No ratings yet.

This blogpost will describe how John Deere responds to the threat of digital entrants in the agriculture industry. The agricultural industry is an important industry since the world population continues to grow, namely to 10 billion people within the next 30 years. All these people need food, so companies like John Deere assist in providing farmers with the tools they need to keep up with the demand.  To explain how John Deere innovates to stay relevant, I will first discuss the digital threats. Secondly, I will explain how John Deere recognized the threat and how it has responded. To close, I provide the benefits of technological innovation in the agricultural industry.

Digital entrants in the agricultural industry are a threat to John Deere as their products and services, namely sensors, analytics, and artificial intelligence services could commoditize the harvesting equipment John Deere produces (McKinsey, 2018). This is because these internet of things (IoT) devices are better at knowing where to spray herbicides, know better when to do repairs on equipment and provide better service as third parties can build extra applications.

To combat the threat of digital entrants, John Deere acquired Blue River Technology in 2017 for $305 million (HBS, 2020). John Deere integrated leveraged the firm’s knowledge and talent to create new products that provide great value for farmers. Through extensive collection of data (John Deere’s IoT devices currently measure around 10 million observations per second from over 130.000 devices worldwide) and the use of artificial intelligence (AI) and machine learning (ML) John Deere can provide farmers with localized weather inputs, soil analyses and specific instructions where to use herbicide spray. As a result, John Deere essentially has become a technology first company, fending off digital entrants and remaining relevant for farmers. The data solution John Deere now offers has enabled the company to receive a stable revenue stream by high-margin recurring purchases.

The benefits of these innovations are as follows. Firstly, the “See and Spray” system reduces unnecessary toxic waste, saves farmers costs and increases crop yields. Secondly, the collection of many observations provides specialized knowledge how to maximize crop yields in various conditions that can be immediately shared with other farmers.

In short, John Deere managed to stay ahead on the innovation curve by switching their business model to becoming technology first. While doing so, John Deere adds value to farmers and is a positive force to more sustainable farming.

References

HBS, 2020. John Deere: Planting the Seeds of Technology and Harvesting Profits. Available at: https://digital.hbs.edu/platform-digit/submission/john-deere-planting-the-seeds-of-technology-and-harvesting-profits/ [Accessed at 2 October 2021]

McKinsey Quarterly, 2018. Responding to digital threats. Available at: https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/responding-to-digital-threats [Accessed at 2 October 2021]

5/5 (3)

This blog will discuss the potential of using blockchain and tokenizing (green) bonds for the banking industry. A green bond is similar to a normal bond, namely that it is a loan which periodically pays the owner interest. However, the proceeds of a green bond issue should solely be invested in projects that assist in mitigating climate change. The current (green) bond market is inefficient, which results in unnecessary costs (Shaikh & Zaka, 2018).  The market for green bonds specifically relies heavily on centralized third parties to provide trust (Malamas, Dasaklis, Arakelian, & Chondrokoukis, 2020). To illustrate how tokenization of (green) bonds will help the banking industry, this blog is structured as follows. To start, it provides a brief refresher on blockchain and tokenization. Secondly, it explains opportunities in the current system that can be improved. Thirdly, the blog discusses how to move towards a new system.

Blockchain can be defined as a distributed ledger, meaning all participants in the network own the same, continually updated, copy of the ledger. Furthermore, blockchain requires no intermediary for safely storing, recording and sending information on a peer-to-peer network. The information on the network is encrypted such that only the rightful owners to the information are able to access it. Tokenization can be defined as a method to digitize real-world assets into digital tokens that can be freely traded. Meanwhile, all transactions that are made with these tokens are safely recorded on the blockchain. Digital tokens are highly divisible, which means ownership of an asset can be shared between investors. More importantly, it could reduce minimum investment amounts of assets (Laurent, Chollet, Burke, & Seers, 2018). In short, blockchain is the main technology, tokenization of assets is an application of blockchain technology.

To illustrate the areas of opportunity of tokenizing (green) bonds, consider the example of dividend payments and bond ownership. Currently, dividend payments are not transferred automatically. However, dividend payments are predictable events, meaning programmers can write code that will automate such processes. Secondly, tracking ownership of (green) bonds is a long and difficult process due to the reliance on intermediaries to register the records of the (green) bonds. When a bank decides to call or redeem a bond (which means to pay back the loan earlier than the maturity date), it often issues an advertisement in newspapers as the bank does not know who owns their bonds (!). If (green) bonds are tokenized, ownership can be easily recorded on the blockchain. Furthermore, the immutable property of blockchain resolves the possibility of fraudulent activities (Nakamoto, 2008), such as trading a (green) bond ‘twice’.

To move towards the new structure, banks need to develop smart contracts. Smart contracts are in essence computer programs running on top of the blockchain which are able to automatically execute tasks when pre-determined conditions are met (Malamas et al., 2020). Smart contracts will be able to automate dividend payments and simplify auditability and reporting, because issuers of (green) bonds can put all documents on the ledger (Zhang, Aranguiz, Xu, Zhang, & Xu, 2018). A limitation of tokenization is the inherent incompatibility of blockchain technologywith GDPR regulation, as the ‘right to be forgotten’ is inherently violated, as once (personal) ownership data is stored, it will permanently remain on the blockchain.

To conclude, tokenization has potential to modernize the dividend payment process and ownership recording of (green) bonds. This would reduce costs for banks as the dividend payments will be automated and the search for owners of their bonds. There are more applications for banking but implementing these would be a good start for the (green) banking industry.

Laurent, P., Chollet, T., Burke, M., & Seers, T. (2018). The tokenization of assets is disrupting the financial industry. are you ready? Inside. Triannual insights from Deloitte(19), 62–67.

Malamas, V., Dasaklis, T., Arakelian, V., & Chondrokoukis, G. (2020). A block-chain framework for increased trust in green bonds issuance. Available at SSRN 3693638.

Nakamoto, S. (2008). Bitcoin whitepaper. URL: https://bitcoin. org/bitcoin.

Shaikh, S., & Zaka, F. (2018). Blockchained sukuk-financing. In International workshop on enterprise applications, markets and services in the finance industry (pp. 66–76).

Zhang, X., Aranguiz, M., Xu, D., Zhang, X., & Xu, X. (2018). Utilizing blockchain for better enforcement of green finance law and regulations. In Transforming climate finance and green investment with blockchains (pp. 289–301). Elsevier.