Global management consultancy McKinsey has issued another in the consistent stream of warnings about Blockchain hype – but given its stature among the Fortune 500 C-Suite audience, this one may have more impact than most.
In a post entitled ‘Blockchain’s Occam Problem‘ three of its analysts rehearse the now familiar story about how much interest there is in the tech, and how at least 100 use cases have emerged across a wide swathe of industries, including land registry and smart contracts, and acknowledges that, “The most impressive results have seen blockchains used to store information, cut out intermediaries, and enable greater coordination between companies, for example in relation to data standards.”
But, the paper argues, “The bottom line is that despite billions of dollars of investment, and nearly as many headlines, evidence for a practical scalable use for blockchain is thin on the ground… The fact was that billions of dollars had been sunk but hardly any use cases made technological, commercial, and strategic sense or could be delivered at scale.”
And the consultancy thinks it knows why: while Blockchain is just basically following the traditional hype cycle of any new industry, it is mostly stuck in ‘stage 1’, when it’s just getting started – and it’s struggling to make a convincing enough case for itself against competing technologies. It also says the feedback it’s getting from even financial services fans is that financial companies are starting to feel “blockchain technology was either too immature, not ready for enterprise level application, or was unnecessary”.
As a result, the authors contend, “Given the range of alternative payments solutions and the disincentives to investment by incumbents, the question is not whether blockchain technology can provide an alternative, but whether it needs to?”
Using the logic tool of ‘Occam’s Razor’ – which recommends not adding complexity to a situation unless you really have to – McKinsey then states that maybe Blockchain won’t happen for financial services at all and that’s the wrong place to expect it to:
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“An emerging perspective is that the application of blockchain can be most valuable when it democratizes data access, enables collaboration, and solves specific pain points. Certainly, it brings benefits where it shifts ownership from corporations to consumers, sharing ‘“proof’ of supply-chain provenance more vertically, and enabling transparency and automation.
“Our suspicion is that it will be these species of uses cases, rather than those in financial services, that will eventually demonstrate the most value.”
After recommending a much more pragmatic Blockchain approach, the paper concludes, “Companies set on taking blockchain forward must adapt their strategic playbooks, honestly review the advantages over more conventional solutions, and embrace a more hard-headed commercial approach. They should be quick to abandon applications where there is no incremental value.
“In many industries, the necessary collaboration may best be undertaken with reference to the ecosystems starting to reshape digital commerce. If they can do all that, and be patient, blockchain may still emerge as Occam’s right answer.”