Digital network - the challenge of digitalisation

The challenge of digitalization: where does Germany stand?

Germany is missing out on the digital transformation. Headlines like this have been piling up lately. But where does the country really stand when it comes to the challenge of digitalization? In the following, we summarize the results of several recent studies for you.

Poor self-image

More than half (58 percent) of all managing directors and board members categorize their company as a latecomer to digital innovation. And 3 percent even believe that they have missed the boat.

That’s the alarming result of a study published by Bitkom Research at the beginning of this year. The authors interviewed 502 German companies with 20 employees or more.

The following figure shows the results of the survey conducted by Bitkom (in percent).

Result of the survey conducted by Bitkom: Where does your company generally stand in terms of digitalization?

Source: figure adapted from Bitkom Research.

Biggest headache: medium-sized companies

This being said, the self-assessment seems to be closely related to the size of the companies. The more employees a company has, the more positive the assessment is.

Correspondingly, 71 percent of the companies with more than 2,000 employees see themselves as pioneers. In contrast, only 34 percent of the companies with 20 to 99 employees think that they are digital trailblazers.

It is thus mainly the medium-sized businesses that seem to struggle with the challenge of digitalization. In line with this, 28 percent of the companies with 20 to 99 employees don’t have a digital strategy.

And what does the German population think?

According to the Digital Report 2020 of the European Center for Digital Competitiveness, the economy gets better marks from the population. After all, 70 percent of the citizens surveyed are convinced of the digital competence of German companies.

The situation is quite different, however, when it comes to the confidence of Germans in their Federal Government. 57 percent of them don’t believe that their government is competent enough to deal with digitalization.

Leaders from politics and economy don’t spare any criticism, either. For instance, 91 percent can’t see a clear digital concept of the Federal Government. Furthermore, 89 percent of the top executives think that Germany is lagging far behind in many areas of digitalization.

The following figure illustrates what the German population thinks about the digital competence of the economy and the Federal Government according to the Digital Report 2020 (in percent).

Results of the Digital Report 2020: Evaluation of the digital competence of the economy and the Federal Government

Source: figure adapted from the European Center for Digital Competitiveness.

Reasons for Germany’s digital backlog

But what problems exactly does Germany’s economy face? Of course, we could criticize that the Federal Government lacks a comprehensive digital strategy. Or point out that the responsibilities between the ministries involved are unclear. Not to mention the failure to expand broadband access and the slow internet speed in rural areas.

However, in many cases the reason why there is a lot of digital catching up to do lies within the companies themselves. At least, that’s what Gerrit Sames and Arthur Diener from the Technical University of Central Hesse state. The scientists conducted a study on the Status of the Digitalization of Business Processes and interviewed 155 medium-sized companies. They could identify five main factors that make digitalization particularly challenging.

The following list and figure summarize these factors (in percent).

The five biggest challenges of digitalization (descending order):

  1. Fear of overly high costs (59 percent)
  2. Lack of experts (55 Prozent)
  3. Lack of know-how (44 Prozent)
  4. Unknown solutions (35 Prozent)
  5. Safety concerns (31 Prozent)
Results of the study on the status of digitalization of business processes: What are the main challenges?

Source: figure adapted from the Technical University of Central Hesse.

“Start small, but start.”

So – now what? Many medium-sized companies focus on very specific issues. That’s why there are no hard and fast rules for digital transformation, only individual solutions.

In addition, there are usually many different business processes that could be digitalized. And those that have been digitalized need to run often enough for the investment to be worthwhile. Obviously, larger companies do have a head start.

Nevertheless, Martin Wrobel and his colleagues at the Alexander von Humboldt Institute for Internet and Society strongly advise medium-sized companies to take the initiative. “Start small, but start” is their motto.

Advantage for medium-sized companies

In a study on Digital Innovation in Medium-sized Companies that the scientists conducted jointly with Sirius Mind GmBH, they even find encouarging words. After all, medium-sized companies have one big advantage over large corporations.

Thanks to flat hierarchies, effective decision-making paths, close customer proximity and a certain room for error, they can implement digitalization more dynamically. Doing so, they develop more customer-oriented and project-related solutions.

Future technology: Artificial Intelligence

So how do you digitalize your business? Without a doubt, Artifical Intelligence (AI) is a technology with great potential in this context. In the agricultural sector, AI is already being used in combination with IoT technologies to improve crop yield predictions and increase yield quantity and quality.

The Microsoft Power Platform also offers a practical and user-friendly tool for digitalizing a wide range of business processes: With AI Builder, AI can easily be integrated into your applications.

For example, you can predict business outcomes based on your existing data and adjust your strategy accordingly. AI builder can also help you to automatically identify and track your products. The automation of customer feedback processes is easily possible, too. All in all, a powerful tool to meet the challenge of digitalization.

Time is running

Is Germany missing out on the digital transformation? There is still some hope. But we have to act now if we want to meet the challenge of digitalization. Additional proof comes from the results of two rankings published in 2019. Compared to other countries, Germany’s performance is only mediocre.

Reaching 1,900 euros, the per capita expenditure on IT in the United States, one of the pioneers in digitalization, is more than twice as high than in Germany. And, at 4 percent, it grows twice as fast, too. In other words, we really need to invest in our future.

On the long run, prosperity in Germany can only be secured and expanded if we remain digitally competetive and don’t lose our ability to act. Launching its digital strategy 2025 “Last Call: Germany”, Bitkom has now presented several crucial ideas how to achieve this goal.

Achim Berg, president of Bitkom, doesn’t mince words in his statement. “The German system needs more than an update, it needs a restart”. He explains: “We cannot and must not afford any more delays or setbacks.”

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