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The German industrial sector failed to leverage the past ‘golden decade’ to sharpen its competitive edge
It is commonly believed that the industrial sector is the ‘prime cut’ of the German economy. However, looking at the performance of German companies across sectors since 2000 with more than EUR 500m revenue in 2020, results show that the turnaround ability of the industrial sector is trailing behind the industry average, and the situation has worsened in recent years.
Increase in revenue across various industries (from FY00-FY22)
In this report, we analyze the cross-industry patterns in long-term performance, the industry and sector specifics, as well as the corresponding challenges and imperatives.
Industry development during recent crises
On average, in around 50% of the last 22 years, companies across all industries faced a decrease in margin. Industrial companies underperformed during these crises across all financials – the sector was hit harder and recovered worse than the average German company. Especially post-2000, the industrial sector exhibits below-average turnaround capacity after a downturn year.
Revenue recovery after downturn period (in %)
Industrials
Average
EBITDA margin recovery after downturn period (in %)
Is the current turnaround ability of the industrial sector sufficient to recover and connect towards the required growth path?
The obvious explanations – of high asset intensity and long product innovation cycles making it a slow-moving sector – are not telling the full story as comparable industries such as automotive, energy and utilities as well as chemicals outperform the industrial manufacturing sector. The perception of a past ‘golden decade’ is quoted as strengthening the backbone of German industry. However, the discrepancy between the German average and the industrial sector is increasing and highlights the sector’s lack of agility, innovation, and transformation.
While global economies showed a fast rebound from the recent crisis, the industrial sector is not equipped for the multi-crisis decade (inflation, skilled worker shortage, geopolitical uncertainties, unclear regulatory framework) we are facing. With long recovery periods between crises, the performance was sufficient in recent decades. However, a continuation of current “average crises” would bring down revenue to 70% within 10 years, even without considering major disruptions within the sector. The foundation for survival in this era of multi-crises and challenges was not built up during the ‘golden decade’. Now, crises have depleted the funds needed for innovation and change to take the sector forward.
New challenges for CEOs request new strategies
To deal with transformation in times of ongoing crisis, German business leaders should change their mindset and habits according to these six aspects:
- 1Moving away from a sequential, step-by-step management mindset
- 2Switching from keeping the pace to setting the pace
- 3Reconfiguring today’s value chains while safeguarding regional ecosystems
- 4Moving towards transformative portfolios
- 5Addressing time to impact across the business model and global markets
- 6Restructuring for growth
Sebastian Stahl has also contributed to this report.
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