The Finance Department as an Enabler of the “Data-Driven Company”
Klaus Werner has been CFO and member of the executive management at Telekom Deutschland since 2014. As the person in charge of data analytics, he also has a key role to play in driving digitalization forward. During this interview with Detecon, he reports on his experience with digitalization in companies and gives his assessment of the future role of the finance department and the priorities for the CFO in times of digitalization and Covid-19.
Detecon: What is your assessment of the influence of digitalization on companies? And how are you dealing with the digital transformation in Finance?
Klaus Werner: We are, so to speak, about to take a giant leap as we head into a new industrial age. As I see it, no one, whether in business, research, politics, or any other areas of private and public life, can avoid this change. Anyone trying to do so will nevertheless have noticed – since the outbreak of the Covid-19 pandemic at the latest – that business models and (in many industries) the very existence of operations are at risk if the acceptance of digitalization is too hesitant. Companies must analyze their process chains and determine the potential for digitalization inherent in these processes as these steps will aid them in surviving today and in becoming more resistant to future crises. There are a number of new technologies that, when used effectively, have great potential for the enhancement of efficiency. Working efficiently, however, is only one element of the opportunities that arise from digitalization. The exploitation of new digital technologies and methods opens a door allowing companies to achieve far more. The world around us is changing, our customers are changing, even our employees are changing. Integrating new technologies can direct various forms of business activities in a new direction that is required if they are to remain competitive in the battle for customers and markets, to attract talented young employees, and to become fit for the digital future. Seeing this inevitability, we in Finance have decided that we must – and indeed, want to – take the digital route.
Here at Telekom, we initiated the transition from analog to a completely digital, IP-based network technology early on. Our customers as well as our internal processes and the underlying cost structure have been positively influenced in many ways. Achieving success in this endeavor demands a strategy that takes into account the transition from analog to digital. In the division Finance Germany, we specifically considered where we could make use of the technological opportunities of digitalization to perform our business mission more effectively. One very important element was the consolidation and standardization of our ERP and finance system world, a part of our One.ERP program, that laid a solid foundation for later activities. Three years ago, I introduced a digitalization initiative at Telekom Deutschland that was specifically aimed at integrating digital tools more tightly into our finance activities. The project has developed well and is now called “Digital and Agile Transformation of Finance” (DnA). It is supported by the employees and has in the meantime generated a number of use cases that contribute enormous added value to Finance and to Telekom Deutschland.
In addition, I have been in charge of data analytics at Telekom Deutschland since last year. We can in consequence ensure our progress toward a data-driven company by pursuing a coordinated strategy.
Detecon: Aren’t the large, sustainable use cases of digitalization to be found more in Customer Service or network expansion and less so in Finance? And shouldn’t this be the location for data analytics?
Klaus Werner: In the past, we saw Customer Service applying big data methods to the work with its own use cases. The challenge here, however, was that the technical data were not available to Customer Service. Conversely, the technical department’s own data were visible to the staff there, but they couldn’t see the customer information. This is where we in Finance have a key role. Thanks to our holistic view of the company’s business data and the availability of a large amount of data, we have completely different options for action. It quickly became clear that the availability of large quantities of data in high and reliable quality was an essential requirement for becoming a data-driven company. Recognizing this premise, we have lifted the topic of data to a global level.
Yes, the major use cases with the greatest impact are in technology, service, and commercial management for private customers. These departments, however, will not be able to mine the full potential of these cases if they cannot guarantee the 360-degree view. By providing all relevant data at a high level of consistency and quality for all divisions within Telekom Deutschland, my teams lay the groundwork enabling us to make data-driven decisions.
Detecon: One discernible development is the shift in content and focus of Finance employees’ tasks, a striking move “from bookkeeper to data scientist.” Where do you see the future role of Finance within the context of digitalization?
Klaus Werner: My aspirations for myself and my finance department are to put into constant daily practice the role of strategic business partner and co-pilot to the CEO. The rigorous realization of such aspirations will put the finance department of the future very much at the forefront of relevant strategic issues such as optic fiber or 5G expansion or the next technological revolution. Top managers require a high level of transparency about the figures and data position of their companies and must be able to process and understand these circumstances quickly if they are to make the right decisions. Knowledge of business processes, markets, and the overall macroeconomic environment of the enterprise are critical parameters. If these executives are to achieve what is demanded of them, they must allow for further development of the classic comptroller profiles while at the same time establishing new roles. The data scientist and data analyst are future-oriented profiles that we need in Finance so that we can incorporate digital transformation in our core processes. Finance will remain an important department within the company. Financial engineering, when coupled with the ability to use digital technologies, will turn the finance department staff of the future into crucial figures in the corporate decision-making process. Deployment of resources, investment decisions, and so much more can be directed to where these actions generate the greatest added value for our company.
Detecon: Can you give us a concrete example of how digitalization helps you in this respect?
Klaus Werner: Let's stay with the example of data. We have developed a prediction model based on analytics methods for more efficient management of our market investment expenditures for sales activities. As of now, we have compiled a solid set of value drivers, data quality, and model complexity. We are now poised to transfer the model step-by-step into a first phase of regular operation. A key principle during our model development was the logical comprehensibility of the forecasts, which leads us to prepare separate forecasts for the various sales channels. It is an inescapable fact that the interrelationships in internet sales are fundamentally different from those found in the brick-and-mortar trade. What is more, our forecast facilitates conclusions about the effects of volume and price. Does a higher market investment in the forecast, for example, arise from growth in the number of new customers or changes in the rates mix? These questions are particularly important with respect to transparency and model acceptance. At the heart of the model is the inclusion of value drivers. The value drivers are, so to speak, the influencing factors from which the model learns to recognize relationships. One example: What was the relationship between market investment and customer frequency in our shops in the past, and what can be deduced from this for the coming months? Examples of other key value drivers in the model are the timing of the iPhone launch, the cancellation recovery rate, and the intensity of competition on the market.
Detecon: This type of case presumes that employees have certain skills. How have you resolved this issue in your own purview?
Klaus Werner: Part of the DnA project was our establishment of a stream that included skill transformation as a point of emphasis. In collaboration with our colleagues from HR, we introduced so-called learning journeys with this in mind. Our employees can decide – voluntarily and autonomously – in what subjects and to what level of professionalization they would like to receive advanced training. The offering ranges from small information nuggets in the form of videos to professional training courses that qualify participants as experts in their chosen fields.
Clearly, they will never develop the skills of the future fully and completely from within their current team. Not at the speed that would be required, at any rate. That's why we have also brought new employees on board who bring with them the needed skills in the realm of data science. It is already part of their skill repertoire to build a data lake or perform regression analyses and to build automated forecasts based on the results – to name just a few examples.
Detecon: Against the backdrop of Covid-19, darkening economic data, and the financing requirements from new digital business models, we are currently dealing very intensively with the topic of “digital efficiency.” From your perspective, where is the greater value contribution of digitalization for established companies? In the generation of new revenue streams or in the possibilities to increase efficiency?
Klaus Werner: The Covid-19 crisis has uncovered our weaknesses in all industries. Dependence on global supply chains and the underestimated need to upgrade digitally have caught us completely off-guard in Germany and Europe. Being a telecommunications company, we are undoubtedly less vulnerable to such a crisis. The nature of our business with our products and services already has a comparatively high digital character.
If implemented correctly, digitalization can help established companies to hold their own on the market – despite the competitive pressure from small, agile competitors – as they journey into the future. Yet their approach must not be too one-sided and generalized. In other words, both the development of new revenue streams and the heightening of efficiency must be components of their strategy. The first anchor point is often that they initially adjust their business processes and tackle manual processes and repetitive tasks as a means of easing into automation and digitalization. We started doing so at Telekom at a very early stage. The establishment of our Shared Service Center, where we have bundled and automated finance, HR, and purchasing activities for the group and integrated digital tools into the added-value process, is a good example of this. Our working methods and tools, which we use both in our internal communication and in the service for our customers, are up-to-date and largely digital. Despite the Covid-19 crisis, we have been able to continue to employ our staff without any problems or serious downtimes and to continue to provide a stable network to our customers.
As far as new revenue streams are concerned, we are operating on a highly saturated mobile market and on a growing fixed-line and TV market. We use digitalization in the form of analytics or AI methods, for instance, to identify future trends early and make the right decisions. Regardless of the industry in which companies operate, the new digital technologies can help them to identify changing customer needs more quickly and align their product development with these needs more closely. Agile working, which is simply a part of the industrial movement going on around us, allows us to develop a product in significantly shorter cycles while being more creative and shifting faster into the time-to-market mode. These factors contribute to the expansion and securing of a company’s sales.
Detecon: Covid-19 is a source of enormous liquidity and cost-cutting pressure for many companies. What effect do you think this situation will have on digitalization initiatives, and how are you dealing with it in Finance at Telekom Deutschland?
Klaus Werner: I believe that smaller companies in particular, which have been hit hard by the crisis, will have to redistribute their financial resources to secure their existence. Investments in strategic digitalization projects may be deprioritized for the time being. But if we look at small and medium-sized enterprises, I believe that they are now investing much more heavily in digitalization so that they can work more independently of location. The increase in broadband lines is an indication of this phenomenon. Basic infrastructure, which has attracted less attention so far, is being upgraded.
Where there is darkness, there is always light. In the telecommunications industry and for us at Telecom, the crisis is actually proving beneficial in many areas. The desire and the necessity for interconnectivity have never been greater than today. We were able to compensate partially for our lost revenues from shop closures due to the lock-down with online revenues or from sales by the service department. Although international travel restrictions led to a loss of roaming revenues, higher fixed-line revenues took up the slack. Nothing in our present situation has forced us to call a halt to our digitalization initiatives. On the contrary. Events have confirmed that our decision to go digital was absolutely the right one. And we have every intention of continuing along this road. Not only internally; we also have an eye on pushing ahead with rapid expansion of our networks and the introduction of the new 5G mobile communications standard. The economy and the public need a stable digital network. They are an indispensable basis if digitalization is to be feasible at the process level.
Detecon: What technology, perhaps as yet unknown to many, or what applications or use cases do you believe have tremendous potential?
Klaus Werner: As far as is foreseeable for me at this time, I believe that the outstanding technology with tremendous potential will be artificial intelligence (AI). Even though it is being used solely in a so-called weak form, AI is very much omnipresent today. Navigation systems or voice recognition are examples of weak AI systems. The problem with the weak AI, however, is that it is still too specialized and confined to a limited area, i.e., it addresses solutions to closely defined issues. It will not become truly interesting and intelligent until the level of so-called strong AI has been reached. We are talking here about AI that has the same cognitive abilities as a human being or even exceeds them. AI at this level would make its own decisions without human aid. We are collaborating with the Fraunhofer Institute to develop AI use cases that we can employ in the financial sector – a kind of Alexa for finance questions, for instance. As we are not content to limit our work to business use cases, we will continue to deal with fundamental ethical issues relating to AI. Intelligence also includes consciousness, emotions, and empathy. These are all characteristics that distinguish us humans from machines – for the moment, at least.
Detecon: When you look back over the last three years – what benchmarks would you take to define your success as CFO in the age of digitalization?
Klaus Werner: There are many different ways to define success. Achieving our financial targets will always be a priority for me in my role as CFO of Telekom Germany. We are a company oriented to shareholder value that has to satisfy the expectations of investors on the capital market. For me, however, success is not expressed solely in key financial figures. I manage an organization with about 1,000 employees who are about to launch a major transformation. In very simple terms, they are currently metamorphosing from the working world of the past into the one of the future. Covid-19 has given them all the first taste of just how necessary digital transformation really is. I want to be able to look back three years from now and say that my team and I found ways to carry these people along into the new world. Our employees – not bots or AI applications – are our most important asset. No company can master such a major transformation without their contributions and acceptance for these changes. You need the right mindset and enthusiasm for digitalization.
Detecon: Thank you for talking to us!
The interview was conducted by Andreas Keller. Andreas Keller has been counseling Deutsche Telekom and other customers for many years on the optimization of their finance and financial controlling departments. He is Partner in the division “Digital Operations & Performance” and is in charge of sales, portfolio, and delivery in the sectors “Financial Management, Governance, and Steering.”