Understanding Blockchain’s impact on business processes

As part of our series on the implementations of blockchain concepts and the unfolding of other Distributed Ledger Technologies (DLT), the Future Citizen Institute aims to contribute to a broader understanding of the effect of decentralised databases.

A clearly determining part of human social life is commerce. Technologies that manage to enter this space are subject to heavy testing in order to ascertain their usefulness. Risk-taking entrepreneurs attempt to leverage new technologies and concomitantly provide expressive use and test cases as they are exposed also to the negative consequences of their decision-making.

The more positive change a technology is believed to bring about, the more significant it appears to present an analysis of not only the positive change but also different levels of negative change. Is there possibly a consequence of the technology’s impact that might lead to its own abolishment or the system it is being implemented in? This approach, that amongst other things attempts to identify negative feedback loops, is a system threat analysis.

With the aid of several structuring questions that inquire into both static and dynamic aspects of a system – in the subsequent case business sectors – we try to understand how blockchain-enabled processes are changing the way a sector does business.

1. What are business process improvement opportunities?

These are opportunities in time that, if captured, contribute to enhancing a business’s performance in the market. There a many different existing approaches to identify those; in this article a value-driven approach (Value-driven Business Process Management = VBPM) will be delineated. It serves its purpose well because it is a holistic technique to analyse the transparency of business process management. Transparency is the core value as it helps all included stakeholders of a firm or another organisation to get clearer insights into and better track and evaluate further values of their business processes.

The VBPM approach presented by researchers of the University of Tartu, Estonia uses three axes where it contrasts six values that are crucial for a firm’s operations. These are Efficiency-Quality, Agility-Compliance, Networking-Integration. The aim is to portray the state of affairs or status quo of a company while also including changes over time in the analysis. Not including those would not allow for interconnections or complexities to be spotted.

2. What is the blockchain concept’s influence on these in different sectors?

a) Efficiency - Quality

Optimising processes with an impact on time and costs shows action regarding the operational efficiency. The banking industry has for instance invested in blockchain-based start-ups with the aim to develop new ways to settle financial products. The recording of verified transactions subsequently needs to be recorded only once on an open blockchain, therefor utilising two of its functions, the so-called “trustlessness” and “openness”, as compared to conventional centralised databases. The Australian Stock Exchange ASX, for example, intends to replace its current settlement system CHESS with a DTL-based system by March/April 2021.

Focussing on improved quality, by tracking goods and materials via blockchains, companies strongly enhance their likelihood to prevent counterfeit products from entering the chain and consequently the market. Higher quality products can therefore not be substituted with lower grade material. Put more technically, the use of erroneous or out-dated data is being inhibited.

b) Agility - Compliance

Agility describes in this environment the ease and speed of a process’s response to various internal and external changes. As we know from evolutionary laws, adaptation is a critical aspect for survival. This also holds true for market participants as the markets change very fast with increased complexity due to globalisation. One way to cope with this complexity is the creation of smart contracts, i.e. self-executing contracts based on programmable blockchains such as the Ethereum blockchain. By doing this, we improve the agility of the company because those smart contracts can very quickly focus on certain isolated aspects of its operations.

Sharing confidential data in a secure manner can simplify compliance for large organisation that are subject to frequent compliance regulations. If e.g. financial firms use a blockchain, regulatory agencies could access accounting data directly without the firm having to gather and provide them, thereby losing available resources. This would enhance efficiency as seen before.

c) Networking-Integration

Networking or multi-party-collaboration is enabled by a blockchain’s decentralisation. Sweden’s land-title recording is carried out by using a public blockchain and provides a great example of the communication facilitation qualities of DLTs. Government agencies, buyers, sellers, banks and other parties interact and can simultaneously track the progress.

By connecting available data storages to blockchains, IT professionals can reduce transaction costs and improve the information asymmetry amongst producers, consumers, and investors. This is the integration-aspect that would be enabled by blockchains. An extensive series of studies would clearly be necessary to illuminate the impact of DLT as connector and integrator. Fortunately, researchers at Deloitte Insights conduct valuable theoretical and empirical business-oriented research.

3. What does “change” mean in this context?

There are several threats to the stability of organisations’ modus operandi. ‘Business as usual’ is a deeply ingrained term inside and outside of the private sector, as it describes a state of affairs when interactions amongst stakeholders ­– producers, consumers, investors, regulators, journalists, etc. –functions as intended. Disrupting this regularly harmonious interplay of different systems is risky. On the one hand (and on a larger scale), the functioning of the current system facilitated development to the point that humans have the ability to analyse and change it if considered the right move. This is a strong, conservative argument for the current system.

Systemic disruption however, for example via such prominent technological concepts as blockchains, might solve some of the defects inherent to the current system that become apparent with the millennial generation growing up, perceiving negative changes and communicating them. By carrying out value-driven BPM and considering novel technologies, both positive and negative change will certainly follow. Such change usually becomes apparent after what is known in geometry as scaling or scale transformation, where the macro-consequences of such a technology become visible through mass-adoption.

The Future Citizen Institute will conclude this new series of articles on blockchain implementations for business by showcasing systemic threads stemming from this novel distributed ledger technology.

Author: Patrick Lehner