Germany and the Industry 4.0 plan

James Riley
Editorial Director

Germany has a well-earned reputation as a manufacturing powerhouse. Even during times when the global economy is struggling, the country has managed to progress, or at least rebound back quickly.

Perhaps this is why Australia has continued to seek strengthened ties with Germany. The two countries have a long history of trade. But both sides looked to ramp up activity with the creation in 2014 of an Australian-Germany Advisory Group, established to increase collaboration on innovation and commercialisation.

Prof Ernst Holger: Much of the innovation success in Germany rests with its medium sized businesses

More recently, last April, the Prime Minister’s Industry 4.0 Taskforce in Australia and the Platform Industrie 4.0 from Germany signed a cooperation agreement to enable the digitisation and link of manufacturing processes between the two countries.

In this podcast, Holger Ernst, a professor of Otto Beisheim School of Management (WHU) in Germany and an academic director at WHU-University of Melbourne Business School Executive MBA program explains how digitisation is a central focus in Germany right now, because political and industrial leaders see the new business opportunities that will come from it.

“There is a limited amount of progress you can achieve by optimising the products. The real lever to create new value now comes from the service element and the software behind it, and traditional companies have to reinvent themselves,” Dr Ernst said.

He references how the heart of Germany’s success to date has been its ability to innovate, pointing to the success of small to medium businesses – dubbed the “hidden champions” of the country – being responsible for driving the growth.

“Some of these companies export 80 to 90 per cent of their products all over the world, and they really dominate those markets, not only for five or 10 years [but for] generations, Dr Ernst said. “So obviously they’re doing something absolutely right.”

“When you look at their recipe for success, it’s the capacity to innovate. They have pioneered the market through ground breaking technologies and have stayed on top of the competition through continuous innovation over generations for a long period of time.”

Dr Ernst also speaks about the importance of innovation in Germany and how this has been recognised by not only industry, but government as well.

“These [businesses] really are the backbone of the German economy, and that is what the government has realised. That’s why there’s a lot of appreciation and support when it comes to tech ecosystems, and when it comes to succession [planning] to make sure these companies are viable and get the support that is required to do what they need to do,” he said.

“Government wouldn’t ever interfere with those companies, and those companies would always want to make their own decisions. But some of the environment, with regards to the tax system, the government has organised it in such a way [to support them].”

The podcast with Mr Ernst also explores how in addition to having the right culture, removing silos, particularly in large organisations, is vital to encouraging innovation, with belief board of directors can play a large role in overcoming this obstacle.

“When we look at successful companies, innovation comes from the top. It’s driven from the top … they engage themselves as the so-called executive innovation champions.”

Dr Ernst adds that the role of CFOs was changing to where they becoming more like strategic partners that make sure the business delivers the financial return that was promised to shareholders.

“Modern CFOs are more pronounced on why innovation is important, and why innovation needs a different environment, and a different approach to achieve the long term financial results the company wants to achieve. A lot of CFOs are rethinking their role when it comes to innovation,” he said.

As to whether innovation is becoming a washed out concept, Dr Ernst argues otherwise.

“I would argue innovation today is more important than it used to be in 20 or 25 years ago,” he said.

“If you look at the quality and disruptive change in many industries right now, innovation is the key to survive in many of these industries. If we don’t innovate, we fall behind.”

Do you know more? Contact James Riley via Email.

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