Perspective on Don Tapscott's letter to the CEOs
In his letter to the CEOs, Don Tapscott focuses on the exciting promises offered by blockchain and other fascinating new technologies. However, there are those who fear that the number of jobs eliminated as a result of the technological development will not be balanced by the number of new jobs being created and the more efficient use of people's capital due to the elimination of various intermediaries.
The art of embracing new technology
Regardless of where one stands in this discussion, we believe the current movement of digitisation to be so powerful that it is unstoppable (see our Insight on Fintech – the new black or genuinely a game changer
It is going to transform our economy and society in such a profound way that any CEO must dedicate sufficient time and energy to understand the new technologies, form a strategy on how to embrace them and design a business model focused on how to best utilise the new technologies.
While this may sound easy in theory, it is far from being so in practice. Many of the more promising technologies such as blockchain and AI are in their early stages with start-up problems likely to follow. It is difficult to predict which technology will prove superior (bearing in mind that it may not even have been developed yet) and how industries will transform as a result of the new technologies. Everybody wishes to reap the benefits of being a first mover, but many fear the implications of investing heavily in a technology that may not end up being the preferred. As always, timing is everything, and even if a CEO has identified the right technology and strategy, his/her efforts may prove futile if the customers are not ready to embrace the new technology.
Adaptation is key
The Nordic countries are well-known for their willingness to accept and adapt to new technologies more swiftly than most other countries. Traditionally, CEOs of Nordic companies have practised a more flat hierarchy management style, which may prove to be a strength and make the transformation into the modern age of management smoother. CEOs of Nordic-based companies should take advantage of this to test new technologies and innovative business models in their home market and, if successful, take them global.
Impact on legal aspects
The new societal paradigm predicted by Don Tapscott will of course also fundamentally challenge the existing legal framework, which will need to adapt to reflect the new ways of doing business. By way of example, part of what fascinates tech savvies about the public blockchain is the anonymity offered by the private and public keys used to validate entries into the ledger, but the very same anonymity frustrates lawyers and lawmakers keen to ensure compliance with KYC and AML requirements.
It is not only the law that needs to adapt to the new technology, but also the lawyers. As smart contracts (operating on Ethereum or other public blockchains) gain traction, lawyers will need to consider learning some of the programming languages typically used to code smart contracts (listen to our podcast Blockchain and smart contracts (in Danish)
Like other advisors, lawyers need to be attuned to the new developments in order to furnish CEOs and their business with value-adding advice. At Kromann Reumert, we are very mindful of that, which is why we have long prided ourselves of having a strong IT and technology law practice and why we were the first Danish law firm to form an industry practice group focused on Fintech (read more about our fintech group).
Jacob Høeg Madsen, partner i Kromann Reumert
For the last century, academics and business leaders have shaped the practice of modern management. The main theories, tenets, and behaviors of managers have worked well overall in building corporations – largely hierarchical, insular, and horizontally- or vertically-integrated.
Until now. The blockchain technology underlying cryptocurrencies such as Bitcoin will effect profound changes in the nature of firms: how they are funded and managed, how they create value, and how they perform basic functions like marketing and accounting. In some cases, software will replace management altogether.
The Internet today connects billions of people around the world, and certainly it's great for communicating and collaborating online. But because it’s built for moving and storing information, and not value, it has done little to change the corporation and the nature of business. When you send information to someone, like an email, word document, or PDF you’re really sending a copy not the original. It’s OK (and indeed advantageous) for people to print a copy of their Powerpoint file, but not OK to print, say money, stocks, Intellectual property or music. So with the Internet of information we have to rely on powerful intermediaries to establish trust. Banks, governments, and even social media companies like Facebook all do the work of establishing our identity and helping us own and transfer assets and settle the transactions.
Overall they do a pretty good job -- but there are limitations. They use centralized servers, which can be hacked. They take a piece of the value for performing this service – say 10 percent to send some money internationally. They capture our data, not just preventing us from using it for our own benefit but often undermining our privacy. They are sometimes unreliable and often slow. They exclude 2 billion people who don’t have enough money to justify a bank account. Most problematic, they are capturing the benefits of the digital age asymmetrically – and today.
What if there were an Internet of value, a globally distributed, highly secure platform, ledger, or database where we could store and exchange value without powerful intermediaries? That’s what blockchain technology offers us. Collective self-interest, hard-coded into this new native digital medium for value, ensures the safety, reliability, and trustworthiness of commerce online. That’s why we call it the Trust Protocol. It presents countless opportunities to blow centralized models to bits—models like the corporation, a pillar of modern capitalism, along with its management canon.
It turns out every business, institution, government, and individual can benefit in profound ways. With the rise of a global peer-to-peer platform for identity, trust, reputation and transactions, CEOs will be able to re-engineer deep structures of the firm, for innovation and shared value creation. We’re talking about building 21st century companies that look more like networks rather than the vertically integrated hierarchies of the industrial age. CEOs in the financial services industry know that blocichain provides an historic threat and opportunity, and executives in other industries will soon follow.
New business models are emerging everywhere. The “disruptors” like Uber and AirBnb, may well be disrupted themselves. Most so-called sharing economy companies are really service aggregators. They aggregate the willingness of suppliers to sell their excess capacity (cars, equipment, vacant rooms, handyman skills) through a centralized platform and then resell them to users, all while collecting valuable data for further commercial exploitation. Blockchain technology provides suppliers of these services a means to collaborate that delivers a greater share of the value to them. Just about everything UBER does could be done by smart agents on a blockchain. The blockchain’s trust protocol allows for cooperatives, or autonomous associations, to be formed and controlled by people who come together to meet common needs. All revenues for services, except for overhead, would go to members, who also control the platform and make decisions.
As firms become more like networks, management will change too and smart CEOs will lead this change. How do you effectively manage talent outside your boundaries? Triple entry accounting will eliminate the audit function and enable first to have real-time accounting. Does your CFO understand that? Supply chains will be based on blockchains. Customers will scan your products to find the blockchain-enabled providence of everything you make.
Blockchain may eliminate many of the biggest problems of management. The Distributed Autonomous Organization launched in 2016 had no employees at all. It was smart software based on the Ethereum blockchain. This DAO raised 160 million in a crowdfunding campaign. The problem of “moral hazard” was eliminated because the software specified that the organization was forced to act in the interests of its shareholders. The grand experiment ultimately failed due to a flaw in it’s smart contract systems, but the lessons are rich.
Increasingly CEOs understand that business cannot succeed in a world that’s failing. Perhaps the biggest opportunity in the Second Era of the Internet is to free us from the grip of a troubling prosperity paradox. The economy is growing but fewer people are benefiting. This problem is behind the social unrest, extremism, populism, demagoguery and worse – from Brexit to Donald Trump – that is plaguing modern economies. Rather than trying to solve the problem of growing social inequality through redistribution alone, we can change the way wealth – and opportunity – is predistributed in the first place, as people everywhere, from farmers to musicians, can use this technology to share more fully in the wealth they create.
The most important challenge facing the CEO in the mid 1990s was the early Internet. Once again the technology genie has escaped from the bottle, this time with bigger force and implications. Are you preparing your company?