Blockchain – the future?

In my last blog on productivity and the impact of digitisation on the accountancy sector, I made no mention of at all of blockchain. A few days later, the front page of the Economist read “The trust machine: How the technology behind Bitcoin could change the world”, and two days later, the FT ran a full page feature on the impact of blockchain technology. This is rapidly shaping up to be a game changer across a huge number of markets in the no-so-distant future. So what exactly is blockchain?   Very briefly blockchain uses cryptography to build a dependable ledger, allowing parties who do not know (or trust) each other to manage transactions between them. So if Alec wants to make a payment to Beryl, Alec’s transaction is fed into the blockchain through a cryptographic ‘hash’ function which boils the transaction down into a sting of data and which is loaded into a block. Through a series of actions involving such esoteric concepts as miners and merkle trees, the payment leaves Alec’s online wallet and appears in Beryl’s. (For a good guide to the steps involved, have a look at the 31 October 2015 copy of the Economist hyperlinked above). The most important features are that once the transaction has been commenced, it cannot be tampered with – this relies on a network of computers (miners) unbundling the block using a complex process of trial and error. The technology involved is all one-way – the puzzles can be solved and checked but the underlying data cannot be changed.   Back in May 2015, the Economist ran a similar article...

Productivity

In July, the government announced its Plan for Productivity – for GDP per head to increase productivity has to improve and the government’s plan envisages tackling this through a combination of long term investment and making the economy more dynamic. But businesses too need to improve their productivity and a large part of it will be through increased automation. And finance departments will not be exempt. Major changes in the world of accounting are inevitable – a recent study in the Economist gave the probability of computerisation leading to financial processing job losses in the next two decades at 94%. So what would the automation of an organisation’s finance function involve? The day to day work of most finance employees involves a mixture of matching, posting, authorisation and the triggering of actions – making payments, raising invoices etc. Much of this is repetitive and not generally life-enhancing.  By tagging transactions at the start a lot of re-keying and checking of data can be avoided. This is already common in larger companies, particularly for online businesses. But it should be possible for much smaller organisations. Take a typical manufacturer. In the past, to top up a supply of widgets, the production department would raise a requisition and Accounts would turn this into a purchase order. When the goods arrived, the goods inwards team would approve the goods received note and this would go to accounts payable to be matched with the supplier’s invoice and the purchase order before payment could be made. Now, relatively inexpensive MRP software, such as that from 123 Insight, can automate the requisition and matching processes...