Is it time to be dramatic? Yes, it truly is. I don’t think one can be overly dramatic as the shockwaves of digitalization impact every enterprise and the global economy.
I have recently used terms and expressions such as “paranoia,” “total disruption” and “strategy for the unknown;” to discuss what is haunting today’s executive boards as they prepare themselves for an imminent battle for digital survival.
These are not exaggerations when you consider that over half the Fortune 500 companies from the year 2000 have disappeared, primarily because they did not adapt to quickly enough to survive in a totally changed world: digital Darwinism in action.
But this fallout is nothing compared to the tsunami (yes, I have used that expression too) that will engulf today’s manufacturers over the next decade. The industrial and manufacturing landscape of 2025 will be unrecognizable if every single “traditional” company does not wake up, smell the coffee and innovate, innovate, innovate. The case for action and speed cannot be overstated.
In highly industrialized Germany, which accounts for a significant part of Europe’s manufacturing capabilities, the threat from new completion through Industry 4.0, the most relevant aspect of digitalization, could not be greater. Why? According to McKinsey, Germany is operating at 10% of its digital potential compared to 12% for Europe as a whole and 18% for the USA.
It is this innocuous term “digital potential” that is the industrial battleground of the 21st century. According to the German government itself the day is coming when digital devices, tools and of course software will account for more than half of the value of a car. And it’s source of power? The battery alone will account for 20% of the vehicle’s value. No wonder Bosch is investing more in battery technology than in solar energy.
Ownership of this digitalization layer must stay in Germany. We cannot afford to outsource the future of manufacturing, the source of the continent’s wealth, to faster-moving competitors or economies in order to focus solely on better wing mirrors.
The assets needed to both counter this threat and turn it into the sort of opportunity that comes once a generation couldn’t be closer, if you are lucky. It is in our own back yard: Germany’s large manufacturers, Germany’s abundance of world leading SMEs, so-called Mittelstand, Germany’s world-renowned industrial apprenticeship and master engineering educational system; allied with Germany’s software industry offers us an asset that is almost impossible to replicate.
I use the word asset judiciously. Silicon Valley is an asset that the world is trying to copy: Silicon Plateau, Silicon Gulf, Silicon Bog and Silicon Glen, to name just a few, are all attempts to copy the American model. But why copy when you can play to your own strengths, play to your national strengths? In Europe we are lucky to have many diverse national strengths. In Germany we have an industrial cluster here, now, today; an industrial cluster that would take decades of investment by any other major economy if they wanted to match us. We have “Standort Deutschland,” the most highly developed industrial base in the world. We must build on it!
To do this, every single manufacturing enterprise must go digital. Digital services are the future of manufacturing; future innovation, future revenue, future profit will all depend on software and the digital services it provides. Germany manufacturing must co-innovate with the German software industry to preserve its place in the world. The good news is that this joint software development co-innovation model demanded by Industry 4.0, the integration of industry and IT, is a living breathing business process already. Ask Bosch, ask Schwering & Hasse, ask Octo in Italy, for this model must extend across the European Union, but more urgently, ask those who are not yet developing their digital service layer how long they think they will survive.
This co-innovation approach also plays to Europe’s strengths. I have said repeatedly that the US approach of one-size-fits-all software development is redundant and the Industrial Internet has buried it. Today, the software industry can no longer stand alone outside the industries it has previously served – it must become an integral part of the industries themselves. It is after all the source of future revenue for each and every industrial sector.
Germany’s and Europe’s internal differences, traditions and experiences are its strength; diversity in approach, diversity in thinking, diversity in innovation — all are fundamental to providing unique, innovative Industry 4.0 capabilities.
But time is of the essence. Now is not the time for further discussions about the implications or waiting and seeing. Now is the time for action and speed. We owe it to our children.