Many people have become more enthusiastic about Blockchain as soon as they saw the potential it brings. Blockchain can radically transform not only the financial industry, but also business relations and even society as a whole.
The ideas of distributed ledger, virtual machine, reliable and indestructible transaction network and decentralized autonomous organization (DAO) - the ability to jointly make decisions and influence the decisions of the whole community - gets people ‘into the tent’.
We and our project “Rocket ICO” see and believe in the potential of fundamentally new forms of business relations that blockchain brings. In order to implement these ideas into life we are set to create a number of tools. In general, the advances that digital technology brought to our lives made many things which once seemed impossible possible now. But when we want to understand what we can do with these advances we definitely need a set of guidance and tools to direct us. As such it seems that on one hand we are limited only by our imagination, but on the other hand we are strained by the core business principles especially in the field of business relations. This point we believe should be considered in a much greater depth.
But let’s get back to the topic f technological advances and answer the question regarding the tasks we want to solve today.
To simplify and amplify business relations we want to create incredibly fast, stable, reliable and transparent transactions. Moreover, we believe that our tools will serve to destroy the old established corporate regime with its terrible inertia, bureaucracy, neglect of client’s needs and if not, then at least create a serious competition to such companies.
The main idea of our article is quite simple: the essence of any firm and its interaction with the outside world comes down to "bunches of transactions". Once we learn how to properly calculate and manage these transactions, we can get a system of chains and networks of firms that, without changing their basic functions, can instantly re-create value’s networks for new waves of demand, thereby speeding up both the corporation and the entire infrastructure of start ups.
In order to understand what mechanism we propose, we need to look into the nature of firms and business relations.
Transactional essence of firms
Back in the day, Ronald Coase paid attention to the transactional nature of firms. He said that a firm is an organized set of relationships that provides a more efficient production of a product than in a subsistence economy. Efficiency is determined by price.
According to Roland Coase, transaction is a variety of fixed agreements between the parties. It was the set of transactions that ensured firm’s specialization, its rules and regulations and the relationships it formed with external stakeholders such as suppliers and partners. In fact, any stipulated relationship can be called a transaction. And the stipulation of relations can be both formalized and unformalized.
The entrepreneur builds a transaction structure that defines the functionality of the firm. He negotiates with employees, managers, suppliers and customers.
The entrepreneur’s set of transactions allows him to develop the very technology of production that makes goods cheaper than in subsistence farming.
In a narrow sense, transaction is a legally-supported agreement. However it is obvious that both internally and externally the firm establishes many unformalized transactions and relationships. But in these relations, entrepreneurs also involves an objective side - "witness", a kind of "generalized party" that can certify both: the fact of the transaction and the fulfilment of all its conditions. Therefore, all unformalized business relations have a transactional nature too.
Very often a firm that wishes to enter into transaction with another firm already consists of a large number of internal transactions. Therefore, when the entrepreneur signs an agreement to form relations with another firm he implies the stability of transactions inside his own firm, which are translated into the functions his firm is due to fulfil. He understands that all internal agreements between managers, contractors, suppliers and other counterparts will be fulfilled. But it often happens that the complexity of these unformalized or partly formalized transactions leads to unpredictable results. Therefore, managers are so important.
If you look at management from the view of the transactional nature of the firm, manager's functions can be seen as follows:
Managers are the ones who must stabilize internal transactions, but in such way that internal transactions would be repeatable under the contract with the agreed result.
Manager also should be able to develop a set of regular transactions in the new structure (new project, new field, new product). Managing actually means to transform old transactions, as well as to create new ones in order to meet new challenges.
The ability of managers to solve tasks is a vast topic and can be explored in a separate article. At this point we will note that nowadays transaction’s nature becomes a basis of the whole economy system no matter how we would measure it through cash flow, capitalization or the level of innovation.
In general, the economy can be presented as a fractal transaction system.
Article by Andrey Miroshnichenko, Translated by Elena Krasovskaya.