9 September 2019
The fourth industrial revolution – referred to as Industry 4.0 in Germany – is transforming the economic landscape with changes in the driving forces behind growth and competitiveness. Companies wishing to continue their economic success can no longer depend solely on efficiency and cost reduction.
Innovation, flexibility and the ability to adapt are key factors for future economic success. This means that if change is the only constant, only those companies that are able to implement new ideas, methods or products faster will have a competitive advantage. Therefore, it is important to seize the opportunities of digital transformation and enable innovations that can accelerate growth and increase productivity.
The conditions for this are optimal in Germany – all you really have to do is do it. Germany occupies the top European position in the World Economic Forum’s ranking of competitiveness and ranks third worldwide. The country is characterized above all by its innovative ecosystem and occupies the top position worldwide in the pillar of innovation potential.
These results are based on strong performance in patents and research publications, high-level research institutions and a demanding buyer base, which in turn puts companies under high pressure to innovate. Innovators enjoy a dynamic business environment to launch their innovations. In addition, Germany’s competitiveness is based on solid fundamentals such as stable macroeconomic conditions and a well-educated and highly skilled population.
On the other hand, there is still a lot of catching up to do in the introduction of information and communication technology (ICT), placing Germany only 31st in the world ranking. Critical points of concern are the mobile Internet and the nationwide provision of advanced ICT infrastructure for fiber optic connections.
Many companies find it difficult to develop new, future-oriented business models. Digital processes and business models require breaking open silos in companies as well as coordinated action in order to fully exploit the potential of digital transformation. However, for digital change to be sustainable, it requires more than just the introduction of e.g. agile working methods. Rather, the entire organization must rethink its existing hierarchies in order to be able to react more flexibly and quickly to necessary changes in the digital transformation.
Another proven method is open innovation – in other words the proactive strategic use of the outside world to increase innovation potential. Companies have recognised that technology cycles are becoming shorter and shorter. This means that the products and services under development require a variety of skills and competences which are often not available in the company. Moreover, in many cases the decisive trigger from external sources helps to implement new ideas and technologies in a way that creates added value for the organisation or the customers.
Cooperation with research institutes, universities, start-ups and external specialists can bring benefits. However, even in the digital age, partnerships must be managed professionally and, in addition to the organisational and technical framework, the social competence of those involved plays a central role in the success of the project.
What can happen if companies fail to innovate, and what lessons can be learned, is illustrated by the examples of Nokia and Kodak.
Nokia was established in Finland as a papermaking business. In the 1960s, the focus changed to electronics. Nokia produced its first automobile telephones in 1981. In the late 1990s and early 2000s, Nokia was the world’s leading provider of mobile phones and made astronomical profits. Manufacturers then pushed into the market that focused on the Internet and understood that data, not spoken language, would be the future of communication.
Nokia focused only on hardware, rather than software or the development of an app ecosystem, and was eventually overtaken by technological developments. One of Nokia’s big mistakes was not transferring its smartphone platform from the original Symbian operating system to the next generation MeeGo in time.
Similarly, Kodak continued to focus on analog cameras instead of positioning itself for the digital future. Kodak knew the technology for almost 20 years before the sale of digital cameras in 2002 pushed the analog system into the background. In 1981, the company conducted a study that found that there were about ten years to prepare for the transition to digital photography. According to Kodak engineer Steve Sasson, who invented the first digital camera in 1975, management responded to his invention with the words: “That’s cute — but don’t tell anyone about it.” The inventor could not convince anyone at Kodak of the potential offered by his innovation. Later, Sony and other manufacturers launched affordable digital cameras – and Kodak’s momentum was gone.
In other words, both companies had defined their business model too restrictively, not been sufficiently diversified in time and had invested in new technologies in order to be able to react adequately to changes in customer needs. Nokia’s early history of innovation could not survive the company’s complacency and commitment to hardware. They have rested on success instead of effectively planning for future progress.
Similarly, Kodak executives have failed to help employees see digital technology as an opportunity. Rather, digital photography was seen as a threat to the chemical-based film and paper business that had been driving Kodak’s sales and profits for decades.
There is no question that innovations can be perceived as threatening. But sometimes you simply have to leave a product or service behind you while you set off into an uncertain future with something new. As you know, those who take no risks cannot gain anything – but they can also lose a lot through stagnation. Speed, courage and agility are therefore required in order to remain relevant in the digital age.
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