Terra Numerata™- Europe's digital answer to Silicon Valley

Realizing that Europe lags behind in the digital business race, Charles-Edouard Bouée, as CEO of Roland Berger Strategy Consultants, initiated the foundation of a European digital business platform - Terra Numerata™. As the core of a wide-ranging European digital business network it will bring together firms of different sizes from different segments to help them form alliances as well as support the digitalization of the European business world.

The need for such a digital initiative becomes obvious when one surveys the world's top 20 Internet companies. None of these 20 enterprises are of European origin.

In fact, 13 of those companies are from the US, while the rest are from Asia. Europe clearly is in danger of losing the digital business race, putting its prosperity and industrial leadership at stake.

Key mission: Boosting Europe's share in the digital business market

The European digital business landscape is characterized by its complexity when it comes to relevant players and institutions. This entails that Europe's digital business sector is highly heterogeneous, with expertise and resources spread across the different countries. But this does not have to be a disadvantage for Europe.

Under the umbrella of Terra Numerata™ incubators, investors, technology providers and all kinds of digital players will come together. Networking the players in the digital field supported by European policymakers will be the key for the creation of new digital opportunities. Sharing and connecting creativity, capabilities and resources can lay the groundwork for Europe's digital success story.

Terra Numerata™, Industry 4.0 and disruptive changes – Europe's future weapons in the digital business race

Winning the "fourth" dimension and being able to guide the "fourth industrial revolution" will be of extreme socio-economic importance for Europe and especially for its leading industrial nation Germany. Terra Numerata™ can operate as a catalyzer for the development and implementation of new processes in the race for sovereignty over the customer interface, new sources of data and ways of analyzing, processing and monetizing them.

When it comes to discovering and developing new economic and industrial opportunities in the digital sphere, counseling and support are obviously still needed and may be provided by Terra Numerata™. The digital transformation of industry in Europe depends on collective European action in international markets, common regulative policies, newly-created incentives as well as a comprehensive and efficient information- and communications infrastructure. To set the stage for Europe's digital future, politics, enterprises and sciences must act coherently.

To learn more about Terra Numerata™, click here.

Disruptive change and the consequences for industrial production

The digital transformation of industry opens up a new, "fourth" dimension. Within this dimension analysis and subsequent reactions take place in real-time. The digitalization of industry challenges well-established value chains. Today's enterprises must scrutinize their products and capabilities so as to achieve digital maturity enabling them to recognize, develop and implement new prospects.

The strength of European industry, especially of the industrial powerhouse that is Germany, is the close linkage with its customers combined with a high level of production skills. With digital transformation, the value chain of manufacturing is shifting towards more standardized IT- solutions.

Is Europe heading towards the worst- case scenario?

If the European industry will be displaced from the top of the manufacturing value chain by enterprises that achieve sovereignty over the customer interface and predominant know-how in the field of data processing, the result will be a decline in the industrial value chain still underlying European prosperity.

Considering the negative scenario for Germany, there may be a loss of industrial value creation of EUR 220 billion until 2025. If Europe as a whole won't increase the share of digital technologies within the industrial value chain there is a possible loss of EUR 605 billion in the near future. The only way to secure Europe's future and prevent these negative scenarios will be to strengthen the European influence on the configuration of the digital economy.

Our enterprises must gear up for digital transformation and comprehend its importance for the next decades.

The future impact of digital customer interfaces: blessing or curse?

Changes concerning customer interfaces will have a significant influence on European enterprises, such as with mobile communication businesses in the last two decades. An integrated producer with its own closed system currently generates profits five times higher than the market leader in 2005. The profit margins of companies without digital customer interface show a severe negative development. This will force these enterprises to pullout of this industrial sector, just as this happened to Siemens and Nokia. Nokia lost its profitable position as a market leader. Selling over 265 million mobile phones and generating a market share of over 30% at its peak, disruptive changes lead to the full retreat of this industrial sector.

In a similar vein this process may reoccur within the automobile industry. The customer interface is gaining more and more importance in this industrial branch. To be prepared, some producer initiated alliances for the development of new technologies, for example the "Open Automotive Alliance" of Volkswagen, Fiat, Renault and others under the leadership of Google.

The impact the integration of the automobile into the digital system of the end customer will have, may be essential.  Will the question of the operating system be as important as it is when buying a smartphone (IOS vs. Android)? Will the automotive manufacturers have to pay a commission? Or will they just be a hardware supplier? This disruption may be an imminent scenario that could come close to the recent developments in the mobile communication branch.

Digitalization & Industry 4.0

Industry 4.0
 

Is Europe putting its backbone at stake?

The discussion on the digital transformation of the manufacturing industry is focused on the topic Industry 4.0. Frequently called the "fourth industrial revolution", it describes the industrial use of digital technology and automation within the process of production. The outcome of this revolution will be manufacturing networks that increase the speed and efficiency of production. Based on this logic, German companies may see themselves as performing positively in the digital race. But they may be mistaken: The digital industrial revolution will be more comprehensive and Europe must close the gap.

The last two decades have been marked by a loss of over 10% of manufacturing value in Western Europe, while the share of worldwide manufacturing held by emerging countries increased to 40%. As a core element of the value chain, industry accounts for 15% value added in the EU. It would appear that Europe has invested too little in the digital transformation.

 

But it is not too late.

There is a chance that Europe can increase its shrinking industry share from 15% up to 20% of the value in the European Union. But in practical terms, this means that Europe has to invest EUR 90 billion a year over the next 15 years. Traditional European industrial policies will not provide enough support for value production. To be able to reach the goal of 20% industrial value a new European digital agenda for shaping Industry 4.0 is sorely needed.

What will be changed by the digital industrial revolution?

The comprehensiveness of change can be demonstrated by four levers.  First, digitalization involves the collection and evaluation of data gathered in the Internet of Things. New sources of data emerge and using modern techniques for the analysis, enterprises are able to evaluate data faster and in greater detail. Second, the digital transformation of machinery called robotics will have a crucial impact. Taking the case of Google, we can see that it starts to monopolize robotic enterprises, gathering more and more data in order to monetize it in the near future. If Google now standardizes the software of its robotic enterprises and combines this with its services (e.g. data analysis), it can potentially dominate elements of various industries that depend on robotics.

 

Third, networking, the digital connection of two previously autonomous systems, will lead to an improvement in efficiency within the process flow. But as a requirement for cross-linking, a universal standard of communication is needed.

 

The last and fourth lever will be the ownership of the digital customer interface. It is not resolved who will get the data gathered during a production process in a digitalized "smart factory". Will this be the shareholder, the financing bank or even an IT service provider? Each of these opportunities may have far-reaching consequences.The digital transformation won't hit all branches with the same intensity and speed. This depends on the impact, scalability as well as the enforceability of digital innovation.

 

Four requirements of digital maturity

 

To use the advantages of the digital industrial revolution, European enterprises must achieve digital maturity. Enterprises should gain four crucial capabilities. First, they have to identify and evaluate current trends in the field of digital economics. Second, they have to realize the potential for efficiency enhancement within the existing business model. Third, they should identify disruptive changes in existing business models and new business models based on new assumptions. Finally, if this has not happened yet, enterprises should initiate a comprehensive change in the corporate culture for the implementation of necessary adjustments.