Friday, 26 January 2018 05:17

How the Blockchain will Influence Organizing Costs Featured

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According to a theory by Ronald Coase, a prolific British author, and economist, companies exist to reduce expenses so that performing a particular task would be cheaper inside than outside the organization. Also, Coase’s theory lists the charges a business incurs as searching, contracting and coordination costs. Other equally essential cost factors include transaction costs and any expenses set aside to establish trust between parties. Blockchain technology, however, is poised to have a more significant impact on expenditures outside the business and will decrease them more than it will reduce overheads. The innovation will lower costs of searching, introduce smart contracts, computerize both trust ascertaining and coordination costs among others, thus increasing wealth for owners, customer value and facilitate open organizations. Let us have a look at how this technology will affect specific costs.

1. Searching Costs
So far, the Internet has been instrumental in helping enterprises gather accurate information, explore new markets and talent at lower costs. Blockchain, as an Internet of value, will make it less costly for entrepreneurs to find people who will work on their projects (regardless of their size) and pay them as well. The technology will, moreover, provide new meaning to the concepts of open organizations. Through its ability to reveal complications experienced by the outside world, it is bound to influence transparency.

2. Contracting Costs
In any business entity, an agreement has to be reached on how the firm’s business activities will be conducted and who will be responsible for them. In this case, the organization accrues contractual costs when it negotiates the purchasing price, supervises and decides on the quality of the supplier’s commodities and services, handles claims, et cetera. Without reservation, the introduction of smart contracts (computer programs that can execute, secure, or enforce the settlement of indentures) will lower these costs and help businesses be more open to developing novel relationships beyond their conventional boundaries. These smart contracts will enhance inclusivity by allowing people to hide their identities and send messages without fear of hacking.

3. Coordinating Costs
As organizations strive to come up with solutions on how to maximize productivity, hierarchies have surfaced as a burden to creativity. Though social media has played an active role in promoting ingenuity, there is still need to distribute power, responsibility, and authority. Thanks to smart contracts, blockchain will assist in the reduction of observation, supervision, and inspections costs while making sure that transparency is at unprecedented levels. For example, a doctor can now virtually coordinate an operation regardless of the geographical location at meager prices.

4. (Re)Establishing Trust
Before blockchain, companies had to make sure they associated themselves with organizations, individuals, or intermediaries who act with integrity to build trust in transactions. However, trust can now be easily achieved merely from sensors found in the network or the network environment itself. Corporate enterprises that choose to conduct business on the blockchain should expect higher share prices due to elevated overall trust levels.

5. Transaction Costs
As we speak, remittance charges range from 2%-7% globally with transaction times that last even a week. The rollout of blockchain technology has seen the remittance charges drop up to 1% as transactions take place over a matter of seconds. These crazy figures will ensure that more people can be part of the global economy enabling them to transfer, invest, save, or lend money.

Read 141 times Last modified on Friday, 26 January 2018 09:41

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