Speech, as delivered, by
Dr. Klaus Kleinfeld,
CEO, Siemens AG
Munich Economic Summit
Germany
June 21, 2007
Panel 1: Grey New World –
Europe on the Road to Gerontocracy
It’s a pleasure to be with you today. Let me first set the basis for what we are talking about. Let’s go to the first chart.
If we look at what has happened here on this planet, as a business leader, I think there are certain things about which we can feel proud. This chart basically shows three statistics that one way or another we have all come across. But the question really is, do we see where we can really take pride in this?
Worldwide, average life expectancy increased between 1950 and 2005 by 21 years. Now, if you look at those countries, those big ones that are changing rapidly, India or China, indeed there the delta, the change, has been faster than all across the world. When we get challenged about what good globalization has brought to our planet, I believe that is clearly one of the things that we should by no means underestimate as one of the big successes of the spread of worldwide wealth and worldwide knowledge. Otherwise, that would not have happened.
Certainly, when you look at the right-hand side to see who is leading the list of the top ten, it’s amazing. Japan at 83, you can go down the list. Actually, there is one country we took off the list, which is Andorra. We found there might be a statistical error in that. That one individual 110 years of age has probably died in the last year.
But the good news here is that we are going through a tremendous phase of change. Not only in knowledge in certain places in this world, but in knowledge that is spreading and that gets applied, and contributes massively to almost all of the population. Bear in mind also that we are talking at the same time about a massive growth in population. So, it is not that we have been dealing with the same type of people. We have been dealing with a massive growth in population and that will continue to be the case. And I think this is very good news.
The second thing is, if you go to Germany and see the age distribution in the year 2000, this is the way it looks. Now, if you overlay it with the age distribution in the U.S., you can see that it is pretty much the same, perhaps not quite so many young people there. Not really significant. Okay, fine. Now, if you look at the age distribution in Germany, that blue line we saw, in 2050, according to all demographics, and overlay that with the current understanding of how the U.S. is going to develop, that is pretty significant.
It’s significant at two ends. It’s significant at the one end, that in reality we see that Germany is aging. I will be very positive on that because that by itself is not a scary thing. But we have to be aware of it. And the second thing here, which I was extremely surprised about when I first heard this statistic, is that Germany is “de-younging” so to say. That has multiple implications. That phenomenon, I am only using the German-U.S. data to show it, you can do it with other types of comparisons, and you pretty much find those phenomena across the board.
The big question is now, do we whine about it? Do we say, oh my god, it’s a horrible social system with horrible aspects in terms of additional costs and what does that mean in terms of social dynamics? My first view as a businessman is that we keep cool about it and see the challenges. Whenever I see challenges as a businessman, they spell opportunities. That’s how we’re trained. That’s a good training, I believe. Many of the things we heard today, just from my colleague Mr. Reithofer, for instance, you can already see how a lot of those challenges can be turned into opportunities.
However, not all of those changes can be made by companies on an individual
basis. I think it requires, probably even more than we’ve seen in the
last 50 years, more joint work between academia, business and politics. That’s
because there are opportunities in here with which, if we use them, and my
speech today would make that point, we could make Europe a showcase that everyone
wants to see illustrating how to live in an exemplary and exceptional way
in an aging and de-younging society. That’s because in a way those phenomena
will happen in other places. We could make that one of our greatest export
goods in many ways.
I believe that this opportunity is unique because in my view Europe will most
likely never be the most cost-competitive place. We never have been. We have
always been the most innovative ones. The ones who found answers to challenges
around the world first, applied those things, and then others came to look
and followed our example. I think we have that spirit and we should use that
spirit.
It’s almost impossible here to cover all aspects. That’s why I did one deep drill into an important aspect to give you a flavor of what I really mean with that. And that deep drill is into the healthcare industry.
Most phenomena in life you can look at in two ways. First, there are healthcare costs. We can now say, oh my god, healthcare costs in Germany are more than 10 percent of gross domestic product, in the EU 15.9 percent, in the U.S. already 15 percent. I will read the numbers for you. In Germany, it was 9.6 in 1992, 10.2 in 1997, and in 2003 it was 10.8. In the EU it was 7.7 in 1992, 8 percent in 1997 and 9 percent in 2003. In the U.S. it was 13 percent in 1992, 13.1 percent in 1997 and in 2003 it was 15.2.
In a way, for a businessman it reflects something else. Demand is coming! A wonderful thing! It’s rising! And you can actually be sure it is going to continue to rise. So, how do we make the best of it because you also want to make this affordable. The market is definitely there.
The next question is what other characteristics does this healthcare industry have? When I first saw these numbers I was extremely stunned. We did a comparison of how many people are employed in the automotive industry compared to the healthcare industry. We chose the automotive industry because it is a large industry in Europe, and, particularly in Germany, the most important industry. It’s the strongest one, with the most export success, and with a huge cluster of industries built around it.
But the amazing thing is that already today, even in Germany, you have about 800,000 people working in the automotive industry, according to the statistics, and 4.1 million working in the healthcare industry. In the EU 15, there are 1.9 million working in the automotive industry and 17.6 (million) working in the healthcare industry. It is even stronger in the U.S., with 1 million in the automotive and 14.5 million in the healthcare industry.
That’s amazing for many reasons. Clearly, one has to see the healthcare industry as mainly a service-oriented industry. It needs a lot of people and it is very hard to automate.
The other very interesting characteristic of that job engine is that we’ve always been talking about offshoring and outsourcing, and here there is a lot of debate and obviously also a lot of fear. These services, the majority of these services, have to be applied around the patient. They have to be applied around the individual. It’s very, very hard to offshore those activities. So, in reality you have a place here, looking at it from a politicians’ point of view, which can give you, if you manage the cost structure right and the innovation right, a huge job engine and make life better at the same time.
Now, there is another aspect that is also fascinating. As I said, I believe that Europe has never been the lowest cost competitor and will most likely never be the lowest cost competitor because we all like to enjoy a pretty nice quality of life and a good lifestyle. Therefore, we have to be the most innovative ones.
This (slide) now shows the number of patents registered in various industries. We obviously chose the healthcare industry, which is on the right here, and on the left is the IT industry, then the communications industry. It’s amazing how many patents are already being registered in the healthcare industry today. It’s an unbelievably innovative industry. Europe is doing well but as you can see we have to be on our toes because the U.S. is significantly better at this. But nevertheless, the industry by itself is an industry that pretty much plays on what the strength of Europe is and definitely has to be, which is innovation.
But there is a challenge, and the challenge isn’t small. As I put it here, the bad news is that healthcare quality leaves much to be desired. You can take all kinds of statistics. You can take treatment errors, and those numbers are obviously very difficult to get. But according to even the official statistics, roughly 25,000 deaths per annum related to medical treatment errors in Germany alone are being measured per annum. We’re talking about redundant procedures. For instance, it is an understanding in the medical community that almost every fourth check-up has to be done just because the patient data are not there, even though the patient had had those types of exams. But at the time when those data are needed, they are not available. Or you could go to the administrative inefficiencies. That’s all very bad news.
At the same time, as businessmen, we see them as opportunities because you have to ask yourself, what are the drivers behind this? Would Mr. Reithofer ever accept every fourth car coming out of his factory being not okay? You wouldn’t and I wouldn’t as a customer and I wouldn’t for any of our products. And you as a customer would also not do that. So, something is wrong here because we do accept that, and we shouldn’t. But we live with the assumption that this industry is a kind of art and not an industry. But the big question is haven’t we heard that before?
I remember spending endless hours of my life talking to our software engineers, about 10 years ago, who said that we couldn’t apply any statistics to software engineering. That this was more an art than a science. The problem is that this is a big cost block. Finally, we managed to make it a real process and manage the process, otherwise we would have been dead. That was done first by measuring, making things transparent.
Now, I brought you just one example here that clearly shows what is going
on in this industry. This example is an example of one type of operation.
It’s a very common one. It’s a bypass operation. There are two
big killers on this planet when it comes to healthcare. One is cardiac-related,
heart-related issues. The other one is cancer. Those are the two big killers.
If we just take one tiny bypass operation here and we just measure it a little bit. What do we see here? On the right-hand side of this chart we see the U.S., but it’s pretty much the same all over the world, an average stay of nine days for a bypass operation. That’s the average. We see that once you start to measure things, benchmark things in the hospital compared to other hospitals and you start to introduce process optimization and statistical process controls, like they did in the Heart Center of Indiana and the Nebraska Heart Hospital, you can bring those down to even 4.5 days.
Now, okay, the counterargument is that, my goodness, this is something that
very much goes against the quality, because you are driving the time in the
hospital down and you are chasing the patients out when they are still sick.
That’s why it is pretty interesting to look at the same data from the
customer satisfaction side. Funnily enough, we see a very interesting phenomenon.
The average dissatisfaction with a bypass operation in the U.S. is 20 percent.
The Heart Center of Indiana, that has shorter stays in the hospital, has an
average dissatisfaction rate of two percent and Nebraska Heart Hospital six
percent. Whoa, very interesting!
Very interesting, but for businessmen, this is old news. Many of us, certainly
the two of us here on the podium, we would not be sitting here anymore if
we hadn’t learned this in the 80s. We definitely learned it the hard
way. Process controls, apply them. This is what we do every day. It’s
funny to see industries like this one that seem not to have discovered this
yet. This industry is societally so important, so critically important, that
we jointly, and when I say we I mean politicians and business leaders and
academia as well, probably have to be a little more clear about what expectations
are towards this industry…
That’s what I have in mind when I talk about what the opportunities of an aging society are. We see one thing here, and I could go into others as well, where we could make that one of our targets to have the most efficient healthcare system and the best one, but not with new limitations on doing this or innovation-unfriendly regulations to not install this…but rather with tight measuring, strong transparency, and with a very good drive for innovation, for benchmarking and for getting better.
Well, I don’t want to leave with just that example. About a year ago, I ran into a very interesting debate… How do we run our society? Frankly, I always wondered when we sent people into early retirement with 58 and I knew some of those folks, I always thought, my goodness, this is insane. From a societal point of view, it is the greatest destruction of value that a society can do. From a personal point of view, it is even more insane. The funny thing is, when you then see how those individuals find ways to lead their lives, you ask, if we could only do this in a more orchestrated way, how much more value could a society in total generate?
The statistics we saw before showed us how work time is decreasing, education time is increasing, and what is increasing the most is leisure time and retirement. We all know that is not affordable. But forget about affordable! That’s not the first criterion. That’s not why we are on this earth. I think first we have to ask ourselves what it means in terms of human values. That’s the first question. It’s totally against human values, those values that we always talk about, the western values we are so proud about having stemmed from Europe. Forget about those. They got buried in all kinds of regulations. Let’s unbury them. Let’s find them again.
The question there is, is this carved in stone? Is it carved in stone that you first learn, then you work and then you retire? Well, kind of, because first you have to learn. But then I met this gentleman who said why don’t we move from a sequential to a parallel life status? I looked at him, rolled my eyes and said what on earth is he talking about? But frankly, I am very convinced that that is an unbelievably strong concept he has come up with. In fact, the idea is a very simple one. You flip the sequential into a parallel one. The whole logic is that those three phases, education, work and leisure are elements of all life phases. So, literally you probably have a phase in the beginning where education plays a stronger role. But if we don’t tie work into it, we are going to fail. That’s one of the reasons why, particularly in Germany, we are so proud of the dual education system where you start to apply the knowledge at an early age. That’s what we are so proud of. Why? Because we already build it in there.
Now, as a society, if we can’t come up with a model that is sequential rather than a parallel, where you go through continuous phases of reeducation, but there is also the acceptability of having a year off or so, and doing a little bit of reorientation, of doing a project with your daughter or your boy when they come out of school. How often have you heard when I retire, I missed my children growing up, therefore I look forward to seeing my grandchildren grow up. That’s an insane thing to say. I’ve heard it a gazillion times. And if you look at my life so far, I would probably pretty much say the same thing already, which is sad. It’s not right and it’s probably not necessary.
So, the question is, and let me end with that, let’s use this opportunity.
Let’s make it a big opportunity. Let’s think broadly here and
work along the lines of going from sequential to parallel, and make aging
a huge opportunity for Europe… a huge opportunity to capture many new
markets and be a role model for the rest of the world. They will all flood
to us and say how have they done that again, this great Europe. We will have
a new industry that can sell all kinds of services, and we will make lots
of money and be even wealthier during our lives. So, that’s it.
Thank you very much.
