Collaboration is at the heart of business life. To build a successful product, managers need to work closely with engineers, designers, customers and suppliers.

Think about how much time you've spent meeting colleagues, talking to customers, or negotiating with suppliers over the past few months on video conferences. Effective managers must collaborate in nearly every aspect of their work.

However, successful cooperation is not easy. Your partner may lack commitment - they may even lie, steal or cheat. For example, a supplier may try to hide a quality defect, or a customer may demand a price renegotiation despite an initial agreement.

And communication, information sharing, and coordinating the actions of multiple parties are difficult. This is especially true when a collaborative task requires multiple parties to share knowledge, such as when tracking deliveries or co-developing products with partners in a business ecosystem.

It can be a challenge to ensure that the information recorded by different entities is consistent. These challenges are exacerbated by the fact that information exchange is sometimes still carried out through reams of paperwork (unsearchable and prone to loss) or swarms of emails (staying organized is a pain).

These problems have been exacerbated by the shift to work more and more online, accelerated by the ongoing COVID-19 pandemic.

For a collaboration to work, you need to make sure that each party is doing what was agreed upon, and that the collaboration is well-coordinated, but the legal contracts and social mechanisms that people use to achieve these ends are difficult to add to the virtual communications we now rely on. layer to apply.

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What blockchain makes possible

Blockchains may fundamentally change many aspects of business life, but they are a tool especially suited to collaboration. Simply put, blockchains are digital ledgers where several people share control over shared information—a feature that makes them ideal for situations where trust and information sharing are important.

The technical design of the blockchain makes it nearly impossible for anyone to change the contents of the ledger without the approval of other parties.

Additionally, they can be paired with smart contracts — programmed code that executes automatically once certain conditions are met. In recent years, blockchain has been successfully used to organize cooperation in different fields such as logistics, energy, healthcare, entertainment, arts, insurance and finance.

To understand the way blockchain enables complex collaboration, consider the task of shipping perishable goods across borders—a feat that requires efficient coordination between suppliers, buyers, carriers, customs and inspectors, among others. As each party passes goods to the other, a vast amount of information is transferred with it.

Each party keeps its own records and tends to communicate with one partner at a time, which often leads to inconsistencies in knowledge among participants, delays in shipping, and even falsification of documents or products.

If, say, the buyer wants the goods to be cooled continuously throughout the shipment, and the temperature exceeds an agreed threshold, then a dispute is likely to arise between the buyer, the supplier and the carrier, which could turn into a lengthy squabble.

Carriers may haggle over liability to reduce compensation, arguing that delays in shipments by customs or mishandling of cargo by inspectors are to blame. The buyer will ask the supplier to remedy, and the supplier will need to negotiate with the carrier. and so on.

Issues such as these manifest themselves in any collaboration that requires cumbersome information sharing between partners and can involve disputes along the way.

While partners typically sign contracts that set out the terms of their partnership, as well as legal remedies, disputes can open the door to a lengthy, costly and uncertain legal process.

Alternatively, parties can impose social sanctions, such as stopping all future cooperation and sharing negative experiences with other companies. However, both approaches have limitations, especially when the parties do not anticipate any future interaction with the other, or do not particularly care about their own reputations.

Blockchain offers a third solution to the cooperation problem. They enable the quasi-automatic execution of very complex transactions. For example, world-leading logistics company Maersk launched the TradeLens blockchain, which uses smart contracts to automate various tasks in the shipping process.

Using electronics to monitor the environment inside a shipping container, TradeLens can trigger immediate action—such as shipping a new product for replacement—when the cargo environment deviates from trade agreements.

Note that the execution of replacement actions can be fully automated so that there is no room for dispute and no opportunistic haggling over penalties or liability for remedial action, saving time and trouble.

In practice, TradeLens improves efficiency in several ways. Because enforcement is automated, the enforcement of shipping agreements relies neither on courts nor on social sanctions, but on a set of agreements representing a self-contained system of autonomous rules.

Additionally, with blockchain, all participants have access to a single version of information about shipping status. This eliminates the need for reconciliation in separate systems for customs, ports, carriers and cargo owners.

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How blockchain is changing collaboration

Blockchain fundamentally changes every stage of collaboration, including: 1. Partner selection; 2. Agreement formation; 3. Execution.

• Partner selection

Every collaboration starts with selecting the right partner, and using blockchain can greatly simplify this step. Traditionally, managers have relied on credibility cues generated by their past experiences with potential partners or their public reputations. However, prior experience is not always present, and public reputation is sometimes untraceable, especially for smaller companies.

Since the blockchain shares the same information with all parties, and smart contracts automatically ensure the execution of agreements, there is little room for collaborators to cheat. There is also a deterrent effect — dishonest or incompetent partners will avoid entering into blockchain-backed agreements knowing that there is little room for evasion or deviance.

All of this helps in choosing a partner, even if the partner doesn't know much about its opponent. For example, buyers don’t necessarily need detailed knowledge of a drug supplier’s reputation to judge its product quality, as the pharmaceutical industry’s MediLedger blockchain guarantees that all prescription drugs comply with new regulations in the Drug Supply Chain Security Act of 2019.

• agreement formation

Although it has always been at the heart of cooperation, the negotiation phase becomes even more important when using blockchain. This is because the blockchain protocol cannot be easily changed once it is in place.

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• implement

A significant benefit of using blockchain in the execution phase is the automatic execution of agreements and the resulting reduction in dishonesty. Additionally, blockchain also speeds up the process and reduces settlement costs by providing a single truth for all participants.

For example, in the used car industry, traditionally each stakeholder (e.g., dealership, insurance company, and importer) keeps its own private record of the car, and the information is shared among each other, often creating inconsistencies.

The Cardossier blockchain promises to solve this problem by enabling organizations to transact directly with each other and provide a single version of the truth that is shared across the network. Similar blockchains are being developed in many other fields, from insurance to tracking the origin of diamonds.

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What to know about using blockchain

Blockchain will undoubtedly enter various business cooperations. Multiple sectors will have to work together to find the best blockchain solutions for different purposes. Throughout the process, there are a few important things they need to keep in mind to make the adoption process a success.

• Blockchain is not a panacea

Blockchains work better in some situations than others, so understanding the conditions under which they are most useful is crucial. In general, blockchains work best as long as the protocol can be written in a clear computer language and its results are verifiable.

For example, in the TradeLens blockchain, the environmental conditions of container shipments can be objectively measured by sensors. In this case, the blockchain can accurately identify whether the conditions of the agreement are met.

In contrast, for services where the quality of delivery cannot be precisely defined but requires subjective assessment, traditional contractual or social mechanisms may be more appropriate because they allow human interpretation of the intended meaning of the agreement.

• Combining different solutions

Given that blockchains, at least in their current stage of development, have significant drawbacks, they are often not enough on their own. For example, sometimes using natural language is not only more efficient, but it may be necessary to be more open about the rights and obligations of the parties involved.

Therefore, it is advisable to consider the joint use of blockchain and legal contracts so that they complement each other. In the case of TradeLens, while blockchain can significantly improve the successful transportation and delivery of goods, carriers and cargo owners may still need to sign traditional legal contracts, which are more flexible and human-interpretable, to specify the scope and scope of their cooperation. limit.

• New challenges for companies in the blockchain economy

Unlike human language, blockchain is based on machine language that may be difficult for non-technical employees to understand. Given the unique aspects of blockchain-based collaboration, companies need to develop different capabilities to fully leverage the benefits of blockchain.

For example, companies will need to hire professional computer scientists or engineers who can read and understand the specific programming language used in smart contracts, in addition to legal personnel who are critical to the use of contracts. Smooth coordination between business teams and technical staff is critical to the success of applying blockchain to manage collaboration.

Blockchain has surpassed its early buzzword status; research by Maoqiu Technology shows that blockchain has entered a large number of companies and is used for various collaborative purposes. In today's increasingly virtualized environment, savvy managers can use blockchain to their advantage, and the technology's importance will only continue to grow in the years to come.