June 6, 2017 | Results of the 3rd Skytalk

Digitalizing Germany—Challenges demand mutmacher

The third iteration of A.T. Kearney’s Skytalk panel session held at our HQ, the Dreischeibenhaus in Düsseldorf, saw me host a discussion on the challenges involved in the digitalization of Germany with the guest speakers Dr. Hannes Ametsreiter, CEO of Vodafone Deutschland and Ulrich Grillo, chairman of zinc specialist Grillo-Werke AG, the chairman of the board of A.T. Kearney Central Europe, Dr. Martin Eisenhut, and a host of entrepreneurs and other board members. The panelists all agreed on one thing: With its industrial and B2B-heavy structure, its global leaders and high levels of value creation, Germany is ideally prepared. Despite this, we can’t afford to sit back and do little or nothing. We need to work on five specific levers if we want to expand rather than just maintain our position. The many positive examples cited by our guests left me with a positive feeling, but one thing did become clear to me: Germany needs more mutmacherinnen und mutmacher.

 

 

By Dr. Florian Dickgreber, CEO and Partner A.T. Kearney in Germany. He manages the Düsseldorf office and is responsible for our Industry Practice Communications, Media and Technology in Germany, Austria and Switzerland.

 

The bottomline shared by all of the speakers is that Germany enjoys an excellent starting position in this age of digitalization (you can find a complete video recording of the session here (in German, obviously)). The structure of our economy, with—compared to the U.S. and U.K.—its distinct bias toward the B2B segment, and our competence particularly in the manufacture of production machines that can turn digital concepts into reality, are prerequisite to retaining value creation inside Germany, indeed actually bringing it back to Germany, in this era of digitalization. This was illustrated by the example of adidas and its 3D-printer-assisted production of custom-designed sports shoes at its ‘Speedfactory’ in Ansbach/Bavaria. The new possibilities at this plant have brought production and jobs back to Germany. The bottomline that crystallized from this discussion: If it is to exploit these and many other opportunities, there are five areas Germany (business, the state and society) needs to work on:

 

Infrastructure

The requirements of next-generation digital services will far exceed those today. Autonomous cars with a gigabyte of data generated every hour driven and with latency requirements that, as Dr. Amestreiter impressively revealed, correspond to the signal-processing speed of our own body, need the new 5G mobile radio standard. Let’s talk about the Internet of Things, which is especially relevant to the mittelstand that is so important for Germany. The expansion of broadband outside the conurbations is of direct importance to this. The EU target of 50 Mbit/s for networked factories will not be fast enough for the IoT. Enterprises have to get on with this expansion, while the government has to secure the necessary financing.

 

Regulation

This security to ensure that the investments made in the infrastructure can also be monetized is a key challenge. This is where the politicians have to play their part. On top of this, there is yet another challenge. The B2C example of Amazon’s Alexa has highlighted a crucial barrier not only for private customers, but also for the B2B segment: namely, the lack of transparency and right to determine how one’s own data is used. What happens to the data companies upload to the cloud? How effective will the EU’s new General Data Protection Regulation (GDPR) be that comes into force in 2018? Initial attempts to find answers to these questions have already been carved out, but these are founded more on technological solutions such as distributed, encrypted clouds. But there’s still a great deal to be done on ensuring transparency with regard to access to and the security of data.

 

Venture capital

We discussed a number of examples from various industries, such as bioengineering etc., all of which highlighted one point. Early-stage financing is available in Germany, but as soon as things move forward to subsequent stages of financing, Germany lags significantly behind other countries, especially the USA. The consequence of this is that while promising innovations are indeed spawned here, they tend to relocate relatively quickly to places where the financing environment is more favorable. This is nonsense, from both a macroeconomic and an entrepreneurial point of view. However, our Skytalk discussion also revealed that there are already some initial approaches to solving this problem, such as the setting-up of financing vehicles by large German businesses, or sponsorships that include not only the provision of office space and infrastructure, but also management sponsorships. However, without the necessary incentive programs put in place by the law-makers, these initiatives will bear no fruit.

 

Education

Sitting high above the rooftops of Düsseldorf, it became clear that many of the businesspeople present are desperately searching for specialist personnel such as programmers or data analysts, without whom digitalization will not succeed. Our universities and curricula, however, are not prepared for these disruptive developments and respond far too slowly to the changes taking place in our rapidly digitizing world. But this education problem goes much deeper and starts much earlier than in higher education; that’s because in truth, digitalization already begins at grade school. Here, too, the debate revealed that although examples of best practice do exist, there are to date far too few of them. Businesses will not be able to completely turn around German education policy, mainly because the fragmented education infrastructure renders this almost impossible (each of the 16 federal states is responsible for its own education policy). But they can apply pressure to the policy-makers and actively promote such a change by equipping their own company kindergartens appropriately or by increasing their sponsorship of programming courses.

 

Positive attitude

Ulrich Grillo, in particular, pointed out that digitalization is very often viewed in a negative light in Germany. There is a tendency to discuss the danger of robots destroying jobs rather than the possibilities of robot design and manufacture creating new jobs in Germany. Nonetheless, everyone in the room agreed that particularly in Germany’s case, there are far more opportunities than risks. And the field of artificial intelligence would also appear to offer Germany an opportunity to create more jobs. After all, machines can only become intelligent through training. Digitized, mechanical support for workers can be a job machine as long as it leads to production inside Germany becoming more competitive again. My perception of the debate was that everyone present in the room agrees that a more positive message must be spread and that they intend to do precisely that—to give greater encouragement.

 

To conclude, Germany faces five major fields of action. Personally, however, the many positive examples around instill a high degree of optimism in me and hope that Germany will succeed in bringing about this transformation and will end up more a winner than a loser in the digital revolution. Be that as it may, we have to approach it with courage and an optimistic, forward-looking attitude.