How COVID-19 accelerates digitization in Germany’s Mittelstand
The crisis has called many things that have long seemed natural in the German SME landscape into question. It revealed the necessity to make structural changes to innovate, to digitalize¹.
German medium-sized businesses are becoming more digital.
This is the conclusion of the Telekom study “Digitization Index for Medium-sized Businesses 2020/2021” among 2,000 companies². Digitalisation affects all areas of value creation as well as all industries and company sizes. Corona acts as a driver.
“It is no surprise: Companies with a high degree of digitization get through crises better. The results also show that 50% of the companies are expanding their digital offerings and want to push ahead with the digitization of their processes. This is a positive development.” -Hagen Rickmann, MD Business Customers, Telekom Deutschland
SMEs increasingly use digital channels and social networks to hone their relationship with customers. There they market their products and services, where they communicate up-to-date offers, provide advice via video. The success is captured in the study: +3pts vs 2019. 46% of the companies surveyed made short-term adjustments to their business models, products and services during the Corona crisis. 13% of companies migrated most of their sales to telephone or online, a further 20% switched at least in part and 9% were still planning to adapt their sales. With the restrictions still in place, e-commerce activities could help many SMEs generate turnovers that would not eventuate through conventional sales channels such as stationary trading, sales forces and trade shows³. More on this shift in my previous article.
The ability to develop & successfully implement innovations allows to respond at short notice, thereby increasing resilience in times of crisis. Here too, German SMES are structurally well positioned: The smaller the structures, the faster the ability to react on the one hand, and the structural orientation of business models on the other⁴. The economic benefits are particularly evident among the digital front-runners (=Top 10% with highest level of digitization). 77% of them reacted quickly and flexibly to the crisis. This figure is even higher if the business model was already largely digital before the pandemic began.
The speed of digital transformation is particularly evident in productivity (+4pts vs 2019) improved workflows and structures through mobile & flexible working, transferring workstations to the home office.
The corona crisis forces a balancing act between saving and investing. Decreasing turnover and limited budgets lead to clear investment priorities. These include mobile devices, tools for communication and collaboration, VPN solutions, protection and security of data. Cloud services, private WLAN and unsecured workspaces in the home office pose new risks. Technologies such as AI, Blockchain, AR, VR also affected, as are digital innovation culture and change management in general.
The biggest hurdle in investment decisions remains finding talent, as mentioned before in my previous article. Digital projects had to be postponed because there was a lack of technical expertise (54%). One in two did not have the human resources for digitization during the crisis. In the future, SMEs must strengthen cooperation between companies. They need the exchange of digitization know-how and have to make lighthouse projects and successful practical examples even more visible.⁵
Focus Sector #1: Logistics
Due to past digitization efforts, SMEs in the transport & logistics industry weathered the storm fairely well. This subsector was already THE “digital pioneer” in last year’s study. Employees in logistics and transport regularly work under time pressure. > 25% are already using digital waybills and digital signatures to reduce their costs. These facilitate administration and are less error-prone and time-consuming.
72% reduce costs, 65% increase productivity and customer satisfaction through the analysis of real-time data. This makes managing the supply chain moreeffectively and processes more transparent. 25% already rely on predictive data analysis. However hesitancy exists, as just 8% use AI applications today, while it is seen the most important future technology.⁶
Focus Sector #2: Industry
In order to remain viable, they invested heavily in mobile devices and mobile access to collaboration and web conference solutions in order to keep business operations going from home. With the help of digital solutions they can further increase their sales, turnover and product and service quality. 78% already use data analytics to monitor and optimize processes or develop new products. 20% SMEs links data analyses with artificial intelligence (AI), e.g to better plan warehouse management or to be able to estimate the development of customer and market segments.
The manufacturing and production facilities themselves also benefit from digital change. In Industry 4.0, automated processes and comprehensive networking of machines dominate. 30% already use solutions for remote control and monitoring of devices and machines — as an important basis for predictive maintenance. Also very popular: 3D technologies such as 3D-CAD for designing custom-fit products or 3D-printing for additive manufacturing.⁷
(2) Telekom 2020a: https://www.telekom.com/en/media/media-information/archive/digitization-index-for-businesses-corona-accelerates-digitization-in-medium-sized-businesses-613546
(3) KfW SME Panel 2020: https://www.kfw.de/PDF/Download-Center/Konzernthemen/Research/PDF-Dokumente-KfW-Mittelstandspanel/PDF-Dateien-Mittelstandspanel-(EN)/KfW-SME-Panel-2020_en.pdf
(4) GTAI 2020: https://www.gtai.de/gtai-en/invest/industries/how-start-ups-can-help-germany-s-mittelstand-beat-the-crisis-542674
(5) BITKOM 2002: https://www.bitkom.org/Presse/Presseinformation/Corona-treibt-Digitalisierung-voran-aber-nicht-alle-Unternehmen-koennen-mithalten
(6) Telekom 2020b: www.telekom.com/de/medien/medieninformationen/detail/branchenbericht-transport-logistik-614580
(7) Telekom 2020c: www.digitalisierungsindex.de/studie/digitale-transformation-industrie-2021/
