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Digital Transformation – an Opportunity for Mittelstand Enterprises

The Ferdinand Steinbeis Institute introduces SMEs to new business models and working in ecosystems

Since the earliest phase of the industrial revolution at the end of the 18th century, which was triggered by the steam engine, to the second phase of mass production, and then the third phase marking the advent of mass automation, German industry has succeeded in becoming one of the world’s leading economies. The still ongoing fourth phase – digitalization – is also a time of major opportunity, especially for SMEs. But what’s the best way to exploit this opportunity? This is the question in focus by experts at the Ferdinand Steinbeis Institute (FSTI), which supports SMEs on their journey into a future of digital technology.

A spirit of invention has given birth to many new products and technologies over the past 250 years, and excellence in fine-tuning products and production processes has helped shape Made in Germany the hallmark of quality in all corners of the globe. Automated systems are an essential ingredient of this success, underpinned by increasingly in-depth knowledge. In the past, this led to intensified divisions of labor and heightened levels of specialization. Companies focused more on their core competencies, which also allowed them to develop unique selling points. This enabled experts and specialists to develop and deepen their know-how within companies. In addition, most graduates that emerged from the German education system underwent training to become specialists. Henry Ford’s model of the division of labor transcends not only production, but also entire companies.

What skills will be needed in the future?

We currently find ourselves at the beginning of an era of digitalization – the fourth stage of industrialization, characterized by increasing convergence between business processes and the internet of things, and the intensified application of artificial intelligence. But will current competencies when it comes to continually improving existing products and processes be enough to remain competitive in the future, or will other capabilities be needed? Digitalization will certainly result in some previously successful business models being called into question. It could even condemn those models to obsolescence. But, above all, digital transformation enables companies to expand business models or even develop entirely new ones and launch them on the market.

“It really gets interesting – and challenging – when several companies spanning different sectors of industry realize that their business capabilities complement each other and that by sharing information they could open doors to new value creation scenarios,” says Michael Köhnlein, managing director of FSTI. A central aspect of this is that the multidisciplinary principles of digitalization are applied specifically to new types of value creation, and it’s essential to develop this knowledge. “Our experience with numerous projects shows that you can gain a basic understanding of these principles by experimenting with collaborative dataspaces, digital twins, and AI services – not by organizing training or engaging in knowledge-showing,” adds FSTI Academic Director, Professor Dr. Heiner Lasi.

Another aspect of this relates to the ability to think and act far beyond the boundaries of individual business departments and companies. “We’re used to thinking and working within relationships governed by customer-supplier interactions, and our culture and legal systems are based on this,” explains FSTI expert Werner Steck. The process of digitalization makes it possible to come up with ecosystems based on completely different business relationships. Every partner is both a customer and a supplier within this ecosystem and in turn, ecosystems as a whole become an integral part of customer-supplier relationships. This fosters cultural change – which also takes time to understand.

Interdisciplinary knowledge plays an important role in this, as does the question regarding who or how many people within a company possess this knowledge. From markets to suppliers, from accounting departments to production – who at the company has a complete overview, and who is in a position to keep track of the upstream and downstream aspects of markets? To succeed with digital transformation, you need knowledge based on a comprehensive overview. This leads to other challenges, especially regarding employee development within companies and broader issues touching on the education system. And this opens up an opportunity for SMEs, since it’s here that you encounter entrepreneurs and business leaders, for whom interdisciplinary work comes as second nature.

There is another ingredient that’s important for this journey into a digital future, although it’s not so much a capability as a commodity that’s always in short supply: time. Keeping existing business models moving forward or developing new business processes takes time – which there is never enough of when dealing with these topics in the course of everyday business – especially under the current circumstances. SMEs are particularly likely to invest a great deal of time in making improvements to what is already in place – which risks missing the boat when it comes to adopting new models.

Micro Testbeds – familiarizing yourself with digitech through Steinbeis expertise

The onus here lies in particular on entrepreneurs, business leaders, and senior management to understand the fundamentals of digital transformation and to think in terms of ecosystems – they are extremely unlikely to see recently recruited graduates, or highly qualified workers in a specialized department, come up with new business models. The FTSI experts believe it’s time to think again and set a different course, to acquire missing skills and tap into interdisciplinary know-how in order to develop new models – and this is one area where they feel SMEs have a major advantage. The knowledge of SME leaders derives from a comprehensive overview, and agility is practically a given.

During the course of more than 40 projects spanning eight years, the Ferdinand Steinbeis Institute has acquired the experience and methodological capabilities required to successfully show companies, particularly SMEs, how to work with ecosystems and new business models. To do this, the FSTI experts have organized a number of so-called Micro Testbeds on a wide variety of topics. The idea was to demonstrate how mapping the real world in a virtual world allows you to come up with – and experiment with – new ways to add value, and how steering reality from a virtual perspective offers the potential to deliver benefit.

A defining feature of Micro Testbeds is that they allow at least three SMEs from different sectors of industry to work together based on the principles of partnership in a “forum of trust” moderated by someone neutral. Together, SMEs come up with value creation scenarios, which they can then try out and experiment with in an actual business setting. This offers firms participating in Micro Testbeds an opportunity to experience for themselves the possibilities created by digital technology – based on actual examples and reasonable timeframes – and think beyond their individual departments or companies in order to try out examples of business models beyond the current realms of thinking.


Michael Köhnlein (author)
Managing Director
Ferdinand-Steinbeis-Gesellschaft für transferorientierte Forschung gGmbH (Stuttgart)

Werner Steck (author)
Senior Project Manager
Ferdinand Steinbeis Institute Heilbronn

Prof. Dr. Heiner Lasi (author)
Director (Scientific Management)
Ferdinand-Steinbeis-Gesellschaft für transferorientierte Forschung gGmbH (FSG) Steinbeis Foundation (Stuttgart)