We asked Dr. Eberhard Veit, a member of the supervisory boards of numerous medium-sized German manufacturers, but also of Robert Bosch GmbH, in mid-July about the situation of industrial companies after Corona. Veit sees positive prospects for innovation and digitization if companies are not lapsing into a “mental coma”. 

Dr. Veit, where does medium-sized industry stand now – in July – in coping with the corona crisis? Will we see a V-curve – a rapid recovery along the lines of the 2008 crisis?

No, I think that a revival is more likely, which will be like a staircase in steps. Each of the steps is characterized by companies, which in turn can provide impetus for the companies that will then emerge from the demand crisis in the next step. The figures available from the VDMA also speak for this.

And which companies do you see as the first to provide impetus?

These are companies – such as Stihl, Wagner, Kärcher, Bizerba and others – which did not lose their markets in the Corona era and served them very well, but were reluctant to invest. These companies now pass on impulses to other companies through investments and motivation. I call this a reverse psychological domino effect. However, mistakes must be avoided: To enter into price competition for market share now would be short-sighted from an entrepreneurial point of view.

Corona is a very loud wake-up call that really works.

One of your concerns has always been that industrial companies need to speed up digitisation. To what extent was and is the Corona crisis a driving force behind this?

Corona is a very loud wake-up call that really works. Digitization, AI, new processes, greater flexibility – these are the fields in which even smaller companies are now setting new priorities. Previously untouchable things are now being questioned. Many companies are putting all their development projects to the test and are re-examining whether they will bring digitization forward. Massive investments are being made in digital platforms for sales, customer consulting, engineering and services. The effect in figures: The 32 percent that the average mechanical engineering company sells via digital platforms or digital sales interfaces today will be almost twice as high by 2025. In the case of a medium-sized company from Baden-Württemberg, which currently sells 17 percent digitally, it was decided this week to soon increase this share to over 50 percent. Engineering platforms on which customers configure their solutions online are also growing strongly. Those who today sell 40 percent of their solutions via these platforms will soon sell up to 70 percent digitally. Up to 80 percent of services can be mapped via digital platforms. Companies can already achieve greater customer satisfaction if they use digital tools intelligently and in conjunction with consulting. But the monetization has to be improved significantly,…a big challenge!

And what does this mean for the existing sales organization, which is already suffering from limited mobility?

Via the digital platforms the sales department gets a new function. It becomes an “enabler” for the intelligent use of the digital platforms, i.e. to familiarize and introduce customers to this tool. In the process, a central category in sales is being given new importance – trust. Building it up through help and real support becomes the content of the personal encounter. Crisis winners will be companies that can perform precisely through this combination of digital platform and personal advice. I think we will soon see an evolution in the digital tools for communication that were used in the Corona era and are now common practice – towards a virtual representation of real workplaces and workplace situations, in which, for example, people construct, debate and also monitor together. All this must become even more true-to-life and practical: A real virtual real world.

There is a great willingness to work together on new solutions

So does Corona release resources that have been blocked for a long time for innovation?

Ambidextry – tackling new things while at the same time improving the existing – is the keyword for many companies. There are companies that are now isolating themselves against all these apparently adverse trends and falling into a kind of “mental coma”. But there are also companies that are now turning all kinds of screws and working their way into completely new topics. Take Bosch as an example, which develops masks, tests and digital applications for medicine. Or the medium-sized company Wagner in Markdorf, which has turned paint spraying devices into disinfection devices for buses, trains and industry, thus significantly increasing its business. According to the motto: “get off the cross and help yourself”. And this also includes a great willingness to work very closely together in the application of technologies – be it in the development of complementary technology. in the sharing of resources, such as joint participation in start-ups with interesting digital solutions for industry. This not only minimizes costs but also broadens the perspective.

And the shareholders, supervisory boards and workforces are going along with this – despite the crisis?

It is interesting that a feared weakening of the euro is currently helping to ensure that available liquidity is flowing more strongly into future projects in particular. There is a trend to exchange profitability for innovation, which in the past was believed to be unaffordable. It has become easier to convince shareholders and supervisory boards to accept cuts in earnings now in order to have digital platforms at their disposal later on, or more generally to be more future-proof. Incidentally, employee surveys in companies have also revealed another trend: A measurably stronger identification of the employees with their companies, especially in the time of the lockdown. There is a real mood of optimism in some companies. The time for innovation is now.

Technologically meaningful takeovers within Germany are a probable development

Nevertheless, the question arises as to the staying power of the companies – after all, the collapse in demand is already massive…

If that sounded too positive for you before: Yes, there are also companies that now lose perspective and motivation. These are then a topic for takeovers and consolidation. I see three trends. First, demand in Germany is growing and the willingness to invest is increasing. Secondly, however, the attractiveness of German companies has declined on a global scale, and German industry is not perceived as being as dynamic in terms of innovative strength. Third, there is a certain reluctance to make international takeovers against the backdrop of geopolitical tensions and trade conflicts. Looking at their own standing and developing their own strengths in advanced technology is currently much more pronounced among Chinese partners than it was two or three years ago. Technologically sensible takeovers, carried out by financially strong family-owned companies that promote digitisation and also make supply chains more resilient, are therefore the more likely development within Germany.

What is exciting is which future competencies will be retained in Germany

How realistic is the idea of “self-sufficiency” and regional differentiation of industrial supply chains?

It is certainly not a bad idea to put resilience before price in supply chains. Delivery quality remains a central performance promise. To be as much better as you are more expensive – this maxim is becoming even more important. The depth of added value is another aspect. If there is a lack of capacity utilisation in your own plants, there is production that can be “reclaimed” in a simple way. But one should not delude oneself: What has been built up in 10, 15 years of globalization in supplier markets and in your own production cannot be brought back in a few months. It is at most three, five or even eight percent, which can be recovered in terms of vertical integration. The exciting question for me now is more about what should not be relocated abroad in the future. Hydrogen economy, AI, quantum computing are topics that should be rebuilt here in Germany and Europe in a sustainable manner in order to ensure competitiveness and stability of employment. At present, the workforce must also be motivated for such innovations.

Smart economies of scale at every location – the best precaution against the threat of foreclosure of global trading areas

So globalization as a strategy for being present in the markets and organizing production networks in an optimal way is not yet obsolete?

The presence in global markets and the reciprocal supply of locations can be intelligently developed further. Analysts at Accenture are currently discussing how the future of global manufacturing no longer lies in mass and maximum robotization, but in smart process flexibility. In this way, economies of scale can be achieved location by location – local by local. Instead of only being able to manufacture economically in one plant at three locations, this is a very important option in view of the threat of global trading areas being sealed off from each other. This also includes an architecture for corporate management that can map this and thus support regional production centers.

The purely electric drive will become a marginal technology

Do you see these issues being reflected in industrial policy since Corona?

At the moment, policy is very much oriented towards prescribing solutions too narrowly and thus restricting industry. It sees itself far too little as an “enabler” that sets the infrastructure, i.e. creates excellent framework conditions. Accompanying industrial development does not mean prescribing how it should be done. Banning combustion engines or creating so much uncertainty that no one will buy any more is one thing. Promoting new technologies sensibly would be another. In Germany, 24 percent of cars are twelve years and older. If they were replaced by modern, lower-emission vehicles, a huge effect on the environment would be achieved, for which electromobility will take years to achieve. To simply stifle the competence and innovative strength that industry has built up in combustion technologies and also in hydrogen would be a very big mistake. And I like to say it even more provocatively: one third of the life cycle of the purely electric drive for the car has already expired. In ten to twelve years, the issue would be over – it will then become a marginal technology that will not enable us to meet the environmental challenges.

But that sounds rather skeptical…

Fortunately, however, there are also investments by the automotive industry and research that have kept a watchful eye on the future beyond electromobility. It’s just a pity that so many visitors of the Karlsruhe KIT’s great research facilities for synthetic fuels come from the Far East… It’s also good that we are now making digital progress in the education system. At the universities in the personal encounters, there will be a concentration on the social, on working together in a team or on joint work on hardware, in the laboratory. I am sure that the basic technologies and the knowledge that used to be shared through lectures will be easier to communicate online. It is also good that universities like ours here in Göppingen, with the support of industry, are helping to test the digital future of industrial production in practice. The willingness to start new things is now much stronger across the board than it used to be.

Dr. Eberhard Veit in Global Business Magazine: “China upping the pace of Industriy 4.0”