My research uncovered that most people do not realize this one reality of implementing new technology like blockchain. By the end of this article you will understand the reasons behind this unique reality and have a clear path on how to manage it for your blockchain technology project.
For your blockchain technology project to succeed, you may need to run the old system and the new blockchain-based system simultaneously for a period of time. Running them together has some benefits. Though they impact the overall ROI of the project, these benefits can outweigh the costs. Since most people think of implementing a new solution as a way to get rid of the old one, this idea is surprising. That's the right way to look at it. However, when you're dealing with a new and emerging technology you have to approach things differently. Among the things that are different, this is one.
Old and new together - how can it be good?
Because blockchain is in such early stages, there is a need to prove the benefits of new technology. The ability to compare and contrast with existing technology also helps with decision-making. A shift of production systems in a phased manner can help facilitate that. As the new blockchain-based solution runs parallel with existing solutions, it adds to the costs. This duality is good in the long run as it manages risk while building confidence in the technology. Because you are effectively running two systems in parallel, it does come at a higher cost in the short run. It creates even more reasons to have a long-term outlook for ROI. Once we have a winner, between the old and the new, we can start seeing the gains that we were targeting by using blockchain.
Learn from State Farm
Dustin Helland confirms this process “requires the new solution to match up against whatever the legacy solution is and prove itself worthy. In order to do that, it does initially require some additional investment and expense.” Dustin Helland has been part of the leadership team driving State Farm’s blockchain strategy since 2016.
State Farm was founded back in 1922. It is one of America’s major insurance companies, insuring more cars and homes than any other insurers in the country. They also provide other products to their customers like life insurance and other financial services. For their blockchain use case, they chose to work on the netting of auto claims subrogation payments between insurers on the blockchain as one of the projects to pursue. USAA insurance has been their co-founder for the subrogation product. They shared the same vision and saw similar opportunities with a common thought process and approach.
Subrogation is not a common word in everyday parlance, and I had to dig into it a little more to understand what it is all about. Let’s say your car gets rear-ended, and the other driver is at fault. You will go ahead and start insurance claims. That’s when the subrogation process kicks in. In the context of an insurance claim coming in, “subrogation” is the process through which your insurance company collects money from the at-fault party or their insurance company.
The US auto insurance industry handles a large number of individual claims subrogation payments each day. Subrogation is a highly manual process with dependence on snail mail and paper checks. Using blockchain, they have built a system that can maintain accounting for each transaction electronically. It then calculates a net manifest based on all those transactions. It passes that net on to the organization’s existing electronic payment system to enable electronic payment. This move to a blockchain-based solution has reduced processing time and increased efficiency, helping State Farm pass on the benefits to their policyholder.
State Farm understands that blockchain solutions will need to be run parallel with the existing solution to compare old and new solutions. Simultaneously, it does mean an increase in costs as you are effectively running two systems.
Two solutions running simultaneously may appear costly and painful in the short term, but in the long run it will benefit the project. Using the two-system approach, the project leaders can rest assured that failover will be built into the plan.
Be aware that you may have to run two systems at once. Plan the extra cost in the budget and set the leadership's expectations accordingly
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