In a recent Accenture Strategy study, 85 percent of organizations projected growth of greater than 5 percent over the next three years. To achieve this growth, many organizations will have to make bets on growth strategies. Around one in three of these organizations will turn to technology for their bet. In the vast technology landscape, there are many viable options: increased cognition through AI, deep insights with analytics and advanced automation. These technologies, while impressive in their class, represent incremental improvements on existing processes. Incremental technologies may help crack a 5 percent Compound Annual Growth Rate (CAGR), but they will never disrupt an industry. Blockchain, on the other hand, can disrupt an industry and leaders are taking note. Almost half of semiconductor manufacturers (48 percent) are currently using blockchain in at least one pilot. By 2030, blockchain is expected to generate $3.1T in business value.3
It’s been years since the introduction of blockchain and still the world is collectively understanding what to do with it. So, what is blockchain? A blockchain is a community of distributed databases that share the same ledger. Transactions are aggregated, verified in blocks, and securely linked together. A shared ledger prevents double spend and creates transparent and traceable records. At its essence, a blockchain allows value to change hands digitally. However, value changing hands is predicated on an exchange of goods or services. This is where smart contracts come into play.
Smart contracts are event-driven programs that can be coded into a blockchain. They are essentially digitized versions of regular contracts that represent the interests of numerous parties and can take custody of and transfer assets on the blockchain on which they are integrated. At a high level, smart contracts utilize “If This, Then That” logic to automatically update a shared ledger. When a pre-specified event (“If This”) occurs, it triggers the terms of the contract (“Then That”). Smart contracts remove the need for a trusted third party to facilitate a transaction and speed up the rate at which two parties can do business. This isn’t just great for financial transactions. A look at a $100 million problem shows why industries outside the financial sector should take notice.
Imagine you are a manufacturer that produces, warranties, and services electronic devices. As part of your go-to-market strategy, you use many third parties to manage distribution, sales, and installation of your devices. Your partners are excellent in their respective areas but there are pain points in the process. Documentation on installation rarely filters back, customers forget to register their devices, and it’s not always clear what devices are covered under a service agreement. You find yourself frequently resolving disputes over contracts resulting in unhappy customers, eating the cost of repairing unsupported devices, and sometimes both. Historically, this has simply been considered the cost of doing business.
Blockchain offers a unique solution to this problem. Devices are registered to the blockchain using serial numbers. Starting at the plant, every transaction is documented and every third-party interaction known all the way to the end customer. Service agreements are appended to a specific device, along with installation documentation. Planned maintenance is initiated automatically and disputes over unplanned maintenance are resolved expediently. All maintenance records are appended to the devices’ records in the blockchain. When terms of a contract are met, a smart contract seamlessly invoices the customer. Finally, smart contracts allow for additional opportunities to automatically renew, update, or even upsell.
Now imagine you are a plant manager. Your plant has recently gone through its digital transformation and all sensor outputs are available in the cloud. However, now there is a new problem. All the information exists to decide the appropriate course of action but the mechanism to execute on these actions is not as robust as the system that brought them to light. Is the equipment covered under warranty? Did your third-party installation crew do anything to void that warranty? By enabling your digital plant with smart contracts on a blockchain, the necessary information will be available to the appropriate parties so that the appropriate actions (planned, preventative, or emergency maintenance) can be acted on as swiftly as they are identified.
Seventy-six percent of semiconductor executives believe blockchain and smart contracts will be critical to their company in three years. But they are not a silver-bullet for all maintenance contract issues. There are existing platforms that offer similar solutions. However, these platforms fall down when there is a high degree of complexity, multiple parties in the value chain, and an inherent distrust in the process. Blockchain introduces trust back into the process by offering transparency, fidelity and a clear audit trail.