1. The success model German mid-sized
world market leaders - Lessons for large
and small companies
Prof. Dr. Bernd Venohr
MBA General Management - Dual Award / Entrepreneurship
Dynamics of Strategy I: Corporate Strategy
Berlin July 9, 2011
© 2011 Prof. Dr. Bernd Venohr
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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 industry
in 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. Favourable macro trends + unique management model
§ Favourable macro trends: § Research Base
"China may be the world's – 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. 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 2007
2) 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 WELT.de 2006.
Other sources: Statistisches Jahrbuch 2008
© 2011 Prof. Dr. Bernd Venohr 4

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. 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 years
Source: Database German World Market Leaders 2.2.2 (01.10.2010) – World Market Leader (narrower sense)
© 2011 Prof. Dr. Bernd Venohr 6

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. 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. “Close to the customer” : global sales, service and
manufacturing 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. 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
shouldn't 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. That's 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 world's leading suppliers of air system technology and related equipment. (compressed air
and blower products )
© 2011 Prof. Dr. Bernd Venohr 10

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 network
Source: J. Meffert/P. Radtke/H. Klein/J. Freiling/T. Hutzschenreuter, Unternehmertum Deutschland, Düsseldorf, McKinsey & Company 2005;
sample of 600 medium-sized companies
Source: DTI, The R&D Scoreboard 2006, Commentary and Analysis, Volume 1 and 2, London, 2007, p. 60.
© 2011 Prof. Dr. Bernd Venohr 11

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. „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. „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. 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. World market leader in silent-self
steering instruments for sailing boots
Source: http://www.windpilot.de/en/Ra/racomen.html
© 2011 Prof. Dr. Bernd Venohr 16

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: http://www.windpilot.de/en/Ra/racomen.html
© 2011 Prof. Dr. Bernd Venohr 17

18. Operational effectiveness: German companies
world 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 organization
Source: Bloom, and J. Van Reenen, Measuring and Explaining Management Practices Across Firms and Countries, 2005
© 2011 Prof. Dr. Bernd Venohr 18

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. The best managed companies are family-owned with
outside 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
managers
Source: Bloom, and J. Van Reenen, Measuring and Explaining Management Practices Across Firms and Countries
© 2011 Prof. Dr. Bernd Venohr 20

21. Home country of origin is still crucial to International
success: 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 enzymes
Source: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. Business Environment: A cluster is a critical mass of
companies 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 events
Source: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. Germany: ”the world‘s best location for high value added
manufacturing“
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. “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. 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. 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. 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