Status: slow to stagnant digitalization
The digitalization of the German economy is progressing rather slowly. This is the conclusion reached by the 2023 Digitalization Index published by the Federal Ministry for Economic Affairs and Climate Action (BMWK) in a corresponding report. According to this, digitalization stagnated with an index score of 108.6 points in 2023, compared to 110.5 points in 2022. Germany is also losing digital competitiveness compared to other countries in international rankings. For example, Germany ranks only 13th in the Digital Economy and Society Index, falling behind countries such as Finland, Denmark and the Netherlands.
The reasons for this are manifold. For instance, digitalization investments are being postponed due to external influences such as ongoing inflation, high energy prices and general uncertainties resulting from global crises. Other issues frequently cited as brakes on digital transformation include:
- Lack of government support
- Slow digitalization of public administration (a direct reflection of the lack of government support)
- Sluggish expansion of network infrastructure (e.g., 5G networks)
- Lack of successful public-private partnership projects.
EU regulations, for example on data protection and AI, are often viewed critically, although these may also present an opportunity, as clear rules provide certainty regarding the possibilities of digitalization.
Outlook: government initiatives and GenAI as drivers of digitalization
The federal government is attempting to push forward the digitalization of German industry with a series of funded projects under the umbrella of the Manufacturing-X initiative. These include Catena-X for the automotive industry and Factory-X for the equipment industry.
Factory-X
Eviden is an associated partner in Factory-X, which aims to create an open digital ecosystem for the manufacturing industry and its customers. The goal is to create vertical applications as well as an overarching framework with shared services that enable seamless integration of machine operators, manufacturers and component suppliers.
Stagnation means a loss of competitiveness. In other words; you snooze, you lose. Meanwhile, digitalization significantly lowers the barriers to market entry for new competitors in the industry.
The hype around generative AI (GenAI), triggered by applications such as ChatGPT, is also proving to be a driver of digitalization. Many companies are interested in artificial intelligence (AI) and the possibilities it opens up, such as:
- Speeding up work processes
- Freeing employees of routine tasks so that they can perform higher-value activities
This GenAI momentum should be used to advance digitalization in all areas of a company by using all available technologies. Industrial value creation is becoming increasingly data-driven. Data contribute to the optimization of value-creation processes as well as the development of new products tailored to changing customer needs.
Digitalization and security are prerequisites for this.
Given the increasing exchange of data between suppliers, manufacturers and customers; as well as the rising number of attacks on corporate networks, an integrated security concept is essential.
Digitalization: a holistic task
Improved government funding and framework conditions certainly help with the digitalization of industrial companies. Nonetheless, it is up to the companies themselves to ensure the successful digitalization of their businesses. Many factors need to be considered to ensure success. Here are five focus areas to get you started:
1. Business model: It is important to adapt the business model to the requirements of new services or products that are enabled by digitalization. This applies, for example, to providing services on demand rather than at regular intervals.
2. Data analysis: Moreover, the company must build capabilities in data analysis and the derivation of recommendations for action from it. This is a prerequisite for defining measures for internal optimization as well as for business alignment.
3. Organizational support: In general, companies should be open to adopting new technologies and, in particular, design their IT/OT architecture to be flexible.
4. Cultural change: It is also important to realign internal structures, moving away from rigid hierarchies toward virtual, cross-functional teams and processes. This is the only way to ensure the necessary adaptability to accelerating internal and external demands. It is part of a cultural change within the workforce.
5. Employee support: The cultural change requires an openness among employees to digitalization and the technologies, such as AI, that come with it. The goal is particularly to recognize the opportunities of change for their own work area. By managing routine tasks, AI enables skilled workers to focus on higher-value tasks. And in the future, AI will help mitigate the growing shortage of skilled workers.