- German industry is known worldwide for the quality of its product.
- It seems, however, that reality no longer quite lives up to its reputation (Dieselgate...).
- This is not an engineering problem, but a global understanding of the new industrial age we have entered: that of systems and systems of systems.
- Germany has not yet fully integrated this new paradigm, unlike other countries, for example in the defence industry.
In 2015, the car industry was brought into focus with Volkswagen becoming embroiled in the most serious auto-scandal in a generation. The German carmaker was soon facing multiple monumental lawsuits for cheating in the diesel emissions tests put in place by regulators. The ingenuity needed to pull off the feat was overshadowed only by the near farcical short-sightedness in choosing such a path in the first place.
The Dieselgate scandal demonstrates an issue endemic to German manufacturing: the national myopia of specialising in product quality at the expense of project management and strategic vision. Manufacturers need to look beyond national borders for the expertise domestically in such short supply.
A legacy of problems with large German projects
While the emissions scandal caused a crisis in the industry and led to 30 billion euros in fines, recall costs and civil settlements for Volkswagen, it forced change that the German auto sector otherwise lacked the vision to implement. Commentators have argued that this might have actually saved the nation’s carmakers.
However, the scandal, and more specifically the management decisions taken in leading up to the episode — are but one example of a chronic problem in German manufacturing industries. The issue lies in project management, and can be demonstrated through findings of research from Hertie School, the University of Governance in Berlin.
From analysis of a number of large national infrastructure projects, a study found that Germany performed far worse than other equivalent nations when it comes to projects at scale, engendering chronic over-spending, deadline overruns, and poor risk assessment at levels indicating a systemic problem.
The 170 projects included in the research, planned for €141 billion, eventually cost almost €200 billion — an additional cost of €59 billion.
“In total, we observed a 73% average cost overrun for finished projects across all sectors and 41% for unfinished projects (a number where further increases should be expected),” the Hertie researchers write.
One of the three case studies included in this research was the now infamous Berlin Airport BER project which, at the time the research was completed, was 4 years behind schedule and at least 70% over budget.
This is one of the more striking failed infrastructure projects in Germany, having numerous equivalent airport projects to be compared to from other parts of Europe. After a succession of ill-considered amendments to the scope of the airport layout, costs have ballooned from €2.5 billion to €7.3 billion.
The primacy of the engineer and the Mittelstand
The problem may well lie at the ideological heart of German industry: the much lauded Mittelstand. The term generally describes the section of the economy made up of highly-specialised, small- and medium-sized enterprises with turnovers of less than €50 million.
“These typically family-run businesses employ more than 70% of all German employees in the private sector, and are export-oriented, making Germany the second-largest exporter in the world,” writes Harvard Business review.
The acute focus on exceptional engineering, production, and efficiency make these companies some of the best in the world. Despite their small size, many are celebrated by the wider industry for their outstanding craftsmanship, elevating standards in their respective fields.
An example would be the firm Moog, which is a specialist in actuators for guns and turrets for military vehicles. Another would be Renk, which focuses its operations on engine transmissions, again for the military sector.
Both companies are highly-focused, producing exceptional component systems which are used in larger military systems. In order for their products to be used they must be integrated with other products.
And this is the point: Germany has a wealth of these kinds of companies. What it lacks, perhaps with some exceptions, like Wiesmann in the automobile sector, are serious, successful systems integrators, companies that can take a complex project and oversee it effectively from a strategic, managerial perspective.
With so much focus on component products, the country lacks complex project management capabilities, frequently relying on burdensome coalitions of small enterprises to coordinate large projects.
Masterful components, misaligned systems
Despite long-standing successes, the strengths of the Mittelstand have aged into a liability. This can be seen in the dysfunctional German approach to larger infrastructure projects, and it is even more concerning in the litany of ongoing, poorly-run military endeavours.
The world has entered a new period of global rearmament, unfortunately defence projects in Germany have become synonymous with tardiness and over-spending.
German media reported in 2018 that the nation’s 19 most important defence projects were on average 5 years late, and getting later, and together were over-budget by €13.4 billion.
Issues of this kind exist in all areas of German defence.
ThyssenKrupp Marine Systems, and its subcontractors experienced significant delays and cost overruns during the F-125 programme, and the German government returned the lead vessel in the class due to quality problems. This episode was cited in the later decision of the military procurement agency to reject TKMS’s bid for the German Navy’s subsequent frigate contract, capping an embarrassing run of poor performance.
In the aero field the nation possesses quality manufacturers like MTU, the producer of the gearboxes on engines of Airbus’s A400M transport aircraft. Despite this, German aero project success can best be summarised with a look at the Eurofighter modernisation project — abysmal even by slow-moving military standards.
Rheinmetall is another clear example. While through voracious acquisitions strategies the company has accrued a wide range of specialised manufacturers, it has been unable to make truly effective use of these disparate elements and continues to remain largely an equipment manufacturer.
Originally more of a subcontractor, Rheinmetall continues in this vein in the automobile industry. In the field of armoured vehicles, however, it functions as an integrator of components, products of various origins used in the manufacture of the same vehicle. This can lead to remarkable products, such as the Fuchs in its day, or the Lynx — integrating high-quality subsystems such as ballistic steel armour and active defence systems.
However, this does not make Rheinmetall a system integrator, capable of designing a global architecture of weapon systems from different domains, something that is key to the cohesiveness of modern armed forces.
International collaboration could be the key
While Germany enjoys some of the most efficient, hyper-specialised manufacturers in the world, it clearly lacks a culture for managing complex projects effectively. This has been particularly harmful in the area of defence, where weapons system projects are often complex, and this has led to a national state of under-preparedness.
What Germany needs is external expertise, combining Deutsche Qualitat with the necessary project management capabilities of other nations.
This approach has, in fact, been tried out several times. Together with the United Kingdom and Italy, Germany conducted one of the most ambitious European programmes for multi-role fighter aircraft ever, some 1000 aircraft, with the Panavia Tornado becoming the air force workhorse for these three countries up until 2010. It is important to understand that this success was less the result of the joint venture between manufacturers than of the inter-governmental agreement framing and supporting their efforts.
The Franco-German Transall tactical transport aircraft programme was another notable success. For this project, Germany contributed the quality of its industry to a multinational dynamic, relying on the skill of its partners to ensure smooth integration and successful operations.
Underscoring this Franco-German theme, it is no surprise that France generally buys parts from Germany, for example, armoured gearboxes, while Germany favours the purchase of complete systems from France, or seeks to develop them with France — take, for example, the Tiger helicopter.
This combination of French design and programme management capabilities with German industrial capabilities has undeniably proven its worth, and serves as the basis for new projects, as is the case with the Future Combat Air Systems programme (Dassault Aviation, Airbus) and the Main Ground Combat Systems programme (Nexter, KMW, Rheinmetall).
But this approach will only be advanced if the industrial players, and their political partners, are realistic and consider the situation beyond the strict perspective of engineering performance.
Whichever path Germany takes, what is crucial is that an adjustment is made. There is little more runway for errors and the manufacturing powerhouse may see its position slipping if it does not adapt to the military-industrial demands of the 21st century.