The strategies a big four professional services firm uses to legitimize their blockchain based audit practices
Name: Renato Cicilia Student number: 11424168
Thesis supervisor: prof. dr. B.G.D. O'Dwyer Date: June 25, 2018
Word count: 22,672
MSc Accountancy & Control, specialization Accountancy Faculty of Economics and Business, University of Amsterdam
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Statement of Originality
This document is written by student Renato Cicilia who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
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Abstract
Purpose – of this research is to gain an elaborate notion on the process a Big four auditing firm used to legitimize its blockchain based audit practices.
Research design and methodology – To conduct this research a case-based study has been used within a big four auditing firm. The data set consists of 10 interviews of employees in the line services of assurance and consultancy.
Findings – The process of legitimizing blockchain based audit was led by a group employees. This study show cased different strategies to gain legitimacy from the internal, client and non-client external world. This study showed active interaction between efforts in acquiring legitimacy with these audiences. To gain legitimacy with the internal audience, a manipulation strategy was used to gain pragmatic legitimacy from audit employees. A selection strategy was used to obtain pragmatic legitimacy from the top management. Gaining legitimacy from clients contained both a selection and a manipulation strategy. Due to co-operation with start-up companies and embrace and implement their way of working a conform strategy was used to obtain pragmatic legitimacy from clients. To obtain legitimacy from the non-client external world a conform and selection strategy was used to gain pragmatic legitimacy with the Dutch tax authorities (government). Through the use of a digital campaign, pragmatic legitimacy was gained from the market as a whole using a manipulation strategy. The interactions between those efforts to legitimize their practice has been an extraordinary finding during this research. The commercial pressure from the top management made it hard for employees to gain blockchain related education. This was because of lack of success to obtain legitimacy from the top management. Finally the absence of blockchain technology knowledge withhold the process of gaining legitimacy for blockchain based audit practices from clients.
Limitations – Firstly, the focus of this research was on the strategies that were used to gain legitimacy for blockchain audits. Because blockchain technology for assurance services is not as advanced as blockchain based consultancy practices. It was therefore quite a challenge to find interviewees that had knowledge about blockchain technology. And therefore difficult to focus on the assurance line of service alone. The second limitation of this research was the complexity of the blockchain technology. Many employees with enough knowledge on blockchain technology were hard to find. Employees that took part in this research developed most of their knowledge
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in their free time, because of their eagerness about blockchain technology. Therefore the research findings could show a differentiated picture.
Contributions – Firstly the paper offers a theoretical contribution through its enrolment of a refined conception of legitimacy to frame the examination of the relationship between the emergence of Blockchain technology in the audit field and attempts to secure its legitimacy. Secondly this research contributes through the singularity of a case-study which examines the acceptance of the blockchain audit. Thirdly this study contributed through, incorporating an adjoining part to the analysis of legitimacy theory. The blockchain technology and its expected impacts on the audit field are thoroughly discussed.
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Contents
1. Introduction 6
2. Background 10
2.1 Blockchain technology 10
2.2 Innovations in the audit field 11
2.3 The impact of Blockchain technology on the financial services sector 12 2.4 The Blockchain technology and changing role of the accountant 14
3 Theory 16
3.1 Legitimacy theory 17
3.2 Gaining legitimacy for new practices 18
3.3 Seeking legitimacy from audiences 19
3.4 Theory summary 21 4 Research method 22 4.1 Research environment 23 4.2 Research method 23 4.1 Data analysis 25 References 60
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1. Introduction
In 2008 a paper written by Satoshi Nakamoto was published online. The name of this paper was: Bitcoin: A Peer-To-Peer Electronic Cash System (Crosby et al., 2016). Short after Bitcoin became available in January 2009 and has been called a revolution by many since. Bitcoin is a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution (Nakamoto, 2008). Since it was reported in 2009, bitcoin has been attracting considerable interest from academics and entrepreneurs, because of the underlying technology called Blockchain. Blockchain is essentially a distributed database of records, or public ledger of all transactions or digital events that have been executed and shared among participating parties (Crosby et al., 2016). According to Swan (2016) Blockchain technology is a public ledger that can become a worldwide decentralized record for the registration, inventory, property and plant and intangible assets.
Blockchain technology, as its name suggests, is a chain of blocks that contains information. This technique was originally described by a group of researchers, with the intend to timestamp digital documents so that it becomes impossible to backdate or tamper them. For example, one can mail a letter to oneself and leave it unopened. This ensures that the enclosed letter was created before the time postmarked on the envelope. This old method ensures that any tampering with a document by one person will be detected by another (Haber & Stornetta, 1991). The blockchain as we know it today is essentially a distributed database of records, or public ledger of all transactions or digital events that have been executed and shared among participating parties. Every transaction that is done in the public ledger is verified by different participants in the system through consensus. Therefore, when information is entered it becomes impossible to tamper with it. Technology relied on a chain of blocks holds an identical detailed record of all transactions ever made and is stored at all participating parties. Despite the high scrutiny on Bitcoin and other cryptocurrencies the technology on which it relies has worked flawlessly and found wide range of applications in both financial and non-financial world (Crosby et al., 2016).
Blockchain technology has been in the limelight recently. According to Deloitte blockchain is a game-changer in accounting and has the potential to upend entire industries. Especially the financial sector may undergo disruptive change (Deloitte, 2016) . Carlozo (2017) are in agreement and call the blockchain technology a big disrupter of accounting, auditing and finance. Researchers predict that the blockchain technology could be the fifth pillar of information technology (IT) revolution, next to the mainframe, personal computers, the internet and social media (Swan, 2015;
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Thakkar, 2017). However, the potential upsides and downsides that the blockchain technology can bring to the audit field are still under examination.
While blockchain is still in its relative infancy and is not likely to have more than a theoretical impact on the audit profession the coming years (Hood, 2017). According to Dai and Vasarhelyi (2017) academics should examine how to develop and implement an accounting system that runs on the blockchain technology and focuses on automatic and encrypted transaction storage and verification. In the information society in which we now live, the discussion on how blockchain will impact the audit field is rising. According to Smith (2017) blockchain technology is already altering in what way the audit field performs and will guide the business landscape moving ahead. The author describes two ways how blockchain technology will change the audit field. Firstly, if the participants in a certain transaction are identified, the time and date of the transaction is verified, and the associated data is secured, the potential of errors is reduces. Secondly, accounting will become real-time. Just like doctors are increasingly able to monitor the health of patients in real-time thanks to advances in technology, blockchain technology will allow accountants to monitor, on a real time manner, the financial performance of a company. This may certainly place certain processes in the audit field in danger. Baron (2017) agrees with this statement and states: “this technology has the potential to greatly reduce or even eliminate the need for auditing resources — potentially disrupting the accounting profession as a whole’’.
Many researchers predict the elimination of audit practices, yet on the other hand this provides an opportunity for accountants that want to study the blockchain technology. Tschakert et al (2016) confirms this and state: “Although auditors’ accuracy verification roles may be diminished, their judgment, oversight, and insight should become even more necessary. The focus of auditing would change from record tracing and verification to more complex analysis, such as systemic evaluation, risk assessment, predictive audits, and fraud detection”. The authors predict that auditors in the future will play the role of an evaluator and examiner over the design, creation, and execution of accounting systems running on the blockchain technology.
According to Frey and Osborne (2013) current accounting tasks (e.g. business analysis and external reporting) are being automatized. Besides blockchain technology several companies and start-ups invest in robotics and artificial intelligence that could help in the process of automatizing certain auditing processes. According to Richins et al. (2017), it is not possible to create software that can fully replace auditors’ managerial and auditor skill. Blockchain alone will not replace that and therefore blockchain is seen as a complementing factor instead than a substitute. However according to some authors the blockchain technology and its network does not come without
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problems. Coyne and MCmickle (2017) think that different supply chains will adopt different blockchain applications. Single firms than are forced to comply to different blockchains applications. This is dilemma is already happening in the cryptocurrency market. Cryptocurrencies have contrasting blockchain applications which are hard to adopt (Chester, 2016) and can cause major translation and or transfer errors. Yet, as every technological development comes with problems, none come with such a great privacy solution as the blockchain technology.
As shown above the discussion about how the blockchain technology will impact the audit field is based on predictions and is split. When reading prior literature the trade-off for implementing the blockchain technology within assurance usually is between confidentiality and efficiency. While some researchers predict the elimination of audit practices others see the blockchain as an business opportunity for accountants that want to study this technology. Although, the different opinions all agree on that the blockchain technology will have a significant impact on the entire world, especially the financial world. This papers researches the strategies that are used to legitimize their role as auditors in ‘’blockchain assurance’’. Richins et al. (2017) argue that Big Data analytics complements accountants’ skills and knowledge. However, educators, standard setters, and professional bodies must adjust their curricula, standards, and frameworks to accommodate the challenges of blockchain. The process through which this auditing innovation is legitimized with key audiences is therefore a crucial element of the innovative success of the audit field. The paper’s aim is how a big four professional services firm sought to gain support for their blockchain services by developing perceptions of legitimacy among different departments within the firm. Data was gathered and analyzed data from within the research environment, through interviews. The question this paper strives to answer is the following:
What strategies are used by a Big-4 audit firm to legitimize “blockchain assurance”?
Firstly the paper offers a theoretical contribution through its enrolment of a refined conception of legitimacy to frame the examination of the relationship between the emergence of Blockchain technology in the audit field and attempts to secure its legitimacy. The paper uses three forms of legitimacy as seen in the paper of O’Dwyer, Owen and Unerman (2011): pragmatic, moral and cognitive. Also the different strategies employed in seeking to secure legitimacy for using Blockchain technology in assurance with key internal and external audiences.
Secondly this research contributes through the singularity of a case-study which examines the acceptance of the blockchain audit. According to Gendron and Barret (2004) scaling up work that builds secure and steady network of supports in a professional manner, come with an inherent
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complexity. The research determines how a big four professional services firm attempt to gain acceptance for blockchain based audit practices. These attempts, however are hindered by the top management. Who not yet portray blockchain technology as a disrupting technology that will impact the firm in the short term.
Thirdly this study contributed through, incorporating an adjoining part to the analysis of legitimacy theory. The blockchain technology and its expected impacts on the audit field are thoroughly discussed. There are two sides in the discussion on the expected impact of blockchain technology on the audit field. According to some researches an auditor can use blockchain technology as a tool (Mainelli & Smith, 2015; Richins et al., 2016). Other researchers claim that blockchain technology will make sure that auditors will go obsolete (Catalini & Gans, 2016; Fanning & Centers, 2016; Yermack, 2015). An timely research on the opinion of a big four professional services firm is missing. The aim of this study is to elucidate the influence of blockchain technology on the audit practice from a big four professional services point of view.
The rest of the paper is structured as follows. Understanding regarding the background of the research subject will be given in chapter two. Here blockchain technology will be mentioned and explained, in addition an understanding on the expected influence blockchain technology will have on the financial sector is given. The following chapter describes the research methods that are applied to conduct this study. Followed by a description of the theoretical framework that is used for the research analysis. The case narrative will be presented in chapter 5. Followed by the analysis in chapter 6. The discussion and conclusion on this research will be given in chapter 7.
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2. Background
This chapter’s aim is to deliver understanding inside the literature that is important for this paper. First a practical description on the functionality of blockchain will be given. Followed by the notion of innovations within the audit field. In the third paragraph of this chapter a general understanding on the effects of blockchain technology on the financial services sector is given. Finally the chapter ends with literature about blockchain technology and its impact on the audit field.
2.1 Blockchain technology
Blockchain is essentially a distributed database of records, or public ledger of all transactions or digital events that have been executed and shared among participating parties (Crosby et al., 2016). According to Swan (2016) this “public ledger” can become a worldwide decentralized record for the registration, inventory, property and plant and intangible assets. A blockchain ledger is allocated over different computers that collaborate with each other in the form of a system. This system collects and encrypts series of bits into an unit or block and then interconnects them together. Every transaction is documented and spread across all computers. Blockchain technology became famous after an individual (or group) writing under the name of Satoshi Nakamoto published a paper entitled “Bitcoin: A Peer-To-Peer Electronic Cash System” (Crosby et al., 2016). Shortly after Nakamoto published his paper, Bitcoin came online in January 2009.
However this wasn’t the first cryptocurrency. It all started with a system made by DigiCash, Inc.’s. This was known as eCash and was based on papers from its founder founder (Chaum, 1983; Chaum et al., 1992). In this system transactions could be made online and offline with the use of crypto graphics to prevent any form of double spending. Similar to cryptocurrencies today it used blind signatures to secure users privacy. The eCash system got offered by various banks and countries (e.g. United States and Finland). Despite its cryptographical and privacy features and many software developers that worked over 20 years on eCash, it still lost its relevance.
Nakamoto defines Bitcoin as “a purely peer-to-peer version of electronic cash” and allows transactions to be sent immediately from one party to another (Nakamoto, 2008). A peer-to-peer network implies a class of systems and applications that make use of distributed resources to perform a critical function in a decentralized manner (Milojicic et al., 2002). A copy of the ledger is copied upon thousands of computers around the world and is viewable by anyone. The ledger is updated periodically, so every computer shows the same ledger. Before the existence of
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Blockchain, stakeholders had to rely on a central authorizer to send transactions to one another (Wright & De Filippi, 2015).
2.2 Innovations in the audit field
Throughout history auditors have seen their operating environment change substantially. The audit field demonstrated that it responded and adapted very well to innovations, audit-styled technologies and “new audit spaces” (Andon, Free & Sivabalan, 2014; Andon, Free & O’Dwyer, 2015). Brown (1962) did research on how the audit field and its objectives and approaches completely changed over the past four centuries. Brown finds in his research that auditing not merely focus on the detection of fraud, but rather see a shift towards auditors who try to assess a fair view of reported financial statements. According to Brown auditors have fulfilled a wider role and showed that they are capable of moving into new fields to show their importance over the past centuries.
In the last decades auditors have been very responsive towards innovative technology developments. It has been said that auditors adopted well to technological developments of their clients. Unfortunately with respect to technological and analytic developments history learns that the reality is somewhat different, and fail to live up to expectations (Vasarhelyi and Halper, 1991). Even after some years auditors cannot catch up their clients in the adoption of technological advances, like the Internet and distributed computing. Therefore some could argue that auditors will be slow when including Big Data techniques in audit practices (Alles, 2015). Despite these arguments, Kaplan, Menon and Williams (1990) argue that auditors used technological developments in different segments of their industry to increase the effectiveness and productivity of audits. Auditors have successfully developed and secured their expertise in financial audit in different markets (e.g. e-commerce assurance) for the past two decades (Gendron and Barrett 2004). Present successes in the audit field were achieved by auditors’ willingness and capability to move to experiment in different markets and different services, instead of offering only audit and accounting, tax and insolvency services (O’Dwyer, 2011). According to O’Dwyer et al. (2004), there is an audit explosion when auditors move towards different markets (e.g. sustainability reporting). Despite the fact that auditors are able to move to different markets, Richins (2017) argues that computer scientists might take over the audit market. However according to Mcafee and Brynjolfsson (2012) this can only happen when computer scientists acquire business knowledge. Auditors therefore still have an advantage over computer scientists, because of their learned behaviour in university and experience from performing audits (Bonner and Lewis, 1990).
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Curtis et al. (2016) studied the role and promise of development in the audit field. They specifically studied the reaction of accounting standard-setters around the world to the rise of Business Risk Auditing (BRA). According to the authors BRA failed to change the audit field. The reason they find for this was that elements in BRA were not renewing enough. As a result of the scrutiny against commercialism in the audit field, standards were placed in order to limit the commercial aspect of the industry and increase the professional skill of auditors. The Securities and Exchange Commission (SEC) ways promote audit efficiency through standardized audits, emphasized the difficulties in implementing BRA into the International Standards on Auditing (ISA). These standardized and structured standards have the goal to make the process of performing an audit more transparent, tenable and valid. According to Catasus et al. (2013) the modern world is known by an increase number of accounting scandals (e.g Enron) and as a result of that the number of accounting standards and the standardization of standards increase. The authors argue that because of intense regulation, auditors cannot be innovative in their industry. It is true that through strict regulation the number of scandals can be reduced, but on the other hand it can lead to value reduction of audits. On the basis of the above it can be argued that the strict regulatory oversight on auditors reduce the possibility of the audit field to be innovative.
Enron, WorldCom and the financial crisis might create a huge scrutiny towards auditors that resulted in a more strict oversight regulatory (ICAEW 2010; ACCA 2011). But together with the acceptance and use of blockchain technology, auditors could legitimize and increase their effectiveness and credibility of their services.
2.3 The impact of Blockchain technology on the financial services sector
It is expected that the Blockchain technology will impact a number of industries. Industries that will be impacted by this technology are insurance, energy, media, life sciences, real estate and entertainment. But many argue that the biggest impact will fall within the financial services sector.
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Since it was reported in 2009, bitcoin has been attracting considerable interest from academics and entrepreneurs, because of the underlying technology called Blockchain and its expected impact on the world. Blockchain is essentially a distributed database of records, or public ledger of all transactions or digital events that have been executed and shared among participating parties (Crosby et al., 2016). According to Swan (2016) Blockchain technology is a public ledger that can become a worldwide decentralized record for the registration, inventory, property and plant and intangible assets.
Blockchain technology has been called a game changer by many. According to Deloitte blockchain is a game changer in accounting and has the potential to upend entire industries. Especially the financial sector may undergo disruptive change (Deloitte, 2016). It is expected that it can improve current business models or create new models and products and services. This technological development could be the largest the financial services sector will ever witness (Gomber et al., 2018). Researchers studied the blockchain technology and its impact on the financial services market. Fanning and Centers (2016) expect that transferring of transactions will be more efficient and faster. This is because it is impossible to have misunderstanding about the accuracy and completeness of data or transactions in shared ledgers. This is because the blockchain technology uses shared ledgers that have an exact copy of the data, which makes it hard to tamper with data. In addition the consensus algorithm of its network defines the world as a decentralized system. All interconnected participants in the blockchain network have to be in accordance with each other, otherwise the data is not correct and fails to record. This mitigates the amount of (substantive) tests the auditor has to do concerning transactions, because all transactions that are entered in the network are correct.
Besides the effect on accuracy and completeness the blockchain technology will have, it will also reduce the costs of sharing data. This is because all participated parties are connected to each other in one shared ledger, and therefore they have access to the same data immediately. Researchers expect that Blockchain technology will reduce the costs of networking and verification within the services industry. Subsequently it will impact (central) banks, because of its capability to run transaction based disintermediation. Disintermediation is another word for running transactions without a physical or central authority validating transactions from one to another. In this way the financial services sector can add cryptography to the already existing ledger and create a new client experience (Catalini and Gans, 2016; Gomber et al., 2018).
Because Blockchain technology is in its children’s shoes much is focussed on the financial services sector in its entirety. Carlozo (2017) is in agreement and call the blockchain technology a big disrupter of accounting, auditing and finance. Researchers predict that the blockchain
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technology could be the fifth pillar of information technology (IT) revolution, next to the mainframe, personal computers, the internet and social media (Swan, 2015; Thakkar, 2017). As seen in the above discussion the effects of blockchain technology on the financial services sector will be enormous. However, the potential upsides and downsides that the blockchain technology can bring to the audit field are still under examination. Very few studies have examined the consequences of implementing the Blockchain technology into audit processes. In the following paragraph literature about the blockchain technology and its impact it can have on financial auditing will be evaluated.
2.4 The Blockchain technology and changing role of the accountant
According to Dai and Vasarhelyi (2017) blockchain technology and its application to audit and advisory services remains unknown. Their research tries to contribute to the debate on how blockchain will be able to perform as a transparent, real-time and verifiable accounting ecosystem. According to many researchers the audit field could benefit from blockchain technology. Besides the profession also the current audit methodologies might be changed by blockchain technology. It is expected that blockchain will facilitate transactions between different parties, but also time stamp the data flow the accounting data within a company. This enables real-time accounting since all parties are connected to the same network. Automatic controls could be facilitated using blockchain technology. These are called smart contracts and the rules are set before transactions are done. If a transaction does not comply with the rules or there is no consensus the transaction is not approved.
Dai and Vasarhelyi (2017) mapped their future projections of blockchain technology in the assurance industry and call it “Blockchain-based Accounting Ecosystem”. Figure 1 presents the Blockchain-based Accounting Ecosystem. Firstly Dai and Vasarhelyi (2017) describe the upcoming the blockchain technology and capability to allow triple-entry reporting and protect it through cryptography. Secondly financial information that stems from a blockchain based practice is transparent and available for shareholders, governments or even other interested parties (Yermack, 2017).
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Source: Dai and Vasarhelyi (2017)
The triple-entry concept needs three different parties in the network. One of the three parties should be an independent party that check every transaction. This could be for instance a delivery company between a farmer and a wholesaler. If you enter financial information in a system that has underlying blockchain technology it is approved and added to the chain, therefore becoming almost impossible to change and tamper with the data. Blockchain could facilitate smart contracts that make immediately approves transactions when they are done. When adding a third party is put in the blockchain network in an information system becomes transparent, cryptographically secure, and transactions can be approved on its own. This creates a system where it is possible to share reliable information between third parties, governments or even others.
The above characteristics can be summarized as a self-sufficient accounting ecosystem. In this type of ecosystems a smart contract can act as the assurer of the fairness and validity of financial information. When combining blockchain technology with Internet of Things technologies physical and real conditions could be added in the reporting process. To give an example smart contracts can post a sales record via the blockchain ledger if the item is expected to be transmitted to the company through geographic information transmitted via the IoT. In addition, when devices will contain sensors or chips and they are made accessible to networks (Dai and Vasarhelyi 2016), might be able to self-report any (non) delivery, delay, loss or breakage. Besides this automation process, smart contracts are capable of making accounting information smart when it is combined with Big Data and predictive analysis. An example is a smart contract that is coded with a model that tracks the saves credit ratings based on their spending behavior and financial status.
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As mentioned before, blockchain based financial information could be made transparent for different parties. Besides full transparency it is still possible to create different access possibilities. You could for instance give a CFO full access to all data, but constrain a full data view for an assistant controller. Authorization should be given on a person’s role and demands. As mentioned before blockchain based accounting information system could grant different parties to view information at a collection of different levels, based on their roles. This increase in transparency, together with the verifiable character of the blockchain, can possibly lead to increasing trust by the large amount of possibilities to decrease for earnings management (Yermack 2017). The recording and presentation process will shift from a manual to a more automatized one. It is expected that an accountant will change from collector and aggregator to interpreter and analyst.
3 Theory
This research tries to analyse which strategies a big four auditing services firm uses to legitimize its blockchain auditing practice. In order to interpret and analyze the findings of this research a need to understand the various perceptions of the legitimacy theory will be given. Theory enables researchers to view complex problems and put their attention on different facets of these problems. It also helps putting a framework as basis on which problems can be analysed (Mitchell & Cody, 1993). Theory on which this research is based is called the legitimacy theory. This theory can be used to explain how corporations legitimize practices (Deegan, 2007). Legitimacy is the most important factor in answering the research question. Whilst trying to gain support from the public and participating parties the notion of legitimacy is most important. When auditors moved for instance to the sustainability market the legitimacy strategies they used were most important (Shafer & Gendron, 2005; O’Dwyer et al., 2011). Because blockchain technology is expected to have an enormous impact on the audit field, it is important to analyse the way auditors seek legitimacy.
The main topics in this chapter will be the legitimacy theory, legitimacy theories and the audiences the audit firm might try to find legitimacy with. The legitimacy theory will be split into three. The first section of this paper will explain the notion of legitimacy and its different types. The second section of this paper will explain the different strategies can be used to obtain legitimacy. According to Power (2003a) the audiences that are central when searching legitimacy when moving to new markets are: the internal world, the client world and the non-client external world. The primary aim of this chapter is to propose a conceptual theoretical framework based on
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the legitimation of blockchain technology practices. This chapter helps understand and analyse the empirical findings of this research.
3.1 Legitimacy theory
In the paper of Deegan and Blomquist (2006) the influence of lobby groups on the social and environmental practices and related corporate disclosure policies were examined. According to them an organization is legitimate when it adopt its strategies as a result of their own
expectations to meet what society expectations. In other words, a company has an social contract with society that exists of a multitude of expectations that society has from the corporation and how it should operate in the economic and social environment. When the counterparty has the social contract, it can hold the organization account for its actions. If there are no differences between society’s expectations and the value system of the organization, the organization and its actions can be called legitimate. Many researches have given their definition of legitimacy. Maurer (1971) defines it as “legitimation is the process whereby an organization justifies to a peer or superordinate system its right to exist”. However according to Suchman (1995) this definition focuses more on when organizations are understandable instead of desirable. Suchman (1995) defines legitimacy in a broad-based way, considering both the evaluative and cognitive dimensions: “Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions”. To gain full understanding into legitimacy O’Dwyer et al. (2011) used the framework of suchman to explain the legitimacy theory. Suchman identifies the following types of legitimacy: Pragmatic, Moral and Cognitive. These types of legitimacy coexist in theory, but can collide in practice (Suchman, 1995).
An organization gains pragmatic legitimacy when an organization and practices (e.g. audit) has instrumental value for its stakeholders (Kumar and Das, 2007; O ’Dwyer, 2011). Pragmatic legitimacy can be split into three. The first form is called the exchange legitimacy and this is gained when a certain practice brings value to constituents. The second form is called the influence legitimacy and this is gained when the certain practice brings value to the constituents entire practice. The last form of legitimacy is called dispositional legitimacy and is gained when all stakeholders are taken in consideration when the organization adopts its practices (Suchman, 1995; O ’Dwyer et al., 2011).
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Moral legitimacy is gained by an organization when the public thinks that its practices are based on “the right thing to do” (Suchman, 1995; O’Dwyer et al., 2011). Unlike pragmatic legitimacy, moral legitimacy can be split into four forms. The first form is consequential legitimacy means to judge a practice by its obtained results. The second form of moral legitimacy is called procedural legitimacy. Moral legitimacy in this form is found when through the use of social accepted techniques and procedures (Brinkerhoff, 2005). The third form is called personal legitimacy and is gained through an a personal level of the organization. The value of personal legitimacy is affected by the reputation, charisma, and personal status of employees within the organization. The last form of moral legitimacy is called structural legitimacy, and is gained when an organization's practices correspond with the social construct.
Cognitive legitimacy is gained when a stakeholders sees organizational practices as propper, appropriate, and desirable (Brinkerhoff, 2005 p. 4). Cognitive legitimacy can be split into two. The first form is called comprehensibility and is concerning the legitimizing of a certain practice by explaining the existence of the practice. The last form is called taken-for-grantedness and is gained when there is no need to give a detailed explanation of how the practice works. This form of legitimacy is the hardest one to gain, but when gained it is the most powerful.
As mentioned before all forms of legitimacy are coexist with each other, but they can collide in practice. The main difference between the three forms of legitimacy is that pragmatic legitimacy relies on expediency, whereas the public is main factor on which moral and cognitive legitimacy are based (Suchman, 1995).
3.2 Gaining legitimacy for new practices
Suchman calls the search for legitimation “the challenge” (Suchman, 1995). When accepting the challenge, organizations face the alarming task to win acceptance for either new activities or their current practice from stakeholders. Suchmann puts the process of gaining legitimacy into three clusters. The gaining of legitimacy is aimed on gaining the forms of legitimacy mentioned in the above paragraph.
The first way of gaining legitimacy is called a conform strategy. This is a strategy where a party allows to be commanded by existing parties inside a certain area. To obtain pragmatic legitimacy an advocate conforms its practice in alignment with the constituent’s needs or demands, or the advocate enables access for constituents to influence decision making concerning the practice. Pragmatic legitimacy is also obtained on reputation of the advocate within connected
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practices. Moral legitimacy is obtained when an advocate’s practice shows an concrete, socially and desirable effect. Cognitive legitimacy is obtained by showing that practice of the advocate is based on models or standards. This can partly be done through imitating connected outstanding and entrenched practices.
The second way of gaining legitimacy is called a selection strategy and involves attempts of an advocate to find an audience among a greater environment in reaching constituents that agree on their practices. Pragmatic legitimacy is gained when the advocate finds constituents who see value in the advantages of the emerging practice. Moral legitimacy is gained when the an advocate creates and promotes moral criteria for its practice, which the selected audience may find important (e.g. efficiency, accountability, etc.). Cognitive legitimacy is gained when the organization is showing it is using certification or works upon standards for its emerging practice. The last way of gaining legitimacy is called the manipulation strategy. An advocate in general gains legitimacy through conforming to or selecting an environment, however sometimes this is not enough. Radical new practices need a more novel based legitimacy allegations are desired. To gain legitimacy for these practices new audiences and new legitimating beliefs have to be created. The allegation claims have to become “less a matter of management than of evangelism” (Suchman, 1995, p. 591). Pragmatic legitimacy is gained when a group of constituents is convinced to believe in the practically importance of some aspects of the practice. Moral legitimacy is obtained when an constituent conforms to morally accepted criteria and shows the positive effect of this conformance. The organization chooses their own moral criteria they find most important and try to gain legitimacy through this. Cognitive legitimacy is gained when the organization is showing the realness of its practice through lobbying, advertising and academic research activities (O’Dwyer et al., 2011).
3.3 Seeking legitimacy from audiences
According to Power (2003a) the creation of new audit practice and the search for legitimacy have to coexist with each other. When new assurance practices are developed in combination of legitimizing them, the focus is on the following three audiences: clients (auditees), the external world (e.g. financial statement users), internal world (e.g. departments or employees within the firm). This research environment is important when legitimacy strategies are analysed (Power, 2003a). In the following part of this chapter the seeking of legitimacy will be split in the three audiences.
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Clients
According to Abbott (1988) the main goal of an auditor is to provide assurance over the financial and non-financial information the auditee gives towards stakeholders. Curtis and Turley (2007) state that seeking legitimacy with auditees always has been the main influence in the creation of new assurance practices. New assurance practices like the BRA gave accountants access to a new discourse and market motivations for assurance. Robson et al. (2007) examined how auditors gained legitimacy from clients concerning BRA. They found that the legitimation process of BRA was not only done by auditors. Researchers and regulators made scientific claims that BRA was a practice that was rational and based on science. Another part of the legitimation process was the creating of auditable environments to improved the preparedness of a client. This helped gaining legitimacy from clients for other practices of assurance. This demonstrates that accountants try to gain pragmatic legitimacy within their client atmosphere by showing the worth of their practice and services for the client’s organization.
External world
The external world mainly exists of financial statement users. One of the main objectives of an accountant is to give assurance on the true nature of financial statements from its auditees. Financial statements are considered to play a major role in gaining legitimacy from the external world. It is of high importance when assurance is gained that the financial statement users trust the auditor (intermediary). According to Power auditors serve trust, thus legitimacy in this perception is of high-end when they sell their product. According to Porter, Hógartaigh and Baskerville (2009) gaining legitimacy in the external world is mainly concerning management of expectations. They found that because of a mix of confusion and the lack of experience from users, a misconception the audit function and responsibilities occured. This shows a demand to instruct users more about what is interpreted under a financial statement that is considered to be ‘true’. This instruction is of specific importance for practitioners. These practitioners have to manage and create expectations to promote audit into new sectors. Education especially is needed because of history showed gaps between expectations and abilities of new audit forms (e.g. environmental and quality audits) (Power, 1999).
Internal world
Before it is possible to gain legitimacy from external parties for new practices within audit, gaining legitimacy from employees and departments from within the company. Unfortunately the internal world has not get enough attention from research (Kumar & Das, 2007). While history
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learned that auditors had a hard time to legitimize some aspects of their practice within their own company. According to Power (2003a) a practice success is highly depended on internal parties. If the internal world (employees, managers, etc.) does not comply to new ideas it will be hard to be accepted.
According to Cardozo et al. (1993) innovation is seen as one of the most important driver of organizational success. One major issue organizations face is how to implement and adopt to new innovative technologies. According to Kamal (2006) organizations can only be successful in implementing new technologies, if they know their IT capacity, benefits of the technology, organization operations and other operations. In addition most innovations find their existence from the operational side of the organization (Hubbard and Ottoson, 1997). It is the top of an organizations that needs to be convinced of this new technology. Innovative technologies within a firm have the tendency to have an bottom-up character. The executives or employees with high positions is the audience where legitimacy is sought. The understanding of which audience in the internal world legitimacy is sought is vital for this research.
3.4 Theory summary
The goals of this chapter was to bring a better grasp of the legitimacy theory and different legitimacy strategies. New innovations within the audit field have to be legitimized and accepted by different audiences, before it can be implemented successful within an organization. It is of great importance to understand all aspects of legitimacy. The theoretical framework forms the basis of this research and helps analyzing how the firm used in this case tries to gains legitimization. This research uses a 3 by 3 classification. First the three types of legitimacy (pragmatic, moral and cognitive) that are gained while using one of the three types of legitimacy strategies (conform, selection and manipulation), within 3 audiences (clients, external and internal world). Figure 4 shows the typology of legitimization of Suchmann’s (1995). Figure 2 shows a summary of the theoretical framework as used by O’Dwyer (2011).
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Figure 4 - legitimization typology (Suchmann, 1995).
4 Research method
This chapter gives an understanding of the research methods that are used in conducting this research. In the following of this chapter the research design will be explained, the research methods will be discussed, the data gathering process and how the data was analyzed is presented.
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4.1 Research environment
The research is conducted within a big four professional services firm. The services lines are: assurance, tax and advisory. The firm is currently trying to increase its digital proposal. The paper’s topic, blockchain technology, is one of the eight (emerging) technologies that are expected to affect the firm’s business model. With their digital campaign the firm tries to create consciousness around blockchain technology. This firm is engaged in the current societal debate concerning blockchain technology.
4.2 Research method
This thesis is aiming to acquire understanding on attempts of the big four professional services firm to gain legitimacy for their blockchain assurance related practices. The study that is conducted in a qualitative manner, because the subject is still infancy and prior literature is limited. Miles and Huberman (1994) claim that qualitative studies allows a complex subject to be revealed and in a holistic and rich manner. For this thesis a case study will be done. The focus of this study are legitimacy strategies used by employees in the firm. A case-based research is most suitable for the research’s aim. According to Feagin et al. (1991) a case-based research is a thorough and multidimensional qualitative study on a single social aspect.
According to Sofaer (1999) a case-based study can be done using in-depth interviews, insights of conferences or meetups and through thorough analysis of documents. For this study in-depth analysis is done by interviewing key informants. This research was based on in-depth interviews with key informants, because other methods are not available or limited within the firm. A good qualitative study includes an interestingly topic that desired additional analysis (Tracy, 2010). Validity is seen as a substantial aspect within a qualitative study. Validity has consists of an internal and external constituent (Gibbert & Ruigrok, 2010). Internal validity means to what degree the research data and analysis represents the truth and reality. This part of validity is assured using an elaborate and strict theoretical framework (Yin, 2009). The external aspect of validity means that the conclusions of the findings can be generalized. Generalization of research conclusions within a case-study are restricted. According to Flyvbjerg (2006) restriction of external validity within a case-based study is a wrong impression. According to him case-study is an extensive analysis on a single sample. The assertion that a case-study is unable to offer accurate date in a bigger sample is untrue. An example is the theory (Taleb, 2007) that all swans are white, was rejected after one black swan was found. This single sample was true for a larger sample. Other
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researchers agree with this theory (Ruddin, 2006; Cavaye, 1996; Huitema, 2011). Therefore a case study method for research is acknowledged and can be used without concerns.
4.3 Data collection
To generate the data that will be used in this thesis a case type study will be applied. This makes it possible to analyze the legitimacy strategies, that the firm used, in a comprehensive way. Semi-interviews were used in this research because of two reasons (Barriball and While, 1994). The first reason is that this makes it possible to study opinions on sometimes sensitive issues and clarifies answers of the informants. The second reason is because of a broad spectrum of the informants academic level, profession and persona excludes a standard interview diagram. Gaining information on legitimacy strategies that are being used by the firm to legitimize their practice is of complex nature. Therefore the previous aspects are desired.
Every interview started with questions on their position within the firm. After this the theoretical framework1 was presented. The informants that were being interviewed had a broad scope of positions within the firm. They consisted of employees from the operational level to the top management. The interviewees were found using the internal list of contacts and searching for employees working in the department digital assurance. After calling several employees provided me with the most important key figures concerning blockchain technology. Ten interviewees were found using this process in less than three days. Table 1 shows all participants of the interviews.
#
Years of
experience Department Date Duration INT1 1-3 Digital assurance 23/05/18 01:01:27
INT2 4-8 Advisory 24/05/18 00:33:20
INT3 4-8 Advisory 25/05/18 00:50:41
INT4 4-8 Advisory 1/6/18 00:51:33
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INT5 4-8 Blockchain centre 5/6/18 00:55:22 INT6 4-8 Blockchain centre 7/6/18 00:45:26
INT7 10+ Assurance 4/6/18 00:32:29
INT8 4-8 Advisory 11/6/18 00:41:33
INT9 4-8 Assurance 12/6/18 00:32:26
INT10 10+ Assurance 18/6/18 00:47:11
Table 2: interviews with participants
All interviews took place within the firm and. The interviewees were asked if the interview could be recorded, transcribed and finally used within this thesis. A short introduction on the subject was given. The interviewees were told that their interview data was private and not used for any other purposes than the thesis. Recordings and the transcribed interviews were safely saved on a computer using a password to open the files.
4.1 Data analysis
This paragraph will give insight in the process of the analysis of the data. According to Miles and Huberman (1994) a qualitative analysis consists of the condensation, display and interpretation of data.
Firstly the condensation of the data was done as followed. First the recordings were transcribed. After reading through the transcription a summary with notes of the transcript weremade. These summaries and notes were finally used for the analysis of the data. Every data was divided into the storyline. The themes in the narrative consisted of the internal, external non-client external world, the importance of blockchain technology for auditors legitimacy issues. A subtheme was made for general data. Every assertion, comment and statement was grouped under these themes (O’Dwyer, 2004).
Data display is the second phase used in the analysis of the interviews. Every quote or statement was personalized with the name of the interviewee. Finally the statements were color-coded using the six themes as described above. No different methods have been used to display the data.
The third step entails the understanding of the displayed data. According to Tracey (2010) resonance is an important facet for a good qualitative study. When perception of dissimilar sources compared with each other resonance is accomplished. Another word for this process is triangulation. This has been of high importance in this research. Attempts to achieve resonance
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was done by addressing multiple views on the analysed data. This to ensure that the analysis was comprised of a larger scale.
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5. Case narrative
When a thorough examination is needed on a specific subject or issue, a case study can be convenient. Through a case study those issues or subjects can be researched in a realistic context (Crowe et al., 2011). In this chapter the appearance of Blockchain technology within the big four audit firm until now is described. In chapter six the way in which the firm handled the emerging of this new technology has been analyzed, using theoretical frameworks of Suchman (1995) and Power (2003a).
5.1 The first blockchain experience
One of the things that the firm really focuses on is digitalisation. The firm positions itself as the expert in the field of digital threats and opportunities. PwC has identified Blockchain as one of the most important technologies within the global market together with artificial intelligence, robotics and virtual reality. The very first encounter with Blockchain originated from personal interests. People started to read about Bitcoin and the underlying technology in newspapers and the internet. For some it even grew into a hobby. The blockchain expert (INT5) is a perfect example of such a person within the firm. A consultancy manager emphasises this:
He [referring to INT5] had founded a blog on which he wrote about Blockchain technology and Bitcoin. When he entered the firm, he started to tell his direct colleagues about Bitcoin and Blockchain. After a while, other colleagues intercepted his story and it spread like wildfire within the firm. From that moment, the ball started to roll. More and more people started to get interested about Blockchain and that was it first noise within the firm. Blockchain was not promoted from the top, instead it was more bottom-up. (INT 1).
The Emerging Tech Lead, the blockchain and an audit started the first Blockchain information sessions. These sessions were created to detect innovative technologies that could disrupt the audit field. These sessions started early in November 2015 and were free to join by anyone of the firm. At this point in time there was a small desire for these sessions. The purpose of these information sessions were to explore new technological developments that could affect the firm’s audit, advisory and tax practices. The impact of Blockchain technology on the firm and its services was expected to be of a high level. Around 30 people attended the weekly information sessions. Because of the positive reaction, these sessions the main subject became Blockchain technology. Many participants gave positive feedback, a manager stated this on the information sessions:
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We started drinking beers on Friday afternoons in the office B Amsterdam from 3 o'clock in the afternoon and only talk about blockchain. It was awesome (INT 4).
By the end of 2015, the media mentioned blockchain very often. Besides that, other employees started to hear more about the blockchain information sessions. Anyone of the firm’s lines of services was welcome to join. This was important, because this technology could affect the firm’s assurance, advisory and tax services. The organizers of the information sessions wanted to create unison and decided to call the information sessions the blockchain tribe.
Slowly more people began to read more and wonder more about what Blockchain really was. The demand to explain the technology started to grow. At first, this growing demand came from the inside of the firm, not even externally (INT5)
After a while bitcoin was constantly in the news, but no one explained the technology behind it. The only thing you were reading in the news was that blockchain technology would completely take over intermediary based professions. The firm’s clients reacted to this and started to ask the same questions that were asked in the information sessions. The financial sector was the first one to start asking questions. The questions the firm got from its clients in the financial sector were: what is the technology behind technology and how is this going to affect us? This was a great development, because the tribe now knew that there was an external demand for blockchain presentations.
Our first external information sessions were about cryptography and this is quite technically complex. At a given moment we came to the conclusions that wasn’t the proper way to convey a clear message. You know it is nice to talk about cryptography, but the average person was like, “cryptohash?” (INT 5)
5.2 Approval from the top
After some information sessions, the organizers of tribe wanted to engage in demonstrating blockchain in a real world setting. They wanted to map the effects of blockchain on the firm's line of services in a more practical way. The blockchain expert explained how this switch took place:
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After questions from participants we started to experiment with blockchain technology. This started after the realisation that we should not only talk about it, but test the technology, in order to grow the learning experience (INT 5).
In order to carry on with this idea, they had to acquire acceptance from the top management. Three tribe members knew someone within the board of directors who had visited the sessions and showed interested in blockchain technology. The members consisted of three managers. The managers had an active role within audit, advisory and cyber security. They consciously contacted this person within the board of directors and arranged an appointment. The three tribe members got green light to present something about blockchain technology in the meeting. Besides these managers, an interested audit partner wanted to participate this meeting. The partner believed that the impact of blockchain technology on the audit profession would be significant. As an auditor, you test the validity of management assertions. Blockchain technology makes it possible to record transactions automatically in a shared ledger. The transactions of the connected parties have to be in consensus and correct before it is accepted. The emerging tech leader emphasised this with the following example:
When you audit your client, it is about the correctness and completeness of the audit information. First, you check the completeness of the books and secondly you check the correctness. Than my colleague and me mapped the possibilities of blockchain technology. If transactions in the blockchain are unmodifiable, you cannot change information and commit fraud. Thus, what is the work of an auditor after transaction is on a blockchain and in consensus with other parties and meets the accounting rules? Than you are done, because the transaction can only be accepted when it meets other parties and certain rules. Than you covered the correctness issue. Blockchain technology could also solve the completeness issue. An example I always give is the following: company A is selling products to company B. Company C is the transporter between company A and B. Now company A reports that he delivered 10 products to company B. Company B reports that he received 10 product. At this moment, you think everything is fine. Now company C reports that he delivered 25 products to company B. This means that the reporting of A and B is incomplete, because they are holding 15 products off the books. If all three companies are connected in the blockchain this is not possible, because all parties need to
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report in consensus of each other. In this way you are able to settle the completeness issue. If this technology is implemented, what is than left for an auditor to do (INT6)?
With this knowledge, the three managers and partner tried to convince the member of the board of directors about the importance of blockchain technology on the firm. Firstly, they described how blockchain worked and secondly explained how blockchain could affect the firm in the future. Besides the fact that blockchain could affect the financial sector, the bitcoin world was already affected by numerous frauds and hacks. Some people lost a tremendous amount of money when using bitcoins. A consultancy manager who was trading in bitcoins and other cryptocurrencies highlighted this:
The main purpose of the firm is to build trust in society and solve important problems. Building trust is therefore important and we feel called to do this. Besides bitcoins, you also have other cryptocurrencies that you can exchange for fiat. You can also invest in different startups that have a promising transaction service and do a coin offering (ICO). Unfortunately, some companies then disappear, after several months of ‘trading’, without producing anything and paying back their investors. What is happening in the ICO world is horrible. Our firm has the purpose to build trust in society so we have to react on this, even when we believe this is dangerous (INT2).
Very soon, during the presentation the member of the board of directors was immediately hooked. One of the interviewees that was one of the three members stated: “it felt like he had been waiting for this moment” (INT5). He understood the message about the possible impact blockchain technology could have on audit services. He acknowledge that blockchain technology could subsume many operational task carried out by auditors. Finally he recognized the value and urgency for testing the blockchain technology and building proof of concepts. Due to the latter the tribe received time and budget to analyze the blockchain technology and built proof of concepts2.
5.3 The proof of concepts
2 A proof of concept is: “the demonstration of which the purpose is to prove that a concept or theory has real-world
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After the approval of the board of directors, the tribe started to create blockchain based proof of concepts. The tribe created a proof of concept for each of the firm’s services lines. Since the core-competence of the firm was not in programming, they needed help from an outsider. The proof of concepts were build with the help of a start-up company that owned the necessary core competences. For the assurance service line, they created a proof of concept together with an ERP application. According to Abdinnour-Helm et al. (2003), Enterprise Resource Planning (ERP) applications can be defined as: “software suites that help organizations integrate their information flow and business processes. They typically support the different departments and functions in the organization by using a single database that collects and stores data in real time” (p. 258). The tax service line created a proof of concept to deal with the VAT carousel fraud. The advisory line built two use cases: real estate and a food supply chain.
We started to build proof of concepts for each services line. I was the tribe leader for the real estate advisory line use case. We also had one for the food supply chain. The assurance tribe team created an enterprise resource planning system running on blockchain. The tax team built a proof of concept to deal with the VAT carousel fraud3 (INT4).
Each team was given a period of two weeks to deliver a first proof of concept. The team for the assurance service line two imaginary companies for their proof of concept. One company offered car lease contracts to the other company. They created an ERP with an integrated blockchain extension to audit the accuracy and completeness of the lessee’s transactions and events. Because the lessee and lessor were part of the same blockchain network, it was possible to verify orders coming from the lessor. No order made by a firm that was not part of the network was approved. In addition, the order of the lessor had to be in consensus with that of the lessee. This resolved an auditor’s work to control an orders occurrence and completeness.
I was involved in creating the proof of concept of the assurance team. We got answers on how blockchain could change the role of an auditor and the firm. Together with someone of the Dutch national tax authorities, we worked on a proof of concept to deal with the VAT carousel fraud (INT5).
According to the Treasury (2001) the VAT carousel fraud is: “a systematic criminal attack on the VAT system, which has been detected in many EU Member States. In essence, fraudsters
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obtain VAT registration to acquire goods VAT free from other Member States. They then sell on the goods at VAT inclusive prices and disappear without paying over the VAT paid by their customers to the tax authorities. The fraud is usually carried out very quickly, with the fraudsters disappearing by the time the tax authorities follow up the registration with their regular assurance activities”. It is possible to tamper with government databases or destroy evidence and data in databases to conceal your fraud. But with the blockchain this is almost impossible. Transactions that run on blockchain technology are immutable, permanent and records can not be changed or tempered with. This means when all transactions are done on the blockchain they can always be traced back. With blockchain technology fraudsters can not disappear, but only run. Together with the Dutch tax authorities the tribe created a proof of concept that made it possible to trace back every transaction made my participants of the network.
It is not that I do not trust our tax authorities or our government, but I have no clue what is happening in their databases. I am pleased if I can see some information on the blockchain. In my opinion a blockchain solution can substitute a third-party for giving me assurance on their databases (INT3).
The advisory line of service created multiple proof of concepts. The team wanted to create a database with blockchain technology, where relevant data was stored and could not be removed. Thus, creating a centralized database that collected all history from information. Another proof of concept was done with their partner in the food supply chain. Their proof of concept consisted of tracking food from the very first supplier until the supermarket.
We worked together with our partner that works in the food chain sector. With them we created proof of concepts to track and trace products from their very first moment until it is sold to a consumer. In this way you know your your toasted ham is no horse (INT2).
The public lost its trust in the food chain sector after certain scandals. In this way a food supplier can offer trust towards its customers. Nowadays the public is more aware of what they are eating. This also applies to green energy producers and providers.
If a firm that you want to invest or buy something from is running its databases on a blockchain and our firm is part of the network it conveys credibility and trust. We are then basically saying: “the processes and information of this company is running on a database
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that can not be tampered with”. If we then confirm that their blockchain and application rules are correct you can trust it. Blockchain will add value to our vision which is building trust in society (INT3).
5.4 The birth of the experience centre and its first client
When the proof of concepts were completed they were showcased to all related parties within the firm. For this showcase an event was established. Members of the tribe, partners and the board of directors were present on this demo day. The tribe only invited directors of the board and partners that were known to be interested in emerging technologies. Al other interested employees were able to submit internally. Everyone was very impressed by the proof of concepts, especially the board of directors. An employee of the firm stated:
Interest for blockchain technology came from the bottom. Our firms is a project organization with a partner structure. Partners do not stay long in their position, so they need to earn a lot of money in their short stay, since they have worked hard to get where they are. They lack incentive and motivation to really change a lot. They rather cash now than invest in something that they won’t reap the fruits from in the future. They might not be partner by then. It is getting better, but it is not where is should be (INT9).
According to the top management blockchain technology did not only came from the bottom. It is unlikely that partners, who speak with trend watchers regularly, never heard about this blockchain technology.The partners and directors of the board have witnessed technological trends since the 80’s. The top management was already discussing emerging technologies when they found out that people from the bottom were also occupied by this. It was of essence to get everyone together and that is when the tribe got admission to built proof of concepts. When the tribe and the top management came together on the demo day, everything fell into place. After this day the experience centre was built, and people got permission to work full time on researching blockchain technology. One partner states the following:
Accountants and advisors are by nature conservative and risk averse, so new technologies are quite exciting for us. Therefore we can act reluctant. But nothing is telling me that technological developments will stop today. Five years ago the first cloud services (e.g. Google cloud and Dropbox) came online. Ten years ago the first smartphone was made.
