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Designing a Blockchain Enabled Supply Chain
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Designing a Blockchain Enabled Supply Chain Designing Designing a a Blockchain Blockchain Enabled Enabled Supply Supply Chain Chain Yingli Wang* Yingli Wang* Yingli Wang*
*Cardiff Business School, Cardiff University, UK *Cardiff Business Cardiff *Cardiff Business School, School, Cardiff University, University, UK UK (Tel: 0044-2920875066; e-mail:[email protected]). (Tel: 0044-2920875066; e-mail:[email protected]). (Tel: 0044-2920875066; e-mail:[email protected]).
Abstract: Abstract: The The paper paper reports reports aaa case case study study of of aaa consortium consortium in in the the UK’s UK’s construction construction sector sector trying trying to to pilot pilot aaa Abstract: The paper reports case study of consortium in the UK’s construction sector trying to pilot smart contract initiative. At the pre-pilot stage, we use the theory of sensemaking to understand smart contract contract initiative. initiative. At At the the pre-pilot pre-pilot stage, stage, we we use use the the theory theory of of sensemaking sensemaking to to understand understand how how smart supply chain actors contextualise the potential impact of blockchain on their businesses, diagnose aa how new supply chain actors contextualise the potential impact of blockchain on their businesses, diagnose new supply chain actors contextualise the develop potential assumptions, impact of blockchain on their businesses, diagnose a new technology’s symptoms and then expectations and knowledge of the new technology’s symptoms and then develop assumptions, expectations and knowledge of the new technology’swhich symptoms and then develop assumptions, expectations and knowledge ofwethe new technology, then shape their subsequent actions during the pilot. During the pilot, use the technology, which then shape their subsequent actions during the pilot. During the pilot, we use the technology, which then shape their subsequent actions during thebusiness pilot. During the pilot, weshape use the design science approach in combination with theoretical lens of model to actively the design science approach in combination with theoretical lens of business model to actively shape the design science approach in Design combination with theoretical lens of business model to actively shape and the deployment of blockchain. science enables us a deep engagement with the field problem deployment of blockchain. Design science enables us a deep engagement with the field problem and deployment of blockchain. Design science enables us a deep engagement with the field problem practitioners while the business business model allows us aa generic generic design of blockchain blockchain deployment while and test practitioners while while the model allows us design of deployment while test practitioners the business model allows us a generic design of blockchain deployment while test this generic approach in a given context, i.e. the smart contract pilot. This research offers valuable this generic generic approach approach in in aa given given context, context, i.e. i.e. the smart smart contract contract pilot. pilot. This This research research offers offers valuable valuable this insights on on how how the the consortium consortium members design designtheaa blockchain blockchain enabled supply supply chain chain and and various various issues issues insights members enabled insights onencountered. how the consortium members design a blockchain enabled supply chain and various issues they have they have have encountered. encountered. they Copyright @ 2019 2019 IFAC Federation of Automatic Control) Hosting by Elsevier Ltd. All rights reserved. © 2019, IFAC (International Copyright @ IFAC Copyright @ 2019 IFAC Keywords: blockchain; blockchain; design design science; science; sensemaking; sensemaking; supply supply chain; chain; business business model. model. Keywords: Keywords: blockchain; design science; sensemaking; supply chain; business model.
1. INTRODUCTION 1. 1. INTRODUCTION INTRODUCTION Blockchain technology (or distributed ledger technology in Blockchain technology (or ledger technology in Blockchain technology (or adistributed distributed ledger technology in general) is believed to have pro-found impact on businesses general) is believed to have a pro-found impact on businesses general) is believed toand have a pro-found impact onand businesses and society (Tapscott Tapscott 2017; Lansiti Lakhani and society (Tapscott and 2017; and Lakhani and society (Tapscott and Tapscott Tapscott 2017; Lansiti Lansiti and in Lakhani 2017). While blockchain technologies remain their 2017). While blockchain technologies remain in their 2017). While blockchain technologies remain in their infancy, they are gaining momentum within supply chains infancy, they are gaining momentum within supply chains infancy, they are gaining momentum within supply chains (Wang et al., 2019a). Many proof-of-concept (POC) or (Wang et al., Many proof-of-concept (POC) or (Wang etschemes al., 2019a). 2019a). Many proof-of-concept (POC) or piloting have been developed in recent years, piloting schemes have been developed in recent years, piloting schemes have been developed in recent years, particularly in 2017, using blockchain technology. IBM alone particularly in 2017, using technology. IBM particularly inwith 2017,hundreds using blockchain blockchain technology. IBM alone alone is working of enterprises on blockchain is working with hundreds of enterprises on blockchain is working with hundreds of enterprises on blockchain implementations (IBM, 2018). Application-specific implementations (IBM, 2018). implementations (IBM, 2018). forApplication-specific Application-specific implementations, such as Everledger diamond tracking implementations, such as Everledger for diamond tracking implementations, such as Everledger for diamond tracking and Filament for IoTs, have also commenced. However as and Filament for IoTs, have also commenced. However as and Filament for IoTs, have also commenced. However as with many other emerging technologies, academic with many other emerging technologies, academic with many other emerging technologies, academic understandings of concrete, real-life, end-to-end understandings of concrete, real-life, end-to-end understandings are of lagging concrete, real-life, end-to-end implementations behind, thus providing very implementations are lagging behind, thus providing very implementations are lagging behind, thus providing limited evidence evidence for for us us to to understand understand the the true true impact impactvery of limited of limited evidence for us to understand the business true impact of blockchain technology on supply chains and model blockchain technology on supply chains and business model blockchain technology on supply chains and business model transformations (Saberi et al., 2018; Wang et al., 2019b). transformations transformations (Saberi (Saberi et et al., al., 2018; 2018; Wang Wang et et al., al., 2019b). 2019b). Via a participative study of a blockchain piloting initiative in Via aa participative study of piloting initiative in Via participative study of aa blockchain blockchain piloting initiative in aa construction supply chain, this paper aims to explore the construction supply chain, this paper aims to explore the aanswers construction supply chain, this paper aims to explore the to the research question of “how should aa blockchain answers to the question of blockchain answers tosupply the research research question of “how “how should should aexecuted?”. blockchain enabled chain be designed and enabled supply chain be designed and executed?”. enabled supply chain be designed and executed?”. Subsequently our research objectives are twofold: a) to Subsequently our objectives are a) Subsequently our research research objectives are twofold: twofold: a) to to explore how how supply supply chain actors actors make sense sense of and and explore explore explore chain make of explore how supply chain actors to make sense of and explore the use of blockchain technology create value for multiple the use technology create the use of of blockchain blockchain technology to toecosystem; create value valueb)for fortomultiple multiple stakeholders in aa construction derive stakeholders in construction ecosystem; b) to stakeholders inthea empirical construction ecosystem; b) to derive derive insights from study on how a blockchain insights from the empirical study on how aa blockchain insights from the empirical study on how blockchain enabled supply chain may be designed that produces enabled supply enabled outcomes. supply chain chain may may be be designed designed that that produces produces desirable desirable outcomes. desirable outcomes.
2. BACKGROUND BACKGROUND LITERATURE 2. 2. BACKGROUND LITERATURE LITERATURE 2.1 Blockchain for supply chains 2.1 2.1 Blockchain Blockchain for for supply supply chains chains Blockchain, in its essence, is an encoded digital ledger that is Blockchain, in is encoded digital ledger that Blockchain, in its its essence, essence, is an an encoded digital ledger that is is stored on multiple computers of a public or private network. stored on multiple computers of aa public or private network. stored on multiple computers of public or private network. It comprises data records, or ‘blocks’. Once these blocks are It comprises data records, or ‘blocks’. Once blocks It comprises data records, orcannot ‘blocks’. Once these these blocks are are combined in a ‘chain’, they be changed or deleted by combined in aa ‘chain’, they cannot be changed or deleted by combined in ‘chain’, they cannot be changed or deleted by aa single actor, and instead, are verified and managed using single actor, and instead, are verified and managed using aautomation single actor, and instead, are verified and managed using and shared governance protocols. Blockchain automation and protocols. Blockchain automationcrypto-currencies and shared shared governance governance protocols. Blockchain underpins such as as Bitcoin Bitcoin and Ether, Ether, using underpins crypto-currencies such and using crypto-currencies such itself as Bitcoin andtime Ether, using aaunderpins shared database that updates in real and can shared database that updates itself in real time and aprocess sharedand database that updates in itself in realusing timecomputer and can can settle transactions minutes process and settle transactions in using process andwith settle transactions in minutes minutes using computer computer algorithms, no need for third-party verification, such as algorithms, with no third-party verification, algorithms, withconducted no need need for for third-party verification, such such as as those normally by a bank. those those normally normally conducted conducted by by aa bank. bank. Yet, blockchain’s impact goes well beyond financial Yet, blockchain’s impact goes well financial Yet, blockchain’s impact goesnature wellof beyond beyond financial transactions. Utilising its unique disintermediation, transactions. Utilising its unique nature of disintermediation, transactions. Utilising its unique nature of disintermediation, transparency with pseudonymity, security and automation, transparency with pseudonymity, security automation, transparency with have pseudonymity, securityits and and automation, various industries industries started to to explore explore utility in supply supply various have started its utility in various industries haveproduct started toprovenance explore its and utility in supply chains, ranging from traceability, chains, ranging from product provenance and traceability, chains, ranging from product provenance and chain, traceability, international shipping and cross-border supply trade international shipping and supply chain, trade international shipping and cross-border cross-border supply chain, trade finance, secure data exchange and record, to smart contracts, finance, secure data exchange and record, to smart contracts, finance, secure data exchange and record, to smart contracts, anticorruption and humanitarian aid (Wang et al., 2019a). Its anticorruption humanitarian aid (Wang 2019a). Its anticorruption and andare humanitarian aid challenges (Wang et et al., al., 2019a).The Its implementations not without though. implementations are not without challenges though. The implementations are not without challenges though. The anticipated challenges are discussed in depth by Saberi et al., anticipated challenges are in by et anticipated challenges are discussed discussed in depth depth byetSaberi Saberi et al., al., (2018), Queiroz and Wamba (2019) and Wang al. (2019b). (2018), Queiroz and Wamba (2019) and Wang et al. (2019b). (2018), Queiroz and Wamba (2019) and Wang et al. (2019b). There could could be be intra, intra, or or inter inter organisational organisational barriers barriers such such as as There There could be intra,and or inter organisational barriers such as lack of knowledge expertise, financial constraints or lack of knowledge and expertise, financial constraints or lack of knowledge and expertise, financial constraints or collaborative and information sharing issues. Regulatory collaborative and information sharing issues. Regulatory collaborative and information sharing issues. Regulatory uncertainties, energy consumption, unethical behaviours and uncertainties, uncertainties, energy energy consumption, consumption, unethical unethical behaviours behaviours and and
2405-8963 © 2019, IFAC (International Federation of Automatic Control) Hosting by Elsevier Ltd. All rights reserved. Peer review under responsibility of International Federation of Automatic Control. Copyright © 8 10.1016/j.ifacol.2019.11.082 Copyright © 2019 2019 IFAC IFAC 8 Copyright © 2019 IFAC 8
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technological interoperability are also challenges facing supply chains.
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As the pilot project is yet to finish, we report our preliminary findings mainly on sensemaking and design stages in this paper.
2.2 Sensemaking
Table 1: Consortium members of the pilot initiative
Sensemaking is ‘a process, prompted by violated expectations, that involves attending to and bracketing cues in the environment, creating intersubjective meaning through cycles of interpretation and action, and thereby enacting a more ordered environment from which further cues can be drawn’ (Maitlis and Christianson 2014, p.67). Sensemaking affords us to examine organisational actors’ cognition and situated actions when introduced to a new technology (Jensen et al., 2009). The term frame tends to be used to denote different forms of frameworks on which individuals draw to make sense of a given situation. In the context of technological sensemaking, frames may be regarded as the understanding of a particular technological artefact that includes not only knowledge about the technology itself but also includes understanding of its contextualised use in particular settings (Orlikowski and Gash, 1994; Mishra and Agarwal, 2010).
Organisation name (anonymised) DesignCo. SteelCo. ITCo1 ITCo2 ITCo3 ITCo4 Independent consultant1 ConsultCo. LawCo Supplier1 TA Academic
Type of supply chain actor Designing company Manufacturing company Supply chain Consortium lead Blockchain solution provider 3D business applications provider Costing estimation solution provider Project management Main contractor Lawyer and regulative agency Supplier Trade association Knowledge transfer and academic advisor
3. RESEARCH METHODOLOGY In the UK construction is made up of around 300,000 firms who employ 3 million people, with the public sector spending around £50bn each year on construction and related activities (Office for National Statistics 2018). Blockchain is seen as one of the strategic enabling technologies that supports the Government’s Digitally Built Britain strategy. The sector has been actively exploring the potential value of blockchain in various areas (Lamb 2018; Kinnaird, et al., 2017).
4. PRELIMINARY FINDINGS 4.1 Sensemaking by supply chain actors
A qualitative, participative research approach was adopted. This research is particularly informed by design science research methodology (DSRM) (Peffers et al., 2018; Peffers et al., 2007). The researcher sits in a UK wide workgroup in construction as a panel expert, attending regular meetings and conducting numerous email and telephone conversations since early 2017 and has been closely involved in a smart contract pilot scheme (still ongoing at the time of writing). The research was divided into two phases: the first phase focuses on the sensemaking process at the pre-adoption stage. The second phase involves the piloting of a smart contract initiative, involving a range of supply chain actors (Table 1). The study follows a typical DSRM process proposed by Peffers et al. (2007): problem identification, objective definition, design and development to final demonstration and evaluation. Milestone events were captured via a project log and meetings were written up and interviews transcribed. The major data collection consists of -
Attendance of 11 working meetings;
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Conducting 6 interviews with the smart contract pilot consortium members
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Organising a focus group with 32 participants from different organisations in October 2017.
Figure 1: The process of sense-making of the blockchain technology (pre-adoption) In essence, sensemaking is a social process of meaning construction and reconstruction through which managers create sense for themselves to understand what is going on. As illustrated by Figure 1, sense-making of blockchain technology is a closed-loop process, triggered by cues. Cues could be intrinsic (the innovation’s inherent characteristics like its perceived ease of use, performance and utility) and extrinsic (non-physical characteristics like its perceived image and price/cost). In this study, the combined intrinsic and extrinsic frames from participants led to the salience of beliefs and expectations about blockchain technology. Participants’ 9
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intrinsic frames centred on the usefulness or performance of blockchain and its ease of use required for adoption. The technical features of blockchain activates the individual sense-making process and serves as a foundation for the process of how senior managers come to understand the technology as a whole. This finding validated Griffith’s conceptual proposition on the role of technology features as triggers in sense-making (Griffith, 1999).
past wisdom and experiences’ (Ellis et al., 2011, p82). Hence, our research confirms that sensemaking is highly correlated to one’s identity, as people tend to relate their interpretation of the technology to the expectations they have of their roles and responsibilities. Thus, we concur with Jensen et al. (2009) that identity forms the sensemaking but sensemaking informs the identity. Once meaning is constructed, managers may start to assess the emerging technological landscape, and embark on the forward-thinking process of elaborating pertinent future developments and deriving actionable implications. It is through this process supply chain actors determined where they thought blockchain would be beneficial to supply chains and what consequences and challenges this penetration would entail. Sensemaking thus provides us a ground to ‘treat plausibility, incrementalism, improvisation, and bounded rationality as sufficient to guide goal-directed behaviour’ (Wick, et. al., 2005, p. 419).
Although the perceived usefulness is clearly evident among supply chain actors, the technical complexities of blockchain was reflected by most of the participants. The difficulties to grasp how it actually works in practice has led to a low confidence in how it can be adopted in construction. As almost all initiatives are currently in the piloting stage, the lack of large-scale deployment implies that there are yet to be demonstrable benefits to supply chain organisations. These findings resonate with the key factors proposed by the diffusion of innovation (DOI) theory: complexity, observability and trialability (Rogers, 2010). They also correspond to key factors suggested in the stream of technology acceptance model (TAM) literature (Davies, 1989; Venkatesh and Davis, 2000; Holden and Karsh, 2010): efforts expectance (perceived ease of use), performance expectancy (perceived usefulness) and perceived behaviour control or facilitating conditions.
4.2 Insights on how to design a blockchain enabled supply chain To shed lights on how the supply chain actors in this case design a blockchain enabled supply chain, we utilise the concept of business model here in this section. The business model is often examined at the level of individual firms but it can also be used as part of a comprehensive framework for thinking about systemic change when technological innovation leads to structural changes in industries (Zott et al., 2011). To embed blockchain in supply chains, a focal firm and its multiple stakeholders in the supply chain need to design a unique business model to fully realise its commercial potential. A business model can be regarded as “a new unit of analysis, offering a systemic perspective on how to “do business,” encompassing boundary-spanning activities (performed by a focal firm or others), and focusing on value creation as well as on value capture” (Zott et al., 2011, p1038.) In parallel discussion with the concept of business model, are the terms ‘ecosystem’ and ‘platforms’. The ecosystem construct explicitly seeks to address the interconnectedness and interdependencies among supply chain partners, enablers (e.g. technology service providers and government agencies) and competitors. The concept of platform tends to be treated as a subsystem of a business ecosystem (Tsujimoto et al., 2018).
Extrinsic framing relates to the non-physical characteristics of blockchain. In our study, extrinsic framing dealt with the performance of blockchain, the cost of its deployment and its wider impact. Unlike intrinsic framing, extrinsic framing from supply chain actors leans on the negative aspects of blockchain. For instance, performance issues like interoperability and latency were perceived as barriers to blockchain’s future deployment. These issues have synergies with two other DoI factors: compatibility and relative advantages (Rogers, 2010). Although our findings align with the streams of DOI and TAM research, they tend to focus on relationships between attitudes, intentions, behaviour and their various antecedents, but offer limited insights about how these relationships develop. Our analysis of sense-making provides unique insights because it explicates pre-decisional activities and describes how supply chain actors enact with the environment and construct meaning to deal with the ambiguity caused by the emergence of blockchain technology.
The disruptive impact of blockchain technology requires supply chain actors to rethink many aspects of their business models as well as the governance issue.
In our case, the emergence of blockchain technology served as a stimulus. Once noticing the emergence of blockchain, senior managers started the interpretation process (i.e. bracketing) by linking the emerging technology with their existing mental models. This interpretation is often operationalised in the context of their previous understanding, existing roles and responsibilities and the organisation’s operating environment. Following bracketing is the process of enactment. The connection of blockchain technology with their existing frames enabled our interviewees to resolve technology equivocality and construct meaning—– i.e. ‘an individual ‘selects’ a contextually rational explanation from those available that best utilises
A business model articulates the design or architecture of the value creation, delivery and capture mechanisms employed (Teece 2010). For the case being studied, the starting point is to identify the ‘pain’ points in existing supply chain. It took a considerable amount of time and efforts for the consortium to debate (via an iterative process) and decide the entry point to deploy the blockchain technology. A particular challenge is that supply chain actors need to identify an area where value could be co-created and benefits co-shared/captured by multiple players. Different consortium members tend to have 10
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different priorities and sometime conflicting goals due to the nature of their businesses and the relative ‘location’ in a supply chain network.
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are not high on their agenda for the pilot. Though via the pilot, they expect to test out exactly what kind of benefits a blockchain enabled smart contract may bring to the ecosystem participants. At this stage, the detailed roles and responsibilities were assigned between the members, for instance a ‘swimming lane’ was established depicting who drops what kind of data at which point into a blockchain. Data integrity (particular prior to the entry to the blockchain system), remediation (when bad data gets input into a blockchain), security, ownership and privacy issues were intensively explored. Measures to mitigate such issues were developed collectively with the support of the blockchain platform provider (BSP). A protocol was proposed by BSP regarding how each company could ‘plug in’ to BSP’s ondemand blockchain as a service platform.
The earlier sensemaking process has helped a great deal to bring the members into a consolidated understanding of technological developments and knowhow. However, a good understanding of blockchain technicality and intention to adoption does not automatically lead to business success. A business model is needed to translate innovation into a viable commercial success. Articulating a business model inevitably forces the consortium to select a network orchestrator/community leader to coordinate the various activities and ensure concerted efforts towards the goal. Later an IT service provider became the consortium coordinator. This is an interesting outcome because if one refers to the network orchestration literature, the hub/pivotal firm tends to be a core supply chain actor e.g. a manufacturer or a retailer who has sufficient power to undertake deliberate purposeful actions and draw together multiple supply chain actors for value co-creation (Paquin and Howard-Grenville 2013). Our longitudinal observation reveals that the hub company undertook a range of activities that steer the development of the pilot initiative: configure the network (i.e. building the blockchain ecosystem), bundle and mobilise the resources from across different supply chain actors, legitimise the participating members and try to create the governance mechanism for the consortium.
Options such as using membership fee to cover the ongoing cost of the pilot have been proposed but yet to be agreed upon at the time of writing. For the set-up cost, it is likely that whoever is going to benefit ‘most’ will invest more than other members in the consortium. Yet defining benefits (tangible and intangible) has been a challenging task for the consortium and the hub company plays a critical role in achieving a consensus among members. The setup of a private blockchain platform in many aspects resembles the setup of an internet-enabled supply chain network (for a consortium example, one can refer to Wang et al., 2011). If the investment is heavily skewed towards a particular group of supply chain actors and benefits are not distributed fairly, there is a large danger for a consortium network to collapse. We have witnessed many such failures in the past, for example Covisint (automotive), Elemica (chemical) and Agoratrans (Road haulage) all changed their business models, e.g. they become independent marketplaces or else.
The consortium decided to focus on the lifecycle asset management in a sharing economy context. This is the area where they see blockchain enabled smart contract and asset tracking will bring not only commercial but also social and environmental benefits to the construction sector. They also intended to share the lessons learnt at the industry level. Therefore, unlike what Teece (2010) has emphasised that the commercial value and ‘mechanisms to block imitation’ are the predominant element of a business model, the ecosystem approach in this case stress the importance of improving the competitiveness of the whole sector instead.
Another important issue that is at the heart of the pilot was the governance issue. Due to the decentralised nature of blockchain, many would assume that decision making in a blockchain enabled supply chain will be decentralised too. This is not necessarily the case, particularly in a private permissioned blockchain network. Although each participating organisation has a stake in how the blockchain supply chain should be configured and managed, we observe the significant influence by the network orchestrator and the large steel and designing companies in this aspect. Decision rights, accountability and incentives are the core components of IT governance (Beck et al., in press). At the design stage, there was a high degree of centralised decision making which will enable the centralised control later on. Namely, rules, liabilities and responsibilities in a smart contract were designed in a centralised manner whereas the control and execution of the contractual terms will be decentralised later. Because there are a range of legal issues which need to be dealt with, lawyers were heavily consulted at this stage to determine how each participating member should interact with each other and how potential disputes may be resolved among members. In a private blockchain network, it is not necessary that all nodes will validate each single transaction. Therefore there is also a need to define who will be validating the transactions and how codes capture the right business logic. A lengthy legal document (55-page long) has been
Once the entry point is decided, the next step is to articulate the blockchain platform value. This is critical to the business model design. Debates on this aspect largely concentrate value proposition, value creation and value distribution within the blockchain network. The value proposition defines the benefit the consortium will deliver to customers, how it will organize the supply chain network to do so, and how it will capture a portion of the value that it delivers. Value creation dictates the process, relational and technological configurations between participating companies. It is the generative mechanism that will operationalise the proposition. Value distribution clarifies how the value should be distributed among the consortium members. Guided by a broad vision of taking inefficiencies out of the existing supply chain, the consortium spent more efforts in discussing the investments that are needed to pilot the project, i.e. on value creation, and are less concerned with how value distribution needs to be devised. This is because that most members would like to use this pilot as a learning experience to get to know the technology better, and economic benefits 11
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proposed by a law firm in order to dictate how consortium members should interact and how commercial sensitive information and IP issues should be protected and resolved. Incentives for technical consensus, for system development and maintenance and for users have been scrutinised via an extensive process among members.
driving behavioural changes in supply chains. Our research also offers a structured way (i.e. the business model approach) to practitioners in designing a blockchain enabled supply chain. Our longitudinal study reveals the complexities that a blockchain enabled supply may encapsulate in particular in the areas of legal and governance issues, thus preparing and guiding them about various strategic decisions they need to undertake in overcoming such issues.
6. CONCLUSIONS
This research only examines a smart contract pilot initiative. Future research should aim to explore how such pilot schemes should be scaled up for a wide industrial uptake. Given the technical uncertainties of blockchain, it is desirable to explore which types of consensus will produce optimal or satisfactory performance results that fulfil the fast-paced needs of supply chains. Further research in examining the critical role of the blockchain supply chain network orchestrator is also worthwhile, for instance how they shape the direction of blockchain deployment and ensure objectives and actions are aligned among members. Finally we also recommend future studies to explore the potential negative impact a smart contract initiative may have upon supply chain, for instance the potential exclusion of certain types of supply chain actors.
The paper reports a case study of a consortium in the UK’s construction sector trying to pilot a smart contract initiative. While our research is still in progress, our preliminary findings of the pre-pilot stage provide valuable insights on how supply chain actors contextualise the potential impact of blockchain on their businesses, diagnose a new technology’s symptoms and then develop assumptions, expectations and knowledge of the new technology, which then shape their actions towards designing a blockchain enabled supply chain. During the pilot, we use the design science approach in combination with theoretical lens of business model to actively influence the deployment of blockchain. The various socio-technical issues identified in this research reflect the uncertainties and ambiguities caused by blockchain’ s emerging and unsettled technological development, and supports the call for close observation and a better understanding of its potential diffusion path (Fosso Wamba et al., 2018).
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Our theoretical contribution lies in the combined use of design science with the theoretical lenses of sensemaking and business model in designing and piloting a blockchain initiative. Through the design science approach, we have helped the consortium develop a robust sensemaking in terms of blockchain’s potential in addressing some pertinent productivity and capability issues. The design science allows us deep engagement in a field problem experienced by UK construction sector whist steering away from the risk of improving solely a local context through case-specific design. The business model approach provides a systematic structure in shaping people’s attention, deliberation and decision making about blockchain, as well as framing the collaborative efforts between the consortium members towards the joint pursue of a common objective and value creation – before our intervention, the efforts were rather fragmented. The business model also afforded us to develop a generic design of blockchain deployment and then test this generic approach in a given context. This establishes the pragmatic validity of our research. Knowledge gained via the intensive engagement with practitioners can be transferred to various contexts within construction. It is hoped that we will be able to report at the later stage on a set of theory-inspired principles for academics and practitioners that may guide blockchain’s further diffusion in supply chains. Our research is of value to practitioners too. The cognitive process of sensemaking among senior executives help organisations to understand the multifaceted perspectives towards blockchain deployment and the rationales that support those mental models. Understanding those social elements of a blockchain initiative is of great importance in 12
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Jensen, T.B., Kjærgaard, A. and Svejvig, P. (2009). Using institutional theory with sensemaking theory: A case study of information system implementation in healthcare. Journal of Information Technology, 24 (4), 343–353. Kinnaird, C., Geipel, M., Pearsall, M., Hienemann, (2017), Blockchain technology: How the Inventions Behind Bitcoin are Enabling a Network of Trust for the Built Environment, URL: https://www.arup.com/perspectives/publications/research /section/blockchain-technology (visited 11 December 2017). Lamb, K. (2018). Blockchain and Smart Contracts: What the AEC sector needs to know. URL: https://doi.org/10.17863/CAM.26272, visited October 11 2018 Mishra, A.N., and Agarwal, R. 2010. Technological frames, organizational capabilities, and IT use: An empirical investigation of electronic procurement. Information Systems Research, 21 (2), 249–270. Office for National Statistics, (2018), Construction output in Great Britain, available from https://www.ons.gov.uk/businessindustryandtrade/constr uctionindustry (visited September 20 2018) Orlikowski, W.J., and Gash, D.C. (1994). Technological frames: Making sense of information technology in organizations. ACM Transactions on Information Systems, 12 (2), 174–207. Paquin, R.L. and Howard-Grenville, J., (2013). Blind dates and arranged marriages: Longitudinal processes of network orchestration. Organization Studies, 34(11), pp.1623-1653 Peffers, K., Tuunanen, T., Rothenberger, M.A. and Chatterjee, S., (2007). A design science re-search methodology for information systems research. Journal of management information systems, 24(3), pp.45-77. Queiroz, M.M. and Wamba, S.F., (2019). Blockchain adoption challenges in supply chain: An empirical investigation of the main drivers in India and the USA. International Journal of Information Management, 46, pp.70-82. Rogers, E.M., (2010). Diffusion of innovations. Simon and Schuster. Saberi, S., Kouhizadeh, M., Sarkis, J. and Shen, L., (2018). Blockchain technology and its relationships to sustainable supply chain management. International Journal of Production Research, 1-19. Tapscott, D., and Tapscott, A. (2017). How blockchain will change organizations. MIT Sloan Management Review, 58 (2), 10–13. Teece, D.J., (2010). Business models, business strategy and innovation. Long range planning, 43(2-3), pp.172-194. Tsujimoto, M., Kajikawa, Y., Tomita, J. and Matsumoto, Y., 2018. A review of the ecosystem concept—Towards coherent ecosystem design. Technological Forecasting and Social Change, 136, pp.49-58. Venkatesh, V. and Davis, F.D., (2000). A theoretical extension of the technology acceptance model: Four longitudinal field studies. Management science, 46(2), pp.186-204.
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Wang, Y., Potter, A., Naim, M. (2007) "Electronic marketplaces for tailored logistics", Industrial Management & Data Systems, 107(8), pp.1170-1187. Wang, Y., Potter, A., Naim, M. and Beevor, D., (2011). A case study exploring drivers and implications of collaborative electronic logistics marketplaces. Industrial Marketing Management, 40(4), pp.612-623. Wang, Y., Han, J. H., Beynon-Davies, P. (2019a), Understanding blockchain technology for future supply chains: a systematic literature review and research agenda. Supply Chain Management: An International Journal, 24(1), pp.62-84, DOI: 10.1108/SCM-03-20180148 Wang, Y., Singgih, M., Wang, J. and Rit, M., (2019b), Making sense of blockchain technology: How will it transform supply chains? International Journal of Production Economics, Vol. 211, pp. 221-236, https://doi.org/10.1016/j.ijpe.2019.02.002 Weick, K.E., Sutcliffe, K.M. and Obstfeld, D., (2005). Organizing and the process of sensemaking. Organization science, 16(4), pp.409-421. Zott, C., Amit, R. and Massa, L., (2011). The business model: recent developments and future research. Journal of management, 37(4), pp.1019-1042.
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Designing a Blockchain Enabled Supply Chain Designing Designing a a Blockchain Blockchain Enabled Enabled Supply Supply Chain Chain Yingli Wang* Yingli Wang* Yingli Wang*
*Cardiff Business School, Cardiff University, UK *Cardiff Business Cardiff *Cardiff Business School, School, Cardiff University, University, UK UK (Tel: 0044-2920875066; e-mail:[email protected]). (Tel: 0044-2920875066; e-mail:[email protected]). (Tel: 0044-2920875066; e-mail:[email protected]).
Abstract: Abstract: The The paper paper reports reports aaa case case study study of of aaa consortium consortium in in the the UK’s UK’s construction construction sector sector trying trying to to pilot pilot aaa Abstract: The paper reports case study of consortium in the UK’s construction sector trying to pilot smart contract initiative. At the pre-pilot stage, we use the theory of sensemaking to understand smart contract contract initiative. initiative. At At the the pre-pilot pre-pilot stage, stage, we we use use the the theory theory of of sensemaking sensemaking to to understand understand how how smart supply chain actors contextualise the potential impact of blockchain on their businesses, diagnose aa how new supply chain actors contextualise the potential impact of blockchain on their businesses, diagnose new supply chain actors contextualise the develop potential assumptions, impact of blockchain on their businesses, diagnose a new technology’s symptoms and then expectations and knowledge of the new technology’s symptoms and then develop assumptions, expectations and knowledge of the new technology’swhich symptoms and then develop assumptions, expectations and knowledge ofwethe new technology, then shape their subsequent actions during the pilot. During the pilot, use the technology, which then shape their subsequent actions during the pilot. During the pilot, we use the technology, which then shape their subsequent actions during thebusiness pilot. During the pilot, weshape use the design science approach in combination with theoretical lens of model to actively the design science approach in combination with theoretical lens of business model to actively shape the design science approach in Design combination with theoretical lens of business model to actively shape and the deployment of blockchain. science enables us a deep engagement with the field problem deployment of blockchain. Design science enables us a deep engagement with the field problem and deployment of blockchain. Design science enables us a deep engagement with the field problem practitioners while the business business model allows us aa generic generic design of blockchain blockchain deployment while and test practitioners while while the model allows us design of deployment while test practitioners the business model allows us a generic design of blockchain deployment while test this generic approach in a given context, i.e. the smart contract pilot. This research offers valuable this generic generic approach approach in in aa given given context, context, i.e. i.e. the smart smart contract contract pilot. pilot. This This research research offers offers valuable valuable this insights on on how how the the consortium consortium members design designtheaa blockchain blockchain enabled supply supply chain chain and and various various issues issues insights members enabled insights onencountered. how the consortium members design a blockchain enabled supply chain and various issues they have they have have encountered. encountered. they Copyright @ 2019 2019 IFAC Federation of Automatic Control) Hosting by Elsevier Ltd. All rights reserved. © 2019, IFAC (International Copyright @ IFAC Copyright @ 2019 IFAC Keywords: blockchain; blockchain; design design science; science; sensemaking; sensemaking; supply supply chain; chain; business business model. model. Keywords: Keywords: blockchain; design science; sensemaking; supply chain; business model.
1. INTRODUCTION 1. 1. INTRODUCTION INTRODUCTION Blockchain technology (or distributed ledger technology in Blockchain technology (or ledger technology in Blockchain technology (or adistributed distributed ledger technology in general) is believed to have pro-found impact on businesses general) is believed to have a pro-found impact on businesses general) is believed toand have a pro-found impact onand businesses and society (Tapscott Tapscott 2017; Lansiti Lakhani and society (Tapscott and 2017; and Lakhani and society (Tapscott and Tapscott Tapscott 2017; Lansiti Lansiti and in Lakhani 2017). While blockchain technologies remain their 2017). While blockchain technologies remain in their 2017). While blockchain technologies remain in their infancy, they are gaining momentum within supply chains infancy, they are gaining momentum within supply chains infancy, they are gaining momentum within supply chains (Wang et al., 2019a). Many proof-of-concept (POC) or (Wang et al., Many proof-of-concept (POC) or (Wang etschemes al., 2019a). 2019a). Many proof-of-concept (POC) or piloting have been developed in recent years, piloting schemes have been developed in recent years, piloting schemes have been developed in recent years, particularly in 2017, using blockchain technology. IBM alone particularly in 2017, using technology. IBM particularly inwith 2017,hundreds using blockchain blockchain technology. IBM alone alone is working of enterprises on blockchain is working with hundreds of enterprises on blockchain is working with hundreds of enterprises on blockchain implementations (IBM, 2018). Application-specific implementations (IBM, 2018). implementations (IBM, 2018). forApplication-specific Application-specific implementations, such as Everledger diamond tracking implementations, such as Everledger for diamond tracking implementations, such as Everledger for diamond tracking and Filament for IoTs, have also commenced. However as and Filament for IoTs, have also commenced. However as and Filament for IoTs, have also commenced. However as with many other emerging technologies, academic with many other emerging technologies, academic with many other emerging technologies, academic understandings of concrete, real-life, end-to-end understandings of concrete, real-life, end-to-end understandings are of lagging concrete, real-life, end-to-end implementations behind, thus providing very implementations are lagging behind, thus providing very implementations are lagging behind, thus providing limited evidence evidence for for us us to to understand understand the the true true impact impactvery of limited of limited evidence for us to understand the business true impact of blockchain technology on supply chains and model blockchain technology on supply chains and business model blockchain technology on supply chains and business model transformations (Saberi et al., 2018; Wang et al., 2019b). transformations transformations (Saberi (Saberi et et al., al., 2018; 2018; Wang Wang et et al., al., 2019b). 2019b). Via a participative study of a blockchain piloting initiative in Via aa participative study of piloting initiative in Via participative study of aa blockchain blockchain piloting initiative in aa construction supply chain, this paper aims to explore the construction supply chain, this paper aims to explore the aanswers construction supply chain, this paper aims to explore the to the research question of “how should aa blockchain answers to the question of blockchain answers tosupply the research research question of “how “how should should aexecuted?”. blockchain enabled chain be designed and enabled supply chain be designed and executed?”. enabled supply chain be designed and executed?”. Subsequently our research objectives are twofold: a) to Subsequently our objectives are a) Subsequently our research research objectives are twofold: twofold: a) to to explore how how supply supply chain actors actors make sense sense of and and explore explore explore chain make of explore how supply chain actors to make sense of and explore the use of blockchain technology create value for multiple the use technology create the use of of blockchain blockchain technology to toecosystem; create value valueb)for fortomultiple multiple stakeholders in aa construction derive stakeholders in construction ecosystem; b) to stakeholders inthea empirical construction ecosystem; b) to derive derive insights from study on how a blockchain insights from the empirical study on how aa blockchain insights from the empirical study on how blockchain enabled supply chain may be designed that produces enabled supply enabled outcomes. supply chain chain may may be be designed designed that that produces produces desirable desirable outcomes. desirable outcomes.
2. BACKGROUND BACKGROUND LITERATURE 2. 2. BACKGROUND LITERATURE LITERATURE 2.1 Blockchain for supply chains 2.1 2.1 Blockchain Blockchain for for supply supply chains chains Blockchain, in its essence, is an encoded digital ledger that is Blockchain, in is encoded digital ledger that Blockchain, in its its essence, essence, is an an encoded digital ledger that is is stored on multiple computers of a public or private network. stored on multiple computers of aa public or private network. stored on multiple computers of public or private network. It comprises data records, or ‘blocks’. Once these blocks are It comprises data records, or ‘blocks’. Once blocks It comprises data records, orcannot ‘blocks’. Once these these blocks are are combined in a ‘chain’, they be changed or deleted by combined in aa ‘chain’, they cannot be changed or deleted by combined in ‘chain’, they cannot be changed or deleted by aa single actor, and instead, are verified and managed using single actor, and instead, are verified and managed using aautomation single actor, and instead, are verified and managed using and shared governance protocols. Blockchain automation and protocols. Blockchain automationcrypto-currencies and shared shared governance governance protocols. Blockchain underpins such as as Bitcoin Bitcoin and Ether, Ether, using underpins crypto-currencies such and using crypto-currencies such itself as Bitcoin andtime Ether, using aaunderpins shared database that updates in real and can shared database that updates itself in real time and aprocess sharedand database that updates in itself in realusing timecomputer and can can settle transactions minutes process and settle transactions in using process andwith settle transactions in minutes minutes using computer computer algorithms, no need for third-party verification, such as algorithms, with no third-party verification, algorithms, withconducted no need need for for third-party verification, such such as as those normally by a bank. those those normally normally conducted conducted by by aa bank. bank. Yet, blockchain’s impact goes well beyond financial Yet, blockchain’s impact goes well financial Yet, blockchain’s impact goesnature wellof beyond beyond financial transactions. Utilising its unique disintermediation, transactions. Utilising its unique nature of disintermediation, transactions. Utilising its unique nature of disintermediation, transparency with pseudonymity, security and automation, transparency with pseudonymity, security automation, transparency with have pseudonymity, securityits and and automation, various industries industries started to to explore explore utility in supply supply various have started its utility in various industries haveproduct started toprovenance explore its and utility in supply chains, ranging from traceability, chains, ranging from product provenance and traceability, chains, ranging from product provenance and chain, traceability, international shipping and cross-border supply trade international shipping and supply chain, trade international shipping and cross-border cross-border supply chain, trade finance, secure data exchange and record, to smart contracts, finance, secure data exchange and record, to smart contracts, finance, secure data exchange and record, to smart contracts, anticorruption and humanitarian aid (Wang et al., 2019a). Its anticorruption humanitarian aid (Wang 2019a). Its anticorruption and andare humanitarian aid challenges (Wang et et al., al., 2019a).The Its implementations not without though. implementations are not without challenges though. The implementations are not without challenges though. The anticipated challenges are discussed in depth by Saberi et al., anticipated challenges are in by et anticipated challenges are discussed discussed in depth depth byetSaberi Saberi et al., al., (2018), Queiroz and Wamba (2019) and Wang al. (2019b). (2018), Queiroz and Wamba (2019) and Wang et al. (2019b). (2018), Queiroz and Wamba (2019) and Wang et al. (2019b). There could could be be intra, intra, or or inter inter organisational organisational barriers barriers such such as as There There could be intra,and or inter organisational barriers such as lack of knowledge expertise, financial constraints or lack of knowledge and expertise, financial constraints or lack of knowledge and expertise, financial constraints or collaborative and information sharing issues. Regulatory collaborative and information sharing issues. Regulatory collaborative and information sharing issues. Regulatory uncertainties, energy consumption, unethical behaviours and uncertainties, uncertainties, energy energy consumption, consumption, unethical unethical behaviours behaviours and and
2405-8963 © 2019, IFAC (International Federation of Automatic Control) Hosting by Elsevier Ltd. All rights reserved. Peer review under responsibility of International Federation of Automatic Control. Copyright © 8 10.1016/j.ifacol.2019.11.082 Copyright © 2019 2019 IFAC IFAC 8 Copyright © 2019 IFAC 8
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technological interoperability are also challenges facing supply chains.
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As the pilot project is yet to finish, we report our preliminary findings mainly on sensemaking and design stages in this paper.
2.2 Sensemaking
Table 1: Consortium members of the pilot initiative
Sensemaking is ‘a process, prompted by violated expectations, that involves attending to and bracketing cues in the environment, creating intersubjective meaning through cycles of interpretation and action, and thereby enacting a more ordered environment from which further cues can be drawn’ (Maitlis and Christianson 2014, p.67). Sensemaking affords us to examine organisational actors’ cognition and situated actions when introduced to a new technology (Jensen et al., 2009). The term frame tends to be used to denote different forms of frameworks on which individuals draw to make sense of a given situation. In the context of technological sensemaking, frames may be regarded as the understanding of a particular technological artefact that includes not only knowledge about the technology itself but also includes understanding of its contextualised use in particular settings (Orlikowski and Gash, 1994; Mishra and Agarwal, 2010).
Organisation name (anonymised) DesignCo. SteelCo. ITCo1 ITCo2 ITCo3 ITCo4 Independent consultant1 ConsultCo. LawCo Supplier1 TA Academic
Type of supply chain actor Designing company Manufacturing company Supply chain Consortium lead Blockchain solution provider 3D business applications provider Costing estimation solution provider Project management Main contractor Lawyer and regulative agency Supplier Trade association Knowledge transfer and academic advisor
3. RESEARCH METHODOLOGY In the UK construction is made up of around 300,000 firms who employ 3 million people, with the public sector spending around £50bn each year on construction and related activities (Office for National Statistics 2018). Blockchain is seen as one of the strategic enabling technologies that supports the Government’s Digitally Built Britain strategy. The sector has been actively exploring the potential value of blockchain in various areas (Lamb 2018; Kinnaird, et al., 2017).
4. PRELIMINARY FINDINGS 4.1 Sensemaking by supply chain actors
A qualitative, participative research approach was adopted. This research is particularly informed by design science research methodology (DSRM) (Peffers et al., 2018; Peffers et al., 2007). The researcher sits in a UK wide workgroup in construction as a panel expert, attending regular meetings and conducting numerous email and telephone conversations since early 2017 and has been closely involved in a smart contract pilot scheme (still ongoing at the time of writing). The research was divided into two phases: the first phase focuses on the sensemaking process at the pre-adoption stage. The second phase involves the piloting of a smart contract initiative, involving a range of supply chain actors (Table 1). The study follows a typical DSRM process proposed by Peffers et al. (2007): problem identification, objective definition, design and development to final demonstration and evaluation. Milestone events were captured via a project log and meetings were written up and interviews transcribed. The major data collection consists of -
Attendance of 11 working meetings;
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Conducting 6 interviews with the smart contract pilot consortium members
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Organising a focus group with 32 participants from different organisations in October 2017.
Figure 1: The process of sense-making of the blockchain technology (pre-adoption) In essence, sensemaking is a social process of meaning construction and reconstruction through which managers create sense for themselves to understand what is going on. As illustrated by Figure 1, sense-making of blockchain technology is a closed-loop process, triggered by cues. Cues could be intrinsic (the innovation’s inherent characteristics like its perceived ease of use, performance and utility) and extrinsic (non-physical characteristics like its perceived image and price/cost). In this study, the combined intrinsic and extrinsic frames from participants led to the salience of beliefs and expectations about blockchain technology. Participants’ 9
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intrinsic frames centred on the usefulness or performance of blockchain and its ease of use required for adoption. The technical features of blockchain activates the individual sense-making process and serves as a foundation for the process of how senior managers come to understand the technology as a whole. This finding validated Griffith’s conceptual proposition on the role of technology features as triggers in sense-making (Griffith, 1999).
past wisdom and experiences’ (Ellis et al., 2011, p82). Hence, our research confirms that sensemaking is highly correlated to one’s identity, as people tend to relate their interpretation of the technology to the expectations they have of their roles and responsibilities. Thus, we concur with Jensen et al. (2009) that identity forms the sensemaking but sensemaking informs the identity. Once meaning is constructed, managers may start to assess the emerging technological landscape, and embark on the forward-thinking process of elaborating pertinent future developments and deriving actionable implications. It is through this process supply chain actors determined where they thought blockchain would be beneficial to supply chains and what consequences and challenges this penetration would entail. Sensemaking thus provides us a ground to ‘treat plausibility, incrementalism, improvisation, and bounded rationality as sufficient to guide goal-directed behaviour’ (Wick, et. al., 2005, p. 419).
Although the perceived usefulness is clearly evident among supply chain actors, the technical complexities of blockchain was reflected by most of the participants. The difficulties to grasp how it actually works in practice has led to a low confidence in how it can be adopted in construction. As almost all initiatives are currently in the piloting stage, the lack of large-scale deployment implies that there are yet to be demonstrable benefits to supply chain organisations. These findings resonate with the key factors proposed by the diffusion of innovation (DOI) theory: complexity, observability and trialability (Rogers, 2010). They also correspond to key factors suggested in the stream of technology acceptance model (TAM) literature (Davies, 1989; Venkatesh and Davis, 2000; Holden and Karsh, 2010): efforts expectance (perceived ease of use), performance expectancy (perceived usefulness) and perceived behaviour control or facilitating conditions.
4.2 Insights on how to design a blockchain enabled supply chain To shed lights on how the supply chain actors in this case design a blockchain enabled supply chain, we utilise the concept of business model here in this section. The business model is often examined at the level of individual firms but it can also be used as part of a comprehensive framework for thinking about systemic change when technological innovation leads to structural changes in industries (Zott et al., 2011). To embed blockchain in supply chains, a focal firm and its multiple stakeholders in the supply chain need to design a unique business model to fully realise its commercial potential. A business model can be regarded as “a new unit of analysis, offering a systemic perspective on how to “do business,” encompassing boundary-spanning activities (performed by a focal firm or others), and focusing on value creation as well as on value capture” (Zott et al., 2011, p1038.) In parallel discussion with the concept of business model, are the terms ‘ecosystem’ and ‘platforms’. The ecosystem construct explicitly seeks to address the interconnectedness and interdependencies among supply chain partners, enablers (e.g. technology service providers and government agencies) and competitors. The concept of platform tends to be treated as a subsystem of a business ecosystem (Tsujimoto et al., 2018).
Extrinsic framing relates to the non-physical characteristics of blockchain. In our study, extrinsic framing dealt with the performance of blockchain, the cost of its deployment and its wider impact. Unlike intrinsic framing, extrinsic framing from supply chain actors leans on the negative aspects of blockchain. For instance, performance issues like interoperability and latency were perceived as barriers to blockchain’s future deployment. These issues have synergies with two other DoI factors: compatibility and relative advantages (Rogers, 2010). Although our findings align with the streams of DOI and TAM research, they tend to focus on relationships between attitudes, intentions, behaviour and their various antecedents, but offer limited insights about how these relationships develop. Our analysis of sense-making provides unique insights because it explicates pre-decisional activities and describes how supply chain actors enact with the environment and construct meaning to deal with the ambiguity caused by the emergence of blockchain technology.
The disruptive impact of blockchain technology requires supply chain actors to rethink many aspects of their business models as well as the governance issue.
In our case, the emergence of blockchain technology served as a stimulus. Once noticing the emergence of blockchain, senior managers started the interpretation process (i.e. bracketing) by linking the emerging technology with their existing mental models. This interpretation is often operationalised in the context of their previous understanding, existing roles and responsibilities and the organisation’s operating environment. Following bracketing is the process of enactment. The connection of blockchain technology with their existing frames enabled our interviewees to resolve technology equivocality and construct meaning—– i.e. ‘an individual ‘selects’ a contextually rational explanation from those available that best utilises
A business model articulates the design or architecture of the value creation, delivery and capture mechanisms employed (Teece 2010). For the case being studied, the starting point is to identify the ‘pain’ points in existing supply chain. It took a considerable amount of time and efforts for the consortium to debate (via an iterative process) and decide the entry point to deploy the blockchain technology. A particular challenge is that supply chain actors need to identify an area where value could be co-created and benefits co-shared/captured by multiple players. Different consortium members tend to have 10
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different priorities and sometime conflicting goals due to the nature of their businesses and the relative ‘location’ in a supply chain network.
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are not high on their agenda for the pilot. Though via the pilot, they expect to test out exactly what kind of benefits a blockchain enabled smart contract may bring to the ecosystem participants. At this stage, the detailed roles and responsibilities were assigned between the members, for instance a ‘swimming lane’ was established depicting who drops what kind of data at which point into a blockchain. Data integrity (particular prior to the entry to the blockchain system), remediation (when bad data gets input into a blockchain), security, ownership and privacy issues were intensively explored. Measures to mitigate such issues were developed collectively with the support of the blockchain platform provider (BSP). A protocol was proposed by BSP regarding how each company could ‘plug in’ to BSP’s ondemand blockchain as a service platform.
The earlier sensemaking process has helped a great deal to bring the members into a consolidated understanding of technological developments and knowhow. However, a good understanding of blockchain technicality and intention to adoption does not automatically lead to business success. A business model is needed to translate innovation into a viable commercial success. Articulating a business model inevitably forces the consortium to select a network orchestrator/community leader to coordinate the various activities and ensure concerted efforts towards the goal. Later an IT service provider became the consortium coordinator. This is an interesting outcome because if one refers to the network orchestration literature, the hub/pivotal firm tends to be a core supply chain actor e.g. a manufacturer or a retailer who has sufficient power to undertake deliberate purposeful actions and draw together multiple supply chain actors for value co-creation (Paquin and Howard-Grenville 2013). Our longitudinal observation reveals that the hub company undertook a range of activities that steer the development of the pilot initiative: configure the network (i.e. building the blockchain ecosystem), bundle and mobilise the resources from across different supply chain actors, legitimise the participating members and try to create the governance mechanism for the consortium.
Options such as using membership fee to cover the ongoing cost of the pilot have been proposed but yet to be agreed upon at the time of writing. For the set-up cost, it is likely that whoever is going to benefit ‘most’ will invest more than other members in the consortium. Yet defining benefits (tangible and intangible) has been a challenging task for the consortium and the hub company plays a critical role in achieving a consensus among members. The setup of a private blockchain platform in many aspects resembles the setup of an internet-enabled supply chain network (for a consortium example, one can refer to Wang et al., 2011). If the investment is heavily skewed towards a particular group of supply chain actors and benefits are not distributed fairly, there is a large danger for a consortium network to collapse. We have witnessed many such failures in the past, for example Covisint (automotive), Elemica (chemical) and Agoratrans (Road haulage) all changed their business models, e.g. they become independent marketplaces or else.
The consortium decided to focus on the lifecycle asset management in a sharing economy context. This is the area where they see blockchain enabled smart contract and asset tracking will bring not only commercial but also social and environmental benefits to the construction sector. They also intended to share the lessons learnt at the industry level. Therefore, unlike what Teece (2010) has emphasised that the commercial value and ‘mechanisms to block imitation’ are the predominant element of a business model, the ecosystem approach in this case stress the importance of improving the competitiveness of the whole sector instead.
Another important issue that is at the heart of the pilot was the governance issue. Due to the decentralised nature of blockchain, many would assume that decision making in a blockchain enabled supply chain will be decentralised too. This is not necessarily the case, particularly in a private permissioned blockchain network. Although each participating organisation has a stake in how the blockchain supply chain should be configured and managed, we observe the significant influence by the network orchestrator and the large steel and designing companies in this aspect. Decision rights, accountability and incentives are the core components of IT governance (Beck et al., in press). At the design stage, there was a high degree of centralised decision making which will enable the centralised control later on. Namely, rules, liabilities and responsibilities in a smart contract were designed in a centralised manner whereas the control and execution of the contractual terms will be decentralised later. Because there are a range of legal issues which need to be dealt with, lawyers were heavily consulted at this stage to determine how each participating member should interact with each other and how potential disputes may be resolved among members. In a private blockchain network, it is not necessary that all nodes will validate each single transaction. Therefore there is also a need to define who will be validating the transactions and how codes capture the right business logic. A lengthy legal document (55-page long) has been
Once the entry point is decided, the next step is to articulate the blockchain platform value. This is critical to the business model design. Debates on this aspect largely concentrate value proposition, value creation and value distribution within the blockchain network. The value proposition defines the benefit the consortium will deliver to customers, how it will organize the supply chain network to do so, and how it will capture a portion of the value that it delivers. Value creation dictates the process, relational and technological configurations between participating companies. It is the generative mechanism that will operationalise the proposition. Value distribution clarifies how the value should be distributed among the consortium members. Guided by a broad vision of taking inefficiencies out of the existing supply chain, the consortium spent more efforts in discussing the investments that are needed to pilot the project, i.e. on value creation, and are less concerned with how value distribution needs to be devised. This is because that most members would like to use this pilot as a learning experience to get to know the technology better, and economic benefits 11
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proposed by a law firm in order to dictate how consortium members should interact and how commercial sensitive information and IP issues should be protected and resolved. Incentives for technical consensus, for system development and maintenance and for users have been scrutinised via an extensive process among members.
driving behavioural changes in supply chains. Our research also offers a structured way (i.e. the business model approach) to practitioners in designing a blockchain enabled supply chain. Our longitudinal study reveals the complexities that a blockchain enabled supply may encapsulate in particular in the areas of legal and governance issues, thus preparing and guiding them about various strategic decisions they need to undertake in overcoming such issues.
6. CONCLUSIONS
This research only examines a smart contract pilot initiative. Future research should aim to explore how such pilot schemes should be scaled up for a wide industrial uptake. Given the technical uncertainties of blockchain, it is desirable to explore which types of consensus will produce optimal or satisfactory performance results that fulfil the fast-paced needs of supply chains. Further research in examining the critical role of the blockchain supply chain network orchestrator is also worthwhile, for instance how they shape the direction of blockchain deployment and ensure objectives and actions are aligned among members. Finally we also recommend future studies to explore the potential negative impact a smart contract initiative may have upon supply chain, for instance the potential exclusion of certain types of supply chain actors.
The paper reports a case study of a consortium in the UK’s construction sector trying to pilot a smart contract initiative. While our research is still in progress, our preliminary findings of the pre-pilot stage provide valuable insights on how supply chain actors contextualise the potential impact of blockchain on their businesses, diagnose a new technology’s symptoms and then develop assumptions, expectations and knowledge of the new technology, which then shape their actions towards designing a blockchain enabled supply chain. During the pilot, we use the design science approach in combination with theoretical lens of business model to actively influence the deployment of blockchain. The various socio-technical issues identified in this research reflect the uncertainties and ambiguities caused by blockchain’ s emerging and unsettled technological development, and supports the call for close observation and a better understanding of its potential diffusion path (Fosso Wamba et al., 2018).
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Our theoretical contribution lies in the combined use of design science with the theoretical lenses of sensemaking and business model in designing and piloting a blockchain initiative. Through the design science approach, we have helped the consortium develop a robust sensemaking in terms of blockchain’s potential in addressing some pertinent productivity and capability issues. The design science allows us deep engagement in a field problem experienced by UK construction sector whist steering away from the risk of improving solely a local context through case-specific design. The business model approach provides a systematic structure in shaping people’s attention, deliberation and decision making about blockchain, as well as framing the collaborative efforts between the consortium members towards the joint pursue of a common objective and value creation – before our intervention, the efforts were rather fragmented. The business model also afforded us to develop a generic design of blockchain deployment and then test this generic approach in a given context. This establishes the pragmatic validity of our research. Knowledge gained via the intensive engagement with practitioners can be transferred to various contexts within construction. It is hoped that we will be able to report at the later stage on a set of theory-inspired principles for academics and practitioners that may guide blockchain’s further diffusion in supply chains. Our research is of value to practitioners too. The cognitive process of sensemaking among senior executives help organisations to understand the multifaceted perspectives towards blockchain deployment and the rationales that support those mental models. Understanding those social elements of a blockchain initiative is of great importance in 12
2019 IFAC MIM Berlin, Germany, August 28-30, 2019
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