Blockchain Revolution

parties. The platform demands it.
DETERMINING CORPORATE BOUNDARIES
Overall, the boundaries that separate a company from its vendors, consultants,
customers, external peer communities, and others will become harder to define.
Perhaps as important, they will constantly change.
Firms will still exist, blockchain notwithstanding, because the mechanisms for
searching, contracting, coordinating, and establishing trust within corporate
boundaries will be more cost-effective than those in the open market, at least for many
activities. The idea of the so-called free agent nation, where individuals execute work
outside the boundaries of corporations, is illusory. Melanie Swan, who founded the
Institute for Blockchain Studies, said, “What’s the right size of the corporation for
optimal transactibility? Well, it’s not a unitary thing, of people working only as
individuals or e-lancers.” To her, there will be new kinds of “flexible business entities
of individuals and groups partnering around projects.” She views the new model of
the firm more like the guild, the preindustrial associations of merchants or tradesmen
who worked together in a particular town. “We still need organizations acting as
coordinating mechanisms. But the new models of team collaboration are not yet fully
clear.”
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Today we often hear that firms should focus on their core. But when considering
how blockchain technology drops transaction costs, what is core? And how do you
define that when a company’s core is constantly changing?
It seems that everyone has a different definition of what the optimal firm size
should be to maximize productivity and competitive advantage. Many firms we
examined didn’t have a clear view, seeming to choose the Bob Dylan approach to
determining what’s in and what should be out (“You don’t need a weatherman to
know which way the wind blows”). Back-office processing, for example, was
described as a no-brainer, without any clear criteria as to why.
Some are more rigorous. From the core competencies view developed by Gary
Hamel and C. K. Prahalad, firms gain competitive advantage through competence
mastery. Those competencies mastered are central to the firm, while others can be
acquired from outside.
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However, a firm may have mastery over some activities that
are not mission critical. Should they still be kept inside?
Strategist Michael Porter has an implicit view that competitive advantage stems
from activities, in particular from networks of reinforcing activities that are hard to
replicate in their totality. It’s not the individual parts of the business that matter, but
how they are strung together and built to reinforce one another in a unique activity
system. Competitive advantage comes from the entire system of activities; while any
individual activity within the system may be copied, competitors cannot produce the
same benefit unless they manage to duplicate the entire system.
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Others argue that companies should always retain functions or capabilities that are
mission critical—those that firms must absolutely get right for survival and success.
But making computers is mission critical for computer companies; yet Dell, HP, and
IBM outsource much of this activity to electronics manufacturing services companies
like Celestica, Flextronics, or Jabil. Final assembly of vehicles is mission critical for
an auto manufacturer; yet BMW and Mercedes contract with Magna to do this
activity.
Stanford Graduate School of Business professor Susan Athey argues persuasively:
“There may be some mission-critical functions, like the collection and analysis of big
data, that are just too risky to move outside corporate boundaries, even if you don’t
have unique abilities in that area.”
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True, there may be some functions like data
analytics where survival depends on being uniquely good, and there may be
existential risks of partnering. Still, external resources can be deployed strategically to
build internal capability.
Our view is that the starting point for corporate boundary decisions is to
understand your industry, competitors, and opportunities for profitable growth—and
use this knowledge as the basis for developing a business strategy. From there, the
blockchain opens up new opportunities for networking that every manager and

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knowledge worker needs to consider at all times. Boundary choices are not simply for
senior executives, they are for anyone who cares about marshaling the best capability
for innovation and high performance. We should add—and this is no small point—
that you can’t outsource your corporate culture.