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National Innovation Systems, Blockchains, and Accelerating Change

by Langdon on June 9, 2017

One of the topics we’ve been thinking about a lot lately is how the next generation of technological change is now starting to generate what’s likely to be a very large wave.  It’s presently fairly far off the coastline, but when we look out at sea we observe the rising swell that may well become a huge force by the time it hits the beach.  Or perhaps a better metaphor is a series of giant waves, as that may be how we experience the arrival.  Included in these arrivals are self-driving cars and trucks and robots more generally, which are already transforming work and the workforce, the continuing advances in communications technology that have altered our understanding of foundational concepts such as “community” and “society,” and blockchains and bitcoins, which are transforming the financial sector and promise to affect many other sectors as well.

Our partner Moses Ma has written a provocative post for Psychology Today in which he discusses possible futures for blockchain technology, and makes the persuasive argument that the massive hype currently surrounding the Blockchain is understated, rather than overstated:

We think there will be three waves of technology, each exploding like a mini-big bang of application development, tools, and functionality. Like the transition from the web to Web 2.0 and then the mobile web, we will see a cascading series of mini-revolutions, each leveraging the technology and installed user base of the previous wave. And just like Thomas Kuhn explained in his book, The Structure of Scientific Revolutions, each wave becomes a paradigm that must be broken by the next. Wave 1 is currently composed of “dumb ledger apps”, that address areas like remittance, cross-border payment and the correspondent banking system. However, we’re late to this game, so pretty much every bank and exchange is already on top of these obvious opportunities. However, we’re still early for Wave 2, which is coming fast––these applications focus on “smart contract enabled distributed ledger apps”––or “dapps” in tech shorthand––which can revolutionize things like trade finance, music royalty management, IoT application management. You should note that these are very difficult problems to solve, so it may take years to develop the kinds of applications we’re hoping for, and don’t cause “unintended consequences.” Finally, we will eventually see Wave 3 blockchain applications, software systems that integrate artificial intelligence, optimization and machine learning capabilities to elevate blockchain functionality.

Read the entire fascinating post here.

This week’s Economist Magazine points out that blockchain applications are emerging not only through the financial services industry, but now in governments as well, which are seeking ways to assure that documents of public record are unalterable, thereby preventing (or at least inhibiting) fraud and corruption.  These implementations span the space between what Moses describes as Wave 1 and Wave 2, which means that the momentum is accelerating.  Interestingly, the high degree of public confusion is itself a barrier to progress, although not an impassable barrier.  In the words of the Republic of Georgia’s Minister of Justice Thea Tsulukiani, “We want to move slowly in terms of explaining to society, and quickly in terms of implementation.”  In addition to Georgia, Ukraine and Lativa are also pioneering new blockchain applications for public records management, and MIT’s Brian Forde suggests that government will indeed drive blockchain adoption not only in Europe, but worldwide.

This presents very interesting possibilities, of course, as it reinforces the role of public investment in creating long-term societal change, and also long term benefit.  It also presents certain problems, however, because most governments as well as most corporations are reluctant investors in new technologies for which they are unsure of the potential returns. Everett Rogers identified the pattern by which new technology are adopted in society in his brilliant and pioneering 1962 (yes, 1962!!) book Diffusion of Innovations in which he noted that certain individuals that he called “pioneers” and “early adopters” were the ones who apply new technologies to solve problems that they care about, but they generally constitute a small portion of the market.  You cannot make a successful business by selling to early adopters because there just aren’t enough of them, so you have to figure out how to sell to the mainstream market.  Rogers’ book is now quite deservedly in its 5th edition; it is a landmark analysis which you should study if innovation is part of your work or your passion.

So if governments are leading investors in blockchain applications it may tell you that there is indeed something different happening here.  They see need and opportunity, and their uses can consolidate and prove that they hype is not hype.

This does not mean that investing in blockchain is without risk – of course there is risk, and in fact many different kinds of risk.  But clearly there are attractive upside opportunities as well.  So what to do?  It is for this reason that we’ve been working quite a lot lately on the design and implementation of the “national innovation system,” a management framework that facilitates public investment in new technologies by mitigating risk and bringing sound management practices to what can otherwise be a far riskier journey.  Our model, which we first published in our recent book Foresight and Extreme Creativity:  Strategy for the 21st Century, is based on a few key principles:

  1. Innovation happens in cities, regions, and nations most readily when the notion of entrepreneurship is valued, where there is a history of new business formation, and where the barriers to getting started are minimal (as opposed to oppressive).  If you can’t start a company, no one will; but if you can do it easily, many people will.  Many will fail, of course, but many also will succeed, driving progress, change, and perhaps growth.
  2. Innovation is vastly helped and indeed stimulated when the right supporting participants know and understand their roles.  These include the government itself, which can be a lead investor and purchaser of new goods and services (someone sold Georgia its blockchain tools), as well as throughout the education sector (in which the government is also the primary investor), as well as in finance which provides capital to would-be innovators, professional services firms such as legal and accounting that help entrepreneurs create their companies, and also the corporations that are frequently the customers for the products and services that entrepreneurs develop, and sometimes acquire the new companies when they start to grow, which is basically a way that the big guys outsource innovation to the entrepreneurs.
  3. There is an additional critical role, that of innovation catalyst.  This role is often played by incubators, which are facilities and virtual organizations that nurture and promote entrepreneurial ventures, often providing them with a home base, advice, access to services, and also credibility.

There’s more to all this, of course, but you can see where the discussion is heading — it’s an innovation system we’re talking about, and one that can be and should be actively managed at many levels.  Indeed, there are so many levels to consider that our small white paper on the topic is growing steadily into a book, which will cover the whys and wherefores in considerable detail.  If all goes well, look for it next winter.

But in the mean time, pay attention to blockchains and note how new sectors of economy begin to adopt blockchain applications as fundamental parts of their infrastructures.  And indeed that’s a big part of the point — blockchains may not do anything new, but if the hype is to become real it will be because they enable people and organizations to accomplish tasks that they already need or want to do in a better, easier, more secure, or more efficient manner.  And early indications are that they are already capable of doing so.  The Republic of Georgia reports that already 160,000 land registrations have been recorded using its blockchain system, thus providing very secure property rights to their owners.

In a world of increasing complexity, the ability for technology to increase rather than decrease security is a welcome turn of events!

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Please note that our latest book The Agile Innovation Master Plan is now available.  This is a revised version of the now-classic The Innovation Master Plan, updated to reflect our most recent learnings about agile and design thinking.  Many of the case studies have been updated as well.

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Coming soon:  The announcement of our new, online innovation training program, developed in partnership with the International Association of Innovation Professionals (IAOIP) and Florida Institute of Technology.  We’re quite excited about this course, consisting of 13 modules that will prepare you to pass the IAOIP Management of Innovation Certification Exam.

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