Getting On Board With Blockchain: A Q&A with SAP Ariba’s Joe Fox (Part 1)

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The blockchain may be the biggest new technology to “know of” in 2017. But how are companies using it now, and how do these current use cases apply to procurement? To learn more, I sat down with Joe Fox, senior vice president, business development and strategy, at SAP Ariba, to see how SAP Ariba is approaching blockchain, discuss emerging use cases and discuss what elements of this disruptive technology procurement should be most excited about.

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Joe really knows his stuff on the topic. There are a lot of “BS artists” when it comes to emerging technologies out there at vendors and consultancies — and analysts, for that matter. Joe is the polar opposite, and I hope you appreciate the conversation as much as I did. He knows his stuff on blockchain and was truly candid about where SAP Ariba is when it comes to how it is looking to incorporate blockchain.

Spend Matters: If you could, please describe SAP Ariba’s blockchain approach in a nutshell.

Joe Fox: In a nutshell, SAP Ariba is first going to align with SAP corporate strategy on blockchain. An example of that is SAP is a premium member of Hyperledger. What we build relative to blockchain will as a result be Hyperledger-based,.

Within our own business, our strategy is to add blockchain technology into the Ariba network and apps so that we can create new application capabilities. And we’re going to add all of our customers to the blockchain, so buyers and sellers can immediately start taking advantage of some these capabilities.

SM: Second question: Even if you offered it technically today, there are still hurdles to adoption and getting folks to actually use it. What are some use cases that could help people get on board with trying blockchain?

JF: One of the best use cases I like is cross-border peer-to-peer payments. Using blockchain, a woman in Canada can pay her grandma $1,000 in a few minutes and only pay 1%, where in the past it would take two weeks for her to get the money, and cost 10%. That can be translated to business, where large corporations can do direct pay international. And SAP is doing this.

In order to provide buyers and sellers the ability to transact, there needs to be some structure. There needs to be some standards. That typically causes interoperability to be difficult, because each network develops its own standards and its own file formats and fields. A blockchain will break down some of those barriers, because in and of itself as a ledger across the internet, it can enable outside of the network ledger communication with people inside of a network. Giving them identity on Hyperledger creates a level of trust, which will ultimately help drive adoption.

SM: Interesting. Longer term, how one does this across multiple tiers and user communities might create new forms of data exhaust and leverage. What do you think?

JF: That’s to be determined. Hyperledger has channels. that allow crossing to other chains outside of Hyperledger. We don’t believe, right now, as we deconstructed blockchain and kind of reconstructed it in what we think is appropriate for B2B, that the chain itself should be per se transactional. We think that it should be a ledger, as it was designed, so we’re going to use the network’s transaction later, but, through links into the ledger, there’ll be a direct association with something that was ledgered, possibly a digital asset, back to the transactional environment so that they’re connected at a reference level.

That way, we don’t have to wait on the chain’s performance for transactions to be performed, but the history of the ledgering will be there in time to provide ledger-based, trust-protocol-based value.

SM: It’s kind of a virtualized instance of blockchain for the applications, but it’s maintaining the existing network infrastructure, right?

JF: We’ll be calling out to the Hyperledger chain from the network to do chain things.

SM: What are the most valuable blockchain use cases for procurement that you see? Then, if you could also comment for other stakeholders in terms of the Ariba customer base such as finance.

JF: Let me start with smart contracts, because that’s the obvious one. I think the value there is to use the concept of blockchain smart contracts to pull business rules and agreements out of the contract database or contract storage location and bring them to life through this smart contract algorithms into the transaction flow. If somebody chains a PO and wraps a smart contract around it that was built from the contract source, and that’s a volume-based discounting smart contract, then, when that PO is actually processed and shipped, that smart contract can say, “Is this now reaching my volume discount?”

If so, it might apply that discount to what’s actually supposed to be paid by the buyer. That smart contract can control a secondary aspect of the relationship between the buyer and seller, and that is, “What have they agreed to?” Procurement has told us over many years that it’s very difficult to represent in their procurement processes what they’ve contractually agreed to with the sellers.

I also think there’ll be use cases in the track and trace space, allowing companies to do asset tracking for indirect purchases. It’s really hard to get an employee to say they received their laptop, and so the seller can’t really close out on the process. Blockchain will give the shipper access to the global blockchain, and when they drop off the box, they can post to the chain that this asset has now been delivered.

Beyond indirect, we think blockchain can also solve track and trace issues in the direct material space around very expensive inventoried items. A large telecom company told me once that they overbuy their fiber optic cable because they absolutely cannot run out of their inventory.

If they had real-time visibility into the supply chain, they could dramatically reduce the amount of overbuying they have to do, because they’d be able to react quicker. Often, they don’t know that a shipment’s not going to get there until it’s late. With blockchain, they’d know be able to see the shipment in transit and know if something went wrong.

And these are just a few examples. At SAP Ariba, we’re just putting this fabric on the network and the apps, and from that, the innovation will come.

SM: Excellent. Beyond early adopters, why should people stoked about this? How do you look at the sales process for folks who don’t know what blockchain is and then having them appreciate a decentralized ledger or a system of agreement?

JF: I think what will get people excited is the innovation and value that we can deliver in a really transparent manner. It’s very similar to when we moved to the cloud. It was a platform change. It didn’t really alter our code that much. Our system still did the same thing. But there was a level of trust and a value proposition that needed to be established. Customers would ask, “Why would I want to go to cloud?” And the perception was that there was an IT risk. Or an operating risk. Or a security risk.

The same is true for blockchain. Companies are going to be watching what the others are doing with it and once they see value it can deliver, they’ll want that blockchain-based code. That’s why we’re adding it to our existing capabilities. Smart contracts, for instance, will be automatically delivered as a feature of our existing contract solutions.

And we think our customers will say, “Thank you for adding it. It gives us all these new capabilities.”

This interview has been edited and condensed.

Please follow Jason Busch on Twitter @jasondbusch.

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