Innovation governance Innovation cycles are getting shorter and shorter. As a result, we must be agile and flexible in how we manage and budget our innovation projects. We orient ourselves toward the best-practice approaches used by innovative start-ups and successful companies, and to the latest findings from research and academia. Portfolio and Innovation Board The Portfolio & Innovation Board (PIB) plays a central role in managing our innovations. It ensures that we prioritize correctly by identifying and selecting key areas of innovation for our Group and deciding on the method of implementation. Our efforts are guided primarily by our innovation priorities and we create full transparency across the Group regarding our investments in innovation. Corporate Innovation Fund Our Corporate Innovation Fund (CIF) is managed centrally by the PIB. Similar to a venture capital approach, the CIF offers all business and product ideas generated within the Group a flexible and results-oriented form of funding for a specific project phase. The provision of an additional innovation budget allows us, for example, to fund new innovation projects at short notice and with little red tape. Such financing is granted independently of annual planning periods, and therefore intensifies our focus on market and customer requirements. Innovation can take place anywhere across Deutsche Telekom, as long as the proposed business and product ideas fit within our Group’s central innovation focuses. Investment Committee We established the Investment Committee to speed up investment decisions on our innovation priorities. Its objective is to act like an (internal) venture capitalist. The Investment Committee allocates funding according to success, orienting itself to the approach used in the start-up industry and among venture capital investors, whereby raising new funding from capital investors is dependent on the venture’s performance. This gives us the flexibility we need when developing innovation topics and focuses efforts on success. Funding is made available for the next project phase only when specific outcomes that are relevant to our customers are achieved. Deutsche Telekom Capital Partners Deutsche Telekom Capital Partners (DTCP), established in early 2015, is Deutsche Telekom’s investment management group. It manages approximately USD 1.7 billion of assets and advises a portfolio of over 60 companies on behalf of Deutsche Telekom and other institutional investors. DTCP is dedicated to providing venture and growth capital and private equity investments to the technology, media, and telecommunications sectors in the United States, Europe, and Asia. The prime motive for DTCP’s investments is financial: It acquires shares in companies still in the growth phase and aids those companies’ further growth, with the view to selling its stake for a profit later on. DTCP also plays an active role in establishing business relations between the innovative portfolio companies and Deutsche Telekom in order to add value for both sides. For its Venture & Growth Fund II, which was launched in 2018, DTCP succeeded in winning over not only Deutsche Telekom and several notable international financial investors as sponsors, but also SK Telecom, South Korea’s biggest mobile communications group, and ZEISS, a leading optics and technology company. Since mid-2018, DTCP has used this fund to invest in eight high-growth companies, one of which, Fastly, celebrated its successful IPO in New York in May 2019. DTCP’s Venture & Growth Fund I continues to deliver positive results as well. In a profitable transaction, for instance, DTCP sold its stake in Dynamic Yield to McDonald’s in March 2019. At the end of 2019, DTCP opened an office in Seoul, South Korea, in order to expand the reach of its investment strategy into the Asian market. The strategic investment fund Telekom Innovation Pool (TIP) is available for investments that are mainly strategy-motivated. Advised by DTCP, Deutsche Telekom makes investments here and promotes business start-ups that have a strategic focus and clearly collaborate with the Group’s business managers. TIP actively pursues long-term innovations for the Deutsche Telekom Group, particularly in the fields of blockchain and artificial intelligence. Patent portfolio Patents are gaining more and more significance in the telecommunications industry. Our patent strategy has to keep pace with the constant evolution of market players and fields of activity. On the one hand, our Group’s scope for action must be maintained. On the other, in addition to pursuing our own research and development activities, we want to pave the way to open innovation through collaborative projects and partnerships. National and international patent rights are vital for these types of activity. We are strongly dedicated to generating and maintaining our own patents. In the reporting year, Deutsche Telekom held a total of around 8,000 patent rights. We are continuing our intense efforts to develop and streamline our patent portfolio. This will secure the value of the rights we hold and ensure they are in line with our Group’s strategic objectives. We have put in place a professional patent law management process to keep our patents safe. Expenditure and investment in research and development Research and development (R&D) expenditure includes pre-production research and development, such as the search for alternative products, processes, systems, and services. By contrast, we do not class as R&D expenditure the costs of developing system and user software which is designed to improve productivity and make our business processes more effective. R&D expenditure in the Deutsche Telekom Group amounted to EUR 45.4 million in 2019 (2018: EUR 57.7 million). In 2019, our Group’s investments in internally generated intangible assets to be capitalized were also up year-on-year at EUR 344.2 million compared with EUR 284.2 million for the previous year. These investments predominantly relate to internally developed software, mainly in our Group Headquarters & Group Services segment and our Systems Solutions operating segment.
