Blockchain and Smart Contracts may have a greater impact than many in professional services imagine
Professional services firms are intrigued by Blockchain but many don’t really have an understanding of what it is and the way in which it might impact their existing service-based models. Now, I am no expert on the topic, but from what I have seen and my experience of building process automation tools for professionals, I personally think it will have a huge impact on many of the businesses that professional services firms work with. In this article I would like to share some thoughts and it would be great to get a conversation going on this area. I would like to invite those working in this space to reach out and contribute thought pieces to Alternative Insights, illustrating their work on this area.
At the recent tech and innovation for professional services leaders summit we asked a live poll question on which technologies people felt would have a real impact in future years. On the impact of future technologies question these were the average scores on impact out of 5, with 5 being the highest possible impact, in order;
- Data analytics: 4.8
- Automation: 4.5
- Process efficiency: 4.5
- Artificial Intelligence: 4.2
- Contract lifecycle: 3.4
- Blockchain & Smart Contracts: 3.1
- IOT/Sensors/Remote monitoring: 2.9
- AR & VR: 2.3
In follow-on articles I will explore further some of the other transformative technologies and also some of the other questions that we asked and what it perhaps tells us on emerging trends. For the previous article I wrote on data though please click here. It would seem that our launch-themed piece mirrored the area which most professional services leaders thought would have the highest impact in the years to come.
To start with why I think the low ranking of Blockchain impact might not be an accurate view I’d like to share a headline concept. I first heard this articulated by Lee Bacon of Clyde & Co. The statement which stimulated real thought was around how we currently work: “You enter into a contract to transact, and if you can transact in a simpler way then why would you not?” I first referenced this in an earlier article which you can read here. For me, this is the entry point into why Blockchain might prove so fundamental for services firms, or more specifically why Smart Contracts might. In my original article linking this together I also referenced an excellent explanation I had heard from Areiel Wolanow, a Blockchain expert and member of the parliamentary group on Blockchain. Areiel walked through the history of the contract. In his view Blockchain is simply the next step in the evolution, digitising what has been in existence since we first started transacting.
In writing this article I reached out to some people who understand this better than I do, including Areiel, who explained to me that he felt that currently we are in the trough of disillusionment with Blockchain (look up “Gartner hype cycle” if you want to understand more). Perhaps this article will help move us towards the slope of enlightenment! His strong view is that the thing with Blockchain is that it’s not really about Blockchain and in some ways we shouldn’t even be talking about it (I’m resisting a Fight Club analogy for those that remember the film!). Blockchain doesn’t add value, it’s about the business models and what it can do to transform them that is important. In this sense it is the enabler, like any IT,but perhaps even more like internet protocols i.e. not something that anyone really ever talks about. As Ariel put it, “If you are talking about a new supply chain solution or a new insurance solution then it’s relevant. The fact that it happens to use Blockchain is not that relevant other than how it is achieved. To get value out of Blockchain you have to firstly, understand Blockchain and secondly, be an industry domain expert.” For example, if you understand the power of Blockchain and you understand how the insurance industry works then you can see that you can take out up to 90% of the costs. “The number one value driver is removing the costs and the error of reconciliation.” For anyone wanting to understand more around how to commercialise Blockchain offerings, Areiel is running a masterclass, see here.
If you want an introduction into what Blockchain is then a good place to start is with the Big Four, who all have some pretty good sites established and some great whitepapers including surveys of CEO’s around the impact they think it will have. I think the best way to describe it is as a decentralised database that nobody owns. The acknowledged benefits of Blockchain are broadly that it boosts transparency, aids automation (via Smart Contacts) and enables traceability thereby helping with trust. Given it is decentralised it has the potential to remove many of the people that currently act as intermediaries in processes. Many people seem to confuse cryptocurrency, usually Bitcoin, with Blockchain, but they are distinct. Bitcoin is a currency that runs on the Blockchain and is therefore in essence just one use case for Blockchain. It also happens to be how Blockchain came into being so I guess that is the reason for the confusion.
The key areas that would seem to be relevant for this include the supply chain, financial services, including banking and insurance, land registry, and basically anything to do with control of identity. It would seem to be relevant for pretty much anything where the traceability of assets is important. Only last week Blockchain was given a boost with the announcement that Facebook and others were launching Libra, with a goal to create a new cryptocurrency. There is a whole load of debate on whether this is really a Blockchain and whether it is a good idea given some of the prior data challenges in the area, but that’s a wider topic than this article. Then, even more recently, came the news that MetLife plans to disrupt the $2.7 Trillion life insurance industry using the Ethereum Blockchain. The point is, that those who have been of the view that Blockchain wouldn’t take off would now seem to be more likely to be proved wrong in my view.
On a related point, the control of data itself or rather personal data to be specific, could well turn out to be a key use case for Blockchain for some of these businesses that currently hold our data. If data is indeed the new oil then it’s pretty likely that people will want to control their own oil well and perhaps Blockchain will allow them to do that, releasing certain portions of their data as needed.
If Blockchain is the decentralised database then Smart Contracts are code that can run on the database. It’s been said before that it is ironic as they are not really Smart or even Contracts, but it does sort of describe what they do in my mind. For anyone that understands programming language and the fact that a lot of it is based on “If statements” i.e. “if A is true then do B action”, then that basically describes how these work. The reason this is relevant is that this is pretty much how legal contracts also work. What this allows therefore is for people to build self-executing contracts that sit on the Blockchain. Some of the early examples include those from Clyde & Co who have just released a parametric insurance product through partnering with Clause.io. As Lee Bacon said to me, “This is a first proof of concept, but not the last, aligning a legal product with services in a digital environment.”
Just to go a little deeper on the use-case here, it was apparently for parametric insurance for a solar plant. The plant was under contractual obligation to supply a certain amount of energy per quarter – failure to do so would invite financial penalty. Thus, this solar plant purchased (parametric) insurance cover to insure against adverse weather. The claims trigger was more than 10 days of “adverse” weather conditions (per quarter) to generate electricity i.e. more than 10 such days per quarter would trigger a payment. To read more about this click here.
What is interesting around this concept of Smart Contracts is that currently so much of the process around contracting happens in a semi-digitised manner. I say semi-digital as although contacts are written in things such as Microsoft Word, or perhaps outputted to this from Document Automation for those more advanced, there is no “digital flow”. By this I mean that the terms of contracts are not sitting in a structured digital format. The fact that a “word processor” (a digital typwritter!) is used for creation is significantly different from them existing in digital form. If you ask many in-house lawyers what concerns them most they will say it is the fact that they have no accurate way of seeing what contractual obligations they have on their books, or indeed what contractual revenue opportunities they have. For more insight on this see an earlier article I wrote connected to the in-house area and how consumption is changing here. Could Smart Contracts be a tangible area that could help GC’s to establish their relevance in driving the sorts of efficiencies that other departments have already delivered? Or to start with could law firms or consultants offer a service helping corporations better understand what liabilities could be triggered automatically if they were today existing in a Smart Contract-enabled world?
So why does this matter? Well, if in-house lawyers have an existing pain point around contracts and obligations, and Smart Contracts are automatic self-executing tools, then doesn’t this move things from being two dimensional paper-based things to three-dimensional active things? It’s also worth checking out the Accord project for those that want to understand more smart legal contracts here. This is before we even get into the data and the insight that could be gathered by both the corporations and their advisors if contracting was more effectively digitised. What will this mean for how the different services businesses relate more to each other? See the example in my article on data and consider how Smart Contracts will play a role for different advisors around areas like property leases. There is also probably enough to write a separate article on how Blockchain might impact into areas like audit and property transactions.
Finally, to leave you with some brief thoughts around this topic you might want to consider:
1 – Ensure that you really understand the basics of what Blockchain is, and this means reading around the subject and keeping an open mind. In my reading I also came across a book shortly to come out from Anthony Welfare on commercialising Blockchain which I plan to read.
2 – While you are reading think about the industry you are focused on, how your domain works and how Blockchain could sit within this space. I think this is where a real understanding of the customer and the processes comes into play, using tools such as design thinking as a start.
3 – Finally, consider how this could apply in your industry to remove cost and risk. I also think it’s worth considering what will happen in your area if you are not involved in driving the changes i.e. what happens if new platforms emerge that are shaped in ways that your business struggles to adapt quickly enough to?
To repeat what I said in my last leader article: true innovation starts with understanding. Understanding the client’s problem, understanding who else is trying to solve related aspects, understanding how related technology is being used elsewhere, and understanding your position along with the threat or opportunity. Taking a broader view across professional services, Alternative Insights will deliver understanding to fuel your innovation journey.
However, it is a community site and so it will work best by hearing from those in the community. If you have something related to Blockchain or Smart Contracts that you are involved with, why not write a short article and share it with others?