With thanks to Maex Ament for his contribution to this blog.
The definition of blockchain:
In essence you can think of blockchain as a distributed ledger. In shared services terms think of it as a giant excel spreadsheet that lives in parallel on hundreds of computers. The way that blockchain is set up erases the need for a middle man, or in our sense a Bank or third-party. Blockchain records transactions and it is controlled by the network, the consensus using it not by trust.
The beginning of blockchain:
The first (relevant) blockchain was bitcoin but since then many have popped up such as Ethereum (https://en.wikipedia.org/wiki/Ethereum). Blockchain doesn’t just have to concern currency - you can put conditions on the moving of money – these are called smart contracts. These particular contracts can codify situations on the blockchain. It’s here that we can start to see a connect with AP and shared services. The use of smart contracts will affect how shared services further automate their invoices and processes.
Ways that blockchain can and is helping companies:
There are two types of blockchain; Public and Private.
A public blockchain means that everything is public - everyone can generally see the data. Private blockchains state that only the participants have access to the data.
Payments are a great example of how companies are and can use blockchain to their advantage. Blockchain as an idea is supposed to reduce transaction costs. However, at the moment to move bitcoin from A to B is extremely expensive as companies are hit with mining and transaction fees. There are other blockchains available to companies which are cheaper and more reasonable.
For shared services the use of blockchain is a perfect example of cutting out the middle man you currently need to pay your suppliers. Blockchains offer a much lower fee, if at all, making it a driver for cost reduction across shared services organisations.
Another example is cross-border payments. These types of payments can be slow and unreliable and ultimately expensive. Blockchain can help substantially by moving money seamlessly from sender to receiver regardless of their locations. By being able to access the blockchain from anywhere costs are dramatically reduced for companies that deal in regular cross-border payments.
One of the major struggles, particularly for shared services, is clarity over the status of a transaction. Where is my payment? Where is my invoice? These are common questions asked by both buyer and supplier. Although e-invoicing has helped organisations transform their invoice processes you could argue that there is still no single representation of the truth. An invoice sent through QuickBooks into the Ariba Network which is then sent a company’s SAP or Oracle systems, finally picked up by a Bank (for financing) sees 4 different representations of the same invoice. This is a recipe for disaster and dispute as we have seen on many occasions. What blockchain offers is the recording of one single entity, one single truth that all parties have access to.
Invoicing is a great example of how blockchain can help companies. Invoicing and even e-Invoicing still remains an expensive solution to send and receive invoices. Even more so is the reality that electronic invoices are still not being used by everyone which can be massively frustrating for buyers and suppliers. Mentioned earlier was the notion of smart contracts (pieces of code that automatically execute a transaction depending on trigger events). By using smart contracts the result will see more streamlined processes and one result reached. You could argue that the process of sending an invoice may become redundant. Everything will have been previously agreed upon in the common accessible smart contract eradicating the need for a supplier to send an invoice. Terms have already been agreed and payment has already been made.
Blockchain is frequenting more and more discussions both in boardrooms and in general conversations. Similar to RPA, AI and Machine Learning the potential for blockchain is there and we are in a stage of harnessing its potential.
sharespace.digital will be following developments around blockchain over the course of 2018 and if you have any thoughts or comments we’d love to hear them. You can start a discussion in socialspace or email amy@sharedserviceslink.com
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