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2009 | Book

The Mystique of the Hidden Champions Read chapter Read first chapter

Hidden Champions of the Twenty-First Century

Success Strategies of Unknown World Market Leaders

Author: Hermann Simon

Publisher: Springer New York

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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About this book

Chapter 5: Customers, Products, Services . . . . . . . . . . . . . 129 Close Customer Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Customer Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 Dependence on the Customer and Risk Aspects . . . . . . . . . . . . . . . . . 135 Achieving Closeness to Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Product and Service Spectrum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 Chapter 6: Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 What Does Innovation Mean?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 High Level of Innovativeness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Driving Forces of Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 The Origin of Innovations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 Leadership and Organizational Aspects of Innovation . . . . . . . . . . . . 179 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 Chapter 7: Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 Competitive Structure and Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . 191 The Hidden Champions in the Light of Porter’s “Five Forces” . . . . . 195 Competitive Advantages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 Sustainability of Competitive Advantages . . . . . . . . . . . . . . . . . . . . . . 203 Demonstration of Competitive Superiority . . . . . . . . . . . . . . . . . . . . 205 Competitive Edge and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 Sparring Partners for Competitive Fitness . . . . . . . . . . . . . . . . . . . . . . 214 Excessive Competitive Orientation . . . . . . . . . . . . . . . . . . . . . . . . . . . 217 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 Chapter 8: Financing, Organization, and Business Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 Contents ix Organization of the Value Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 Business Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 Entrepreneurial Clusters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 Chapter 9: Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257 Job Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257 Corporate Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 Quali?cations and Learning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 Creativity of Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278 Recruiting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 Chapter 10: The Leaders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 Structures of Ownership and Leadership . . . . . . . . . . . . . . . . . . . . . . 286 How Crucial Is Leadership? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 Leadership Continuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 Young to the Top . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 Powerful Women . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 Internationalization of Management . . . . . . . . . . . . . . . . . . . . . . . . . . 298 Personalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 Leadership Styles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 Management Succession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310 Chapter 11: Hidden Champions: Audit and Strategy Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 What Is Strategy? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316 Hidden Champion Strategy: For Whom? . . . . . . . . . . . . . . . . . . . . . . 316 Hidden Champions – Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317 Strategy Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Strategies for Value Propositions and Pricing . . . . . . . . . . . . . . . . . . . 335 Organization and Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table of Contents

Frontmatter
1. The Mystique of the Hidden Champions
Large corporations are the subject of close and constant scrutiny by academic researchers, analysts, shareholders, and journalists. Hidden champions, on the other hand, remain a virtually unexplored source of knowledge. Scattered across the globe, thousands of these highly successful companies are concealed behind a curtain of inconspicuousness, invisibility and, in some cases, deliberate secrecy. This applies to the products these companies make, how they beat the competition or—even more difficult to research—how they are managed internally. Even their names are known to only a handful of experts, consultants, journalists, and researchers.
Hermann Simon
2. Growth and Market Leadership
Goals play a central role for the strategy and the leadership of an enterprise. The hidden champions pursue highly ambitious goals aimed above all at growth and market leadership. When and how are these goals formulated? How are they filled with content? How are they communicated? And how successful are the hidden champions of the twenty-first century at realizing these goals? In this chapter, we see that the hidden champions have grown strongly and continuously over the last ten years. In the process, they have strengthened their market position. This applies to both absolute and relative market shares. Hidden champions define market leadership not only in terms of market share, but see it as an extended claim to overall leadership in their markets. Their goals are truly long term.
Hermann Simon
3. Market and Focus
The selection and definition of a market are the starting point for strategic planning. How do the hidden champions define their markets? How do they conduct their businesses in these markets? The hidden champions usually focus on narrow markets. Many of them do not feel restricted by customary market boundaries, but define their markets autonomously as part of their strategy. In doing so, hidden champions often achieve high market shares with sometimes monopolistic positions; thereby establishing effective barriers to entry. But high market shares in narrow markets can limit the opportunities for growth. Considering the hidden champions’ ambitious growth targets, this is a serious problem. To cope with this dilemma they do not abandon their growth targets, but instead choose the route of “soft” diversification. This is the greatest shift in strategy in the last ten years. Nevertheless, the hidden champions endeavor to maintain their traditional strengths. One way to achieve this is through consistent decentralization.
Hermann Simon
4. Globalization
How does a company ascend to world market leadership? Certainly not by staying at home and waiting for customers to call on it. Instead, the hidden champions venture into the world and offer their products wherever their customers are. This process of globalization typically takes generations and requires unending stamina. In the preceding chapter we learned that the hidden champions operate in narrowly defined and therefore relatively small markets. To expand these markets, the hidden champions have chosen globalization as the second pillar of their strategy besides focus. This means that they are narrow in the substance of their business and wide in the regional dimension. The hidden champions’ world markets are far larger than their respective home markets. Ten years ago their main markets were in Western Europe and North America. In the current process of rapid globalization the hidden champions increasingly expand their scope into Asia and Eastern Europe. They are simultaneously confronted with numerous attractive new markets that makes setting priorities very difficult. In the decades after World War II, entries into new markets were executed in a very entrepreneurial manner (i.e., the entrepreneur made the decision and sent his troops into the new country without much instruction). The current generation of hidden champions managers relies on a more professional and systematic preparation. Mental internationalization is at the same time a precondition for and a consequence of successful globalization. The participants themselves (i.e., leaders, managers, and employees) change in this process. Increasing knowledge of foreign languages and cultures gradually removes the shortage of internationally experienced and versatile personnel that was characteristic of the early stages. In a globalized economy Western Europe is in a geostrategically advantageous location. From Europe companies in all important countries can be reached within normal office hours, and global travel times are considerably shorter than from Asia or America.
Hermann Simon
5. Customers, Products, Services
The hidden champions have extremely close relationships with their customers, due to the complexity of the products and services they offer. Three quarters of the companies practice direct sales. Five times as many employees in hidden champion companies have regular contact with customers than in large corporations, leading to the pronounced closeness.
Hermann Simon
6. Innovation
We have already seen that excellent performance with regard to goals, globalization, and closeness to customer is a necessary requirement for becoming a hidden champion. However, in most cases innovation is the foundation for success. Achieving and maintaining world market leadership requires outstanding and continuously innovative performance. The innovations of the hidden champions are in no way restricted to technologies and products; these companies also demonstrate tremendous innovative drive in processes, systems, marketing, and services. Various indicators such as R&D intensity, number of patents, and revenues coming from new products prove that the hidden champions are extremely innovative. How do these midsize companies achieve such innovativeness in spite of their limited resources? In this chapter, we will see that the hidden champions differ from large corporations in the way they handle several key factors for success in innovation.
Hermann Simon
7. Competition
How do the hidden champions compete? Which competitive strategies do they apply? What competitive advantages do they have? We will address these and similar questions in this chapter. The hidden champions operate predominantly in oligopolistic markets, and even on a global scale, they face only a limited number of competitors. However, competition is fierce. Their strategy is oriented to superior performance, not low prices. Their long-standing competitive advantage of product quality continues to form the core of their market leadership. They also offer excellent service. More recently, they have developed superior positions in softer parameters such as advice and systems integration. As these parameters are based on internal competencies, they are difficult to imitate and therefore sustainable. Today, barriers to entry for a new competitor are likely to be higher than they were ten years ago. In spite of these advantages, the hidden champions must keep tight control of costs as the balance between superior performance and price premium is a delicate one. When it comes to new markets with previously unknown segments (e.g., extremely low-priced products), unconventional strategies directed towards radically simplified products and radically lower costs must be adopted. In spite of globalization, competitors in geographical proximity continue to be crucial sparring partners for remaining competitively fit. However, excessive orientation towards competition should be avoided.
Hermann Simon
8. Financing, Organization, and Business Environment
Financing and organization are pillars of corporate strategy. The business environment or context is another important factor of the emergence and the development of the hidden champions. In view of their fast growth, the demands on financing capacity are always high. How do the hidden champions deal with this situation? Do they view their financial capacities as a strength or a weakness in competition? Does financing put constraints on their expansion or is there enough leeway for the realization of the ambitious growth and market leadership goals? How will the role of different financing forms shift in the future? What do they think about going public? We will investigate these questions in the chapter on hand.
Hermann Simon
9. Employees
It is common knowledge that employees’ motivation and sense of identification are key to a company’s success. The difference between companies lies in the energy with which these aspects are actually lived out. In this chapter, we look at employees and corporate culture. The growth of the hidden champions means they create numerous new jobs, particularly in foreign markets and for highly qualified employees. How do the hidden champions approach factors such as performance, sickness, employee turnover, and flexibility? We will see that they practice traditional values. Scant human resources and decentralization ensure high productivity and performance transparency. The hidden champions’ predominantly rural locations create a special relationship between employers and employees. Recruiting highly qualified employees in a global context presents the hidden champions with new challenges.
Hermann Simon
10. The Leaders
Is there one single explanation for the outstanding and continuing success of the hidden champions? If I had to choose one, it would without a doubt be the personalities at the top. Many of them are founders, but following generations of leaders have often made a lasting impression on me. What characterizes the leaders, their systems, and styles in these companies? Roughly two thirds of the hidden champions are still family-run, but the role of managers who are family members is declining. A particularly notable feature is the leadership continuity, based among other things on the appointment of leaders to top positions at an early age. On average, CEOs of hidden champions remain at the top for 20 years. Female leaders play a significantly greater role than in large public corporations. In contrast to the internationalization of the business itself, the internationalization of top management is still in its infancy, but it is already well advanced in some companies.
Hermann Simon
11. Hidden Champions: Audit and Strategy Development
How can a strategy be developed that turns a company into a hidden champion? Where is the best place to start? What results does strategy development achieve? What is the role of consultants in this process? We will address these and similar questions in this chapter. There are naturally no standard answers. The lessons of the hidden champions are not a checklist to be worked through, automatically resulting in a strategy for success. There is not even a standard procedure for strategy development. The right approach, taking either the market or the company’s competencies as a starting point, must be determined for each case individually. Despite this warning against one-size-fits-all approach, the strategy development process usually encompasses the following stages:
Hermann Simon
12. The Lessons of the Hidden Champions
What do the hidden champions teach us? According to modern management literature, we mainly—or only—learn from large successful corporations. In this book we have changed this perspective radically. We have discovered that many of the most consistently successful, longest-surviving, most competitive companies operate behind a veil of discretion and remain unknown—even to business experts. Consequently, their strategies and leadership methods are not finding their way into the textbooks, business magazines, and heads of the management community. However, the case studies of the hidden champions teach us extraordinary and valuable lessons that often differ from the patterns of large corporations and the management fads of the day.
Hermann Simon
Backmatter
Metadata
Title
Hidden Champions of the Twenty-First Century
Author
Hermann Simon
Copyright Year
2009
Publisher
Springer New York
Electronic ISBN
978-0-387-98147-5
Print ISBN
978-0-387-98146-8
DOI
https://doi.org/10.1007/978-0-387-98147-5