Ann Ewan also contributed to this post.
One of the promises of blockchain is that it can help reduce the friction between parties that need to exchange information and collaborate on executing multi-party transactions. This ability to streamline business processes sounds a lot like the promise of business process management, and in fact, both are aimed at making an organization’s workflows more effective. But their goals and implementation are different.
Business process management is about discovering, modeling, analyzing, improving, and automating business processes inside your organization. Enterprise blockchain uses smart contracts that automatically execute business logic that the participants agree upon — and a private, permissioned, shared ledger that guarantees the quality and lineage of information, goods, or services across organizations.
One of the main benefits of blockchain is that it elevates the level of trust between participants in the business network. Entities working together within an organization tend to trust each other because they all have the same ultimate goal of helping the company succeed. When the participants who need to work together represent different organizations, however, that trust rarely exists, making collaboration difficult or impossible. Processes that benefit from blockchain are not contained within the walls of a single company. Blockchain is most valuable as a technology when it is used to bring efficiency to the way multiple organizations work together.
Trust in the business network
Blockchain elevates the level of trust in the business network in two key ways:
- By recording the history of the transactions that have taken place across the business network in a way that is tamper-proof and can’t be changed after it’s been recorded.
The transactions are provable and immutable, which also means that the data that is being recorded or updated by the transactions is provable and immutable. Everyone can have confidence in the data that is being shared by all parties.
- By ensuring that the business logic that defines how each party interacts within the business network, including their role and responsibilities, is also tamper-proof and immutable.
The smart contracts dictate how one party is going to work with another and provide the definition of the shared business process that everyone is participating in. Once you join the blockchain network, you must play by the rules, and no one party has the authority to unilaterally change those rules without the agreement of the other parties on the network. You can be sure that the rules you signed up to follow when you joined the business network aren’t going to change out from underneath you later on.
In many cases, the driver for starting a business process management or blockchain project is that things are not as efficient as they could be. But whereas business process management tries to address this issue by continually iterating on their process definitions to drive efficiency, blockchain attacks the problem on a larger scale: by unlocking the potential for how organizations can work together by enabling transparency, auditability, and trust in a way that was not possible before.
Enter smart contracts
Let’s look at an example. Helene backs out of a driveway and damages Ian’s car. Ian’s insurance company (InsureQuik) approves his claim and pays for the repairs to his car. InsureQuik then has to go to Helene’s insurance company (Hi-Quality Insurance) to prove that she was at fault and should pay them back for the money they paid to Ian. This subrogation, as it’s called, is a ton of work for InsureQuik. They might have to prove their case by finding evidence and witnesses. They will certainly have a lot of paperwork and negotiation to do before they see any money.
Subrogation is not a business process management problem, but rather, because of its cross-organizational nature, it’s a problem that blockchain can help with. Both insurance companies are part of a larger subrogation process that determines how they interact and how they settle the payments that come in. With blockchain, smart contracts can define the terms and conditions for how InsureQuik and Hi-Quality Insurance will work together to reimburse each other when subrogation is necessary, and in fact, the smart contracts can automatically execute to carry out those terms without the need for human involvement. Because both Hi-Quality Insurance and InsureQuik have visibility into those smart contracts and they know that neither party can change them unilaterally, they can trust the blockchain solution to operate according to those rules, and thus drive efficiency.
As the smart contracts are executing and orchestrating the processes between organizations, those contracts can then trigger internal processes. In our example, internally perhaps InsureQuik uses IBM Business Process Management and Hi-Quality Insurance uses IBM Case Manager. Either of the companies can receive notification from the smart contract that it’s their turn to take action, which can drive a set of internal processes within the company before they return to the smart contract with their response. In that internal processing, business process management can help the company to respond quickly to notifications from the external environment. They can continually refine their internal processes through interactive, incremental improvements to drive efficiencies for each company independently, as a means for competitive advantage and greater profits.
Blockchain provides the cross-organizational sharing. It’s the “shared process runtime,” and it handshakes with internal systems to kick off business processes internally.