If you’re in HR, you’ve probably heard the word “blockchain” floating around recently. As blockchain technology becomes more mainstream, we’re seeing a lot of speculation about the potential of blockchain to revolutionize the fundemantels of HR. Blockchain’s biggest potential comes when HR professionals use it to support organizational capabilities. Here, we’ll provide an overview of how blockchain works and then use the HR Competency Model to discuss specific ways that HR can integrate it in their existing practices.
The Need for Blockchain
From a high level perspective, technology has had a relatively limited impact on organizational structure and the fundamental ways we conduct business. While the internet has revolutionized the transfer of information between organizations and people; in reality, buyers and sellers continue to exchange information through an intermediary (e.g. Amazon, Alibaba) and do not actually exchange monetary value. The value exchange occurs via a second intermediary (e.g. PayPal, Mastercard), when the buyer pays the seller. The first intermediary must guarantee the delivery of the product to the buyer, despite the fact that the true monetary exchange is complete by a second intermediary.
What’s the bottom line? All these different intermediaries cause a fragmentation of the transaction process, increasing both the risk and the cost. In addition to these consequences, the buyer and seller face three primary risks: identity management, asset tracking, and default on payment. Blockchain technology directly addresses these uncertainties by automating authentication and streamlining the transaction process. In short, it has the potential to revolutionize the exchange of value.
Managing by Blockchain
Blockchain technology is a decentralized database that stores a registry of assets and transactions across a peer-to-peer network. Organizations that implement blockchain become more transparent, democratic, decentralized, efficient, and secure due to these primary advantages:
- Data is distributed: the technology runs on computers provided by volunteers around the world, so there is no central database to hack.
- The process becomes public: Anyone can view it at any time because it resides on the network.
- Data is encrypted: Blockchain uses heavy-duty encryption to maintain security.
Smart contracts under blockchain shareholders hold executives accountable for their commitments; subsequently, efficiency and accountability become central to a company’s organizational capabilities.
As stewards of organizational capabilities, HR is at the heart of this transformation. Capabilities are comprised of processes, skills, systems, and culture. Blockchain technology directly impacts and systematically aligns these areas; as a result, an organization becomes strategically positioned among competitors (see figure below).
Regardless of economic cycles, blockchain provides a number of benefits. Among them is the ability to leverage a large peer-to-peer network to verify, approve, and record transactions in a global spreadsheet or ledger. Buyers and sellers can store and exchange value without traditional intermediaries, reducing purchase cycles and production costs. Due to the atomization and optimization of the entire transaction process, leadership can focus resources on building additional capabilities that foster improvisation and delight customers.
Blockchain has the capacity to impact business in the manner the internet revolutionized communication and media. IBM estimates 15% of banks will have implemented blockchain by the end of 2017. Industries, like banking, insurance, healthcare, and transportation, will be highly disrupted by blockchain. Intermediary companies, such as Amazon, Uber, and Airbnb will be required to reinvent their business models as well.
So what does this mean for outside-in HR?
From an HR perspective, blockchain is already being used to assess, verify, and distribute unemployment benefits securely. The technology has already proven useful in the public sector due its data encryption. GOVCOIN, a UK based company helping the government to distribute public benefits, also utilizes it. The CIRCLES project, a non-profit organization, is implementing a blockchain-funded universal basic income.
Blockchain demolishes internal and external organizational barriers. External resources become as accessible as internal resources; as a result, the process of recruiting, developing, and retaining talent can change dramatically. Talent from different locations can perform the same jobs, tasks, and processing. The practice of managing and auditing external and internal talent can be similar as well. Blockchain has the potential to redefine the ownership of talent and its contribution to an organization. Leaders will be able to manage networks rather than hierarchies, all the while data and information is freely distributed. This dynamic cultivates a foundation of trust throughout an organization, which in turn drives accountability for performance, execution, and strategic impact.
Although smart contracts have been utilized by businesses for many years, they have recently inherited some of blockchain’s benefits. A smart contract is a basic software program, established by all counterparties. This automated system is programed to collect and measure inputs and trigger outputs (information or value). Once a pre-specified target is reached the software triggers the release of a predefined output. Each smart contract has an expiration date, so if a goal is not reached, a different predefined output is triggered. Because these contracts are now stored on a blockchain, they are immutable and distributed (see figure below). An immutable contract cannot be altered once it is created, thus neither party can tamper with the code of the contract. ‘Distributed’ implies that a single person cannot erroneously trigger an invalid release of a contract’s output and this output can be validated by everyone on the network.
Smart contracts utilizing blockchain will transform how organizations view employment, performance management, and compensation.
In organizations managed by blockchain, HR has the opportunity to position itself as a credible activist with the goal of ensuring the technology is recognized a trusted HR business partner. As the technology become integrated into common business practices, HR must also align itself to adopt and embrace the platform and its many benefits.
Aligning HR with Blockchain
HR should align itself to ensure talent, leadership, and organizational capabilities are positioned to create their intended value. This alignment should occur in 4 parallel streams:
- As the intermediary’s role is eliminated, the need for HR to do administrative work will become very limited. Subsequently, HR must focus on strategic work that innovates and optimizes an organization’s efficiency and accountability capabilities.
- Blockchain technology provides a platform for people to work together. It maintains the stability and benefits of a large organization, but removes the inefficiencies of a hierarchy system.
- HR will be able to reduce bureaucracy and the need for need for paper-based record keeping. This will increase a transaction’s security, efficiency, and transparency.
- Organizations can eliminate transaction costs and employ resources outside of the company just as easily as resources on the inside.
- Strategist Positioner: Able to transform an organization from vertical integration to networks based on blockchain, in order to better position the company to create products, supply services, and to deliver value to stakeholders.
- Credible Activist: Able to reduce delays and human mistakes
- Paradox Navigator: Able to manage tensions through public ledgers (long term – short term) and distributed ledgers (top down – bottom up).
- Culture and Change Champion: Able to stimulate change, as publicly distributed information represents a new means of establishing and building trust.
- Human Capital Curator: Able to codify various rights and relationships in smart contracts that sustain the organization. In general, people can select their area of work. The central hub provides supporting services to the spokes, in exchange for a share of the ownership.
- Total Reward Steward: Able to directly conduct salary and industry surveys between companies, without an intermediary. Both the surveying and surveyed companies have the freedom to ask and answer whichever questions they choose.
- Technology and Media Integrator: Able to integrate and optimize blockchain technology in HR processes.
- Analytics Architect: Able to link activity with capability. Analytics will no longer be partial snapshots of the enterprise at one point in time, but rather transparent, three-dimensional views of the entire enterprise.
- Compliance Manager: Able to reduce uncertainty of incompliance, verify identity, and integrate real-world data.
- Recruitment and Selections: Hiring managers obtain candidates’ information directly. The need for recruitment platforms (e.g. LinkedIn) will be limited. Blockchain allows HR to acquire better information about potential contractors and partners. This is accomplished by streamlining the due diligence process, including: tracking and verification of qualifications and certificates, ensuring the accuracy of this documentation, and monitoring people’s mobility.
- Engagements surveys: With a prospective employee’s consent, an employer will have access to a cache of accurate information, which is uploaded, stored, and managed on a highly secure, distributable database. This data can be integrated into smart contracts and trigger certain actions proactively to ensure engagement.
- Performance Management: Organizations can specify relationships, establish goals and desired outcomes, define the role of respective parties, and monitor each party’s ability to compete said goals. Performance will be managed via smart contract management systems.
- Learning and Development: The credibility and impact of training will be measurable. Clients can identify when a training program yields desired results. This builds a culture of trust, which will eliminate the need to administer training. Ultimately, employees will be able to identify programs and enroll directly.
- Stakeholders will have the ability to create their own dashboards based on the facts, as opposed to relying on interpretations of others.
- Transactions can be documented in permanent, decentralized records and monitored securely and transparently to control costs and labor.
- Data in decentralized servers are protected from data loss and human error, thus analytics will be more robust.
Blockchain provides HR with the opportunity to rethink how companies drive results and build organizational capabilities. The technology will help us to deliver value directly to our targeted clients without an intermediary. Although blockchain’s implementation is yet to be fully tested throughout many industries and sectors, we encourage HR to pave the way for blockchain. Employing RBL’s Outside-In’ methodology will help to re-align business areas, foster innovation, and drive value throughout the organization and its stakeholders.
- Ulrich, David. Victory through Organization: Why the War for Talent Is Failing Your Company and What You Can Do about It. McGraw-Hill Education, 2017.
- Tapscott, Don, and Alex Tapscott. Blockchain Revolution: How the Technology behind Bitcoin Is Changing Money, Business and the World. Portfolio/Penguin, 2016.
- Warburg, Bettina. “How the Blockchain Will Radically Transform the Economy.” TEDtalksDirector, YouTube, 8 Dec. 2016, www.youtube.com/watch?v=RplnSVTzvnU.