Hidden Champions

Just reading up on some older issues of "Cicero", a political magazine from Germany. Hermann Simon, management consultant and book author, contributed an article back in June on Germany's hidden champions.

Small companies that, for example, provide the glue that holds together 80% of the world's smart cards and 50% of cellphones; they produce 80% of all fish processing equipment in the world; 100% of large stage courtains for concert and opera halls, feathers for beddings, ... all in all there are 1,200 such small companies in Germany alone that hold the top spots in their niche markets.

What is it that makes them so successful?  I am summarizing Hermann Simon by translating and commeting freely.

What is it they do differently from large companies? Answer: almost everything.

1. The hidden champions are ambitious and persistent. They stay focused on their single most important goal, even if it takes decades.
2. They do not outsource: All core competencies remain under their control.
3. They go global. Many of these small companies are present in their worldwide key markets.
4. They spend significantly more on research and development than large corporations (6% vs. 3%).
5. They register 5 times more patents (30 vs 6) per 1,000 employees at a cost of 1/5 of what the corporations pay (EUR 0.5M vs. EUR 2.7M).
6. Between 25 - 50% of all employees are in direct contact with customers (vs. 5-10% in large corporations).
7. Fluctuation is 3 times less (2.7% vs. 7.3%) - I would expect this to be different in the U.S.
8. Executives stay in charge for an average of 20 years - DAX listed companies' executives serve 5 years on average (the DAX being the German equivalent of the Dow Jones Index).
9. The hidden champions were prepared for the economic downturn and see it as an opportunity, not as a threat.
10. And finally they were asked: what do YOU think is the secret of your success? Answer: it is the sum of many little things. The result of daily and seemingly miniscule improvements that in the end provide an edge.

For once this would contradict Seth Godin who in a recent blog mused about why Amazon would buy Zappo's, a shoe company, at a price of $US 800M when they already had shoes on offer. He list the elements of Zappo's culture and concludes "These things are available to organizations of every size. If you want them and choose to work for them."

After reading the above article I strongly feel Seth is off. If an organization grows larger it will almost inevitably lose it's personality. Shareholders, bean counters, lawyers and unions take over, and that's the end of it. My take: Amazon bought a brand and it's image and it will bulldoze Zappo's culture. Small is indeed the new big, and the new form of art will be to remain small instead of getting bulldozed.

Thanks for your time,

Bodo