August 27, 2019
August 27, 2019
Contributor: Jackie Wiles
Early adopters are already using blockchain-inspired approaches in certain HR areas. These use cases offer HR leaders a glimpse of whats to come.
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Gartner predicts blockchain will create $3.1 trillion in business value by 2030. Although a significant amount of these returns will result from value generation and efficiency improvements in current operating models and business processes, the real value will come from the way it enables a paradigm shift in how societies, businesses, customers, partners and individuals interact, create and exchange value.
In its simplest terms, blockchain makes it possible for participants of a network that may or may not know each other to exchange value in digital environments. In its essence, blockchain provides trust in untrusted environments, eliminating the need for a trusted central authority.
“The hype surrounding blockchain is typical of technologies in the early, experimental stage. But business leaders shouldn’t underestimate the disruptive nature of blockchain-based solutions. Blockchain will not only impact IT, but every function. HR leaders who fail to do sufficient scenario planning and experiment with the technology accordingly risk significant long-term disintermediation,” says Gartner Senior Director Analyst Matthias Graf.
You don’t need to be an IT expert or delve into too much technical detail to understand the fundamental principles of blockchain, but knowing the basics is the first step to understanding blockchain’s potential to change key HR activities.
Blockchain enables trusted interactions between unknown participants by combining five design elements to authenticate users, validate transactions and record that information to a digital ledger in a way that can’t be corrupted by a single participant or changed after the fact.
Early-stage “blockchain-inspired” experiments don’t include all five elements, but strictly speaking, all five are required for true blockchain:
A range of current and new technologies enable these blockchain characteristics, including encryption and peer-to-peer connectivity, but even capabilities that exist today aren’t fully ready to support the performance and scale that will be needed in a blockchain world. Essential capabilities already include:
But for blockchains to radically alter current operating models or business processes and create new commercial, social and other governance paradigms, organizations will need to combine existing technology capabilities in new ways and acquire new know-how.
If your eyes have already glazed over, consider what these components and capabilities could actually mean for the way businesses engage with talent in real life.
Imagine the next big, strategic initiative your organization launches — with a blockchain seamlessly connecting all businesses, vendors, people, activities and communications: the assigned in-house talent, the contractors and third-party suppliers, the cross-functional communications, authorizations, pilots, stage-gate reviews, budget approvals, etc.
Without phone calls, emails or stacks of paper, the right talent can be authorized and brought in at each relevant step in the process, given access to the information and resources they need only for as long as they need them, with activities moving automatically and transparently along the chain.
As mentioned, blockchain experiments to date incorporate only some of the defining characteristics of blockchain — so capture only some of its potential value. These early HR use cases nonetheless offer a glimpse into the blockchain future for HR:
Blockchain solutions already exist to facilitate real-time payments to contingent workers, such as members of the gig economy workforce. No payroll aggregators, no banks, no fiat currencies required. But that isn’t the full extent of the benefits for HR or workers; these innovations potentially expand access to talent.
Payroll management is so far the most sound use case for blockchain in HR. Key transactions are encrypted and stored as immutable data on the blockchain. Payroll data is hash-protected and uses vendor key management, which stores the information required to generate a key rather than the key itself (so it’s not possible to retrieve a key using any single component.) But this new approach to payments also makes it possible to employ (and pay) workers in remote locations or countries where payment infrastructure is limited or fiat currencies are volatile.
Payments on a blockchain will occur in real time and, if desired, through an internationally standard cryptocurrency, which will appeal to talent pools that were previously inaccessible because they were too distant or their identity and experience couldn’t be verified.
Employers will also gain access to the two billion people in the unbanked workforce. Gig economy workers can bypass third parties (e.g., banks, freelance management services) and receive payments directly. Employers can keep an immutable token of the payment records for audit and compliance purposes.
There are short, mid- and longer-term actions that HR leaders can take to ensure the HR function is in a good position to track and leverage the evolution of blockchain. Incorporate the following considerations as you plot your strategy:
Meet with stakeholders from your function as well as IT to review blockchain’s potential for changing the way you work, assessing its relevance to the current and future functional and enterprise business models. Look for areas in which blockchain will uniquely strengthen or enhance your functional value proposition. Decide on a realistic blockchain adoption approach based on strategic or tactical relevance to core functional processes.
With enterprises starting to investigate and invest in blockchain, demand has been high for staff skilled and knowledgeable in the enabling technology components and capabilities. However, there is a shortage of skilled staff who understand both blockchain and its applicability to potential business opportunities. Lay foundations as early as possible and start working together with external talent or upskilling internal talent now.
Undertake measured R&D/innovation efforts with the primary objective of identifying realistic use cases and learning how to support blockchain. Participate in operational risk meetings with risk managers and CFOs to develop a blockchain SWOT analysis for your firm, industry or government agency. Learn from peers and pilot projects in finance and supply chain, where many early experiments are taking place. Explore the broader use of digital wallets, enabling employees to receive a part of their salary through digital assets — the precursor to leveraging blockchain capabilities.
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Recommended resources for Gartner clients*:
This article is based on insights that are part of an in-depth collection of research, tools, templates and advice available to Gartner clients.
Gartner for HR clients can read Survey Analysis: Blockchain Technology on the Rise in HR.
*Note that some documents may not be available to all Gartner clients.