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Economy

Linking competencies in a connected world

Industry 4.0 isn't only fostering innovation in the manufacturing industry. Joachim Wenning, CEO of Munich Re, talked about trends and opportunities in a connected world with Volkmar Denner, Chairman of the Board of Management Robert Bosch GmbH. What are the technology company and the reinsurer striving to achieve in this era of digitalisation? Why are new partnerships needed? And what will the business models of the future look like?

Wenning:
In the context of change, what special role does digitalisation play at Bosch?

Denner:
It’s not so much about digitalisation, because we have had digital products for many decades. For us, it’s about becoming connected. We think the Internet of Things will become universal. All areas of our lives will be finally connected up – be it mobility, the industrial workplace or the smart home. 
 
The Internet of Things is the big next step in technology development, the big next revolution. Our target is to have all electronic Bosch product classes IP-enabled by 2020. We are now at around 60 percent, so we are making good progress.

Wenning:
How do you think IoT and artificial intelligence will combine in your industry?

Denner:
When you start connecting things, what happens first is that you get a huge amount of data. Of course, data by itself is useless. The question is: how can you generate knowledge out of data? And that’s where artificial intelligence comes into play.
 
Artificial intelligence is key to our strategy, and last year we decided to build our own Bosch Centre for Artificial Intelligence.

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We value cooperation in the sense that we enrich and leverage our competencies with our partners in new business fields, such as IoT.
Joachim Wenning
CEO Munich Re

Wenning:
How do you make sure you stay ahead of your competitors?

Denner:
That’s a good question, and requires you to know where you stand compared to your competitors. This is the case in the new networked world as well. What's new is the speed with which markets and technologies are changing. Everything is changing very, very fast. And, of course, completely new players are coming onto the scene.

Wenning:
Who do you think will be your typical competitors of the future? What could the set-up look like?

Denner:
In the future we will talk more about ecosystems. The Internet of Things will not be about just one company. The beneficial networking can only be realized together with partners. Partners, customers and also developers will play essential roles in these ecosystems. How to cooperate with partners is something that is new for our company and, I think, for the whole industry. I think this is true for you as well.

Wenning:
You are absolutely right. We value cooperation in the sense that we enrich and leverage our competencies with our partners in new business fields, such as IoT. Naturally we are cooperating with clients with whom we have developed trusting relationships over decades. But we are also going to build new relationships – as we are doing with Bosch.

Munich Re and Bosch are set to develop new business ideas in Industry 4.0. Representatives of the two companies have signed a cooperation agreement to develop new solution packages for connected manufacturing. The two companies are combining their respective strengths: Bosch in hardware, software and services, Munich Re in risk and capital management. This holistic approach will make it possible for manufacturing companies to implement connected projects along the entire value chain, while keeping risks at a manageable level and applying innovative financial instruments.

Denner:
What does the Internet of Things mean for Munich Re?

Wenning:
As the real industry players become connected, their needs and risks are changing. New financial needs have to be addressed in a connected world where clients only pay for what they use – whether that involves devices, machines, or cars. They may be less interested in loss insurance or risk mitigation, but looking to guarantee a certain output of machines or devices. For us, meeting that type of need is a business potential that we didn’t have before.

Denner:
Until now, Bosch has been selling products, for example packaging machines, to customers who buy and own the products or equipment. Now, we are offering more and more innovative business models, such as "equipment as a service". The customer no longer has to own the equipment to use it. But somebody has to finance those assets.

Wenning:
This is where our partnership comes in: Our joint aim is to bundle these different needs into new packages of solutions for connected manufacturing. This is core in the future. This is where we want to focus our attention, and where we are developing our competencies, because Munich Re wants to play a major role in IoT.

Joachim Wenning and Volkmar Denner talk about business opportunities in a connected world.

Denner:
That is interesting for both companies. We will develop completely new business ideas, that will significantly reduce operative and investment risks and therefore facilitate our customers' implementation of Industry 4.0 solutions. These new solutions will have a fundamental influence on our current business. Bosch is already testing a lot of different business models in these areas.

Wenning:
Bosch is also investing in ecosystems, in ideas you believe might have the potential to develop over time, but where you do not yet have a concrete business case. What is the reasoning behind it?

Denner:
This is an interesting and at the same time challenging topic. Bosch has always taken the long view in developing new areas of activity. This has also happened with many of the innovations we now all know as part of the traditional product business, such as automotive safety systems and modern fuel-injection technology. Quite simply, these would not exist without a very long investment perspective.

And we are doing the same in the connected world. But the other side of the coin is that there must always be a point in time where innovation becomes profitable. So long-term focus means: We have to and want to achieve an adequate return on investment, and at the same time finance a long pre-investment period for many products.This will likely remain so in the future, even if everything that is software-based or digital-based typically has a shorter return period.

How do you see innovation within the insurance business?

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For leaders, I think it is difficult – and I experience it as a personal challenge – to appreciate the profitable classic products and the new ones to the same extent.
Volkmar Denner
Chairman of the Board of Management Robert Bosch GmbH

Wenning:
As at Bosch, innovation has been key to Munich Re at all times – long before digital potential came to the fore. And why is that? Because we have always tried to make things insurable that were previously uninsurable. These innovative products provide a healthy profit margin until they are commoditised and also understood by other players.

What is new with digital innovation is identifying the importance of certain digital functions that did not exist before, and combining them with our core functions to open up new opportunities. At the beginning, however, one will experience a certain disharmony between the established and new parts of the company.

Denner:
How have you dealt with this challenge?

Wenning:
It was fairly easy for us to establish innovation as a motivator for the whole company. When you build a circled innovation framework – such as in labs, incubators, and accelerators and send people to design-thinking workshops and let them experiment – that is attractive and motivational.
 
However, we need to get the balance in perception right between the non-digital, old world and the innovation community with its eye-catching projects. We cannot ignore that the core business is still earning the money, but all the cool experiments are taking place in the new or digital world. We want to bring both of them together, because we believe that the potential lies not just in the new world, but in linking these digital and innovative competencies with the core business.

Denner:
We have exactly the same discussion inside our organisation. Traditionally, Bosch is a product company. We earn our money with the traditional products, but we supplement this product world with new aspects such as software and digital services. I would say that our challenge is very similar in that respect.
 
For leaders, I think it is difficult – and I experience it as a personal challenge – to appreciate the profitable classic products and the new ones to the same extent.

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