We start 2019 with many still sceptical about the true impact Blockchain can have on the enterprise. While there’s little doubt about the transformation it can bring to a wide range of industries, the problem is that meaningful use cases are still few and far between. And without being able to see real-world benefits, organisations are struggling to understand the practical applications of this exciting technology.
A recent survey by Deloitte of 1,000 executives, underlines the conundrum businesses are facing; showing more than 75 percent believe that without blockchain their business could lose competitive advantage, compared to 33 percent who remain uncertain on the return on investment in the technology.
To really propel blockchain applications forward, it’s clear the industry needs proof that these technologies are commercially viable, and that the technology is maturing.
How companies are using Blockchain today
Despite these reservations, most major Fortune 500 companies are in fact exploring Blockchain today. They recognise the potential benefit it can deliver across business operations and are making tentative footsteps into an area that can add real value in certain scenarios.
Contract management is one area in which Blockchain is really showing its worth. Blockchains that use distributed ledger technology allow for contracts that are self-verifying, self-executing, and autonomous.
Companies can exchange terms, events, and information throughout the lifecycle of a contract without relying on brokers or middlemen. For example, contracting parties can automate payments due over the lifecycle of a contract. The nature of blockchains and distributed ledgers means that as these contract milestones are reached, and payments are made, they are recorded in such a way that neither party can repudiate or manipulate the record.
Contract management is fast becoming the fifth system of record along with CRM, HR, SCM and ERP. Since contracts enshrine the rules of business (what do I do to get paid, and what do I get for what I pay; with what risks and what levels of compliance), the execution of these rules to bring contracts closer to the business transactions they enable is critical. We call this contracting at the edge – just like a rental agreement gets signed at the point of rental, more and more contracts will move closer to the actual transactions, leading to huge benefits in efficiency, lowered risk and better compliance. Blockchain offers an exciting way to bring this to reality, since they can help transactions execute securely and autonomously according to the rules laid down by the contract. It will help to enable a new era of contracts that will transform the way business is conducted.
A network of smart contracts can be used to manage terms, events and information throughout the contract lifecycle by enabling different contracts and assets to work together and learn from one another. Blockchain provides the platform for truly autonomous, smart contracts, minimising the need for conventional human management and managing business continuity by taking control of the transactional elements of day to day operations.
Guardrails can be enabled in the blockchain and rules set around what can change in the contract and what cannot, can significantly reduce risk. In practical terms, this means if a company signs a deal with a consulting firm in another country and creates an agreement which has been negotiated to include payments and bonuses when certain conditions were met, disputes over currency values can be avoided by enabling the smart contract to automatically include adjustments for currency fluctuations without the need to trust mediators and to securely include non-repudiation.
Clauses like these are codified as “Smart Clauses” and deployed on the blockchain, where they are monitored for compliance and upcoming milestones. As conditions are met based on external inputs, the smart contract verifies the transaction, adjusts the currency for market rates and executes by releasing payment instantly and directly to the seller. By making a contract interact with and respond to its environment during the transaction, it can deliver maximum business value while reducing transaction risk.
Blockchain technology also enables businesses to create a private ledger (often called a consortium blockchain), where a group of organizations who regularly do business with each other can provide a safe, “trust-less” platform that everybody in the consortium can trust without prejudice. The application programming interfaces (APIs) provided to the parties in the contract allow them to dynamically monitor, measure and manage the contract evolution including acceptance and execution. By examining ledger entries tracking the execution of a contract, parties can figure out the deviations between expected timelines to develop accurate risk models, using contractual data to support the development of business models. With secure access to an environment to execute transactions within the guard rails set by the contract, a slew of interesting use cases open up.
Smart contract use cases
Smart contracts are gaining popularity and have already realized benefits in various blockchain projects across different industries:
Contract management solutions in healthcare can help boost confidence in patient privacy through an immutable record which cannot be manipulated without the correct permissions. Blockchain will also enable healthcare businesses to comply with national and regional regulatory regimes, and ensures ethical sourcing and procurement of healthcare products and equipment.
Manufacturers are investing in a blockchain-enhanced supply chain that enables better traceability and transparency, both with partners and suppliers. Improved automation within the supply chain also means a product’s lifecycle can be tracked from origin to the shelf, showing ownership transfer from the manufacturer to the consumer and everyone in between.
What happens next?
For businesses looking for Blockchain projects that can offer real value, contract management offers fertile ground to use this new technology to accelerate the business, protect against risk and optimize commercial relationships. For any company managing multiple contracts, contract management makes perfect business sense – especially in today’s highly regulatory, compliance-heavy and high-risk environment.
As Blockchain brings increased sophistication to contract management, and smart contracts develop, the benefits of investment in this space become even clearer. It’s this clear recipe for success that we believe will help more organisations start to see the strategic value in blockchain, with companies looking likely to take their first steps into blockchain via this route.