Class Notes: Blockchain & Business Process Management. Part 1 the BPM Lifecycle

In this Column, we report on recent research in the area of Blockchain and Business Process Management. This research has been conducted by an impressive amount of 32 co-authors, led by Jan Mendling and Ingo Weber (Mendling et al. 2018). Based on this work, we derive eight recommendations for companies to capitalize on blockchain technology.

In this Column, we derive the recommendations referring to each of the eight BPM lifecycle phases (Dumas, M. et al. 2018). In a separate article (vom Brocke, Mendling, Weber 2018), we derive further recommendations referring to the impact blockchain as regarding the six BPM capability areas (Rosemann, vom Brocke (2015).

We advise readers to also refer to the original Column (Mendling et al. 2018), which is more comprehensive and detailed in nature. This Column intends to report on the research conducted and to highlight the most relevant implications of Blockchain technology for Business Process Management research and practice.

1. Blockchain Fundamentals

Blockchain derives its name from the fact that its essential data structure is a chained list of blocks. This chain of blocks is distributed over a peer-to-peer network, in which every node maintains the latest version of it. Blocks can contain information about transactions. When a new block is added to the blockchain, it is signed using cryptographic methods. In this way, it can be checked if its content and its signature match.

Every block is associated with a hash generated from its content and the hash value of the previous block in the list. Hash values thus uniquely represent not only the transactions within blocks but also the ordering of all blocks. This mechanism is at the basis of
the chain. In the event someone would try to alter a transaction, that would change the hash value of its block, and therefore break the chain. Since every node can create blocks in a peer-to-peer network, there has to be consensus on the new version of the blockchain including a new block.

Blockchain offers an additional concept that is important for business processes, called smart contracts (Szabo 1997). Consider for example a buyer ordering 200 items from the vendor. Business processes are subject to rules on how to respond to specific conditions. If, for instance, the vendor does not deliver within two weeks, the buyer might be entitled to receive a penalty payment. Such business rules can be expressed by smart contracts.

By using blockchain technology, untrusted parties can establish trust in the truthful execution of the code. Smart contracts can be used to implement business collaborations in general and inter-organizational business processes in particular. The potential of blockchain-based distributed ledgers to enable collaboration in open environments has been successfully tested in diverse fields ranging from diamonds trading to securities settlement (Walport 2016), and companies such as Chainium, for example, have recently
started to build crowdfunding platforms based on blockchain technology for private
and public businesses to sell equity (Smith 2018).

2. Blockchain and the BPM Lifecycle

In this section, we discuss blockchain in relation to the traditional BPM lifecycle (Dumas et al. 2018) including the following phases: identification, discovery, analysis, redesign, implementation, execution, monitoring, and adaptation. Using the traditional BPM lifecycle as a framework of reference allows us to discuss many incremental changes that blockchains might provide.

2.1 Identification

Process identification is concerned with the high-level description and evaluation of a company from a process-oriented perspective, thus connecting strategic alignment with process improvement. Currently, identification is mostly approached from an inward-looking perspective (Dumas et al. 2018).

Blockchain technology adds another relevant perspective for evaluating high-level processes in terms of the implied strengths, weaknesses, opportunities, and threats. For example, how can a company systematically identify the most suitable processes for blockchains or the most threatened ones?

Because blockchains have affinity with the support of inter-organizational processes, process identification may need to encompass not only the needs of one organization, but broader known and even unknown partners.

In order to capitalize on blockchain technology, companies need to widen their scope from inside to outside the organization analyzing the organization's eco-system.

2.2 Discovery

Process discovery refers to the collection of information about the current way a process operates and its representation as an as-is process model. Currently, methods for process discovery are largely based on interviews, walkthroughs and documentation analysis, complemented with automated process discovery techniques over non-encrypted event logs generated by process-aware information systems (van der Aalst 2016).

Blockchain technology defines new challenges for process discovery techniques: the information may be fragmented and encrypted; accounts and keys can change frequently; and payload data may be stored partly on-chain and partly off-chain. For example, how can a company discover an overall process from blockchain transactions when these might not be logically related to a process identifier?

In order to capitalize on blockchain technology, companies need to work towards an alignment of information from all relevant parties operating on the blockchain.

2.3 Analysis

Process analysis refers to obtaining insights into issues relating to the way a business process currently operates. Currently, the analysis of processes mostly builds on data that is available inside of organizations or from perceptions shared by internal and external process stakeholders (Dumas et al. 2018).

Records of processes executed on the blockchain yield valuable information that can help to assess the case load, durations, frequencies of paths, parties involved, and correlations between unencrypted data items. These pieces of information can be used to discover processes, detect deviations, and conduct root cause analysis (van der Aalst 2016), ranging from small groups of companies to an entire industry at large.

In order to capitalize on the blockchain technology, companies need to find ways to bring the available blockchain transaction data into a format that permits process analysis.

2.4 Redesign

Process redesign deals with the systematic improvement of a process. Currently, approaches like redesign heuristics build on the assumption that there are recurring patterns of how a process can be improved (Vanwersch et al. 2016).

Blockchain technology offers novel ways of improving specific business processes or resolving specific problems. For instance, instead of involving a trustee to release a payment if an agreed condition is met, a buyer and a seller of a house might agree on a smart contract instead. The question is where blockchains can be applied for optimizing existing interactions and where new interaction patterns without a trusted central party can be established.

In order to capitalize on blockchain technology, companies need to find out where to potentially benefit from disintermediation.

2.5 Implementation

Process implementation refers to the procedure of transforming a to-be model into software
components executing the business process. Currently, business processes are often implemented using process-aware information systems or business process management systems inside single organizations.

An important engineering challenge on the implementation level is the identification and definition of abstractions for the design of blockchain-based business process execution. Libraries and operations for engines are required, accompanied by modeling primitives and language extensions of BPMN. Software patterns and anti-patterns will be of good help to engineers designing blockchain-based processes. There is also a need for new approaches for quality assurance, correctness, and verification, as well as for new corresponding correctness criteria. These can build on existing notions of compliance (van der Aalst et al. 2008), reliability (Subramanian et al. 2008), quality of services (Zeng et al. 2004) or data-aware workflow verification (Calvanese et al. 2013), but will have to go further in terms of consistency and consideration of potential payments. Furthermore, dynamic partner binding and rebinding is a challenge that requires attention.

In order to capitalize on blockchain technology, companies need to be able to engineer blockchain-based business processes, including the need for e.g. modeling languages, software patterns and quality assurance mechanisms.

2.6 Execution

Execution refers to the instantiation of individual cases and their information-technological processing. Currently, such execution is facilitated by process-aware information systems or business process management systems (Dumas et al. 2018).

For the actual execution of a process deployed on a blockchain following the method of (Weber et al. 2016), several differences with the traditional ways exist. During the execution of an instance, messages between participants need to be passed as blockchain transactions to the smart contract; resulting messages need to be observed from the blocks in the blockchain. Both of these can be achieved by integrating blockchain technology directly with existing enterprise systems or through the use of dedicated integration components, such as the triggers suggested by (Weber et al. 2016). First prototypes like Caterpillar as a BPMS that build on blockchains are emerging (López-Pintado et al. 2017). The main challenge here involves ensuring correctness and security, especially when monetary assets are transferred using this technology.

In order to capitalize on the blockchain technology, companies need to integrate blockchain technology with their enterprise systems.

2.7 Monitoring

Process monitoring refers to collecting events of process executions, displaying them in an understandable way, and triggering alerts and escalation in cases where undesired behavior is observed. Currently, such process execution data is recorded by systems that support process execution (Dumas et al. 2018).

In a blockchain environment, we face issues in terms of data fragmentation and encryption as mentioned for the analysis phase. For example, the data on the blockchain alone will likely not be enough to monitor the process, but will require an integration with local off-chain data. Once such tracing is in place, the global view of the process can be monitored independently by each involved party. Second, based on monitoring data exchanged via the blockchain, it is possible to verify if a process instance follows the original process model and meets the contractual obligations of all involved process stakeholders. For this, blockchain technology can be exploited to store the process execution data and handoffs between process participants.

In order to capitalize on blockchain technology, companies need to integrate data on the blockchain with local off-chain data.

2.8 Adaptation and Evolution

Runtime adaptation refers to the concept of changing the process during execution. In traditional approaches, this can for instance be achieved by allowing participants in a process to change the model during its execution (Reichert and Weber 2012). Interacting partners might take a defensive stance in order to avoid certain types of adaptation.

As discussed by (Weber et al. 2016), blockchain can be used to enforce conformance with the model, so that participants can rely on the joint model being followed. In such a setting, adaptation is by default something to be avoided: if a participant can change the model, this could be used to gain an unfair advantage over the other participants.

For instance, the rules of retrieving cryptocurrency from an escrow account could be changed or the terms of payment. In this setting, process adaptation must strictly adhere to defined paths for it, e.g., any change to a deployed smart contract may require a transaction signed by all participants.

If smart contracts enforce the process, there are also problems arising in relation to evolution: new smart contracts need to be deployed to reflect changes to a new version of the process model. Porting running instances from an old version to a new one would require effective coordination mechanisms involving all participants. Some challenges for choreographies are summarized by (Fdhila et al. 2015).

In order to capitalize on the blockchain technology, companies need to assure that process adaptation strictly adheres to defined paths and that smart contracts reflect changes to the process model.

3. Conclusion

In this note we have reported on recent research on blockchain in business processes management by Mendling et al. (Mendling et al. 2018). Specifically, we have derived discussed the role of blockchain in the BPM lifecycle (Dumas et al. 2018) and we have derived recommendations for organizations to capitalize on the new technology in each of the lifecycle phases. Table 1 summarizes the results:

In order to capitalize on blockchain technology, companies need to

  1. widen their scope from inside to outside the organization analyzing the organization's eco-system,
  2. work towards an alignment of information from all relevant parties operating on the blockchain,
  3. find ways to bring the available blockchain transaction data into a format that permits process analysis,
  4. find out where to potentially benefit from disintermediation,
  5. engineer blockchain-based business processes, integrate blockchain technology with their enterprise systems,
  6. integrate data on the blockchain with local off-chain data,
  7. assure that process adaptation strictly adheres to defined paths and that smart contracts reflect changes to the process model.

In the next note, “Blockchain & Business Process Management. Part II – The BPM Capability Areas” we will discuss how blockchain impacts these capability areas and we will derive further recommendations for companies.

Acknowledgement

We wish to thank all contributors to the original article for their path leading ideas on this innovative topic, namely:

Jan Mendling, Ingo Weber, Wil van der Aalst, Jan vom Brocke, Cristina Cabanillas, Florian Daniel, Soren Debois, Claudio Di Ciccio, Marlon Dumas, Schahram Dustdar, Avigdor Gal, Luciano Garcia-Banuelos, Guido Governatori, Richard Hull, Marcello La Rosa, Henrik Leopold, Frank Leymann, Jan Recker, Manfred Reichert, Hajo A. Reijers, Stefanie Rinderle-Ma, Andreas Rogge-Solti, Michael Rosemann, Stefan Schulte, Munindar P. Singh, Tijs Slaats, Mark Staples, Barbara Weber, Matthias Weidlich, Mathias Weske, Xiwei Xu, and Liming Zhu.

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Jan vom Brocke, Jan Mendling, and Ingo Weber

Prof. Dr. Jan vom Brocke is the Hilti Endowed Chair of Business Process Management, Director of the Institute of Information Systems, Director of the PhD Program in Information and Process Management, and Vice President Research and Innovation at the University of Liechtenstein. Jan vom Brocke has conducted over 400 studies in the area of IT and BPM, published in renowned academic outlets, including, MIS Quarterly (MISQ) and the Journal of Management Information Systems (JMIS) as well as in international practitioner outlets such as the MIT Sloan Management Review and MIS Quarterly Executive (MISQe). He has co-authored and co-edited over 30 books, including the International Handbook on Business Process Management, BPM: Driving Innovation in a Digital World and Green BPM: Towards the Sustainable Enterprise, and BPM Cases: Digital Innovation and Business Transformation in Practice, and his work has been recognized, among others in the Wall Street Journal, the Daily Mail, the Telegraph, the Handelsblatt and the Financial Times Germany. Professor vom Brocke has teaching experience from 25 universities in 15 countries, including many of the Financial Times Top100 Business Schools, such as the University of St.Gallen in Switzerland, the Vlerick Business School in Belgium, the University of Warwick in the UK, and the Smurfit School of Business in Ireland. He received over 20 international awards in recognition of his research and teaching, including the AIS Innovation in Teaching Award, the AIS Award for Outstanding Contribution to Education and the AIS Technology Challenge Award. Professor vom Brocke is an invited speaker and trusted advisor on BPM serving many organizations around the world. See Professor vom Brockes website more information: www.janvombrocke.com

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