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Introduction and Megatrends

The digital transformation will lead to fundamental changes in our societies, economy and companies. Everybody is talking about digital without really knowing what it is about. Some believe it is just eliminating paper or a manual process by an automated process. That’s simply jumping by far too short. Digital transformation will have for geopolitics and geoeconomics at least the same impact as the globalization. The real challenge is the need of a strong mindset change towards more entrepreneurship, Innovation, creativity and people centric leadership. These changes will be strongly enabled by the new Technologies like AI, self learning algorithms, Big Data, and Blockchain.

The major market driven megatrends are Demography (global age increasing), Urbanization (70% will live in cities) Energy (high increase of energy usage) and connected world (billions of things connected). The relevant Technology driven megatrends are Moore’s law (Computing, Communication and storage power doubling every 2 years ), Tactile Internet ( 5G, latency, reliability, availability, security), autonomous & cognitive systems and sophisticated and cheap sensors (Sensor Data fusion).

Artificial Intelligence

The Artificial Intelligence will be a universal Technology like steam engine, Electricity and the combustion engine. There will be 4 waves of AI: Internet AI, Business AI, Perception AI and Autonomous AI. Some existing human tasks (mainly repetitive) will definitely be replaced by AI, some tasks will continue to be much better performed by the human (for example creativity and Innovation). It will be essential to actively shape this dramatic change to ensure that success will be human and machine, we need a human centric AI approach. China might become the global leader in Big Data and will be from the beginning on “eye level” with the US and Europe in this big transformation.

 Challenges of the European economy and companies

The big Tech players (Apple, Google, Amazon, Alibaba, Baidu, Tencent…) out of the Commercial Internet (eCommerce, Platform, digital advertising, streaming music / film)  are now entering the traditional business of many industrial companies with a long legacy and potentially jeopardizing the existing business model (Platform B2B, IoT). Many today still unknown start-ups will follow this trend.

The European Economy and Industry are jeopardized to lose this game in the strong competition with the US and China. It is very important not to become fatalist and to shape successfully this digital transformation in Europe. Still Europe has some assets to be successful !

Some already started activities of European Industrial companies

Most of the large European industrial companies are very much in the middle of their digital transformation to ensure their competitiveness in this new game against the Tech giants. Some European medium sized companies have also initiated strong activities in digital transformation and are well positioned to remain attractive in 5-10 years. There are also some excellent European references in starting platform business linked to traditional HW business. Today many medium sized industrial companies are very successful in the core business however not focusing sufficiently on the digital challenge. Some are fully aware about the importance of digital transformation but they don’t know how to implement. Some believe having already achieved a high maturity of Digital Transformation with the implementation of some activities of automation or Industry 4.0. This is jumping too short.   The spirit /approach of start-ups is increasingly impacting the traditional industry business. 

Success factors of start-ups entering traditional business of industrial companies

The success factors of the big Tech Players are very much copied by many Start-ups, combining new Technologies and innovative / disruptive business models. Originally these start-ups have been very much out of the Silicon Valley and focused on IT / SW business. In many cases the existing market, mainly stable for many years, have been disrupted within a short period (Big bang disruption). Today many of these new players have been founded, incubated and accelerated in the different start-up hubs ( Israel, Singapore, Shanghai, Paris, Berlin,…..) and focusing also on Industrial products / solutions. These start-ups are mainly founded and funded in the spirit of Venture capital. Usually start-ups don’t have any industrial legacy, they can focus only on the new digital business . Thus they have advantages in agility, flexibility, speed, more entrepreneurship, no risk of cannibalization, trial& error culture, Minimum Viable product. The big challenge and opportunity for medium sized companies competing against Start-ups is to develop the new digital business based on  their strong industrial legacy , to leverage the existing strong know-how of the core business and combining it with certain elements of the start-up approach.

How to ensure success on double S-Curve (core business and future digital business)

In addition to continue successfully their running business (1st S-Curve) companies need to prepare / anticipate the new digital business (2nd S-Curve). This is valid for all industrial companies independently of size. The transformation from the 1st to the 2nd S-Curve is not a classical change project but a fundamental approach. This is very challenging because of the 3 dimensions in parallel, success on 1st S-curve, success on 2nd S-curve and ensure strong link between 1st and 2nd S-Curve

Consequences for Industrial Companies

In addition to their successful core business (1st S-curve) all medium sized industrial companies need to start activities on the 2nd S-curve (future innovative and digital business). Working on second S-Curve will drive new Innovation and Growth potentials and strongly support to anticipate major changes for the core business and understand the related Opportunities and risks. A simple copy of Silicon Valley thinking and spirit will be the wrong approach. There is need for good /balanced combination of start-up thinking /doing and specific success factors of an industrial business. Start-ups can focus on 2nd S-Curve, Industrial Companies need to work on both S-curves in parallel. They need to be continuously active on both s-curves and always ensure a constant link between both activities. Most of the industrial companies will have to transform an existing Hardware business. The disruption of existing markets in traditional industrial business will probably take much longer than on IT /SW business, however it will happen. An increasing number of HW products will be in the future connected, higher level of embedded SW, and will also include in the long term AI. There is a strong need to assess the existing business model and understand the major changes in the market environment ( competitive landscape, new positioning of A-customers, new players, new customers, changing value chain, new sales channels, new business models,….). An important change of the leadership culture will be required, both cultures “command and control” and “entrepreneurial” will be decisive. A successful Leader needs to cover both leadership styles and be authentic. A different image of innovation and leadership culture will be essential to attract and keep high qualified people and talents.

Summary

The digital transformation must have a very strong focus in European politics and economics, a very high priority in the strategy of all European companies and all Citizens must be well prepared. The absolutely wrong approach would be high anxiety or to give up. Despite some real risks we must shape successfully the digital transformation in Europe with the right actions, mindset and people.

“Everyone said it couldn’t be done , then somebody who hadn’t heard that turned up and did it straight away.”

Markus Schmidt

Entrepreneur&Adviser in Digital Transformation and Vice President of Europe&Entreprise 

April 2019