Can Europe Catch Up in Industrial AI? Insights from MHP’s Dr. Walter Heibey

Industrial transformation is entering a new phase globally: While the DACH region was long considered a pioneer of Industry 4.0, global competition is now evolving at high speed. Alongside the US and China, European manufacturers are increasingly investing in artificial intelligence, data-driven production, and Software-Defined Manufacturing (SDM).

Europe still benefits from strong industrial foundations, deep engineering expertise, and high production quality standards. At the same time, many companies are facing the challenge of modernizing complex IT and OT environments while transforming their factories into software- and data-driven production ecosystems. The key question is therefore no longer whether Europe can remain competitive – but how quickly companies can combine their industrial strengths with modern software, data, and AI architectures.

In this interview, Dr. Walter Heibey, Partner at MHP – A Porsche Company, discusses the challenges facing the DACH manufacturing sector in global competition, the importance of modern software and data architectures, and the key levers European manufacturers can use to strengthen their competitiveness in the era of AI and software-defined production.

Why is the DACH region currently losing momentum in Industry 4.0 compared to the US, China and other global markets?

The DACH region was among the earliest pioneers of Industry 4.0 and invested heavily in digital manufacturing capabilities at an early stage. However, this early lead has also created new challenges: many industrial companies now operate highly complex IT and OT environments that have evolved over years and are only partially interoperable. These fragmented system landscapes make it more difficult to implement emerging technologies such as artificial intelligence and Software-Defined Manufacturing. While many companies in Germany, Austria, and Switzerland still focus strongly on efficiency and incremental optimization, other regions have been able to establish more software-centric production architectures. As a result, companies in other markets are often able to scale AI, data platforms, and software-driven manufacturing models faster than many industrial players in the DACH region.

What makes Software-Defined Manufacturing strategically important for industrial competitiveness?

Software-Defined Manufacturing is becoming a key enabler for the next generation of industrial production. By combining software, data, and manufacturing processes into an integrated system, companies can react faster to market changes, improve operational flexibility, and deploy AI applications more effectively. One of the biggest advantages of SDM is scalability. Manufacturers can standardize production environments, roll out digital solutions across multiple plants more efficiently, and create a stronger foundation for data-driven decision-making. Globally, companies that successfully integrate software architectures into production are gaining significant competitive advantages – particularly in speed, adaptability, and innovation.

Why are many German industrial companies still struggling to implement AI successfully in manufacturing?

The main challenge is usually not a lack of interest in AI, but the underlying data and system architecture. Artificial intelligence depends on high-quality, integrated, and real-time data. In many industrial environments, however, data is still fragmented across multiple systems. This significantly limits the effectiveness of AI applications. In addition, many companies still approach AI through isolated pilot projects. Without scalable architectures and close integration into production processes, measurable productivity gains often remain limited. There is also a cultural dimension: German industrial companies traditionally prioritize stability, quality, and risk minimization. While these characteristics are major strengths in manufacturing, they can also slow down decision-making and the adoption of new technologies.

What do European manufacturers need to do now to strengthen their position in AI and digital manufacturing?

To remain globally competitive, manufacturers in the DACH region and across Europe need to focus on four key priorities. First, companies must reduce technical debt by modernizing IT and OT architectures and improving data integration. Second, AI initiatives need to move beyond isolated pilot projects. Manufacturers require scalable platforms where software and AI capabilities are embedded directly into core production systems. Third, companies need greater willingness to invest in long-term capability building rather than focusing exclusively on short-term efficiency gains. Fourth, organizations must strengthen digital skills, accelerate decision-making processes, and improve collaboration between IT and production teams.

Why does Europe still have strong potential in the future of industrial AI and smart manufacturing? 

Europe and the DACH region still possess major competitive advantages in global manufacturing particularly in engineering expertise, industrial quality, and process excellence. The next phase of industrial competitiveness will not be defined by hardware performance alone. Success will increasingly depend on how effectively companies can connect software, data platforms, AI, and production into one integrated ecosystem. If European manufacturers combine their industrial heritage with modern software and data architectures, they are well positioned to play a leading role in the future of intelligent and software-defined manufacturing.

About Dr. Walter Heibey, Partner at MHP – A Porsche Company

Dr. Heibey focuses on identifying and implementing shop-floor solutions that create real business value, separating gimmicks from true game changers in Industry 4.0, and enabling customers to successfully drive their end-to-end transformation.