For whom the benefits toll: Enterprise blockchain is the evolution of economic architectures

In my two-decade career at Microsoft, leading .NET platform architecture, visual studio .NET development, application platform, enterprise strategy and Microsoft Digital, I have been part of building technologies for multiple waves of platforms: the early web, service-oriented architectures, the so-called Web 2.0, and more recently, the Cloud.

While there is no doubt that previous waves of platform technologies have delivered substantial benefits, their impact has been limited because they are “passive” stacks that serve as plumbing for applications and infrastructure. For the most part, with previous waves of platforms, cost savings have been the primary and sometimes singular quantifiable element with respect to business outcomes.

Blockchain platforms are distinctive because, for the first time in the history of computing, we have a technology platform that has an innate economic model — incentives, rewards and penalties for each entity, human and system — intrinsically “baked into” the architecture. Unlike the “inert” technology stacks of yesteryear, blockchain capabilities herald the advent of new economic platforms.

How does this disrupt enterprise IT architectures? First, a retrospective.

Looking back: Old school enterprise architecture models

The field of enterprise architecture can be said to have started in 1987 with the publication in the IBM Systems Journal of an article titled, “A framework for information systems architecture,” by John Zachman.

In his seminal paper, Zachman laid out the imperative and the challenge for enterprise architectures: the rapidly increasing IT budgets involved and the fact that the success of the enterprise was now increasingly dependent on technology necessitated a structured approach toward managing the growing complexity of IT applications and infrastructure.

There are three broad approaches to enterprise architecture:

The perspective-centric approach surfaces diverse perspectives within and across the enterprise. The framework that typically represents this approach is Zachman’s framework for enterprise architectures. Here, the enterprise architecture serves as the integrated blueprint for the enterprise and describes it from multiple vantage points (planner, designer, etc.). This is perspective-centric in that it satisfies the needs of diverse stakeholders and their distinct perspectives.

The process-oriented approach outlines the procedures that define and deliver the IT deliverables. The methodology that typically represents the second approach is The Open Group Architecture Framework, or TOGAF. It is realized as a rigorous model of the imperatives, structures, information, processes and systems of an enterprise for the purpose of decision-making. This is process-centric in that it attempts to accurately portray the process used to model the enterprise.

The standards-based approach defines and enforces the use of standards through the enterprise. The model that typically represents the third approach is the Federal Enterprise Architecture, or FEA. It highlights the need to define standards-based patterns and practices (reference models, common services and others) that are identified and well-understood within and across the enterprise, as well as the communication of these artifacts to ensure compliance and governance.

The foresight and vision that business value and agility can be effectively realized by a holistic approach to IT architecture has shaped the IT industry for the last three decades. However, what is lacking and what has held IT back is the absence of any economic principles or thinking in all previous approaches to enterprise architectures.

What then, does the new enterprise (economic) architecture look like?

Looking ahead: The new enterprise economic architecture

Ronald Coase defined a firm as: “The system of relationships which comes into existence when the direction of resources is dependent on the entrepreneur.” The study of firms evolved significantly when Oliver Williamson opened the black box to understand firms as institutions. Building on this work, Douglass North argued that institutions provide key constraints and enablers, and thereby shapes the incentives.

The enterprise is an economic institution. In order to be relevant (and certainly to be of any practical value) an architecture of the enterprise needs to reflect the underlying economic model(s) that serve as the underpinning of the enterprise. It has been said that most economics can be summarized into one word — “incentives” — and the new enterprise economic architectures manifest this principle.

In this incentive-model approach, enabled by blockchain platforms, rewards and penalties (colloquially referred to as “tokens”) for each and every entity, human and system within and across the enterprise are endogenous in the enterprise architecture, and programmatically exercised (via smart contracts).

A roadmap for the enterprise: IT as institutional technology

Oldschool enterprise architectures focused on approaches that emphasized perspectives, standards and/or capabilities, and therefore reflected a view of IT as static, passive infrastructure plumbing. The new enterprise economic architectures comprise an institutional set of economic capabilities reflecting the true nature of the firm as an economic institution.

Peter Drucker described his “theory of the business” as the set of assumptions that shape an enterprise’s behavior, drive its decisions about what to do and what not to do, and determine what it considers desired business outcomes. These hypotheses are about markets, about identifying customers and competitors, about an enterprise’s strengths and weaknesses. At the core, they are realized via software.

Today, whether aware of it or not, an enterprise’s theory of the business is realized, validated, course-corrected and reimagined from its use and exploitation of technology. So, where do we start?

First, as a prerequisite, is to model and build out a map of the enterprise. The old “Five W’s” — who, what, when, where and why — should be augmented with “for whom.” For whom do the benefits ring up? This sixth W forces enterprise IT to consider economic constraints and impact, and provides foundational elements for the next steps.

Second, whether IT uses one or more of the perspective-centric, process-oriented or standards-based approaches to enterprise architecture, this should be augmented with an “incentive-focused” approach, where every entity, human and/or system (“for whom”) has an incentive model that is manifested in the underlying architecture.

Third, while IT has historically focused on the business, information, application and technology architecture (referred to as the “BIAT” model), it should now be augmented with an “economic architecture” layer — the one that reflects the theory of the business. This enables the enterprise to test, validate, refine and improve its evolving business and operating model.

Lastly, any current off-the-shelf architecture methods should be reevaluated: They are based on the view that IT is plumbing infrastructure, and further, they reflect a lowest-common denominator view of the industry and the markets. An enterprise must configure and refine any existing methods and tools to reflect its unique institutional capabilities (and associated competitive advantages).

The new enterprise economic architectures will transform enterprise IT architectures into strategic, competitive toolboxes, and blockchain platforms will be how your enterprise gets there.