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 on video conferences over the past few months meeting with colleagues, talking with clients, or negotiating with suppliers. Effective managers must collaborate in nearly every aspect of their jobs.

However, successful collaboration is not easy. Your partners may lack commitment—they may even lie, steal, or cheat. For example, a supplier may try to hide quality defects, or a customer may ask to renegotiate a price even though you originally reached an agreement.

Communicating, sharing information, and coordinating the actions of multiple parties is difficult. This is especially true when a collaborative task requires sharing knowledge among multiple parties, such as tracking deliveries or developing products with partners in a business ecosystem.

It can be a challenge to ensure that information recorded by different entities is consistent. These challenges are exacerbated by the fact that information exchange sometimes still occurs through reams of paperwork (which is impossible to search and easy to lose) or swarms of emails (which are a pain to stay organized).

These problems have been exacerbated by the increasing shift of people to working online, a shift accelerated by the ongoing coronavirus pandemic.

For collaboration to work, you need to ensure that each party is behaving in the way 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 apply with the added layer of virtual communications we now rely on.

However, there is one tool that could fundamentally change the way collaboration happens: blockchain.

What blockchain makes possible

Blockchains have the potential to fundamentally change many aspects of business life, but they are a tool particularly well suited to collaboration. Simply put, blockchains are digital ledgers where several people jointly control shared information - a feature that makes them ideal for situations where trust and information sharing are important.

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

Furthermore, they can be paired with smart contracts – programming codes that automatically execute once certain conditions are met. In recent years, blockchain has been successfully used to organize collaboration in fields as diverse as logistics, energy, healthcare, entertainment, art, insurance and finance.

To understand the way blockchain can support complex collaboration, consider the task of shipping perishable goods across borders—a feat that requires efficient coordination among suppliers, buyers, carriers, customs, and inspectors, among others. As each party passes goods to another, reams of information are transferred.

Each party keeps its own records and tends to communicate with one partner at a time, which often leads to inconsistent knowledge between participants, shipping delays, and even falsified documents or products.

For example, if the buyer wants the goods to be cooled continuously throughout the transportation process and the temperature exceeds the agreed threshold, a dispute is likely to arise between the buyer, supplier and carrier, which may turn into a lengthy dispute.

The carrier may bargain for lower compensation, arguing that customs delays or inspectors' mishandling of the goods are to blame. The buyer will ask the supplier to remedy the situation, and the supplier will need to negotiate with the carrier. And so on.

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

While partners typically sign a contract setting out the terms of their collaboration, as well as their legal remedies, disputes can open the door to a lengthy, expensive and uncertain legal process.

Alternatively, parties can impose social sanctions, such as ceasing all future collaboration and sharing negative experiences with other firms. However, both approaches have limitations, especially when parties do not anticipate any future interactions with the other party or are not particularly concerned about their reputation.

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

Using electronic devices to monitor the environment inside shipping containers, TradeLens can trigger immediate action—such as shipping a new product as a replacement—when cargo conditions deviate from trade agreements.

Note that execution of replacement actions can be fully automated, leaving no room for dispute or opportunistic bargaining over penalties or liability for remedial actions, saving time and hassle.

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 rather on a set of agreements that represent a self-contained, autonomous system of rules.

Furthermore, with blockchain, all participants have access to a single version of information about the status of a shipment. This eliminates the need to reconcile between separate systems at customs, ports, carriers, and cargo owners.

When stored and processed on the blockchain, information becomes secure, immutable, transparent and traceable. With a higher level of accuracy and authentication, all parties will have less concerns about possible collaboration failures.

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 choosing the right partner, a step that can be greatly simplified using blockchain. Traditionally, managers rely on credibility cues generated by their past experience with potential partners or their public reputation. However, prior experience is not always available and public reputation is sometimes impossible to track, especially for small companies.

Because the blockchain shares the same information with all parties, smart contracts automatically ensure the execution of the agreement, leaving little room for partners to cheat. There is also a deterrent effect - knowing that there is little room for evasion or violation, dishonest or incompetent partners will avoid entering into agreements supported by the blockchain.

All of this helps in selecting partners even when the collaborators don’t know much about their counterparts. For example, since the MediLedger blockchain for the pharmaceutical industry guarantees that all prescription drugs comply with new regulations in the Drug Supply Chain Security Act of 2019, buyers don’t necessarily need to know the reputation of a drug supplier in detail to judge the quality of its products.

• Agreement Formation

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

In order to fully utilize blockchain, specific protocols that constitute the blockchain infrastructure need to be defined in advance. Negotiating the settings of a blockchain is now a collective task involving multiple participants in the blockchain network, rather than the traditional two-party interaction. All of this requires managers to be extra careful during the negotiation phase of using blockchain.

• implement

A significant benefit of using blockchain at the execution stage is the automated execution of the agreement and the resulting reduction in dishonest behavior. In addition, blockchain also speeds up the process and reduces settlement costs by providing a single source of truth for all participants.

For example, in the used car industry, traditionally each stakeholder (e.g., dealers, insurance companies, and importers) maintains their own private records of cars, and information is shared among each other, which often creates 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 shared across the network. Similar blockchains are being developed in many other areas, from insurance to diamond provenance tracking.

In addition to enhancing consistency, blockchain also allows information to be confirmed in real time, rather than just after the fact. This allows collaborators to respond faster during the execution phase.

Knowledge about using blockchain

Blockchain will undoubtedly find its way into various business collaborations. Multiple sectors will have to work together to find the best blockchain solutions for different purposes. Throughout the process, they need to keep several important things in mind to make the adoption process successful.

• Blockchain is not a panacea

Blockchains work better in some situations than others, so it’s important to understand the conditions under which they are most useful. In general, blockchains are most effective when the protocol can be written in clear computer language and its results are verifiable.

For example, in the TradeLens blockchain, the environmental conditions of container transport 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 contracts or social mechanisms may be more appropriate because they allow for human interpretation of the intended meaning of the agreement.

• Combining different solutions

Given that blockchains, at least at their current stage of development, have significant shortcomings, using them alone is often not enough. For example, sometimes using natural language is not only more efficient, but may be necessary to make the rights and obligations of the parties more open.

Therefore, it is recommended to consider the joint use of blockchain and legal contracts, allowing them to 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 prone to human interpretation, to stipulate the scope and boundaries of their cooperation.

• New Challenges Facing 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, in addition to legal personnel who are essential for the use of contracts, companies also need to hire professional computer scientists or engineers who can read and understand the specific programming languages ​​in smart contracts. Smooth coordination between business teams and technical personnel is essential to the success of applying blockchain to management collaboration.

Blockchain has transcended its early buzzword status; according to research, blockchain has entered numerous companies and is used for a variety of collaborative purposes. In today's increasingly virtual environment, savvy managers can use blockchain to their advantage, and the importance of this technology will only continue to grow in the coming years.