Are you wondering how blockchain will change organizations? If you do, then you have come to the right place as we are going to learn about it in this article.
Organizations are always evolving with the introduction of new technologies and solutions. It is of paramount interest to academics and business leaders on how to make organizations work more efficiently and improve modern management practice.
If you do a quick online search, you will have tons of resources that speak about the topic. It can be tenants, theories, and other practical thoughts on the topic. The fact that the organizational structure has not changed in more than ten decades, we have not seen much of an innovation or improvement. It is still hierarchical, vertically integrated, and insular.
Blockchain seems to be the answer to organizations’ woes. It can radically change how organizations work or how companies communicate for better efficiency. In the end, the company wants to create value and also make sure people are incentivized to make the change.
Current Organization Structure
Right now, we have an organizational structure that is either centralized, hierarchical, or both. With this approach, a centralized authority takes care of high-level decision making. It also offers a hierarchical approach where each member has been defined as a role that they need to stick to. Also, the whole system is standardized bureaucratically with a centralized authority deciding and policing the whole system.
If you take a look everywhere, this approach defines everything that an organization goes through, including social, economic, and political life. The centralized organizational structure has given rise to capitalism, where one guy becomes richer.
Corporations are a perfect example. To make these corporations work, you will find other hierarchical and centralized organizations, including finances and banks. They play a crucial role in powering these corporations and ensure that they can work efficiently and effectively.
At the core, you will find that these organizational structures depend immensely on developing trust and efficiently completing the tasks.
With time, all of these needs to be changed. We are now in an era where digital innovations are overtaking the age-old methods. Apart from blockchain, there are many technologies that will play a crucial role in changing organizations. These technologies include the following
- Cloud-based services including storage and automated algorithms
- Powerful and cheaper digital hardware
- Technologies that synergize to create better efficiency, including IoT, Artificial Intelligence, Nanotechnologies, and blockchain.
In the end, organizations will have to follow the digitization process and slowly adapt. In the end, organizations have to adapt their centralized and hierarchical approach and introduce the change so that the practices and mindset are changed.
Advantages of using Blockchain in Organizations
Blockchain is a peer-to-peer network with no centralized authority. The core idea of decentralized opens up a plethora of benefits for organizations. At the core, it provides three benefits to organizations.
- Distributed: Blockchain enables organizations to benefit immensely from the decentralization. By using blockchain, organizations can run their processes in distributed format. These computers can be either owned by them or volunteer as there is no centralized database required in a distributed approach. Each peer has its own ledger, which also ensures that malicious actors cannot change the data.
- Public: Organizations are always keen to connect with their users. This means that they always have to have a particular process open to the end-user so that they can provide feedback or check information whenever needed. Blockchain lets organizations do just that. It lets them create a federated blockchain network, which is a mix of the public and private networks. The organization will keep its critical processes and data in their private network while making proper use of the public features of the network. If done properly, any user can check the information on the network anytime they want. This builds end-users trust and also makes organizations accountable for their actions and deeds.
- Security: Organizations are always critical when it comes to the security of their trade secrets. They do not want their trade secrets to be a leak. That’s why you will find many organizations spend millions of dollars on protecting their system and confidential data. By using blockchain, they can strengthen the security of their process and data. Blockchain uses high-level encryption using cryptocurrency to make sure that the data remains secure all the time. Many organizations also implement a complete private encrypted blockchain network to make sure that their data never gets accessed by a person who is not authorized to do so.
- Transaction Cost: Blockchain being independent on a centralized entity is cost-effective. The cost associated with processing a transaction is always lower compared to a centralized approach. Also, as the data is not stored in a centralized database, anyone within the organization has the ability to access the data anywhere they want without the need to jump between conversations requesting the data. In some cases, the transaction cost can be completely removed — ensuring proper growth and efficiency.
- No Intermediaries: There is a clear benefit of intermediaries. Organizations now don’t have to worry about third party solutions which act as intermediaries to provide service. This does off-load a lot of work from organizations, but also bring the unnecessary risk associated with them. For instance, the whole work process can be halted because of the failure in the intermediate servers. If there is no backup, the organization can lose a lot of value. Another issue that intermediaries suffer from include frauds and hacks.
The advantages should give you a good idea of how blockchain will change organizations.
How Blockchain Will Change Organizations
By now, we can easily see that blockchain disrupts organizations that are quick enough to implement it.
Human Resources and Procurement
One of the biggest changes that organizations will see is the evolution of human resources and procurement. With blockchain, human resources can be automated to accept entries and filter them with the help of artificial intelligence. Also, the whole human resources will run on top of the blockchain network, ensuring that the process is well-defined and efficient. It will give candidates direct access to the system, and they can access their status by logging into the system. It will smoothen the whole hiring process.
The smart contracts can also be used to pay off workers on their work. It can establish a condition before the payment gets released. The worker can check the condition before signing the smart contract. Once the worker completes the task, the system will automatically release the payment. Another benefit will include the option to pay workers in cryptocurrency.
Blockchain will also radically change leadership — an integral part of any organization. Leaders will now be more clear in their approach as they will value the new-found transparency. They will provide clear feedback that everyone can see and value.
Leaders would also be able to make better decisions as they can see the ripple effect of their decisions on the whole network. Blockchain is a big network where different sections of organizations are connected. By taking a proper eagle-eye view, he can implement the right things. He can also use blockchain to foster new values and skills where each person working in the organization feels valued.
Advertising and Management
Organizations can now make the most out of their advertising budget by adopting blockchain into it. By using blockchain, they will stop losing their money due to fraudulent activities. Blockchain-powered advertising means that they can capture and remove the much needed fraudulent activity. The end result will be a better ROI for the business.
Legal affairs can be better managed with the help of smart contracts. Any organization always has to deal with their legal affairs, be it with other organizations or end-users. With smart contracts, organizations can handle legal affairs better. This is because smart contracts define the legal contracts in code rather than on paper. It works on conditions, and both parties need to sign the contract before the smart contract becomes active.
All of these needs to be done on a blockchain platform that stores every information in the best possible way, i.e., immutable and secure. All of these means that the legal affairs by any organization are handled pretty nicely with the help of the collected data and smart contracts. It will simplify the whole process and will protect the interest of the organization based on the collected data.
The accounting will also be improved with the help of blockchain. Blockchain technology can be used to manage the accounting department with the utmost ease. They can do large-scale operations and manage complex tax codes in addition to managing different currencies. Blockchain can simplify complex things and run it on top of the network. It also maintains the confidentiality and anonymity that is required to carry out certain transactions.
With blockchain, organizations can better secure their data, processes, and data secrets. Right now, organizations invest a lot of money in cybersecurity. It doesn’t matter if you are a small business or a big business, leaked trade secrets can make you lose billions of dollars.
Blockchain can help organizations better strengthen their security. They can not only do transactions but also store data. This way, they can make sure how the transactions are being made and also make their data immutable in nature.
Another way blockchain in organization help is by giving them an effective way to raise capital for their business. They can use blockchain to raise capital from a venture capitalist or do crowdfunding with full transparency. They can set up ICOs or simple crowdfunding to raise money from the common people.
Last but not least, blockchain in an organization improves its management. They can integrate blockchain to make their processes more efficient and effective. To do so, they first need to digitize every process and then use a modern blockchain platform to change to the blockchain. Few of the companies that are already using blockchain include Kodak One and NagriTech.
Will Blockchain Change Organization Design? Decentralized Autonomous Organizations
Blockchain will surely impact the organization’s design. The focus will now change from a stale hierarchical/centralized to a more decentralized approach. The design philosophy will be based on the decentralized autonomous organization(DAO). By using DAO, organizations will become more autonomous and efficient. It will surely change how the blockchain organization structure will look.
Decentralized Autonomous Organizations work independently with the combinations of analytics, connected devices, distributed ledger technology, and smart contracts. To do so, they need to set up a properly designed autonomous software that comes with the immutable code. Each of the actors will be placed correctly according to their role in the DAO. The only downside is that the rules once set cannot be reversed. This is important to provide autonomy to the organization. It will also enable the different actors to trust each other and make sure the consensus algorithm takes care of data validity and immutability.
Change in power
In a DAO, power is established by the fact of how trusted an actor is. As there is no hierarchical approach, the trust approach is needed. A node gains trust, depending on its actions and behavior. If it has pretty good trust, then it will act as a decision-maker in the network. By doing so, the power share among the organization is distributed equally.
The actors’ power is determined by its trust level, the number of tokens that it has, and its achieved merits. By giving three elements as part of the power calculations, each actor can shift the power balance.
Apart from the change in power, organization design is also impacted. For instance, cryptography acts as a way to build trust. In traditional decentralized organizations, the decision making is done by seniority and expertise, whereas as in DAO, it is done automatically using smart contracts. The governance in DAO is also embedded in code. For traditional decentralized organizations, it is done by the board of directors.
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This leads us to the end of our article, where we discuss how blockchain will change organizations. So, what do you think about blockchain’s impact on an organization? Comment below and let us know.