Maximilian Scherr, strategy consultant and partner at Arthur D. Little, does not see the future of Austria as a business location through rose-tinted glasses.
Science scepticism, oversleeping dramatic changes in the world, an energy supply that is no longer up to date – these are just a few of the points where Maximilian Scherr, partner at Arthur D. Little, the world’s oldest strategy consulting agency, sees need for action. A native of Graz, he leads ADL’s cross-sector Strategy, Organisation & Innovation Practice Group in Austria and is co-author of the global ADL CEO Insights. He sees a prosperous future for Austria as a business location at risk if fundamental changes are not introduced quickly.
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© Arthur D. Little
If you believe the experts, Austria’s economic situation is not
worrying. Do you agree with that?
Maximilian Scherr: Maximilian Scherr: No, I don’t. However, you have to differentiate.
Firstly, measured by purchasing power and especially the purchasing
power of the top 80%, we are doing very, very well in Austria.
This is probably also the case with the purchasing power of the
bottom twenty percent because we as a country, including the
social institutions, have done many things right. Secondly, we are
privileged: Our favourable geographic location, pleasant climate
and rich culture allow us to be a successful tourism nation and bring
money into the country; we have done this smartly. In addition, we
have many companies, especially successful small and medium-
sized enterprises, and overall, we have achieved a level of
prosperity that allows us to have good universities and a very good
apprenticeship system. We thus have many of the ingredients that
help us to be successful. At the same time, I see the danger that
Austria is losing out on key technologies, both in research and in
application. Austria is one of the most science-sceptical countries
and we need to find out why. There are good researchers, and they
also stay in the country, but we should not rely on that. One example
is the computer scientist Sepp Hochreiter, a German-born AI
luminary who conducts research at the University of Linz, and who
is convinced that he has a better language model than Open AI/
Chat GPT but is not funded accordingly. Other European countries
provide much more funding, and we should not underestimate the
Middle East. I was recently in Abu Dhabi, Bahrain, Dubai and Saudi
Arabia, among other places. In these countries, completely different
amounts of money are invested in technology. We are lagging
behind significantly.
Consequently, there are fewer opportunities to study and grow
in such fields. Science and applied technology need an eco-system
around them. Like in Silicon Valley. There was nothing there for a
long time until investments, especially by pension funds, in venture capital were made possible. We don’t have this venture capital to
the same extent. Besides the scepticism about technology and research,
this is also an issue of the pension system.
Folglich gibt es auch weniger Möglichkeiten, solche Materien zu studieren und daran zu wachsen. Wissenschaft und angewandte Technologie brauchen ein Öko-System um sich herum, wie im Silicon Valley. Dort war lange nichts, bis Investments, vor allem durch Pensionsfonds, in Venture Capital möglich waren. Dieses Venture Capital gibt es bei uns nicht in diesem Ausmaß. Das ist, neben der Technologie- und Forschungsskepsis, auch ein Pensionssystem-Thema.
Where do you see the greatest threat to the future of Austria
as a business location?
Scherr: Scherr: I rather wonder where the greatest leverage lies. I see the
biggest threat in the fact that we are still sufficiently aware of how
drastically the world is changing – precisely because we are still
doing so well. But if we don’t sufficiently try to stay on the ball and
get things going, we run the risk of no longer keeping up.
Has Austria not yet arrived in the 21st century? And is the
Austrian mentality of being rather laid back and “let’s see” also
an obstacle?
Scherr: Scherr: I don’t want to engage in Austria bashing, but there are
too many people for whom the preservation of the status quo, of
their old networks, their existing political environment and so on is
much more important than understanding what is really happening
in the field of AI and new energy systems. When I look at how many
Austrians complain about energy prices on the one hand, and on
the other hand they vote against a wind turbine being erected in
their community, it won’t work. I am not in favour of expropriation
and coercion. But I dare to predict that if we take the issue of the
energy transition in Austria seriously, we will reach the point where
the question of whether we want it or not will no longer arise. Instead,
a wind turbine will simply be erected where the right location
is. Then the distribution grid of the energy suppliers will be
built where it is necessary. We can’t demand to be more “green“
on the one hand, but on the other hand not want any grid expansion
or wind parks and photovoltaic projects
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Do we need a stronger hand of government and more regulations
again?
Scherr: Scherr: In my view, it is not a question of more or less government,
but where do you need the government? It is a question of “intelligent
governing”. Thesis one is that there needs to be more assertiveness
on large infrastructure projects that the country needs.
These include the transmission grid for the energy transition, more
wind farms and the like. There also needs to be less regional and
local peculiarities. Whether another University of Technology in Linz
is important, although you already have a very good university in
Linz, I don’t know. Especially a small country like Austria should
probably have a manageable number of excellent centres for certain
subjects instead of distributing funds as much
as possible. The public sector needs to acknowledge
that the energy transition also costs the
owners of the energy grids money and that they
have to pay for it. These are often the provinces
or indirectly the federal republic when it comes
to Verbund and APG (Austrian Power Grid).
Thesis two: There have to be regulations so
that the energy suppliers can capitalise differently
on and charge for the necessary grid expansion.
Austrians cannot expect everything to
be as cheap as possible and countless billions
of euros to be poured into grid expansion out of thin air in the
years to come. The calculation is relatively simple. Investing more
in both generation and transmission results in a lower electricity
price. However, investments take a long time to pay off.
Thesis two: There have to be regulations so
that the energy suppliers can capitalise differently
on and charge for the necessary grid expansion.
Austrians cannot expect everything to
be as cheap as possible and countless billions
of euros to be poured into grid expansion out of thin air in the
years to come. The calculation is relatively simple. Investing more
in both generation and transmission results in a lower electricity
price. However, investments take a long time to pay off.
What does the transformation of the energy sector need to look
like?
Scherr: We need more decentralised production and thus more
decentralised feed-in with much more decentralised grid management.
That only works digitally. This includes solutions such as
ensuring that car batteries from electric vehicles are not only
charged when the user wants them and discharged when they are
driving. This decentralised energy storage can be used. Solutions
are needed to limit the peaks of the feed-in from photovoltaic systems
because otherwise a transformer station can overheat and the
power then fails completely. This control must also be digital. That
is why digitisation is a very essential core for the transformation of
energy suppliers and energy networks.
Does Europe need to become an isolated island – de-risked, so
to say? Is it even possible to reverse globalisation?
Scherr: Scherr: You have to differentiate. A nation like the United States,
which is large in terms of population, companies and surface area,
can more easily afford to be self-sufficient because, among other
things, it has a lot of technology in its country. A nation like China
can also afford it more easily. The leadership of Russia had the idea
that it could afford to be self-sufficient, which doesn’t work. Together,
Europe would have a lot, even if not everything, like energy, rare
earths and more. But Europe is still fragmented into many nation
states and Euroscepticism has even increased in some countries.
As much as I would like Europe to have this common language and
power, this is rather wishful thinking and a
dream that cannot be fulfilled in the foreseeable
future. In Austria, too, I miss the general consensus
that existed before EU accession, that the
country must be part of a larger whole. Here I
am even pessimistic, because many are crying
out for more self-sufficiency without knowing
what it costs and what sacrifices it entails to be
self-sufficient. The best cautionary example has
been set by Great Britain. The majority of voters
have fallen for the narrative of some politicians
that de-risking through separation is the strategy
of choice. They are now learning that separation is not de-risking,
but rather the road to disaster. If even an economically important
country like Britain can’t do that, how can we?
So, federalism kills?
Scherr: Federalism can also go too far. I believe that Austrians, with
their mentality, need a bit of federalism. But when it comes to big
challenges like the energy transition, investments in future technologies,
the reorganisation of the pension and health system, we
need more national cohesion
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© Arthur D. Little
Has Austria already missed the boat in terms of AI?
Scherr: Scherr: I believe that we still have top researchers in Austria. The
social environment also attracts people who like to stay here. In the
field of cyber security there are some luminaries in Graz around
Prof. Stefan Mangard, in the fundamental questions of AI Sepp
Hochreiter is leading the way, in AI in dermatology Harald Kittler
from the Medical University Vienna is a trailblazer... so there are
some – and these are only three examples. Therefore, it would be
unfair to say that we have missed the boat, but we are not promoting
enough focus. In addition, I believe that there is a considerable
need to catch up, especially in
schools, in the primary school
and the grammar schools. If we
have more hours of religious
education than IT in some
years, that is not particularly
forward-looking. Unless you
think foremost about life after
death
“I don’t pay good wages
because I have a lot of money,
but I have a lot of money because
I pay good wages,” said
Robert Bosch. Does that still
apply or where does the focus
lie in future recruitment?
Scherr: Scherr: I would modify this quote from Robert Bosch. I would say
that I have work and life because I also enable others to have a
work-life balance and thus manage to keep the good employees. At
the end of the day, we are successful because we enable these
things.
So, the paradigm shift, that money alone isn’t everything has
long since taken place?
Scherr: Scherr: It is already a reality for many. But not everyone who
would like to have a better work-life balance performs enough that
it would be justified to simply give it to them. In sports, the history
books are full of people who were born with talent but squandered
it because they wanted too much life, and an imbalance
occured.
What are the most common issues that clients ask Arthur D.
Little for advice on?
Scherr: Scherr: There are three main issues. Firstly, what does AI mean
for them and their company? This is not a question to which there
is a single answer. With many things that represent a paradigm
shift – and the publication of such language models represents
such a paradigm shift – many people experience a gold rush. Not
everyone will survive it, but in this gold rush there will be developments
that are not even foreseeable today. This is exactly what
companies have to prepare for. At the end of the day, this will also
strongly influence the activities within each job and some activities
will be eliminated. Everywhere
where data is stored relatively
consistently anyway, where research
takes place that is documented,
in journalism and
many other areas, it won’t be
long before models have selective
access to this data and
employees can use it all. Much
of today’s knowledge will be
distributed more democratically.
Drawing the right conclusions
from this and not just
using statistical probabilities
will still be a great art. Getting
to the heart of what this means
for companies is a question that concerns many CEOs and that we
discuss with them.
The second topic is still, how do you create growth? Many are
currently asking themselves how they can deal with increased
costs and reduce them. But they don’t always discuss that with us
because we know primarily about how to deal with growth in value
chains. Responsible companies take care of cost reduction in
good times to be able to invest in growth in bad times. Especially
those who have already done their homework, we can help them
to grow.
The third topic is cyber security. This is still a topic that many
CEOs are a little bit concerned about every now and then and it is
so omnipresent that they are worried from time to time. But being
worried is not enough. Many companies have good people in their
security departments, such as their Chief Information Security
Officer. But not all of them have the power and the strength to be
able to discuss with the board at eye level. If nothing has happened
for a while, nothing has been updated and not much money has
been spent on training and technology, there is also an expectation
that things don’t have to change dramatically. Of course, many
CISOs know that they are not safe just because the company has
not yet been successfully hacked – but they often do not have the
business transparency, i.e. quantified risks, to be able to successfully
lead board discussions. That’s where we help to gather courage
and facts and get the CEOs to listen. And in other cases, we
help boards get an independent second opinion on how their security
is really doing.