Merkel in Davos: German managers in danger of missing out on digitalization

Merkel speaking at the World Economic Forum in Davos

German chancellor Angela Merkel tried to galvanize her country's managers on Thursday about digitalization – right in front of their peers from all over the world. Speaking at the World Economic Forum Annual Meeting in Davos, she warned that German industry lags far behind the USA and some Asian countries in that crucial field. Digitalization and industry will have to go together, to merge, as Merkel said. This would have to happen quickly. Otherwise those leading in the digital field would take away industrial production from Germany.    

Looking at the bigger picture, it might as well be the whole of Europe that Merkel addressed. At the moment, none of the top 20 internet companies by market capitalization originated from Europe. This clearly shows that Europe needs to get its act together in order not to be left behind in the wave of digitalization. In December 2014 Roland Berger Strategy Consultants and Rocket Internet announced their joint venture for a super-incubator aimed at boosting digital businesses in Europe. This cooperation is part of Roland Berger's digital business network Terra Numerata, which shall bring together incubators, investors and digital players of different sizes. The idea is to provide a platform for forming alliances and pushing digital innovation in Europe forward, as this is what is urgently needed.

Companies should not underestimate digitalization's impacts

Nowadays, data-exchange, data-analysis and evaluation of options can take place simultaneously. Consequences can be initiated instantly. This means that digitalization enables companies to manage and modify formerly isolated process steps collectively in real time. Therefore, digitalization has to be understood as a whole new dimension of competition. Thus far, only three dimensions could be addressed in order to create competitive advantages: cost reduction, vertical integration and horizontal integration.

With Terra Numerata, we are setting up substantial parts of the framework needed to succeed in the digital age, particularly with the fourth dimension of competition. But it seems that many European companies have yet to fully acknowledge the rise of digitalization. First of all, digitalization does not stop at modifying existing processes and organizations – it also creates completely new business models. This means that Europe's industrial core is facing fundamental changes, whose impact is to be decided by the next steps taken. These changes may either create growth, wealth for large parts of society and higher productivity, or precipitate the loss of global leadership for European industrial companies.

Therefore companies should be careful not to dismiss digitalization simply as a measure to increase efficiency and cut costs. They will have to embrace and better understand digital trends. For example, controlling the interface with customers and the huge amounts of data that are increasingly collected should be a first-priority-goal for every company. A final lesson to be learned: Digital markets work along the lines of "the-winner-takes-it-all". Winning players do not necessarily offer the best and most convincing concepts but first-mover advantages are massively important. 

image credit: World Economic Forum, flickr.org (CC BY-NC-SA 2.0)