Why should HR be interested in blockchain? An expert explains the benefits.
Blockchain and HR are a natural fit. We have always been told people are a company’s most important asset and blockchain is all about asset management.
Blockchain started out as a method of recording financial assets in a trusted environment, where transactions are written to a ledger with a database technology that prevented anyone making changes to older data. It involves sharing transactions with a network for approval and keeping a copy of what happened on the ledger that prevented any tampering.
(For an easy-to-understand explainer of how blockchain works, read our previous article on the topic).
The ledger is actually code (called chaincode) grouped into blocks (or smart contracts) and each block is joined by a hash to form a linear “chain”. Transactions are immutable and enable provenance (you can trace what happened). Most of that isn’t relevant to HR. We don’t have to apply that same level of scrutiny to HR data transactions and we certainly don’t use ledgers to record employee details. So why is HR interested in blockchain?
Different types of blockchain
There are two types of blockchain: public (or permissionless and anyone can join) and private (or permissioned and a person must be invited). Both have slightly different constructions. Public applies one single ledger and private has multiple ledgers and is often referred to as “hash tree design”.
The right model for HR is a private blockchain, with multiple ledgers needed for the multi-company membership (referred to as channels) of an HR blockchain. Private blockchains rely on a trusted governance model. This is as opposed to the so called trust-less governance of a public blockchain, where designers attempt to replace the need for trusting any person, group or institution.
For HR governance by industry groups is a promising model. It would allow them invite employers and the employers would act as channel administrators and invite employees to be members of their blockchain channel.
Blockchain also solves some major problems such as:
- Data security – Current initiatives, such as self-sovereign identity, are best resolved with ultra-secure blockchain.
- Process improvement – Some process improvement occurs when data is owned by an individual. When they change companies they can give their new employer access to their blockchain data and avoid filling in new forms
- Asset verification – Education qualifications, professional credentials, licenses, passports, visas, work permits and background checks can be verified once. With this system each new employer doesn’t have to do their own checks of your data.
All these benefits result in marginal savings, but not enough to turn a whole industry upside down.
The reason HR should be interested
To understand the real enterprise value of blockchain, it needs to be put in an historical perspective and the technology development needs to be compared alongside the business problem it’s intended to solve. That’s not process improvement, it’s software architecture. That’s the real reason HR is interested in blockchain – its design.
Early blockchain ventures claimed a solution to a historical problem and traced the roots of financial transactions back to the Middle Ages, when merchants conducted business transactions using a ledger. Similarly, HR can trace record keeping back to the industrial revolution.
At that time, records were kept about three facets of human resource (or personnel in those days) management.
- The person (employee record cards)
- The organisation (filing cabinets – for headcount just count the cards in each tray)
- Employment cycle management (personal files to record details about recruitment, performance, remuneration, training, etc.)
Each facet has a different business owner and a different technology need. Today’s HR technology problems date back to the 1980s, when everything was bundled into one monolithic “system” and products ignored individual needs and assumed every company had the same HR business practice.
Blockchain is one of the software architecture components that fix this problem. Here’s how it would work logically:
- Person data belongs to the person;
- organisation data belongs to an administrator;
- and people management data belongs to line managers and HR professionals
That requires a software architecture that has three integrated, autonomous components that can exist anywhere across a cloud-based network.
Key to the success of HR blockchain is the ability to integrate data from the blockchain environment to the cloud based back-end systems. That includes custom built platforms and legacy HR applications.
John Macy FAHRI is the founder and managing director of Competitive Edge Technology.