Page 112 - MYM 2015

In order to achieve superiority in the end product, Hidden Champions entrench several steps deeper
in the value chain to create unique processes, technologies and components. Uniqueness and superiority can only be created internally. If you buy something on the market, everybody else can buy it too. The Hidden Champions are extremely hesitant with regard to the outsourcing of core competencies.
However, when it comes to non-core competencies Hidden Champions outsource more than larger companies. They usually do not have their own legal or tax function. “That is not our core competency, but the core competency of lawyers, tax people etc. who are better in this non-core field than we can ever be,” they say. In a nutshell: Anti-outsourcing in core competencies, strong outsourcing in non-core competencies.
Lesson 2: Only focus and depth lead to world class. The Hidden Champions focus on narrow markets and are deep rather than broad. They tend to do things themselves and refrain from outsourcing core competencies.
3. Globalization
Focus makes a market small. But how do the Hidden Champions manage to make the market big? By globalizing! They combine their specialization in product and know-how with global selling and marketing. As we discussed in the beginning of this article there are hardly growth limits if you go out to Globalia. And go you must! The customers are not coming to you. Kärcher, the global leader in high pressure water cleaners, took its first serious steps towards globalization in the 70s and never stopped, as figure 09 illustrates.
the Hidden Champions globalize by establishing their own subsidiaries in all important markets around
the globe. They practice direct customer relationship management instead of delegating their customer relations to intermediaries, agents or importers.
Lesson 3: The Hidden Champions combine specialization in product and know-how with global selling and marketing. Globalization is the growth booster for them. They serve the target markets through their own subsidiaries. They heavily invest into the markets of the future.
4. Innovation
One does not become world market leader by imitation, but by innovation. Innovation starts with spending for research and development. R&D spending of the Hidden Champions is twice as high as in the average industrial company. Even more important is the output. Hidden Champions have ve times the number of patents
per thousand employees than patent-intensive large corporations (31 patents vs. 6 patents). The annual statistics of the German Federal Of ce for Patents (Bundespatentamt) show that among the 50 leading patent applicants in Germany one third consistently are Hidden Champions. For instance a company such as Von Ardenne with a little over 500 employees regularly registers more than 100 patents per year. And one Hidden Champion patent costs only one- fth of the patent of a large corporation. What is the driving force of innovation? Market, technology or both? 65% of the Hidden Champions state that these two forces are well- integrated, whereas only 19% of the large companies say so. And yet this is the core challenge of innovation. With regard to R&D costs, large companies throw big budgets at solving a problem, whereas the Hidden Champions devote very few dedicated people to the problem. That is the reason why their costs per patent are much lower.
Lesson 4: The Hidden Champions are in a phase of massive innovation. The effectiveness of their R&D activities beats that of large companies by a factor of 5. Their innovation processes are fundamentally different. Their innovations are both market- and technology-driven.
5. Closeness-to-Customer and Competitive Advantages
The biggest overall strength of the Hidden Champions is, however, not technology but closeness-to-customer. This is a natural advantage of smaller and mid-sized companies. An average of 38% of their employees have regular customer contacts, as compared to only 8% in large corporations.
100 90 80 70 60 50 40 30 20 10 0
100 subsidiaries in 60 countries
1935 1966 1971 1976 1981 1986 1991 1996 2001 2007 2012 Number of company foundations and acquisitions
Figure 09: The globalization process of Kärcher
But it’s still a long journey. The CEO of Kärcher told me that he has the ambition to be in all 206 countries of the world, which means that more than 100 markets are still to be entered. Similarly to Kärcher
112 I October 2015