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Blockchain Reaction

‘Smart Contract’ Tech Tips the Future of Rewards

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Mark these words: A new generation of disruptive technology not seen since the advent of the Internet is coming soon to a workplace near you. And the implications to the rewards and HR professions are too sweeping to ignore. If your organization hasn’t adopted “blockchain” into its daily vernacular or core business operations, wait a beat; it’s coming.



“Those responsible for employee data should get up to speed on [blockchain] very quickly,” said Jeff Mike, vice president and HR research leader at Bersin, Deloitte LLP. “They need to start planning ahead as to how blockchain is going to change work, the business implications of it, and how that will affect the role of HR as stewards of data.”

As when artificial intelligence emerged as a so-called dark and imminent threat to take over civilization, blockchain too has come with its share of hype and hoopla. While AI and blockchain are both bound to displace jobs, their presence has not created a doomsday scenario.

“The jobs are changing; they’re not going away,” Mike said. “People need to separate the hype from practicality.”

The promise of blockchain is to enable automation and verification of transactions between two parties by providing a more secure, portable digital identity. The promise of AI-powered BOTs and HR chatbots is to employ tech to perform repetitive administrative tasks in a fast, secure and efficient manner. This is no longer hypothetical hearsay; it’s here and it’s happening.

Think about it: Why should companies pay people to process and manage streams of highly sensitive, personal information on cumbersome, segregated databases when smart integrated tech — powered by blockchain, for example — could do it for you?

Mike likened the shift in mindset for HR professionals to that of bank tellers who were compelled to adjust to the ubiquitous arrival of automated teller machines (ATMs). Some tellers upped their game and elevated their stature by identifying and servicing customer needs instead of simply recording account deposits and withdrawals.

HR, with its clear and well-defined processes, appears ripe for a similar type of automation.

“Blockchain offers a more secure way of keeping records,” Mike said. “Once the systems are set and managed appropriately, it’s a shift for HR operations from a risk management and compliance perspective to the human side of the equation.”


The Origins of Blockchain

Blockchain’s beginnings almost sound like a yarn of folklore. An anonymous mathematical genius or group of programmers collectively known as Satoshi Nakamoto introduced bitcoin in a digitally distributed ledger called blockchain in early 2009 as a direct response to the global financial crisis of 2007-2008.

At its foundation, blockchain is a database of encrypted, transparent records that are shared, peer-to-peer digital accounting ledgers. Each powers several hundred unique cryptocurrencies, including bitcoin, the best-known unit of virtual cash, and ether, the crypto-fuel of the ethereum network.

Blockchains allow for seamless international monetary exchanges to be conducted without going through a financial institution. Moreover, they create a true, verifiable and immutable record of user transactions that are time-stamped and linked to a specific participant.

The key difference between blockchains and traditional banks and accounting systems is that the blockchain is completely decentralized and impartial. Some naysayers have compared the now multibillion-dollar industry that drives bitcoin and its ilk to Netherlands’ 17th-century tulip mania and a Ponzi scheme.

While skeptics scoff at a digital currency and worldwide payment system whose encryption techniques operate independently of a central bank, most businesspeople agree that blockchain — the mechanism that underlies and structures the system of cybercurrencies — is here to stay.

“The cat is out of the bag,” said Gordon Koo, CCP, a WorldatWork member and senior compensation analyst in the media industry. “This technology and the code to build a blockchain is publicly distributed. Big or technically adept organizations should be considering ways to lead the conversation on how best to implement a blockchain solution.”


Why Blockchain Matters to You

Blockchain, first and foremost, is expected to boost productivity by reducing the burden of HR administrative tasks. It also can enhance recruiting efforts by verifying a job candidate’s identity, background, education, references and immutable employment history.

“Fundamentally, in an HR context, blockchain offers the ability to bring trust and transparency to information about the workforce,” said Gareth Brown, a management consultant with Deloitte Consulting in Amsterdam.

While organizations invest in bleeding-edge tech to bring workforce insight into business decisions, “the next evolution is for business leaders to want trust in the data,” Brown said. “Blockchain offers a mechanism to gather information from trusted sources that otherwise may not be easily or independently verified.”

While skeptics scoff at a worldwide payment system whose encryption techniques operate independently of a central bank, most businesspeople agree that blockchain is here to stay.

Blockchain’s easily verifiable system can confirm employee attendance, say, in a safety training course. For example, if a factory worker were to get injured on the job, HR could focus on the employee who is hurt or how the training could be improved rather than be occupied with covering all the legal bases and digging through records to make sure this person took part in the training.

Blockchain’s “smart contract” technology inherently secures work-for-hire agreements and via “digital reputation” can even add a level of confidence confirming a job prospect’s skill set. In addition, blockchain is well on its way to overhauling how some multinational corporations compensate their cross-border employees and contingent workers.

“The biggest changes that can be made today are with payroll and administration, especially where government currency is extremely volatile or where access to the financial banking system is unable to provide services effectively,” Koo said. “By using a cryptocurrency like bitcoin or ether, it’s possible to pay the employee wages much more quickly, at a lower cost and without a financial intermediary. It could be difficult to set compensation when a country is currently undergoing hyperinflation or if there are restrictions within the financial sector.”


Why Blockchain Isn’t the Be All, End All

Blockchain may be invaluable to people without access to basic banking, but there is a downside. Some services that allow companies to pay in full or a portion of an employee’s wages in cryptocurrency (mainly bitcoin) are navigating muddy waters fraught with slippery slopes, regulatory roadblocks and ethical dilemmas.

“Blockchain itself is too hot a topic and regulation itself is stuck in a place where most governments that don’t know what to do end up downright banning it and then recanting their statement later down the line,” Koo said. “Financial institutions may not be too happy that they are losing out on being the intermediary.”

While recruiting and payroll administration may be at the forefront of blockchain disruption, Koo said he does not see the tech greatly affecting the core daily job functions of compensation professionals, such as salary survey data collection and job evaluation.

“The skill sets in determining how to set a pay range will still be in demand,” he said.

All the talk about blockchain tech revolutionizing performance management systems also is premature, Koo said, because of the cost and time it would take to implement when “it’ll just create another standard.”

Some subject matter experts anticipate robotics, AI and analytics/big data having a greater impact on the job makeup of an HR professional than blockchain-based technologies.

The 2018 Deloitte “Global Human Capital Trends” report indicates that 61% of survey respondents are actively redesigning jobs around AI, robotics and new business models. In addition, 42% believe that automation will have a major impact on job roles within the next two years.

“Blockchain will almost certainly be a part of the future of work, but it is unlikely that it will have the biggest impact,” Brown said.


Why Blockchain Matters to Society at Large

Cryptocurrencies encompass a fraction of blockchain’s capacity to markedly improve business processes. The following examples illustrate the difference this technology has made or is about to make not only on the world economy, but society at large. (See Figure 1 for a partial list of the industries, sectors and services that blockchain applications either presently support or are expected to disrupt.)

Some subject matter experts anticipate robotics, artificial intelligence and analytics/big data having a greater impact on the job makeup of an HR professional than blockchain-based technologies.

 

STORE OF VALUE
Bitcoin provides financial services to many people throughout the world who do not have bank accounts. This feature has allowed micropayments and microloans to people living in poverty. In the United States alone, approximately 9 million households were unbanked in 2015, according to the FDIC “National Survey of Unbanked and Underbanked Households.” Nearly 20% of U.S. households (24.5 million) were underbanked, meaning that the household had a checking or savings account but also obtained financial products and services outside of the banking system.

CHARITY
The United Nations World Food Programme, the world’s largest humanitarian agency fighting hunger worldwide, is harnessing the power of blockchain to make cash-based transfers faster, cheaper and more secure. Tens of thousands of refugees are now able to pay for their food by means of entitlements recorded on a blockchain-based computing platform.

SUSTAINABILITY
Starbucks announced this year that it would use “traceability technology” to honor the company’s commitment to sustainability and ethically sourced coffee beans within its supply chain (“bean to cup” tracking via blockchain). 

HEALTH CARE
IBM Watson Health has teamed up with both the U.S. Food and Drug Administration and the Centers for Disease Control and Prevention to research the benefits of using blockchain to help define a secure, efficient and scalable exchange of health data. This accountable and transparent data exchange process would give health-care researchers and providers access to a 360-degree view of patient data, plus a built-in audit trail made possible by keeping all transactions on an unalterable distributed ledger.

Seven in 10 health-care executives say they expect the greatest blockchain benefits to be in clinical trial, regulatory compliance and medical/health records, according to an IBM Institute for Business Value paper, based on a survey of 200 industry leaders.

INTERNATIONAL SHIPPING
The need for real-time access to events and documentation to track international cargo prompted Danish shipping giant Maersk to join forces with IBM to commercialize a blockchain-based electronic shipping system that will digitize supply chains.

Figure 1: Industries, Sectors and Services that Blockchain Affects and May Soon Disrupt

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How to Prepare for the Blockchain Phenomenon

There’s no need to become a blockchain expert, but it wouldn’t hurt to become familiar with the basics of blockchain tech.

Rewards professionals aren’t programmers by trade, but the ability to manipulate a database remains “invaluable, especially with larger data sets,” Koo said.

As counterintuitive as this advice may sound given how blockchain may transform the very makeup of your job, it’s never too late to brush up on your Excel skills. After all, someone still needs to make sense of all that data aggregation.

And while it’s difficult to predict the precise skill sets you should develop to remain relevant in your career, HR professionals should consider how they fit within the future of work. (See "An Opportunity to Carve a Niche.")

“Careers in this century may follow an upward arc, with progression and promotion at various times, but they will look nothing like the simple stair-step path of generations ago,” Brown said.

Finally, like many powerful behind-the-scenes technologies before it such as network packets, routers and IP servers, blockchain may become part of your organization’s standard operating procedures — with or without your knowledge. But it can never replace the value-added side of being human and interacting with your co-workers.

Dan Cafaro is managing editor for Workspan magazine.

An Opportunity to Carve a Niche

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Don Tapscott is one of the world’s leading authorities on the effect of technology on business and society. He and his son, Alex Tapscott, a bitcoin governance expert, co-founded the Blockchain Research Institute (BRI) and co-authored the book, “Blockchain Revolution: How the Technology Underlying Bitcoin is Changing Business, Money and the World.” Workspan interviewed Don to find out more about the effect he expects blockchain to have on the corporate world overall and the rewards profession, specifically.


Workspan: Should rewards/HR/comp professionals be bracing themselves for a very different job future in the near term, or does blockchain tech have more significant long-term implications?

Tapscott: It’s 1995 in the world of blockchain. In just the last year there has been an explosion in public interest, but we’re just starting to scratch the surface of the technology’s implementation. If you or your company do more than simply act as an intermediary between parties — if you add real tangible value — then blockchain should be seen as an opportunity. The only organizations or individuals ripe for disruption are those who simply serve as nonvalue adding intermediaries who only exist to establish trust.


W: How quickly do you see things changing for the HR/rewards/recruitment profession, based on blockchain’s impact, and who is it bound to affect most?

T: The pace of change is a product of the will to change. We aren’t going to wake up tomorrow and suddenly be faced with an entirely new organizational model for work, but in the next few years you will start to see areas where blockchain is used to improve existing processes. The BRI’s research projects that the first wave of blockchain implementation in HR will center on recruitment and payments. Using blockchain we can quickly and easily verify claims made by candidates, and we can set up more efficient systems for paying our employees.


W: What kind of skill set should they be looking to develop to remain an asset to their companies?

T: Flexibility is perhaps the most important. Employees should be looking to understand the ways blockchain could benefit their organization, but also understand that this technology is in an extremely ascent state. It’s impossible to predict what new platforms or applications could exist a year from now.


W: What if an organization hasn’t entered the blockchain sphere/mindset? Should rewards professionals be looking at ways to lead the conversation? How?

T: Absolutely! For most disruptive technologies, innovation tends to exist on the fringes. This is an opportunity to communicate new ideas to management, and to carve out a niche in your workplace. I would start by finding blockchain companies building applications you can easily weave into your existing processes — likely in recruitment or payments — and explore ways you could utilize their services. It’s a rapidly growing, ever-changing space so it’s helpful for any company to have a handful of individuals knowledgeable and up-to-date on these issues.


W: We see how blockchain could have a direct and immediate effect on payroll departments and how people are paid, particularly employees or gig workers contracted overseas. Is this an inevitable direction for multinationals to take their organizations?

T: I like to think of the current payment system as a Rube Goldberg machine — it’s an absurdly complicated system designed to do something that should be quite simple. There are so many nonvalue-adding intermediaries, particularly when it comes to international payments. Blockchain establishes that trust for you and enables you to bypass that byzantine network of intermediaries required to pay your labor force. That will be particularly important in the increasingly interconnected, international labor force.


W: How about performance management? We’re not clear on how this tech could improve processes at such a granular level. Do you see it eventually transforming incentive plans and how managers communicate metrics with their direct reports?

T: That granular level, as you describe it, is one of the most immediate applications for blockchain in management. Particularly among Millennials, there’s a strong desire for more immediate evaluations of performance. They want to know how their work is being received, the impact they’re making in the organization and how they can improve. Blockchain can help provide a lot of those metrics in real-time.


W: What is the long-term effect of blockchain on the organization of people within companies?

T: Ronald Coase spent a great deal of time trying to understand why we organize ourselves into businesses. The theory he came up with — and won a Nobel Prize for — is the idea that the cost of operating a network of independent contractors was simply too high.

That’s why we saw such extraordinary levels of vertical integration among corporations in the 20th century. Ford Motors even ran their power plant for a time, simply because the cost of contracting out that power was greater than the cost of running their own.

Ultimately, blockchain has the potential to fundamentally change the organization of the firm from a hierarchical, vertically integrated institution, to something more closely resembling a network. For many organizations — not all — you would not be so much an “employee” as a “contributor” to the network, being paid according to the tasks you’ve completed within that network. That’s the killer application we could see through blockchain.


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