Large organization cost vs Blockchain

By Maciej Marut, Bartosz Dluzen, Krzysztof Bury

Large organizations like multinational companies gain a lot of benefit by being able to operate in different countries. They get benefits of size and are able to balance their risks better. Unfortunately, with all that, they are also noticing some drawbacks. Everything becomes slower, more complex and ultimately costly. Simple operations like paying for internal service (intercompany transaction) become obstacle impossible to overcome. If you are motivated you can still work them and get your transaction correctly booked. The moment comes when somebody starts to count dollars spend on every transaction. Usually the conclusion is that this is more than transaction itself. Next decision is simple — apply threshold so we don’t spend money. But then how do you really measure profitability of each part of the business? How do you assign cost? Is this not why we have those huge ERPs and hundreds of shared services finance teams? How to have a smooth and cheap books closing process?

At the same time, when executives all over the world ask themselves questions from paragraph above, we see cryptocurrencies trying to make their way into our lives. Blockchain concept is connected with them and is used to revolutionize financial world. World with well-established law and institutions. World with banks ruling the way people trust transactions and other people. World with a hefty fee imposed for this service. It is a very interesting to look at this from the distance. Does it have to be so far away from our day to day? Do we have to go that big to make our lives easier?

Answer to that might be private blockchain. It is a new way of thinking about executing transactions and gaining consensus. As you will learn later, Blockchain can be easily decomposed from Bitcoin, Ethereum and others.

One can imagine internal distributed general ledger. Supported by scalable IT infrastructure that becomes only shared cost. With rules based on basic blockchain concepts like distribution, sharing, peer to peer and single source of truth. That’s all very pretty but why should you even consider this? Some planning and mathematics has to take place.

So, let’s try to line up questions that have to be answered to get us to educated decision about investing in distributed ledger:

What is the current cost of intercompany transactions?

You need to think about infrastructure — servers, network, applications, support, licenses, customizations, classic disaster recovery processes.

Also add all other quantifiable costs — headcount involved, time it takes to process transaction, error correction, cash flow impact

Statistics on our current vs desired operations

Baseline would be number of transactions.

Than look at amounts in transactions — you will need this to calculate median, averages, mode for next level of analysis

Like we mentioned add value and impact of transactions not performed because of any of operational reasons.

And don’t forget plans to grow your business- new users, accounting structure, new countries, merger and acquisition endeavours, split of P&L and sale plans

What is the complexity and uncertainty connected with our current setup (expressed in dollars or days)?

To help you in this subject below you will find sample questions to ask yourself and your peers.

• How long does it take us to close the books?
• How much closing process cost?
• How many Journals of different type you have to book every month and what is the average cost of a journal?

How deep we are prepared to go?

By answering this question we can show to ourselves how risk averse we are. Answers to this will be balanced by possible financial gains.

What is our timeline?

Taking a decision of this nature is a strategy item so we don’t expect anything less than 9 months. Depending on the answers to other questions we can limit blockchain adventure to POC level but still this should be a part of a strategy that has got in mind efficiency and transparency.

What would be the places where you need to interface with cash?

You need to identify places like payroll, Accounts Receivable (AR), Accounts Payable (AP). They come from common sense and interactions with external world but as you will see in next point they can also be required by different laws.

What are your obligations defined by the laws specific for your ownership structure?

After laying those on the table we will be able to say what size is our playground and if we even want to start playing this game.

It might be that you have not overgrown in complexity. Your state of the art single source of truth ERP located in cloud is efficient and cheap to run. At the same time your CRM is integrated and plays well with ERP. This setup allows visibility and ease of doing business with you as the company. If this is the case you don’t have to hurry.

All others should however consider looking at private blockchain as viable option. In upcoming publications we will try to help you by describing next steps you should consider taking for your organization.

Someone could argue if we should not have in our list questions like:

Is bitcoin and/or cryptocurrency a right thing to do (almost a moral question these days)?

Can we miss what everyone else is doing ?

Am I out of ideas to make my financials better?

I would skip them to keep this an educated rather than emotional decision. Market had seen companies investing in hypes of the past without quantifiable long-term benefit analysis preceding the investment. If you are not sure of what you expect maybe it is wiser to let others clear the path and learn from them.

If after all that the answer is still yes and we know money we can play with — this is where the journey begins for real and new questions appear. Those questions we have got in mind are not for us. It is time to get some experts on board and start asking them. Following articles will shed some light on a general thought process that has to take place.