How CIOs explain blockchain to their CFO

Blockchain changes business models and will affect everything from the clothes you wear, the food you eat, and even the products you buy. The CFO business case for blockchain.

The customer experience – as your company knows it – is fading. Your organization might not even realize there is a new revolution coming at you – the blockchain revolution.

Blockchain will have enormous impacts on global business and the world economy. This tectonic shift will disrupt your consumers and change their behavior. This change is transformational and will affect everything from the clothes you wear, the food you eat, and even the products you buy. Blockchain technology will be injected into everything.

There is a great divide between the technologist that wants to talk about protocols and argue the benefits of state channels and the business technology executives’ eager to understand how blockchain’s technology can be applied to business in practical terms.

Blockchain simplified

Blockchain is more than cryptocurrency and blockchain is not Bitcoin. Blockchain provides a distributed, public, time-stamped, and persistent record of transactions.

1. Distributed – across all the peers, participating in the network. Blockchain is decentralized, and every full node has a copy of the block chain.

2. Public – the actors in a blockchain transactions are hidden, but everyone can see all transactions.

3. Time-stamped – the date and time of all transactions are recorded in plain view.

4. Persistent – because of consensus and the digital record, blockchain transactions can’t catch fire, be misplaced, or get damaged from water. Blockchain records will last over the long haul.

Blockchain is hard to understand, so let’s provide a societal example illustrates how blockchain will impact finance and humanity.

Value through the eyes of the CFO

The Chief Financial Officer is pulled by conventional regulations, and curious at the potential of new technologies to impact top-line growth and decrease business risk.

Traditional financial auditing as we knew it has ended. Financial auditing will experience the most extreme business model change since the passage of the Sarbanes-Oxley Act (SOX) in 2002. New financial auditing with blockchain ensures that businesses are fiscally responsible. This business model change will save lives.

On January 10, 2010, a 7.0 magnitude earthquake, within 16 miles from Haiti’s capital, Port-au-Price ripped through the country with more than 52 aftershocks measuring 4.5 magnitudes or greater. Red Cross received $488 million in donations yet somehow according to CNN the Red Cross only built six permanent homes. A year later the death toll was estimated between 160,000 and 300,000. The Red Cross repeatedly declined to disclose how donations were distributed for Haitian relief. It’s safe to say that despite almost $500 million raised, disaster victims did not see all donated funds. Haiti is a classic example of controversy over transparency.

Rubix team takes a swing at fraud

At the 2016 Shanghai Blockchain Hackathon, the Deloitte Rubix Team launched a new solution called PermaRec (permanent record), during this two-day event. Jennifer Qin Yi, an audit partner of Deloitte Beijing and the lead partner responsible for the coordination of Deloitte’s investment management industry in Asia Pacific, led the team. Deloitte’s solution allows companies to record transactions in a globally distributed ledger residing on the blockchain. The Deloitte PermaRec solution connects SAP, Oracle, and other financial reporting systems enabling Deloitte to review transactions from both parties ensuring legitimacy and appeasing regulators. While the product is not mature, the thinking is nothing short of visionary.

What if this PermaRec solution was in place for the Red Cross in 2010? It’s more than likely that Haitian lives would have been saved. The business of donations to support disaster relief will dramatically change. When consumers have the decision to donate disaster relief funds to an organization where every transaction is publically available on a blockchain or donate to an organization that doesn’t share donation disbursement details – the decision will be quick. The business of charity has just changed.

Blockchain changes business models

The Association of Certified Fraud Examiners (ACFE) estimates that fraud costs organizations worldwide $3.7 trillion a year or 5 percent of the Gross World Product (GWP). Extending this application we can apply these principles to tackle fraud. In the case of MediCaid, MediCare, and Social Security fraud could be impacted by conducting transactions to beneficiaries and providers serviced from the blockchain.

Blockchains can be used in any situation when a verifiable public record is required, and blockchain benefits from not being under the control of any one entity.

Blockchain technology, when applied to healthcare, has the potential to decrease corruption and fraud – creating entirely new business models.

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Peter is a technology executive with 19 years of experience, dedicated to driving innovation, digital transformation, leadership, and data in business. He helps organizations connect strategy to execution to maximize company performance. He has been recognized for Digital Innovation by CIO 100, MIT Sloan, Computerworld, and the Project Management Institute. As Managing Director at OROCA Innovations, Peter leads the CXO advisory services practice, driving digital strategies. Peter was honored as an MIT Sloan CIO Leadership Award Finalist in 2015 and is a regular contributor to CIO.com on innovation. Peter has led businesses through complex changes, including the adoption of data-first approaches for portfolio management, lean six sigma for operational excellence, departmental transformations, process improvements, maximizing team performance, designing new IT operating models, digitizing platforms, leading large-scale mission-critical technology deployments, product management, agile methodologies, and building high-performance teams. As Chief Information Officer, Peter was responsible for Connecticut’s Health Insurance Exchange’s (HIX) industry-leading digital platform transforming consumerism and retail oriented services for the health insurance industry. Peter championed the Connecticut marketplace digital implementation with a transformational cloud-based SaaS platform and mobile application recognized as a 2014 PMI Project of the Year Award finalist, CIO 100, and awards for best digital services, API, and platform. He also received a lifetime achievement award for leadership and digital transformation, honored as a 2016 Computerworld Premier 100 IT Leader. Peter is the author of Learning Intelligence: Expand Thinking. Absorb Alternative. Unlock Possibilities (2017), which Marshall Goldsmith, author of the New York Times No. 1 bestseller Triggers, calls "a must-read for any leader wanting to compete in the innovation-powered landscape of today." Peter also authored The Power of Blockchain for Healthcare: How Blockchain Will Ignite The Future of Healthcare (2017), the first book to explore the vast opportunities for blockchain to transform the patient experience. Peter has a B.S. in C.I.S from Bentley University and an MBA from Quinnipiac University, where he graduated Summa Cum Laude. He earned his PMP® in 2001 and is a certified Six Sigma Master Black Belt, Masters in Business Relationship Management (MBRM) and Certified Scrum Master. As a Commercial Rated Aviation Pilot and Master Scuba Diver, Peter understands first hand, how to anticipate change and lead boldly.