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InsideNOW

HR and blockchain—the cocktail of the decade?

In the years to come, blockchain technology will have a huge impact on human capital management, so HR leaders need to prepare themselves.

Authors

Authors

Pascal Martino - [Sponsoring] Partner - Human Capital Leader - Deloitte

Thibault Chollet - Director - Technology & Enterprise Application - Deloitte

Antoine Reginensi - Senior Consultant - Human Capital Advisory - Deloitte

Jonas Fort - Analyst - Human Capital Advisory - Deloitte

Published on 11 June 2020

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Imagine a world where:

  • Recruiters do not have to spend endless hours performing background checks of potential candidates and can completely trust the contents of an applicant’s CV;
  • People can verify the authenticity of all certifications, diplomas and recommendations with one click;
  • Employees can take ownership of their sensitive and personal data that is stored and shared in a secured and controlled manner; and
  • Individuals are automatically given rewards based on the tasks they have performed.

At this point, you may think that too much imagination is in play here. But never underestimate the pace of digital transformation. It is coming faster than you have ever imagined.

In the last decade, the HR transformation landscape has been led by the cloud revolution, artificial intelligence, robotic process automation and big data. But today, we are highlighting another disruptive technology—the distributed ledger technology (DLT), especially “blockchain”.

The technology that is shaking up the financial industry is also finding some interesting use cases in human capital management, to the extent of disrupting the way employers and employees may contract and interact.

Blockchain fundamentals in a nutshell

Bitcoin is a peer-to-peer electronic cash system designed by Satoshi Nakamoto. There were several attempts to create peer-to-peer digital cash before bitcoin was invented in 2008, but Satoshi came up with something new: blockchain technology.

In simple terms, a blockchain is a DLT leveraging a database—the ledger—that is replicated on multiple computers within a network, with all replicates kept synchronized thanks to an algorithm—the consensus.

The consensus mechanism enables network participants to agree and validate any update to the ledger without the need to trust one another. Once validated, the information is kept safe and the network participants will detect any malicious attempt to alter or delete this information. As it is decentralized and distributed, there is no single point of failure and no requirement for a trusted third party.

A few examples of HR applications

For many HR tasks, blockchain has a technological answer.

Let us look at a recruiter’s normal workflow. At first, the task seems simple: find the best talent for an open position. The tools are available: job fair, job desk, LinkedIn and other internet applications where recruiters can source profiles. But this is where it gets complicated—what information can a recruiter trust? Recruiters do not only source, but they also assess, evaluate, debrief, select and verify information. A lot of time is spent on verifying the authenticity and truthfulness of jobseekers’ profiles.

Many years ago, the population of Yap used a public distributed ledger based on consensus to verify the authenticity of their unique currency, the rai stones. Blockchain uses similar mechanisms that are enabled by cryptography and computing power. The proof of authenticity that blockchain provides is already being used by some universities to prevent diploma forgery (e.g., the University of Nicosia and MIT).

Recognizing this potential, Workday has started developing a blockchain-based technology to make credentials digital and build another level of trust in enterprise data. And SAP has join the Velocity Network Foundation to build a blockchain-powered solution that provides trustless, immutable and verified career credentials and enables users’ real ownership of their data.

Another interesting use case is “EduScrypt” by Deloitte. This application allows firms to manage the issuing, verification and control of educational credentials. While only a professional body can add qualifications to the blockchain (e.g., universities or official institutions), every participant in the network can check the authenticity of a qualification.

Now, let us focus on the contracting and payroll process. With the implementation of “smart contracts”, blockchain technology offers a sophisticated solution to manage these administrative and complex HR processes. A smart contract is a digitally encoded contract that can monitor and self-execute defined actions when a trigger event occurs.

When implemented into a blockchain, these smart contracts become decentralized and immutable. In this scenario, a trusted third party is not required in contractual arrangements, with the potential of significantly reducing related time and fees.

A promising example is the concept of the reusable smart bottle from Rebo that is produced from used plastic manually collected on beaches all over the world and especially in underdeveloped areas. By intelligently measuring water intake, the company funds the collection of one plastic bottle for every Rebo bottle drunk. This concept relies on smart contracts that automate the creation, funding and circulation of rewards in the form of green credits.

A company could use blockchain technology to contract a contingent workforce, especially for jobs where there is a need to quickly connect supply and demand. Due to the self-executing criteria of smart employment contracts, temporary employees could be paid upon work delivery and taxation could automatically be subtracted and transferred to the tax authorities.

How to prepare your organization for blockchain adoption

To prepare your organization for the adoption of blockchain technology, it is important to start by identifying gaps in your current HR service operating model. Which services or processes are costing too much money or are taking too much time? Do some HR activities have trust-related issues?

After an in-depth analysis of the as-is situation and detection of possible areas of improvement, it is important to consider if a blockchain is the ideal principal solution, or if a central database would be more efficient.

If it is decided that a blockchain is the best way to solve the identified constraints, the development of a proof of concept can start. At this stage, more concrete implementation questions must be tackled. (E.g., a new or existing blockchain? Permissionless or permissioned blockchain?)

Where is the blockchain journey leading HR?

Blockchain could have an impact beyond just improving existing HR processes—eventually, it may have the power to reshape the structure of organizations as we know them today.

In a “Decentralized Autonomous Organization” (DAO), a distributed network of autonomous stakeholders makes decisions according to self-enforcing smart contracts. Information is no longer channeled through a hierarchy but stored securely and transparently on a blockchain.

But as all these promising opportunities emerge, there are also ethical, environmental and governance questions arising.

A tool developed by the University of Cambridge estimated that Bitcoin’s blockchain consumed as much power as entire countries (e.g., Switzerland) in 2019 (1). Do the delivered benefits really outweigh the environmental cost?

Blockchain allows the creation of a leaderless, decentralized organization. But what would happen if something goes wrong? Who would take responsibility for the firm’s actions?

Other topics such as internet activity taxation, employee performance and engagement, and wellbeing will also need to be revamped in light of the new ways of working introduced by blockchain technologies.

References

1. Cambridge Bitcoin Electricity Consumption Index’ https://www.cbeci.org/ - ‘Blockchain and the Chief Human Resources Officer’ by the Blockchain Research Institute (2018) - ‘Bitcoin, the Blockchain and Beyond’ by Jean-Luc Verhelst (2017) - ‘BLOCKCHAIN 2.0 simply explained: Far more than just Bitcoin’ by Dr. Julian Hosp (2019)

Conclusion

  • Most people have heard about blockchain, but few know about its potential impact on HR management.
  • The main benefit that blockchain can offer the HR industry is trust through decentralization.
  • As with most innovations, its adoption will probably come in waves.
  • Adoption is only a question of time; therefore, it would be useful for all HR leaders to grasp the potential of blockchain technology in their area.
  • A blockchain will not substitute the HR function but may reshape it.

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