What do we mean by digital middleman
Interview with Karl-Heinz Land: "The role of observer is dangerous"
Karl-Heinz Land is a digital evangelist and Darwinist. He likes to drive oldtimers and is a contributor to radical books such as “Dematerialization - The Redistribution of the World in Times of Digital Darwinism”. KNOW! S met Karl-Heinz Land, the man who wears an Apple Watch on the left and a mechanical precision instrument on the right, in his Neuland office in Cologne. A conversation about a radically changing world.
Editor's note: The long version of the interview is still being voted on and will follow by Wednesday 23.9.2015
Where do we stand with regard to digitization in Germany?
Karl-Heinz Land: Compared to the USA, Europe is still quite far behind. The reason: We are not as close to the software as the Americans or many other countries like the Israelis or the Chinese. We still think in terms of mechanical engineering, systems or automobiles. The car is a good example to understand what Apple or Google are doing with Android. You are slowly taking over the car. But what that actually means, whether someday later the car will be the next smartphone, whether it will still be built by us, that is another question.
Medium-sized companies in Germany in particular are still watching very closely. He's in an observer role, and that's very dangerous because things are developing so rapidly. I think we have to get out of this observer role. To name just two figures: Gartner management consultancy assumes that around 30 to 50 billion things will talk to one another on the Internet in 2020. This will create $ 1.9 trillion in added value. However, 80 percent of this will be services, software and no longer products in the traditional sense. This is, of course, a radical change. In Germany alone, it is assumed that we lose 50 billion euros in added value each year because medium-sized companies fail to take advantage of their opportunities.
They say that everything that can be digitized will also be digitized. Does this apply to all industries?
Once things are digitized, I no longer need them as a physical product. Take the key or some money. If this is a piece of software - an app - on the smartphone with which I pay, open my car or my front door, then I no longer have to produce the key or the money. In plain language, that means: If I no longer need the physical product, I no longer have to manufacture the machine with which it is produced. And there are other consequences: I no longer need logistics that bring in the raw material, produce packaging and distribute the end product. The entire value chain is lost.
Once the key is available digitally, the marginal costs go to zero. This means that if I normally produce a key, it costs me around 5 euros to produce. If I wanted to give it away 1,000 times now, it would cost me 5,000 euros. But once I have the key digitally, I can give it away 100 million times, it doesn't cost me anything anymore because the marginal costs are almost zero.
Once something is digitized, I can also automate it. The best example that doesn't always come to mind right away is the car. When the car meets the digital, we will have a self-driving car because I can now automate it. And so I can automate any business process once it's digital. One example is banking. Think back to the past, when we had to transfer money. So we went to the bank, filled out a form and the man behind the counter countersigned it, checked it and sent us back home. Today in online banking this is fully automated. The customer even takes on part of the service.
How quickly will digitization itself change again?
My thesis is: it will come much faster than we fear or hope. We always think linearly: 1 and 1 makes 2 and 1 makes 3 etc. But the computer world is not linear. It works exponentially. You can see that in the introduction of the television, for example. It took 38 years from the first television to the world's 50th millionth television. Whatsapp had 50 million users after 18 months. That is exponentiality and we cannot understand this.
We cannot understand this incredible increase in user numbers at all. And that's why I'm afraid that all of this will come much faster and more radically than we think. The automotive industry has not yet understood how much the self-driving car will change the entire market.
But automobile manufacturers are already testing self-drivers in San Francisco and reporting on them in great magazines. Isn't that enough?
Yes, they do. But they don't yet deal with the radical nature of the effects. Once the car drives autonomously, while urbanization increases and the share economy, i.e. more people use car sharing mobility offers, there will be immense shifts. Today we have 43 million registered cars on German roads. The thesis in my book is: In ten to 15 years we will have maybe 12 to 15 million cars.
Over 30 percent of the German economy depends directly on the car. If I now only build a third, you can work out what this means for manufacturers and suppliers. If you use a car privately, use it up to a maximum of five to six percent. The rest of the time it is in the carport or on the street. We have calculated that the shared car is in use 10,000 percent more often. That means we may only need every 20th car. We talked about what it means when we only need every third car, because you don't even want to think about the other quota. In medium-sized companies, it is not about the digitization of production, which is already automated in many areas. You say the entrepreneur actually has to think beyond his own value chain ...
Many people are talking about Industry 4.0 today and I say: “Industry 4.0” is the wrong term. We have to call it “Economy 4.0”. It actually starts with raw materials and materials, goes through logistics, then comes production, where I have sensors and machines that communicate with each other. And then there is a marketing, sales and logistics process that leads to the end customer. Because ultimately everything we do ends up with a consumer who uses it. We have to realize that today a lot of medium-sized companies in the world live from working B2B. So big plumbing manufacturers, electrical manufacturers who sell to retailers and retailers to consumers. These are three-tier sales models. However, digitization means that more and more companies will work in two-stage models. The intermediary, the middleman, the broker in insurance, in the music industry the distributor of CDs, all of them are no longer available. Suddenly you access the music file at apple, at spotify directly. This leads to the added value shifting. Companies have to think about end customers and set up e-shops that are also good for the margin. But of course it's bad for the middleman because they just get lost in the game.
The problem with this is that the world will change dramatically for the hidden champions from medium-sized companies as well:
a) because the middleman is lost.
b) Digital always means transparency: price transparency, product transparency, feature transparency. Once the product is on the Internet - even if you work B2B - your products suddenly appear on amazon and are sold there, then the game begins. And then you can't just say I don't want that. You can't prevent that. Someone will then also market your products via amazon and ebay, which of course will have an impact on the price, and then the other customers will say why it costs so much there and more for you. Then the game starts.
So the medium-sized company has to be closer to the end customer?
Yes, we have to look at the entire value chain and ultimately think in terms of customer benefits. We say that three areas are essential for the digital transformation of companies: The first area is the customer experience. If I have a website with e-commerce, if I have an app, I support my customers in all of their activities, starting with the installation. The second area of transformation concerns the products and services as such. So I just have to put a sensor on my product to make it better, or, like with the key, my product will disappear completely. If I produce keys today and the key is a cell phone in the future, then I have to rethink the entire process chain. This is of course a radical change, but it also opens up new options. So, for example, sell more service. We call the third area internal efficiency or company 3.0. It's about how I improve my process chains internally - that is, how to generate higher added value through digitization, automate them, develop better collaboration, collaborations, etc.
Companies need to understand that they have three areas of transformation ahead of them. And if you don't understand that or mix them up, you close yourself off to digital change. Anyone who has been and is very good on the efficiency track but poorly on the product and service track has to change. For example: Industry never had anything to do with the end customer in the past. Take Klöckner Stahl, for example. What did they have to do with the consumer installing a steel beam in his house? Nothing so far. Today this relationship is relevant.
You postulate the "I-everything-immediately-everywhere-principle". Can you briefly explain that?
Today's consumer has become a very demanding subject / object. He doesn't want to wait any longer. And that's why we invented this “I-everything-immediately-everywhere-principle”. I want to be addressed correctly, I want personalized, tailor-made offers. And if you take a closer look: that's already happening today. I have sneakers produced exclusively for me, only from the material I want them to be made of. And then at the end I put my Instagram photo on it and then this sneaker will only be available once in the world. This kind of personalization, of aspirations, is what the modern consumer has.
And everywhere and immediately: just ask your children. Who wants to wait today? My father always drove a 200 Mercedes, it waited three years from order to delivery. Your children would loll on the couch laughing. Nobody can understand that anymore. That means we have become an instant society. If we want to know how the share price is, we look at our mobile phone and have the real-time price. If we want to know how the weather will be, we look at our cell phone and have it in the live stream, then I see the clouds passing by the city. If I want to know what's going on in the cinema today, I look at my cell phone and get it right away.
Quite frankly: there has always been technological change. There have been changes since the invention of fire and the wheel. The problem today is the speed at which change is taking place. That people basically used a phone book three years ago and no longer today. There used to be a notification and then you could pick up your phone book. Today they throw it in the hallway or on pallets in the train station, so that you can please take it with you. Nobody needs that anymore. If you don't understand this - that's why we still find it so relevant and important - you will probably experience a rude awakening.
More digital customer benefits also always raises the question of data protection. You have developed five golden rules. What do they look like?
Two core theses. First, if everything is digital now, the key, the money, the credit card, etc., then it all leaves digital traces. Digital traces that I can use to better serve the customer. Because if I know where he is and what he is doing and what he was looking for yesterday, I can give him a hint today how he can make his life better and easier. Let's add the mobile butler. There is an incredible amount of data.
A lot of people are talking about big data, smart data or whatever. In Germany we have a certain data paranoia. Companies don't want that much data because they themselves fear that it could be used to mess things up. Frankly, the way the company asks for the data is also very different. Take WhatsApp or the Dropbox. Everyone knows that the data is not particularly secure here, and yet everyone uses it.
What is bad for us in Germany is if we leave the game to the Americans. Because the Google, the Apple and the Facebook live on data. What do they do other than adding value from data. They turn it into advertising that we buy and pay to make offers for us. This is of course totally stupid. We have to become data protagonists ourselves, we have to become data collectors ourselves under the aspect: Dear customer, I honestly want to give you better service.
Back to the butler: Only when I know you, when I know what you want, can I of course offer you the best possible service. I always give the example: Imagine you have a butler and in the seventh year he asks you in the morning: Do you want coffee or tea or do you want milk or sugar in it? You'd think, Oh God, he's lost his memory now. But it happens to you every day at your retailer. He doesn't remember you. How stupid. They could serve you much better if they knew you. So we have to collect data. But we have to do this under five aspects:
First: In my opinion, this is only possible with unconditional approval, i.e. permission-based. If the customer says “no”, no data. The second is transparency: we have to tell the customer what we need the data for, what we will use it for, but also what not. I'm not going to sell them and I'm not going to send you 500 emails every day spamming you. The third thing: It has to be proportionate, so I can't ask you for all of your data, including the PIN number of the credit card, and then you might get a lukewarm glass of milk for it. That is disproportionate. They must have a benefit - better price, better service. Fourth: The data must be safe.
If you give me your details, I'll basically put them in Fort Knox. Then it must not happen, as has already happened in companies, that 30 million data records are hacked at once. That means, I am now responsible for your data, and I have to face the responsibility.
And the fifth is reversibility. If you say tomorrow: You have had my data for two years, but you actually didn’t offer me any added value. You spammed me for emailing me every day. I don't want this service anymore. Then you flip the switch as a consumer and then the company has to accept that unconditionally. And we have to bring these five rules into the minds of companies. I had this discussion with the ChaosComputerClub, with the divisional board of large telecommunications companies and with insurance companies. With these aspects in mind, every data protection officer says: Then that's okay, because it's transparent. And in the future we will simply have to take this into account for ourselves, the products and what we collect.
Do you have to regulate this by law?
I do not believe that. We have to see, we are entering the age of the consumer. Ultimately, it is the consumer who is on the trigger in this new world. That actually means the democratization of media power, what is happening at the moment. An Arianne Huffington, as a single woman, managed to build a media empire, which shouldn't be inferior to Rupert Murdoch. But that also shows that every consumer can have a lot of reach. And that's good. That said, trust will become an important currency in this new world.
Let's talk about uncharted territory. Have you developed a digital readiness index?
We measure companies. We do this in three ways. We have the Digital Readiness Index, where we measure companies from the outside in only on the basis of what we find, i.e. internet, apps or they have an e-commerce shop. We test the digital maturity from the outside, what your customers, dealers or consumers see. Then we have the Digital Transformation Index. We go there and interview employees throughout the company. It happens that, for example, the IT manager says: We have a bombshell digital strategy. And the salesman says: I've never heard of digital strategy. I can only do something when I know where I am.
And above all, what helps many companies a lot is that we show them graphically in an index. And there we not only show your company, but also where the others are.If a company has about 13 out of 350 possible points, such as Praktiker in the trade index, then that's bad. They're broke now. This means that digital maturity has something to do with business success and we can show that precisely.
You say it's a top management job. Can it also mean that I have to put my traditional business model aside? How do I design the process?
We said at the beginning that change actually comes from the consumer. So I have to think about what my customer wants in the future? Do they want the physical key or would they rather have a QR code on their cell phone and open the door with it. If I understand that, then it's all about how I can make the customer happy.
Take the example of airbnb. What prevents hotels from offering Airbnb? The airbnb model has been around in Hanover for 30 years. Whole families financed their houses only by renting them out during cebit. Nobody should tell me that the model didn't already exist. Airbnb has only perfected and globalized that. But there is no hotel with a service where I can rent private apartments at peak times. I am amazed that none of the hoteliers said: good idea, let's do it too.
Then we are at the point where thinking structures are involved. The Hilton manager sits there and says I'm so tall ...
... and it won't be that bad. There is no such thing as online trading. Amazon started 18 years ago. For this reason, we are sitting together with 60 startups in Cologne's starting place. The big ones can learn from the startups. We have opened a digital business factory and a digital business accelerator. That means we have rooms here. Our customers, large energy companies, a large perfumery chain, retailers, bring five, seven and sometimes ten people to us for three or six months.
We coach them through the process until we have a valid business model. We did the Digital Readiness Index with the company beforehand, i.e. we know where they are and where others are. We look for best practice worldwide. Because why does the good idea have to come from Germany? Maybe she's just coming from Japan, Korea or America. We look at this idea from all sides, model the business model and finally it is decided whether we should incubate this idea back into the existing company.
How important is failure?
We in Germany tend to be 120 percent when it comes to brainstorming. Only when everything has been meticulously secured will we implement it and we will ponder over this for three years beforehand. Then the idea is simply broken before it hits the market. We have to get used to agile methods. Many companies say: fail, but fail fast. Fail quickly, learn, move on and don't give up. Even the big ones like Google, Apple and Facebook have all failed umpteen times, but they haven't given up.
The old companies, such as the key manufacturer or the energy group, are good at scaling up. They can just write half a million bills, that's no problem for them. But that would be a problem for the startup. But sometimes we also find that we are not going back to implement the idea because that cannibalizes the old company's market. Then we spin off the idea as an independent company, and maybe that's the attacker for my own company. Better to be attacked by myself and take over this new market than by a stranger.
Kodak was once the world market leader with 128,000 employees and a 90 percent market share. They invented digital photography, but were so afraid of their own innovation that they said we wouldn't make a product out of it for 16 years. And then they were broke. CeweColor is a good example. They were one of the largest photo labs in Germany for Kodak, and they recognized the trend and said: Oh, people want digital, what do we do? But people want to see the photos in the end. So we make photo books, and they are the market leaders in photo books today and generate more sales, have more profits and more employees than they did before the revolution.
But do you still have an analogue life?
Yes, I really enjoy driving vintage cars and I always wear a mechanical watch in addition to my Apple Watch. I am fascinated by the precision with which these clocks are created and run. To name just two examples.
The redistribution of the world in the age of digital Darwinism
Ralf T. Kreutzer & Karl-Heinz Land
Future Vision Press
0 28 31.925-552
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Photo: Rainer Holz
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