Charted: Who Cares About Data Breaches?

Michael S. Goldberg

increase in data breaches in 2016

In September 2017, more than half of all Americans learned that some of their most vital personal data, including Social Security numbers and driver’s license numbers, had been stolen in a massive breach at the Equifax consumer credit reporting agency. As a result, the data used to evaluate consumers’ creditworthiness is now potentially available to thieves and fraudsters who could ruin individuals’ financial reputations—and their ability to borrow for a car, a home, or a college education.

The Equifax breach is extreme, but, unfortunately, not unique. The Identity Theft Resource Center, a nonprofit organization set up to support identity theft victims, reported 1,093 data breaches in 2016, a 40% rise from the previous year. Meanwhile, 2017 is shaping up to be worse: 791 incidents were reported through June.

more security spending in 2017

The question is: so what?

It’s not as if consumers aren’t aware of what’s happening. According to a Pew Research Center study published in January 2017, 49% of Americans believe that their personal data is less secure today than it was five years ago. Those fears are well founded: 64% of Americans have been victims of a major data breach, including fraudulent credit card charges, compromised data, hijacked e-mail or social media accounts, and loans or lines of credit taken out in their name.

Corporations globally will spend US$8.6 billion this year on information security, according to Gartner, just to mitigate the risk of a security incident—7% more than in 2016.

of Americans see firms as very prepared to handle cyberattacks

Yet according to the Pew study, only 9% of Americans believe companies are very prepared to handle cyberattacks: 52% see firms as “somewhat prepared.” At the same time, individuals have been cavalier in their own cyber behavior: 86% of American consumers memorize their passwords (meaning they choose words or phrases that can be easy for others to decode), and 49% write them down.

In other words, we all have skin in the game when it comes to data breaches, hacked systems, and compromised personal data incidents. But they all seem to run together like the plot of a dreary movie that feels like it will never end.

Maybe if we knew how much our companies, and ourselves as individuals, were losing, we would pay more attention. While public reporting about information security breaches can be difficult to come by, researchers in recent years have sought to quantify the costs: to shareholders, to corporations, and to consumers. Results indicate that the costs are significant.

Everyone Loses

Shareholders: −1.8% of company value

The aftermath of a severe breach has a material and lasting negative effect on public companies, according to a study of companies in the United Kingdom by Oxford Economics.

The study asserts that for a typical large firm in the FTSE 100 stock market index, a severe data breach results in an average decline of 1.8% in market capitalization compared to a control group of similar companies. This equates to a permanent loss of market capitalization averaging £120 million, or approximately $161 million, for the typical firm studied.

Other researchers have also found statistically significant negative impacts on company value in the aftermath of data breaches. These researchers note that it is difficult to attribute losses of value to any single factor, such as a data breach, in the long-term activity of a stock (which may be influenced by other economic and market conditions). Even so, catastrophic breaches can hurt a company’s market value in the short term. During the 2017 Yahoo–Verizon merger, the revelation of a series of data breaches at Yahoo prompted Verizon to reduce the price it paid to purchase the company.

Companies: −3.6 million per breach

No matter what companies spend to prevent security incidents, the occurrence of a breach creates a new set of expenses. Researchers have different ways of looking at the costs, so estimates vary.

According to a 2016 study by Sasha Romanosky in the Journal of Cybersecurity, a typical cyber incident costs a company $200,000 to manage. Romanosky, a policy researcher at RAND Corporation, examined 921 cases—including data breaches, digital security incidents (such as distributed denial of service attacks), privacy violations, and phishing incidents—for which there was enough cost data available. The litany of expenses is extensive:

  • Forensic investigation to determine the cause
  • Notifications to consumers affected by the incident
  • Marketing and public relations campaigns to respond
  • Customer support efforts
  • Consumer redress, such as credit monitoring or identity theft insurance, if applicable
  • Costs incurred as a result of private litigation, such as class action lawsuits, judicial rulings, settlements, or court awards
  • Possible fines or fees brought by government agencies

Romanosky also noted intangible costs, including lost management time due to executive turnover (when a CEO or other senior executives must resign) and the loss of reputation.

A 2017 study by Ponemon Institute looked at the cost of an average data breach and derived a higher estimate: $3.6 million. This price tag applies to companies suffering breaches that affected fewer than 100,000 records—that is, the more common type of data breach that companies typically deal with, not the catastrophic incident that makes big headlines. This study, which relied on interviews with representatives of 419 companies around the world, found that companies spent an average $141 per record to repair the damage from a breach.

Respondents in the Ponemon study said that having an incident response team lowered the cost of a breach by close to $1 million, on average, because these teams enabled a company to contain a breach within 30 days.

However, losses are not limited to what companies spend responding to a breach. The Verizon 2017 Data Breach Investigations Report noted that phishing scams and other e-mail–based attacks against companies that result in financial theft cost firms around the world tens of millions of dollars in 2016.

Consumers: −$1,769 per consumer

When consumers’ identities or accounts are compromised, individuals and businesses share the financial losses. A 2017 study by Javelin Strategy & Research found that consumers battling an account takeover—such as a hacker taking over a credit card, bank account, or other account—spend $263 on average to fix the situation.

When the victim’s identity is misused to purchase goods or get cash, financial institutions also suffer. A 2013 report by the U.S. Bureau of Justice Statistics pegged the total cost at $1,769 per consumer. That figure includes the value of goods, services, or cash obtained using stolen credit or debit cards. Credit card issuers and banks typically cover any fraudulent charges.

Keep Investing in Cybersecurity

Data breaches are here to stay, and everyone is on the hook to prevent or contain losses. Here are some ways to minimize or prevent damage:

Take cues from regulations. Around the world, government regulations concerning information security continue to evolve. As the Ponemon Institute notes, companies that do business in the eurozone will soon have a new mandate. Starting in May 2018, the European Union will require organizations to report data breaches within 72 hours or risk fines of up to 4% of global income. Consider rules like this when evaluating investments in system monitoring and crisis response.

Adopt a hacker mindset. Researchers, including José Esteves, an associate professor of information systems at the IE Business School in Madrid, studied hackers to learn how they think. They identified a four-step approach that hackers use to gain control of someone else’s data:

  1. Identify vulnerabilities (such as a vendor, a new employee, or a system that does not comply with security standards).
  2. Scan and test to seek additional entrances into a system.
  3. Gain access (through technical means or by communicating with a person susceptible to misleading messages).
  4. Maintain access.

Think like the hackers, Esteves and his colleagues contend, and you can address your vulnerabilities before the malefactors find them.

Don’t give up. Corporate information security leaders can justify continued investments in risk management and risk mitigation. As the Ponemon study demonstrates, that’s why it’s time to staff up that incident response team. They could be worth a million bucks—literally. D!


Michael S. Goldberg

About Michael S. Goldberg

Michael S. Goldberg is an independent writer and editor focusing on management and technology issues.

Must-Ask IoT Questions: How Will You Manage Operator Contracts And Connections?

John Candish

In my previous blog, I shared eight imperative questions that enterprises must ask themselves before building their IoT ecosystems. In this blog of the “Must-Ask IoT Questions” series, I explore the question: How will you manage operator contracts and connections?

IoT solutions that minimize management requirements enable enterprises to focus on their core business, one of the most complicated and laborious aspects of an IoT deployment is negotiating and managing operator relationships.

If the enterprise operates in multiple geographies—hence requiring connections with multiple operators—this complexity only increases. Take, for example, an automobile manufacturer that must track vehicle data when its cars move from one region to another, or a washing machine manufacturer that sells products in different continents. It is critical for these manufacturers to access data and reach connected things that are aggregated and provisioned across multiple mobile network operators or MNOs.

You will want to have an IoT solution that reduces these complexities by connecting all the IoT devices to the most cost-effective operator with the most robust network. Beyond connectivity, you need a provider that manages all the operator contracts.

IoT connectivity is an additional management concern for manufacturers. A global consumer goods manufacturer could easily have more than one million SIMs deployed in its products. To reach that kind of scale, the manufacturer should look for an IoT platform that simplifies management to a single, consistent SIM for all networks and the life of the connected thing.

What can help reduce the IoT deployment complexity? A single:

  • Contract for global connectivity
  • Connection enabling access to networks globally
  • Rich API allowing the connectivity to be integrated into the IoT application or service life cycle

As the size of the IoT ecosystem grows and the management requirements become more complex, it is critical to address these concerns early. I invite you to read the SAP Digital Interconnect whitepaper “Best Practices for Bridging the Physical and Digital Worlds of the Internet of Things” for a deeper dive of the eight must-ask IoT questions.


John Candish

About John Candish

John Candish leads the global business for SAP IoT Connect 365 for the SAP Digital Interconnect organization His goal is to make connecting IoT devices globally simpler for all enterprises. John has worked in both technical and commercial roles. Prior to his current position, John headed the global business for SAP IPX 365 mobile service for SAP Digital Interconnect.

Reducing Energy Consumption In The Mining Industry With The IoT

Jennifer Scholze

Without the mining industry, our lives would come to a screeching halt. Mining operations allow us to harvest natural raw materials from the earth. We pull out precious and non-precious metals and minerals that can be used to make parts and products. In addition, the mining industry also reaps natural resources such as crude oil used for fuel in our lives and businesses.

Unfortunately, ore deposits that were once mined closer to the surface are no longer available. They have become significantly depleted. This issue has led mining operations to dig deeper for minerals, metals, and fuel resources in more remote locations. As miners go deeper, they are using tremendous amounts of energy to run equipment, operate trucks, and monitor worker safety to minimize accidents. Using more energy can lead to wasteful and inefficient operations that drive up costs.

If energy usage spirals out of control, mining companies can find themselves spending more than they will recoup when selling raw materials. In the end, many mining operators are closing their operations or selling to bigger corporations to cut their losses.

In an effort to control energy consumption, mining companies need more understanding about their operations. They need to analyze equipment, workers, and processes to uncover inefficiencies and establish parameters for greater energy control. The Internet of Things (IoT) is helping these operators spearhead better strategies to increase productivity while preventing their their energy consumption from getting out of control.

IoT analysis providing valuable energy consumption data

The Internet of Things is a heavy topic of conversation among thought leaders, experts, and analysts in a range of different industries. As the world becomes more digitally connected, it has opened the doors for greater amounts of data collection and real-time information that can be used instantly in a business environment.

The IoT basically involves the use of vast networks of uniquely identifiable endpoints, often called “things” as they can consist of a range of different equipment, systems, machinery, sensors, and even AI. These networks are connected via Internet protocols (IP) to share data and information without human interaction.

Having a steady flow of real-time data has changed the way mining companies operate. IoT has enabled more accurate data collection to create better business strategies. When combining IoT with energy consumption analysis, mining operations can implement cost-effective energy management procedures to cut back on waste while optimizing daily processes.

IoT in key aspects of mining

There are numerous processes involved in mining operations, from exploration activities that discover ore deposits and strike lengths on rock formations to mining the ore from underground pits and exporting it to processors and manufacturers. IoT can analyze machinery and processes to record normal energy usage parameters and anomalies in consumption.

Following are some of the ways IoT can be applied to energy management strategies in the mining industry.

Operational optimization

Most energy use occurs during the normal course of operations. In an effort to reduce usage, key performance indicators (KPIs) can be established for each process. IoT allows mining operations to gather data from other mining industry operations and create benchmarks for average energy consumption. These benchmarks can then be compared to actual energy consumption data in current processes. Equipment and systems connected through IP networks can constantly send this information to operators for analysis so energy efficiency policies can be established.

One operational process that can be improved with IoT is stopping machinery, such as scoop trams, from sitting idle while workers are performing other tasks. Sensors placed on the motor and inside the driver compartment can detect whether the driver has stepped out of the machine and the engine has been left on. This data can be relayed to controls that will automatically shut off the machine remotely.


Mining equipment and system failures can play a big factor in energy consumption. Malfunctioning equipment that can no longer efficiently use fuel resources can waste energy. In addition, shipping replacement equipment in short order when machinery breaks down increases energy costs.

Sensors and monitors on equipment can analyze system operations and identify lower levels of operation. Real-time IoT data increases the chance that an operator can predict when a system or piece of equipment is about to fail. Processes can then be moved to backup equipment without interrupting mining operations. Meanwhile, mining operators can perform needed maintenance on other systems to bring them back online to their highest efficiency levels.


Mining operations harbor many risks to equipment and workers. Hazardous gases can build up in mining tunnels without accurate ventilation. Rising temperatures can harm equipment, miners, and drivers. In addition, weather conditions and driving accidents can slow operations and increase energy usage.

IoT enables operators to track environmental and workplace situations for safety hazards. Sensors in underground mines can monitor air quality and analyze the types of gasses in the air. Using IoT, these sensors can switch on ventilation fans and controls to bring in more fresh air to workers. They can also send out instant alerts when the air quality has become so poor that workers should evacuate through designated escape routes.

IoT can also increase driver safety when moving mined ore deposits. Sensors on trucks can track tire pressure, ground conditions, weather, and speed to reduce accidents and increase safety protocols.

The mining industry adopts IoT for better energy use

To compete in the mining industry, companies must decrease operational costs while increasing mining production. Using IoT to lower energy usage is a vital step in increasing productivity and reducing energy waste. Mining operators will be able to optimize systems, network equipment, and workers to reduce energy consumption and increase safety at the worksite.

Learn how to bring new technologies and services together to power digital transformation by downloading The IoT Imperative for Energy and Natural Resource Companies. Explore how to bring Industry 4.0 insights into your business today by reading Industry 4.0: What’s Next?


Jennifer Scholze

About Jennifer Scholze

Jennifer Scholze is the Global Lead for Industry Marketing for the Mill Products and Mining Industries at SAP. She has over 20 years of technology marketing, communications and venture capital experience and lives in the Boston area with her husband and two children.

The Blockchain Solution

By Gil Perez, Tom Raftery, Hans Thalbauer, Dan Wellers, and Fawn Fitter

In 2013, several UK supermarket chains discovered that products they were selling as beef were actually made at least partly—and in some cases, entirely—from horsemeat. The resulting uproar led to a series of product recalls, prompted stricter food testing, and spurred the European food industry to take a closer look at how unlabeled or mislabeled ingredients were finding their way into the food chain.

By 2020, a scandal like this will be eminently preventable.

The separation between bovine and equine will become immutable with Internet of Things (IoT) sensors, which will track the provenance and identity of every animal from stall to store, adding the data to a blockchain that anyone can check but no one can alter.

Food processing companies will be able to use that blockchain to confirm and label the contents of their products accordingly—down to the specific farms and animals represented in every individual package. That level of detail may be too much information for shoppers, but they will at least be able to trust that their meatballs come from the appropriate species.

The Spine of Digitalization

Keeping food safer and more traceable is just the beginning, however. Improvements in the supply chain, which have been incremental for decades despite billions of dollars of technology investments, are about to go exponential. Emerging technologies are converging to transform the supply chain from tactical to strategic, from an easily replicable commodity to a new source of competitive differentiation.

You may already be thinking about how to take advantage of blockchain technology, which makes data and transactions immutable, transparent, and verifiable (see “What Is Blockchain and How Does It Work?”). That will be a powerful tool to boost supply chain speed and efficiency—always a worthy goal, but hardly a disruptive one.

However, if you think of blockchain as the spine of digitalization and technologies such as AI, the IoT, 3D printing, autonomous vehicles, and drones as the limbs, you have a powerful supply chain body that can leapfrog ahead of its competition.

What Is Blockchain and How Does It Work?

Here’s why blockchain technology is critical to transforming the supply chain.

Blockchain is essentially a sequential, distributed ledger of transactions that is constantly updated on a global network of computers. The ownership and history of a transaction is embedded in the blockchain at the transaction’s earliest stages and verified at every subsequent stage.

A blockchain network uses vast amounts of computing power to encrypt the ledger as it’s being written. This makes it possible for every computer in the network to verify the transactions safely and transparently. The more organizations that participate in the ledger, the more complex and secure the encryption becomes, making it increasingly tamperproof.

Why does blockchain matter for the supply chain?

  • It enables the safe exchange of value without a central verifying partner, which makes transactions faster and less expensive.
  • It dramatically simplifies recordkeeping by establishing a single, authoritative view of the truth across all parties.
  • It builds a secure, immutable history and chain of custody as different parties handle the items being shipped, and it updates the relevant documentation.
  • By doing these things, blockchain allows companies to create smart contracts based on programmable business logic, which can execute themselves autonomously and thereby save time and money by reducing friction and intermediaries.

Hints of the Future

In the mid-1990s, when the World Wide Web was in its infancy, we had no idea that the internet would become so large and pervasive, nor that we’d find a way to carry it all in our pockets on small slabs of glass.

But we could tell that it had vast potential.

Today, with the combination of emerging technologies that promise to turbocharge digital transformation, we’re just beginning to see how we might turn the supply chain into a source of competitive advantage (see “What’s the Magic Combination?”).

What’s the Magic Combination?

Those who focus on blockchain in isolation will miss out on a much bigger supply chain opportunity.

Many experts believe emerging technologies will work with blockchain to digitalize the supply chain and create new business models:

  • Blockchain will provide the foundation of automated trust for all parties in the supply chain.
  • The IoT will link objects—from tiny devices to large machines—and generate data about status, locations, and transactions that will be recorded on the blockchain.
  • 3D printing will extend the supply chain to the customer’s doorstep with hyperlocal manufacturing of parts and products with IoT sensors built into the items and/or their packaging. Every manufactured object will be smart, connected, and able to communicate so that it can be tracked and traced as needed.
  • Big Data management tools will process all the information streaming in around the clock from IoT sensors.
  • AI and machine learning will analyze this enormous amount of data to reveal patterns and enable true predictability in every area of the supply chain.

Combining these technologies with powerful analytics tools to predict trends will make lack of visibility into the supply chain a thing of the past. Organizations will be able to examine a single machine across its entire lifecycle and identify areas where they can improve performance and increase return on investment. They’ll be able to follow and monitor every component of a product, from design through delivery and service. They’ll be able to trigger and track automated actions between and among partners and customers to provide customized transactions in real time based on real data.

After decades of talk about markets of one, companies will finally have the power to create them—at scale and profitably.

Amazon, for example, is becoming as much a logistics company as a retailer. Its ordering and delivery systems are so streamlined that its customers can launch and complete a same-day transaction with a push of a single IP-enabled button or a word to its ever-attentive AI device, Alexa. And this level of experimentation and innovation is bubbling up across industries.

Consider manufacturing, where the IoT is transforming automation inside already highly automated factories. Machine-to-machine communication is enabling robots to set up, provision, and unload equipment quickly and accurately with minimal human intervention. Meanwhile, sensors across the factory floor are already capable of gathering such information as how often each machine needs maintenance or how much raw material to order given current production trends.

Once they harvest enough data, businesses will be able to feed it through machine learning algorithms to identify trends that forecast future outcomes. At that point, the supply chain will start to become both automated and predictive. We’ll begin to see business models that include proactively scheduling maintenance, replacing parts just before they’re likely to break, and automatically ordering materials and initiating customer shipments.

Italian train operator Trenitalia, for example, has put IoT sensors on its locomotives and passenger cars and is using analytics and in-memory computing to gauge the health of its trains in real time, according to an article in Computer Weekly. “It is now possible to affordably collect huge amounts of data from hundreds of sensors in a single train, analyse that data in real time and detect problems before they actually happen,” Trenitalia’s CIO Danilo Gismondi told Computer Weekly.

Blockchain allows all the critical steps of the supply chain to go electronic and become irrefutably verifiable by all the critical parties within minutes: the seller and buyer, banks, logistics carriers, and import and export officials.

The project, which is scheduled to be completed in 2018, will change Trenitalia’s business model, allowing it to schedule more trips and make each one more profitable. The railway company will be able to better plan parts inventories and determine which lines are consistently performing poorly and need upgrades. The new system will save €100 million a year, according to ARC Advisory Group.

New business models continue to evolve as 3D printers become more sophisticated and affordable, making it possible to move the end of the supply chain closer to the customer. Companies can design parts and products in materials ranging from carbon fiber to chocolate and then print those items in their warehouse, at a conveniently located third-party vendor, or even on the client’s premises.

In addition to minimizing their shipping expenses and reducing fulfillment time, companies will be able to offer more personalized or customized items affordably in small quantities. For example, clothing retailer Ministry of Supply recently installed a 3D printer at its Boston store that enables it to make an article of clothing to a customer’s specifications in under 90 minutes, according to an article in Forbes.

This kind of highly distributed manufacturing has potential across many industries. It could even create a market for secure manufacturing for highly regulated sectors, allowing a manufacturer to transmit encrypted templates to printers in tightly protected locations, for example.

Meanwhile, organizations are investigating ways of using blockchain technology to authenticate, track and trace, automate, and otherwise manage transactions and interactions, both internally and within their vendor and customer networks. The ability to collect data, record it on the blockchain for immediate verification, and make that trustworthy data available for any application delivers indisputable value in any business context. The supply chain will be no exception.

Blockchain Is the Change Driver

The supply chain is configured as we know it today because it’s impossible to create a contract that accounts for every possible contingency. Consider cross-border financial transfers, which are so complex and must meet so many regulations that they require a tremendous number of intermediaries to plug the gaps: lawyers, accountants, customer service reps, warehouse operators, bankers, and more. By reducing that complexity, blockchain technology makes intermediaries less necessary—a transformation that is revolutionary even when measured only in cost savings.

“If you’re selling 100 items a minute, 24 hours a day, reducing the cost of the supply chain by just $1 per item saves you more than $52.5 million a year,” notes Dirk Lonser, SAP go-to-market leader at DXC Technology, an IT services company. “By replacing manual processes and multiple peer-to-peer connections through fax or e-mail with a single medium where everyone can exchange verified information instantaneously, blockchain will boost profit margins exponentially without raising prices or even increasing individual productivity.”

But the potential for blockchain extends far beyond cost cutting and streamlining, says Irfan Khan, CEO of supply chain management consulting and systems integration firm Bristlecone, a Mahindra Group company. It will give companies ways to differentiate.

“Blockchain will let enterprises more accurately trace faulty parts or products from end users back to factories for recalls,” Khan says. “It will streamline supplier onboarding, contracting, and management by creating an integrated platform that the company’s entire network can access in real time. It will give vendors secure, transparent visibility into inventory 24×7. And at a time when counterfeiting is a real concern in multiple industries, it will make it easy for both retailers and customers to check product authenticity.”

Blockchain allows all the critical steps of the supply chain to go electronic and become irrefutably verifiable by all the critical parties within minutes: the seller and buyer, banks, logistics carriers, and import and export officials. Although the key parts of the process remain the same as in today’s analog supply chain, performing them electronically with blockchain technology shortens each stage from hours or days to seconds while eliminating reams of wasteful paperwork. With goods moving that quickly, companies have ample room for designing new business models around manufacturing, service, and delivery.

Challenges on the Path to Adoption

For all this to work, however, the data on the blockchain must be correct from the beginning. The pills, produce, or parts on the delivery truck need to be the same as the items listed on the manifest at the loading dock. Every use case assumes that the data is accurate—and that will only happen when everything that’s manufactured is smart, connected, and able to self-verify automatically with the help of machine learning tuned to detect errors and potential fraud.

Companies are already seeing the possibilities of applying this bundle of emerging technologies to the supply chain. IDC projects that by 2021, at least 25% of Forbes Global 2000 (G2000) companies will use blockchain services as a foundation for digital trust at scale; 30% of top global manufacturers and retailers will do so by 2020. IDC also predicts that by 2020, up to 10% of pilot and production blockchain-distributed ledgers will incorporate data from IoT sensors.

Despite IDC’s optimism, though, the biggest barrier to adoption is the early stage level of enterprise use cases, particularly around blockchain. Currently, the sole significant enterprise blockchain production system is the virtual currency Bitcoin, which has unfortunately been tainted by its associations with speculation, dubious financial transactions, and the so-called dark web.

The technology is still in a sufficiently early stage that there’s significant uncertainty about its ability to handle the massive amounts of data a global enterprise supply chain generates daily. Never mind that it’s completely unregulated, with no global standard. There’s also a critical global shortage of experts who can explain emerging technologies like blockchain, the IoT, and machine learning to nontechnology industries and educate organizations in how the technologies can improve their supply chain processes. Finally, there is concern about how blockchain’s complex algorithms gobble computing power—and electricity (see “Blockchain Blackouts”).

Blockchain Blackouts

Blockchain is a power glutton. Can technology mediate the issue?

A major concern today is the enormous carbon footprint of the networks creating and solving the algorithmic problems that keep blockchains secure. Although virtual currency enthusiasts claim the problem is overstated, Michael Reed, head of blockchain technology for Intel, has been widely quoted as saying that the energy demands of blockchains are a significant drain on the world’s electricity resources.

Indeed, Wired magazine has estimated that by July 2019, the Bitcoin network alone will require more energy than the entire United States currently uses and that by February 2020 it will use as much electricity as the entire world does today.

Still, computing power is becoming more energy efficient by the day and sticking with paperwork will become too slow, so experts—Intel’s Reed among them—consider this a solvable problem.

“We don’t know yet what the market will adopt. In a decade, it might be status quo or best practice, or it could be the next Betamax, a great technology for which there was no demand,” Lonser says. “Even highly regulated industries that need greater transparency in the entire supply chain are moving fairly slowly.”

Blockchain will require acceptance by a critical mass of companies, governments, and other organizations before it displaces paper documentation. It’s a chicken-and-egg issue: multiple companies need to adopt these technologies at the same time so they can build a blockchain to exchange information, yet getting multiple companies to do anything simultaneously is a challenge. Some early initiatives are already underway, though:

  • A London-based startup called Everledger is using blockchain and IoT technology to track the provenance, ownership, and lifecycles of valuable assets. The company began by tracking diamonds from mine to jewelry using roughly 200 different characteristics, with a goal of stopping both the demand for and the supply of “conflict diamonds”—diamonds mined in war zones and sold to finance insurgencies. It has since expanded to cover wine, artwork, and other high-value items to prevent fraud and verify authenticity.
  • In September 2017, SAP announced the creation of its SAP Leonardo Blockchain Co-Innovation program, a group of 27 enterprise customers interested in co-innovating around blockchain and creating business buy-in. The diverse group of participants includes management and technology services companies Capgemini and Deloitte, cosmetics company Natura Cosméticos S.A., and Moog Inc., a manufacturer of precision motion control systems.
  • Two of Europe’s largest shipping ports—Rotterdam and Antwerp—are working on blockchain projects to streamline interaction with port customers. The Antwerp terminal authority says eliminating paperwork could cut the costs of container transport by as much as 50%.
  • The Chinese online shopping behemoth Alibaba is experimenting with blockchain to verify the authenticity of food products and catch counterfeits before they endanger people’s health and lives.
  • Technology and transportation executives have teamed up to create the Blockchain in Transport Alliance (BiTA), a forum for developing blockchain standards and education for the freight industry.

It’s likely that the first blockchain-based enterprise supply chain use case will emerge in the next year among companies that see it as an opportunity to bolster their legal compliance and improve business processes. Once that happens, expect others to follow.

Customers Will Expect Change

It’s only a matter of time before the supply chain becomes a competitive driver. The question for today’s enterprises is how to prepare for the shift. Customers are going to expect constant, granular visibility into their transactions and faster, more customized service every step of the way. Organizations will need to be ready to meet those expectations.

If organizations have manual business processes that could never be automated before, now is the time to see if it’s possible. Organizations that have made initial investments in emerging technologies are looking at how their pilot projects are paying off and where they might extend to the supply chain. They are starting to think creatively about how to combine technologies to offer a product, service, or business model not possible before.

A manufacturer will load a self-driving truck with a 3D printer capable of creating a customer’s ordered item en route to delivering it. A vendor will capture the market for a socially responsible product by allowing its customers to track the product’s production and verify that none of its subcontractors use slave labor. And a supermarket chain will win over customers by persuading them that their choice of supermarket is also a choice between being certain of what’s in their food and simply hoping that what’s on the label matches what’s inside.

At that point, a smart supply chain won’t just be a competitive edge. It will become a competitive necessity. D!

About the Authors

Gil Perez is Senior Vice President, Internet of Things and Digital Supply Chain, at SAP.

Tom Raftery is Global Vice President, Futurist, and Internet of Things Evangelist, at SAP.

Hans Thalbauer is Senior Vice President, Internet of Things and Digital Supply Chain, at SAP.

Dan Wellers is Global Lead, Digital Futures, at SAP.

Fawn Fitter is a freelance writer specializing in business and technology.

Read more thought provoking articles in the latest issue of the Digitalist Magazine, Executive Quarterly.



Why Blockchain Is Crucial For FP&A: Part 1

Brian Kalish

Part 17 in the Dynamic Planning Series

In these times of almost continuous technological change, there is a natural tendency to be suspect of whatever is being heralded as the “flavor of the month” or the “next best bet.” In early 2017, I was graciously given the opportunity to speak on what I believed to be the technologies that were transforming finance and specifically, the FP&A function. The talk I ended up giving covered five areas:

  • Advanced analytics and forecasting
  • Robotic process automation
  • Cloud and Software-as-a-Service
  • Artificial intelligence
  • Blockchain

While all these topics deserve further investigation, for this article, I want to focus on blockchain. Part of the reason for diving deeper into blockchain is the lack of understanding of what it actually is and the great amount of time people in the finance function are currently spending talking about it. This has greatly changed in the past nine months.

Last March, while hosting an FP&A Roundtable in Boston, I ask a group of 25 senior FP&A professionals how familiar they were with the concept of blockchain. Out of this august group, there was only one participant who felt truly comfortable with the concept. I still get asked on a regular basis, all over the world, “Blockchain. What is it?”

Blockchain: What is it?

By allowing digital information to be distributed but not copied, blockchain technology has created the spine of a new type of Internet. Picture a spreadsheet that is duplicated thousands of times across a network of computers. Now imagine that this network is designed to regularly update this spreadsheet, and you have a basic understanding of blockchain.

Information held on a blockchain exists as a shared and continually reconciled database. This is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly transparent and easily verifiable. No centralized version of this information exists for someone to corrupt. Hosted by many computers simultaneously, its data is accessible to any authorized user.

Blockchain technology is like the Internet in that it has a built-in robustness. By storing blocks of information that are identical across its network, the blockchain 1) cannot be controlled by any single entity and 2) has no single point of failure. The Internet itself has proven to be durable for almost 30 years. It’s a track record that bodes well for blockchain technology as it continues to be developed.

A self-auditing ecosystem

The blockchain network lives in a state of consensus, one that automatically checks in with itself on a regular basis. A kind of self-auditing ecosystem of a digital value, the network reconciles every transaction that happens at regular intervals. Each group of these transactions is referred to as a “block.” Two important properties result from this:

Transparency. Data is embedded within the network as a whole, and by definition, is available to all authorized users.

Incorruptibility. Altering any unit of information on the blockchain would mean using a huge amount of computing power to override the entire network. In theory, it is possible; however, in practice, it’s unlikely to happen.

A decentralized technology

By design, the blockchain is a decentralized technology, so anything that happens on it is a function of the network as a whole. Some important implications stem from this. By creating a new way to verify transactions, aspects of traditional commerce may become unnecessary.

Today’s Internet has security problems that are familiar to everyone. However, by storing data across its network, the blockchain eliminates the risks that come with data held centrally. There are no centralized points of vulnerability that can be exploited. In addition, while we all currently rely on the “username/password” system to protect our identity and assets online, blockchain security methods use encryption technology.

I hope this little tutorial helps describe what blockchain is. In my next article, I’ll discuss the value of blockchain to the FP&A profession.

For more on this topic, read the two-part “Blockchain and the CFO” series and “When Blockchain Fulfills CFOs’ Paperless Vision.”

2018 will be a busy year with FP&A Roundtables in St. Louis, Charlotte, Atlanta, San Diego, Las Vegas, London, Boston, Minneapolis, DFW, San Francisco, Hong Kong, Jeddah, and many other locations around the world to support the global FP&A community.

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Brian Kalish

About Brian Kalish

Brian Kalish is founder and principal at Kalish Consulting. As a public speaker and writer addressing many of the most topical issues facing treasury and FP&A professionals today, he is passionately committed to building and connecting the global FP&A community. He hosts FP&A Roundtable meetings in North America, Europe, Asia, and South America. Brian is former executive director of the global FP&A Practice at AFP. He has over 20 years experience in finance, FP&A, treasury, and investor relations. Before joining AFP, he held a number of treasury and finance positions with the FHLB, Washington Mutual/JP Morgan, NRUCFC, Fifth Third Bank, and Fannie Mae. Brian attended Georgia Tech in Atlanta, GA for his undergraduate studies and the Pamplin College of Business at Virginia Tech for his graduate work. In 2014, Brian was awarded the Global Certified Corporate FP&A Professional designation.