Accenture regularly examines Germany’s largest companies based on their ranking in “Germany’s Top500”, a list published every year in the German daily newspaper DIE WELT. It turns out that these companies are now looking for new growth opportunities. While revenue increases of more than 5 percent on average have not been uncommon for Germany’s 500 largest companies in the past, they have not been able to achieve that level of growth for the last four years. In 2016, they reported a modest growth rate of 1.5 percent. In contrast, small- and medium-sized businesses grew by 3.9 percent, according to the KfW SME Panel.
Digitization offers an opportunity for the Top500 to re-energize growth. For most of them, digital transformation strategies have been a top priority for at least three years. The question is: Where is the revenue that digitization was supposed to generate?
Our latest study bears the provocative title, "Germany’s Top500: Digital business models in search of business." It is intended to examine critically the opportunities arising at the beginning of a new era of technology. In the study, Accenture uses four insights to describe the progress that was made in digital markets, and suggests possible steps companies can take to overcome weak growth.
4 Insights to Develop new Growth Prospects
Accenture uses four insights to describe the reasons for today’s low growth rates among the Top500, and outlines the steps to unlock new growth opportunities.
Insight 1 Slow growth rates yet high sales
The automobile industry lost more than 60 billion Euros in revenue growth in 2016. The health sector, as well as machinery and plant engineering, also fell significantly short of their previous year’s growth rate. This suggests that car manufacturing, which is the leading German industry, is not able to compensate for weak performance in other industries to such an extent as to make the Top500, as a whole, record higher growth rates.
Over the next few years, the Top500 companies will face increasingly difficult conditions—especially in terms of global competition. In China in particular, emerging competitors have the potential to attack companies that represent Germany’s leading industries.
The majority of the Top500 industries registered a decline in overall revenue growth
Absolute revenue growth compared to previous year in selected industries (in billions of Euros)
Insight 2 Not enough revenue is attributable to digitization
To date, the Top500 have struggled to harness the power of digital transformations to spark significant revenue growth. There is hardly any reference to high-revenue digital services in their annual reports. Large German companies see their platforms mainly as an additional sales channel for their own products. However, it is open platforms that are more creative and, at the same time, make a significantly higher contribution to market capitalization by enabling connections among numerous user groups.
The success of Internet companies from the USA such as Google, Apple, Facebook and Amazon (GAFA) in terms of market capitalization shows the potential of open platforms. Compared with traditional industrial companies, the stock market values the future of platform companies considerably higher than the future of traditional companies.
Platform companies achieve a higher valuation, as well as a higher operating margin
Insight 3 EU regulations are weakening innovation
Legislation in the European Union is not adequately responding to changes in the geopolitical environment, thereby standing in the way of companies that are trying to seize digital growth opportunities. One example is General Data Protection Regulation (GDPR), which will make it more difficult for European companies to establish dominant platforms in the market.
Companies intending to process users’ personal data must get the users’ explicit agreement. If they fail to do so, they face harsh penalties that could amount to four percent of their annual turnover. A significant amount of legal uncertainty is already becoming apparent. According to a survey conducted by the digital association Bitkom, 57 percent of companies believe that GDPR will result in more legal uncertainty in the short term. Additionally, 42 percent think that the regulation will make many business processes more complicated.
The EU’s GDPR has the potential to introduce considerable legal uncertainty for German companies
Confidence and skepticism balance each other concerning GDPR
Insight 4 The German Federal government could turn into an innovation driver
The Federal government and public authorities could become pioneers and increase the growth rates of Germany’s Top500 considerably if they act as a driving force open to technology. So far, they have not proven very successful. In the provision of digital administration services, the Federal Republic is in 20th place among the 28 EU member states. In a comparison of 10 industrialized countries in the “Government as a Platform (GaaP) Readiness Index”, Germany comes in 9th.
The government of Singapore demonstrates what a state-run platform initiative might look like. To improve its competitiveness among leading trade destinations, the city-state established the “National Trade Platform” (NTP). The NTP aims to make foreign trade processes more efficient through digital support. In Germany, companies want the Federal government to do more as well. According to a survey conducted by Bitkom in November 2017, 85 percent of companies call for digitization to become a key topic for government leaders.
Politicians have to take stronger action than before in favor of digitization
Digital politics: Great expectations for the new Federal government
To what extent do German companies agree with the following statements? (in percent)
6 actions for the growth
Create digital customer experiences
Set up open platforms and ecosystems
Make digital revenues transparent
Establish a more agile corporate culture
Position politicians and public administrators as pioneers
Support innovation-friendly legislation
The entire Study
The study "Germany’s Top500 – Digital business models in search of business" examines the extent to which digital transformation has led to new growth for the Top500 companies. The report also recommends specific actions business and government leaders can apply to accelerate revenue growth.