This article is a summary of research from Philipp Schulden (2019). The whole article illustrated mainly focus on the influence of blockchain technology on the CFO-function of an industrial company. By conducted a qualitative method, the researcher gained the positive results from Experts who have profound experience in this industry, indicating the improvements of business processes, a relocation of the CFO’s strategic role, improvements of CFO-relevant KPIs through integrating machines into payment networks as well as the emergence of integrated business ecosystems will facilitate new forms of inter-organizational collaboration. Necessary prerequisites for adoption include digital competences of the CFO, appropriate organizational structures, digital currencies and identities on the blockchain and courage to change the mindset. Serkan Katilmis, Maximilian Forster, Hsiao-En Chen, Ya-Fang Cheng
What is Blockchain?
Blockchain popped out firstly in 2008 in the form of a white paper called “Bitcoin: A Peer-to-Peer Electronic Cash System” published by an anonymous individual or group known as Satoshi Nakamoto (Nakamoto, 2008). Later on, we can see many digital currencies such as Bitcoin, Litecoin, Ethereum was created and be used base on Blockchain Technology. Blockchain could also be seen as a distributed ledger, which means that a ledger is spread across the network among all nodes in the network, and each node holds a copy of the complete ledger. Moreover, blockchain has several characteristics (decentralized systems, transparency, immutability, consensus… etc) to help companies/ organizations in the process of digital transformation.
The job content changes in CFO function
Unlike the old responsibilities from CFO whos jobs is associated with balance sheets, cash flow analyses and Excel spreadsheets, with the innovative technology which here, is Blockchain technology, CFO’s role is changing and is a crucial leader in helping companies to create innovative business models and grow opportunities in the future. In the definition of the CFO, CFO incorporates the most important corporate function other than the Chief Executive Officer (CEO), actively determining and executing the strategic orientation of a corporation (Datta & Iskandar-Datta, 2014), which frequently goes beyond the mere accounting and financial reporting tasks.
Some of the literature provides practical summaries and categorizations of the CFO role, but here we pointed out four major categories (Schulden, 2019) which are Financial Reporting & Accounting, Corporate Strategic Management, Strategic Financial Management and Information System Management.
Industrial companies are forced to promote their own digital transformation to sustain on the market since the high competitive pressures in the world. Moreover, as we mentioned the features of blockchain technology, its transparency, immutability and cryptography combined with its ability to coordinate data flows. For example. IoT and AI. That why it constitutes a suitable tool for the CFO to meet the requirements of Industry 4.0. The researcher intended to address a research gap on the application side. Thus, the research questions are as follows:
(1) What is the impact of blockchain technology on the financial as well as the strategic role of the CFO?
(2) What is the impact of blockchain technology in convergence with the Machine Economy on the KPIs of the CFO?
(3) What is the impact of blockchain-enabled integrated business ecosystems on the role of the CFO?
This research was a qualitative study and explored the influence of blockchain technology on the CFO-function of an industrial company. Based on a review of the literature, semi-structured expert interviews were conducted with 11 participants. The chosen experts are people who equipped profound experience and be capable of assessing the effects of blockchain technology on the finance function in the industrial company.
The interviewed were conducted with one-to-one and semi-structured, combining with narrative interviewing as a well-suited method to answer the present research questions. However, the extent and the sequence of questions of the question catalogue was individually tailored to the participant’s expertise and area of focus (Brenner, 2006). Furthermore, all questionnaire items were open-ended in order to let participants could openly share their insights without being limited by predetermined questions.
Through the semi-structured interview process, the transcribed data is then condensed to identify analytical categories with respect to the previously defined research questions by using grounded theory. Afterwards, the researcher explained the results depends on the analytical categories each by each. The results ordered by categories are as follows.
1. Impact of Digitization on the role of the CFO:
There are general effects of digitalization on the CFO by experts perspectives. First, there is a relocation of the strategic role of the CFO. With its growth in data volumes, CFO function is shifting to a supportive role who assist the CEO in formulating the company’s corporate strategy. Secondly, the experts see data transparency as a result of digitization. CFO could develop more effective and target-oriented financial and corporate strategies because of this transparency. Moreover, digitization is a key driver for business process optimization and automation and which can provide cost reductions, better process streamlining, as well as enhanced inter-company coordination.
2. Impact of Machine Economy and IoT on the role the CFOS:
The experts considered the general effects of the Machine Economy on the CFO. In the beginning, the Machine Economy having an impact on the CFO in regard to improving business process automation and efficiency. This leads to cost-efficiencies through reduction of human capital, rationalization of administrative tasks and decreasing probability of human error. At this point, smart contracts integrate business logic and business processes which means machines can operate autonomously. Experts also see the blockchain technology in combination with other enabling technologies as a facilitator for a payment layer within the Machine Economy enabling machines to autonomously send and receive funds.
3. Impact of Blockchain Technology on the role and on Key Performance Indicators (KPIs) of the CFO:
The impacts of blockchain technology on the CFO is agreed by experts. At first, blockchain technology can improve company transparency. The distributed character of a blockchain has a positive influence on the operational insight of the CFO. Thus, the CFO gets qualified to make better strategic decisions by combining the data of different departments and stakeholders to improve the CFO’s predictive analyses and financial forecasts. Secondly, the experts attribute considerable automation potential to blockchain technology. Accordingly, experts consider blockchain-based smart contracts as the driver of automation and efficiency for the controlling-function of the CFO resulting from their inherent ability to autonomously execute and constrain business processes. According to the experts, blockchain-enabled tokenization of assets has considerable influence on capital procurement and corporate financing. In this respect, the issuance and sale of tokenized securities can be automated. Moreover, tokenization offers new forms of short-term financing and capital provision at lower borrowing costs.
4. Prerequisites for the adoption of blockchain technology by the CFO:
The prerequisites for the adoption of blockchain technology is must-do. First, CFO should acquire digital competencies, such as basic knowledge in programming and a wide understanding of innovative technologies to have abilities to combine and better view of the interrelationship between IT and business. Secondly, experts identify the need for organizational restructuring and change management. Later on, the experts see fiat currencies on the ledger as a central prerequisite for the adoption of blockchain technology and the Machine Economy. Moreover, regarding the Euro on the blockchain, it is an essential precondition for the exchange of value within the Machine Economy. Accordingly, the Euro could be made programmable, which would allow automated and end-to-end payment flows between machines.
5. Influence of Blockchain on Integrated Business Ecosystems:
Experts consider the blockchain technology as a facilitator for the emergence of integrated business ecosystems. According to the experts, this is due to the blockchain-enabled data integrity and transparency serving as a backbone for applications in industries, such as Industry 4.0, Mobility and Energy. The resulting trustworthy environment facilitates the integration between industries and automates inter-organizational automation. Moreover, new emerging business models create the potential for new profit pools. Besides blockchain technology, experts consider the necessity of the convergence of emerging technologies to facilitate integrated ecosystems. Within ecosystems, the blockchain technology manages the data collected by the IoT and the AI provides an additional layer of data analytics and automation. Furthermore, large industrial companies with a high level of use of machinery were being influenced by such ecosystems. In experts points of view, prerequisites of integrated ecosystems include the interoperability or standardization of blockchains by communicating with the affected industry stakeholders, cooperation with competitors and other external parties as well as neutral platform governance are need.
In order to facilitate new forms of inter-company collaboration, the improvements of business processes which related to efficiency and automation, improvements of CFO-relevant KPIs integrated business ecosystems and relocation of the CFO’s strategic role are necessary. The prerequisites for adoption include digital competences of the CFO, appropriate organizational structures, digital currencies and identities on the blockchain, a change of the competitive mindset, as well as standardized platforms with neutral governance.
In summary, it became evident that blockchain technology will have a significant impact on the role of the CFO of an industrial company. The companies/organizations should understand the financial implications behind and formulate the solutions for preparing the changes resulting from blockchain technology.
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Serkan Katilmis is tech entrepreneur and investor, who has more than 20 years of experience in top-tier management consulting. As CEO of CASH ON LEDGER, he promotes the Euro on blockchain systems such that smart contracts can be used in an industrial setting or in B2B contexts. Prior to that, Serkan was working for leading organizations Goldman Sachs, accenture and PwC as an executive. He holds an MBA from Duke University and completed several executive strategy programs at INSEAD. You can contact him via Linkedin.
Maximilian Forster focuses on business development working for CASH ON LEDGER. He is also in close connection with the blockchain ecosystem being a co-founder of the Blockchain Bayern e.V., member of INATBA and member of the Blockchain Taskforce at Bitkom e.V.; previously, he helped to build up the DLT and blockchain service offering of KPMG and Accenture and worked on the blockchain investment strategy for Picus Capital. He is also in close connection with financial organizations and industrial companies: e.g., he has contributed to the Goethe University Frankfurt’s “Digital Banking Practical Handbook” and DHL’s “Blockchain in Logistics” publication. You can contact him via Linkedin.
Hsiao-En Chen studied TUM-BWL at the Technical University of Munich. Her fields of interests are mainly blockchain technology, cryptocurrencies, e-commerce. She participated in several projects related to Fin-tech applications, previously worked as an Assistant editor in “MIS Review” and Research Assistant in the Department of Management Information Systems in National Chenchi University, Taiwan. You can contact her via Linkedin.
Ya-Fang Cheng has studied Finance and Informatics at Technical University of Munich (TUM). As an professional auditor in PricewaterhouseCoopers(Pwc) for two years, she had advanced her practical experiences in the field of finance and business by providing audit and tax assurance service to multinational corporations. Further, she is also an active attendee of various blockchain and technology forums. You can contact her via e-mail or Linkedin.
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Datta, S., & Iskandar-Datta, M. (2014). Upper-echelon executive human capital and compensation: Generalist vs specialist skills. Strategic Management Journal, 35(12), 1853–1866. https://doi.org/10.1002/smj.2267
Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Retrieved from www.bitcoin.org
Schulden, P. (2019). The Role of the CFO-function of an Industrial Company: An Analysis of the Impact of Blockchain Technology (Unpublished master’s dissertation). Frankfurt School of Finance and Management, Frankfurt am Main, Germany.