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.
Marcelo Veiga says
I’ve been following your blog for some years now, without ever feeling that my comments would add any value to your posts. This time, however, I might be able to contribute to your message. During the 90s, I lived and worked in Germany for six years, working for one of such not-well-known privately-held “world champions”.
In my experience, as someone with an engineering degree from a Brazilian university, and an M.Sc. in manufacturing management from a British university, having the strange pleasure to spend some formative years in one of this planet’s engineering paradises helped me get some few things pretty straight: While engineering talent may be found anywhere in the world, all studying from the same books (lean tools included), the German companies have access to a multitude of very effective complementary talents in all other levels and areas of the organization. A German foreman is a good example, very proud and highly capable, always fully interested in, well, doing his job as good as he can.
Such technical awareness, pride, professionalism and integrity, when spread throughout the functions of a business, may not be perfect, and pretty challenging when facing change projects, but does the job of “focusing on core capabilities, establishing long-term relationships with customers, innovating continuously, …” As the lean concept teaches us, it’s quite healthy to have well-trained people with a strong common sense, asking always “why?”, searching for effective solutions, respecting and collaborating with external partners, not only when problems get out-of-reach (the universities being such a case).
If you add to the picture a top management still committed to the long-term success of their companies (in many cases still bearing the family name), the buzzword may not be mentioned, but the job gets done.
Regards and congratulations for your blog!
Christopher Pfeiffer says
Perfect timing! You have given me just the fodder I need to further my current mission. I am the Lean Master for a large corporation that was traditionally a Six Sigma company. 5 of us were brought in 5 years ago to offset outside consultant fees. As the sole survivor, I am now trying to push the high level philosophy with zero regard for the tool choice. By their own admission, they already agree that the simple Lean tools will fix 60 – 80 percent of our issues. (I know it is much higher, but have no need to argue). I have forwarded your article to the senior leaders as a prompt for our next round of strategy talks. Maybe they’ll take my past advice and finally subscribe! One can hope…
Robert Drescher says
What I think often gets missed is the importance of stable ownership with a long term growth focus. It is hard to build any business if you have to provide short-term performance to shareholders. From the small and medium sized businesses he mentions to the large ones of this world, the only organizations with a long history of growth and success are tightly held.
Since shareholder set the direction for any company, it is simple to see why tightly held ones can succeed, despite size. Lean, and for that matter many other business systems coupled with a forward looking loyal strong ownership base, makes it easy to do the right things to get you and keep you at the top.
Stable ownership is the first part of creating an environment that works to build lasting relationships. In fact the only way executives and senior managers can last in these tightly held companies is through building a relationship with the owners. Thus relationship building is one of their key skills and that in turn helps them do it with their other staff, suppliers, and customers.
Once you build good relationships it get far easier to actually develop caring in the people that work for you. After all if you care so will they. In North America we have far to many companies that are owned by financial organizations that only care about how much money they get each quarter.
Andy Wagner says
I suspect the number of US businesses in this category would be higher, but Danaher keeps buying them up, do they not? This seems to be exactly the type of operation that Danaher targets.