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Have German Companies in Mechanical and Plant Engineering Missed Out on Digitalization?

Reading Time: 3 Minutes 06.12.2022 Currents & Trends

Today's productivity level in the industry is on the same level as it was in 2011

German companies in mechanical and plant engineering have long been engaged in digitalizing their product and service portfolios in order to cultivate new business models. They have invested many resources in the development and expansion of the digital infrastructure and tested numerous innovative approaches and concepts, but the situation in the industry remains uncertain and challenging. There's no sign yet of a breakthrough in the digital solutions business anywhere in the industry, despite various efforts and investments.

Current studies, for example by the VDMA (German Mechanical Engineering Industry Association), even reveal a negative productivity effect despite high software investments. A review and recommended course of action by Michael Finkler, Head of Business Development at proALPHA and a member of the VDMA board for software and digitalization, who points out that today's productivity level in the industry is on the same level as it was in 2011. Productivity in mechanical engineering has decreased despite a high workload, and most companies have barely made any progress with regard to digitalization. Zero progress in productivity after ten years of Industry 4.0 means ten lost years.

Crises like the COVID-19 pandemic highlight the importance of digitalization. Companies that had already invested in establishing and expanding their digital competencies prior to the pandemic have had a far easier time during the crisis with (remotely) serving their customers, keeping an eye on supply chains, deploying smart inventory management, and optimizing plant operations (especially in terms of go-live, maintenance, and service).

What is holding companies in mechanical and plant engineering back from participating in digital platforms and value-added services and developing the market digitally? The McKinsey survey commissioned by VDMA sees the biggest challenges in a lack of business models, too little strategic relevance, and missing standards.

Time to rethink

Companies in mechanical and plant engineering have to rethink their stance on the digitalization of the industry. It’s no longer all about building machines and plants with the highest technical finesse but also about generating the greatest possible added value for the customer besides offering a competitive machine. The development of digital solutions like platforms and value-added services must center around the customer. Furthermore, companies should follow new paths in many respects, for instance, by cooperating with competitors or establishing industry-specific consortia.

In order to hold their key position and benefit from their proximity to the processes and their sound machine expertise in the long term, companies in mechanical and plant engineering have to set course for the digital future now. Otherwise, they'll have a hard time keeping pace with the technological progress. Mechanical and plant engineering will remain an attractive industry in the medium and long term, but there will be some considerable changes. Companies have to understand that digital platforms and value-added services are more than just a digital addition to their business. They could be the crucial competitive factor in just a few years. That doesn't mean that companies have to develop their own platform or a wide range of value-added services in order to be successful. It's important to know when and in what fields they want to use or advance standards to achieve a higher compatibility with existing systems. Furthermore, companies have to determine which fields are worthwhile to develop focused value-added services that provide the end customers with quantifiable benefits. Companies that get started now are more likely to remain competitive and hold their ground against the new market players – both on a national and international scale. Therefore, you should take the right strategic action now to gear up for the digital age in the industry.

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