Industry 4.0 A Dubious Battle

Germany must regain its innovative spirit to compete with both Asia and Silicon Valley, writes former defense minister Karl-Theodor zu Guttenberg.
Industrie 4.0
Industrie 4.0

Industry 4.0 in action. Source: DPA


"We can do it!" Chancellor Angela Merkel proclaimed when tensions began simmering over the influx of over 1 million refugees last year.

Can these four little words, representing a sentiment of the German people somewhere between recklessness and definance, hope and fear, be superimposed on German industry as well?

Many in Germany are dubious about the strength of her words. But it hasn't always been this way. This statement, seemingly an echo of Nike's legendary "Just Do It" branding, stands for much of what makes Germany special: the economic miracle that was built on the wreckage of the postwar era, reunification, entrepreneurship and the global competitiveness of the small- and mid-sized family companies. Germans didn't look up to the sky and fret - they put their heads down and just did it.

Legions of historians will continue to debate the political prudence of the chancellor's words. Did she make things better, or worse? Does not knowing the answer mean we should give up, and become a country of complainers and pessimists?

We have every opportunity to confront the Apples and Alibabas of the world head-on.

It would be disastrous if the economy allowed itself to be infected by that attitude. Nevertheless, conversations with CEOs and managers nowadays are often imbued with a depressing sense of heaviness, especially when they turn to the rapid advances of new technologies and digitization. Company boardrooms are filled with pessimistic words like "We are falling behind!" and "monopolists like Google, Apple and Amazon are cutting off our airways!" The fear of failure often interferes with healthy, entrepreneurial risk.

All of this is as unfounded as it is useless. A country that many still refer to with admiration as the epitome of sustainable economic strength and innovative spirit doesn't have to sell itself short. It is true that our belief in the ability of politicians to solve problems has suffered greatly in the course of the refugee debate. The options open to companies are also changing more quickly today than ever before. Competitive advantages that used to last throughout a company's entire lifetime are often short-lived today. And while a first-class product used to be capable of practically selling itself, effective marketing later became the most important element of success.

The latter is still a key success factor today, albeit in a competitive environment that has undergone dramatic change. New components have been added to the classic marketing mix, like social marketing, open innovation and innovative business models, often in combination with Internet platforms and digital ecosystems. Success often depends on these new factors, in a business environment in which global interconnectedness is now so important. Tradition and nostalgia are not enough to prevail in this environment.

Once innovative industries like consumer electronics, mobile phones and even camera production have all but disappeared from Germany and Europe. Even the field of social media, in which Germany had scored some successes at first, has since been abandoned. Who even remembers RTL's social networking site Wer-kennt-wen (Who-knows-whom)? Germany could cope with these setbacks relatively well if it weren't losing its core industries.

Production industries are an undisputed success. The auto industry alone currently employs 775,000 people, generates revenues of €368 billion ($405 billion) and accounts for the largest share, about 40 percent, of the economy's total R&D budget.

There is now a new buzz term which elicits little more than bored shrugs from many in the manufacturing sector: Industry 4.0. For some, Industry 4.0 is an affliction, a sword of Damocles forged by romantic devotees of Silicon Valley. Others see it as the only practical approach to survive the aforementioned challenges.

Almost everyone has heard of this term now, and yet there is a wide gap between hearing about it and understanding it. When business owners are asked for their definition of Industry 4.0 today, the responses range from sheer ignorance to a colorful mix of widely divergent ideas. This speaks to a remarkable failure by the initiators to properly communicate the concept.

There is no doubt that the term is shrewdly chosen. Industry 3.0 described the age of computer-aided automation, which produced substantial advances in production beginning in the 1970s. Industry 2.0 marked the beginning of mass production with the aid of electric energy, while Industry 1.0 was the transition from muscle power to physically generated power in the form of steam and water. But what exactly is Industry 4.0?

The term encompasses all new possibilities of digitally networked production, including assembly, maintenance and repair, and ranges all the way to marketing and disposal. It includes machines and components that are no longer merely networked and centrally controlled as they were in Industry 3.0, but also make decentralized, independent decisions on the basis of digital information and can introduce them into the overall production system. Systems must be capable of learning. But that isn't everything the digital future offers.

Enormous amounts of data already accumulate today, data that can be stored and analyzed within the framework of Big Data. It is shocking to see how apathetically many German companies ignore this untapped treasure. Global competition will be decided in the data room in the future. For instance, intelligent analysis programs will make it possible to generate predictive insights into how technical processes can be made more efficient, secure and resistant to failure. Predictive Analytics is far more than gazing into a crystal ball.

There is a third field within the spectrum of Industry 4.0: The penetration of all areas of life with digital information can be easily transferred to classic machine building. For instance, the presentation of relevant data on smartphones and through digital glasses, known as augmented reality, allows for the effective support of repair procedures of assembly, to name but two applications. It is telling that each of these aspects is based on English catchphrases that do not translate easily into German.

Still, Germany has acted wisely in expanding its production sectors. A country that loses the capacity for industrial production must forfeit innovative strength. A total of five million people work in industrial enterprises in Germany, generating about 37 percent of economic output. Sectors like automobile, machine and plant manufacturing, as well as medical and agricultural technology, are strong and innovative. Most politicians are quick to boast about these figures, but what they fail to recognize is that a substantial portion of this success story was written not with but in spite of the government in Berlin.

Despite all this change, can we rest on our laurels when it comes to the economy? Not at all. Instead, we must keep our advantage and expand it with further innovation. We have every opportunity to confront the Apples and Alibabas of the world head-on. However, we cannot do this by challenging them on their own turf, but rather by becoming stronger in the areas where we already excel. There are certainly some promising initiatives underway, such as the development of an international innovation network specifically for the production sector.

If we miss opportunities like these because of procrastination, Silicon Valley, working together with Asia, will take over one production sector after the next. Just look at what has happened with smartphones.  The U.S. economy also faces the same challenges in terms of its production competency and capacity. America's digital giants cannot feed 322 million people by going it alone, nor do they want to. 

No one is going to wait for Germany to catch up. The course of future economic importance is being determined at an ever-increasing rate. It is incumbent upon politicians and managers alike to rise to the challenge. Our economic spirit of innovation will decide our future prosperity and social harmony. That, at least, is something we should be able to handle.


To contact the author: [email protected]