Shaping the digital future – an opportunity for German SMEs

When we talk about the German Mittelstand, many think of the backbone of our economy. Indeed, it's responsible for numerous innovations, jobs and stability. But what happens when this supporting pillar starts to wobble because, in terms of digitalization, it doesn't keep pace with the rapid development? In this article we take a look at the status quo, consider risks and impediments and show you concrete potentials as well as solution approaches. You'll see: The digital transformation is long since more than a trend – it's the key to the long-term success of the Mittelstand.

1. The status quo: A mixed record

Imagine you were to set out on a journey and had planned your route only halfway. The digital strategy in many mid-sized companies comes across roughly like that:

• According to a Bitkom study 2023, 78% of businesses attribute central significance to digitalization for their future success.
• At the same time, however, only just under a third (32%) have implemented a really comprehensive digital strategy.

A look at the KfW Mittelstand Panel 2022 confirms this discrepancy: Admittedly, 54% are already investing in new technologies, but only every fifth company relies on cloud solutions or AI-supported analyses. And the differences between the industries are enormous: While, for instance, mechanical engineering advances at a brisk pace through initiatives like Industry 4.0, traditional areas like crafts or retail often put on the brakes. The warning from a ZEW analysis is unambiguous: Without accelerated digitalization, the German Mittelstand threatens to lose up to 15% of its global market shares by 2030.

2. The danger of hesitation: Competitive loss and economic risks

In the digital context, hesitation often means the same as standstill – and whoever stands still is quickly overtaken by the competition. Especially companies in Asia and the USA are investing massively in digital infrastructure and data-driven business models. A McKinsey forecast predicts that German firms that don't follow suit will, by 2025, have to reckon with a productivity decline of up to 20%. Why this risk is so high is already shown by concrete examples:

• Supply chains: Non-digitalized processes react sluggishly to bottlenecks.
• Customer expectations: Apps, real-time support and self-services have become the standard. Whoever stays offline here forgoes opportunities.
• Cost structures: Competitors with automation save personnel and process costs and can thus shape their prices more competitively.

According to the Boston Consulting Group, by 2030 even 30% of the current market leaders from the Mittelstand could disappear if they don't face the digital change in good time.

3. Impediments: Why the Mittelstand stalls

Despite the insight that „digital or not at all“ is the motto of the hour, digitalization gets going only sluggishly in many places. There are several reasons for this at once:

• Skilled-worker shortage: 67% of companies lack IT specialists (Bitkom 2023).
• Financing: Especially small businesses shy away from higher investments – precisely when the returns seem uncertain.
• Culture: In owner-led firms there are often concerns about losing control through new technologies. On top of that comes that 43% of decision-makers, according to PwC, doubt the concrete benefit (ROI) of digital tools.
• Data security: For 58%, the fear of cyberattacks represents a considerable braking factor (TÜV Association).

Finally, the consulting landscape for the Mittelstand is often so fragmented that many decision-makers aren't even clear about where they should start.

4. The opportunities: More than efficiency increase

Digitalization is long since no longer an end in itself, but opens up new markets and secures sustainable growth. Whoever successfully digitalizes not only provides themselves a head start, but also strengthens the core competencies of their company.

• Smart manufacturing: Predictive maintenance reduces machine downtimes by up to 40% (Fraunhofer).
• AI-supported services: Some mechanical engineering firms now earn more with digital service subscriptions than with the pure sale of their machines.
• Global market access: Thanks to e-commerce platforms, even smaller businesses can bring their products into international markets in a targeted way.

According to the EU Commission, SMEs could increase their productivity by up to 25% through cloud computing and big data. And not only that: Digitalization makes it easier to implement sustainable and climate-friendly business models, for instance through intelligent tracking systems and circular concepts.

5. Solution approaches: From mindset to implementation

Similar to middle management in transformation processes, the entire Mittelstand faces the task of not only understanding the change, but also actively shaping it. The following impulses can help with that:

• State support: Use programs like „Mittelstand 4.0“ or the „digitalization premium“ of the BMWi. They're there precisely to lower financial hurdles and ease first steps.
• Qualification: Cooperations with universities, data-literacy trainings or internal further education make the difference. The key lies in a workforce that has internalized digital thinking and can apply it.
• Agile pilot projects: Rely on startup cooperations and proofs-of-concept in order to achieve quickly visible successes. An example: craft businesses that deploy AR glasses for repairs.
• Safety nets: Industry-wide and company-wide standards for cybersecurity create trust and reduce the risk of attacks.

Whoever boldly forges ahead can – like for example Trumpf or Festo – show that digital visions and investments can pay off in hard cash.

6. Conclusion: Act now – or get left behind

The German Mittelstand finds itself in a special position between tradition-consciousness and digital departure. It's precisely this position that can become the decisive advantage – provided one uses the existing innovative strength and combines it with digital tools.

The challenges are great, but the opportunities are just as much. Whoever engages today with AI, IoT or future-oriented digitalization approaches can secure jobs, open up new markets and even shape global trends. What's important is to transform fears and reservations into deeds and to grasp digitalization not as a threat, but as a real growth driver.

Our message to you: Take the first step – now. Network with others, get support, be bold and willing to experiment. The digital world doesn't wait. But it rewards those who act.

Would you like to learn more about successful digital strategies in the Mittelstand or are you facing the first implementation steps?

Contact us. We support you in planning your digital transformation holistically and implementing it sustainably – so that you don't just keep pace, but secure your pole position in the competition.

Sources:

• Bitkom study „Digitalisierung im Mittelstand 2023“
• KfW Mittelstand Panel 2022
• ZEW analysis „Digitalisierungsrenditen in der Industrie“
• McKinsey report „The Future of German SMEs“
• EU Commission „Digital Economy and Society Index 2023“