Point of View

Develop transformational Jedis to drive change in your business, says Celonis’ Alex Rinke

May 7, 2020

 

HFS’ Phil Fersht recently sat down with Alex Rinke, the co-CEO of the process-mining unicorn Celonis, to talk through the company’s journey, key client examples, and plans with its new funding. While the field of process mining technology is evolving, what quickly emerges in this conversation is that some classic business transformation paradigms still hold true. Operations leaders need to be able to drive change by aligning leadership objectives, create buy-in between operational layers, and collaborate with IT to drive value from process mining.

 

Phil Fersht, CEO HFS Research: Good morning, Alex! You’ve got quite the story behind your firm and how you burst on the scene. Can you share with us a bit about how this all started?

 

Alex Rinke, Co CEO Celonis: Sure, we started as university students in Munich. The three of us were doing an internship for a company to help it improve its IT and customer service processes. It was a simple set up: It had an IT hotline, and anybody with a problem could call for support. Our objective was to look not just at the hotline, but all the processes associated with the service hotline.

 

We saw that through the first and second levels, it was a classic support team. We tried doing interviews with the support team, and we even called the hotline ourselves. We took notes on the experience, and we found that it was difficult to get anything useful out of that in terms of how to improve the process. The team we were working for told us about the ticketing, telephony, and IT systems they use to support their work, so we thought that if we could get our hands on the log data—because every IT system produces log data—we could automatically figure out how this process works and where they lose time. That’s where we started.

 

We discovered process mining, which had been invented 10 years earlier by a Dutch professor in Eindhoven. It was primarily academic and theoretical, but there was no adoption in businesses. Still, we took the idea, and thought, “If we could turn this into a product, we could really deliver a kickass internship.” And we did! We built the first prototype, where we took these reconstructed process flows and presented our findings back to the team. They got their resolution time down from an average of five days to under one day within a few months, without firing or hiring a single person. They significantly improved their results through better processes. That was the first lightbulb to go off.

 

Then the CIO called us into his office and said, “Look, I would love to buy this. Turn this prototype into a product, and I will be the first customer. And I will also tell all my other friends, who are also CIOs.” That’s how we started the company. We called it Celonis and sold the product to him and then his friends. That’s how we got the first handful of customers.

 

We landed some big accounts in Europe, including Siemens, which was our first enterprise customer, and it has remained a customer ever since. It adopted at enterprise scale with thousands of users, and in 2015, it launched an initiative to save over a billion dollars in operational costs, which took Celonis to the whole world. Siemens applied our product to supply chain, finance, and sales operations, which had higher volumes, and very high impact business processes, due to their scale. Then we learned about SAP and about how all these different systems work—how we can connect to them effectively and build connected use cases. We built an app store with predefined use cases. That’s how, step by step, year by year, we built the company.

 

Alex, tell me a bit more about process mining today. How would you define it to senior-level finance, other business operations, and IT professionals? What exactly is it?

 

First of all, process mining gives them a tremendous degree of insight into how their organization performs and why it performs the way it does. It’s like an automatic inefficiency finder; it identifies the bottlenecks and ranks them by impact, so it can show you your highest-impact inefficiencies. This gives companies a tremendous head-start if they want to transform. It will show them where they get the biggest bang for their buck. So, if companies want to make a better contribution to working capital or reduce operational cost, they can see where they’re creating the most cost and where they’re creating the most waste.

 

Then, secondly—and I think this has evolved in the industry—it gives organizations the ability to act on these insights, directly from Celonis; for example, by changing something in the online system like a broken master data record, or triggering an automation, or improving a process. Lastly, the third thing process mining does once an organization embarks on this journey is that it provides a continuous health check on how their processes are performing and improving.

 

In working with companies and helping them be successful with process mining, we’ve found that these three steps—discovery, enhancement, and monitoring—are key.

 

Looking across some of your older and newer clients, how are you seeing them using process mining today? How are they integrating with others? How are they approaching things? What do they do as they get more experience with the tools?

 

Customers typically like to start with one of four processes. I would say this applies to every industry outside of financial services. In all the other industries, they start with either procure to pay, order to cash, accounts payable or accounts receivable—in other words, either finance and procurement, sales, supply chain, or accounting. They typically pick one of those use cases and look at the as-is process, which we call “discovery,” and then they say, “Okay, what’s the business value going to be if I change this?” Then, they rank the biggest opportunities and get to work. Typically, once they have progressed on their journey for one process, they see very, very significant value and start to think about what other value they could be realizing.

 

For example, L’Oréal reduced the number of orders it needed to touch from 97% to 70% in 2019. The touchpoint could be just one touch on an order with hundreds of line items, say from a big-box retailer. It’s now down to 70%, and it wants that number to go down further this year. It has significantly improved automation through various measures it takes, based on these insights. It can also monitor its performance every day. There are other examples, like GE Healthcare, which has reduced its “days sales outstanding” and delivers significant working capital contribution, in the hundreds of millions of dollars range, because it’s been able to bill customers faster. It had some cases that were stuck in the invoicing process and it has been able to improve that.

 

Clients typically look for one of these core processes: first, they identify improvement opportunities, execute on them, and then, once they build that muscle memory, they deploy more broadly in the organization. That’s what our more mature customers like ABB, Siemens, Dell, ExxonMobil, and Lockheed Martin are doing now. Then, they typically go for the highest value processes, and this could be more industry-specific.

 

For example, at our last customer conference in New York, Lockheed Martin shared how it improved the process of building fighter jets and the whole manufacturing flow. Typically, clients start with one fairly well understood—and pretty horizontal—use case. Then they expand on that and go on to build a center of excellence and start doing more business-specific processes. They are also looking for an integrated platform that can help them figure out the insight and help them take needed actions.

 

In your “nirvana,” Alex, as you look at expanding your business, what does an integrated platform look like, and how does that interplay with other key platforms and tools that clients need?

 

I think there are a few elements. One is you need great connectivity. If you want to build a layer on top of the existing enterprise systems, you need to have great connectivity to those systems. I’m talking beyond API integration—you need real data integration to ERP and cloud-based systems. You then need a very powerful analytics engine to figure out where the problems are, and you need a predefined library of use cases and KPIs so that customers don’t have to start from scratch.

 

The second element, where we’re investing a lot, is taking an action. A lot of people confuse “taking action” with robotic process automation. While RPA is one component of the action, it is not the full action, because you need to decide what you want to do. In some cases, you need users to make decisions, so you need to have an app interface where the user sees different parameters and can decide on an action. In other cases, you might need some workflow capability. We are going to focus on helping customers take the right action at the right point in time. We are going to build some capabilities to help customers execute that action, but we will also build strong integrations to other companies that do that. We will have some execution capability in our own platform, and we’ll have a lot of integration into other platforms.

 

We’re bullish on helping customers realize business value and are open to how they ultimately do that. We want to facilitate their success, and sometimes that happens entirely in Celonis. Other times, it happens with Celonis and a combination of other tools.

 

Third, you need robust analytics, again, to be able to do monitoring and help people figure out how they’ve improved. Many analytics tools provide you with a lot of insight but don’t give you any ability to act. Another problem that people have with these pure automation technologies is that they start automating this and that, but it fails to deliver real impact on their business. It’s useful, but not relevant. Now, if you marry the two, you’ve got a smart platform. That gives you the capability not just to do RPA, but to take real action. The main difference is that we don’t look specifically for the problems that RPA or low-code can solve. We look for the big problems that the business needs solved. If you build a platform with some capabilities and also strong integrations with RPA and low-code platforms, as well as complementary vendors, then you can show the business the value that you generate over time. And that’s what customers want.

 

You recently secured a large round of Series C funding, but can you just give us the skinny on this? What are the long- and short-term plans for investment? What can we expect to see in the coming year?

 

We have a very long-term view for the company, and this capital is long-term. We’ve been very efficient about building the business, and it’s been very important for us to maintain cashflow discipline. We’ve been cashflow positive every year since we started in June 2011. For this funding, we found some very fine people as principal investors. These aren’t institutional funds. This is strategic capital that will help us scale the business. There’s a huge market opportunity, so we are going to double down on R&D, and sales and marketing, and aggressively expand both our product and our go-to-market capabilities and build the company for the long run.

 

It’s been quite the story, hasn’t it, Alex! Just to conclude this conversation today, what advice would you now give to fellow professionals in the industry, in the operations environment? Are you starting to see this kind of transformation Jedi type role evolve, where people are generally now tasked with just driving real process and operational change in organizations? And what skills do you need to be successful, in your experience?

 

A “transformation Jedi” is perfect! If I were in a big organization, I would become a transformation Jedi. The fundamental challenge that companies have is that they’ve invested in best-of-breed landscapes, ending up with many different systems. In the 80s, the ERP vendors would’ve told you, “Everything is going to be in one system.” The opposite has happened. All these technologies around transformation are leading clients to say, “Let’s keep these systems, but let’s deliver real change, transformation, and incremental value, and also transparency, on top of these systems.” There’s a whole layer of technology that’s developing there, and I think that’s the right bet. You know, whether I’m a consultant, a software developer, or a transformation Jedi, I think that’s fundamentally the right bet.

 

There’s a lot of AI embedded in all of this, and it’s going to change how businesses are managed and how businesses serve their customers. If somebody decides to become a transformation Jedi, they don’t need to be a trained developer, consultant, or have a Six Sigma black belt. With one of my most successful customers, the champion used to be the Head of Investor Communications for a big public company. She is now super successful, in conversation with the CFO all the time, and transforming the finance team and the supply chain.

 

You don’t need a specific skill set, but you need to be able to drive change by aligning with the leadership of the company and ensuring that whatever you drive matches their objectives. You also need to achieve real buy-in across the middle management and the operational employees in the company, and make sure they understand that what you are trying to do is help them get their job done better. If you can do that in a way that aligns to the company goals, and you can bring business and IT together and focus them on the right priorities, you can be super successful, become a transformation Jedi master, and, ultimately, really help your company succeed.

 

You hit a very important point there, about the ability to bring people together. That seems to be everything in today’s world. Right?

 

It is—because nobody has the complete skillset. We need them all: super talented data scientists and AI modelers, people who understand the financial accounting principles of the industry and the company, and supply chain experts who understand all the inventory levels. It almost doesn’t matter which skills you have, as long as you are good at bringing people together and aligning them in the right direction.

 

Fantastic. Okay. Well, I really appreciate the time, thanks, Alex!

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