A Decision Framework for Decentralized Control of Distributed Processes: Is Blockchain the Only Solution?

A Decision Framework for Decentralized Control of Distributed Processes: Is Blockchain the Only Solution?

Paul Robert Griffin (Singapore Management University, Singapore), Alan Megargel (Singapore Management University, Singapore) and Venky R. Shankararaman (Singapore Management University, Singapore)
DOI: 10.4018/978-1-5225-9257-0.ch001

Abstract

A typical example of a distributed process is trade finance where data and documents are transferred between multiple companies including importers, exporters, carriers, and banks. Blockchain is seen as a potential decentralized technology that can be used to automate such processes. However, there are also other competing technologies such as managed file transfers, messaging, and WebAPIs that may also be suitable for automating similar distributed processes. In this chapter, a decision framework is proposed to assist the solution architect in deciding the technology best suited to support decentralized control of a distributed business process where there are multiple companies involved. The framework takes as input the different areas of concern such as data, processing, governance, technical, and the pros and cons of the technologies in addressing these areas of concerns and provides a method to analyze and highlight the best technology for any process in question. Two example processes, trade finance and price distribution, are used to show the application of the framework.
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Introduction

Many critical business processes span across multiple companies or legal entities. These processes often have to be in real-time and can contain large data volumes. Furthermore, data and documents have to be passed back and forth during the process. Such distributed business processes require the cooperation across a network of companies where documents are exchanged between them. For example, in the international trade finance process, exporters, importers, carriers and banks are involved in the financing of goods being manufactured, shipped and received in different countries. The whole end-to-end process involves multiple banks to lend money and act as escrow throughout the process, and data and documents are created in one company and transmitted to another company to be processed before being sent again to another company. Traditionally, such processes have been manually executed through the exchange of physical documents.

Over the last decade, such processes have been automated partially or fully by leveraging various technologies. There are two approaches to automation; centralized or decentralized. In centralized processing, the process is controlled by a single system that manages the logic controlling the flow of documents across the multiple entities. In decentralized processing, each entity in the process manages the flow by applying logic that is local to that entity.

A business process system, such as an Enterprise Resource Planning (ERP) system, containing the process flow logic and data store capable of storing all the documents in one place is an example technology that can support centralized processing.

Decentralized processing has been achieved through technologies such as managed file transfers (MFT), messaging (managed e.g. MQ and unmanaged e.g. Email) and Open API/web services. These technologies can be used to support synchronous or asynchronous communication. However, a key requirement is that for each transmission of data, the different organizations in the business process must agree on the data specification, output formats and input validation and each organization needs to store the data separately in their own data stores. This can very easily lead to inconsistencies and also open up opportunities for illegal data manipulation and committing fraud. In order to mitigate these challenges, over the last five years, organizations have started seriously exploring the use of blockchain or Distributed Ledger Technology (DLT) to manage multi-party real-time business processes. With a blockchain, the different enterprises involved in the process can write entries into a record of information and, as a community, can control how the record of information is validated. The key advantage of DLT is that it eliminates the need to separately validate and store data as a consensus network provides constant validation, synchronisation and immutable storage. Furthermore, Smart Contracts in DLTs provide trusted shared processing capabilities.

All these technologies have their strengths and weaknesses. For example, blockchain maintains consensus of the data on the blockchain but all participants on a blockchain have access to the data on the blockchain. Open API/web services, also referred as Web APIs, can be accessed easily but have limited data volumes. And MFT can handle large volumes securely but involve significant effort to set up. For some inter-company processes such as trade finance, a blockchain may be more useful, enabling companies to easily access the shared data and update it as necessary in real-time. Alternatively, by considering the distribution of public stock pricing information, there is only a need for a trusted source of the pricing information which is then consumed by many companies. For this, a Web API pull mechanism may be a good solution.

Hence, the solution architect has to choose the right technology for the given business problem. In this chapter we propose a decision framework to help the architect evaluate the various distributed processing technologies and choose the most suitable technology for the given business scenario. Additionally, using two worked examples, trade finance and a price distribution process, we describe how the framework can be applied in a real world context. In the proposed framework, the areas of concern that need to be carefully considered for the potential usage of any technology for decentralised solutions are categorized as data, processing, governance and technical. Data includes privacy, ownership, external sources and volumes; processing is concerned with speed, parallelism, efficiency; governance looks at trust, incentives, on-boarding and regulations, and technical considers legacy systems, allowed technology stacks and complexity of infrastructure (Figure 1).

Key Terms in this Chapter

Decentralized Control: A process control mechanism that is distributed across the different nodes (e.g., companies) in a distributed process.

Decentralized Ledger Technology (DLT): A superset of technologies that have the same characteristics of blockchain (e.g., consensus and data immutability) but does not necessarily store data in linked blocks.

Blockchain: A digitized, decentralized, and distributed ledger of immutable records that are linked chronologically using cryptography.

Managed File Transfer Protocol (MFTP): An enhanced software that is based on FTP that manages the secure transfer of data from one computer to another through a network, usually the internet.

Web APIs: An application programming interface that exposes functionality so that the functionality can be invoked by other applications without having to know the details of how the functionality is implemented.

Centralized Control: A process control mechanism where one node (e.g., company) or a separate entity controls the logic of the flow of documents across the different nodes in a distributed process.

Messaging-Oriented Middleware (MOM): Software platform that provides the means to transport messages between business applications using a number of interaction patterns.

Distributed Process: A business process that involves a number of activities executed in different companies leading to an exchange of documents back and forth across these companies.

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