Lacity, Professor of Information Systems at University of Arkansas, talks with Aera Technology Chief Data Officer Pascal Bornet
Pascal Bornet: Hello everyone. Welcome to our new episode of our automation communities fire chat. Today, it's my pleasure to welcome Dr. Mary Lacity as our distinguished guest. Mary, how are you today?
Dr. Mary Lacity: I'm great, Pascal, and when you said a fireside chat, I wanted to deliver a fireside chat.
Pascal Bornet: Thank you. I see your ... I can feel your energy. We are super happy and honored to have you with us today, Mary. So over the coming minutes, I will try to introduce you, which is quite of a challenge to summarize such an amazing career in such a short amount of time, but here is a tentative. You're a Professor of Information Systems and Director of the Blockchain, Center of Excellence in the Walton College of Business at the University of Arkansas. Your recent research is focused on improving business services using robotic process automation, cognitive automation, and blockchain technologies. A Lot of great things that we will talk about. Your service automation book series with the Leslie Wilcox won the 2019 Outreach Practice Publication awarded by the Association of Information Systems. It's a series of four books that I strongly recommend to our audience today.
You have published over 30 books and most recently the "Blockchain Foundations: For the Internet of Value", and just before that, "Becoming Strategic with Robotic Process Automation." Your publication have appeared in the Harvard Business Review, Sloan Management Review, MIS Quarterly, IEE Computer and many other outlets. So very, very honored to have you with us today. Let me start with our first question. As an expert in business services and information systems, you focused over the last decades on business outsourcing and cognitive automation. But then over the last few years, you've started to focus on blockchain. I'm very eager to know more about this. Does that have a meaning as to where the levers for business efficiency are evolving today? Can you explain this transition?
Dr. Mary Lacity: Yes. Well, first of all, it's an honor to be with you Pascal. You are one of the leaders in understanding intelligent automation, and I love that you have your book cover behind you. I highly recommend your book to people, and I want to congratulate you on the content.
Pascal Bornet: Thank you.
Dr. Mary Lacity: One of the things I loved about your book was it's so accessible. I mean, you could sit down in about two hours and really digest it. It's beautifully written. It's got lots of images and pictures. I really enjoyed your book, so thank you for that contribution.
Pascal Bornet: Thank you so much, Mary.
Dr. Mary Lacity: Hopefully, in this conversation, we can maybe help connect the audience to service automation technologies that they're probably familiar with, like RPA and what we call cognitive automation, what you call intelligent automation and blockchain.
So how did I get interested in this? You mentioned we had studied outsourcing and for a long time, that was really a labor arbitrage model, right? We were globally sourcing. It was still a lot of human labor performing the services. Probably in around 2014, we really saw that automation was going to change the landscape of services. That the first set of tools, RPA, as you well know, was very good at coming in and taking those excruciatingly robotic tasks out of a humans job, and so we saw a lot of uptake with that. Then the next evolution was cognitive automation. Both of those tools that we studied adoptions really take place within the boundaries of the firm, right? They're making adoption decisions. Do I buy Blue Prism? Do I buy Watson within the boundaries of the firm?
What completely blows my mind about blockchains is we're now talking about automations of ecosystems. So it's like a whole nother level of a unit of analysis of automation possibilities, which could really explode business value for entire ecosystems. I love it because the challenge to to actually get there are stickier and even more complicated than the ones you ... we're mostly familiar with inside the boundaries of the firm.
Pascal Bornet: Amazing, very interesting. So it's about getting from the inside, the business efficiency thing from the inside of the company with cognitive automation and RPA from automating ecosystem of companies with an external view to the company with blockchain. That's amazing. Can you tell us more about what you're currently working on in the domain of blockchain, and what you've been researching on the topic?
Dr. Mary Lacity: Sure, absolutely. I primarily study how traditional enterprises are working with their ecosystem partners to develop blockchain solutions that are shared. So I'm very much focused on traditional enterprises. I'm not focused on the cryptocurrency market, or the NFTs, or a lot of what you're seeing in the popular press, so really looking at traditional enterprises. What we do is we study first-generation adoptions, so technology solutions that are already out there. Because from our perspective as academics, I think really business people want to know how do I get business value out of this? The best way to do that is to highlight early success stories. we just published a great article. I'm going to do my own product placement here, Pascal, in Sloan management review with my coauthor Remko Van Hoek. We talked about first-generation solutions that are already out there. Many of our examples are in supply chains, and we can talk and do some storytelling and share some examples if we get into that part of the discussion.
Pascal Bornet: I would love to, yes, yes.
Dr. Mary Lacity: Okay, so why don't we start? Why don't we tell three different stories? Because I think this will give the audience a good idea of how enterprises approach this.
The common theme across these three stories is how do you build a minimal viable ecosystem? So what's the minimum number of partners you have to engage with to develop a minimum viable product, right? That's our initial journey and our initial goal. One of my favorite case studies we just finished was in Wal-Mart Canada with DLT Labs they created a solution called DL Freight. This is going to give your audience a great idea of the potential business value. Before the blockchain enabled solution, Walmart Canada was in dispute. 70% of their invoices with their carriers would be in dispute. So Walmart is expecting an invoice to look one way, the cost, and because the accessorial charges are higher, they have to go hire a BPO provider to go investigate this.
It was taking a long time to reconcile these invoices. The carriers are unhappy because they're not getting paid. Okay, so now we're looking at DL Freight, which is a blockchain enabled digital ecosystem. What is happening is that the invoice now gets built along the supply chain. So now instead of waiting at the end to get this invoice from the carrier, Walmart starts the invoice with the tendering process. As the shipments move through the supply chain, IOT devices update the GPS locations and temperature locations. You can upload digital documents. By the time the final delivery is done, the invoice has pretty much been agreed upon. Now they are at under 2% of invoices that require any kind of investigation. So the business value delivered is tremendous. Walmart Canada no longer needs that trusted third party to do the reconciliations. The carriers are getting ... the cash flow is so much better for these carriers because they're getting paid a lot quicker, and there's all other kinds of business value we can talk about. So do you have any questions about that particular example?
Pascal Bornet: That's just amazing. So we talked about invoice dispute improvement. Do you see other use cases using blockchain?
Dr. Mary Lacity: Yes. Remember I said the ... We're talking about minimal viable products, right? So what we're looking at is the first thing that gets delivered. The minimum viable products, you have to go through all the things like agree on the data standards.
All the things agree on the data standards, you have to agree on your business rules for how you automatically execute transactions with your smart contracts, that's layer one. The other thing is you can think of these blockchain solutions in enterprises as a thin pipeline that connects all your trading partners. They're all still connecting to their back-office systems of records. They're all still connecting to their ERP systems and their transportation management systems and their RFID, but now what you have is just you can think of it as a thin rail that connects everybody that says we all agree to this version of the truth. That's layer one.
Once that's done, you can think about how you can add predictive and descriptive analytics. Now you can do things like maybe look at weather patterns and say, "Oh, I see that this freight is likely going to be delayed because we've got a thunderstorm," and that can be integrated in the supply chain. Then you could see how RPA could be used, because if you're talking about connecting back and forth between the blockchain and your systems of record, you're going to have to do extract transforms and loads. Wouldn't an RPA be sweet for that? You're talking structured data, following rules.
Then I can envision where cognitive would come in. Now, imagine a truck driver who says, "Oh, there's an accident ahead," and they take a picture with their cell phone. You have the ability, if you've trained your automation tool, to interpret pictures. Or maybe there's a text message saying, "I need to take an alternative route because there's a lot of traffic on it," and a cognitive automation tool could process the natural language text to talk to a smart contract.
We're just at the beginning days. The possibility of integrating all of these automation tools to really develop seamless, fast, efficient services is just so exciting to me.
Pascal Bornet: It's really amazing. Does that mean as well, as a side effect in terms of improvement of business, that those people that used to reconcile those invoices, reconcile those different transactions in different points in time, with all the hardware that is behind, all this doesn't need to be done anymore?
Dr. Mary Lacity: That's correct, that's absolutely correct. Walmart Canada didn't need that trusted third-party to do those agonizing reconciliations, and then their internal people are focused on more strategic things. They're looking at this application and seeing what else can we do with it, what other business value can we get? They're developing new business models. Before this application, they did not have the data to offer financing services to their carriers. Now, they feel more confident to do that. The business value, once you get the data standards and those business rules set, you can see how you can continue to add value to the network and next iterations of the product.
Pascal Bornet: Just to make sure I understood well, am I right to say that, in the past, we used to have those activities of reconciliation, checking transactions, authentication, that used to take a lot of time from people and we used to have armies of people working on that. What we've done is we've automated those activities using automation technology. Now with blockchain, what happened is that those automated processes even don't need [inaudible 00:13:49] anymore. Am I right to say that, that we are just-
Dr. Mary Lacity: You are absolutely right, and the title of our paper is called Requiem for Reconciliations. We hear a requiem, a death mass, for reconciliations. Now, of course, there still are people doing things, but I mean, you still have reconciliations, we even have the 2%, but the difference is they happen in real time, because now instead of waiting at the end of delivery to process an invoice, we say, "Oh, we've got an excursion from what we expected in our smart contract, let's ask the driver what happened." They're reconciling things quickly and along the way. But yes, you need many fewer of those low-level EPO jobs dealing with this tracking down paperwork for events that happened along the supply chain. Good instincts, that's absolutely correct.
Pascal Bornet: Okay. I'm a bit provocative here, does it mean that all the work we've done automating those processes over the last decade is a waste today because we won't use them anymore?
Dr. Mary Lacity: Well, no, what I mean, all the automations and things that we still have seen done that's typically done in the back offices, connecting ERPs to your spreadsheets or whatever, those don't go away. I mean, if you've become more efficient inside the boundaries of the firm, then all that still works. Again, we're just talking about whatever you've done inside the boundaries of the firm, now you're touching a shared blockchain platform with your trading partners. You don't necessarily have to obliterate all the good work you've done, we see this more as an additive technology.
Pascal Bornet: Okay, okay. No, I would have thought it would be a good thing. I mean, why not bringing to the next level those processes that we have automated and not having to automate them anymore. I mean, I would have thought it would have been a good thing. It makes me think of other use cases, like especially in banking or insurance or [inaudible 00:16:12], where we need to onboard clients, check the client's solvency for example, check the client's good worth in the sense of those processes of anti-money laundering for example, or KYC, know your customer. All those processes that are really the bread and butter of automation use cases today, I mean, we wouldn't need to automate them anymore because all these would be doing, I would say, natively using blockchain. [crosstalk 00:16:53].
Dr. Mary Lacity: Okay, yes. No, You are on par. What I was assuming you were talking about was things ... We're looking at things that hadn't been automated before. There were armies of human beings doing the reconciliations, they were not automated. It's hard to automate things like reconciliations when you have to be talking to different trading partners that have their own versions of the truth. Still today, we have a lot of human beings doing that kind of work. When you talk about inter-firm reconciliations.
All right, I'm going to give you my second story, Pascal, because I promised your audience.
This is a different use case. The first use case on Walmart Canada was built on a private permission blockchain, so the carriers have to have permission to join, it's a very closed, tight system. Now I'm going to take you to another enterprise adoption, a completely different use case, that I absolutely love. It's called ANSAcheck. You might know ANSA, since I know you're French. ANSA is one of the largest news media outlets in Italy.
We all know one of the big problems in the world, especially during elections, is fake news, fake news is a huge problem. ANSA was having problems with what they call imposter news stories. It would be people that were stealing the ANSA brand and saying this story came from ANSA. That really could hurt the brand and the proliferation of these imposter news stories is just terrible.
They partnered with Ernst and Young and they're using the blockchain to authenticate I guarantee you, this story came from ANSA. This solution is deployed on the public blockchain, Ethereum. If you're looking at the ANSA, you can always click on the story, there's a little ANSAcheck, so you, as a reader, can click on the story and it can tell you the authenticity of the story, it could tell you when it was written. In the future, they'll be able to tell where it's been reposted to, if it's been edited, or whatnot.
It's a first step. Again, we're talking about a minimum viable ecosystem developing a minimal viable product. The first step is not to prevent all fake news, but to prevent imposters. I just love the example. My students love that case study too.
Pascal Bornet: Yes. Here, I mean, I'm trying to make the same analogy as we did from the previous example, I mean, we didn't use to automate this activity before. That's a new capability, an augmentation I would say, compared to what we used to do in the past.
Dr. Mary Lacity: Yes, and I think one of the strengths of blockchain is it creates a really tamper-resistant record of events that have happened, an event is that we published this story. I think it's very interesting, this example is really to reach out to the reader base, so that's why they chose a public blockchain. And so, we're seeing use cases all over. But that's a live deployment they've got. The last time I checked, they had over half a million stories that are verified and secured on public Ethereum. So it's another really interesting live application out there.
As a professor, I have to at least mention a little bit about theory. So now we talked about Walmart Canada, and we talked about ANSA. These are traditional enterprises. They're adopting these technologies and what Clayton Christensen, the great father of disruptive innovation theory would call sustaining innovation. So they're not blowing up their business models. They're making their products and services better for their existing customers. They're improving their efficiencies.
Now, what Clayton Christensen says, we're going to see disruption coming from startup communities. So I'm going to tell you a story of one of my favorite startups.
So I'd become very good friends with Colonel James Regenor. And he has a couple of companies. One of them is called Veritex. One of them is called Rapid Medical Parts. Now what's interesting about the Colonel is he was working for Moog Aircraft. And since he was a Colonel in the air force, he remembers the days when he would be on an aircraft carrier in the middle of the Pacific Ocean, and his plane can't take off because they don't have a part. And he completely re-envisioned how we need to do parts from centralized manufacturing where you ship things, to 3D additive manufacturing. What if we had a 3D printer on the aircraft carrier that I could print the parts when we need them, how we need them, when we need them.
And so he did go launch this application, and because it's a startup, they're very nimble. So being the Colonel who jumps in on everything, I guess it was about this time last year, you'll remember, Pascal, our big concern and around the world was the lack of ventilators. Do you remember that? We were worried that there were not enough ventilators in the hospitals.
Pascal Bornet: Yes. Correct.
Dr. Mary Lacity: And so the Colonel figured out, we have an abundance of sleep apnea machines. So he figured out if you 3D print a couple of parts, you can turn a sleep apnea machine into a hospital-grade ventilator very easily. And he got a contract with the Department of Defense and he delivered on that first contract. The end of the story, it turned out we didn't have the big shortage that we thought we were going to have. But that is all enabled by blockchain technologies because his concern is if you're 3D printing, how do you guarantee that the printing instructions hadn't been tampered with? Especially if you're talking about things like on the Department of Defense and printing things on an aircraft carrier.
So our message is, we call these blockchain systems. Really they're blockchain enabled digital ecosystems. Blockchain is just one component of the technology. And it's really we're at the stage where we're learning how to work with our trading partners to develop these minimal viable products.
Pascal Bornet: Amazing. Mary, that's really impressive. Would it mean we could almost print parts of the plane while flying it?
Dr. Mary Lacity: It wasn't a critical part. So, one of his pilots that he did to show that this was all feasible, is he had a first class seat that had something that was broken on the seat, and then they could send messages in the air, print the part on the plane. I mean, I'm sorry, print the part on the ground so when the plane landed, it could be fixed for the next flight. So, that was the first step to reduce turn around times. And the play there is that if a commercial airline loses that first-class seat ticket, that's lost revenue. So that was one of his... But then you could see once we get through regulations, where you could have a 3D printer on the plane for some of the minor parts, not necessarily engine parts, but yes, you can really just envision what these technologies can do.
Pascal Bornet: Impressive, and a great view of the future. And when we see your first use case, and this use case, we can really envision the future of supply chain, where consequence would be... I mean, I don't know if you can say automated, but would be made by itself. And the supply chain of some products would even not exist anymore because you wouldn't need to transport them anymore. You would just share blockchain of the design of the [inaudible 00:25:26] and print them somewhere else in the world.
Dr. Mary Lacity: That's right. Right? Yes, yes.
Pascal Bornet: That's amazing. The future of supply chain with the support of blockchain is going to be considerably changed in the future.
Dr. Mary Lacity: Well, the technology is here today and the technology is easy. But as you know, it's all the change management. It's learning how to work with your trading partners. I mean, there is so much managerial challenges to actually getting to this end state. But it's there.
Pascal Bornet: Let's talk about this. That's a very good point. So from those examples, and from what you explained around blockchain, is that we need this, we need this right now. Companies need this to improve, to get to the next stage of efficiency. Why are we not yet there? What's happening there?
Dr. Mary Lacity: Well, I think we do see good momentum. I mean, I'm just looking, today, we just had some studies done by IDC that there's about a 40% increase in enterprise adoptions in the last year. I think COVID did two things. In some ecosystems, it pushed working with your trading partners to get better supply chains up the agenda. And again, I'm not pushing blockchain technologies. It's just one enabling technology. I need more nimble supply chains. We saw that explosion happen last year. And in other instances, blockchains fell down the priority list, and companies had other urgent needs that they had to do. So we saw different effects on different firms and different industries.
There are a lot of challenges to working with your partners. We don't like to go into the C-suite and even say the word blockchain, because the first thing they think of is Bitcoin and crypto and it's hype, and don't come sell a technology to me. So really what you have to go into the C-suite, is give them a vision for if we could work with our ecosystem partners to remove our common pain points, what business value would not only we get, but can we uplift the entire industry? So you have to go in with compelling storytelling, backed up with a good business case that... It still at the end of the day comes down to a good business case. And that's really what needs to happen in the C-suite.
Pascal Bornet: Okay. Okay. Well, what would you say is the level of adoption of blockchain currently in companies, if such statistic exists?
Dr. Mary Lacity: Yes. I don't have a statistic. If I had to quote somebody, it's our good friends from HFS. So Phil Fersht and Saurabh Gupta, I love the work that they do. And I think the last time they did a survey, there's a proliferation of proof of concepts. I mean, you'll find thousands of proof of concepts. And very few of them ever make it to a live production system. So I think the last time I saw, I think it was about 14% of things we'll ever get out of a sandbox and go live. Because there are so many challenges. You've got to make sure that you've got enough of your ecosystem that can overcome the inertia within their own organizations. You have to figure out things like intellectual property rights sharing, and shared governance over the application. So there's a lot to work through before you really get that aha moment.
I'm only really talking... I mean, I'm giving you such a small slice, Pascal, so you really actually need to bring another person in here that can talk more about the impact of blockchain on financial services. We have a great supply chain expertise at the University of Arkansas. My coauthor is as a supply chain management. But I'm not even discussing because I don't study it, a whole world of how this is changing automation and financial services. So I just want your audience to know I'm focusing on supply chains because that's my particular research focus.
Pascal Bornet: And I think definitely that it's those services are used to work with information and data, and trust between the different actors on the ecosystem is so important that I guess they might get a lot of benefits from using blockchain. Yeah. I heard about you working on digital health passports.
Dr. Mary Lacity: Oh, that's my care and passion. Yes.
Pascal Bornet: Okay. Can you tell us more about that?
Dr. Mary Lacity: Yes. Yes. So, and this, I really got into with another one of my beloved coauthors and longtime friends, Professor Erran Carmel from American University. And we were just kind of so disappointed then when we finally got our COVID vaccination here in America, we were handed this little card from the CDC, this little flimsy card. It doesn't look like a credential that's very... I could have picked up a stack of those cards while I was standing there getting my shot because they were sitting there and sold them, you know? So how are we going to get back to flying, get back to work, get back to school? And so there's a lot of push to have an electronic version of digital passports that be downloaded on your phone. And we've started doing interviews and looking at different solutions. There's tons of good technical solutions out there already, but again, the common problem is going to be building the ecosystem that supports it.
So for example, it works best when you have a national government policy. We don't have that here in the United States, right? It works best when you can connect the credentialing organizations, which would be like the labs that process a test or the pharmacy that gives you a shot, and put that in a secure digital wallet that happens to be secured by blockchain. But a lot of the uses are still self reported, so they look like a digital health passport, it says green, but when you look at the data underneath it, it was triggered by the question, do you have a fever today? Have you been in contact with anyone with COVID? That's not a secure credential. So anyway, that's what we're looking at right now.
Pascal Bornet: Very exciting. It's going to be maybe my last question. We try to keep the format quite crunchy and [inaudible 00:32:46]. What do you think a company should do if they want to start their journey with blockchain? I understand we could not say blockchain to a CEO, as you just mentioned. So we are in an ecosystem. What are the next steps? What are the first steps, basically, for those companies to get into it?
Dr. Mary Lacity: Okay, well, it'd be the same thing that you would answer for RPA or cognitive automation. The ones that actually made it live were not coming from the IT department. They weren't going, "Here's a blockchain, let's find an application." They really were business-led projects that were trying to solve a pain point, and then when they brought the IT department in or their technology provider, they saw that, for what we're trying to do, blockchains are the best selection of all the technology options. So it's always solving a business case first.
Now, I know you wanted to end on something snappy, so I was going to tell you seven things that blockchains are not. This is developed with my co-author, right? And it's a good thing to remember. Blockchain is not about the technology, right? The technology works. It's about developing that minimal viable ecosystem to develop a minimal viable product. And here's the second most important point. It is not all data for all. It is not all data for all. A company is still in charge of their data, who is allowed to have access to it. Protecting data confidentiality is absolutely key to these solutions, so your competitors don't see anything. Only the people that are authorized to see your data will see it or have access to it. And I think that's another common misconception that the C-suite might have, is, "I'm not putting all my data on a blockchain." No, you're not. You're putting proof of events that happened on a blockchain. Your data is still within the boundaries of the firm.
Okay, number two. It doesn't have to be expensive, right? So there's platforms that are out there that can be configurable. It doesn't have to be long. The Walmart Canada one, now think how complicated Walmart Canada is. They went from idea to live implementation in eight months, and that includes going through like 19 of Walmart Canada's compliance walkthroughs and checkthroughs, so it doesn't have to be long.
Okay, let's see if we have another goodie. It doesn't necessarily eliminate all trusted third parties. That's kind of the promise of it, but that's not necessarily what happens. We oftentimes see trusted third parties taking in new roles or even new trusted third parties coming about. Typically you need some kind of a benevolent operator of these networks. Who's operating the nodes? And so we see services from EY or IBM or DLT Labs, so we still do see trusted third parties. But anyway, so the big question is, I truly believe this is a foundational technology, as foundational as the internet. So we had the internet, and how did that change and touch every business? Blockchains enable an internet of value so that can exchange value with the same ease that we exchange information on the internet.
If you want to know more, go to blockchain.uark.edu. Maybe we can post it when you do this, or I wrote this for business folks, right? So if they want to understand blockchain foundations for the internet of value, and it's very accessible and it's meant to assume you know nothing about blockchains and that you're a businessperson understanding what this technology enables.