What do Baader, 3B scientific, McIlhenny, International SOS, Hoganas, Tetra, Bobcat, Gallagher, Seas Getter, Hamamatsu,Arnold and Richter, Petzl, Lantal, Tandberg, WET, De La Rye, Belfor, Ulvac, Orica, CEAG, Gartner, Zimmer, Technogym, Gerriet,Embrear, OC Tanner, Klias, Electro-Nite, Sappi, Essel Propack, Plansee, Dickson, Molex, Jungbunzlauer, Nivarox, SGS, Brainlab, Delo, Enercon, Omicon, Beluga, Nissha, Amorim, Jamba, Netjets and EOS have in common?
They are all companies you probably have never heard off, who have global market shares of over 50% and have been around for a long time. Hermann Simon calls them hidden champions. The book is the German version of “In search of excellence”. With a number of lessons, we all should pay attention to. Particularly owner managers of medium-sized businesses.
They are all extremely niche focusses and have embedded themselves in the value chain of their clients and are the undisputed market leaders in their niche. They usually focus on narrow, small markets. And become the best in that market. Making them the market leader. The claim to market leadership is not confined to market share alone but includes performance attributes such as technology, innovation, quality, and reputation. Their tactic is to dominate our market niches by transforming general markets in which they are a nobody into market niches where they are somebody! They are supernichists.
What do they do
They are mostly family businesses. They are based in rural communities. They have a long term perspective. They have CEOs that have been there for over 25 years. The CEO is most likely to be the owner. They are very customer focussed. They are global. They look after their staff extremely well. They invest in training. They invest in innovation. They are ambitious, have a vision and set themselves long term, some times generational stretch goals. They stick to what they do best. And most of all they all deliver superior quality.
They refuse to employ customary or traditional market definitions. Instead, they define their markets in autonomous and innovative ways and it becomes part of their strategy definition. Not “washing machines”, but “washing machines for quality linen, for the restaurants in 5-star hotels only”. Extreme market segmentation if you like. Which means that they are also very, very close to their customers
They have grown by going global
All of the companies have an international focus. They on average 24 subsidiaries in other countries, a surprisingly large number for midsize companies. They are all in China and have been for a long time. The triad they focus on is China, Russia, India. They know that Japan is a source of innovation (“What happens in Tokyo today happens in the rest of the world tomorrow”), but is not their focus yet. All their managers speak at least 3 languages in the company, and increasingly the staff reflects the diversity of their client base. This as part of getting as close as possible to their customers.
Selling versus marketing
Approximately 70% of the hidden champions only sell directly and maintain intensive, lasting relationships with their customers and enter into a long-term commitment with the supplier. They don’t have marketing departments or marketing titles. They have 5 times more contact with regular contacts then “normal” business. As a result, they have extremely close relationships with their customers, embedded in the value chain of the customer, nearly symbiotic. With an emphasis on high performance rather than at a low price. They offer complex product and service programs, more often systems solutions. Such programs cannot be sold off the peg, but require detailed consultation processes. They brand themselves by high visibility projects in the niche, focus on being known by the people that matter and the message is simple. Being the best, the number one, the market leader, are excellent communication messages both for the market and for the employees. The statement: “We are number one” is clear and comprehensible for everyone.
Innovation is key
They spend double the average spend on R+D. With a higher emphasis on process innovation, but also in distribution, pricing, design and sometimes technology and patents. If they go for patents, their patent intensity is 5 times higher! Because they involve staff in vision, values and strategy, innovation is easier. With the active involvement of the management team, who are invariable domain experts themselves. And of course, they involve their customers in the innovation process. The main focus is on ongoing improvement versus breakthrough innovations. Even many technical breakthroughs were the result of a development policy of small steps.
The typical hidden champion is a one-product, one-market company with limited organisational complexity. The top management of the hidden champions is very lean. They manage their global businesses with the aid of network organisations that make use of the latest information technology to the greatest possible extent. The hidden champions prefer to promote their leaders from within and have a long term view. The hidden champions have high-performance cultures and are intolerant of shirkers. Shirkers get fired. If you stay, you stay for a long time. The average length of service is 37 years. Which allows the organisation to retain a lot of the knowledge and expertise. Employee loyalty, training, motivation and flexibility are seen as pronounced competitive strengths by the management team. They always have more work than people, which develops a high-performance culture. The high-performance culture is achieved through the formation of small units that make the performance of individual employees transparent. The hidden champions are enthusiastic decentralises and rely less on formal systems and key figures when it comes to mobilising employees’ creativity.
In core competencies, the hidden champions continue to favour high vertical integration and avoid outsourcing. Hey strongly outsource noncore competencies. They prefer to go it alone and have an aversion to strategic alliances.
- Willpower and goals always come first. Leadership means inspiring employees from all over the world to be the best, to become a world market leader.
- Ambitious goals can only be achieved by focusing one’s resources. The definition of the playing field itself is an essential means of getting the focus right
- High performance requires intolerance against shirking and swift dismissal of employees who do not pull their weight.
- Uniqueness can only come from within and cannot be bought on the market. It, therefore, requires depth and a certain reserve toward outsourcing.
- Decentralisation is the most effective way to retain the strengths of the hidden champions, even in larger and more complex structures. Decentralisation should be put into practice wherever possible.
- Globalisation opens up unprecedented growth opportunities, even for small companies. In order to use these opportunities, leaders and employees must put aside their national and cultural boundaries. Incessant stamina and perseverance are required to survive the multigenerational globalisation process. The greatest challenge is the internationalisation of the people.
- Innovation is the only effective long-term means of succeeding in competition. Innovation is primarily a question of creativity and quality, less so a matter of money.
- Closeness to customer almost automatically creates competitive advantages. Top customers, like top competitors, should be employed systematically as drivers of performance.
- Thinking in generations instead of over a short period of time, (e.g., three, five, or ten years as is common in strategic planning);
- Maintaining high continuity in top management;
- Resisting management fads, and observing timeless maxims instead;
- Fostering the loyalty of the employees and the entrepreneur’s reciprocally high responsibility
- The condition “more work than people” also favours simplicity. Parkinson’s law that employees invent the work which keeps them busy doesn’t stand a chance.
You can do it
The end of the book is brilliant. The message is simple, you can do it too. Hidden champions teach us that instead of managing only one great thing brilliantly, good management means doing many small things better than the competitors. The sum of many small advantages ultimately leads to success. Genius is not required. To become a hidden champion, we must do many small things a little better in a targeted and consistent way and with stamina. Focus, clear and specific market definition, extreme customer care and focus, high quality, high performance and a long-term perspective are all you need.