“Car Guys” vs. The Disruptors: Germany Week in Review

 

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CBS students at BMW Welt planning next “big idea”

Dr. Wolfgang Bernhard ‘88 is a proud man. He’s fit, maybe 5′ 11″ tall, his sharp chiseled facial features and touch of grey hair complement a finely tailored navy suit with a silver pocket square. When he speaks, he is assertive and charismatic, a commanding voice easily fills a room of 30 MBA students. Most importantly, Dr. Wolfgang Bernhard is a “car guy”.

Bernhard was the former Chief Executive Officer of Mercedes-AMG GmbH and would later hold various positions, including being a member of the board of management of Daimler AG, before retiring in 2017. Bernhard embodies the classic German ethos of discipline, hard work, first-one-in-last-one-out, and the “no bullshit, do-it-yourself” mentality. As an executive, he was not afraid to get his hands dirty by often taking monthly shifts on the Mercedes manufacturing line. “Know your business,” he tells us with a serious look, but slight smile. He continues to talk about German-engineering excellence and how hyper focus on attention to quality and improvement is unmatched. As he speaks to us, he is calm and composed…that is, until the topic of Tesla comes up.

“You need to be really good at manufacturing…they’re not. They’re just an IT company…that moved into auto…and they talk about the hell of manufacturing…that’s what it is! That’s what it takes to get the job done!  And for them it’s hell and for us it’s art! For hundreds of years we have been honing that art!” he states with just the slightest hint of red in his face. The subtext of his words are more powerful than the literal criticism. This wasn’t just about Tesla versus Mercedes, massive disruption in the auto industry, or even Elon Musk’s hubris…it was about something much deeper…the German identity.

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Dr. Wolfgang Bernhard – Photo by Daimler AG on Flickr

Bob Dylan famously writes, “Come gather ’round people wherever you roam and admit that the waters around you have grown…you better start swimmin’ or you’ll sink like a stone, for the times they are a-changin.” While not as profoundly German as Nena’s 99 Luftballoons, Dylan’s quote encapsulates the point of contention at the heart of the German cultural and business identity as we approach the end of a decade. Dr. Wolfgang Bernhard’s career represents what has made the German auto industry so successful in the past, a commitment to excellence through laser-focus on the singular objective of car quality. But in a rapidly changing automotive and technology landscape, does putting on blinders stifle unique opportunities for innovation?

This is, of course, the opinion of Dr. Volker Bilgram, of HYVE – The innovation company, and Dominik Böhler, of the Technical University of Munich. In both presentations, the term “car guys” was used to describe the old school German state-of-being defined by risk aversion, over-engineering, and bureaucracy. This mentality was in straight opposition to the new wave of German startups that espouse bold innovation, human centered design, and flat decentralized work culture.

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Paul Günther of Proglove

Founders of Proglove Paul Günther (product engineer) and Thomas Kirchner (CEO) embody this new wave of German startup culture. Kirchner is a former IDEO employee and with Günther, a former BMW employee, created a smart glove for industries. The glove was created through rapid prototyping and iterations incorporating continuous feedback from manufacturing workers. Contrary to the culture espoused by Wolfgang at Mercedes, the culture at Proglove empowers workers to choose when they start their days and provides access to unlimited vacation. But the auto industry isn’t the only sector German disruptors are attacking.

A short flight to Berlin, brought us to a fintech start up called Number 26 (N26). N26 is a mobile bank that offers millennial friendly features such as cash from any ATM without fees, instant account management and security, and real-time notifications. A week after CBS visited N26, the company closed a $160M round of funding  which is one of largest European fintech investments ever and clearly causally linked to our visit. N26’s success comes as a revelation as traditional European lenders, such as Deutsche Bank AG, continue to struggle posting its 3rd annual loss in a row.

*Quick meta note that Deutsche Bank decided to cancel our company visit on the day of, which is also causally linked to their string of failures.

I’m losing my train of thought trying to balance a clear theme of lessons learned in Germany while also trying to sum up the company visits for the week.  In the meanwhile…here are some more cool pictures to help illustrate the trip:img_3117

CBS visit to Factory Berlin – A community of startups

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BMW Welt – The building is made to look like 4 cylinders of a car engine
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CBS students (who received the red sweater navy pants memo) at Spotcap 
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CBS at the Berlin Wall

Ok, I’m back! So just to recap, we have this cultural shift in mentality from the big German business players represented by Wolfgang Bernhard, formerly of Mercedes, to the new wave of scrappy startups mostly based out of Berlin’s silicon allee. But a question remains in this risk averse German culture, where does the financial capital come from to fuel the German disruptors?

Our journey in Berlin, took us to Earlybird Venture Capital, a venture capital investor focused on European technology companies. The fund was established in 1997 and has over EUR 850 million under management. While the firm officially funds companies at all stages, they did emphasize that demonstrable traction, such as revenue, is significantly more important to them when compared to their Silicon Valley VC counterparts. We were especially pleased, however, to see that in a male dominated VC world, the two rising stars at Earlybird presenting to us were young women. It is VCs like Earlybird who are enabling the German startup scene to flourish.

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Milda Jasaite and Rebecca Hu of Earlybird Venture Capital

It is safe to conclude that the success of traditional and new German businesses will be integral to the countries’ global position moving forward. While we got our healthy dose of what is “new and sexy” in terms of German startups – it would be foolish to throw the baby out with the bath water in terms of the culture that has made Germany so successful in the past – the hyper-focus on perfection. The future of innovation has unlimited potential in Germany, whether it will be the “car guys” or the disruptors (or a combination of both) who lead this future, is still being determined.

-Chris Russell

Innovation Aus Deutschland: The Case Against Thiel’s Europe

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3D printed mesh created at the Technical University of Munich

I’m willing to wager that the majority of American entrepreneurs, VCs, and startup enthusiasts have come into contact with Peter Thiel’s Zero to One: Notes on Startups, or How to Build the Future, at some point in their careers.  It is required reading in Owen Davis’ Launch your Startup class and for founders, such as myself, the book is somewhat of holy text that must be close to arms reach at all time.  Underlying Thiel’s lessons on building monopolies, selling products, and nihilistic consultant haterade*, however, is a deeply American ideal to innovation.

*haterade – excessive negativity in the form of a beverage

He writes, “Even the Great Depression failed to impede relentless progress in the United States, which has always been home to the world’s far-seeing definite optimists.”Thiel Quote Thiel argues that it is bold planners (definite optimists) who truly innovate: “A startup is the largest endeavor over which you can have definite mastery…it begins by rejecting the unjust tyranny of chance.  You are not a lottery ticket.”

Now I’m not one to drape myself in red, white, and blue, shouting “Amuurricaa!” at a Toby Keith concert, but something about Thiel’s words evokes a strong sense of American pride (along with a montage of Michael Bay explosions, Top Gun theme music, and Steve Jobs).  Particularly, this the case when Thiel juxtaposes this depiction of American innovation with what he calls European “Indefinite pessimism.”

He writes, “Europeans just react to events as they happen, and hope things don’t get worse.  The indefinite pessimist can’t know whether the inevitable decline will be fast or slow, catastrophic or gradual.  All he can do is wait for it to happen, so he might as well eat, drink, and be merry in the meantime: hence Europe’s famous vacation mania.”  Thiel’s depiction serves to inform the foundation of the stereotype that Europe does not innovate like its American counterpart.

With all due respect to Mr. Thiel, I believe it is time for him to take a trip back to Germany (ironically, the country where he was born).

Let’s start by highlighting our trip to the Technical University of Munich (TUM), whose MakerSpace rivals any found in the United States.  TUM is the epitome of the German effort to innovate through agile practices, supplying entrepreneurs with the resources to rapidly prototype ideas and build “Minimum Viable Products.”  3D printers, laser/water jet cutters, textile and electrical facilities, and machine and woodworking shops are at fingertips of TUM students.  At this point, you may be thinking tuition must be out of control at this University (especially those of you who paid 200k+ for those English BAs) and you are right…the number is astounding.  A German citizen pays 0.00 Euros to attend the Technical University of Munich.  Moreover, there is no application process, and all are accepted!

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At this point, you may have just dropped your iPhone, so take a second to collect yourself.  Let’s reiterate, “GERMANS PAY $0 TO ATTEND TUM AND HAVE ACCESS TO MILLIONS OF DOLLARS WORTH OF EQUIPMENT!!!”  As our TUM guide Dominik Böhler stated, “We believe people should be able to kickstart their ideas…and we have a 100 million EUR fund to invest in entrepreneurs.” TUM students are working on a variety of innovations including creating a prototype of Elon Musk’s famous hyperloop.

Taking a bus ride from TUM to closer to the heart of Munich, we arrived at HYVE – the innovation company. HYVE is an innovation consultancy firm in the same vein as IDEO and Frog in the U.S., a.k.a. innovation as a service (IaaS?).  Many are familiar with design workshop magic, but something unique about HYVE is their emphasis on crowd sourcing innovation. Dr. Volker Bilgram walked us through how HYVE used posts on forums and blogs to design an IoT package locker known as PaketButler.  PaketButler is basically a virtual “doorman,” (doorperson…it’s 2018 folks), that allows a package provider to deliver goods, informs the user of the delivery via smart phone application, and securely locks the package until the user is back at home.  The iterative prototyping process was continuously informed by feedback from customers online.

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A short trip downstairs led us to the pinnacle of German engineering.  The ICAROS.  The ICAROS is a VR enabled work out machine, or as I like to call it, the Peloton for flying.  Priced at an extremely reasonable 8,000 EUR (yeah, it’s primarily B2B), the ICAROS combines your fantasy of flying with your nightmare of dying in a horrible plane crash into the side of a mountain.  I personally was pretty terrible at the game, but definitely felt it in my core afterwards (which was good considering all the Paulaner Salvators I have consumed).

The most fascinating aspect of the ICAROS is that it was developed internally by HYVE for HYVE.  This may seem weird that a consultancy firm would use its profits to develop its own innovations (that have a high chance to go bust), but this speaks to the German sense of the pride that one has no right to advise if one cannot do it on his or her own.  The ICAROS has gone on to win multiple awards and has been included in the German Accelerator – a program by the Federal Ministry of Economic Affairs and Energy (BMWi) that helps German start-ups to get to know the US market.

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With our trip to Munich wrapping up, I think it’s safe to say that Germany has a lot to offer in terms of entrepreneurship and innovation.  I recommend that Mr. Thiel update Zero to One to reflect this (but please don’t Gawker me!  You are still right about most things…unfortunately).

Next stop is Berlin, the home of a booming startup scene!  Until then, stay classy, CBS.

-Chris Russell

Prelude to a Trade War: Deutschland Edition

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Photo by Roman Kraft on Unsplash

You just finished that delightful Korean BBQ dinner with your best buds as you see the check approaching.  Instinctively you grab it and do some quick consulting math to determine everyone owes about $50.  You tell everyone to Venmo you, when that one friend asks to look at the check.   “The amount owed is $49.77.”   Your blood boils.  You remember covering drinks for this friend just last week, and the Lyft ride, and not to mention that beemer* you bought from them a year ago.

You can’t hold it in any longer.  “What gives Germany?!   We all know you are running a trade surplus of about 8% of GDP, why are you being so cheap?!  Just spend some money!”  An audible gasp is heard, and the rest of the world begins staring at their shoes.  Germany calmly pauses, takes a sip of soju, and replies, “America – you don’t understand.  Our workers and businesses value security.  You don’t know what it was like for us in the 90s when the shock of reunification plunged our unemployment to a tenth of the workforce.  Labor and business now work with each other to ensure stability!”

If you are still following along with this metaphor (or allegory?…this wasn’t on the GMAT), then you are primed for one of the main sources of tension between the U.S. and Germany that sets the stage for our Chazen trip Innovation Aus Deutschland.  This post hopes to sum up the issues and provide some insight into opportunities.

*A beemer is a car or motorcycle manufactured by the company BMW

1. What’s a trade surplus?

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Photo by Fabian Blank on Unsplash

For those of you who were asleep or recruiting during Global Econ, I am going to briefly and inadequately (so review your core notes, you bum) explain trade surpluses/deficits.  A trade surplus is an excess of national saving over domestic investment also known as when the value of a countries’ exports exceeds that of its imports.  In other words, a surplus occurs when the value of what a country sells to the world is more than what that country consumes from the world.  A trade deficit is the opposite when a country spends more than it saves thus the value of imports exceeds the value of exports.

2. Why can trade surpluses be bad?

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Photo by Christine Roy on Unsplash

There are a lot of shifting graphs that I don’t care to get into (for real though, go to Professor Moser’s office hours, super helpful!), but one interesting thing is it seems counter intuitive on an individual level that being “fiscally responsible” is a bad thing.  In fact, for an individual country, a trade surplus helps to be more resilient to economic shocks.  For example, Germany’s unemployment rate was minimally affected during the 2008-2009 Great Recession when compared to other countries.  The problem occurs in a global economy, where to offset Germany’s savings glut, the rest of the world must borrow and spend enough to sustain aggregate demand to keep people working.  This can lead other countries to run trade deficits which in turn can lead to economic crises.  Germany’s trade surplus has been as high as 8.3% of its GDP (in 2016), which is substantial considering it far exceeds China’s current account balance (another country highly criticized for saving too much) of 1.8% of GDP in the same year.  The European Commission recommends that Germany reduces its surplus to 6% of GDP.

3. Who is to blame?

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Photo by Secretary of Defense Wikimedia Commons

Depends on who you ask!  President Trump has been a harsh critic of German trade surpluses stating Germany was, “Very bad on trade.”  This implies that there is an intentional German mercantilist policy that is causing the surplus.  He has proposed protectionist tactics, such as telling Americans to not buy German vehicles and proposing tariffs on steel and aluminum imports to punish Germany and other countries running surpluses.  These proposals have been met with harsh criticism, sparking threats of retaliation from the European Union.

4. What is the German side of the story?

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Photographer: Armin Kübelbeck, CC-BY-SAWikimedia Commons

From the German perspective, the concept that its current accounts surplus is an intentional policy is preposterous.  The argument is that a surplus has naturally arisen from deeply cultural and nuanced relationships between labor and business.  The challenges of reunification in the 1990s, which raised unemployment to a tenth of the workforce, are burned in the psyche of the modern German.  A tacit agreement exists in which unions practice wage restraint to keep exports competitive and in return, businesses maintain the workforce even in economic downturns.  Pressure from low-cost emerging markets has reinforced this relationship, making workers averse to asking for wage increases.  The result is a culture of thrift among German citizens, who must save to compensate for low wage growth and thus spend less on imports.

5. What’s the solution?

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Photo by Phan Xiaozhen on Unsplash

It’s complicated, but one solution that may address Germany’s saving problem is…wait for it…wait for it…SPEND SOME MONEY!  Government spending can be helpful in updating infrastructure to increase productivity, creating programs to help let mothers work full time to increase disposable income, and investing in technology to fuel future German growth.  The bottom line, however, is German people need to spend more, and to do so, a substantial wage increase is long overdue.  Finding the political and sociological will for such actions, however, is difficult in a country where both businesses and workers are fighting for wage restraint.

As always, please feel free leave comments with any fact checking, insights, and/or happy thoughts!

India – Reflections on the Study Tour

“India is, the cradle of the human race, the birthplace of human speech, the mother of history, the grandmother of legend, and the great grand mother of tradition. our most valuable and most instructive materials in the history of man are treasured up in India only.”

-Mark Twain, American author

It’s been a couple weeks since Chazen India officially ended, but the memories and the spirit live on till this day. There’s not a day that I don’t think about my study tour experience in India.  In the morning, I drink my masala chai tea that I brought back as a souvenir from my travels in India.  However, the subway to and from school is vastly different from the elephant ride up and down the mountain to Amber Fort.

When asked by other students on how the Chazen India study tour was, I am at a loss of words.  What do I respond with?  In my experience, India challenged, surprised, shocked, and almost broke me….but most of all, the country changed me for the better. A new appreciation for Bollywood films, better negotiation skills for bartering BATNA/ZOPA/RP), stronger stomach for spicy foods (fyi – everything is spicy in India), and respect for Tata Sons and Dabbawalas for creating a company culture that has proved financially and personally rewarding are some of my key takeaways from the trip.

However, the visibility of income inequality was pervading: beggars and homeless people parked right outside grand opulent hotels, children walking around barefoot while tourists snap pictures of historical landmarks, civilians working and living in the slums because they have no other other opportunity, etc. At least the government and CEOs are acknowledging this vicious problem: over and over again throughout our business meetings, there is an underlying theme and understanding that there needs to be more investing in infrastructure, education, and healthcare.  It seems that everyone in each industry is doing the best they can to boost the Indian economy through foreign direct investment, tourism, and job creation. We shall see in the upcoming years whether these changes have helped the Indian society for the better.

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Chazen India T-shirt with all the names of the participants

The best part of this trip was getting to know 40 other MBA students in this study tour.  The questions asked by my peers during the discussions with business executives opened my eyes to different business cultures contexts and subtexts and gave me better insight into other people’s views of the country and the economy.  The organizers welcomed us with open arms to their home country and showed us the best that their country had to offer.  Before this trip, I barely knew a handful of individuals who were on the tour.  Now, when I walk among the hallways of Uris, I see friendly faces and we joke about our time in the country.  A reunion is in the works (the best Indian restaurant in UWS for dinner and then a Bollywood movie right afterwards) IF we can find a time that syncs up with 40 busy Columbia Business School first-year and second-year students.

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New Year’s Eve at the Palladium in Mumbai (Photo credit: Sarah Nabahani, MBA 2015)

Going on this study tour through the Chazen Institute added a lot of value to my MBA experience that I wouldn’t have received otherwise through other international travel trips in business school (i.e. cluster trips, club treks).  The inside access provided by the Chazen Institute to CEOs and executives of multi-billion organizations and conglomerates and high ranking government officials were a once-in-a-lifetime experience that I won’t take for granted.

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Photo Credit: Jan Bucher MBA 2015

 

A big thanks to the Jerome A. Chazen Institute of International Business, the student organizers and consulting organizers Kushal Sanghrajka (MBA 2015), Surabhi Shastri (MBA 2015), Mimi Vavilala (MBA 2015), Karan Ahuja (MBA 2015), Divya Goenka (MBA 2016), Anuja Mehta (MBA 2015), the faculty members Vince Ponzo and Professor Suresh Sundaresan for leading and organizing such an amazing and life-changing trip to India!  I had the opportunity to see the country from the organizer’s own eyes and immerse myself with this diverse and different culture. The business meetings in various types of industry were enriching and insightful and I learned so much from these leaders who care so much about their companies and their country.

Until next time,

Iris Chen ’15

Final Destination: Golan Heights and my Reflections on Chazen Israel

Within the narrow and long country of Israel, there is a variety in terms of landscapes, architecture, culture, and yet the people in every city as extremely warm, friendly, and humble! After being in the metropolitan city of Tel Aviv followed by natural beauty of Dead Sea, and the charm of ancient city of Jerusalem, we traveled north to see the Bahai Gardens briefly, and go further to Golan Heights, a very peaceful place given its close proximity to the Syrian border.

Bahai Gardens exist in many parts of the world but have a sense of consistency that follows each one of them. As you can see from the picture below, they are extremely well kept, symmetrical, gorgeous, and peaceful places.

Bahai Gardens
Bahai Gardens

Our next stop was Golan Heights, which was the most calm place for where it is situated. We stayed in Kibbutz, which has cottages surrounded by natural beauty of mountains and are self-sufficient. These cottages are mostly for locals, while a few are reserved for tourists who come to visit. I was keen to learn more after coming back and you can read more about it here.

Golan Heights Kibbutz

Golan Heights Kibbutz

All of us got to explore Golan Heights in a really unique manner by driving ATVs or horse riding on the mountains. The views and experience for everyone was unmatched anything we’ve done before. The tour guides explained significance and proximity to Syria, and talked about how safe everyone felt in the community. I did the horse riding and was completely blown away by the beautiful landscape, as every moment of this was stunning and serene. While horse riding, we had some hilarious moments of bonding when one of the horses refused to cooperate and started eating grass every time we would stop for a few seconds. Also, we had a dog who was leading the group of horses along with the tour guide, which was really funny to observe.

#CBSatthecenter of hiking in ATVs

#CBSatthecenter of hiking in ATVs

Horse riding very close to the Syrian boarder in Golan Heights
Horse riding very close to the Syrian boarder in Golan Heights

Our next stop was Golan Height winery, where we got a tour from this really adorable old man about how the wines are made, what process and barrel are used, and why. Many of us were thinking back to our operations and finance class cases on wines. The wines were delicious and a great end to incredibly amazing trip!

Golan Heights Winery
Golan Heights Winery

After a 3 hours bus ride, we reached Tel Aviv and met at the beach right before sunset to reflect on the best moments of the trip while toasting with our Golan Heights’ champagnes! We went around to talk about some of our best memories, which included:

BEST PEOPLE: meeting some of the best people at CBS and feeling like we had just made a really close group of amazing friends for life. Most of us did not know each other and this trip really helped us bond and get to know each other so well! I would also say that I didn’t know our trip planners, Yoav or Guy, very well before this trip and seeing the country through their eyes, asking them questions and their opinions, and getting to know them was one of my favorite things!

MOUTHWATERING FOOD: we LOVED the food, every meal was delicious, fresh, unique, and one of the most fun bonding experiences. Apart from the food, the ambiance of the places we visited, and the exclusivity and opportunity to have us take over the place made the experience memorable. My favorite was when all the chefs came out and created our very own dessert table by dancing and throwing various flavors of ice cream with toppings and fudge on a table covered with aluminum foil! It was spectacular and SO delicious!

PLACES: From the Dead Sea to holocaust memorial, the Old City of Jerusalem to Golan Heights, the Bahai gardens and air-force base, and everything in between, we were pleasantly surprised and shocked by the beauty, significance, and history of each place we visited. I was in awe each time, and every place after surpassed by expectation. I learned so much, not only through our visits and speakers, but also by learning about the places and having conversations with my peers afterwards.

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Reflecting on our last day by the beach

For most of us, this trip was the first time in the Middle East and in Israel. Even for those re-visiting some of these places, they said the city never fails to be magical and teach them something new. This trip has been one of the most memorable of all my travels and inspired me to go back to Israel to explore more.

Aditi Sahani ’15, Chazen Israel