Survival of the Fittest?

As the world embraces the digital frontier, will Germany’s digital transformation keep up or fall behind?
Contemplations from The Hub Conference at STATION Berlin.

The Garderobe Hall was big and bright. Blue and red show lights illuminated the corners, next to grand light boxes plastered with rows of sponsor logos and bold WELCOME signs. It was 8:55am and the old railway station was buzzing with energy. A faint whiff of fresh coffee teased the air. “Registrations? Yes, this way please,” the usher pointed slightly left.

Walking into the exhibition felt like walking into a new world. Accenture, KPMG, Amazon, Deutsche Welle, Wirecard, Microsoft, the DFKI, and many more big names in all sorts of dynamic industries in Germany were present. Wide-eyed start-upers were eager to share innovative work – wearable technology, apps, intelligent moon-exploring robots, picture printing cake machines, idea incubators and all sorts of innovation you probably haven’t even dreamt of. Everyone had something to discuss and a new invention to share.

New technologies lead to difficult and tedious chores becoming fast and automatic. In Singapore, thousands of street cameras are programmed with algorithms that continuously learn from new input and alert the authorities when it detects peculiarities. Or imagine trucks that never fail, never stop moving, always fully loaded, always driving. No tired drivers, no down times, no wasted resources, no accidents! These cameras and trucks do the work even more efficiently than humans.

New technologies can only thrive in a nurturing digital ecosystem with updated regulations. But as it seems, private and public sectors in Germany might have a lot to catch up with in the near future.

From a business perspective, Frank Riemensperger, senior managing director of Accenture reckons businesses need to seize the value of smart products and new human experiences. “To stay ahead, they need to redefine the industries they are in.” Perfect trucks that drive themselves? It probably isn’t too fictitious, considering how ridiculous the Wright brothers sounded when they told people that one day humans can fly. The work we do today will be a lot easier in the very near future.

As digital industries emerge, more traditional organisations and the way things have always worked seem so ‘old school’. Startups offer solutions that significantly alter the way we live. Out and about, forgot your wallet? Pay with your mobile. Feeling anxious & depressed? Your personal human psychologist is in the palm of your hand. With startups growing at an incredible pace, the market offers a buffet of alternative services to choose from.

But there are terms and conditions to “all-you-can-eat”. For fintech companies, Erik Podzuweit of Scalable Capital is concerned that German laws are slow on catching up with the industry and cannot be applied to new products and services. For example, mandatory signature on paper is still a regulatory requirement but “the consumers don’t want it and the banks don’t actually need it either,” he laments. Unfortunately it is a regulatory requirement. “It slows down processes.”

The numbers tell the same story. According to KPMG, Germany is behind China and the US in terms of digitalisation and innovation. Only 48% of German companies believe innovative corporate culture is important versus 86% in China and 73% in USA. Germany is in need of dire digital disruption. So, are German laws too outdated for the multimedia super digital frontier?

“What we observe in Germany is a certain skepticism. I’m not saying there is a kind of angst towards digitization and its disruptive potential,” Michel Achenbach, explains from his perspective as Conference Manager of Bitkom Akademie and co-organiser of Hub Conference Berlin. “But contrary to the USA where people usually see opportunities in innovations, Germans tend to focus on creating controlling mechanisms, to regulate innovation and/or to protect certain (consumer) rights.”

Despite rigid regulations, startup fintech companies like Wirecard, Leetchi and many more choose to push against the odds by offering solutions like digital payment management tools that big dinosaur organisations do not. Germany can be a good place to kickstart projects, but scaling them further requires to cultivate the appropriate ecosystem.

Furthermore, Germany’s ‘bureaucra-zy’ system for foreigners to move to Germany is making it difficult to attract international talent. To make matters worse, Germans are leaving too.

“People tend to move to the USA so they can continue to develop their ideas. And that is the problem, they are not retained in Germany,” points out venture capitalist Thomas Andrae. Part of the problem he says, is that “our politicians don’t really understand what is going on.” To be competitive with the US and China, Germany needs a more vibrant entrepreneurial spirit and stem the ‘brain drain’. But right now, things are moving too slow.

Achenbach shares three main reasons why Germany is behind: (a) In Germany we have less venture capital than in the United States and Asia; (b) fragmented markets and laws in Europe don’t encourage a robust start-up culture; and (c) the lack of digital ecosystems, like Silicon Valley. “The barriers to digital transformation aren’t unique to Germany. This is very much a European problem.”

The old dinosaurs must transform or risk extinction. “The answer is cultural change,” says Mario Donnebrink of d.velop. “We need to start doing things, make mistakes and learn. Not discuss and debate.” Indeed, to create a truly agile, flexible and innovative culture, leaders and employees of innovative industries need to breathe, eat, sleep and live the same values.

“Digital industries need digital ecosystems. This is not about copying Silicon Valley in Germany. We need our own environment with domestic characteristics,” Achenbach elaborates. Consistently, Bitkom is promoting digital hubs in major cities – focusing on mobility in Munich, finance in Frankfurt, and the ‘Internet-of-Things’ in Berlin, Logistics in Hamburg, and others to come – where investors, start-ups, SME, and innovators can collaborate. It is necessary to prepare the groundwork and infrastructure necessary for an environment that cultivates creativity and fosters innovation.

Currently in Germany, there is a lot of scratching the surface and exchanging of opinions taking place on the upper management levels. Unfortunately Achenbach notes, what most CEOs, managers and decision makers often forget is that the recipe towards digitalization is training and education of employees, especially in Germany where traditional job profiles usually have a high reputation and are seen as irreplaceable.

“We need more training and to implement new job profiles like Data Scientists and Chief Digital Officers etc. These are all prerequisites to push Germany’s digital transformation.”

As it seems, while there is much to catch up with, Germany’s digital industry is eager and hungry for rapid transformation. Despite regulatory barriers and lack of digital infrastructure, startups continue to blossom and Berlin ($2.8bn) has surpassed London ($2.7bn) as recipients of venture capital in Europe. Only when dinosaurs transform and cultivate the right ecosystem to thrive together with startups, can Germany adapt and survive in the digital age.

15168875_694382254076385_6043825423833388479_oSonya Ong is a class of 2018 Master of Public Policy candidate at the Hertie School of Governance. She graduated with a Bachelor of Arts in Media & Communications from the University of Melbourne in Australia and has worked in media planner and content development in Malaysia. Her current interests lie in public communication, civic education and development policies. She is active on Instagram as @sonjsonj (and other various social media platforms you can think of).