Claudia Nemat, member of the Deutsche Telekom Board of Management, Technology and Innovation, talks about the inevitability of the digital transformation.
Just a few years ago, banks and oil companies dominated the rankings of the world’s biggest companies. Today, they are also vying with tech companies like Google, Apple, Amazon, Microsoft and Facebook for the top positions. At the same time, start-ups like Uber and Airbnb are being valued at sums that eclipse even established DAX companies.
Who hasn’t heard of the success stories of innovative, technology-driven companies? On the flip side, there is a plethora of studies that point to the dangers of sleeping through the technological transformation. In Germany, by all accounts, this applies to entire industrial sectors, such as the automotive industry, mechanical engineering, or also the much talked of SMEs.
So is there any truth in the scare stories that companies like Tesla, Apple and Uber could get the whip hand over German car makers like Daimler, BMW and Volkswagen in the future?
What is not new is that production conditions for companies change over time. Joseph Schumpeter was preoccupied with this phenomenon a century ago and later coined the term creative destruction, whereby new structures replace old ones. But this creative destruction does not happen of its own accord, rather it is triggered by innovation.
What is new, however, is digitization as a source of innovation. What is also new is that digitization enables and provokes very radical, even fundamental change. The introduction of the assembly line or the container revolutionized production processes and logistics around the world. Digitization has the potential to turn on its head not just production and logistics, but also entire business models, established value chains, the organization of companies, the management of entire trades, work itself, mobility, communications, sales and monetary transactions.
This has given rise to doubts about whether the business model of car manufacturers, which has been established and developed over decades – namely to sell cars to customers – can endure in the future. What if customers prefer to use mobility as a service, to pay per mile traveled or hour used? Mechanical and plant engineers and the makers of wind turbines are currently playing through similar service models for their customers. No longer would it be the machines or the wind turbines that were sold, but rather the units produced; payment could be based on revenue sharing.
There are many more examples of digital innovation, from self-driving cars and supermarkets without cash registers to washing machines that run when the electricity rate is low. This is all made possible through communication by machines with sensors with other machines or people, connected via digital network infrastructures.
At the same time, it is not yet possible to grasp the full innovative power of digitization. Shortly, 5G will enable wider bandwidths, lower latencies, and the ability to manage billions of sensors efficiently. There seem to be no limits by today’s standards to the potential for artificial intelligence to analyze data and make it useful.
If it is true, therefore, that innovation through digitization is fundamental, but more radical than previous waves of innovation, then we should move away from talking about digital or tech companies. Instead, we should accept that companies will either have to face up to the digital transformation and successfully master it, or endanger their market position, if not their very existence. In this respect, soon there will only be tech companies.
The same applies to Deutsche Telekom, by the way. Technically flawless, functioning and secure infrastructures that satisfy the growing and constantly changing requirements of data transmission are absolutely critical. If Deutsche Telekom succeeds in assuming a leading role here, we can set the pace of the digital transformation. And there are opportunities for new, innovative business models and products. If we fail, however, others will succeed.
Incidentally, it has always been generally understood that innovation is a key success factor for the German economy, regardless of sector. This is good, because being open to innovation and change is a question of attitude. However, successfully implementing the digital transformation requires expertise and skills that are not universally available. To that extent, the digital transformation will bring with it partnerships and coalitions across companies and industries. Thus we can play not just pacemaker, but also matchmaker.
Claudia Nemat, member of the Deutsche Telekom Board of Management, Technology and Innovation