Chapter 12 BU wea Mallee ferrule) (lard ‘What do the hidden champions teach us? According to modern manage- rent literature, we mainly—or only—learn from large successful corpora~ tions. In this book we have changed this perspective radically. We have dis- covered that many of the most consistently successful, longest-surviving, ‘most competitive companies operate behind a vel of discretion and remain unknown—even to business experts. Consequently, their strategies and leadership methods are not finding their way into the textbooks, busi- ness magazines, and heads of che management community. However, the cease 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. Leadership and Goals "Ambitious goals are the foundation of outstanding success. Extraordinary success is never based on pure luck oF coincidence. In the beginning there is always a vision of what the person wants to achieve, or at least there ig a state of preparedness. Luck and windfall incidents may contribute, although luck is but a "by-product of the desire for perfection.”* Mose ‘human beings follow more or less well-trodden paths and many have no particular ambitions at all. And there are few with a goal, 2 mission—the monomaniacs, as Peter Drucker called them. The founders and managers of the hidden champions belong to this second category. They know what they want and they have the willpower and the energy, sometimes even the obsession, to realize their goals. The issue of will hardly ever comes H. Simon, Hiden Champion af he Teeny Fins Cena, 351 ‘DO! 10.10071978-0387-98147-5_12, © Herman Simon 2009up in management literature, but itis of fundamental importance for the development of companies.” We need not consider here whether willpower and ambition can be learned or whether these characteristics are hereditary. In any case, we encounter the core of the personality here. However, one individual’ willpower and ambition are insufficient to create a company, let alone a world market leader. This may work for an artist, but it takes a lot of peets to develop a world market leader— people from all over the world, The entrepreneur must ignite the fire that burns inside him in many others of different nationalities and cultures. ‘That’ leadership. Willpower and leadership combined ensure that every- one’s energy is directed toward becoming and remaining the best. This is the true goal chat must be pursued consistendy. If this is achieved, wocld market leadership results practically as a side effect. Lesson 1. Willpower and goals always come first. For hidden champions, lead- ership means inspiring employees from all over the world to be the best, to become a world market leader. High-Performance Employees High performance can only be accomplished with a ream chat is highly motivated and strongly identifies with the company. The selection of the right employees is the foundation. Hidden champions select their employ- ees very rigorously. This choice is accomplished primarily through social control, less through top-down intervention. Intolerance toward poor per- formance and shirking is « necessary part of a performance-oriented cul- ture. Te is helpful to have more work than people. This does not lead co employee discontent, on the contrary. The hidden champions create—and profit from—conditions that lead to an extremely low employee turnover. In addition, comebackers are frequent and an indicator for ateactive cor- porate cultures. Low attrition retains expertise and makes investments in education profitable. It is impressive that the hidden champions success- fully globalize these demanding values Lesson 2. High performance requires intolerance against shirking and swift dismisal of employees who do not pull their weight. The low employee turnover ‘Proves that the remaining employees appreciate the hidden champions’ corpo- rate cultures and reciprocate with due commitment and high performance. 3521 Chapter 12: The Lessons of the Hidden Champions Depth A suiking difference berween the hidden champions and normal compa- nies is the depth of the value chain and the high vertical integration. Time and again I was amazed to observe that the best enterprises do far more themselves than average companies. “We do everything ourselves," is the frequent statement made by many of the best. Conversely, I heard aver- age companies say “we don’t do that ourselves,” “we outsource that,” “we leave that to others,” and so forth. [believe the word “depth” describes this attitude and phenomenon precisely. The greatest ones have an incredible depth in their value chain, a very high vertical integration in manufactur- ing, and even stronger in R&D. They are very reserved when it comes to outsourcing and strategic alliances, especially where their core compe- tencies are concerned. Is that old-fashioned? Or is this the core of their superiority? There is no straightforward answer. Lesson 3. Uniqueness can only come from within and cannot be bought on the market. It therefore requires depth and a certain reserve toward outsourcing. Decentralization In view of the strong leadership personalities, we could have expected centralists practicing authoritarian leadership styles at the hidden cham- pions. Leadership is in fact authoritarian when it comes to the princ- ples. Yee, as we have discovered, the hidden champions are also fervent decenualizers and leave mote fieedom for execution and implementa- tion than large corporations do. Some of these companies are confronted ‘wich growth restraints because their markets are narrow and their market shares are high. The reinvestment opportunities in their traditional busi- ness segments are therefore limited. They choose the route of soft diver- sification, fully aware that this could chreaten their traditional strengths. Theit answer is rigorous decentralization, usually up to the point of legally independent business units. New, smaller hidden champions thus emerge from older businesses. The importance of decentralization as 2 ‘means of mobilizing entrepreneurial energies can hardly be overestimated > Decentralization must naturally be accompanied by responsibility and accountability. Decentralization 1 353Lesson 4. Decentralization isthe most effective way to retain the strengths of the hidden champions, even in larger and more complex sructures. Decentral- ization should be put into practice wherever posible. Focus ‘There may be those who are top performers in different fields. There are ‘even a few who have won two Nobel prizes. However, such people are extremely rare exceptions and hardly suitable as role models for the aver- age entrepreneur ot manager. More normal people and companies wanting ‘achieve something are well advised to concentrate an one area, “We only do one thing, but we do it right,” as the hidden champion Uhlmann says Such focus is realistically the only way to attain world class. The hidden champions exemplify that it can be done. They are generally not geniuses, but chey focus their limited resources better than others and stick with the direction they have chosen until they reach the top position. Focus also includes knowing what you do not want to do. This is just as important as knowing what you do want to do. It's the only way to avoid the inef- fective use of scarce resources. Likewise, the hidden champions teach us that the definition of the “playing field” is critical. Markets, target groups, and applications are not predefined by nature; an astute market definition often forms the foundation for superiority. The business and the market selection must take into consideration the external opportunities and the company’s internal competencies. Its advisable—at least at the outset—to avoid stiff competition and confrontation.» Lesson 5. Ambitious goals can only be achieved by focusing one's resources, Fa defnision of the playing field itself is an excensial means of getting che sus right. Globalization Nothing in our era and in the decades to come will change our world more than globalization. Extraordinary groweh opportunities present themselves to companies that take advantage of this secular trend. Global mar- kets are many times larger than national markets. In global dimensions even niche markets reach sizes making adequate economies of scale pos- sible. The Internet and modern transportation make the world market 354 1 Chapter 12: The Lessons ofthe Hidden Champlons accessible for companies large and small. Yet the establishment of world- wide sales and manufacturing nevworks typically takes several generations and requires never-ending perseverance. Revenues are the first to interna- tionalize, followed by personnel and eventually management. Most hidden champions are in the middle of this process. However, there will stil be sec- tors and companies in the future that continuc to operate only locally. The decision between local or international business must be well considered. Lesson 6, Globalization opens up unprecedented growth opportunities, even {for small companies. In order 10 use these opportunities, leaders and employ- ces must put aside their national and eulrural boundaries. Incesant stamina land perseverance are required to survive the mulrigenerational globalization proces, The greatest challenge is the internasionalization ofthe people Innovation “The massive increase ofthe hidden champions relative marke shares is pri ‘marily accributable to their innovativeness in recent years.° Whatever may have triggered this wave, the hidden champions are currently in a phase of significant innovative activities. They integrate market and technology as equal driving forces. Few large corporations achieve this balance. For hidden champions, innovation is less a question of budget than of heads. They can obtain a patent in spproximaey Pa fifth of the expendi uired by large corporations. And they have five times more patents per pce improvements are more typical than breakthrough innovations, Customers are closely involved in the innovation activities. Lesson 7. Innovarion is she only effective ling-term means of succeeding in competition. Innovation is primarily a question of creativity and quality less 0 a matte of money Closeness to Customer “The hidden champions teach us chat customer orientation is more impor- rant than competitive orientation.” They consider the long-standing rela tionships wich their customers their greatest strength, even ahead of their technical competencies. Closeness to customer is most effectively achieved Closeness to Customer 1 355