Cost Engineering
Germany is still the world's third-largest economy, yet growth has stalled while competitors advance. In this episode of Beyond Cost, Tset CEO Sasan Hashemi talks to Dr. Andreas Cornet, who spent over 30 years at McKinsey advising the automotive industry. Andreas shares why Germany's old playbook stopped working and explains his "Pivot Germany" strategy to shift capital toward future industries while lifting productivity across existing sectors.
Meet Dr. Andreas Cornet: Engineer Turned Strategy Advisor
Dr. Andreas Cornet's path into strategic consulting was almost accidental. Trained as a mechanical engineer at the Technical University of Hannover, he discovered management consulting through a workshop while still being a student: "I was so fascinated by that workshop that I said, this is what I want to do. And I have to be very open. Before that, I hardly knew what management consulting was."
He joined McKinsey in the mid-1990s and spent the next three decades immersed in automotive. During this time, he worked through globalization, the rise of China as a manufacturing powerhouse, and the early tremors of digital transformation. Dr. Cornet never stopped thinking like an engineer:
That engineering mindset, grounded in systems thinking, root cause analysis, and pragmatic problem-solving, now informs his approach to Germany's economic challenges. After selling a software company he founded as a student and navigating the transformation of the automotive industry from the inside, Dr. Cornet brings a rare combination of technical depth and strategic clarity to the conversation.
The Golden Age That Wasn't
Looking back over 30 years, Dr. Cornet sees a pattern that many in Germany missed while it was happening:
Germany became the third-largest economy in the world and stayed there, but that stability masked underlying stagnation. While the numbers looked stable, the rules of competition were shifting beneath the surface:
The Problem with Things You Can Touch
Dr. Cornet offers a vivid illustration of how Germany's competitive edge eroded: the shift from mechanical precision to digital differentiation.
This goes beyond technology catching up. The shift involves business models, speed, and organizational agility. German manufacturers excelled at perfecting physical products through incremental engineering improvements. When value creation shifted to software, user experience, and rapid iteration, the old playbook stopped working.
Pivot Germany: A Strategy for Economic Transformation
Dr. Cornet was part of the team behind the "Pivot Germany" initiative, a comprehensive reform agenda aimed at two simultaneous goals: shifting resources toward future industries and lifting productivity across existing sectors. The strategy was part of the McKinsey & Company Report: "A pivot for Germany: All for growth and growth for all".
The Shift: Moving Toward Future Industries
Dr. Cornet identifies several sectors where Germany could build new competitive advantages:
These include:
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Biotechnology and Life Sciences: Leveraging Germany's strong pharmaceutical and research base
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AI Applications: Not foundational models (where the US and China dominate), but applied AI in manufacturing, healthcare, and logistics
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Advanced Materials: Building on chemical engineering expertise
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New Energy Systems: From heat pumps to hydrogen infrastructure
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Defense Technology: A sector that's seen renewed investment post-2022
The key insight is that Germany doesn't need to invent entirely new industries. Instead, it needs to redirect capital and talent toward sectors where it already has foundational strengths but hasn't scaled effectively.
The Lift: Improving Productivity in Existing Industries
Transformation requires more than new sectors. Dr. Cornet argues that Germany must simultaneously improve productivity in its core industries:
His analysis points to several structural barriers:
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Fragmented Capital Markets: European capital markets remain national rather than truly integrated, making it harder for companies to scale
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Regulatory Burden: Excessive bureaucracy slows decision-making and innovation
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Energy Costs: Germany's energy transition created cost disadvantages without solving reliability
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Labor Market Rigidity: Employment protection laws that made sense in a stable economy now prevent necessary restructuring
The Innovation Paradox: Europe Invents, Others Scale
One of the most frustrating patterns Dr. Cornet identifies is Europe's failure to scale its own innovations: "The problem is not invention. Europe is very good in invention. But we are not really good in scaling."
He points to countless examples where European research produced breakthrough technologies that were commercialized and scaled elsewhere (often in the US or China). The issue comes down to the ecosystem for turning inventions into viable businesses, not creativity or scientific capability:
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Risk Capital: European venture capital remains small and fragmented compared to US and Chinese funds
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Procurement Bias: European governments often don't prioritize European suppliers in their own procurement
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Regulatory Friction: New technologies face approval hurdles that delay or prevent commercialization.
Root Cause Thinking vs. Surface-Level Debate
One of Dr. Cornet's most provocative arguments challenges the common narrative that "everyone knows what needs to be done, we just lack the political will":
This is a crucial distinction. Many policy debates in Germany operate at a level of abstraction that prevents real solutions. Discussions about "pension reform" or "energy transition" remain vague until someone forces the conversation down to specifics: What exactly are the demographic assumptions? What are the cost structures? What are the trade-offs?
Will Germany Get Its Act Together?
Near the end of the conversation, Sasan poses the question directly: Are we going to get our act together?
Dr. Cornet's answer is measured but optimistic: "Yes, but it will be tough."
He sees two prerequisites for meaningful change:
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Cross-Party Cooperation: A small group of leaders from different political camps must come together and agree that the status quo is unsustainable. Historical precedents like the collaboration between Franz Josef Strauss and Helmut Schmidt (fierce political opponents who nevertheless respected each other) show that this is possible.
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Elements of Direct Democracy: Either formal mechanisms (like Switzerland's referendum system) or informal pressure from citizens that politicians can't ignore. When public opinion is clear and sustained, even reluctant politicians will act.
Key Takeaways for Manufacturing Leaders
1. The rules of competition have fundamentally changed:
What made German manufacturing successful for 30 years, mechanical precision, incremental improvement, long planning cycles, no longer confers competitive advantage in software-defined, rapidly iterating markets.
2. Innovation without scaling is meaningless
Europe's problem isn't invention; it's turning inventions into scaled businesses. This requires capital market reform, reduced regulatory friction, and a bias toward European solutions in procurement.
3. Root cause analysis beats surface-level debate
Many policy and strategy discussions operate three levels above the real problem. Forcing conversations down to root causes is essential for meaningful change.
4. Best practices exist but require courage to implement
Solutions to Germany's challenges often already exist in neighboring countries. The barrier isn't knowledge; it's the political and organizational will to adopt proven models.
Closing Thoughts
Dr. Andreas Cornet's 30 years in the trenches of automotive consulting give him a perspective that combines engineering rigor, strategic breadth, and hard-won realism. His message is realistic rather than pessimistic. Germany and Europe retain enormous strengths in research, skilled labor, and institutional quality. Those strengths will matter only if the system can redirect them toward future industries and lift productivity in existing ones.
The window for action is narrowing. China's automotive industry has already surpassed Germany in key segments. The US continues to dominate software and AI. And Europe's internal debates about regulation, energy, and fiscal policy consume energy that should be directed at execution.
Dr. Cornet's final answer, "Yes, but it will be tough", suggests the outcome remains open. With clear thinking, root cause analysis, political courage, and a willingness to learn from what works elsewhere, Germany can reclaim its competitive edge. The question is whether leaders will act before the window closes.
Listen to the Full Episode
Listen to the full episode to hear more about Dr. Andreas Cornet's experiences shaping automotive strategy, his views on AI's transformative potential, and why he believes the next generation of economic policy must combine shifting toward new industries with lifting productivity in existing ones.
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