners/suppliers.

  • Many organisations find it difficult to mangage individual organisational silos in view of the total value of the offering. This often ends up in sub-optimalization and expensive integrations.
  • Individual companies find it difficult to manage their external network in an effective way because it requires real-time information from suppliers, and customers to optimize costs with demand.
  • The movement of goods between physical locations results in a 30 cm stack of paperwork and we have unnecessary delays and expenses related to trade finance because the international financial system is based on national solutions where middlemen are needed to build trust and enable the transactions. 

All this results in enormous friction that, if removed, will reduce costs of physical products drastically.

What could it look like?

Imagine a future where an order for a retrofit of an existing ship initiates the automation of a complex process were every organisation (internal and external) in the eco-system related to the ship has access to all necessary information through a secure value exchange. Specifications and demand for all parts from the supply network are specified, production plans are planed and continually updated, parts are ordered just in time, assembly planning is updated and transportation of the parts are booked before final assembly and test for service. All commercial information for all parts of the ship is available for all who need it, allowing straight through trade processing that eliminates massive paper work. Finally the ship is docked and the whole retrofit process is handled as planned (never happens today) in order to reduce docking time.

This new value exchange will revolutionize all industries incorporating physical products by enabling transparency and traceability through out the eco-system. The backbone of this new model is enabled by the BlockChain concept, a transparent distributed and secure digital ledger of all transactions in the ecosystem, that will not only reduce friction in trade finance but enable a new way of creating value between companies.

The role of governments

Governments can be a key driver of this revolution. By adopting blockchain internally they can spur the further development of blockchain enabled business models and ecosystems. As business models are disrupted by blockchains new ways of creating value will surface, providing new possibilities and new jobs in niche global ecosystems where the nations capabilities are utilized. So far the public sector and government in the western world, especially Norway, have been laggards to countries such as China, Korea and Estonia so individual companies in Norway can not expect government help through blockchain initiatives in the near future.

Norway, for example, can continue to be a leader and even strengthen their position within Maritime industry such as shipping, fish farming and oil & gas if they can set up winning ecosystem within these areas. In other areas, Norway must integrate into larger competing eco-systems, such as defence, aerospace and robotics, where we have leading niche capabilities and collaborate into winning eco-systems

Call to action: Every industrial company with global ambitions, or ambition to survive, must understand what the blockchain will enable. In 2017 it will explode!

Erik Gaarder

Erik Gaarder

Direktør Management Consulting
erik.gaarder@acando.no

 

Om bloggeren:
A management consultant with a burning desire to transform existing brick and mortar business models. Erik was a speaker at many European conference on eBusiness in the late 90’s where his main message was the disruption of industry models. However, these brick and mortar industries didn’t disrupt; in fact, they have changed little since then. He has waited 16 years for the chance to be a part of this journey and looks forward to taking on a “navigator” role for Acandos clients.

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