Blockchain and information system strategy of organizations : a multiple case study

(1)

Master Thesis

Blockchain and information system strategy

of organizations: a multiple case study

Date: 16/08/2017

Student: Robin van Holland

Student number: 11422165

Contact info: robinvholland@gmail.com

Supervisor: M. Güvendik

Faculty: Faculty of Economics and Business (FEB)

Study: Business Administration

Track: Digital Business

Pages: 101 (including appendices)

Words: 30547 (including appendices)

(2)

(3)

3

Statement of originality

This document is written by Robin van Holland who declares to take full responsibility for the contents of this document.

I declarey declares that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

(4)

4

Acknowledgement

I would like to thank my thesis supervisor Merve Güvendik of the Amsterdam Business School at the University of Amsterdam for her support and feedback during the writing of my thesis. She allowed this research to be my own, but helped me with advice and steered me in the right direction

I would also like to thank my parents, roommates, friends and girlfriend for their advice, support and encouragement throughout my years of study and the process of researching and writing this thesis.

(5)

5

5. Discussion 41 5.1. Hypotheses 41 5.1.1. Hypothesis 1 41 5.1.2. Hypothesis 2 43 5.1.3. Hypothesis 3 44 5.1.4. Hypothesis 4 45 5.1.5. Hypothesis 5 46 5.1.6. Overview 46 5.2. Conclusion 47 5.3. Managerial implications 48 5.4. Academic contribution 49 5.5. Limitations 50 5.6. Future research 51 6. References 52 7. Appendices 54 7.1. Interview protocol 54 7.2. Interview transcript A 56 7.3. Interview transcript B 56 7.4. Interview transcript C 56

(7)

7

Abstract

Blockchain is a promising technology which has the potential to disrupt many industries. This case study answers the question how large organizations define blockchain in their information system strategy. Past research has found there are four information system strategies an organizations can follow: (1) IS innovator, (2) IS conservative, (3) IS ambidextrous or (4) an undefined strategy. This study proposes a fifth strategy organization follow regarding the implementation and experimentation with blockchain technology: IS consolidator. This strategy aims not at being the IS leader in its industry but intents to learn, understand and experience a new IS technology, share risk, enable new opportunities and ultimately solve business problems. Additionally, a fourth conception of understanding the construct of IS strategy is proposed: emergence-centric. Furthermore this research found organizations experimenting with blockchain seem to aim for ambidexterity and information system strategy can be a business driver.

(8)

8

1. Introduction

According to the World Economic Forum (2015), blockchain ‘will fundamentally alter the way financial institutions do business around the world’ and ‘10% of global GDP may be stored with blockchain technology by 2027’. Blockchain has the potential to be the fifth major disruptive computing technology that the world has seen (Swan, 2015). According to Swan (2015) the modern world can be understood through computing paradigm of which the first and second were the mainframe and personal computer paradigm, the third was the internet, whereas the fourth included the mobile and social networking revolution. Blockchain could become the next paradigm as a basis of the connected world of computing. It could become the economic overlay which can seamlessly connect every device and theoretically is able to transfer value, information and has the ability to allocate resources.

Iansiti and Lakhani (2017) are more reserved when looking to the disruptive character of blockchain technology. The authors argue that blockchain promises to solve various problems such as the old-fashioned way of contracting and transacting. Whereas Swan (2015) states blockchain will already have a great disruptive impact on our society in the next decade, Iansiti and Lakhani (2017) foresee a more gradual and steady change which will ultimately fundamentally change and enormously impact our economic and social system. The different views on the importance and possible future impact of blockchain, although they are different, both highlight the importance and enormous influence it could have.

New technologies and new implementations of technologies can have major consequences for customers, organizations and industries. Companies such as Kodak, Nokia, Xerox, Motorola and IBM, which were all leaders in their specific markets, went bankrupt or downsized for a great part because of missing a new and ultimately disruptive technology. With the high impact blockchain potentially has, companies should take into account new information system technologies like, in case of this study, blockchain technology.

(9)

9

Blockchain is mostly known as the technology behind bitcoin and other similar applications. Next to digital cryptocurrency, blockchain potentially has several other implementations and applications such as smart contracts, financial transactions, the communication between autonomous devices and capturing property and value. Until now, no large and widely adopted applications of blockchain, other than cryptocurrencies, are being used. The biggest question is then, should companies prepare for the implementation of blockchain and therefore already have an information system strategy on blockchain or should they wait and see if this technology will do what it potentially promises to do.

According to Chen, Mocker and Preston (2010) companies have either an information system strategy as an information system innovator (leader in its industry), an information system conservative (only implement when an innovation has been proven beneficial) or they have an undefined strategy (no clear long-term goal for information systems). They state that, although ambidexterity or engaging in both exploration and exploitation regarding information system (IS) strategy could be possible, this is not feasible for most organizations.

Regarding the examples of organizations that did not prepare for or see disruptive technological innovations coming, this research will dive deeper into strategies of companies related to a new technology in information systems, blockchain. With the exponential growth and technological progress, increasing processor power, innovation and advancement in mind, this research will focus on organizations that could potentially be influenced and disrupted by blockchain. Recent literature shows that IS strategy is seen as mainly supportive, functional or as providing a shared-view on the role of information systems within organizations. In a fast changing innovation and technology environment, information systems could be more important and have other functions than merely the three mentioned (Chen et al., 2010). Could blockchain, as part of the IS strategy, be a driving force of business and vital for survival and can organizations have a different strategy than being an IS innovator or IS conservative and therefore possibly

(10)

10

be ambidextrous? Taking into account relatively new technology and information system driven companies like Uber, Facebook, Airbnb and Dropbox, other types of IS strategies could be possible. Therefore, this exploratory research will address the question:

How do organizations define their information system strategy to adopt blockchain technology?

The research will start with a brief explanation on how blockchain works and its most important characteristics and functions. Furthermore, different applications and implementations of blockchain technology are explained together with the main issues that have to be overcome. Next, a literature review regarding information system strategy is provided with the most important recent literature and thoughts which serves as the theoretical background for this research.

To find an answer to the research question, data is gathered through various sources regarding different organizations that are experimenting with blockchain or are already implementing early blockchain applications. The main information source on how organizations are coping and preparing for blockchain technology is through interviews with managers responsible for the implementation and preparation of blockchain and IS strategy at their organizations. Furthermore, secondary data such as annual and company reports are used, in order to get a full overview of the position of the organizations regarding blockchain and IS strategy.

Lastly this research will address the most important managerial implementation and relevancy and will provide advice on how and why companies should or should not implement blockchain in order to stay ahead of competition, create new business models through blockchain and prepare for a future with blockchain.

This research will help in understanding how large organizations cope with a new IS technology such as blockchain, which position they take in adopting blockchain technology in their IS strategy and how this potentially differs from prevailing literature.

(11)

11

2. Literature Review

The literature review will start by introducing and explaining blockchain together with its most important characteristics and implementation possibilities. Second, the most important recent literature regarding information system strategy is reviewed and the theoretical framework that will be used to evaluate the data is introduced and discussed. Lastly, five hypotheses are proposed which will be used to evaluate the data.

2.1. Introduction to blockchain

In order to understand and be able to evaluate the gathered data about information system strategy it is important to know the basics of blockchain technology, the opportunities and risks of the technology and a short outlook towards the possible and potential implementations of blockchain.

2.1.1. Blockchain and Bitcoin

Blockchain has been described as the underlying technology of the Bitcoin for the first time in 2008 by the unknown author or entity Satoshi Nakamoto. In the publication a new way of sending online payments directly from one party to another without interference of a financial institution by the use of a peer-to-peer online currency was explained. According to Nakamoto, this solves the double-spending problem (Nakamoto, 2008). The double-spending problem means that the same coin can be signed over to two different users. One solution for this are trusted banks, credit card companies and other intermediaries like PayPal (Karame, Androulaki, & Capkun, 2012). This problem is solved by recording the payments in a public ledger that is stored on many Bitcoin users’ computers which is continuously viewable over the internet (Swan, 2015). The public ledger is the underlying technology of the Bitcoin and is called a blockchain.

According to Swan (2015) the blockchain is the main technological innovation of the Bitcoin because it provides a trustless proof mechanism for the transactions. Lee (2016) state that, in

(12)

12

contrast to traditional currencies, Bitcoin does not have a physical form. This means they are stored, transferred, bought and sold completely online using a blockchain. The transactions are performed completely peer-to-peer without assistance and verification of a trusted third party. A blockchain enables new distributed software architectures where components find agreements on their shared states for decentralized and transactional data sharing through a network of untrusted participants instead of a central point that has to be trusted by every component in the network (Xu, Pautasso, Zhu, Gramoli, Ponomarev and Chen, 2016).

2.1.2. The basics of blockchain

According to Lee (2016) the blockchain is characterized by transparency, anonymity, decentralization, mining and cryptography. As earlier stated, the blockchain acts as a public ledger and allows every person who downloads for example Bitcoin software to view a complete history of every transaction that has ever been completed (Peters and Panayi 2016). Next to this transparency, the transactions are anonymous and the identity of the user is also highly difficult to determine. Another characteristic of a blockchain is that the network is completely decentralized which means that anyone in the world with an internet connection can download the software and has the same access as everyone else in the system. An important advantage of the decentralization is that censoring is not possible due to the lack of an intermediary. Additionally, whereas other exchange systems require trust, for example a trusted third party that verifies transactions such as a bank, the blockchain relies on proof to determine whether an exchange is authentic and feasible to be performed. A fourth characteristic that Lee (2016) identified is mining. A blockchain is managed by people called miners or nodes. The miners keep the system running and ensure that double transaction are not occurring. This solves the double-spending problem and confirms that a transaction or exchange is legitimate. The last characteristic includes cryptography which is referred to as a mathematical system for solving authentication and privacy related security problems. This prevents the extraction of

(13)

13

information by an unauthorized party from transmitted messages and assures the sender of a message that it is read only by the intended reader. Moreover, it prevents the unauthorized injection of messages which assures the receiver of a message that the sender is legitimate (Diffie and Hellman, 1976).

The blockchain data structure is a timestamped and chronological list of blocks which consisting of recorded and aggregated data about transaction that have occurred within the network. In this way the blockchain provides an immutable data storage. The blockchain is immutable because, before a transaction is included and added to the blockchain, the entire network has to reach consensus on a transaction. According to Xu, et al. (2016) the blockchain has two essential elements that make up the blockchain, these are the blocks and the transaction. Blocks can be identified as the containers of aggregating transactions which are all separately identifiable and are linked to its previous block in the chain. A transaction represents a transitions with ownership information. A transaction is a set of identifiable data packages that store (monetary) value, code or other parameters and results of function calls which are protected cryptography. The transaction is created and signed with a signature by the initiator which indicates the authorization to transfer the value, create the contract or pass other data parameters associated with the transaction. The transaction is then send to a node in the network which is able to validate the transaction. An invalid transaction is sent back to the initiator while a valid transaction is send to three or four other connected nodes in the network. These nodes will further validate the transaction and send them to their peers until the transaction has reached every node in the web. This approach makes it possible for a valid transaction to be distributed through the network within seconds and makes sure the sender does not have to trust the separate nodes (Xu, et al., 2016). Within the network there are mining nodes, these nodes are essential computers hooked up to the network which serve to verify individual transactions and to place transaction within blocks on a blockchain (Lee, 2016). The block is chained into the

(14)

14

blockchain when the complete network reaches a consensus. Once stored in a blockchain and confirmed by sufficient subsequent blocks, the transaction becomes a permanent and immutable part of the public ledger and is accepted as valid within the blockchain network (Xu, et al., 2016; Peters and Panayi 2016).

2.1.3. Mining

According to Lee (2016) the mining is done through a proof-of-work system. This implies that a miner has to perform a lot of computational work in order to prove the legitimacy of a transaction. Although this way of mining revolutionized the way transactions are processed there are several authors that highlighted some disadvantages of this system an suggest some alternative systems. The first disadvantage of the proof-of-work system is the required computational effort of the CPU which needs a large amount of energy. The second disadvantage is an effect of the system coping with diminishing returns which can cause security issues when only a few nodes in the network mine. The last drawback of this system, as identified by Lee (2016), is the 51% attack. Although a blockchain is decentralized, the network is still vulnerable in case a miner or a pool of miners have 51% or more of the computing power which enables them to rewrite a blockchains’ history.

2.1.4. Private and public

Bitcoin uses a public decentralized ledger that is accessible to every internet user connected to the Bitcoin network but alternative cryptocurrencies and other applications of blockchain technology use different types of blockchains The difference is whether authorisation is required or whether access to the data is public or private (Peters et al. 2016). Bitcoin is an example of a permissionless blockchain where anyone can join the network and request a copy of the blockchain. This is the reason many cryptocurrencies like Bitcoin use the proof-of-work system and reward miners with newly issued coins. Besides Bitcoin, another example of the

(15)

15

use of a permissionless blockchain is Ethereum, a platform which provides access to smart contracts on a blockchain and offer them as a service (Peters et al., 2016).

The counterpart of a permissionless blockchain, as identified by Peters et al. (2016), is a permissioned blockchain. Permissioned blockchains make use of a set of trusted parties to carry out verification. Additional or new verifiers can be added with agreement of existing verifiers. This configuration is partly similar to traditional finance settings where certain users can use a certain space or perform certain operations. Permissioned blockchains are built with a purpose and, because of this, can more easily be integrated with existing (business) applications. A major advantage of a permissioned over a permissionless blockchain is scalability. Every node in a permissionless blockchain has to verify all transactions and all data is stored on every computer in the network which causes, once the number of transactions increases, centralization due to the required processor power becoming larger. In a permissioned blockchain this can be prevented because a preselected number of participants will need to verify and store all data and transactions. On the other hand, a permissioned blockchain is more vulnerable to a hack or a 51% attack which makes it possible to alter rules, revert transactions and is not resistant to censorship.

Next to the classification of permissionless and permissioned, blockchains can be divided into public and private blockchains which, in practice, comes down to the same. Public blockchains are accessible to everyone, can be read and anyone and all nodes in the network can submit transactions. Private blockchains, on the other hand, can restrict access to particular users within for example an organisation or company (Peters and Panayi 2016).

2.1.5. Applications and challenges of blockchain

According to Peters et al. (2016) and Swan (2015) cryptocurrencies and the use of blockchains for this purpose is seen as a first generation application. The second generation of blockchain includes applications such as digitising asset ownership, intellectual property and smart

(16)

16

contracts. A blockchain can be used for every form of asset registry and exchange in every area whether it are hard and physical assets or intangible assets such as votes, ideas and health data. Furthermore, blockchain makes it possible to transact these assets through smart contract. These smart contracts can be seen as a step beyond just a simple buy-and-sell transaction with more extensive instructions embedded. According to Swan (2015) a smart contract is a method of using blockchain to form agreements with people. They feature the same kind of agreement as traditional contracts but lack the need for trusted parties. The contract is automatically executed by the code in case of an event. Swan (2015) also identifies a third generation which involves even more advanced applications such as justice based on blockchain, identity verification, censorship-resistant applications and decentralized DNS services.

As previously mentioned, blockchain faces some serious challenges before the technology will be widely adopted and used by the mass. First, there are some technical challenges such as the number of transactions per second that can be processed, the latency of a blockchain network, the increasing size of a blockchain, the 51% attack danger, the wasting of resources due to mining, the user friendliness of the applications and whether a full ecosystem will be developed which can provide the entire value chain of service delivery (Swan, 2015). Most of these issues are a matter of good programming and developing applications whereas others, like the security issue is a drawback of blockchains which should be overcome in some way.

2.2. Information system strategy

2.2.1. Introduction to strategy

In order to introduce information strategy it is essential to first define strategy in general. Strategy is a widely discussed topic throughout the last decades in scholarly articles and researches. Although countless research has been done, there is no single truth and strategy suitable for every individual organization. Following Chen et al. (2010), who performed an extensive literature study, three major streams which describe strategy can be identified. The

(17)

17

first stream focuses on the question what is or what constitutes strategy, this involves models such as Porter’s five forces model (Porter, 1976), the value chain (Porter, 1980), the resource based view of the firm (Barney, 1991) and the core competency theory (Prahalad and Hamel, 1990). The second stream emphasizes on strategic decision making and their irreversible nature, expected impact on the long run on and the direction of a firm. These two streams, according to Chen et al. (2010), do not offer a specific definition of strategy.

The third research stream focuses on different organizational levels and clarifying the questions that arise from the existence of a strategy. Strategy differs, according to these researches, across different levels in an organizations. Levels that can be distinguished are corporate strategy which involves what business an organization should be in. Another level is business unit strategy which focuses on gaining a competitive advantage and, a third, is functional strategy which involves resource allocation within an organization (Chen et al. 2010).

To bring structure to the concept of strategy, Mintzberg (1987) identified five dimensions of interrelating definitions of strategy which are known as the five Ps (Chen et al. 2010). Mintzberg (1987) states strategy can be defined as a plan (intended course of action), a ploy (consciously outperform competition), a pattern (stream of realized action), a proposition (match with environment) as well as a perspective (shared view among organization). Following Chen et al. (2010), this research will use the fifth definition of Mintzberg (1987) which is perspective. This implies strategy is not only seen as a chosen position but also a way how the world around an organization is perceived. According to Mintzberg (1987) some organizations are aggressive forerunners and create new technologies, innovate and exploit new markets and ideas, whereas organizations in another position see the environment as stable and build protective shells to stay in position. Furthermore, this definition suggest that strategy is a concept and that strategies are abstractions which exist in minds of related parties. In addition, a strategy cannot be seen and touched and only exist in the imagination of people.

(18)

18

2.2.2. Information systems

Information systems be defined as ‘systems for delivering information and communications services in an organization and the activities and management of the information systems function in planning, designing, developing, implementing, and operating the systems and providing services,’ (Davis, 2000). Furthermore, the systems can be used to capture, store, process, and communicate data, information, and knowledge’. Another important characteristic is that information systems are a combination of technical components as well as human operators and users used in an organization or combinations of organizations (Davis, 2000). Next to this definition, which will be used in this research, it is important to distinguish the technical and procedural components and the activities and structures that make information systems work. According to Davis (2000), information systems consist of infrastructure, repositories and two classes of applications software. Table 1 shows these components together with their most important characteristics and practical implementations.

Inf ras tr u ct u re

Hardware Consists of computer and communication hardware and software which provides processing, communications and storage capabilities required by application software and user activities Software R epos it o ri es

Databases, files and data warehouses

Storage of data required for transactions, operations, analysis, decision making, explanations and requirements. It includes data such as text and multimedia reports, documents, data, emails, conversations, etc.

A ppl ic at ion s s o ft w ar e

Transaction processing and operations applications

Transaction processing applications record and process transactions such as orders and payments. Applications can be web-based and links customers and suppliers. Operational applications schedule and direct the operations of an organization.

Administration and management applications

Support workers in performing tasks individually and collaboratively. Examples are decision support and analytical tools.

(19)

19

2.2.3. Information system strategy

In their literature study Chen et al. (2010) identified three conceptions regarding information system strategy which reflect the underlying assumptions of this construct. The first conception suggests that IS strategy must be linked and aligned with the already established business strategy. The main objective of information systems is to support the business strategy and ultimately help to gain or sustain a competitive advantage. This conceptions is labelled as

business-centric and means IS strategy is not a strategy on its own but part of the complete

business strategy. Furthermore, it should ensure business strategy can be implemented and the strategic position that is foreseen is achieved (Chen et al. 2010).

The second conception identified by Chen et al. (2010) provides a more extensive view of IS strategy. It assumes that IS strategy is more a functional strategy and aims at allocating resources in order to maximize resource productivity. Although resources are core to an organization, this conception of IS strategy can be seen as independent from the business strategy. The starting point of developing the strategy are the functions information systems should have and fulfil. This conception is seen as IS-centric and the strategy is developed isolated from the business strategy. The most important impact the IS strategy should have is to identify information system requirements and that assets are allocated effectively.

The last conception that was retrieved from the literature is described as a shared-view regarding the role that information systems play in organizations. This conception is, according to Chen et al. (2010), organization-centric and can be seen as the bridge between the two prior conceptions. The IS strategy is not automatically dependent on the business strategy but should reflect the strategic view of the business executives regarding information systems. According to Chen et al. (2010) this conception is most in line with the chosen definition of strategy because it reflects the fifth P, perspective, of Mintzberg (1987). The IS strategy, with this conception, can be developed separately from the business strategy and the strategy should

(20)

20

provide a shared understanding throughout the organization and guide subsequent IT investments and deployment (Chen et al. 2010). Table 2 shows a brief overview of the three different conceptions. Inf o rm at ion sys te m s conc ep ti on s Business-centric

IS strategy is not a strategy on its own but part of the complete business strategy. It ensures business strategy can be implemented and the strategic position that is foreseen can be achieved.

IS-centric

Independent from business strategy, IS strategy is more a functional strategy and aims at allocating resources in order to maximize resource productivity.

Organization-centric

IS strategy is not automatically dependent on the business strategy but should reflect the strategic view of the business executives regarding information systems.

Table 2: Information system conception: Adapted from: Chen et al. (2010)

The definition that Chen et al. (2010) use in their research for IS strategy is one in which IS strategy is an organizational perspective on the investment in, deployment, use, and management of information systems. This is in line with the choice of the perspective view of Mintzberg (1987) and with the shared role that information system strategy has within organizations

2.2.4. Innovators and conservatives

Chen et al. (2010) propose a new IS strategy typology to develop valid and holistic measures of the construct. Based on the distinction that some organizations are seen as information system enablers for innovation and others as a supporting role to automate existing business processes. The authors suggest that, depending on the extent to which an organization has a perspective to pursue IS innovation, the typology includes two defined IS strategies: IS innovators and IS conservatives. Additionally, there is a third type of organization with an undefined strategy.

When focusing on the IS innovator, the authors state that the primary goal is to be a leader within its industry and want to be the first in the industry to respond to opportunities to explore,

(21)

21

develop and capitalize on innovative initiatives. An IS innovator is not necessarily the first to introduce or adopt every new technology and may not be leading in every sector of technology. In addition, the IS innovator is an organization which constantly seeking ways to innovate with IS and to be an IS leader (Chen et al. 2010).

An IS conservative, has a more stable approach with regard to IS strategy. A conservative does not want to be a IS leader and they do not actively look to be the first in an industry to develop or implement innovations. The IS conservative want to exploit IS innovations only after they are investigated and implemented by others and only wants to have the potential benefits from information systems while reducing the potential risks and costs. The authors state that this IS strategy is beneficial for many companies. An overview with the most important characteristics for IS innovators and IS conservatives are shown in Table 3. The last typology is an undefined IS strategy, which means there is no long-term goal regarding information systems and it has no consistent pattern of behaviour when looking at IS strategy (Chen et al. 2010).

Position towards IS innovator IS conservative

Industry Leader Follower

Risk Seeking Averse

Innovation Explore Exploit

New technologies Actively searching and investing Awaiting competition

Table 3: Characteristics IS innovators and IS conservatives. Adapted from Chen et al. (2010)

Although the authors mention that these definitions suggest that IS innovator and IS conservatives are mutually exclusive there is a possibility, in a few cases, to exploit and explore at the same time. In literature this phenomenon is referred to as ambidexterity (March 1991; He and Wong 2004). The balance between exploration and exploitation will be more extensively discussed in the next section. Although Chen et al. (2010) argue that ambidexterity could in a few cases exist they propose the IS innovator and IS conservative strategies are mutually

(22)

22

exclusive and a firms’ mindset should either focus primarily on exploration or exploitation (Chen et al. 2010).

2.2.5. Ambidexterity

Ambidexterity has been defined as the ability to, at the same time, pursue incremental and discontinuous innovation and change results from hosting multiple contradictory structures, processes, and cultures within the same firm (Tushman and O’Reilly, 1996). Organizations that are considered ambidextrous compete in mature markets through incremental and in emerging markets through discontinuous innovation. In other words, organizations can be both focus on exploration and on exploitation at the same time.

Whereas Chen et al. (2010) identified three different IS strategies organizations can follow (IS innovator, conservative or undefined), a fourth strategy was identified by Leidner and Preston (2011). This fourth strategy, labelled as IS ambidexterity means, according to these authors, that organizations are both moderately innovative and conservative. Only a few firms have been found to score high on both innovative and conservative factors. On the other hand, research has found that companies can actually exploit and explore technology at the same time and thus can be ambidextrous (He et al. 2004). They performed a study which was drawn from survey data regarding innovation behaviour and performance which was gathered at 206 manufacturing firms in Singapore and Penang. Their dependent variable, sales growth rate in the last three years, was especially chosen because these manufacturing firms carry out, mainly, short term innovation projects. This makes the outcome of this study not representative and generalizable for this research because IS strategy will involve longer periods together with high investments. On the other hand, the study shows that ambidexterity is possible for certain companies to achieve (He et al. 2004).

(23)

23 2.3. Summary and research question

Blockchain is a promising technology that potentially changes and disrupts various industries in the coing decades. This chapter started with a brief introduction to blockchain in order to understand the basic concepts and applications of blockchain technology. Next, an overview of the most relevant literature regarding information system strategy was provided. Whereas Chen et al. (2010) identified three IS strategies which involve (1) IS innovator, (2) IS conservative and (3) undefined. On the other hand, other research has found that ambidexterity and thus exploration and exploitation at the same time is also a possibility (Leidner et al. 2011: He et al. 2014). This research will try to find how organizations that are already experimenting, exploring or exploiting blockchain technology within their IS strategy see blockchain technology. The question that this research will answer is: How do organizations define their

information system strategy to adopt blockchain technology? As a consequence of blockchain

involving uncertainty, major changes and various ways the technology can be used and implemented, organizations are probably not likely to invest their entire IT budget on blockchain but are also not likely to ignore it completely. Also, organizations might choose different applications of blockchain to invest in and to include in there IS strategy. Furthermore, this research questions the outcomes of the research from Chen et al. (2010) where organizations are positioned either as an IS innovator, an IS conservative or undefined. This research will question whether an organization experimenting with blockchain fits one of these strategies or if another strategy or a combination of strategies is being followed.

2.4. Hypotheses

Although this research is qualitative in nature, five hypotheses are proposed. The deductive approach makes it possible to formulate hypotheses and test them during the research process. These hypotheses will make it easier to find patterns in the data, compare data from different cases and draw conclusions from the data.

(24)

24

2.4.1. Hypothesis 1

As Chen et al. (2010) state, organizations are either an IS innovator, an IS conservative, or they have an undefined strategy. In order to tests this statement the following hypothesis is proposed: H1: Organizations are either an IS innovator, an IS conservative or have an undefined strategy

This will mean that, if this hypothesis is rejected, there are possibly more strategies an organization can follow and implement regarding blockchain. Because ambidexterity seems to be possible in some situations, IS strategy could be a mix or fusion of different strategies focused and directed on e.g. different technologies, departments and teams.

Chen et al. (2010) argue that the aim of an IS innovator always is to be an IS leader in its industry. On the other hand, another possibility or outcome of experimenting with blockchain could be to not lag behind, stay ahead of competition or search for new opportunities. It could be possible that testing a new IS technology, like blockchain, is done for different reasons than just to be the leader in a certain industry. Therefore the hypothesis is:

H2: The aim of an organization experimenting with blockchain is to be an IS leader

If this hypothesis is accepted it would mean that organizations’ motive to experiment or build application on blockchain is to be the IS leader within its industry. On the other hand, if the hypothesis is rejected, other motives underlie exploring blockchain technology.

As He et al. (2004) and Leidner et al. (2011) found in their researches it is possible for organizations to both exploit and explore at the same time. It means they, theoretically, can be both IS innovators and IS conservatives at the same time. For blockchain it would mean that

(25)

25

organizations which are currently implementing or experimenting with blockchain applications are not only exploring but exploit the technology as well. Accordingly, the third hypothesis is: H3: Organizations experimenting with blockchain aim for ambidexterity

In case of ambidexterity organizations do not only explore the blockchain but also exploit the new technology and ultimately create new or influence revenue streams or save costs.

As Chen et al. (2010) identified, information systems dominantly follows or support the business strategy. Next to business-centric (IS strategy aligned with the business strategy), IS-centric (maximize resource productivity) or organizational-IS-centric (reflect business strategy), IS could also drive business and business strategy. With IT becoming more and more important and vital for organizations this research proposes the following hypothesis:

H4: IS can be a business driver

Accepting this hypothesis means that blockchain technology will itself create new business opportunities, create new business models or constitute new revenue streams. In contrast to the literature, which describes that IS strategy predominantly follows business strategy.

With the increasing speed of technological innovation and different technologies, systems and applications seem to be succeeding each other on a rapid pace, companies should perhaps not leave any of these technologies, which potentially disrupt or change the industry they are in, unattended. With the examples cited in the introduction of this research this could mean they miss the boat and eventually are to late or fail in transitioning to use, in this case, blockchain technology.

(26)

26

Although this hypothesis is partially looking forward to an unknown future, it is still interesting to find out what the respondents and organizations think about the future of blockchain. Their strategy concerning blockchain will eventually be based on their believes in the technologies and the option it will create and have for their organizations and industries.

2.4.6. Overview H ypot he si s

1 Organizations are either an IS innovator, an IS conservative or have an undefined IS 2 The aim of organizations experimenting with blockchain is to be an IS leader 3 Organizations experimenting with blockchain aim for ambidexterity

4 Information systems can be a business driver

(27)

27

3. Data and Method

This exploratory research will follow the criteria and steps proposed for case study research by Yin (1994) in order to have a widely used structure for rigour research to improve reliability of the findings and protect against bias. As highlighted by Mays and Pope (1995) qualitative research is often criticized for being an assembly of anecdotes and that it lacks reproducibility. The design and method of this study will rule out as these criticism to the greatest extend to provide scientifically representative and reliable results.

3.1.Methodological approach

The methodological approach for this research is a qualitative approach because blockchain is a relatively new technology and is not widely studied and accepted in day to day life of people and organizations. Furthermore, it is not (yet) possible to study the questions addressed in this research in a quantitative empirical method because of time constraints and the little amount of organizations that have blockchain included in their IS strategy. With this research being qualitative in its nature it will try to understand the phenomenon of blockchain from the perspective of the organizations and will focus on depth and detail and ‘how’ of the companies adopting blockchain technology (Simons, 2009; Yin, 1994).

The research approach will be deductive. This research will explore if the theory provided in the literature review also hold in the case of blockchain as part of the IS strategy. This approach is the most obvious approach in this case because of time constraints.

The unit of research will be a multiple case study concerning organizations that are exploring, innovating or already exploiting blockchain technology. Furthermore, the organizations observed have to be of a substantial size of at least 500 employees and clearly have a IS strategy of which blockchain is at least a new and small part. To avoid major criticism such as the lack of systematic handling of data, the complete transcript together with the codification will be attached in the appendix of this research. Furthermore, the purpose of this study is to make it

(28)

28

possible to, to some extent, make the results scientifically generalizable. To safeguard this the cases studied need to have sufficient overlap in the tasks they perform of the IS strategy they follow and are not completely opposite to each other. A last common criticism that multiple case studies end up with unreadable researches will be tackled by limiting the scope of the research and limit the number of cases research and stay close to the findings presented in the theoretical framework although this will imply that generalizability across different organizations and industries will be limited (Yin, 1994).

As stated, this research will use multiple cases to find out whether the theory in the literature is applicable to these cases and whether there are solid reason to adapt or modify the theory. This will be done by examining similar results which will confirm a theory or contrasting results for predictable reasons that differ from the theoretical framework. In the latter, conditions will be identified and explained why and when it is likely to be found or not (Yin, 1994). The unit of analysis is blockchain technology at various organizations. Additionally it includes a single unit of analysis which aims to study the global phenomenon of blockchain as part of IS strategy (Yin, 1994). The cases are studied in parallel which means they investigate more or less the same time period and are researched at the same time (Thomas, 2001).

3.2. Rigorous design

In order to design a rigorous multiple case study this research follows the methods offered by Yin (2009). To safeguard construct validity, multiple sources of evidence will be used such as interviews with high-level managers that are, at least partly, responsible for executing or designing IS strategy and check the claim and statements they make to the highest possible extent. Furthermore, internal validity is guaranteed by seeking causal relationships and the research framework whereas external validity is perceived by in the first place using replication logic and describe the reason why the certain cases are selected. Lastly, reliability is safeguarded by the criteria of the case and the persons which are interviewed (Yin, 2009.

(29)

29

Organizations should be at least exploring blockchain technology and investing in applications and research. Furthermore, respondents should be managers responsible for the implementation of blockchain from the business side, not the IT development side, of the technology.

3.3. Interviews

This research will find most data and evidence from interviews conducted with managers which are responsible or engaged with defining or executing IS strategy within an organization. The interviews will follow a semi-structured. In this way it is assured that at least the same general information is collected and that, as the conversation goes, there is a certain degree of freedom for the interviewee and the interviewer. This will lead to more in-depth insides, decreases bias while still be able to compare different interviews and eventually draw shared or contrary conclusions. Furthermore, all interviews will be done in real-life to be able to get the most out of the interviews. The interviews will be held in Dutch in order to create the best possible atmosphere and obtain the most information and insights. Appendix 1 contains the interview protocol that has been used for all interviews conducted. Additionally, complete transcripts of the interviews are in Appendix 2, 3 and 4. Important quotes and insights which are relevant to include in the results section will be translated to English.

3.4. Respondents

This study has collected data from three different organizations within three different industries. The industries are not closely related to each other. On the other hand, all industries can potentially be disrupted or at least influenced by blockchain technology. The different industries increase generalizability of the study. The companies are anonymized due to competitive considerations. In all cases, respondents did not want to participate if strategic information was made public, names of the organizations are mentioned, or exact descriptions were provided. In Table 4 the companies are presented together with the industry they are in and the

(30)

30

approximate size and revenue of the organization. In section 3.5 the organizations are briefly discussed together with the relevancy for this research.

Organization Industry Size Revenue

Organization A Insurance > 10.000 employees > 10 billion

Organization B Transactions > 5.000 employees > 1 million

Organization C Energy > 2.500 employees > 3.5 billion

Table 4: Participating organization characteristics

3.5. Organizations

All organizations will be shortly introduced, their position and developments towards blockchain will be discussed and the relevancy of the organization and industry will be explained.

3.5.1. Organization A

Organization A is an all-round insurance company that provides customers with life, health, home, fire, car and travel insurances. Furthermore, they are active as a pension fund and property manager. This organization has a large IT division which approximately holds ten percent of the complete staff of the organization.

Organization A is relevant for this research because they are a frontrunner when it comes to blockchain and are actively experimenting with blockchain and building applications for already a couple of years. Moreover, the insurance industry could conceivably be disrupted because their core business involves transactions, trust and agreements. These factors could all potentially be influenced by a widesread adoption of blockchain technology.

The respondent from organization A is an innovation manager which is responsible for the blockchain team within its large IT division.

(31)

31

3.5.2. Organization B

The second organization is a large transaction service provider which offers payment services to all kind of clients. This organization is relevant for this research because their way of working could potentially change a lot due to widespread blockchain adoption by customers and clients. As blockchain provides the possibility to transfer (monetary) value over the internet it could disrupt their industry and likewise offer new possibilities for business models and revenue streams.

The respondent from organization B is a manager at the level of pre-sale and go-to-market. This means he is responsible for, on one side the short-term innovations such as updates of payment terminals and improvements of products. On the other side, he is responsible for exploring the market and finding out how the organization will earn their revenue more than five years from now.

3.5.3. Organization C

Organization C is an energy company providing electricity, gas and heating to more than two million customers. As this company might not be effected or disrupted immediately by blockchain, it is still appropriate for this research. Blockchain has the potential to change almost all transactions of money and value. Various trends within the energy sector can be influenced or supported by blockchain such as newly evolving decentralized autonomous energy communities and self-sufficient houses and companies.

The respondent from this organization is manager of the team which is responsible for exploring the possibilities for blockchain technology at their organization.

(32)

32

4. Results

This section will focus on the findings that arose from the interviews and the secondary data. The hypotheses will be used to categorize the findings and make it possible to compare the different cases, find similarities, differences and correlations and ultimately generalizable to the greatest extent possible. Important and interesting quotes are provided as to exemplify thoughts.

4.1. Findings

The results are categorized in line with the proposed hypotheses which will be further discussed in section 5. Next to that, the quotes from the respondents and results are separated and presented in the order of the organizations; A, B, and C to create a coherent and conceivable overview and structure.

4.1.1. IS strategy

The first important step is to identify whether the organizations do have an IS strategy as IS innovator, IS conservative or have an undefined or follow another strategy (Chen et al., 2010).

Or g an izatio n A

‘The direction for every year is to simplify applications, rationalisation, with other words; make sure the amount of applications decreases….This has been the same for years so we do have a strategy.’

‘We are a fusion organization.. All these organizations had their own IT systems. We had a fleet strategy for some years, in which every organization kept their own systems and the power would come from pulling together. Eventually, this seemed not efficient, so our strategy now are ‘Core systems’. We chose a partner for every system, with the underlying idea; simplify.’

Or g an izatio n B

‘We certainly have an IS strategy. If you look at how we cope with IT, it is very simple. We are a service provider. We have products which we sell as services and sell these to retailers. We built it in our factory and bring it to market. Is that a strategy? In the 80’s it was. But I have to be honest, it has to do with the accreditation by an independent party. So we cannot send a new release every week because releases will overlap….This really limits what you can do’

‘At our other business line, it almost works the same,…They suffer more from compliance from regulators and central bank’

‘At our company we look to what is happening in the market. So every year we buy a couple of companies. This is how we get innovation in-house and the mother company integrates and makes sure they work together.’

(33)

33 Or g an izatio n

C ‘We certainly have a roadmap for IT’

‘Between the extremes we are certainly an innovator. There are a few domains of which I know other energy companies worldwide are not doing what we are doing… That is not specifically blockchain but generally spoken.'

As these quotations exemplify, all organizations do have a IS strategy for the coming years. Although this strategy can obviously change over the years and are different from each other, it is important to acknowledge they all highlight the importance of having a strategy to make sure different departments and teams operate on the same strategic level.

Moreover, it is important to see whether there are differences and similarities between the organization and what causes these distinctions and similarities. Both organization A and B are influenced by regulatory boundaries set by the government and the industry. For the insurance company this has mostly to do with privacy issues whereas organization B is limited by financial supervisors and accreditation agencies. On the other hand, these organizations do try to be as innovative as possible within the boundaries of the rules and innovate more and faster on places in the organization that are less dependent of regulation.

Noteworthy is the remark about the strategy of organization B. This organization is part of a larger corporation which has a large cashflow and a lot of power in its industry. According to the respondent, due to the size of the corporation, it is sometimes impossible and unnecessary to be a frontrunner in every trend or new technology. Because it has the power and possibility to buy smaller companies, organization B chooses to take-over smaller companies which are further in developing or have mastered a new technology of application. In this way, this organization is able to keep up with the technological developments. It is important to mention that only organization of a certain size have the possibility to follow such an IS strategy. Additionally, it is important to examine whether blockchain is already parts of the organizations’ strategy or whether it is more experimental and still in its infancy.

(34)

34 Or g an izatio n A

‘If you ask if we have a roadmap that we expect to finish ten applications within a certain time? No, the only roadmap we have is the use of blockchain within the consortium….Next to this project we have educations to prepare people to use the technology’

Or g an izatio n B

‘No, what I really would like to be [part of consortium], but because there was no structure for it, there was not enough support.’.

‘What we have planned is to join a consortium, we just got the funds to do so…but that’s it.’

Or g an izatio n C

‘At this moment, blockchain is on the agenda because a few people within the organization have put it the agenda. It is not IT driven.’

As can be read in the quotations above, blockchain is not a real part of the IS strategy (yet). This does not mean organizations are not or cannot be actively undertaking tests with the technology. It seems that, at all organizations, the enthusiasm is coming from within the organization. Individual employees or teams of the company initiate applications and tests instead of orders coming from the top of the organization. Especially the respondents from organization B and C mention lobbying and fund raising within the company is important to get enough money and support to start blockchain projects.

4.1.2. IS innovator and conservative

The following table contains important quotations related to questions on whether the respondents think their organization is innovative or conservative considering their IS strategy.

Or g an izatio n A

‘I think while talking about information systems that we are relatively conservative. We are a

strong regulated company so all the systems that we use should be 100 percent trustable. That’s the reason why our core systems are systems from large corporations… At the same time, because we have such a large company we have more room to innovate so we are emphatically looking at other parties and corporations for things we are not exploring yet such as machine learning, blockchain, IOT, that kind of matters.’

(35)

35 Or g an izatio n B

‘No we are not a frontrunner, in fact, the parent company is, by definition, a legacy organization. They buy non-profitable IT departments, make a loss for some time but this is compensated by economies of scope and scale. If you look to blockchain, companies like Deloite, Accenture and KPMG are already active for 3 to 4 years… we are just starting. We don’t have to be the first.’

Or

g

an

izatio

n

C ‘I think we are in the middle. We are not lagging behind. I know organization which are still

seriously underdeveloped. They have zero time and budget to make that step. But we are certainly not a frontrunner. We are way too big and have too much legacy. We have a piece of history which serves as a counterweight. So we are absolutely not a frontrunner.’

What is remarkable is that all respondents cannot give a resolute answer whether their organization is actually an IS innovator or an IS conservative. Their main ambiguities come from the strict distinction between the classification. All highlight that strategies and implementations differ throughout the organization, can be contrasting from time to time and solutions and strategies can be different when taking into account different IS technologies. Regarding blockchain, other than the study from Chen et al. (2010) suggests, all organizations do not see themselves as a pure IS innovator. Although experimenting with blockchain applications in this stage of the technology would suggest organizations to be an IS innovator, they do not see themselves as a frontrunner in their industry. On the other hand, organizations developing blockchain applications can likewise not be seen as an IS conservative. The fact that these organizations are already busy experimenting with a technology that has not been proven to be successful in their industry suggest characteristics belonging to an IS innovator.

4.1.3. IS leader

To questions relating to the underlying reasons to experiment with blockchain and for example joining a blockchain consortium the respondents state:

(36)

36 Or g an izatio n A

‘For us, practicing is an important reason [to join a consortium], or to learn it. But this reason is not enough. The reason we really entered the consortium, was that is also solved a business problem. If you look to other consortia, which we did not enter, the joint goal was to look together what the technology could do’.

‘So what we noticed was when we shared the knowledge we gained with them, they shared the knowledge they gained with us. In this way there was reciprocity.’

Or g an izatio n B

‘We have a large mass. Try to steer an oil tanker like this, that cannot be done. On the other side, we have such a large size that cashflow is not a problem, so if we see what works in the market, we are also going to do it.’

Or g an izatio n C

‘We are a frontrunner when you are looking at blockchain technology’

Organization A is the only one which, at this point, is part of a consortium which is building a blockchain application among its members. The main reason for them to join the consortium is to share knowledge, learn about the technology and to solve a business problem. In contrast to the allegations of Chen et al. (2010), the reason to join the consortium and try to implement a new IS technology is not to the first or the IS leader within its industry. Moreover, they work together with different competitors in order to learn, share knowledge and possibly tackle a business problem.

Although the respondent from organization B would like to join a consortium, this is not part of the strategy of this organization. As mentioned in the previous section, their strategy is to buy smaller companies whenever they are behind in adoption of a technology. On the contrary, this company is working together with a lot of their clients in building early applications and testing what can be done with the technology. The mean reasons for this are to discover how the organization will earn its money in future and how their business will change. Organization C, which is possibly the less likely to be disrupted on a short term due to blockchain

(37)

37

technologies, states that they are definitely a frontrunner or leader within their industry, but not necessarily for blockchain. The reason they are exploring is mainly because there are a few enthusiasts wanting to experiment with blockchain, rather than being part of the IS strategy.

4.1.4. Ambidexterity

In contrast to research from Chen et al. (2010) which includes only three IS strategy possibilities, He et al. (2004) already showed that IS ambidexterity is a possible to achieve in some individual cases. This would mean that organization can simultaneously explore and exploit innovations and score moderate on those two (Leidner et al. 2011). The results below show whether the organizations in this case think if ambidexterity is possible to achieve and if they believe their organization is ambidextrous.

Or g an izatio n A

‘I think ambidexterity is possible. If you look at the role of our team, we look from the idea of a bi-model IT, which has mode 1 and mode 2. Mode 1 are more slow. The comparison that is made often is a marathon runner against sprinters. These are two completely different qualities. The first is not better that the other. On one hand you have to make sure that the IT is reliable, IT of which you are certain that is always works…. At the same time you want IT that is innovative. You also want people that explore short iterative projects, things you can throw away again. These two should be connected. Meanwhile, it is clever to have teams that are dedicated with innovation and teams that are working on keeping IT stable on the long term’. Or g an izatio n B

‘The point is, a company is never one company. You always have groups with certain areas of attention and if I look to our company, this is not a very innovative company. But what R&D at the parent company does, and on a smaller scale, myself with my consultants, we are looking forward at least five years. Always, with everything…. On the other hand, we currently protect, with relative certainty, new revenues in future. This is, according to me, an optimal form of ambidexterity.’ Or g an izatio n

C ‘There is always an optimal balance possible, but as soon as something changes, which

happens as the clock ticks, needs and the balance can be different again.;

‘In a way we will always try. We have our current cash cow, but we are going to a new system. We do not know whether the current balance is the ultimate balance, but we still do it.

All respondent highlight ambidexterity is definitely possible to obtain within their organization. They all see an organization not as one entity but as separate groups with different interests and

(38)

38

functions. The respondent of organization A indicates that some parts of the organization are active in making sure all systems work accordingly to the standards and make sure the IT is reliable. On the other hand, his team is more targeting at exploring possibilities of new technologies and innovations. Organization B and C both highlight the importance of exploring innovation because the risk of disruptions. This means optimal ambidexterity is difficult to accomplish but certainly possible to achieve, at least for a certain period of time.

4.1.5. Business driver and follower

As discussed in previous sections, research shows IS strategy has three conceptions of investigating the construct of IS strategy which dominantly follows or support business strategy. The following quotations show the organizations’ view on this matter.

Or g an izatio n A

‘I think we want to go to the driver position, but that it is a follower now. The reason we have a team as mine, is that we want to go to there. We want to understand the technology and see what are the possibilities of machine learning, IOT and blockchain. At organization A, I think, it is both but the emphasis is still on the follower part. Only the knowledge we have makes it possible to sometimes be a driver, especially on innovation and on saving costs.’

Or g an izatio n B

‘If you look to the smallest level, we are really IT driven. This because we innovate inside-out. An example of this is that we can impose our ideas on the market. We are big enough to do this. The disadvantage of this is that we need to have people which are able to predict the future market. Otherwise you are building something which your competitor already built last year.’ ‘If you go to a higher level, the parent company, does a lot of outsourcing deals with very big clients. That’s why they are de facto an innovation enabler. So that could be both IT driven or following.’ Or g an izatio n

C _{‘It almost differs per business unit. Some have much more legacy than others, and for them, IT}

is perhaps a driver’. There are groups that are frontrunners but there is always the questions whether IT is driving or business is.’

As can be read in the quotes, all organizations aim at being IT driven instead of IT only as a supporting or following function. On the other hand, all organizations highlight the fact that it

Blockchain and information system strategy of organizations : a multiple case study

Master Thesis