R&D Location Switzerland Interview Series

Expert interviews with Swiss manufacturing companies and industry experts
One of the key findings of Deloitte’s Power Up Switzerland report was that low productivity growth and declining competitiveness is placing Switzerland’s model for success under pressure. R&D has been identified as a crucial element to ensure ongoing Swiss competitiveness and prosperity. Even though Switzerland is a leading R&D location with the highest number of patents per capita in Europe and demonstrated strength in several R&D fields, it lags behind in digital technologies patents. Switzerland’s advanced, high-cost economy can only continue to grow, prosper and maintain competitiveness in the future through technological progress, which means focusing on R&D. We asked senior stakeholders in the Swiss manufacturing industry about their views on such key topics as best framework to boost R&D, right talent, innovation culture and collaboration in ecosystem, as well as agile development processes and customer integration in R&D.

Deloitte: R&D has been identified in the Deloitte’s Power Up Switzerland report as a crucial element to ensure ongoing Swiss competitiveness and prosperity. What do you think are the optimal support conditions and framework to boost R&D in Switzerland?

André Muff: R&D framework conditions in Switzerland are well supported by the country’s educational institutions, which have a good global reach and network. Swiss universities, such as ETH/EPFL, and technical colleges are well known both locally and globally and work closely with industries and companies. For example Siemens Smart Infrastructure Building Products, in short SI BP, in Zug is a key research partner of HSLU, the Lucerne University of Applied Sciences and Arts. As Head of R&D of SI BP, I am a member of the Governing Council of the HSLU and actively involved in helping to set strategic direction and guiding the curriculum of the institution.

The country’s liberal politics also plays a role in attracting foreign R&D professionals, which is especially important given the limited R&D talent pool in Switzerland. Certain cantons, such as Zug – with its multinational environment, innovation focus, business and customer centricity, and fast and unbureaucratic processes – have a high level of openness toward acquiring foreign talent.

This openness has allowed SI BP to build great local and global R&D competencies by having an ideal mix of international onshore and offshore R&D teams. It also allows us to drive new developments out of Switzerland to be implemented and localized in offshore R&D sites across the globe. Strong connections with local administrations and educational institutions help build excellent R&D networks.

Deloitte: An attractive R&D framework includes participation in international research initiatives. What are the consequences of disrupted participation in Horizon Europe (the largest international research initiative in the world), for Switzerland as an R&D location?

André Muff: Since Siemens AG is headquartered in Germany with a global presence, we have not really been directly affected by the disrupted participation of Switzerland in Horizon Europe. Although the SI BP business unit is headquartered in Zug, only applied research is done in Switzerland, while basic scientific research is driven by our Technology unit in Munich, Germany, and globally. We do however work together with Innosuisse, the Swiss Innovation Agency in Switzerland, on several research projects.

Horizon Europe is especially important for Swiss universities and technical colleges which have been negatively impacted by the disruption to participation – especially as it relates to the acquisition of talent and increased administrative burdens to collaborate. This, in turn, can also impact industries and companies.

Deloitte: Attracting and developing the right talent to drive research is crucial. What are your views on the current R&D talent pool in Switzerland?

André Muff: Generally, the talent shortage in Switzerland has increased in recent years. It is a real challenge to find professionals with the right technical expertise. Subject funding for STEM – science, technology, engineering, and mathematics –continues to be an issue. There needs to be greater investment on the school level and in vocational training. It is essential to train teachers in STEM topics, already at the primary school level. Investment in education needs to factor in that those digital skills will be key in the future, since the entire world is moving increasingly towards digitalization.

Competition for talent with digital and software skills is fierce, and companies like Siemens are noticing that many young talents choose to join big tech companies at the beginning of their careers. However, we are increasingly able to attract R&D professionals, even from big tech companies, by offering interesting and varied R&D opportunities.

Deloitte: Establishing an innovation culture is one the most important success factors to achieve excellence in R&D. How do you foster an enabling environment for innovation and R&D?

André Muff: There are several elements involved in creating excellence in R&D and differentiating yourself. Most deal with increasing the existing innovation collaboration within new networks and ecosystems.

For example: more co-creation with customers, creating dedicated spaces for innovation within the organization, such as idea boosters, team challenges and so forth, or organizing R&D challenges and competitions with universities. The right composition of R&D teams is also important to achieve innovation excellence, for example by having the perfect mix of local and global team members.

Additionally, in R&D processes it is essential to have not only the space, but also the time to develop new ideas. Room for “failing forward” should also be part of such an innovation culture. If an R&D team makes an error, there is benefit in still discussing it broadly within the organization, so that other teams can learn from it and evolve. It should not only be about celebrating the R&D successes – you can learn even more from the failures.

Deloitte: R&D benefits immensely from the creation of clusters, collaborating with external partners, and operating as part of an ecosystem. How do you engage with your external partners to boost your R&D efforts?

André Muff: SI BP collaborates broadly with universities and technical colleges. For example, we are sponsoring professorships, masters’ programs etc., to nurture both talents and ideas. At HSLU, we are not only part of the Governing Council, but also share labs with the university and are in close collaboration with their software department. We have similar collaborations with other universities in Switzerland, like ETH and EPFL.

Customer co-creation is a very important process for our organization. We invite stakeholders, usually customers or suppliers, to participate in a design or problem-solving process to produce a mutually beneficial outcome. These outcomes can include new product ideas, ways to overcome current design limitations, or even technical solutions to complex manufacturing questions.

We also conduct open-source development, as well as collaboration projects within our organization, especially in the software field. Swiss companies, however, tend to be more conservative when it comes to open source in the industry. More training and education at universities and institutions would also help to build more willingness and capacity in this area.

Deloitte: R&D has been identified in the Deloitte’s Power Up Switzerland report as a crucial element to ensure ongoing Swiss competitiveness and prosperity. What do you think are the optimal support conditions and framework to boost R&D in Switzerland?

Gerhard Salge: Switzerland has many excellent framework conditions that make it attractive for R&D. The excellent education system – schools and universities – is a key factor. The dual-track school system offers flexibility and allows for different paths – for example, apprenticeship and vocational training, as well as the traditional baccalaureate and university route. This flexible system is a competitive advantage in the R&D space.

There is also a variety of talent. The fact that Switzerland is well-positioned in the technology space – with many global companies located here and having world-class R&D expertise in technology areas such as machine learning, AI etc. – serves as great talent magnet for both students and R&D professionals from abroad. The good salaries, safe and attractive social environment and fantastic working infrastructure are further incentives to attract the right talent.

The country remains safe, reliable and predictable – even through the hottest phases of the Covid-19 pandemic, key services such as public transportation and internet connections remained stable. On the other hand, the high living standards, the quality of life and the wonderful environment in Switzerland, seduces especially young people to put a focus on their leisure time. This fact could impact productivity and the global competitiveness of the location in the long term.

Deloitte: An attractive R&D framework includes participation in international research initiatives. What are the consequences of disrupted participation in Horizon Europe (the largest international research initiative in the world), for Switzerland as R&D location?

Gerhard Salge: Ongoing international collaboration and working closely together is currently very important and will continue to be in future. As an example – the global energy transition trend and the focus on renewables has great potential for Switzerland which is already strong in key technology areas that could support this move. Europe is a front-runner in the energy transition, and it will be important for Switzerland to be an active part of the European R&D landscape through a good research exchange. In this regard, the disrupted participation in Horizon Europe is concerning.

Apart from Horizon Europe, the R&D landscape also includes cross-collaboration with European customers, suppliers etc. and since Switzerland is located centrally in Europe – participation and collaboration should happen naturally and be encouraged.

Deloitte: Establishing an innovation culture is one of the most important success factors to achieve excellence in R&D. How are you fostering an enabling environment for innovation and R&D?

Gerhard Salge: Diversity of thoughts and approaches are the main elements of a successful innovation culture. Instilling a common mindset of collaboration across functions (for example from engineering to finance) and across a global network is key. Apart from internal collaboration, it is also important for us in Hitachi Energy to partner and share externally with customers, suppliers, universities and also in associations or initiatives.

Digitalisation is a key facilitator to enable an innovative R&D environment. The right equipment and a good digital infrastructure are required. The Covid-19 pandemic has increased the digitalisation of our external collaboration. Online meetings and workshops – in both R&D and other areas – with our customer and suppliers, have increased a lot and helped us to collaborate intensively and successful.

Deloitte: Some observers say that Switzerland is losing its competitive edge globally, because the country is not known for taking risks or failing forward when it comes to innovation. What is your view on this topic?

Gerhard Salge: While Switzerland might not necessarily be famous for risk-taking it has other qualities that are important for successful innovation – such as being reliable, very clear and structured as well as focused on quality.

One such example is Swiss public transportation. Experiencing daily the reliability of trains, trams and buses, I am not surprised that many people call it one of the most reliable public transportation system in the world. And Apps that allow flexible check-in and check-out as well as optimized billing are standard. The realization of the new Gotthard railway tunnel is another example of Swiss reliability, precision and innovation.

While the Swiss decision-making process is described by many people as slow, once a decision is made by public opinion, government or other involved parties – execution is pretty fast and highly reliable. The same approach could now be applied to Switzerland’s energy transition towards higher level of electrification based on renewables. This would significantly reduce dependency on oil and gas, especially in heating and transportation sectors.

Deloitte: R&D has been identified in the Deloitte’s Power Up Switzerland report as a crucial element to ensure ongoing Swiss competitiveness and prosperity. What do you think are the optimal support conditions and framework to boost R&D in Switzerland?

Gian-Luca Bona: There are many factors that contribute to Switzerland’s reputation as an R&D hub in the center of Europe. We have an excellent education system and are able to produce and attract highly educated people such as excellent engineers, amongst others. A stable political and a (still) solid financial system, with capital to invest, also contribute to an attractive and highly competitive R&D ecosystem here in Switzerland.

However, the current political gridlock in the relationship with the EU, our biggest trading partner, has put a lot of pressure on Switzerland’s R&D framework conditions. If we want to compete with – for example – Silicon Valley and dynamic cities in Asia such as Shanghai, we need to remain open and liberal and cooperate proactively.

To further develop our R&D credentials, we should draw from our past and the Swiss concept of common ownership (“Allmendgedanke”). For example, when – in the 19th century – politicians, bankers and engineers came together in the spirit of solidarity to end the frequent flooding of the Linth river and improve living conditions, today's Credit Suisse (at that time SKA) and the ETH Zurich were founded. We realized then that the best brains have to join forces. R&D in Switzerland would benefit greatly from a similar, more collective approach, targeted incentivization and increasing public-private partnerships based on solidarity, rather than a dedicated industry policy and more regulation.

Deloitte: An attractive R&D framework includes participation in international research initiatives. What are the consequences of disrupted participation in Horizon Europe (the largest international research initiative in the world), for Switzerland as a R&D location?

Gian-Luca Bona: Empa currently has 75 EU projects running, with most of them focusing on developing novel materials and technologies. Even though the majority of these projects are not on fundamental science funded by the ERC (European Research Council), we nevertheless work with numerous partner institutions across Europe. Disruptions have meant we lost some European funding – but more importantly our role as a prime driving partner has been compromised. Successful R&D requires open borders and fruitful relations with our neighbors.

This is especially true as digital technologies – such as digital twins, digital image processing/ recognition, machine learning, predictive maintenance, etc. – are accelerating and adding a new dimension in the way we develop new technologies and systems. R&D is becoming more complex and multi-faceted and will be increasingly distributed across different locations. As a result, demand for international R&D cooperation will be even greater. Closing off opportunities for cooperation now puts us at risk of becoming a “Ballenberg for R&D”, i.e. – just a showcase museum of past innovation successes.

Deloitte: Attracting and developing the right talent to drive research is crucial. What are your views on the current R&D talent pool in Switzerland?

Gian-Luca Bona: While the high-cost location of Switzerland can still attract excellent R&D talent with good salaries, the cost of living in the country can be prohibitive. Nevertheless, Empa receives at least one application per day from Asia, especially from PhD candidates in South Korea, Taiwan, China or India – who are generally highly educated and motivated. Other R&D locations in Europe have also become more competitive, for example the Netherlands, Belgium and Denmark.

Switzerland, however, still has a problem educating and developing enough of its own STEM (science, technology, engineering and mathematics) graduates – we need to strengthen STEM education even more in our dual education system.

Talent pool supply is further complicated by the fact that many Swiss companies now follow a clear dual strategy and move more R&D abroad / outside of Switzerland. The reason for building up an R&D presence abroad (for example, in Asia) is – among others – to be closer to the customer in growth markets, but also to be closer to a larger talent pool.

Deloitte: Establishing an innovation culture is one the most important success factors to achieve excellence in R&D. How are you fostering an enabling environment for innovation and R&D?

Gian-Luca Bona: We can no longer afford to remain complacent if we wish to keep and improve our innovation competitiveness in Switzerland. The mindset needs to change from relying on past successes to focusing on the future. There are encouraging early signs with a new generation of scientists coming through – they take more risks, network more effectively across borders and focus more on customer needs in their research.

While there is still room for improvement, the new approach does seem to be more entrepreneurial – with a start-up mentality and a focus on a clear business case, i.e. taking into account P&L considerations. It will be important to sustain this, as there are many future opportunities where Swiss R&D could differentiate itself and could indeed become a global technology leader – for example, in the areas of clean energy transition and addressing climate change and biodiversity.

Deloitte: R&D benefits immensely from the creation of clusters, collaborating with external partners and operating as part of an ecosystem. How are you engaging with your external partners to boost your R&D efforts?

Gian-Luca Bona: Ecosystems and the provision of “pre-competitive spaces” for researchers are key to drive innovation and boost R&D efforts. An example of this would be the Swiss m4m Center – an additive manufacturing center for medical applications that promotes the development and usage of 3D printing. The center is part of the AM-TTC Alliance (Advanced Manufacturing Technology Transfer Centers), which is supported by the Swiss Government. The alliance comprises 32 member organizations in addition to Empa – including ETH Zurich, EPFL and other research institutions, as well as companies such as Trumpf and Sandvik, and industrial associations.

Besides the Swiss m4m Center, the Paul Scherrer Institute (PSI) and other partners have established another AM-TTC – ANAXAM (Analytics with Neutrons and X-Rays for Advanced Manufacturing), and we have plans for additional centers to transfer academic research to industrial applications. The Innovation Park Zurich, in which Empa was involved from the beginning, is another good example that will enable collaboration between Swiss research institutions and the R&D departments of large companies, innovative SMEs, as well as start-ups.

Deloitte: R&D has been identified in Deloitte’s Power Up Switzerland report as a crucial element to ensure ongoing Swiss competitiveness and prosperity. What do you think are the optimal support conditions and framework to boost R&D in Switzerland?

Stephan Mumenthaler: The current framework conditions for R&D in Switzerland are very good – for example – the liberal environment, networks and institutions, general availability of talent, sufficient public/private funding and spin-off opportunities. From a company perspective, liberal corporation tax and global market access also play an important role. It is key for all framework conditions to work together to create optimal conditions for R&D.

However, there are some concerns. Not being fully associated to the largest international research cooperation programme Horizon Europe anymore will impact the attractiveness of Switzerland as a future R&D location. Global competition for R&D talent is tough and without participating in collaborative programmes such as Horizon Europe, Switzerland will find it even more difficult to attract top R&D talent which will be drawn rather towards locations that can offer better growth opportunities. Additionally, Swiss multinationals that have a global and diversified R&D footprint may choose to set-up or expand their R&D capabilities in locations other than Switzerland. Another concern is that Switzerland is also lagging specifically in the digitalisation of the health care sector. The digital infrastructure, data systems and capabilities in this sector are still in their infancy, by global comparison.

Overall, however, there is still reason for optimism when considering Switzerland as an R&D location – especially in the area of new products and new business models. This potential is evidenced, for example, by the fact that Zurich continues to remain an R&D location for Google.

Deloitte: Attracting and developing the right talent to drive research is crucial. What are your views on the current R&D talent pool in Switzerland?

Stephan Mumenthaler: R&D specialists are in short supply – especially those with expertise in IT/digitalisation. The demand for these specialists is growing faster than the supply. It will be important for Switzerland to keep its borders open for R&D talent and in this regard, disrupted participation in Horizon Europe has certainly not helped. While for now R&D specialists still come to Switzerland, this could very well change in the future.

There are also both quantitative and qualitative challenges with STEM (science, technology, engineering, and mathematics) talent. In response to this, ten years ago scienceindustries founded its own foundation called SimplyScience – an initiative aimed at promoting the understanding of science among young people and informing them about possible training and career opportunities. However, much more needs to be done.

While the talent output at ETH/EPFL is excellent, it is not enough – talent often needs to be recruited outside of Switzerland. Regulations should also change to more easily allow foreign students who graduated in Switzerland, to stay and work here. In certain industries, such as the pharmaceutical and chemical industries, the skills sets that are required are also changing – as more data is used and analysed, new data-centered capabilities are increasingly needed and should be nurtured.

Even though pharmaceutical companies remain very attractive as employers – many STEM talents are more drawn towards IT/technology companies such as Google, Amazon etc. The potentially attractive and interesting mix of both health and technology/digital data needs to be emphasised more, in a bid to attract talent to the health sector.

Deloitte: Establishing an innovation culture is one the most important success factors to achieve excellence in R&D. How are you fostering an enabling environment for innovation and R&D?

Stephan Mumenthaler: A successful innovation culture is made up of several factors. These include an international set-up/orientation with cooperation across many locations, a well-coordinated team effort and fostering an open environment where innovation is embedded in the company culture – to name just a few.

Exchanges on a company level are also important. Work permits need to be accessible to enable moving people and fewer borders/regulations make a location more attractive. Less regulation will also support the sharing of data and IP across multiple locations to further encourage successful innovation.

Collaboration is also key – not just internally, but also with external partners like universities, suppliers, customers or other companies. For example – there should be much more collaboration between the pharmaceutical and chemical industries and technology companies, to build the digital talent pool for innovation in Switzerland.

Deloitte: Some observers say that Switzerland is losing its competitive edge globally, because the country is not known for taking risks or failing forward when it comes to innovation. What is your view on this topic?

Stephan Mumenthaler: While there may be some truth in the statement that Switzerland is not really known for taking too many risks and that some innovation processes take a bit longer, Swiss innovation is also well known for being very precise, exact, reliable, and taking its time – symbolized by the successful Swiss watch industry. This careful and considered approach can also be a great asset that supports a solid production hub and feeds back into R&D, prototyping etc.

In many Swiss multinationals and large companies, R&D teams are now anyway increasingly global and part of an ‘international innovation culture’ that displays the desired attributes of risk taking, precision, reliability etc. – all within the same team. Switzerland benefits from being part of this global approach to R&D.

Deloitte: R&D has been identified in the Deloitte’s Power Up Switzerland report as a crucial element to ensure ongoing Swiss competitiveness and prosperity. What do you think are the optimal support conditions and framework to boost R&D in Switzerland?

Robert Rudolph: Good framework conditions for innovation are critically important for the Swiss industry location and the economy as a whole – innovation is actually the ‘elixir of life’ for the Swiss mechanical and electrical engineering industries (MEM industries). With a small domestic market the MEM industries are massively export oriented so success and growth will only be possible through innovation. Due to limited leverage in old markets with old products, there is a clear need to compete and expand in new markets with new products, services and business models – only through R&D and innovation will we be able to keep our competitive position globally and even strengthen it through digitalisation. Over the last 10 years, the framework conditions for innovation in Switzerland have been going through a transition.

The Swiss education system is an essential component of the framework conditions. The reform of technical vocational training is key to stay competitive and remains at a very high standard. This is complemented by our excellent universities and other highly regarded educational institutions which all contribute to an innovation spirit and results in a good spill-over into industries. We also have more FTAs (Free Trade Agreements) in place and good access to and association with the EU.

However, funding the landscape of innovation could improve in Switzerland. While subsidies are not needed, instruments like Innosuisse (Swiss Innovation Agency) as well as universities and networks that foster better cooperation could all benefit from more funding. It will also be important that funding remains broad and equal, only allowing for more specific focus when it comes to topics of societal relevance – for example sustainability, CO2 reduction etc.

Overall, the key advantages of Switzerland as an R&D location are clearly the availability of top talent, open R&D ecosystem, world class universities, low taxes, liberal labour laws, quality of life and the geographic location in the middle of Europe. Many of the framework conditions are in place, however it will be important that they are nurtured and strengthened on an ongoing basis.

Deloitte: Attracting and developing the right talent to drive research is crucial. What are your views on the current R&D talent pool in Switzerland?

Robert Rudolph: Over the last 10 years Switzerland has experienced a shortage of skilled workers. While we have constant numbers of apprentices, baby boomers are retiring and the of loss of skills is currently greater than the gain. For example – our intake in electrical engineering candidates in the MEM industries is declining, even though we have high demand as a result of digitalisation. In the long term this will be a significant challenge.

We also still need to increase the number of women in MEM industries. Our activities/information campaigns in schools and technical colleges need to continue and there should be an even stronger push for STEM (science, technology, engineering and mathematics) by industries, as well as schools. The integration of STEM into the harmonized compulsory education across all cantons (“Lehrplan 21”) is still a work in progress. In the context of education, it is important that teachers have not just teaching knowledge but also have an understanding of industry, enabling them to motivate and engage students on digital topics. Exchange opportunities between schools and companies should be strengthened to offer more regular factory visits, workshops, focus weeks etc.

While we can easily attract skills and talent from Europe, it is more challenging when candidates are from third states, as a result of quotas. This could improve if people who have been trained and educated in Switzerland have the right to stay in this location. Many of them have highly developed technical skills and knowledge and should receive special permissions, similar to those available for talent in start-ups.

Deloitte: Some observers say that Switzerland is losing its competitive edge globally, because the country is not known for taking risks or failing forward when it comes to innovation. What is your view on this topic?

Robert Rudolph: The willingness to take risks is key for any innovation culture. While many MEM companies in Switzerland can sometimes be slow-moving in this regard, there are also some ‘best-in-class’ companies in global comparison. The strong focus on incremental innovation within Switzerland and its MEM companies has provided a structural innovation advantage. This is strengthened by ongoing quality and reliability, as well as an added focus on disruptive innovations/business models. However, the high cost of Swiss innovations is often a disadvantage.

There is room for improvement in the cultural dimension of innovation in Switzerland. This could include greater customer integration in R&D/innovation, a better view of innovation pipelines and more agility topics for MEM companies to consider. There is also greater need for collaboration, especially in an environment that is increasingly digitalised and will require new competencies and greater awareness.

The main challenge for many MEM companies in Switzerland remains that there is not enough pressure to change due to high prosperity levels. Even the Swiss Franc shock and the COVID-19 crisis have not had as huge an impact as expected. As a result, competitive pressure to change and be willing to take more risks is rather low.

Deloitte: R&D benefits immensely from the creation of clusters, collaborating with external partners and operating as part of an ecosystem. How can MEM companies in Switzerland best engage with external partners to boost their R&D efforts?

Robert Rudolph: Compared to large companies, SME’s can often be challenged in the area of external collaboration. They may struggle with resources or competencies that may be required of them. Intellectual property (IP) can also be a hurdle when cooperating in R&D. The question of who will have the IP rights arises – the SMEs, universities, suppliers, customers or all stakeholders? In the area of open innovation, questions such as who has which responsibility and who is making which investment are also complex to navigate.

For cooperation to be successful there needs to be effective management of the networks within an innovation ecosystem. ‘NTN Innovation Boosters’ would be such an example, where Innosuisse brings together interested players from research, business and society on a range of innovation topics. However, sometimes there can be a degree of over-administration and over-planning that does not allow for the spontaneity associated with successful innovation. Government can help by providing or supporting more innovation platforms to build the ecosystems.