Were Businesses Prepared? Understanding the Need for Digitalization

The COVID-19 outbreak is becoming a global stress test for businesses and as the number of infections continues to rise across the world, so are questions about global recovery and economic growth. The outbreak has highlighted numerous vulnerabilities in business operations and has shown us how much time the economy and society have wasted leading countries – like Germany – into the digital age.


While the implications of current global events are being discussed at length, there's an array of lessons this focus will shift toward, like the urgent need to digitize business models, processes and ways of working.

 

What’s the Economic Outlook for Germany?

Authorities and slow adopters are currently feeling the disadvantages of hesitant digitalization and will have to upgrade digital technologies to keep operations running. Companies that have so far relied on outdated solutions will now witness a steep learning curve.

 

Retailers, startups, educational facilities, and even entire governments are trying to mitigate the effects of the crisis so that once the worst is over, we already have foundations in place on which to rebuild the economy.

 

Were businesses equipped to deal with this global crisis? Is the German economy resilient enough to bounce back?

 

With governmental financial packages, low unemployment rates, and a broad social safety net, the general outlook for Germany remains positive. However, the country entered the crisis with slow growth rates, and now German factories, like Volkswagen, are feeling the effects of current disruptions and work restrictions.

 

Looking at the current impact on Germany’s general business landscape:

  • There’s been roughly a 28% decrease in the weekly performance of the Dax index from January 2020 to April 2020¹
  • Germany’s expected cumulative impact on lost retail sales (£728 million) is greater than France and the United Kingdom combined²
  • German e-commerce companies expect delivery delays and cancellations for restocking to be the biggest consequence of COVID-19³
  • 41.5% of general German businesses state that the cancellation of trade shows and events is currently the leading cause of loss of businesses
  • 52.3% of German companies are seeking unbureaucratic/ simple applications for support measures as a result of COVID-19
  • German travel, hospitality, and healthcare industries are experiencing the greatest impact on business

 

The Time is Now Article

 

Less than a fifth of companies in the EU-28 are highly digitized. Even as a world leader in technology, Germany still has some way to go on the journey towards digital transformation.

 

Although the country presents good ideas and has a high potential for innovations, there is a question of whether businesses have the necessary financial resources in addition to the know-how for high-tech innovations. Generally, investments and finances are allocated in traditional R&D with long-term thinking in mind. Instead, this crisis should spark a move toward more drastic and promising investments in the area of disruptive innovation. Only then will companies be able to keep up with the pace of digitalization and look profitably into the future.

 

The Importance of Digital Technologies for Business, Society and the Economy

Savvy digital solutions have already existed for many years, but have too long either been ignored or remained in development. Startups and tech-founders have worked for years to push forward digital-first innovations to bring efficiencies to businesses and now its benefits can no longer be ignored.

 

With many businesses currently working from home, we are facing one of the most crucial times in history. We need to learn from the present and take away key lessons from it:

  • To overcome something similar in the future we need to be better prepared through digitalization
  • To promote digital technology research, development and innovation programs within established corporations
  • To actively support early-stage ventures through innovation labs, venture studios, and strategic alliances
  • To provide more funding into digital business solutions and significantly advance Europe as a location for startups and innovation
  • To provide additional support mechanisms, funding and government aid for business relief and short-term liquidity

Digitalization as a Value Driver

Businesses that embrace digitalization and combine these technologies with investments into strategic, operational and financial resilience will be better positioned to respond and recover.

 

Creating a workforce for the Machine Economy

Currently, the manufacturing industry has been brought to a halt. Factories that have neglected to implement IoT systems – remote monitoring, automatic sensors, and intelligent machinery – are struggling, or unable, to continue with production.

 

Now, we need to look at ways in which to rebuild and strengthen working environments to weather future economic uncertainties. Germany’s potential as a leading manufacturing location depends on established industrial firms joining forces with aspiring startups. On the one hand, corporates have a strong capital base and proven market positions and on the other hand, startups push forward new ideas and innovative methods.

 

A close cooperation mechanism between corporations and startups will assist in achieving digital momentum in Germany and promote the country as a hub for digitized businesses. Startups develop digital solutions and scalable business models for established companies that give them a competitive edge in ways previously not possible.

 

As a support mechanism, the German federal government has allocated another €2 billion in aid to strengthen the country’s startup ecosystem. This comes in addition to the decision already made to include larger startups with a valuation of €50 million or more under the Covid-19 liquidity umbrella. Albeit a great first step, concrete measures and distribution mechanisms are yet to be decided.

 

Transitioning toward an autonomous and sustainable world

Encouraging smart networks in key commercial infrastructure areas of the economy enables higher degrees of social and political participation. Smart sensors and connected machinery enhance productivity, efficiency gains, and growth within the basic sectors of Germany’s industrial fabric (such as energy, transportation, health, education, and public administration). According to a study conducted by the Fraunhofer-Institute for Systems and Innovation Research 18, smart networks can generate an overall benefit to society of around €56 billion annually, of which €39 billion is attributable to expected efficiency gains and €17 billion to additional growth¹⁰.

 

Driving innovation and a new order of work

Co-innovation, co-founding and co-creation methods enable businesses to combine skill sets and technology tools to create successful companies. Venture studios are a good example of this to pool resources into the development of new business models. As one venture studio example, Next Big Thing AG, takes on the role of a technical co-founder that supports aspiring entrepreneurs to build transformational deep-tech ventures that deliver real-world impact within the framework of IoT and other core technologies like AI, ML, and blockchain.

 

This approach helps companies, especially in these times, to develop further and realize the urgent need for digitalization to bring new IoT business models to market maturity.

 

Other examples of how ecosystem collaboration is taking shape include the recently launched platform, StartupsagainstCorona. Startups are able to submit solutions to companies’ challenges, where both partners are networked and can support each other in times of crisis. Another example is the German government's hackathon, #WirVsVirus, which is a platform to give tech-backed innovations an even greater boost and draws attention to the fact that we need different and, above all, completely new solutions.

 

Developing trust, transparency, and support for Europe’s digital ecosystem

The European economy is, by design, highly interconnected. However, the topic of digital sovereignty is becoming even more essential where additional concerns about data privacy, security and the ethical uses of data will need to be addressed. Establishing higher levels of trust between users and strengthening data security and developing informational autonomy will be critical in the successful digital transformation of businesses. As a solution, slow adopters should now turn their attention toward leapfrogging technologies to move forward rapidly through the adoption of modern systems without going through intermediary steps, however, keeping data security top of mind.

 

The Future of Work

The current unprecedented COVID-19 crisis will force businesses to re-examine their practices and determine how to become more efficient, agile and protected from risk through reforms of automation, and digitized systems.

Although unique, this crisis will pass and if we remain capable of action, we will emerge stronger together as the winners behind future tech developments. We will need the bright minds of digital disrupters, aspiring founders, and innovative thinkers to ensure the continued success of businesses that are robust enough to withstand future global economic shifts.

 

Europe’s economic strength in the coming decades will be hugely dependent on our ability to leapfrog new technologies and work toward a common digital future.

 

Now is the time to address global challenges using technology with humankind in mind.


¹ Statista, https://www.statista.com/statistics/1104490/weekly-dax-index-performance/

² Statista, https://www.statista.com/statistics/1102658/coronavirus-lost-sales-impact-for-retailers-europe/

³ Statista, https://www.statista.com/statistics/1106554/coronavirus-covid-19-impact-expectations-e-commerce-germany/

Statista, https://www.statista.com/statistics/1106369/coronavirus-covid-19-impact-business-expectations-near-future/

⁵   Statista, https://www.statista.com/statistics/1106383/coronavirus-covid-2019-government-support-measures-for-businesses-germany/

Statista, https://www.statista.com/statistics/1106337/coronavirus-covid-19-impact-on-companies-business-germany/

European Commission,  https://ec.europa.eu/digital-single-market/en/desi

European Commission, https://ec.europa.eu/digital-single-market/en/desi

Handelsblatt, https://www.handelsblatt.com/unternehmen/mittelstand/start-ups-finanzminister-scholz-legt-ueberraschend-milliardenpaket-fuer-gruenderszene-auf/25701444.html?ticket=ST-24162-x36bEsCwj4Boeq4Da2uc-ap5

¹De. Digital, https://www.de.digital/DIGITAL/Redaktion/EN/Publikation/digital-strategy-2025.pdf?__blob=publicationFile&v=9