Even if it hurts: downsizing is key in the digital transformation.

Following my articles on the automotive industry, I was often asked what I would do if I were the manufacturer. I think it is extremely difficult to make the right decisions at the moment. I am all the more surprised that many companies are not doing one of the most obvious things: Shut down.

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Lean people are faster in sprints. In the marathon too.

It’s actually quite logical: if we want to achieve something, we should be slim and agile. Not dragging along any ballast that is not necessary. Companies should be agile, lean and nimble so that they can anticipate the far-reaching changes that digitalization will bring and use them to their advantage. And have financial reserves.

First of all, this means simplifying wherever possible. Reduce bureaucracy and get employees out of their comfort zone. Starting with (middle) management in particular.

I see a lot of companies that have put on an incredible amount of fat. You all know it: you look at a company and think to yourself, how can they earn money like that? There are employees who have set up their own little territory. Processes and rules that have developed their own little mechanics and seem to be above common sense. For years.

Too many products

What I also often see are companies that get bogged down in ambitious growth plans. In the automotive industry in particular, this seems to be fatal in the medium term. Instead of concentrating on making technological and strategic progress, many manufacturers have expanded their product portfolios endlessly.

That worked and still works financially at first, because there are of course customers for every niche. But in the long term, it’s not such a great strategy. After all, the fact that mobility and drive technology are changing fundamentally has been known for some time. Instead of concentrating on this as a company, resources were used to broaden the product range.

And so there you are, with a huge apparatus and a lot of lost time. And suddenly you have to rebuild everything – strategy, products and organization. I think that’s a much more difficult task from an entrepreneurial point of view than creating something completely new. And one that also brings in fewer laurels. That’s an element that shouldn’t be underestimated in these times of high-flying corporate leaders.

Down with the bacon

In order to increasingly adapt your company to the digital environment, you should first downsize as a company. It is much easier to transform yourself into a smaller company and create something new. From a business management perspective, it is primarily about minimizing risks and creating more freely available reserves. This creates room for maneuver.

In concrete terms, this means cutting products, selling shareholdings, reducing dependencies and, I’m sorry to say, making people redundant.

So what would I actually do?

I think it makes sense to start with the product. The first thing I would do, as already mentioned, is to reduce the product range. In doing so, I would consider the profitability but above all the representativeness of the brand. I was just forced to drive a Mercedes ultra-low-cost minivan for 3 weeks. It was an okay car in itself. But it had nothing that I could associate with Mercedes. Except for the logo. Products like that are useless. You can get rid of them by first outsourcing them to a sub-brand and then selling it.

Secondly, I would try to catch up. The automotive industry is currently doing this by building a software-based car. In other words, controlling as much functionality as possible via software, thereby reducing maintenance costs and improving the customer experience. This is not a gigantic undertaking. A software-based concept is the foundation of future mobility. No matter what strategic twist and turn it takes.

Thirdly, I would concentrate on the drive system. From a purely business point of view, it’s right that the automotive industry is taking a wait-and-see approach. They are doing this because they know exactly that the cost of batteries will come down drastically. And they are trying to get in when they can expect the lowest development costs. If you run a company with a calculator, that’s clever. In the real world, there is enormous potential for things to go wrong. You can simply be too late. Nevertheless, I put this point last because the other two points need to be fixed before we can move on. The main thing here is to minimize the risk, because wanting to do everything at once will overwhelm the company.

Culture

But what needs to be changed at the very beginning and at the very top is the culture. As long as there are corporate leaders at work who insist on their bonuses and skim off a lot of money despite serious misconduct, this sends the wrong signals to the workforce and the industry in general. Maybe I’m old-fashioned, but a job like this should be an honor. 100% “incentivized” by shares. All in or not at all. By the time you get to a position like that, you should be off the hook financially either way.

You have to realize it: With the EUR 13 billion that VW will pay in the USA alone for the emissions scandal , they could have afforded 3 Tesla-style ventures in the last 10 years. And we are only talking about the USA with these figures. Further lawsuits have already been filed. This kind of mismanagement has to stop if these companies want to dominate in the long term. And I am confident that this will happen. At the latest when investors lose interest.

Daimler leads the way

One manufacturer that I think is on the right track is Daimler. They are currently in this “make yourself fit” phase. Various measures, including the significant downsizing of the branch network, the “Prototype Daimler 2020” project, which aims to reduce decision-making processes to a maximum of two levels, Car2Go and a planned reduction in the model range show that Dieter Zetsche, Daimler’s CEO, is thinking ahead. When asked by Wirtschaftswoche whether he would be prepared to bury his own business model if it stood in the way of a newer approach, Zetsche replied:

Absolutely. We live in a disruptive world. We would rather be the disruptor than the disrupted. Before we are attacked, we would rather attack ourselves. After all, others will do the same. It’s about attacking ourselves more successfully than others will.

On a small and large scale

I believe that it is also worthwhile for smaller companies to shed ballast with regard to digitalization and make their business fit. Of course, this must not lead to profits being distributed. This money must be reinvested. For the sake of the company’s future.