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German Mittelstand Champions (geschützt)


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German Mittelstand Champions (geschützt)

  1. 1. The success model German mid-sizedworld market leaders - Lessons for largeand small companiesProf. Dr. Bernd VenohrMBA General Management - Dual Award / EntrepreneurshipDynamics 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.
  2. 2. Germany has a leading position in international trade Germany and China are the only German companies occupy a top large countries gaining shares in 3 position in 2/3 of industry world trade sectors 300% 275% Number Total number % of all 250% Rank Country of Top-Positions of Top3 industryin world exports Position sectors 225% China Nr.1 Nr.2 Nr.3 200% share 175% 1 Germany 67 40 35 142 61,21% 150% 125% 2 China 72 19 16 107 46,12% Germany 100% Italy 75% USA 3 USA 34 37 26 97 41,81% Japan France 50% 1995 1997 1999 2001 2003 2005 2007 UK Source: Own estimates; ICCP, UN Comtrade DBl, 2007 Country share in worldwide exports; 1995 = 1; Source: UN Comtrade DB © 2011 Prof. Dr. Bernd Venohr 2
  3. 3. Favourable macro trends + unique management model§ Favourable macro trends: § Research Base "China may be the worlds – unique database factory but German companies – 100+ company interviews are building it.” – numerous case studies – 20+ years consulting practice§ Unique management model § Relevant Publications supported by German business environment, in which companies are embedded© 2011 Prof. Dr. Bernd Venohr 3
  4. 4. Introducing the “Mittelstand”:The sweet spot of Corporate Germany Share in total Annual revenues Number of companies1) German exports2) Large companies 300 58,7 % > 1.000 m € (0,11 %) Mid-sized enterprises 250 – 1.000 m € 517 (0,19 %) 1.325 (0,49 %) 30,6 % 100 – 250 m € 50 – 100 m € 2.040 (0,75 %) SME segment 267.426 10,7 % < 50 m € (98,46 %)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 2006.Other sources: Statistisches Jahrbuch 2008© 2011 Prof. Dr. Bernd Venohr 4
  5. 5. About 90 % of the 1500 German world market leaders are active in the B2B segment Retailing and Wholesaling Renewable Energy Media Products Software Financial Services Logistitcs & other Services Diversified without industry focus § About 1500 German Food & Beverages Machine world market leading Commodities & Natural Resources Equipment companies in total: Heavy Machinery top 3 position Chemical Products worldwide High-Tech (e.g. Photonics)Pharma & Medical § There of 1350 small Technology and large “mid-sized” Construction & companies/ Building Products “Mittelstand” (annual Electrical Cars & Car Engineering revenues less than 1 Components bn €) Consumer Industrial Products Products Source: Database German World Market Leaders 2.2.2 (01.10.2010) – World Market Leader (narrower sense) © 2011 Prof. Dr. Bernd Venohr 5
  6. 6. Profile of a typical German mid-sized world market leader € 100,0 Mio. § 70%+ family ownership 600 62% § 70% based in small cities/rural communities Revenues – Employees – Export Revenue § Average company Median Median Share – Median age: 70 yearsSource: Database German World Market Leaders 2.2.2 (01.10.2010) – World Market Leader (narrower sense)© 2011 Prof. Dr. Bernd Venohr 6
  7. 7. Management “Made in Germany” Strategy: Dominating global niche markets Governance: Operational effectiveness: “Enlightened family capitalism” World class in key processes German microeconomic business environment© 2011 Prof. Dr. Bernd Venohr 7
  8. 8. Dominating global market segments:Example automotive Narrowly defined market niches: Veigel § Market Leadership = specialization + global market footprint § Stay away from large, price-driven volume Premium Segment of mass markets: markets (“Don‘t play where the elephants dance”) § Compete through superior value, not costs© 2011 Prof. Dr. Bernd Venohr 8
  9. 9. “Close to the customer” : global sales, service andmanufacturing network Percent of German world market leaders with wholly-owned subsidiaries UK France 58% 79% USA China 91% 44% Brazil 23% Russia India 22% 18%Source: Own estimates, Deutsche Bundesbank, FDI 2010, minimum balance sheet size of subsidiary: 3 Mio. €© 2011 Prof. Dr. Bernd Venohr 9
  10. 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 shouldnt 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. Thats 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 worlds leading suppliers of air system technology and related equipment. (compressed air and blower products )© 2011 Prof. Dr. Bernd Venohr 10
  11. 11. Technology leadership R&D expenditures in % of revenues § Innovation strengths vastly 5,0% underestimated (“High tech obsession”) 3,6% § Masters of incremental innovation § Very strong German Mid-sized world 1,250 most R&D market leaders intensive companies research networkSource: J. Meffert/P. Radtke/H. Klein/J. Freiling/T. Hutzschenreuter, Unternehmertum Deutschland, Düsseldorf, McKinsey & Company 2005; sample of 600 medium-sized companiesSource: DTI, The R&D Scoreboard 2006, Commentary and Analysis, Volume 1 and 2, London, 2007, p. 60.© 2011 Prof. Dr. Bernd Venohr 11
  12. 12. Innovation deeply imbedded core capability Strategy Strategy §§ niche leadership: value not price niche leadership: value not price §§ ”We are technology leader in … ”We are technology leader in … §§ Family ownership Family ownership Customer Centricity Structure / /Processes Structure Processes Customer Centricity §§ interdisciplinary teams §§ worldwide networks worldwide networks interdisciplinary teams §§ close cooperation with §§ high degree of "front- high degree of "front- close cooperation with line-to-front-line“ key customers key customers line-to-front-line“ contacts (5x big co’s) contacts (5x big co’s) §§ typical tools: stage typical tools: stage Leadership / /Management Leadership Management gate/TRIZ in larger co’s §§ “obsessed” with the business gate/TRIZ in larger co’s “obsessed” with the business and its core technologies (50% and its core technologies (50% Funding / /Metrics Funding Metrics tech background) tech background) People / /Culture §§ outspend competitors outspend competitors People Culture (2x) §§ highly qualified employee highly qualified employee (2x) base §§ dominant share of patent dominant share of patent base portfolio §§ Low turnover at all levels Low turnover at all levels portfolio §§ trust-based organization trust-based organization Innovation Ecosystem/Cluster Innovation Ecosystem/Cluster© 2011 Prof. Dr. Bernd Venohr 12
  13. 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 13
  14. 14. „Close to the Customer“ through 56 company- company-owned subsidiaries in 32 countries Subsidiaries worldwide Europa: Belgien Russland Bulgarien Schweiz Deutschland Serbien Estland Slowakei Frankreich Slowenien Griechenland Spanien Italien Tschechien Kosovo Ukraine Kroatien Ungarn Lettland Litauen USA Luxemburg Mazedonien Asien: Niederlande Hong Kong Österreich Malaysia Polen Singapur Portugal Taiwan Rumänien© 2011 Prof. Dr. Bernd Venohr 14
  15. 15. ADCO: The technology leader in its industry § Patents: self-flushing toilet § Process innovation: sanitizing concentrates § Numerous product innovations § Special self-constructed and built service TOI Cap: Toilets vehicles for handicapped TOI Flush: VIP deluxe toilets© 2011 Prof. Dr. Bernd Venohr 15
  16. 16. World market leader in silent-self steering instruments for sailing boots Source:© 2011 Prof. Dr. Bernd Venohr 16
  17. 17. Essentially one man shop selling over the internet globally§ Homepage in 7 major languages§ Manufacturing, distribution and service out of central location in Hamburg Source:© 2011 Prof. Dr. Bernd Venohr 17
  18. 18. Operational effectiveness: German companiesworld class in key processes Average Management Score* § Highly sophisticated (Scale from 1 to 5 = top score) production networks – careful choice outsourcing/offshoring USA 3.35 – close connection R+D/manufacturing Germany 3.31 – most flexible work arrangements worldwide France 3.14 (local “labor pacts”) § Kaizen masters/learning UK 3.07 organizationSource: Bloom, and J. Van Reenen, Measuring and Explaining Management Practices Across Firms and Countries, 2005© 2011 Prof. Dr. Bernd Venohr 18
  19. 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 19
  20. 20. The best managed companies are family-owned withoutside professional management Management-Scores* Management structures in (Scale from 1 to 5 = best score) inherited family owned firms 3,6 3,2 Oldest 10% 2,9 Inherited son 30% family CEO 44% 30% 50% management 40% 25% 27% Outside 60% professional management 31% 30% 23% Family-owned Average all Family-owned and managed companies and managed Germany France USA England by outside by eldest son managersSource: Bloom, and J. Van Reenen, Measuring and Explaining Management Practices Across Firms and Countries© 2011 Prof. Dr. Bernd Venohr 20
  21. 21. Home country of origin is still crucial to Internationalsuccess: Michael Porter – National Diamond Factors of Production Factors of Production Basic Factors - Land, natural resources Basic Factors - Land, natural resources Advanced Factors - Education / Communication Advanced Factors - Education / Communication Firm Strategy, Firm Strategy, Generalized Factors Generalized Factors - Capital, infrastructure - Capital, infrastructure Structure & Rivalry Structure & Rivalry Specialized Factors - Skilled personnel Specialized Factors - Skilled personnel Germany’s focus on Demand Conditions Demand Conditions Germany’s focus on methodical product & methodical product & process improvements process improvements The nature & size of the Domestic Competition The nature & size of the Domestic Competition buyers needs in the home plays a big role in driving buyers needs in the home plays a big role in driving market of goods & innovation market of goods & innovation services services § E.g. Italy’s designers § E.g. Italy’s designers spawned fashion Related & Supporting Industries spawned fashion Related & Supporting Industries apparel, furniture apparel, furniture Availability and quality of suppliers of specialized industries Availability and quality of suppliers of specialized industries machinery and services machinery and services Industries in which the target country is considered Industries in which the target country is considered the leader the leader § E.g. Switzerland – equipment companies § E.g. Switzerland – equipment companies chocolate manufacturing chocolate manufacturing § Japan - cameras & copiers § Japan - cameras & copiers § Denmark - diary & food enzymes § Denmark - diary & food enzymesSource: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© 2011 Prof. Dr. Bernd Venohr 21
  22. 22. Business Environment: A cluster is a critical mass ofcompanies 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 eventsSource: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 22
  23. 23. Germany: ”the world‘s best location for high value addedmanufacturing“ Corporate Governance Financial System Industrial Relations§ Two-tier board system § Bank-centered system § Sector-level bargaining§ Co-Determination § Important role of savings- § Restrictive labour laws (Stakeholder Model) banks and credit unions § Plant-level work councils Domestic Competition Factors of Production Related and supporting industries Demand conditions Cooperation between companies Training/Education Norms / Standards Technology Transfer Employers Associations§ Apprenticeship § Fraunhofer-Gesellschaft, system § DIN Steinbeis-Stiftung § IHK / AHK§ Decentralized § VDE § Gründer- / Technologie- § BDI / BDA university system transferzentren Institutional framework fostering long-term thinking and cooperation© 2011 Prof. Dr. Bernd Venohr 23
  24. 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 24
  25. 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 25
  26. 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 26
  27. 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© 2011 Prof. Dr. Bernd Venohr 27