Hidden Champions of the 21st Century

The Success Strategies of Unknown World Market Leaders

DEG - The Atrium Dialogues 2010

Prof. Dr. Dr. h.c. Hermann Simon
Cologne, November 16, 2010
Bonn Office
Haydnstrasse 36, 53115 Bonn, Germany
Phone +49/228/9843-115, Fax +49/228/9843-380
e-mail: hermann.simon@simon-kucher.com
Internet: www.simon-kucher.com
Exports in 2009 (billion US-$)
China 1202
Germany 1121
USA 1057
Japan 581
Netherlands 499
France 475
Italy 405
Belgium 370
Korea 364
United Kingdom 351
Hong Kong 330
Canada 316
Russia 304
Singapore 270
Mexico 230
Spain 218
Taiwan 204
Saudi Arabia 189
United Arab Emirates 175
Switzerland 173
Hungary 84

Source: WTO, press release of March 26, 2010

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Per Capita Exports

Country Per capita exports 2009 in US-$

China 893

USA 3.358

Japan 4.568

Germany 13.724

France 7.469

United Kingdom 5.791

Italy 6.785

South Korea 7.484

Spain 5.382

Hungary 8.365

0 2.000 4.000 6.000 8.000 10.000 12.000 14.000 16.000

Source: Calculations based on data from UN Comtrade - 2009 International Trade Statistics Yearbook, New York June 2010;

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Per Capita Exports
Country Deviation from empirical norm 2009 in US-$
China 509

USA -2.495

Japan -2.282

Germany 6.635

France 274

United Kingdom -1.404

Italy -421

South Korea 217

Spain -1.927

Hungary 894

-8.000 -6.000 -4.000 -2.000 0 2.000 4.000 6.000 8.000

Source: Calculations based on data from UN Comtrade - 2009 International Trade Statistics Yearbook, New York June 2010;

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What Is a Hidden Champion?

Top 3 in the world or no. 1 on its continent

Revenue below 3 billion

Not well known in general public

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Hidden Champions

Delo

Baader

Brainlab

Lantal

Brita

Tetra

Belfor
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Hidden Champions Worldwide

Germany Taiwan USA Slovenia India Russia

1997/2007 1996/2004 1996/2009 2010 2009 2005

Turkey France Japan Italy Poland Korea

1999 1998 1998 January 26, 2004 2001/2007 1999/2009 1997/2008

China
Brazil Netherlands Serbia Lithuania Hungary Egypt Spain 1997/2000/
2003 1997/2009 2007 2009 2010 2008 1997/2010 2005/2009

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Key Facts of the Last Ten Years

1 million new jobs

Annual growth of 10%, revenue 4 times larger

than 1995

More than 100 new -billionaires

Sharp increase of world market share

Massive wave of innovation

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 Why are they successful?

How do they differ from large firms?

What can we learn from them?

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 Extremely ambitious goals:

Market Leadership

Growth

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Chemetall

The goal of Chemetall

is the worldwide

technology and marketing leadership.

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3B Scientific

We want to become

and stay no. 1 in the world.

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Karl Mayer

We dont want our world market share

to drop below 70%.

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Market Share of Hidden Champions

Absolute Relative
market share market share
10 years ago Today 10 years ago Today

World 30% 33% 1.6 2.3

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Growth
Mid-sized Hidden Champions
4000

Cronimet
3500
Claas
Enercon
3000
Revenue in million

2500

2000

1500

1000

500

0
1995 2008
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Growth
Small Hidden Champions
400

350 Rational

300
Revenue in million

250

Bartec
200
Brainlab
150

100

50

0
1995 2008
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Lesson 1

Success always begins with ambitious goals. The

Hidden Champions of the 21st century go for

growth and market leadership. This is the fuel that

drives them forward.

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 Focus and Depth

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Uhlmann

We always had one customer and will

only have one customer in the future:

the pharmaceutical industry.

We only do one thing, but we do it right.

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Flexi

We only focus on one thing,

but we do it better than anyone else.

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Deep Instead of Broad: A Focused Strategy
The Case of Winterhalter
Dishwashers Dishwashers Dishwashers Dishwashers
for for Dishwashers for for
Hospitals Schools for Hotels/ Companies Organisations
Restaurants
Broad
Dishwashers

Water
Conditioners
D
e
Detergents e
p

Service

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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.

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 Globalization

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The Hidden Champions Strategy
- Specialization in Product und Know-how -

Global Selling and Marketing

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Accelerating Globalization
Exports per capita in US-$ 2353

1600

985

437

6 23

1900 1950 1980 2000 2005 2008

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Globalization: Kaercher
World leader in high pressure water cleaners

67 subsidiaries since 1962

Number of subsidiaries
Founding year of subsidiaries
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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.

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 Innovation

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R&D Intensity

R&D as % Index
of revenue

Industrial firms with R&D 3.0% 50

Booz (Global Top 1000 in R&D) 3.6% 60

Hidden champions 6.0% 100

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Patents

Patents per Cost per patent

1,000 employees in 1,000

Patent-intensive
large corporations 6 2.713

Hidden champions 31 529

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Driving Forces of Innovation
Large corporations Hidden Champions
65%

50%

31%

21%
19%
14%

market technology market & market technology market &

technology technology
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Lesson 4

The Hidden Champions are in a phase of massive

innovations. 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.

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 Customers and Competition

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Market-related Strengths
Five times as many employees (25-50%) have regular customer contacts
compared to large companies (5-10%).

closeness-to-
88,7%
customer

image 84,1%

professional
marketing 36,4%

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Closeness to Top Customers

Close to most demanding customers

Grohmann Engineering: Top 30 customers

worldwide as target group, most important
customer is Intel

Top customers as drivers of performance and

innovation

Follow top customers everywhere

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Value and Pricing

Strategies are value-driven, not price-driven

Price premium 10-15%

Avoidance of price wars

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Competitive Advantages of the Hidden Champions

Product quality

Economy
Punctuality

Advice
Closeness-to-customer
Service
Price Flexibility
Systems integration
Importance

Distribution
Made in
Germany
Cooperation Patents
with suppliers

Advertising
weaker stronger
than the strongest competitor
Competitive performance

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Attributes with Strongest Increase in Importance

Attribute Increase in percentage points

last ten years

Advice +10

Systems integration +8

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 Lesson 5

Closeness to customer is the greatest strength of

the Hidden Champions even ahead of
technology. The Hidden Champions hold strong
competitive positions. Advice and systems
integration are new advantages which create
higher barriers to entry.

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 Ownership and Financing

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Ownership and Leadership

Ownership/management Ten years Today Change

ago (in %) (in %) (in %-points)
Family-owned 76 66 -10
- thereof with family management 82 78 -4
- thereof with non-family management 18 22 +4
Corporations 21 16 -5
Publicly listed 2 10 +8
Private equity - 8 +8

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Key Financial Indicators

Return on Capital Employed (ROCE): 13.6%

Equity Ratio: 41.9%

Self-financing dominates

Capital markets increasingly important

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Financing of the Hidden Champions

Past Future

Self-financing 78.6% 77.8%

Traditional bank loans 61.6% 44.0%

Private equity 15.3% 9.7%

Capital markets 12.8% 29.6%

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 Lesson 6

The financing of the Hidden Champions is very

solid. The ownership is long-term oriented and

capital markets do not play a big role. Rather, the

Hidden Champions rely on self-financing. They are

conservative in financial matters.

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 Employees and Leaders

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Employees

More work than heads

High performance cultures

High qualification

Low turnover

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Vocational Training

Pillar of German competitiveness

Highly qualified workers

Combination of practice and theory

Vocational schools

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Higher Qualification
In the last ten years, the share of university graduates has more than
doubled.

University
graduates (%) 19,1%

8,5%

10 years ago Today

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Employee Turnover Rates

USA 15,0%
30.6%

Austria 9,0%
9.0%

Switzerland 8,8%
8.8%

Germany 7,3%
7.3%

Daimler 5,3%
5.3%

Hidden
champions 2,7%
2.7%

Source: Hernstein-Institute/US Department of Labor

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Leaders

Identity of mission and being

Leadership
- authoritarian in the principles
- participative, flexible in the details

CEOs come young into power

More women in top positions

Very high continuity
(average CEO tenure 20 years,
DAX-companies 5.1 years)
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Lesson 7

The Hidden Champions have more work than

heads and high performance cultures. Employee
qualification is top. Turnover and sickness rates
are extremely low. Total identification and
continuity of the leaders are the foundations for
long-term success.

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The Three Circles of the Hidden Champions

Focus

Competitive
advantages
orientation
Global Leader-
ship with
ambitious
goals
High
performance
employees

Closeness to
customer

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The Ultimate Lesson
The Hidden Champions of the 21st Century
go their own ways
more decisively and successfully than ever.

They do most things differently

from the teachings of management gurus,

from modern management fads,

from large corporations

Maybe this is the most important lesson

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 To conclude.

a personal
Hidden Champions Story

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Simon - Kucher & Partners

Worldwide Strategy & Marketing Consultants

Focus: Revenue-driven Profit Growth

Core Competency: Pricing

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Best Consultancies in "Marketing & Sales" in Germany
Germanys most prestigious business magazine ranks Simon-Kucher as the
leading consultant in "Marketing & Sales", ahead of Boston and McKinsey.

Competence Ranking "Marketing & Sales"

Rank Consultancy Score*

1 Simon-Kucher & Partners 401

2 Boston Consulting Group 370

3 McKinsey & Company 346

4 Bain & Company 344

5 Roland Berger 338

manager-magazin 08/2007
* Maximum 500;
Source: manager-magazin August 2007/IMB (Institute for Management & Consulting); Survey of 264 Top Managers
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World Leader in Price Consulting
Simon-Kucher is world leader in giving advice
to companies on how to price their products.
Business Week

Simon-Kucher is the worlds leading pricing consultancy.

The Economist

In pricing you offer something nobody else does.

Professor Peter Drucker

No one knows more about pricing than Simon-Kucher.

Professor Philip Kotler

No firm has spearheaded the professionalization of pricing

more than Simon-Kucher & Partners.
William Poundstone (Priceless, Hill and Wang, 2010)

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Employees and Revenue
Revenue in 2010: 103 million
500

436 450

354

283
248
220
187
165
147
130
112
90
71
35 46 56
13 18 19 22 27
3 4 5 7

1985 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

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Comparison Boston Consulting vs. Simon-Kucher
After 25 years Simon-Kucher is larger than the Boston Consulting group was
after 25 years (number of professionals).
375

364

Year
Year
1987
(Founded in 2010
1963)

Boston Simon-
Consulting Kucher
Group
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Global Presence

Luxem- Belgium, Netherlands, Denmark, Germany, Germany, Germany Germany,

bourg Brussels Amsterdam Copenhagen Bonn Frankfurt Munich Cologne

England, Russia,
London Moscow

Poland,
Warsaw

Japan,
USA,
Tokyo
San Francisco
China,
USA, Beijing
Boston
Singa-
USA, pore
New York
Australia,
Sydney
France, Spain, Switzerland, Italy, Austria,
Paris Madrid Zurich Milan Vienna

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Challenges for Emerging Countries

Strong export performance requires

internationally active mid-sized companies

International orientation/openness of society

Entrepreneurial culture

Strategic lessons for individual companies

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The New Book

www.hermannsimon.com
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The Most Influential Management Thinkers
in German-Speaking Countries 2005-2009

1. Peter F. Drucker 38.6%

2. Hermann Simon 14.3%

3. Fredmund Malik 13.6%

4. Michael E. Porter 6.7%

Source: www.managementdenker.de, Internet Surveys, n = 2069 2005 2009

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Hermann Simon
Hermann Simon is chairman of Simon-Kucher & Partners Strategy & Marketing Consultants with
offices in Amsterdam, Beijing, Bonn, Boston, Brussels, Cologne, Copenhagen, Frankfurt, London,
Luxembourg, Madrid, Milan, Moscow, Munich, New York, Paris, San Francisco, Singapore, Sydney,
Tokyo, Vienna, Warsaw and Zurich. Simon is an expert in strategy, marketing and pricing. He has an
extensive global range of clients. In the German language area he was voted the most influential
management thinker after the late Peter Drucker.
Before committing himself entirely to management consulting, Simon was a professor of business
administration and marketing at the Universities of Mainz (1989-1995) and Bielefeld (1979-1989). He
was also a visiting professor at Harvard Business School, Stanford, London Business School,
INSEAD, Keio University in Tokyo and the Massachusetts Institute of Technology. From April 1995 to
May 2009 he was CEO of Simon-Kucher & Partners.

Professor Simon has published over 30 books in 25 languages, including the worldwide bestsellers Hidden Champions
(Boston 1996, cover story of BusinessWeek in January 2004) and Power Pricing (New York 1997), as well as Strategy for
Competition (New Delhi 2003). Manage for Profit, Not for Market Share (Boston 2006) takes a critical look at the widespread
focus on volume and market share and calls for a conscious shift of focus towards profit. His book Hidden Champions of
the 21st Century, Success Strategies of Unknown World Market Leaders (New York 2009) investigates the strategies of little
known market leaders. His most recent book Beat the Crisis (New York 2010) provides companies with practical advice
against the crisis and for a quick recovery.
Simon was and is a member of the editorial boards of numerous business journals, including the International Journal of
Research in Marketing, Management Science, Recherche et Applications en Marketing, Dcisions Marketing, European
Management Journal as well as several German journals. Since 1988 regularly writes columns for the business monthly
Manager Magazin. As a board member of numerous foundations and corporations, Professor Simon has gained substantial
experience in corporate governance. From 1984 to 1986 he was the president of the European Marketing Academy (EMAC).
A native of Germany, he studied economics and business administration at the universities of Bonn and Cologne. He
received his diploma (1973) and his doctorate (1976) from the University of Bonn. Simon holds an honorary doctorate from
IECD Business School of Bled, Slovenia.

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