by Dr. Sean Stein Smith, CPA, and Stephen McCarthy, CPA – November 30, 2018
At this point, you have heard quite a bit about blockchain technology and have seen or participated in one of the dozens of webinars, presentations, or conferences focusing on this topic. Blockchain is a potential game changer for virtually every aspect of the profession, driven by the concepts of decentralization, consensus-based verification of data, the immutability of data once it is added to the blockchain, and the (up to now at least) unhackable encryption used to secure the information. Blockchain is an underlying digital foundation that supports these and other advanced applications.
Despite of all the excitement about this new technology, there continues to be a wide gap between inspiration and installation. That said, what action steps or plans exist to understand and implement blockchain applications? Start by using a project management approach, like the agile methodology: brainstorm, design, develop, use quality assurance and deploy. Framed within the agile methodology, we will break down what can seem like an intimidating and overwhelming topic — blockchain implementation.
Begin with the end in mind. Like strategic planning, define a process that needs improvement and then work backward to determine the steps to accomplish it. This is the time where the firm should be dedicated to establishing what exactly is the desired result of this project, i.e. what does the firm want? Some of the first points to identify in any brainstorming session are why this solution is being considered, and what processes are the focus of this initiative. Specific items that need to be considered: is blockchain a viable solution, does your organization have the technical expertise to make blockchain implementation feasible, and what problem does blockchain address?
This is the stage where many organizations hit stumbling blocks and suffer setbacks, and that may be due to a common misunderstanding as to what blockchain can do. Put simply, this part of the decision-making process should focus around how to build out the blockchain. Private, or permissioned blockchains are where virtually all the corporate investment is occurring in this space, and that is because the organizing firm can specify not only who can join the blockchain network, but at what levels of access and what rights those members have. Moreover, current technology solutions may –- at this point— outperform the functionality blockchain can bring to the table.
Equally important, is establishing relationships with advisory firms who are uniquely qualified in blockchain technologies and implementation. This is necessary because technical and process standards are only now being developed. These firms can help choose the technology stack to help implement the blockchain solution together with other technical advancements in cryptography, analytics, and governance. These all represent important points to consider as the blockchain chain itself moves from concept, to design, to implementation. The blockchain application will probably integrate with existing legacy systems, so define them, and in thinking with the end in mind, devise the criteria for roll-out strategy, staff training and timeline for deployment.
This step focuses on avoiding problems while delivering solutions. Blockchain technology by its nature reduces the need for certain processes and controls, so the way of thinking about audit and the concept of assurance must change. Blockchain is certainly a buzzword, a potential paradigm shift, but even with the buzz assurance and standards must be maintained.
We must stress the necessity to test, test, test, before rolling out. This is also the time to review reports, KPI’s and other metrics designed to meet stakeholder expectations and concerns. And remember, staff needs to be trained on specific aspects of blockchain. These areas: 1) the education and development of staff to use blockchain and 2) the need for controls and process to ensure the integrity of blockchain information represent opportunities for proactive practitioners and firms.
We look to the implementation by following the rollout strategy and criteria for deployment. Blockchain may be a new technology but nevertheless, like any other technology project — or project in general — metrics and timelines must absolutely be a part of how effectiveness is evaluated and reported. Only when blockchain is in production status will it deliver ROI, productivity and the improvements sought.
Furthermore, companies need to derive measurable value from their blockchain initiatives. The failure rate of new blockchain implementations will be high. Organizations need to focus on the problem blockchain addresses, the business case, and match the technology to solving that problem, communicating with users along the way.
Following this agile methodology will help achieve success with blockchain. That is, identify the business case, work together with the end users, optimize a process with the right combination of technologies, authenticate and adopt. Only after these steps have been completed can management confirm value on this deployment and identify the next challenge for a blockchain application. We have confidence this model will lead to a successful completion.
Dr. Sean Stein Smith, CPA, DBA, M.S., M.B.A., CMA, CGMA, is an assistant professor at Lehman College. He can be reached at firstname.lastname@example.org.
Stephen F. McCarthy, CPA, CGMA, M.B.A., is the owner of The Presidents Forum. He can be reached at email@example.com.