By Joseph Neu
In a world saturated in overpromise and under-deliver, beware financial tech overreach.
McKinsey’s recent article, “Blockchain’s Occam Problem,” strikes me as a valuable cautionary tale about the folly of racing to embrace complex finance technology that’s hailed as a game-changer but doesn’t live up to the hype.
As an example, the writers cite the lack of progress blockchain solutions have made in the area of alternative payment solutions:
“Given the range of alternative payments solutions and the disincentives to investment by incumbents, the question is not whether blockchain technology can provide an alternative, but whether it needs to? Occam’s razor is the problem-solving principle that the simplest solution tends to be the best. On that basis blockchain’s payments use cases may be the wrong answer,” the article states.
The takeaway here is that rather than going straight to fintech to find a solution, be it blockchain or robotic process automation, it’s usually better to keep it simple. The technology flows more naturally when it serves to make the simple more efficient or automated.
“A key to finding the value is to apply the technology only when it is the simplest solution available.”
This idea of not overreaching with technology found traction at NeuGroup’s AsiaCFO meeting last fall in Shanghai, where the advice was to reexamine, simplify and improve processes, impose standards and then boost efficiency with technology.
One CFO described an initiative to drive productivity via simplification (with a bit of standardization, too). His company is examining every process to see if it can be simplified, including forecasting. Management loves all the information, but it takes a huge machine and a lot of resources to produce it every month—or three times a day for some retail companies in the group. Also, with strategic plans, if the company creates a three-year plan, does it really need to redo it every year if it is on track?
Simplifying processes before overlaying them with technology is a great example of something that makes sense—and is the opposite of stupid. What the McKinsey article says about blockchain has universal application: “A key to finding the value is to apply the technology only when it is the simplest solution available.”