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Should blockchains replace CEOs?

LiveMint logoLiveMint 17-08-2017 Jaspreet Bindra

Uber, as it turned out, is a great business model run by a flawed chief executive. Travis Kalanick built the world’s most valuable private company ever and achieved world domination in a relatively short while, only to be fired by his board in June. Ronald (Ron) Johnson, who shone at Apple Inc. as its retail head for over a decade (he created and opened the first Apple stores), made several bad judgements later as the CEO of J. C. Penney Co. Inc., and was summarily dismissed. Closer home, B. Ramalinga Raju used his company’s money and nearly drove his company, Satyam Computer Services Ltd (now Tech Mahindra Ltd), to the ground.

CEOs have vast, untrammelled powers in today’s organizations, endowed as they are with near-sycophantic employees and pliable boards. The way organization structures are made, everything gets eventually centralized at the top, and the CEO becomes a single point of trust and confidence for the entire organization. Many times, he or she also becomes the single point of failure. Trust and culture, in today’s organizations, flow downwards. And if the CEO is corrupt in some way, he corrupts the culture and the reputation of the entire company.

What if there was another way of structuring organizations?

This is where we come to the blockchain. By now, most of the readers would be familiar with the concept of a blockchain—a decentralized database shared among a network of computers, all of which must approve an exchange before it can be recorded. While the technology is best known as underpinning crypto-currencies like bitcoin and ether, blockchain is a lot more. It is a peer-to-peer network which can be used to exchange digital assets without friction (there is no central ledger and transactions between people can happen nearly instantly without any intermediary), execute smart contracts (contracts and documents can be stored electronically, and be executed algorithmically), and store digital records (for electronic identity).

Blockchain has given rise to a very interesting construct—the Digitally Autonomous Organization (DAO). It is an organization acting as a single entity, whose by-laws are written entirely in code. It controls about $100 million in crowd-funded assets, sits on an Ethereum blockchain and is given its authority by code and smart contracts. The people who have crowd-funded it get DAO tokens, which can be used to vote on governance issues and other decisions like which projects the $100 million DAO will fund. People can apply for businesses they would like to build on the DAO, with proposals and smart contract code; the code will execute payments as long as the project is accepted, and milestones met. While this concept is still in its infancy, and a little abstract to understand, it is perhaps the future of how a new organizational structure could emerge—and bring about the digital democratization of business.

An interesting start-up which enables something like this is Colony which builds ‘colonies’ or companies, “except instead of being managed by fallible individuals, it harnesses the wisdom of the crowd to make sure that the right things get done by the right people, at the right time”. It is a fascinating concept, where as you contribute to the organization you build your reputation (akin to DAO points), and use your reputation to get a disproportionate voice in decision making, much like the boss gets in today’s organizations, though he gets it based on his position rather than reputation. So in colonies, “decisions are made democratically; everybody has a voice. The greater your expertise, the more influence you have”.

You might not think so, but this is not entirely balderdash. Zappos.com, Arca and Precision Nutrition are among the 500-odd companies which follow the alternative organizational structure called Holacracy. The similarity that a Holacratic organization has with the DAO is eerie: a concept that brings some structure and discipline to a peer-to-peer workplace. A Holacracy “completely replaces the conventional management hierarchy with a tested, customizable self-management practice that empowers people throughout an organization to make meaningful decisions and drive change”.

Job descriptions, where one person has narrowly defined jobs, get replaced by job roles, and a person can do more than one of them simultaneously. Delegated authority is replaced by distributed authority—think of a central ledger being replaced by a distributed one.

Changes are handled through big, one-time reorganisations in the traditional company; in Holacracy, the organizational structure is regularly updated via small iterations, much like agile, distributed software. As a Yammer co-founder put it: “Most start-ups believe in iteration of their products. Now they need to apply the same thinking to their organizations.”

Blockchain is not as much a technology as a philosophy. The internet solved the big problems of distribution, information and communication for us; blockchain takes that further to solve even bigger problems of trust and disintermediation. It has started disrupting banks and financial institutions—tomorrow it might disrupt organization structures and philosophies.

So, if a blockchain ran Uber, would things have turned out a little differently?

Jaspreet Bindra is senior vice-president - digital transformation, Mahindra Group.

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