Mid-year review 2022: resilience beats efficiency
27 MAY 2022
Global pandemics, supply chain bottlenecks, a war in Europe – previously unimaginable worst-case scenarios have become reality. Our politicians are talking about the dawn of a new era. History is at a turning point.
Now, it is more important than ever to provide orientation and learn the right lessons from the various mistakes of the past. Overall, our society needs to reposition itself in key areas. During this year’s Annual Meeting of the World Economic Forum in Davos, precisely these topics were discussed.
The motto “it’ll all be fine” has had its day
These days, decision-making parameters are shifting ever more dynamically, whether that be due to an increasing number of natural disasters, a global pandemic or unthinkable violations of international law – like we are seeing in the Ukraine right now. In past decades, we have been too quick to say, “it’ll all be fine”. With a view to reducing costs, the topic of resilience in the global economy has become secondary to maximum efficiency and the related division of labor. However, the past three years have shown us what can happen if we have no plan B. We now have to rethink. In these times, taking responsibility for the future means drastically improving the resilience of our systems; we must do everything in our power to create broad societal acceptance of this path.
The pandemic has clearly shown us what will happen if we fail to do this. We can learn similar lessons from the Russian invasion of Ukraine, which violates international law. Apart from our health system, the state, society, the scientific community, and businesses must be overall more robust and considerably more agile and smarter. Extensive and well-performing digital structures and processes are indispensable.
No future without digital
In Germany, the long overdue digitalization has unfortunately got stuck along the way. The fact that analog tracing of Covid-19 contacts was necessary for such a long time, the lack of acceptance of the coronavirus warning app and a misunderstanding of data protection demonstrate that. The learning curve for businesses during the pandemic was very steep. However, we know that successful digitalization is not an event, but rather a process. In the German pharmaceutical and chemical industries, employers and the trade union negotiated a “Roadmap Arbeit 4.0” in the 2018 collective agreement and are pursuing this path resolutely and successfully to shape the new world of work. A necessity even before the pandemic.
As a global company, we also went through a comprehensive digital transformation lasting many years. While it is necessary to set up the right processes and systems, the most important element of the structured redesign is cultural change because the digital revolution also requires a change of mindset. The details of this process were the subject of an intensive dialogue between employers and employee representatives and managers and employees received extensive training. As a result, for some time now, the internal structures and processes of the Group have been digitalized, harmonized and globally interconnected, without exception. Remote working is a matter of course – at least in all jobs for which it is suitable. A successful digital transformation requires investments, a persuasive approach and a “can do” mentality.
We need plan B, C and D
If we demand more resilience in our society, we must also look at Germany as a business location and Europe as a whole. In the interests of reducing costs, we have sacrificed our resilience in a crisis over the past decades to the principle of maximum efficiency and the division of labor in the global economy. Domestic production was reduced, international logistics became increasingly important and supply chains more complex. Often, there was no plan B.
How can we position ourselves more robustly here? While the buzzword “de-globalization” is currently making rounds, this would certainly be the wrong path. It would lead to a considerable loss of prosperity, not just for us but also for our trade partners all over the world. The massive trade surplus proves how risky this kind of all-or-nothing strategy is for Germany.
Instead, we need to strike a new balance between a commitment to global trade and improved resilience of supply chains. This includes:
- Greater diversity and redundancy when it comes to suppliers and sites.
- Consistent collaboration between regulators and companies on compliance with ESG standards along the supply chain and for functioning risk management.
- Logistics must be made more reliable through comprehensive digitalization.
- The just-in-time principle must be supplemented in smart ways. More warehouse capacities need to be made available again for strategic goods.
This all has a price, but also a benefit – investments in greater resilience and security. If we’re not ready to pay this price, we’ll end up having to pay a much higher one in a crisis situation.
Upgrading the production of key technologies at domestic sites is also essential. This will advance the overall global division of labor. Germany and Europe will recalibrate their supply chains and manufacture crucial and complex products closer to home. Automation and artificial intelligence will contribute to keeping the costs under control. In light of the sharply increased logistics costs, re-shoring is already picking up speed. This will benefit the resilience of Germany and Europe.
Together, we now have the opportunity to make domestic production sites less bureaucratic, more digital and more competitive through deregulation and modernization.
Restoring collaboration and trust
To enable this, politicians and businesses must enter into an open dialogue.
The World Economic Forum in Davos could hardly have taken place at a better time to bring together responsible people from the political sphere, business and civil society – influential people who want to change the world for the better. Global responsibility and collaboration are required so that this can succeed. Whether this be the fight against climate change, recovery after the pandemic or the current situation in Europe and its consequences for the economy and society, the WEF’s message is clear. Together, we must take global responsibility and work together to achieve the ambitious goals we have set for ourselves.
This is the only way to become more resilient in case of a worst-case scenario – in the hope that it will not happen. I’m excited to see what this new era of collaboration will look like.