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Frictionless business part 1

There’s a new hot phrase in town and you’d better get used to it. Today we are going to look at what is being called ‘frictionless business’. And then, tomorrow, we will get the views of that titan of business, David Byrne of Talking Heads.

Business is about getting things done – negotiating deals, exchanging goods and services, signing on the dotted line. In the modern connected economy, businesses are increasingly reliant on partnerships with other companies to conduct their business.

The rate at which new partnerships are created is growing exponentially. The problem is, the faster business gets, the more frustrating the delays caused by every one of those interactions. Also, the more complex the digital global economy becomes, the harder it is to trust the data shared by partners, causing a growing cost to every organisation while slowing down their ability to respond rapidly to the market.

This friction is particularly prevalent in financial services, where businesses are increasingly dependent on each other in order to transact. For example, no bank can afford having a different view of customer transactions to the rest of the ecosystem. This creates the need for constant messaging between companies to ensure they are aligned.

It is estimated that around 30% of the costs of capital markets are around this messaging. In fact, by some measures, about $1bn (£750m) is spent by financial firms on checking each other’s databases every year. Given the UK’s strong emphasis on financial services, this friction is creating a drag on the economy, and the issue is only going to get worse after Brexit.

The problem extends to other industries as well. Companies are relying on increasingly complex supply chains involving a rapidly changing set of partners. Food suppliers, for example, need to be able to respond to problems such as the recent horsemeat scandal with lightning speed and this friction can lose them a lot of money and their reputations.

This is where’ frictionless business’ steps in to revolutionise the way businesses interact with each other, with huge savings in time and money coming and increasing security despite the growing cyber threat.

An Accenture found that 36% of businesses say they are working with at least double the partners they were two years ago. That’s a great sign of the speed and vibrancy of business today, but it places huge strain on the IT and relationship protocols that any organisation has in place. Simply ensuring that two organisations can share trusted data between their systems introduces big new overheads, and the situation is getting worse.

When it comes to the IT itself, the systems in place from yesteryear simply are not designed to deal with the problem. The answer comes from two technologies – one tried and tested, the other full of promise, but they are only beginning to be applied together.

The first is microservices – an architecture for building IT systems that can quickly and seamlessly connect to each other, even across organisations. It allows companies to interact digitally without having to create new interfaces from scratch every time.

For companies grappling with managing a wide network of partners, this flexibility and trust will allow them to focus on their core business and explore new opportunities in record time
Notable digital-born companies such as Google and Netflix are pioneers of microservices, with every Google search using more than 70 microservices to generate its results, but they are far from alone. In fact, 95% of IT executives surveyed report that their organisation’s use of microservices will increase over the next year. The market for tools that support microservices is expected to reach $33bn (£25bn) by 2023.

The second is blockchain. In its simplest form, blockchain is a ledger that multiple parties can see at the same time. The transactions are shared equally between all participants and no one owns the master copy. Transactions can only be added if the other parties agree and no one can ever go back and change the data. Unlike traditional ledgers that prevent tampering by adding layers of security on top of a database, blockchain weaves the security into the data itself.

This combination of immutability, consensus and security means that blockchain allows you to trust the data coming from other parties, even though you may not trust those parties themselves.

By combining these two technologies, businesses can massively reduce their friction. The concept is revolutionary because now companies can quickly and seamlessly connect with each other while at the same time being able to fully rely on the data they are sharing.

For companies grappling with managing a wide network of partners, this flexibility and trust will allow them to focus on their core business and explore new opportunities in record time.

Smoothing the partnership process means complex companies can work together in ways that would have terrified IT managers a decade ago. In the real world, it means a company like Walmart was able to reduce the time it took to trace in-transit mangoes back to their source of origin from six days to 2.2 seconds.

Blockchain appeals to anyone trying to partner with many other organisations by ensuring that the relationship sticks to the rules. The system itself can hold partners accountable without the need to first build trust between businesses and open themselves to each other’s dubious data.

With blockchain-based smart contracts, businesses can outline the terms of a given relationship, and then automatically release data or execute programs for any prospective partner meeting those terms.

Smoothing the partnership process means complex companies can work together in ways that would have terrified IT managers a decade ago. Ford and rideshare app Lyft have made a joint commitment to developing a fleet of self-driving taxis by 2021 and last year Nike became one of the first companies to have its products sold through Instagram.

The success of major businesses such as these will pave the way for others and as companies  develop frictionless solutions to take to market, businesses without the capital to invest in their own microservices and blockchain development will be able to take advantage too.

Indeed, given the speed of this development, not getting on board with blockchain and microservices now may mean leaving it too late and losing the competitive edge.

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