Part II: Need for Change – Transformational Needs and Best Practices for Enterprises Using Distributed Ledger Technologies
Distributed ledger technology (DLT) makes it possible to guarantee the integrity of transactions without a central authority. This innovation is therefore seen as having the potential to revolutionize existing financial market infrastructures in the long term . However, the adoption and use of DLT-based platforms has multiple implications for businesses. The technology brings not only technical but also organizational challenges that require new competencies in various business functions. Therefore, for the effective delivery of new services based on this innovation, organizational change must be anticipated.
Based on a research study in cooperation with the Karlsruhe Institute of Technology (KIT), 20 challenges concerning the use of DLT have already been identified in the first part of this series “Need for Change – Challenges for Companies in Using Distributed Ledger Technologies“. In order to generate further knowledge about the implications and impact on the individual company, we will map the identified challenges to internal business services. We will then identify possible organizational changes and derive best practices.
How DLT Impacts Business Functions
To identify affected business functions, we used the Banking Industry Architecture Network (BIAN) Service Landscape V8.0 classification . BIAN is a global, open, and independent community in which banks, software vendors, and system integrators collaborate to define a common architecture framework for the banking industry. The classification includes two levels: Service domains and business services. A service domain represents a group of similar responsibilities and tasks (e.g. product management) that consists of several business services (e.g. product design. product deployment etc. ). Business services perform parts of or even complete business functions required to deliver a business activity. In this sense, the business service specifies the resources (i.e., people and their roles, procedures and processes, and applied technologies) that are affected by the use of DLT.
In order to assign the identified challenges to the affected business functions, we conducted an interview study with 15 experts who shared their experiences from past DLT projects in the areas of finance and logistics. Sometimes, business services were explicitly named by the experts. In case of discrepancies, we asked for feedback and thus substantiated the results. Finally, we visualized the relationship between the challenges caused by the use of DLT systems and the business services (Figure-1). As a result, 36 business services in 13 overarching service domains have been identified that are subject to organizational change.
In this study, we found that the use of DLT systems triggers organizational changes in several service domains and their corresponding business units. Although IT management is the most affected service domain, several non-technical domains (e.g., marketing, regulation & compliance) are also struggling to meet the necessary organizational requirements for successful use of DLT systems. The challenges identified affect organizations as a whole, including their workforce, responsibilities, procedures and processes, and other systems, from the strategic to the operational level (e.g., business strategy and system operations).
Our interviewees expressed strong concerns about the current acceptance and understanding of decentralization by employees. Some of the interviewees assume that the organizational structure of the companies plays an important role in increasing the adoption and understanding of decentralization and DLT systems. They mentioned that companies that are structurally based on loosely coupled organizational units are better at overcoming challenges in product development. In contrast to strictly hierarchical companies, some interviewees reported that companies with a more agile workforce are more able to react and adapt to changes in their work environment caused by decentralization.
The use of synergies between business units across companies requires compliance with professional, procedural and technical standards by the companies involved. The experts mentioned that the harmonization of business processes and software interfaces can favor the use of DLT systems in conjunction with existing information systems. In addition, the use of standards in the context of different DLT protocols was mentioned as essential for interoperability between systems.
However, the standardization of information technologies may reduce the unique selling propositions of companies in terms of the IT they have used to date and thus reduce competitive advantages, especially for technology providers. The more standardized companies’ IT is, the more difficult it may be for the technology provider to adapt business processes and generate new competitive advantages.
In addition to the importance of standardization for cross-company business processes, a decentralized internal structure (e.g. division by function) facilitates the identification of synergies with other companies. True to the principle “form follows function, function follows form”, the organizational structure should form the framework for the distribution of tasks and powers within the organization.
Now that we know which business functions within an organization need to change and what challenges they face, we can look for approaches to anticipate the necessary internal change. Next week, we’ll share eight best practices to help practitioners address the identified challenges and mitigate organizational risk associated with DLT implementation. So check back next week or get on our mailing list to make sure you don’t miss anything. Alternatively, you can follow us on LinkedIn, where we publish all of our blog posts as well as other information related to BEI’s work.
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