Industry Insights

Sometimes it takes a community: Bringing a Blockchain Consortium to Life

If you’ve been working for more than a couple of decades, you remember the frenzy over Y2K. At the end of the last millennium, people were convinced that there would be a global meltdown as millions of computer programs incorrectly handled the transition from December 31, 1999 to January 1, 2000. When it actually occurred, the transition was almost a nonevent. Some people got the idea that there had never been a problem in the first place, but the truth was that the potential for disaster was avoided by thousands of remediation and mitigation projects around the world.[1]

 

After they had analyzed their own Y2K situations, quite a few of the largest electronics companies recognized the potential for Y2K-related disruptions to their supply chains, and initiated action to ensure that their suppliers would properly address the problem. Many of the large OEMs started to audit their supply base’s Y2K readiness. Before long, electronics suppliers began to complain that they were hosting multiple customer Y2K audits in the same week, all asking essentially the same questions, and thoroughly disrupting normal operations. The suppliers began asking why their customers couldn’t somehow join forces and share audit results.

 

And that’s exactly what happened. About 25 high-tech giants, including Cisco, Motorola and Dell Computer, joined forces to create the “High Tech Consortium.”[2] They rapidly created a survey instrument, organized a series of supplier site visits, and built a database with privacy elements that allowed each supplier to determine which companies were permitted to view the survey results. The consortium was organized (and funded) quickly, did its work, and accomplished its goal.

 

So the concept of using an industry consortium to solve a common industry problem is not new, and it can be very effective. It does lie outside most companies’ normal mode of operation – and people have a natural tendency to avoid the unknown, so IBM occasionally helps get the process started by bringing companies together to discuss the idea. They usually quickly recognize that building a consortium can be a logical and attractive way to solve an industry-wide problem – especially when that problem:

  1. is big enough to be recognized as an issue by many different companies, but not big enough that one company is likely to take a leadership role in resolving it;
  2. isn’t a source of real competitive advantage;
  3. is unlikely to be solved by market forces;
  4. would benefit from the network effect – in other words, it would be better solved with many companies using a common process rather than by individual processes.

 

And of course, blockchain now offers us a technology that provides the security, privacy, and performance needed to build a solution that multiple companies can trust to solve those problems.

 

Industry consortia have been used in a variety of different industries to set standards, provide needed infrastructure (whether physical or information-based), and develop common practices.

 

It’s worth noting that it’s all right for companies to discuss a common approach to a problem without first establishing a formal legal structure. In fact, it’s easier to set up the consortium after the companies have worked out the basics of a shared strategy. With minimal guidelines (i.e. “don’t reveal confidential information!”), companies can talk through problems and hold informal discussions prior to going through the process to legally create a consortium. It is likely to take some time for the different parties to reach consensus on how to approach the problem, to find the value in solving it, and to work out what structure the consortium should have. If done properly, a consortium will reduce costs or labor investments for all participants in the process; and in many cases, founding members will be able to realize additional benefits.

 

Different consortium models can be set up for different situations. In some situations, consortium members may simply want to solve a mutual problem, at the lowest possible expense. In other situations, the members may recognize that the consortium will provide a platform for new business models; in a situation like that, the founding members may see an opportunity for new revenue streams – and will need a consortium model that supports that idea.  Models already exist for nearly every type and variation of consortium structure that may be set up. While the process will never be trivial (and it can take some time), once some initial direction has been determined, it can be reasonably straightforward. IBM has participated in the creation of a number of different consortia and has developed a set of reference documents and processes that can help keep the process on track.

 

The process of creating a consortium is not trivial – a host of different matters need to be determined. (For instance, where should the consortium’s legal entity be established? What funding model will be used? What membership structure will be used? How will priorities for further development be determined?) Significant sustained effort is needed to formally establish a consortium with the proper legal framework, ownership structure, commercial model and governance. But once it is established, the consortium will provide a market utility to the entire industry – customers, suppliers, service providers, including direct competitors and partners.

 

IBM is able to provide an extensive set of exhibits and documents than will help each potential consortium build an appropriate framework and model in a relatively quick, straightforward way. It may be relatively rare that companies use a consortium approach to solve common industry problems, but with blockchain now solving many of the technological issues[3], this is a tool that should be used more and more in the coming years.

 

[1] The key was to build an inventory of all the programs that companies used to run their businesses – even minor ones – and to test whether those programs correctly handled the transition or not. For instance: at the building where I worked, our facility manager tested the building security program, and discovered that all of the external doors locked when the date switched to 01/01/00. Luckily, a couple of people in the building had stayed in the building and were able to reverse the process.

[2] A couple of old news articles on the High Tech Consortium are available on line, at: https://www.eetimes.com/document.asp?doc_id=1121910 and https://www.eetimes.com/document.asp?doc_id=1123164 .

 

[3] The technological issues referenced here are those that companies face when trying to use a common process while keeping their confidential data private and secure, as well as ensuring that everyone ‘plays by the rules.’ Blockchain provides an excellent set of tools to ensure these concerns are met, thereby building trust in the process and making it more attractive for other companies to join.

Sr. Managing Consultant, Electronics Center of Competence at IBM

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