Digitization and SMEs - Germany's answer to Silicon Valley

The word pair digitization and middle class does not sound promising in our ears. It is more reminiscent of the constant reminders of how much German small and medium-sized enterprises are lagging behind in digitization, especially by the Americans. In the digital age, you automatically think of Silicon Valley, the forerunner of digital disruption, and of course, the big corporations that are trying to keep pace with strategic departments. If anything, then at the end of the middle class, usually followed by a big question mark, as regards his ability and his will to digital transformation.

Mittelstand - backbone of the German economy

Germany's focus on its small and medium-sized businesses and the associated warnings for a more consistent, faster digitalization certainly have their justification. Like no other, the German economy is characterized by its strong middle class, which made us the export world champion with its quality products "Made in Germany". So it is only understandable that the view is resting on this backbone of the German economy, when it comes to the implementation of the fourth industrial revolution. The success of SMEs in the digital transformation is crucial to our entire economy. The warnings of a quick digitization of the middle class are justifiable, however, not only because of its enormous importance for the economy as a whole, but also in view of the advantage others have already gained. airbnb, Amazon and Uber are outpacing the competition in their classic industry, and only with their digital platforms. They all have in common that they are cheaper, more resource-efficient and more accessible to customers. They show that the value added will no longer depend on the product in the future, but migrate to the platforms and related services. Here, the German middle class must be careful that its high-quality products do not degenerate into the pure workbench of new platforms from overseas, which then enrich these products with the corresponding Smart Services and take over the customer relationship. Thus, for example, in the automotive sector - the flagship German quality - German automakers cooperate with Google. If this is not done with caution, it can happen that ultimately comes out as a product, a "Google Car", in which the manufacturer itself reduced to the supplier and in the perception and the value creation Google would stand out.

Digitization takes place in 2 steps - first the optimization, then the transformation

But instead of being intimidated by this scenario, the German economy and, above all, the German middle class should take on the challenge and recognize digitization as what it is: a great opportunity, just waiting to be seized.

In concrete terms, this means for medium-sized companies to consistently establish software solutions, to promote data-driven business models and to identify the platform industry with its opportunities. Digital skills are essential for successful implementation. Digitalization consists of 2 steps, digital optimization and digital transformation. The first step, the digital optimization is what we Germans can, an optimization and efficiency increase of inventory processes. These skills were more localized in the IT department of a company for digital. But when it comes to the second step, the digital transformation, ie the invention of new, mostly data-driven business models, other competencies are required. In order to recognize potential, synergies and digital business models for one's own company, employees need to undergo digital training in strategic positions and in management. Especially in non-engineering industries, there is a large gap in knowledge, which must be closed either by training or using external experts.

For the digital transformation, it is crucial that the technologies are not only used to replace existing processes one to one, as in pure digital optimization - for example, digitally storing invoices or storing data in the cloud instead of on the computer. Rather, digital transformation means developing previously impossible business models and new work processes that fully exploit the potential of technology and create something new. Examples of these are the new business models for arranging cars, taxis and apartments. The entire process of choosing accommodation, booking and payment is done via the online platform. As the world leader in this field, airbnb annually transacts more than 10 million overnight stays in 190 countries. With 25 billion dollar market valuation, the few years old switching platform is worth more than the global hotel chains Marriott or Hyatt. The high registration numbers of these and other platforms speak for themselves. With their new business models, these companies pose a threat to the classic industries such as the taxi or hotel industry. Overnight stays are suddenly booked elsewhere than in the classic hotels, and their prices and demand are falling due to the new and often cheaper offer.

Data as raw material

It is now important for small and medium-sized companies to consider how their own business model can be further developed with the new digital possibilities and ultimately transformed, so that they are not overtaken by digital uplegers in their own industry. At the center of this consideration are data for many industries. With the help of big data and appropriate analysis, one's own processes can be optimized and resources can be saved. On the other hand, data can be used to provide additional service to customers. There are many possibilities in the area of ​​business customers as well as end customers: For example, the failure of machines and the maintenance status can be better predicted by real-time analysis of machine data and comparison of data with those of other customers. For end users, the search and purchase behavior of other users can be used for suggestions for other interesting articles, as Amazon and other sales platforms already do. For example, Zalando goes a step further and offers its own styling consultancy, Zalon, which directly assembles outfits and sends them to the customer based on anonymous customer data and their own usage data, without ever having seen or ordered the products themselves - with an amazingly positive attitude customer feedback. For example, the technologies of digitization offer every industry the opportunity to expand, redevelop and engage customers more actively.

It is understandable that many entrepreneurs, especially those from remote industries, seem at first glance to feel this fundamental digital transformation and feel overwhelmed. The technologies of digitization require many skills that are not yet available in the companies. In view of the alarming assessment of, for example, the EU alone on Internet knowledge, the attainment of so-called "e-skills" is a key challenge. For example, the vast majority of 20's millions of small and medium-sized businesses in Europe are not digital natives, and therefore under-exploit the potential of new technologies.

IT SMEs as enablers of digitization

Here, the IT middle class can play an important role as an enabler, as a pacemaker of digitization. Because between the applying medium-sized and the offering IT-Mittelstand already a relationship at eye level: The common medium-sized self-understanding of the medium-sized customer-supplier relationship puts feasibility and pragmatism in the foreground. This basic attitude springs from an equal world of experience, which is characterized by small teams instead of many departments and the demand for functioning solutions instead of universal IT systems. The IT middle class shares the problems of the SME and understands, for example, how difficult it is to compete with large corporations to find the required specialists. As a multiplier, IT SMEs can provide the medium-sized businesses with the necessary digital skills and thus enable them to digitize.

If small and medium-sized businesses help themselves and actively tackle the digital transformation, then the important impetus will be given to the economy as a whole, that German SMEs will continue to be the number one innovation driver in the future. Although Silicon Valley is a model for success, a copy can not be a success story for Germany. Well-connected, digitized SMEs must be our answer to the digital challenges of our time.

Dr. Oliver Grün, 48, is President of the Bundesverband IT-Mittelstand eV (BITMi) and CEO of the medium-sized IT company GRÜN Software AG.

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