Controllers Are Losing Control

The controlling department has everything under control – or so they say. However, a recent survey has shown that many companies are lagging behind when it comes to digitalization. (Guest contribution by Professor Dr. Utz Schäffer and Professor Dr. Jürgen Weber, first published in Frankfurter Allgemeine Zeitung on March 26, 2018.)

[Translate to Englisch:] Copyright: Peter von Tresckow

Everyone is talking about digitalization – the finance function is no exception. Thus, in the first WHU Digitalization Pulse Check, we asked the heads of controlling in listed companies in Germany about the current state of digitalization in their companies – 48 % responded. Based on their answers, we identified five central hypotheses and several challenges for controlling: 

Controlling in most German companies is not adequately prepared for the digital disruption of the finance function. 

Even though digitalization has been a hot topic for some time, most companies do not have a clear and coherent strategy in controlling to address digitalization. This was reported by almost two thirds of study respondents, despite the fact that a clear and coherent strategy is presumably the first step towards a successful digitalization journey, since it defines both the desired destination and the required course of action. The challenges of digitalization are diverse – for instance, the automation of basic transactional processes, implementation of self-service reporting, use of predictive analytics, development of data science expertise, and consideration of digital business models. To address those challenges effectively, controlling needs clear guidance. Otherwise, digital transformation may be overshadowed by operative constraints or short-term improvements in efficiency.

A good measure of whether a company is actually actively addressing digitalization rather than merely talking about doing so is its financial investment. Thus, we asked respondents whether they believe that their company is making sufficient financial investments in the digitalization of controlling – only 26 % perceived this to be the case. Overall, our findings regarding the presence of a digitalization strategy and sufficient financial investments provide a consistent picture – nothing comes from nothing.

In most German companies, IT systems and data quality are not yet ready for the future. 

In order to successfully increase efficiency and effectivity, companies must first lay the foundation for the digitalization of standard controlling processes. However, our findings indicate that only 29 % and 17 % of respondents perceived data quality and IT-system integration to be high, respectively. Thus, in order to avoid “garbage in, garbage out”, companies must begin their digitalization journey here. 

In most German companies, controlling has only just begun to address the challenges of big data.

An additional important challenge for controlling is developing big data expertise. Most controllers are not inherently competent in this area. Instead, their key competencies concern traditional financial metrics and the analysis of small financial data, which will not be adequate to ensure that controllers will remain the single source of truth in the future. Overall, study respondents agreed that controllers must acquire additional competencies – regarding data science and IT, in particular, but also soft skills such as communication and change management skills. However, there also appears to be a certain degree of uncertainty regarding the best means with which to obtain such skills in controlling. Without a doubt: this is primarily the responsibility of universities! In the short-term, however, employing data scientists who are experienced in dealing with big data also appears to be an effective strategy.

Still, in our Digitalization Pulse Check, we found that only few companies employ data scientists in controlling. Instead, in the companies we surveyed, data scientists typically worked in IT and operations. Only 22 % of companies that employ data scientists did so in controlling. However, if other departments employ data scientists and assign higher priority to the development of data science competencies in general, it will ultimately be difficult for controlling to act as a center of expertise for data analysis. If you are not at the forefront of a movement, you can influence neither the direction nor the speed!

Our findings also indicate relatively little interaction between controllers and data scientists – regardless of whether the latter work in controlling or elsewhere. According to respondents, controllers and data scientists work closely together in only 17 % of companies in our sample. Still, 40 % of respondents state that controllers view data scientists as partners rather than competitors.

In most German companies, controlling is not doing enough to drive the digitalization of the business model. 

This statement might come as a surprise to some readers, especially since controlling clearly already has enough to do in terms of the digitalization of controlling, itself. Still, controllers aim (or at least should aim) to be business partners who challenge management and ensure rationality during operative and strategic decision making processes. To do so, controllers must be involved in the assessment of digital business models and ensure that their company reacts appropriately to the challenges of digitalization. According to our respondents, listed companies in Germany still have a long way to go. Only 36 % perceive their company’s overall financial investment in digitalization to be sufficient, whereas only 31 % of companies have a central budget for digital initiatives. 

In a digital world, controlling risks losing its influential role. 

Although controllers are not primarily responsible for the future direction that their company will take – in the end, others will make the relevant decisions – we do believe that controllers do have some influence in the matter. This leads directly to the question of what role does controlling currently play and how will that role change in a digital context. One indicator thereof is the role of controlling in digital steering committees, which take on tasks that were formally typical of controlling in many companies – for instance, the coordination and monitoring of digitalization projects as well as the allocation of resources. Yet, according to our Digitalization Pulse Check, only slightly more than half (56 %) of digital steering committees include members from controlling. Thus, a relatively large portion of German companies appear to address digitalization topics without directly involving controlling. In addition, only 50 % of Chief Data Officers in our sample report to the Chief Financial Officer or (in one case) the head of controlling. In other words, in half of the companies we surveyed, the person ultimately responsible for data quality does not report to the person who traditionally claims to be the company’s single source of truth regarding financial data and the interpretation thereof. In light of the assumptions that the analysis of big data will become increasingly important for strategic management, and that controllers more so than ever before, must bridge the gap between non-financial and financial performance indicators – this is a disheartening finding.

In summary, controlling in German companies has reacted too slowly to digitalization and, thus, must now make up for lost time. Our study shows that most controllers would agree with that statement. Regarding the question of what influences a company’s digitalization status, our findings indicate that the recognized importance of digitalization, financial investments in digitalization, status of the digitalization strategy, data quality, and IT system integration all play key roles. Excuses are no longer an option. Time is running out.

Utz Schäffer and Jürgen Weber are both directors of the Institute of Management Accounting and Control (IMCof WHU – Otto Beisheim School of Management in Vallendar, Germany.