In today’s markets, moving from an investigative mindset to one that overcomes mistrust is critical to the “digitization of value.” Whether by choice, neglect or habit, outmoded systems leave notable value behind, a luxury that can no longer be afforded. C-suite leaders must take prompt action to survive. Just as the internet digitised communications, blockchain and smart contracts will radically transform how business is executed and systematically digitize hidden value.
Today’s pandemic and economic downturn have made it very clear: all businesses must find ways to reduce costs and operate on thinner margins. Doing so is necessary to survive, and companies cannot achieve it without adopting technologies that will uncover more money.
many organisations are beheld to costly legacy systems or decades-old technology infrastructure. For example, for the US government to maintain 10 legacy systems, the cost to taxpayers is an astounding $337 million a year. Elsewhere, enterprise organisations spend approximately 80% of IT budgets to support existing systems.
In addition,sharing clunky, paper-based and manual workflows require significant administrative resources and lack the capabilities, which feeds redundant, siloed efforts. These interoperable processes hinder inter- and intra- company information sharing and further exacerbate transactional frictions across business relationships, particularly when it comes to contract executions and payments.
Smart contracts backed by blockchain technology can reduce operational inefficiencies, automate invoicing and payment processes to free up cash flow and provide real-time insight into the financial health of a company; something that’s hard to do when juggling legacy, disparate systems and outdated technology solutions.
In business relationships, achieving traditional consensus between companies in contracts need a lot of time and money due to the fact that each participant has their own version of data or events. Thus the massive need for the monthly reconciliation of invoices and elongated day sales outstanding (DSO).
With blockchain, it is achievable to save real-world events in an immutable, third-party digital record that can be shared across participants. In any transactional relationship between businesses, vendors, suppliers and others, blockchain enables access to the hidden value in current processes through visibility, transparency, accuracy and speed. By leveraging existing systems like business processes, data sources and connected Industrial Internet of Things (IIoT) devices, a holistic picture of truth can be tethered to contract performance and execution.
Smart contracts function as software programs that capture operational terms of a legal contract between companies. Smart contracts use performance metrics, leverage operational data and other information sources from legacy systems to ensure and verify the fulfillment of transactional obligations then triggers automated payments.
Most companies experience long payment cycles rife with disputes and manual reconciliation processes that cause significant drag. By transacting on a blockchain network, service providers can get paid fast, and counterparties only pay for received or performd work thus bringing great efficiency to existing processes.
With much value to be realised in inefficient processes, the data exists to render commercial invoicing obsolete. Having human “checkers” essentially checking correctness is a facet of the past. Blockchain provides access to neutral, third-party distributed source information. It does this by reaching across multiple companies and systems to pull specific from field data and other sources, and store required data in its distributed ledger. The technology then triggers payments and is therefore a new way of capturing efficiencies and rooting out existing hidden value.
The opportunity to reduce cost inefficiencies and free up working capital exists in improving business processes. Blockchain powered smart contracts can take a multistep process and reduce it to two steps. The implications are tremendous, particularly during an economic downturn as companies must figure out how to run on thinner margins with no end in sight.
Turns out that the best time to realise value locked in existing systems is to revisit processes and look to digitisation and automation opportunities to digitize the left money on the table. It’s possible to get to this new level of granularity with existing systems by forging a new way of doing business: one that’s on the blocks.