Blockchain projects continue to experience a failure rate of over 90%, and it seems that with each passing moment, more and more “successful” companies are adding underperforming blockchain projects to their graves. One of the latest victims of blockchain failure is Moller-Maersk, which recently announced the end of its publicly traded TradeLens offering – a global trading platform built on IBM’s blockchain technology.
These failures, however, are predictable and, in many cases, could have been avoided if companies had more carefully observed certain lessons about the diffusion of innovation.
Lesson 1: Innovation is not monolithic. One of the biggest mistakes companies make is treating innovation as a monolithic concept. Innovation is not simply monolithic. Unfortunately, business associations, the business press and business schools like to parade endless innovation lists and innovation awards that reinforce the idea that all innovations are equal.
Clayton Christensen A New York Times bestseller The Innovator’s Dilemma was one of the first major attempts to distinguish types of innovation. Their work is helpful in starting the conversation, but a better framework for categorizing innovation comes from Rebecca Henderson and Kim Clark, who define four types of innovation: incremental, modular, architectural and radical.
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While there are innovations that fit the modular and architectural categories, blockchain is, at its core, disruptive. As disruptive technologies change existing frameworks, interactions and intermediate institutions, the most successful early applications and innovations will come from small/start-up companies rather than IBM, Maersk or other Fortune 100 companies.
Lesson 2: Complexity is an innovation killer. This is especially true for modular and radical innovations. Everett Rogers notes the inverse relationship between complexity and the willingness and ability to use innovation. This complexity is not only related to the blockchain application itself but also to the internal decision-making process, the level of change required to adopt it, and the amount of new knowledge required to implement it.
Experts have explained that it is difficult to implement a project like TradeLens, because “the technology is complex, requires more computing power and is more expensive than existing databases.” Adding to the complexity of the IBM–Maersk block shipping project is the highly complex nature of two large multinational companies.
In the last round of major technological innovation – that is, the social media space – it is not the established players who build the tools, technologies, platforms, etc., that drive innovation and early adoption. This is a startup – an organization where decision-making cycles are short, minimal internal changes are required to adapt, and new knowledge can be assimilated quickly.
Because of these dynamics, successful early innovative breakthroughs for blockchain are more often found in simplistic applications developed by smaller and smaller entrepreneurial companies that change or reshape the simple processes of how work is done, products are created or transactions are facilitated between two parties. .
Lesson 3: Different types of innovation require different levels of risk tolerance. One of the main differences between the four types of innovation is the risk tolerance required to be an effective innovator. The level of risk tolerance for incremental innovation is low, while radical innovation requires higher risk tolerance.
An important note is that tolerance here does not only look at the risk or the probability that the project could fail. Assessing innovation risk also looks at the possibility of catastrophic failure for the entire organization – meaning that if adoption or innovation fails, the entire organization will fail, not just the innovation.
Billy Beane’s application of sabermetrics to the construction and management of the Oakland Athletics in the early 2000s is a well-known example of the application of modular innovation. This innovation entails high personal and organizational risks that no other Major League team would take.
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Failure for the A’s would not be catastrophic (ie, the team ceases to be a Major League franchise). However, the cost will be very high. Beane will definitely lose his job (as well as many others). A disgruntled fan base would punish the team by staying at home and stopping buying apparel, leading to a drop in profits. And the A’s will be a glorified Minor League team.
Blockchain, as a radical innovation, requires a higher level of risk tolerance for innovation and adoption – a willingness to risk everything. Companies that surround the edge (incremental innovation or architecture) with a project, if the innovation fails, they can only walk away, more likely to experience blockchain failure in the early stages of this innovation.
Blockchain and other decentralized technologies hold great promise for the necessary shift away from current trends toward more concentrated modes of production and power. The main task is to align our time, efforts and resources with the innovation lessons presented here to give this blockchain technology revolution the best chance to succeed.
Lyall Swimming is the chief innovation officer for Atlas Network. He holds a doctorate in education with an emphasis in organizational leadership from Pepperdine University. He has a bachelor’s degree in communications and an MBA from Brigham Young University.
This article is for general information purposes and is not intended and should not be construed as legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.