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Contract management will undergo a radical transformation soon as CRM vendors and their partners release technologies enabling blockchain applications from which customers can create smart contracts.
"A smart contract is a type of software deployed across a distributed ledger to automate an agreement between parties to transfer digital assets or record events based upon various conditions," said Brian Behlendorf, executive director of Hyperledger, a collaborative, cross-industry blockchain effort created by The Linux Foundation. "It's a way of taking many agreements that formerly could only be encoded in human-language legal documents and turn them into automatically executing programs in a manner as trustworthy and fair as the blockchain system as a whole."
Smart contracts on blockchain will deliver essential functionality for supply chains and financial services, predicted Frank Xiong, Oracle's group vice president of blockchain product development.
The contracts will auto-execute when products or assets are handed off at every stage, and they will record the transactions instantly in the blockchain's distributed ledger, where all the participants can share an immutable record in a ledger that updates identically in near-real-time on all nodes.
Octiv first out of the gate
Smart contracts on blockchain can now be created with software available from Octiv, an Indianapolis-based vendor of sales document management software. The Octiv platform includes a contract creation and management component designed to accelerate B2B contract creation and improve contract lifecycle management.
Octiv Senior Director Adam Becker said many small and medium-sized businesses are hindered by legacy contract creation processes that rely on word processing software like Microsoft Word for document creation. In many cases, salespeople rekey data stored in a CRM system to create a contract -- often after having taken the time to enter that data into the CRM software themselves.
"We empower sellers to be able to use that data they put in the CRM to auto-populate their contract content," he said.
Managers can build rules in Octiv to reflect organizational intentions, such as removing an auto-renew provision above a defined price threshold and enabling customers to redline those contracts.
Octiv users can build contracts in HTML to enable sellers and buyers to execute from any device at any time.
"Documents can be reviewed on any device without sacrificing the look and feel," Becker said. Customers can sign electronically using DocuSign.
Octiv's smart contracts on blockchain technology also improves process flow by alerting other departments of any new contract executions.
"You can save time and reduce risk by having more consistency in your processes," Becker said.
Octiv works with Salesforce, Microsoft Dynamics, Pipedrive and NetSuite, and users can access its functionality within Salesforce and Dynamics.
Executing contracts is the next challenge
While Octiv and other tools automate contract creation, the next step -- contract execution -- remains beyond the reach of automation. Blockchain technology is poised to change that with the smart contract capability introduced by the Ethereum blockchain, a smart-contract-specific, decentralized blockchain platform.
Hyperledger's Behlendorf predicts that smart contracts on blockchain will be widely used in business within three to five years, once Hyperledger and others create standards and develop software implementations that are robust, reliable and feature-complete. The legal community must also accept the technology and begin creating legal agreements that can be expressed in code and executed without review.
Brian Behlendorfexecutive director, Hyperledger
Smart contract execution will often rely on third parties known as oracles.
"An oracle is a source of external information that a smart contract might use to base a decision and execute an agreement against," Behlendorf said. "For example, it might be a weather data provider providing temperature readings in a farming community whose data is then used in a crop insurance agreement between an insurance company and a farmer."
While Oracle and other CRM vendors are introducing blockchain capabilities to their platforms, the smart contract software itself is expected to come from third-party specialists, according to Oracle's Xiong.
"Most enterprises will spend developer resources to make customized smart contracts that are suitable for their business model," he said. "I expect to see a smart contract niche industry emerge to develop specialized applications for different networks and verticals."
Smart contracts on blockchain can automate processes that would have been difficult to attempt before without a central organization, according to Behlendorf.
"It can cut counter-party risk by ensuring assets can be transferred if conditions are met, preventing a party that owes a debt from refusing payment," he said. "It can allow for options, derivatives, insurance agreements, royalty payments, dividends, and all sorts of standard financial or legal agreements to be encoded and run without the risk of differences of interpretation or failure to perform."
"Transactions become digitized and businesses will no longer have to pass paper," added Xiong. "It makes the whole transaction process faster and smoother and keeps all the records in one place. You will incur costs for development and integration, but the returns will be huge. Smart contracts will cut costs, reduce time lapses and eliminate unnecessary steps."
Adoption will typically occur in stages, according to Xiong. Companies will choose one existing process that is a perfect fit for blockchain and test it there before introducing the technology in other areas. Many companies will continue to use ERP for internal management while the blockchain records transactions among different parties in a business network, he noted.
Oracle minimizes the upfront investment and simplifies the adoption process with cloud-based blockchain services, according to Xiong.
"If companies want to use blockchain and attract others to join them, they do not have to invest in hardware or blockchain platform software," he said.