Michael McPhee: “Can you make money from philosophy?”
Max Dugan: “Oh yeah … if you have the right one!”
Hermann Simon, a German academic, author, consultant and buddy of the late Peter Drucker has something of an obsession with small to medium sized companies – especially German ones – that perform very, very well. His latest book Hidden Champions of the Twenty First Century: The Success Strategies of Unknown World Leaders focuses mostly on German companies that dominate or nearly dominate their industries gblobally. They are all medium sized, privately held companies that maintain very low profiles.
What is most interesting about them is that they are successful, but not particularly well know for deploying lean tools – 5S, kanban, value stream mapping and the rest. Their strength, according to Simon, is their commitment to very lean philosophies (although Simon does not use the term lean and doesn’t seem too interested in it).
These companies pursue “such common-sense strategies as focusing on core capabilities, establishing long-term relationships with customers, innovating continuously, rewarding employees for performance, and developing a global presence.” In other words, they have exactly the sort of values and strategies required for lean success. Whether they back that philosophy up with proven lean tactics to truly optimize things is another question, but for the most part the companies Simon identifies as “Champions” do quite well.
It is interesting that Simon has identified some 2,700 companies as “Hidden Champions” – he says “a hidden champion is of the top three in the world or is number one in its continent. Its turnover is less than five billion euros. In public, it is not known at all or only slightly” – and 1,300 of them are German, while only 360 are American
In the USA we seem to fixate on the big, publicly traded companies and pay rather short shrift to the smaller privately held ones, while Germany has a thriving manufacturing sector – and a big manufacturing export economy – driven largely by privately traded companies. “In contrast to the low degree of familiarity, the hidden champions are highly significant for the overall economy: In recent years, more than 150 firms from their ranks became billion dollar companies in terms of sales … and created more than a million new jobs in the last ten years.”
I strongly suspect the difference is that, while Germany has a lot of companies that get the philosophy right, but don’t do so well with the tools, the USA has an awful lot of companies that are the inverse – great with lean tools but using them in pursuit of the wrong philosophy. Rather than “focusing on core capabilities, establishing long-term relationships with customers, innovating continuously, rewarding employees for performance, and developing a global presence” too many American (and other western) companies focus on finance and numbers, have adversarial relationships with customers constantly haggling over prices and terms, are better at innovative accounting than innovative products and processes, and view employees as headcount.
In light of the strength of German manufacturing and the fact that western non-German countries see much of manufacturing as something sent to China that ‘isn’t coming back’, it seems obvious that (1) having the right philosophy is a heck of a lot more important than having the right tools; and (2) a lot of American and other western companies need a serious philosophy lesson.