The term ‘Industry 4.0’ was first coined in Germany in 2011 to describe how digital technologies are changing manufacturing so much that they are leading to a new industrial revolution – the fourth since industrialisation began.
Today, every area of Germany’s economy – not just its world famous manufacturing sector – is embracing digital innovation.
Across the country, more than half of all businesses are increasing investment in digital technologies according to a survey by Tata Consultancy Services and Bitkom Research, part of Germany’s leading digital industry association.
The survey shows that while on average companies invested 4.6% of their revenues in digital technologies in 2016, more than half of businesses were investing between 5% and 10% of revenues.
Smart and secure
The investments made by German companies typically tend towards practical digital solutions and tools.
For example, the biggest priority for digital investment is IT security, with 61% of businesses investing in this area. IT security expertise is also the digital competency most in demand from German businesses, with 73% of companies listing it as their top priority.
Unsurprisingly, IT security is also regarded as a challenge, with 47% of respondents listing it as the biggest hurdle to clear for digital transformation.
The next biggest priorities are collaborative digital tools and online shops, with 45% and 44% of German businesses investing in these respectively.
Despite a clear focus on security, the digital solutions that German companies are currently using are more likely to involve business processes and customer-facing solutions.
Thanks to solutions such as cloud computing and the Internet of Things, data analysis tools are the digital solutions most used by German businesses, with three quarters of companies using such software.
Business management software and mobile apps are the next most-likely types of digital solutions to be used by German companies.
A focus on mobile apps and online shop investment reflects German businesses’ awareness of today’s customers’ expectation that every business should provide some sort of digital service or product offering.
Customers’ role in driving the digital agenda is also revealed by the fact that when asked where they felt the effects of digital transformation most, more than half of the companies surveyed (52%) name marketing and sales, and almost as many cite customer relations in general (49%).
Beyond the IT department
While German businesses realise the importance of digital transformation to their customers, results from the survey offer up a mixed picture when it comes to implementation of digital strategies across different departments.
“Although 74% of the companies have strategically embedded digitization, only 39% manage the different aspects of digitization with a strategy across all departments,” says Sapthagiri Chapalapalli, TCS Vice President and Managing Director, Germany and Austria, “it is crucial to develop company-wide initiatives, especially for future business models. This requires top-down decisions, which are centrally anchored.”
Company-wide initiatives need to be driven from the top, but the survey reveals a falling proportion of board-level executives being actively involved in digital transformation. This figure fell by nine percentage points year-on-year from 51% to 42%. And not even half the companies surveyed have a person responsible for digitization across all functions.
The promise for this situation changing lies with Germany’s larger companies: according to the survey, every fifth company with 500 or more employees has installed a Chief Digital Officer, who coordinates the different aspects of digitization across all departments. The willingness to install a CDO grows in proportion to the size of the company.
With most companies wanting to invest more in digital, planning a company-wide strategy and investing in the right roles and people needs to become a top priority, irrespective of company size.