The opportunities of the digital economy
Entrepreneurship in the digital economy – by Dr. Olaf Berlien
“Digitization” is a word that is on everyone's lips these days. Experts agree that by 2020 virtually every industry will have embraced digitization. “Even so, the strategic conclusions drawn and the concrete actions taken often lag behind the perceived significance of this topic among the general public.” Those were the findings of a study by Roland-Berger completed some six months ago. The study also confirmed that there was a considerable “penetration gap”. It may be helpful here to consider the past because understanding the past as a force for organization and orientation will enable the opportunities of the present to be better exploited. It is worth looking back at the start of the 20th century when German industry exhibited extremely dynamic growth in the course of its globalization.
It is no coincidence that the foundation stone for the Deutsches Museum in Munich was laid in 1906. The truly historical dimension, however, comes from the fact that this building ushered in not only the century of technology but also, in the words of historian Hans-Ulrich Wehler, the “first German economic miracle”. Numerous new and ambitious industries sprang up at the start of the 20th century. They recognized the unique opportunity presented by the confluence of technical know-how and the dynamic nature of the increasing globalization of the economy as a whole.
Many of these industries gave rise to German companies with names that resonate to this day. In 1901 the brand name of “Milka” was registered, followed only a few years later by the name “Horch”, from which the present Audi company emerged. BMW was founded in Munich in 1916 and around this time Recaro, the manufacturer of aircraft and car seats, was also established.
The first German startup scene around 1900
All these companies may be very different but they do have one thing in common: unlike the major established companies at the time they saw themselves as new and dynamic players. For their time these young industries had unusual entrepreneurial and organizational approaches that they very successfully implemented. Division of labor increased constantly, and family-run businesses employed “managers” for the first time. It could be said that this was the time when communication departments, tasked with organizing advertising and sales, first made an appearance. Companies were able to expand worldwide at a fast pace because banks supplied them with sufficient capital. A genuine “startup mentality” spread during these years and the number of businesses with more than 1,000 employees tripled in only a very short time. It was also during this time that the name “Osram” first saw the light of day. The name itself is a hybrid, coined from the names of two filament materials, osmium and wolfram (or tungsten as it is more widely known). It was registered on April 17, 1906 with the German Imperial Patent Office in Berlin as the trademark for “electric incandescent and arc light lamps”.
It is surely more than just a coincidence that Oskar von Miller was not only the founder of the Deutsches Museum but also one of the first to be involved with the transmission of electric current – a crucial requirement for the spread of electric light and for the fundamental changes in society that this entailed. Electric light was one of the disruptive technologies of the 20th century which brought social, cultural and economic progress.
People's lives changed dramatically. The nature of cities changed as labyrinths of dark alleyways made way for an illuminated urban living space. Suddenly people were able to move around at night in relative safety. It was light that provided the spark for the colorful nightlife that we know today and that characterizes our modern cityscapes. The connection between light, consumption, culture, society and leisure has come to define city life.
Entrepreneurial courage and determination
Comparing the situation in 1900 with the situation today, we can say that we are once again on the threshold of a dynamic economic era as a consequence of the digital transformation. There are a number of parallels with the first economic miracle. Following the second economic miracle in the second half of the 20th century there is enormous potential for this to be the third. Once again young and dynamic companies are being set up with new approaches. They are making consistent use of the technological progress offered by digitization, implementing their plans with good financial backing and growing at an extremely fast pace.
One of my favorite examples is “Airbnb”. This community marketplace enables private individuals to rent out rooms in their homes as bed and breakfast accommodation on a short-term basis. According to media reports the company is currently worth around 25 billion dollars. That corresponds to the valuation of DAX companies. Another shining example is “Uber”, one of the world's most valuable startups. Via its app and website Uber matches journey requests with drivers who use their own cars, changing the taxi industry for ever. The company was founded in 2009 and is now valued at over 50 billion dollars.
For all the innovation on show here, these two examples clearly illustrate the extent to which the new digital companies are driven by people with the courage, determination, entrepreneurial instinct and creativity to harness the technical achievements of digitization and apply them with intelligence. Ultimately they want to conquer markets by attacking existing business models with radical concepts and crossing over industry boundaries – bold and brazen with the conviction that the sky's the limit. And in many cases their success bears out their confidence.
The entrepreneur: from patriarchs to hipsters and destroyers
There has hardly been a profession that has seen so many changes to its reputation over the years as that of the entrepreneur. From the responsible and caring patriarch to the unscrupulous capitalist. And from the money-grubbing locust to the hip startup founder. The entrepreneur is a projection of very different economic and social ideologies depending on the spirit of the times.
With the advent of digitization the role of entrepreneurs is more that of “creative destroyers”. Their secret is the determination with which they translate technological progress into new business models, leading to economic success. In this scenario, implementing the new is barely possible without changing obsolete work and production processes or without entire markets going through a period of upheaval. Neither structural change nor economic growth is conceivable without the birth of the new and the simultaneous demise of the old.
The success of such entrepreneurs has radical consequences for the established economy. Companies must embrace progress or they will be left behind as losers. It is not enough, however, to do things by halves and be distracted by trivialities. Instead, business leaders must be radical and make digitization a matter for top management. There is no such thing as a bit digital, just as there is no such thing as a bit pregnant. Here I am using the word “radical” in its original sense of tackling something by the roots.
That comes from the CEO and permeates the culture of the entire organization. Established companies in particular have plenty of catching up to do. These are the companies that lack employees with an entrepreneurial mindset and a disruptive approach.
Companies must therefore set themselves up so they are flexible in their management structures and provide the framework in which their employees can demonstrate their entrepreneurial spirit. The motto here is “as decentralized as possible and as centralized as necessary”. The employee as an entrepreneur in the company – that is the only way that companies will be able to respond more quickly and more dynamically to the different demands of customers and markets and survive the digital transformation. Employees must adopt the spirit of founding fathers and learn to show courage in taking risks and responsibility.
Disruption as an opportunity
We have seen that startups, technological transformations and disruption are not children of the 21st century. Instead, they are part of the history of determined entrepreneurship which can unlock enormous potential. During the first German economic miracle from 1895 to 1914, earnings by the entire industry tripled – an increase of 150 percent. Then it was on the back of the electrical engineering industry; now it is the digital economy. If we want to exploit its potential we need the courage to destroy, we need entrepreneurial determination and we need foresight. They are the basis of a successful digital economy.
Dr. Olaf Berlien, CEO