In my model, I describe the evolution of the enterprise as a development from the enterprise as an institution, over the enterprise as a platform to the enterprise as a protocol.

Since enterprises move slowly and need time to evolve to another level, today many top managers still discuss the impact of companies with platform architectures, and the so-called platform economy is a relevant topic of many board meetings. Looking beyond, however, some enterprises have already left — or even leap-frogged the platform evolutionary level, and are moving towards the protocol level. A rather interesting aspect: this development can happen with or without the enterprise realizing it: it‘s not that clients call and congratulate the key account manager to have made it to the next evolutionary level. And neither the company‘s product or risk managers can conclude this paradigm shift from the market acceptance of the company‘s products or the balance sheet or P&L: the business might be running apparently perfectly.

Exogenous Shocks Are Triggered By Exogenous Shocks

Most paradigm shifts are triggered by exogenous rather than endogenous shocks. In the last decades, players in various industries have experienced new competition by contenders they had never heard of before — mostly from the technology space. Amazon (retail industry), PayPal (finance industry), Uber (taxi industry), Apple (telecoms, watch, music, movie, photo industries), are perfect examples for technology companies shaking up traditional industries in a few year‘s time.

To scan the competitive horizon and to provide enterprises with the necessary information, know-how, and spirit to look into the unknown, is the responsibility of innovation departments. Yesterday, MunichRe‘s innovation department had invited industry, science, and technology representatives to a full-day symposium on the modularisation of the insurance value chain. Being an insurance outsider, I myself experienced a very steep learning curve. For this opportunity of personal development alone, I have to thank the MunichRe team for inviting me!

Modularisation Leads To The Protocol Level

Over the course of the day, fully packed with insightful talks and inspiring conversations in between, I had my Heureka moment: the process leading to my enterprise evolution model‘s protocol level can be described in better, much more operational words: it‘s the modularisation of (an industry‘s) value chain. What each participant of the (re-)insúrance industry calls modularisation is, in my words, the integration of an enterprise‘s DNA in each part of the value chain. This was my first insight.

To integrate an enterprise‘s DNA into a value chain can mean that the enterprise owns the value chain, or it rather orchestrates it. As every brilliant maestro does, the enterprise has to make sure that the orchestra sounds perfect and delivers exactly what the maestro wants to deliver: the key message to the audience. And for enterprises, this key message is whatever they define as their brand equity. Each participant in the orchestra, i.e. product departments, own companies, or external cooperation partners, has to deliver their parts resulting in an orchestrated holistic product and service experience.

Enterprise Evolution Model — The Modularisation of the Value Chain

The process of modularisation not only supports the enterprise to reach its next evolutionary level if actively and consciously executed, but it also makes the enterprise much more resilient, by transforming the enterprise from a company offering products and services to a company that is an integral part of a complete industry‘s value chain — and many different industry players transport this DNA to customers.

I really would love to dig deeper into this and to have more conversations about the modularisation / enterprise evolution protocol model. Thankfully, the MunichRe team wants to build upon yesterday‘s event and organize a next level symposium — looking very much forward to it!

Featured image: A presentation slide of Magdalena Ramada

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Having been active in the blockchain space for more than 2.5 years, I’ve learned that this technology, after the Internet 1.0 (eCommerce) and the Internet 2.0 (Social Media), is the Internet 3.0 (Internet of Transactions), that sows the seeds for a real paradigm shift of the corporate world. Depending on how market participants use blockchain technology and what legal frameworks regulators will come up with, the ways of business is being done can be reinvented. But, before diving into the details, let’s start with some initial thoughts.

An enterprise can be defined as the largest participant of an economic system with an ideology based on — in most cases — private ownership of the means of production and their operation for profit. In the early days, the owners of an enterprise would manage its operations themselves. With the advent of the public corporation, ownership and management were separated from each other: in most cases, the owners did not participate in the management of the company but delegated this to employed executives. With this separation of ownership and management and a trend towards larger entities with hundreds to thousands, to hundreds of thousands of employees, enterprises had to be structured in a way that would enable proper management and control. In democratic countries, there are specific sets of regulations and laws that provide the framework for owners’ and managers’ scopes of action.

The Enterprise As An Institution

Throughout the history of capitalism, enterprises have been regarded as stand-alone, singular entities, existing because of the product and service portfolios they would offer to the market. Aspects of enterprises’ interdependencies and connections with their environments played a minor role: one of the better-known examples of this is James Buchanan’s  Public Choice theory that describes people’s decision-making process within the political realm. When, with the Industrial Revolution, people became aware of the significant external effects enterprises could have not only on the lives of their employees but on the environment, etc., something changed within the enterprises: owners and managers started wondering how they could address their enterprises overall impact on the outside world.

Another aspect that made managers think of the interdependency of their company with others, was marketing. Companies discovered that it wasn’t enough to produce high-quality products — they had to tell potential customers about it and even had to compete with other companies offering similar products.

The Enterprise As A Platform

Acknowledging external impacts of enterprises and the shift from supply-side to demand-side driven markets mark a clear behavioral change for enterprises: trade unions, environmental regulations, but also purely economic aspects, such as just-in-time production or supply chain optimization, all have led to a new kind of enterprise — evolving from institutional constructs into a platform, acting as hubs mainly responsible for organizing a network of partners making sure a final product will be presented to the customer.

The enterprise as a platform: these days, most companies would be happy being regarded as a platform. After all, that propels them into the top ranks of the innovative minority according to Accenture, Bain, and other consultancies.

And yet, the platform enterprise isn’t state-of-the-art

Platforms may offer many positive aspects but they lack all advantages of a decentralized, trustless system, such as a blockchain protocol. Apple, Tencent, Siemens, or other giant platforms are centralistic structures that are successful as long as each platform partner plays along: as soon as one entity in the supply chain fails, the product can’t be delivered on time or with a certain quality. Costs of managing and controlling the platform processes themselves have become immense. In the event of an external irregularity, e.g. an activist group’s protest on the basis of alleged misbehavior, followed by a consumer boycott, could force even market leaders to halt the production process or even to discontinue a product line. Platforms are highly sensitive against irregularities because of their centralistic architecture.

The Enterprise Evolution: From Hierarchical Institutions To Protocols

There is a cure for this sensitivity: if platform enterprises improve themselves further and evolve into protocols, they become resilient against internal as well as external attacks and they can regain what most of today’s companies have continuously lost in the past years: credibility and trust in the eyes of consumers. A protocol can be described as a defined set of rules and regulations that determine how data is transmitted in networks. A blockchain protocol is a decentralized database and ledger that allows all participants of the network to work with the identical, consistent data set at any time.

Convergence: Blockchain + Smart Technologies

A protocol enterprise uses blockchain technology to share the database and its additional, external intelligence, such as AI, autonomous machines, VR or AR, to collaboratively manage and control a supply chain process. The system is completely decentralized, featuring automated processes in line with a set of rules and regulations all participants have agreed on — the governance model. A liquid feedback mechanism ensures that all participants have the ability to participate in the network’s opinion making process. Depending on the intended level of openness, either selected third parties or the general public may also join the network. In the first case, a private, permissioned blockchain would allow a pre-defined group of participants to join the network. If everybody should be granted access to the network, a public blockchain would be used.

Cryptoeconomics & Token Design

Participants of blockchain networks need tokens to communicate or, more correctly, to transact on the blockchain. These tokens can take different shapes: they can represent a value store only, or they come with a set of instructions defining the so-called token design, or crypto-economics of the network. Cryptoeconomics describe the incentive mechanism that motivates participants to actively engage in the network.
In the same way, the token design is the regulatory framework for behaving within the network, it’s the (re-)presentation of each participant’s behavior and value system. In other words: the token is the representation of the brand equity of the network’s or protocol’s participants. Customer perception will be created through the design and use of the blockchain network tokens. Since all transactions in a blockchain are immutable and, therefore, represent an accurate, consistent history, all actions of a protocol enterprise are open for scrutiny by third parties, s.a. auditors, or the general public, i.e. (potential) customers. CEOs of protocol enterprises won’t have to fear misleading accusations by activist groups. However, they have to be aware that omniscient auditors or customers form their opinions on the company on the basis of a complete behavioral history. Bad times for fraudsters!

A Tokenised Economy

It presumably will take years, if not decades, for existing enterprises to evolve in protocols. Also, many of today’s platforms will not join this evolution and will remain platforms or even morph back into institutions before the end of their business cycle. But for a new breed of contenders, blockchain technology provides the basis for a tokenized product offering already today. These vendors won’t necessarily be regarded as enterprises in the first phase, but they might take over the role of today’s market leaders.  The key aspect of a tokenized economy is the token representing the behavior and values, or, the brand equity, of market participants.
Blockchain technology is still in its infancy: most systems are not enterprise-ready, yet. However, the decentralized and open nature of blockchains provides the basis for market penetration in an insane mode. Bitcoin, the first blockchain protocol, has evolved into the world’s 6th largest currency by circulation according to the Bank for International Settlements. The figure is based on a value of bitcoin at $10,765 each, meaning that the total value of all bitcoins in circulation is $180 bln. Bitcoin evolved into this widely used currency within nine years of existence — being the very first of its kind, initializing the category of cryptocurrencies.

A New Breed Of Tokenised Vendors

Solarcoin, another cryptocurrency, and token, was launched in 2014.  It’s a global rewards program for solar electricity generation: 1 Solarcoin represents 1 MWh (megawatt hour) of solar electricity generation. Verified solar electricity producers,  may get Solarcoins for free when participating in the network. 99% of Solarcoins will be given to solar electricity producers of 97,500 TWh (terawatt hour) over 40 years. The creators of the Solarcoin foundation expect a market price of $30 per MWh in unregulated and unsubsidized markets. As of today, a Solarcoin costs $0.50 — so, there us a long way to go to reach a $30 price tag. However, at $0.50, Solarcoin has the third-largest market capitalization of all cryptocurrencies, reaching over $45 bln. Since renewable energies, especially solar power, cover more and more of the world’s energy consumption, we could expect the Solarcoin network becoming the or one of the main vendors within this space. And, what else is Solarcoin than a reasonably tokenized product offering?

The Enterprise Evolution: From Hierarchical Institutions To Protocols

For us, blockchain technology is more than a database and a ledger: it’s the basis of a tokenized economy. Done right, blockchain protocols not only allow new vendors enter a crowded market, their decentralized and open characteristics provide the tools for decentralized and open business models, such as (a renaissance of) cooperatives, collectives, etc.. Blockchain technology provides the tools — creators and entrepreneurs may now use them and start morphing centralized, vulnerable platform enterprises into decentralized, resilient protocols.

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