KPMG leverages blockchain

KPMG is one of the 'Big Four' leading auditing and consulting firms in Germany.

Within the consulting practice, the digital revolution is one of the main focus areas for the solution lines. Digital transformation is every bit as essential to a business's survival, let alone its growth, as regulatory compliance: it's a complex journey that can be compared to concentrating a geographically scattered and structurally siloed enterprise into a brand new office HQ. An architect is required who understands and has a clear line of sight into the requirements of every part of the business if such a building is to work. Equally, an 'enterprise architect' is needed to guide a business through its digital journey.

KPMG has embraced a 'consulting 4.0' model of operation, honing its electronic service quality by using digital consulting, customer analytics, search and social media marketing, and customer-centred design. Platforms such as the SOC2 compliant KPMG Sofy suite offer data analysis, accessible from anywhere and at any time via the cloud. The Sofy-powered, app-based solution “Compliance-as-a-Service” can automate many of the processes associated with taxation and financial compliance.

End-to-end digital transformation programmes

Today KPMG has become a go-to partner for integrating these services with companies' end-to-end digital transformation. It is a ‘business integrator’ instead of a ‘systems integrator' – its strength can be said to lie in the strategy and business consulting required at the beginning of a technology-enabled business transformation engagement. 

Dirk Distelrath, a Director in Consulting for Digital Compliance Services, was an auditor earlier in his 14-year career at KPMG in Germany before stepping into his present role, in which he oversees a team of 20 people. KPMG, he says, aims to be a trusted advisor in the space between strategy and operations, covering process integration transformation, cybersecurity, and compliance.

The latter is really the first step and core to KPMG’s consulting approach, acting as a thought leader and agreeing with the client's strategic goals. Only then is KPMG able to work with the customer’s teams to identify solutions and select which offer the best value – in some cases acting as implementation partner. “Along the transformation journey, bringing in appropriate local and global KPMG resources, we would maintain rigorous quality assurance and test the available solutions against compliance criteria”.

The strategy of the Digital Compliance solution of KPMG rests on two additional pillars, complementing the thought leadership. The first is a strong focus, advising corporate clients covering a vast bandwidth of sectors, including life science, retail, or private equity. Those mature companies often face complex and historically grown business processes, resulting in slow change. This requires lean advisory approaches, best practices, and agile impulses from KPMG experts like Distelrath and his team. On the other hand, the second pillar focuses on tech-savvy, agile firms. Instead of providing advice on digital transformation, those companies rather require guidance to increase their processual and organisational maturity. In those projects, KPMG can leverage long-lasting experience in providing compliance services to large corporates. A vivid example is only weeks ago, where Distelrath and his team were able to assure a tech-driven start-up with the well-known SOC2 attestation. By that, the young company can now prove its sustainable growth and the maturity of its internal control system to its customers.

While Distelrath as a director is responsible for relationship management with the clients, identifying their needs, and being a sparring partner, he sees his team at the core of project delivery: “My role is to engage my team to be involved in these initiatives to create the best outcome for our clients by combining our know-how and expertise. KPMG does not just specialise in digital implementation but has also developed deep expertise in things like cybersecurity and supply chain transformation. If we need to bring in specialist knowledge, we have access to the Global KPMG organisation, which means bringing in a multitude of subject matter experts event at short notice to assist us in our projects”.

Blockchain for business

To adequately fulfill the role of a thought leader for its clients, KPMG must be up to speed regarding compliance topics but also emerging technologies. Being an expert on particularly blockchain, Distelrath categorises it rather modestly as “one of my hobbies”. He laughs when he hears it described as a “dark art”. “Blockchain is a secure and very valuable way of sharing information. We are not interested in cryptocurrencies, with which it's been linked. Our aim is to get the value out of it for our clients. With distributed ledger technology, authorised participants can access the same information at the same time, which improves efficiency, builds trust, and removes friction. KPMG enables its customers to identify the right partners to build a blockchain ecosystem”.

The advantages offered by blockchain or distributed ledger technology (DLT) are nowhere better demonstrated than in complex supply chains. It enables a solution that can scale rapidly and securely because only authorised partners can have access. Shared ledgers are updated till the transaction is validated by all participants. Once the record of an event, a “block” is approved, it is automatically created across the ledgers for all participants in that channel, creating a shared trusted reality. Once approved, nobody can remove a block, so every transaction is permanently recorded, ensuring a high level of trust among all participants. 

Six key points outline how blockchain helps to optimise supply chains:

1. Continuous transparency for the entire supply chain.

2. Trust through technology and distributed control through consensus algorithms. 

3. Authenticated delivery information in real-time. 

4. Acceleration and efficiency through automation.

5. Decentralized network reduces systematic risk.

6. Security and immutability through cryptography.

A highly topical example is found in the way that over the course of 2021, it became necessary to set up end-to-end supply chains to deliver vaccines. For obvious reasons, these had to be secure, highly efficient, and above all, quick – traditional negotiation and contracting routes would not suffice. The complexity of the problem is adequately demonstrated in the graphic below.

Blockchain provides an important new approach to further improve trust in the biopharmaceutical supply chain. This sector is ideal for technology. An audit trail can track drugs within the supply chain, track exactly what data has been shared and who has accessed it, without revealing the data itself, says Distelrath. “The data chain has no limits. A key feature of blockchain technology is a “smart contract”, which is a self-executing protocol that enforces a previously agreed arrangement. But the blockchain can only develop its potential if its perceived advantage also meets company-specific requirements or challenges”, he warns. On its own, the implementation of a data chain creates neither cost nor time savings. 

So as a first step, before letting them wade into DLT, he will always sit down with clients. “I think it makes sense to first test the blockchain on simple processes in order to break down existing barriers and to become familiar with the technology. After this, it can be used for more extensive processes. Despite the disruptive nature of blockchain technology, the selection process should be based on the proven calculation of a business case”. To potential clients, KPMG offers a free assessment on KPMG's ATLAS platform, with which they can assess their level of maturity with regard to blockchain. This may be of particular value to the many family-owned and -led businesses that operate in Europe, for example, and who find the necessary rethinking of their organisational mindset challenging. KPMG consultants are sensitive to the difficulties faced by “old school” companies and will take them by the hand through the process once they have agreed on a business case. For the more tech-savvy companies that already have blockchain implemented, Digital Compliance of KPMG developed a sophisticated blockchain compliance approach, including a ready-to-use risk assessment and a suitable framework of internal controls to address the risks associated with this novel technology.

Covid 19 has been an unlikely ally in accelerating digital change, as we have found with many businesses. It has also helped KPMG's sustainability agenda, changing the way in which KPMG project teams engage with all stakeholders. “We can't just fly from Cologne to Munich anymore. In the last year our clients have also realised they can engage with us almost as effectively, and in some ways even more so, using electronic communications. This has reduced our carbon footprint. We have also been able to use blockchain-based solutions to measure emissions! And it's worth mentioning that the IMPACT platform of KPMG, as well as the newly founded environmental, social, governance (ESG) and sustainability practice, helps clients understand and adapt to new and emerging changes to the business landscape and meet their sustainability goals”. To add the digital focus on ESG as well, KPMG published a study on how to build trust and integrate ethical behaviour into artificial intelligence (AI). This study is complemented by a free assessment on ATLAS to determine the ethical maturity of data management and AI practices within organisations.