german mittelstand champions (geschützt)
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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.
© 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
© 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
© 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
© 2011 Prof. Dr. Bernd Venohr 5
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 €)
© 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)
© 2011 Prof. Dr. Bernd Venohr 7
German microeconomic business environment
Management “Made in Germany”
Strategy:Dominating global niche markets
Governance:“Enlightened family capitalism”
Operational effectiveness:World class in key processes
© 2011 Prof. Dr. Bernd Venohr 8
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
© 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. €
© 2011 Prof. Dr. Bernd Venohr 10
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 )
© 2011 Prof. Dr. Bernd Venohr 11
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
© 2011 Prof. Dr. Bernd Venohr 12
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
© 2011 Prof. Dr. Bernd Venohr 13
„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 €
© 2011 Prof. Dr. Bernd Venohr 14
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
© 2011 Prof. Dr. Bernd Venohr 15
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
© 2011 Prof. Dr. Bernd Venohr 16
World market leader in silent-selfsteering instruments for sailing boots
Source: http://www.windpilot.de/en/Ra/racomen.html
© 2011 Prof. Dr. Bernd Venohr 17
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
© 2011 Prof. Dr. Bernd Venohr 18
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
© 2011 Prof. Dr. Bernd Venohr 19
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
© 2011 Prof. Dr. Bernd Venohr 20
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
© 2011 Prof. Dr. Bernd Venohr 21
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
© 2011 Prof. Dr. Bernd Venohr 22
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
© 2011 Prof. Dr. Bernd Venohr 23
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
© 2011 Prof. Dr. Bernd Venohr 24
“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)
© 2011 Prof. Dr. Bernd Venohr 25
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?
© 2011 Prof. Dr. Bernd Venohr 26
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
© 2011 Prof. Dr. Bernd Venohr 27
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
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