German Mittelstand Champions (geschützt)

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The success model German mid-sized world market leaders - Lessons for large and small companies Prof. Dr. Bernd Venohr MBA General Management - Dual Award / Entrepreneurship Dynamics of Strategy I: Corporate Strategy Berlin July 9, 2011 © 2011 Prof. Dr. Bernd Venohr No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without written permission.

Transcript of German Mittelstand Champions (geschützt)

Page 1: German Mittelstand Champions (geschützt)

The success model German mid-sized world market leaders - Lessons for large and small companiesProf. Dr. Bernd Venohr

MBA General Management - Dual Award / Entrepreneurship Dynamics of Strategy I: Corporate StrategyBerlin July 9, 2011

© 2011 Prof. Dr. Bernd VenohrNo part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means -electronic, mechanical, photocopying, recording, or otherwise - without written permission.

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© 2011 Prof. Dr. Bernd Venohr 2

Germany has a leading position in international trade

Germany and China are the only large countries gaining shares in

world trade

German companies occupy a top 3 position in 2/3 of industry

sectors

50%

75%

100%

125%

150%

175%

200%

225%

250%

275%

300%

1995 1997 1999 2001 2003 2005 2007

China

Germany

Japan

UK

Italy

USA

France

shar

ein

wo

rld

exp

ort

s

Numberof Top-Positions

41,81%97263734USA3

46,12%107161972China2

61,21%142354067Germany1

% of all industry sectors

Total number of Top3 Position

Nr.3Nr.2Nr.1

CountryRank

Source: Own estimates; ICCP, UN Comtrade DBl, 2007

Country share in worldwide exports; 1995 = 1; Source: UN Comtrade DB

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© 2011 Prof. Dr. Bernd Venohr 3

Favourable macro trends + unique management model

§ Favourable macro trends:"China may be the world's

factory but German companies are building it.”

§ Research Base– unique database – 100+ company interviews– numerous case studies– 20+ years consulting practice

§ Unique management model supported by German business environment, in which companies are embedded

§ Relevant Publications

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© 2011 Prof. Dr. Bernd Venohr 4

Introducing the “Mittelstand”:The sweet spot of Corporate Germany

Large companies

Mid-sized enterprises

SME segment

58,7 %

30,6 %

10,7 %< 50 m €

> 1.000 m €

100 – 250 m €250 – 1.000 m €

50 – 100 m €

300(0,11 %)

1.325 (0,49 %) 517 (0,19 %)

2.040 (0,75 %)

267.426(98,46 %)

Number of companies1) Share in totalGerman exports2)Annual revenues

1) Source: German VAT statistics 20072) Verarbeitendes Gewerbe nach WZ2003: d.h. ohne Land- und Forstwirtschaft, Fischerei und Fischzucht, Bergbau und Gewinnung von Steinen und

Erden, Handel, Energie- und Wasserversorgung, Finanzdienstleistungen, etc.Source: Own calculations and Top 500 Unternehmen in Deutschland 2005 © DIE WELT.de 2006. Other sources: Statistisches Jahrbuch 2008

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About 90 % of the 1500 German world market leaders are active in the B2B segment

MachineEquipment

Consumer Products

IndustrialProducts

Cars & Car Components

Electrical Engineering

Pharma & Medical Technology

Chemical Products

Construction &Building Products

High-Tech(e.g. Photonics)

Commodities & Natural Resources

Food & BeveragesDiversified without industry focus

Logistitcs & other ServicesFinancial Services

Retailing and Wholesaling

Software

Heavy Machinery

Media ProductsRenewable Energy

Source: Database German World Market Leaders 2.2.2 (01.10.2010) – World Market Leader (narrower sense)

§ About 1500 German world market leading companies in total: top 3 position worldwide

§ There of 1350 small and large “mid-sized”companies/ “Mittelstand” (annual revenues less than 1 bn €)

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© 2011 Prof. Dr. Bernd Venohr 6

Profile of a typical German mid-sized world market leader

€ 100,0 Mio.

Revenues –Median

600

Employees –Median

62%

Export RevenueShare – Median

§ 70%+ family ownership

§ 70% based in small cities/rural communities

§ Average company age: 70 years

Source: Database German World Market Leaders 2.2.2 (01.10.2010) – World Market Leader (narrower sense)

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German microeconomic business environment

Management “Made in Germany”

Strategy:Dominating global niche markets

Governance:“Enlightened family capitalism”

Operational effectiveness:World class in key processes

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Dominating global market segments:Example automotive

Premium Segment of mass markets:

Narrowly defined market niches: Veigel § Market Leadership =

specialization + global market footprint

§ Stay away from large, price-driven volume markets (“Don‘t play where the elephants dance”)

§ Compete through superior value, not costs

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© 2011 Prof. Dr. Bernd Venohr 9

“Close to the customer” : global sales, service and manufacturing network

Brazil23% India

18%Russia

22%

China44%USA

91%

Percent of German world market leaders with wholly-owned subsidiaries

UK58% France

79%

Source: Own estimates, Deutsche Bundesbank, FDI 2010, minimum balance sheet size of subsidiary: 3 Mio. €

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Close to the customer: The CEO perspective

§ “We know all our customers in the world. Some of our people have been in China 100 times. We do everything ourselves. Sometimes I am asked how we can manage all this with only 280 employees and whether we shouldn't have sales agents. We categorically reject agents. We have our own offices and some of our best guys spend 80 per cent of the time travelling. That's how we cover the world.” *

§ “We don’t sell to our customers what they want, we sell them what they really need. Staying close to the customers through our extensive sales and service network of 40 wholly-owned country organizations plus our 30 local partners helps us to find this out. Then we convince them that the services we offer are what they really need.”

* Source:Dr Wolfgang Pinegger, former president of Brueckner, the world-leading manufacturer of bi-axial film stretching systems; Thomas Kaeser, Owner/CEO Kaeser Kompressoren; one of the world's leading suppliers of air system technology and related equipment. (compressed air and blower products )

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Technology leadership

3,6%

5,0%

Mid-sized worldmarket leaders

1,250 most R&Dintensive companies

R&D expenditures in % of revenues

Source: J. Meffert/P. Radtke/H. Klein/J. Freiling/T. Hutzschenreuter, Unternehmertum Deutschland, Düsseldorf, McKinsey & Company 2005; sample of 600 medium-sized companies

Source: DTI, The R&D Scoreboard 2006, Commentary and Analysis, Volume 1 and 2, London, 2007, p. 60.

§ Innovation strengths vastly underestimated(“High tech obsession”)

§ Masters of incremental innovation

§ Very strong German research network

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Innovation deeply imbedded core capability

Strategy§ niche leadership: value not price§ ”We are technology leader in …§ Family ownership

Strategy§ niche leadership: value not price§ ”We are technology leader in …§ Family ownership

Leadership / Management§ “obsessed” with the business

and its core technologies (50% tech background)

Leadership / Management§ “obsessed” with the business

and its core technologies (50% tech background)

Innovation Ecosystem/Cluster Innovation Ecosystem/Cluster

Customer Centricity§ worldwide networks§ close cooperation with

key customers

Customer Centricity§ worldwide networks§ close cooperation with

key customers

Funding / Metrics§ outspend competitors

(2x)§ dominant share of patent

portfolio

Funding / Metrics§ outspend competitors

(2x)§ dominant share of patent

portfolio

Structure / Processes§ interdisciplinary teams§ high degree of "front-

line-to-front-line“contacts (5x big co’s)

§ typical tools: stage gate/TRIZ in larger co’s

Structure / Processes§ interdisciplinary teams§ high degree of "front-

line-to-front-line“contacts (5x big co’s)

§ typical tools: stage gate/TRIZ in larger co’s

People / Culture§ highly qualified employee

base§ Low turnover at all levels§ trust-based organization

People / Culture§ highly qualified employee

base§ Low turnover at all levels§ trust-based organization

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„The business of business“

§ ADCO International („ DixiToiToi), headquartered in Düsseldorf

§ World leader in portable sanitation with locations throughout North America, Europe and Asia: over 140,000 units in use

§ Annual revenues: over 200 m €

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Subsidiaries worldwide

„Close to the Customer“ through 56 company-company-owned subsidiaries in 32 countries

Europa:

BelgienBulgarienDeutschlandEstlandFrankreichGriechenlandItalienKosovoKroatienLettlandLitauenLuxemburgMazedonienNiederlandeÖsterreichPolenPortugalRumänien

Russland Schweiz SerbienSlowakei Slowenien SpanienTschechien Ukraine Ungarn

USA

Asien:

Hong KongMalaysiaSingapurTaiwan

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ADCO: The technology leader in its industry

TOI Flush: VIP deluxe toilets

TOI Cap: Toiletsfor handicapped

§ Patents: self-flushingtoilet

§ Process innovation:sanitizing concentrates

§ Numerous productinnovations

§ Special self-constructedand built servicevehicles

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World market leader in silent-selfsteering instruments for sailing boots

Source: http://www.windpilot.de/en/Ra/racomen.html

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Essentially one man shop selling overthe internet globally

§ Homepage in 7 major languages§ Manufacturing, distribution and service out of central location

in Hamburg

Source: http://www.windpilot.de/en/Ra/racomen.html

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3.07

3.14

3.31

3.35USA

Germany

UK

France

Operational effectiveness: German companiesworld class in key processes

Average Management Score*(Scale from 1 to 5 = top score)

Source: Bloom, and J. Van Reenen, Measuring and Explaining Management Practices Across Firms and Countries, 2005

§ Highly sophisticated production networks– careful choice

outsourcing/offshoring

– close connection R+D/manufacturing

– most flexible work arrangements worldwide(local “labor pacts”)

§ Kaizen masters/learning organization

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Unique corporate culture driven by family ownership

§ Long-term survival and intergenerational transfer as key objective (stewardship idea) § Profit as inevitable by-product of serving customers better the anyone

else§ Focus on long-term sustainability with key stakeholders: customers;

employees; suppliers; community at large§ Companies as communities: high degree of mutual trust and loyalty,

leading to an implicit “life-long” contract (long tenures)§ Leadership through example

– “love for the business”– domain knowledge

§ Flat hierarchies and informal channels of communication– bottom-up management style– high degree of cross compartmental cooperation

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The best managed companies are family-owned with outside professional management

3,63,2

2,9

Family-ownedand managed

by outsidemanagers

Average allcompanies

Family-ownedand managedby eldest son

Management-Scores* (Scale from 1 to 5 = best score)

Source: Bloom, and J. Van Reenen, Measuring and Explaining Management Practices Across Firms and Countries

Management structures in inherited family owned firms

60%

31% 30% 23%

25%40%

27%

44%30%

50%30%

10%

Germany France USA England

Outsideprofessional management

OldestsonCEO

Inheritedfamily

management

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Factors of ProductionBasic Factors - Land, natural resourcesAdvanced Factors - Education / CommunicationGeneralized Factors - Capital, infrastructureSpecialized Factors - Skilled personnel

Factors of ProductionBasic Factors - Land, natural resourcesAdvanced Factors - Education / CommunicationGeneralized Factors - Capital, infrastructureSpecialized Factors - Skilled personnel

Demand Conditions

The nature & size of the buyers needs in the home

market of goods & services

Demand Conditions

The nature & size of the buyers needs in the home

market of goods & services

Related & Supporting IndustriesAvailability and quality of suppliers of specialized machinery and servicesIndustries in which the target country is considered the leader§ E.g. Switzerland – equipment companies

chocolate manufacturing§ Japan - cameras & copiers§ Denmark - diary & food enzymes

Related & Supporting IndustriesAvailability and quality of suppliers of specialized machinery and servicesIndustries in which the target country is considered the leader§ E.g. Switzerland – equipment companies

chocolate manufacturing§ Japan - cameras & copiers§ Denmark - diary & food enzymes

Firm Strategy, Structure & Rivalry

Germany’s focus on methodical product & process improvementsDomestic Competition plays a big role in driving innovation§ E.g. Italy’s designers

spawned fashion apparel, furniture industries

Firm Strategy, Structure & Rivalry

Germany’s focus on methodical product & process improvementsDomestic Competition plays a big role in driving innovation§ E.g. Italy’s designers

spawned fashion apparel, furniture industries

Source:Porter, Michael E., Global Strategy: winning in the world-wide market place, in: Fahey,Liam/Randall,Robert M., The Portable MBA in Strategy, pp. 108 - 141

Home country of origin is still crucial to International success: Michael Porter – National Diamond

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Business Environment: A cluster is a critical mass of companies in a geographic area

§ A cluster is a critical mass of companies in a particular field in a particular location (country, a state or region, or even city)

§ Clusters take varying forms including – a group of companies– suppliers of specialized inputs, components, machinery, and services, and

firms in related industries– firms in downstream (e.g. channel, customer) industries and producers of

complementary products – specialized infrastructure providers and other institutions that training,

research, and technical support (universities, standards-setting agencies..)– trade associations and other collective bodies

§ Clusters often reflect historical circumstances (e.g. local resources) or develop by chance events

Source:THE ADAM SMITH ADDRESS: LOCATION, CLUSTERS, AND THE "NEW" MICROECONOMICS OF COMPETITION, By: Porter, Michael E., Business Economics, Jan1998, Vol. 33, Issue 1

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Germany: ”the world‘s best location for high value added manufacturing“

Institutional framework fostering long-term thinking and cooperation

Corporate Governance

§ Two-tier board system§ Co-Determination

(Stakeholder Model)

Financial System

§ Bank-centered system§ Important role of savings-

banks and credit unions

Industrial Relations

§ Sector-level bargaining § Restrictive labour laws § Plant-level work councils

Domestic Competition

Factors of Production

Cooperation between companies

Training/Education

§ Apprenticeship system§ Decentralized

university system

Norms / Standards

§ DIN§ VDE

Technology Transfer

§ Fraunhofer-Gesellschaft, Steinbeis-Stiftung

§ Gründer- / Technologie-transferzentren

Employers Associations

§ IHK / AHK§ BDI / BDA

Related and supporting industries Demand conditions

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“Uncommon” common sense management principles

§ Concentrate your resources to achieve leadership in (niche) markets§ Give value to customers through innovative products and services§ Relentless drive for continuous improvement of all products and

processes: “Get better every day”§ Manage for the long run: focus on sustainable relationships with all key

stakeholders of the business§ Leaders who care: “love for the business”; domain knowledge§ Treat employees as human beings and energize them through common

mission§ Institutionalize organisational processes and structures in line with

growth

“This is only common sense” …“Yes, but common sense is oh so rare.“ (Peter Drucker)

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Questions

§ How does the success model apply to your company? How important are

strategy, operations, organisation/governance/culture for the success of your

company? How would you rate your company in each of the three areas?

(1=weak, 5=top ):

– Strategy

– Operational leadership

– Organisation/governance/culture

§ Is your company benefitting from strong cluster effects?

§ What aspect(s) of the success model do you want to apply to your company?

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Dominating global niches worldwide:company examples

§ Ringtones: JAMBA, Berlin

§ “Deutsch als Fremdsprache“: Hueber Verlag GmbH & Co KG,Ismaning/München

§ Garden rose breeding: Rosen Tantau, Uetersen/Hamburg

§ Chocolate moulds for large-scale industrial production: ,Bottrop

§ Sniff: Pöschl Tabak GmbH & Co. KG, Geisenhausen/Landshut

§ Celestas and Keyboard, Concert and Built-In Glockenspiels: Schiedmayer Celesta GmbH, Wendlingen/Stuttgart

§ Software for capturing and verification of handwritten signatures:Softpro GmbH, Böblingen/Stuttgart

§ Portable sanitation : Toi Toi & Dixi/Adco, Düsseldorf

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Technology Leadership:Example Rational AG – the chef‘s company

§ Rational AG: world market and technology leader for the thermal preparation of food in professional kitchens