Hidden champions

Discovering hidden champions

The first English book about hidden champions was Hermann Simon's Hidden champions : lessons from 500 of the world's best unknown companies. In this book, the question is discussed of how Germany, a relatively small European country, has for many years sustained the position of number one exporter in the world. Germany's few giant, highly visible corporations like Volkswagen, Siemens, BASF, Bosch, and others are not substantially different from organisations like Ford, GE, DuPont, or Visteon. Germany's export strength is clearly not wholly determined by these companies so there must be a large number of midsize firms who are strong exporters. These smaller companies are however normally known only in their own area, by customers and suppliers, but not to the wider public or business community. When these companies are very successful on the international markets, they are hidden champions.

It was believed at first that such companies were mainly only to be found in German speaking countries. Hermann Simon concentrated detailed research on 500 of them and established a framework to describe them. With this framework in hand it was also found that there are hidden champions everywhere around the world, but they are the most frequent in German speaking countries.

The framework was also able to identify the main differences and traits common to hidden champions. Simon declares the common traits as the success factors of these companies.

Success factors

Hidden champions are small and medium enterprises (SME). Most of them produce inconspicuous products, but in the market for these products they are ranked top in the world. Often, but not always, they are family owned. They export most of their products, and so contribute significantly to the current account of their countries, and are more successful than the average.

The idea of market leadership means more than counting market share. Leaders as employees need an "inner flame" to become, and to remain, the number one. Hidden champions normally work in niche markets. For these markets they design unique products, which are produced with a high real net output ratio. They have to accept the risk of being a single product manufacturer. They divide between "good" and "bad" market share. The good is earned by performance and a solid foundation, the bad from price aggression and discounting.

One result of working with unique products in niche markets is quite often the need to deal on the global market, just to be able to work on an economic scale. For this reason, hidden champions feel a strong need to work abroad early in their company's development. Hidden champions also operate extremely close to their customers, and their customers' needs are an important driver for their innovations. On the other hand, customers of hidden champions depend on their products and they cannot easily change their source. This often makes for a high level of co-dependence between the producer and the customer, a result of the one product risk.

A lot of the hidden champions established their main product as an innovation and were able to keep this single position in the market, or were at least able to keep a leading position. Their markets are mostly oligopoly with intensive competition.

Competitive advantages of hidden champions are rarely because of cost leadership, more because of quality, total cost of ownership, high performance, and consultation close to the customer. They "earn" their market leadership through performance and not through price aggression. Their high real net output ratio is often achieved by working with proprietary processes which make it hard for competitors to imitate their products. On the other hand, management tasks like finance are often outsourced.

It also seems to be evident that to maintain market leadership hidden champions do business on their own, rather than depend on working in cooperation with others. Even sales in countries abroad are often organized from the parent company base. This keeps significant know-how inside, and allows attracting highly qualified staff even for a small company.

The corporate culture of hidden champions is distinctive. Their values are conservative: hard work, strict selection, intolerance of underperformance, low sickness rates and high employee loyalty — and most are based in smaller towns.

Leadership style is authoritarian on strategic issues but participative on operations level. The leaders identify themselves with the company, are focused on their products, and stay for a long time, much longer than is normal in large public corporations.

A serious problem for hidden champions, as it is for SMEs in general, is to attract international professionals. Hidden champions need people who are happy to live in a remote location, who are attracted by job content, and who do not care much for a formal and prescribed career path. In Germany the concept of hidden champion is known to some extent, and therefore hidden champions there are able to utilise this label to recruit staff.

Lessons to be learned from hidden champions

Hidden champions are elitist companies that other small and medium-sized companies (SME) in particular can learn from. Much business is local, and it can be a goal to become the number one on such a local market. Also large companies may find some interesting lessons about international management. Hidden champions teach that exceptional management means doing small things better than the competitors instead of managing only one great thing. Simplicity in processes and organizational structures is another lesson. Investors may find determined, clearly focused, continuously successful companies.

List of selected hidden champions

This list of companies, selected by Herman Simon 2009, gives an idea of what hidden champions are: