How is Blockchain Relevant for Shared Services Today?
In a word, the prevailing wisdom is: "Very". Here's why
No Group More Appropriate for Managing Blockchain than Shared Services
Just a year ago, we were promoting Shared Services as primarily a proof of concept for Blockchain. Today, we are seeing a lot further. At SSON’s recent Blockchain in Shared Services event, practitioners and industry experts stepped forward in unison to highlight the opportunities Blockchain presents. There is no group more perfect for managing Blockchain’s deployment in enterprise than Shared Services, the conference’s chair announced – and there is no moment more opportune! Right now, the rate of innovation appears to be blowing up exponentially – but the good news is many technologies and solutions are within relatively easy reach.
Competitive markets are nothing new, but the rate at which your competitors are pushing ahead today certainly is! Companies that not only survive but thrive distinguish themselves by their ability to reinvent and innovate their operations in an effort to improve customer experience. Perceived threats – and there are plenty – are embraced as opportunities; and new tools that help leverage these opportunities are quickly snapped up. The battle cry is reinvent, reinvent, reinvent – or die.
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Given shared services’ customer-centric model – connecting business groups and customers in conjunction with other stakeholders – there is no group better placed to understand customers’ objectives, pain points and opportunities, said Binu Surendranath, Global Process Owner for Finance Payout at Microsoft and Chairman of the Blockchain in Shared Services conference that took place in Dallas last month. “No team is in a better position to identify, propose and drive opportunities that deliver end to end performance across the business.”
So, what are these opportunities right now?
The new kid on the block, if you excuse the pun, is Blockchain. But because we've all been blinded by the brilliance of last year’s ‘kid’ – robotics – it's taking us a little while to shift focus. At SSON’s Blockchain conference sponsored by ISG (and hosted by Alex-Paul Manders), delegates were spellbound. There is nothing like knowing you are being shown a glimpse of something that promises to be huge. Even if the ‘how’ still feels a little blurry, right now.
One of the speakers set the tone for what’s at stake when he said he believed that within five years there would be no need for Accounts Payable anymore. Because the reason for Accounts Payable’s existence (check, verify) will simply disappear. Blockchain fills the space where trust is missing, he explained.
That prediction alone made the room sit up and listen.
There are currently three main problems, however, as highlighted by various speakers.
First, the conversation around Blockchain has been dominated by bitcoin and crypto-currencies, and the little we know about bitcoin is that it’s complicated and dangerous; secondly, like robotics, Blockchain serves the needs of the business and yet is seen as ‘IT’; and third, in order for Blockchain to work you need to get everyone that matters onto the platform.
"Blockchain: A tool to resolve business friction."
The key thing to grasp, as Aleksandar Zelenovic, Strategy and Consulting Practice Lead at Sapient, reminded us is that Blockchain, like its RPA or AI cousin, is a tool to resolve business friction. By way of the Byzantine Generals’ problem, Aleksander highlighted the pitfalls of not being able to trust your partners – which leads to confusion, inconsistency, cost, delay, and, ultimately, failure.
Shared Services leaders can relate to these challenges. So, how do we get around this problem?
Any process requires authentication in order to proceed. Traditionally, this has taken the form of a centralized check – effectively, a ledger that acts as a clear authority. Blockchain offers this ledger, but because there are so many partners it is distributed across, and validated by, all of them. Even better, no single party can manipulate or change it. So, this eliminates or limits the need for a central authority.
If you now add smart contracts to this Blockchain – meaning contracts with automation built into them that monitor feeds or events, with payments kicking in automatically when service levels are met, etc. – you end up with automated transactions that are broadcasted to the network, validated, secured, and added to the Blockchain. An “Internet of truthful transactions,” as one practitioner described it.
The catch is how to apply it, which requires a lot more business and transformation expertise than pure technology implementation expertise. More importantly, identifying the right business scenario where blockchain can be effectively utilized as the solution to business problem, is KEY. In other words, it is imperative to approach this with a problem-centric perspective rather than solution (in this case, blockchain) centric perspective.
Blockchain as a Modernization Tool
There are private and public Blockchains. Some operate within one organization only; others cross organizational boundaries Some require permissions; and others do not. Some are private, and others are public, like bitcoin. But at their core, they all deal with the thorny question of trust, verification, commitment, and promises. If these issues are overcome, then nothing stands in the way of frictionless transactions.
Blockchain plays well with the legacy systems that form the basis of many, if not most, enterprises. New user experiences can be built on top of these legacy systems by building micro service-oriented Blockchain data layer. What that implies is that Blockchain makes it possible to move forward – to modernize – a step at a time. Blockchain, in other words, is a great modernization tool that can be combined with other tools and technologies. You don’t have to deprecate existing line of business applications in order to reap the benefits of blockchain.
For Blockchain to work requires a new mindset, however. The Waterfall approach of yesterday will not and cannot apply. New technology capabilities demand a more flexible, quicker, Agile approach combined with strong DevOpsSec processes. Opportunities will only emerge where the right mindset has been cultivated, as Victor Lipman explains on Forbes.com. Everything is about starting small and then scaling up. "There is no big bang in Blockchain," explains Sapient’s Aleksander Zelenovic. "It's emerging all around us and we are figuring it out as we go along. The important thing is not to lag too far behind."
For believers like Aleksandar there's simply no need to execute Proofs of Concept to ensure the business will get what it needs from a pure technology perspective. "The technology works," he says. “The challenge is to find the right use case and deliver on the required business outcomes – and for that you will need a PoC.”
Finding the Right Use Case
Procurement has emerged as a good fit use case but there are many more, such as supply chain, auditing/compliance, Finance and HR. Aleksandar, who works across commercial and government clients, explains that the inefficiencies in the public sector provide particularly lucrative opportunities. With typical public sector procurement cycles measuring more than 100+ days, building a solution involving a Blockchain data layer on top of legacy systems along with a new user experience can – has, in fact – cut cycle times down to just nine days.
Another speaker explained that Accounts Payable will, eventually, become redundant. The invoice processing step will simply be bypassed in favor of immediate payment. AP management will take place within ERP, he explained, and the need for an AP intermediary between buyer and supplier will disappear, as Blockchain solves the issue of trust and verification.
Other use cases shared include:
- Supply chain management: enabled by Blockchain and driven by smart contracts; lawyers will be redundant; distributed ledger technology linked with smart contracts and artificial intelligence.
- Transportation and logistics is another key area where multiple parties are involved and everyone has a dependency on every other party and ensuring trust is key to the business success.
- HR: distributed ledger technology is already supporting HR services, and providing employees the option to revoke access when they leave.
- Due diligence: provisioned access to vendor records and real time tracking of news.
Among its many other uses, Blockchain promises to be a revenue generator. We are already seeing this effect in consortiums that trade commodities one-on-one, without the need for intermediaries, explained IBM's Kim Pham, Associate Partner and Leader on Blockchain. Thus, Blockchain will potentially transform the market just as Uber transformed how we travel today – not just by automating, but by changing the model. (In addition, integrating social media into Blockchain means you also know how a product is trending and you can spot market differentiators as they occur.)
Kim illustrated the power of Blockchain by reference to food safety. Traditionally, food contamination meant pulling all food off the shelves. Blockchain, however, will allow you to pinpoint exactly which farm and which load the food contamination originated from, so you can pull just the relevant product. Additionally, IBM is currently working with Maersk in a joint venture to re-invent and digitize the entire global trade and logistics process.
One use case Kim shared came from IBM's Global Finance (IGF) Group, for transforming the dispute resolution process. At any given time, roughly $100 million are tied up in disputes across IBM's 4,000 partners and suppliers, all working across incompatible systems, with no transparency or end-to-end visibility. Processing disputes traditionally took 44 days, but by shifting them onto a shared platform accessible by all, and leveraging Blockchain, working capital has been significantly improved, explained Kim. The challenge, she concedes, is to get all participants onto the network. "That will be a big hurdle for participant adoption," she says.
Other examples highlighted Blockchain being integrated into SAP to process invoices faster and more efficiently by leveraging standard APIs. Furthermore, IBM is currently partnering with SAP to utilize Blockchain for JVA (Joint Venture Accounting). These innovative Blockchain solutions yield additional benefits while reducing the cost of audits by making a node accessible to auditors.
How to Get Going?
The first thing to do is get your mind around distributed ledger technologies. For this, think "shared" and "consortium" explains Bank of America's Ryan Davis, Senior VP of Procurement Management. As most executives today are still responsible for managing and understanding legacy technology, it is difficult to envision the full potential of where a Blockchain solution can take them. Furthermore, they are subject to a ‘command-and-control’ environment, which makes it difficult to justify taking a chance to implement a new technology.
There's still a lot of resistance at present, as would be expected for something that is new and not well understood. Challenges are primarily around awareness, security, privacy, priority, regulation, cultural pushback, and lack of convincing business cases.
Progress will, to a large extent, depend on the emergence of reliable digital identities, explained Ryan. The more you can authenticate an individual or entity, the more Blockchain will support exchanges. "Digital identity will be a massive component for distributed ledger technologies," asserted Ryan.
For those still not quite convinced, Ryan reminded us of the fantastic lack of understanding displayed by some earlier experts who, with hindsight, might have been expected to know better:
- Marshal Foch, French Military Strategist, 1904:
“Airplanes are interesting toys, but of no military value."
- Western Union, 1876, in response to Alexander Graham Bell’s offer to sell his telephone patent:
“Never capable of sending speech very far … idiotic on the face of it. Why not use telegraph?” [By 1905 there were 2.5 million telephones in use.]
- Eric Kessler, HBO executive, 2011
“Cord cutting is a temporary fad. We have no intent to offer streaming service.” [2015: launch of HBO now]
A New Operating System for the Planet
Visionaries see Blockchain as the new operating system for the planet. Yes, it will take time – perhaps a decade or two, and it's going to require a lot of change and a lot of effort. First: adopting a platform; then: committing to the platform; trusting the platform; and finally, pushing work through that platform.
One tip is to work with those who would benefit from efficiencies. Who is the most incentivized to take trade deductions in order-to-cash? These are the people that will support smart contracting that integrates Blockchain, in order to avoid invalid deductions. The business case highlighting a cash flow opportunity will always grab the attention of senior management, one speaker reminded us.
The Future: Social Physics
Some of the best ideas come from outside your immediate area of responsibility. That’s why, at SSON events, there is generally a ‘big idea speaker’ thrown in to encourage fresh thinking. The ‘big idea’ speaker in Dallas was Mihaela Ulieru, Chief Alchemist at Endor.com, who had pitched Blockchain to the World Economic Forum [successfully, as it happens].
Mihaela provided a tantalizing insight to the work Endor is doing in social physics. The project hinges on providing predictive analytics, leveraging data from outside the enterprise. Visually, Mihaela showed us an enormous mass of data, a sphere of human behavior, against which any desired behavior could be measured and predicted; a single repository or model of human behavior based on pattern matching. The protocol for predictions is accessed based on tokenization (Amazon web services is a partner), she explained.
While most large organizations are contemplating Blockchain for its value as a “Truth Machine” (a shared immutable ledger), Endor is pioneering the use of a token to incentivize participation and to include the large enterprises into the Endor protocol Blockchain ecosystem – an ecosystem that continuously improves its revolutionary predictions engine by crowdsourcing expertise and data to deliver a first-in-class capability.
For companies that value fast time-to-insight without putting customer data at risk, Endor offers an automatic prediction platform with the unique capability to analyze encrypted data. By processing encrypted data on and off Blockchain, Mihaela explained, Endor is solving the privacy paradox: Now you can use your data to get predictions and guarantee that the data is safe, too.
Right now, big brand customers are using this data to identify the threat of defections or opportunities for new adopters. The question is, however, what else this data could be used for? (Endor incentivizes the development of new avenues for using its prediction engine by rewarding, via tokens, anyone who adds new business cases to their predictions repository.
Again, the problem will be to get everyone onto one platform, Mihaela explained. Endor is aiming to make its prediction engine available to the “99%” via a Blockchain service, and at 1% of the cost.
Blockchain is no more magic than the robots that paved the way for out-of-the-box, digital thinking. The business has to come first, and the technology supports the business. Blockchain will thrive where data flows, was the key message in Dallas. So, a first step for any organization trying to understand where to apply Blockchain is to map out each step of a business process and the associated data flows to find an opportunity. "Capture all ideas, even if they are not a clear cut, to better understand your landscape," advised Sapient’s Aleksandar Zelenovic. "On the other hand, don't unnecessarily go down that road if you don't need to travel down it – in other words, if there is no business value. If you don't need to share data with multiple groups or nodes, you're probably better served by automating decision-making and fixing transparency issues. You don't necessarily need Blockchain, which is about digitally distributed ledger that is immutable."
“And remember,” he added, “business and ROI are the most critical part of the equation, so if you don't know what you want to do and how it benefits you, you'll spend a lot of money going nowhere.”
The next decade of business will be powered by Blockchain, was the clear message at this event. But it has to start with a critical mass of participants. “Remember,” Microsoft’s Binu Surendranath warned, “this is not automation – it’s re-imagination. ‘Fail fast and fix forward’ should be applicable. In the beginning maybe 95% of ideas originating might not pass the sniff test as Blockchain candidate. Be ready for that and eventually, as the real benefits and use cases are evangelized, the trend will reverse itself.”
Note: The best way to stay ahead? Keep reading.
SSON is posting articles to develop the market’s understanding of what Blockchain can do. We will be publishing a Global Blockchain Report in Q3 – so look out for that [any providers interested in taking part please email Barbara Hodge].
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