Hidden champions - from family business to global market leader

The media hype associated with the trends of the new economy has shown how modern management principles may come and go. The rise and fall of 'dot-coms'have left many people wondering what future business trends and principles will be. Throughout the good and bad times of the changing realities in the 'new'economy, a group of companies has stayed true to its core principles: the hidden champions. Many of the characteristics of the hidden champions run parallel to those of family-run businesses. In fact, many of the hidden champions are exactly that ? family-run. These small and mid-sized companies, located around the globe, have rejected adopting 'faddish' management theories and have stayed focused on their goals, markets and business principles. Their smaller size has allowed them to concentrate their activities and has led many to achieve global market shares of greater than 70% in their respective markets. In order to understand how these companies have achieved success in an ever-changing business environment, we have identified the pillars that have allowed them to maintain and improve their market leading positions.

An elite group
Global market leadership is one of the most ambitious goals a company can set. Most countries have well-known major companies that hold world leader positions, such as General Electric in aircraft engines, DaimlerChrysler in heavy commercial vehicles, or Matsushita in videocassette recorders. But many countries also have a large number of smaller firms that have achieved and maintained a leading global position. Many of these companies have between 70% and 90% of their respective world markets, a level that few large multinationals could ever dream of achieving. Despite their exceptional market position, most of these companies are virtually unknown to the public and have been overlooked by the media. This elite group of companies is known as hidden champions.

The family as an asset
Family businesses in general are said to have advantages similar to those of hidden champions. Among the similarities most frequently mentioned between family-run businesses and hidden champions are the speed with which decisions are made, the close and personal nature of their customer relationships, the continuity in management and the high motivation of their employees. In Germany alone there are more than 600 companies that qualify as hidden champions. Due to the interesting similarities between the two groups, the business models of the hidden champions should provide many insights for managers of family-run businesses.

In terms of ownership, the large majority (76. 5%) of hidden champions are family-owned and operated while 21. 1% are owned by larger corporations but partly still managed by the founding family. Only 2. 4% of these companies have gone public. Hidden champions generally try to avoid the publicity associated with being a public company and prefer to keep a low profile.

Diversity
Hidden champions can be found in a diverse group of industries in countries around the world. The following examples of hidden champions are all family-owned.

- Baader: This American company has a share of 90% of the world market for fish-processing machinery.
- Corticeira Amorim: This Portuguese company is by far the world's largest maker of cork stoppers and other cork products.
- Gallagher: This New Zealand-based company is the world leader in electric fencing for pastures, with a share of about 50%.
- Haribo: Haribo's Gummi Bears are beloved just as much in the USA as they are in Europe. This German company is the leader in both regions.
- Hauni: This German-based company is the world market leader for high-performance cigarette machines and is the world's only supplier of complete systems for tobacco processing. It maintains a global market share close to 90%.
- Melroe: An American company, Melroe claims world market leadership for skid-steer loaders and multi-purpose loaders with a market share of 75% in the latter.
- Rossignol: This French company is the world's leading manufacturer of alpine skis.
- Stihl: Stihl power saws are in use all over the world. The company's market share is roughly twice as high as that of its nearest competitor.
- Webasto: This American company is the global market leader for automobile sunroofs and also for auxiliary heating systems in automobiles.

One of the most remarkable findings is that these market leaders have strikingly similar characteristics, regardless of where they are based. Thus, it appears that the same principles foster success and market leadership throughout the world. The lessons drawn from these companies are likely to be useful for all businesses, independent of location or industry. This strategy has nine pillars that together provide insight into the basis for the success of the hidden champions.

Market leadership
Hidden champions focus on ambitious objectives, particularly market leadership. In addition, they frequently strive to be the best provider for their specific product, promote technological leadership and work to determine the 'rules'of the market ? a type of psychological market leadership. A case in point is Draeger, the world-market leader for incubators, because of their focus on manufacturing cutting-edge, technologically advanced equipment. By focusing on improving the products they offer, they provide their technically oriented employees new opportunities that, in turn, act as a way to motivate employees to perform at even higher levels. These goals have been carefully implemented, followed and maintained over decades.

Another example of this desire for market leadership is seen in Kaercher, the world market leader for highpressure cleaners. The company's CEO, Roland Kamm, developed a corporate vision in the mid-1970's to increase its sales from DM20 million to DM1 billion by 1995. He believed the company needed to focus on innovation (currently 80% of the company's products are no more than four years old) and global expansion to achieve his ambitious goals. Through this two-pronged strategy, Kaercher achieved these goals. Currently, the company has annual sales of DM1.65 billion.

Strategic focus
Another important aspect of the hidden champion philosophy is focusing on niche markets. These companies focus on their strengths and avoid detours that could detract from their corporate strategy. An inherent characteristic of hidden champions is the desire to be a highly qualified specialist rather than a 'jack-of-all-trades'. Their 'value-added' to the customer lies in their deep knowledge of their business rather than trying to be a 'one-stop'shopping solution. This strategic focus has allowed Winterhalter to become and maintain its position as the world leader in hotel and restaurant dishwashers. From the CEO to the production line workers, the entire company focuses on maintaining the leading edge in their market. This determination allows them to manufacture high-performance products and creates steep barriers to entry for potential competitors.

Global business environment
Focusing on a niche market does not mean a company limits itself in the global business arena. Even though these companies are mid-sized players, the majority of hidden champions market products globally with subsidiaries located throughout the world. Fresenius, global market leader for dialysis machines and services, has more than 70 subsidiaries worldwide. In addition to an international presence, many of these firms require a 'mental internationalisation'. Barth, world market leader for hops and hops products, requires its executives to speak at least three foreign languages while De La Rue, the British world leader in money printing, requires its executives to speak at least two foreign languages. Taking this factor into account, one might view numerous hidden champions as being far more international than many larger multinational companies!

This combination of ambitious goals (market leadership), strategic focus and lobalisation has allowed many hidden champions to achieve leading global positions. In addition to these three characteristics, there are six other factors that comprise the hidden champion profile.

Innovation and market-driven technology
Hidden champions are highly innovative both product-wise and process-wise. Innovations form the foundation of their long-term success. These companies work to integrate market and technology as equally important driving forces, allowing them to achieve synergies from internal competencies and external market opportunities. A hidden champion that exemplifies this practice is St Jude Medical. This US-based company has approximately 60% of the world market for artificial heart valves. This focus on innovation and market-driven technology has led to St Jude Medical's development of a new sutureless device for joining blood vessels for heart bypass surgery. The US FDA (Food and Drug Administration) recently approved this device, the aortic connector, for use in bypass surgery to make just one type of the various critical attachments that are required in these procedures. The development of this device shows how the company has focused on innovations and improvements in response to opportunities they have identified in the market while not losing sight of their overall strategic focus.

Reliance on internal strengths
Another important success factor for the hidden champions is their strong reliance on and belief in themselves. They generally do not believe others can solve their problems and view strategic alliances and partnerships sceptically. In many cases, their philosophy is similar to Friedrich von Schiller's description of William Tell, the Swiss national hero: "The strong man is strongest when alone".

This characteristic is true for ChupaChups, the Spanish hard candy manufacturer that sells 4 billion 'suckers' a year in more than 170 countries with flavours tailored to regionally-specific tastes. More than 80% of the machinery that Chupa-Chups uses is designed internally and carefully guarded from competitors. The company's success has been so ingrained in society that its brand name is essentially the Spanish word for lollipop, much like Kleenex for English-speakers has become the word to refer to tissue.

Strong customer relationships
Hidden champions work to build strong customer relationships ? especially with their top customers. This 'closeness'to the customer encompasses all functions and all levels of the company's hierarchy. However, these companies do not pride themselves on being marketing professionals in the textbook sense of the phrase. They primarily sell on value, not on price, but are always conscious of the costs associated with their work and products.

Grohmann Engineering, a manufacturer of machines that assembles microelectronic products, is an example of a company that has worked to develop strong customer relationships. The company defines its market as the "30 leading customers in the world". They have conducted projects for companies such as Intel, Motorola, LM Ericsson and Nokia. Klaus Grohmann, the head of the firm, is convinced that one becomes and remains a world market leader only by being a supplier to the leading global customers.

The work of building and maintaining strong customer relationships is not limited to upper management. Employees in R&D or production often have direct customer contact. For example, Wuerth, the world market leader in assembly products, requires that all managers visit at least one customer personally each month. Reinhold Wuerth, now chairman of the company's advisory board, continually adhered to this principle during his 40 years as CEO. On one occasion, he spent an entire week on a client site in the Netherlands to accompany his sales force and speak with the customers himself to determine the cause of a particular problem. This process not only provides top managers the opportunity to have access to unfiltered information; it also sets an excellent example for the staff.

Lean organisational structures
Hidden champions always have 'more work than heads'. In other words, these companies have too few people. This keeps the employees busy, challenged and productive. The absenteeism rate is very low, which in itself is a cost advantage.

Similar to hidden champions, familyrun businesses experience extremely minimal turnover in their core staff since these companies are very selective in their staffing decisions. The team plays a decisive role in the selection process, and the idea of a 'probation period'regarding new staff is not simply a hollow phrase. As in a sports team, the other members do not tolerate under-performing players because they have a negative impact on the team's overall performance. This process is of extreme importance for family-run businesses since, in many cases, they have difficulty delegating powers to 'outsiders'.

Competitive advantages
Hidden champions are extremely tough competitors and operate in intensely competitive markets that require them to defend their market shares immediately and aggressively. They possess clear competitive advantages ? particularly in product quality and service ? and sustain them over the long term because they are based on superior, difficult to emulate, internal competencies. These competitive advantages build on typical family business characteristics such as innovation and strong customer relationships.

Not only do hidden champions work on being 'close'with their customers, but also they are often geographically close to their competitors. The world market leaders place themselves in direct headon competition with their top rivals. One often finds that the leading companies in a particular branch are located in one place or within the same region. The two world market leaders for assembly products, Wuerth and Berner, are both located in the German city of Kuenzelsau. Global leaders in the surgical instruments market, such as Aesculap, Storz, and Martin, are located in the German city of Tuttlingen while Warsaw, Indiana is home to the three world leaders of artificial orthopedic products: Biomet, DePuy, and Zimmer. Freixenet and Cordorniu, the world's two leading manufacturers of sparkling wine, are in the same Spanish village in the province of Catalonia. This 'world class' status seems attainable most quickly through this type of intense, performance-based competition rather than through price-based competition.

Management style
Who are the leaders behind the hidden champions? Here is where the true root of their tremendous success is found. If one had to name the most outstanding characteristic of the hidden champions, it would be their leaders. In many cases today's leaders maintain the traditions developed by the company's founder or they are members of the founder's family. Their inexhaustible determination and energy have a profound effect on all those around them. In the majority of cases, these entrepreneurs share five special characteristics:

- Unity of person and purpose: As has been said of Hans Riegel from Haribo: "He and his company were always one and the same".
- Single-mindedness: Many of the founders and leaders of the hidden champions are so obsessed with an idea that they never let it out of their sight.
- Fearlessness: These leaders have few inhibitions and fears. They are not risk averse, nor constrained by limited knowledge or insufficient ability in a foreign language. Many moved to America and founded companies without being able to speak English.
- Vitality and stamina: Helmut Aurenz of ASB Gruenland, the world market leader for potting soil, views stamina as the most important factor for success.
- Inspiring to others: No founder of a hidden champion achieved global leadership alone. Each needed to motivate a team and needed to succeed in doing so.

The leadership styles of hidden champions are exemplified in the people who run these companies. Their leadership is authoritarian on core values but promotes employee participation in the details. They are energetic and inspiring.

A noteworthy characteristic of the hidden champion's leadership is continuity. The highest officials at the global market leaders spend an average of 22 years at the helm. For selected older companies, the tenure of the managing directors extends well beyond that, as is the case with Stihl or Haribo. This high level of continuity must be viewed together with long-term goals, which were pursued over decades and led to the company's position in the world market. This continuity runs contrary to the general reputation American companies have as promoters of frequent employee turnover.

Lessons for family-run businesses
Many family-run businesses can benefit from the nine pillars of the hidden champions. In most cases, at least some of the hidden champion success factors are already inherently present in family run businesses ? such as strong leadership, focus on innovation and employee motivation.

In order to place the nine pillars of the hidden champions into perspective, it may be helpful to think of them as concentric circles: the core, the inner circle and the outer circle. The core includes strong leadership and ambitious goals. The inner circle builds on the core and includes the development of the company's capabilities: reliance on one's internal strengths, continuous improvement and innovation, highly motivated employees and lean organisational structures. Finally, the outer circle is the result of the two previous ones and comprises strategic focus, strong customer relationships, competitive advantages and a global orientation. When placed together, these factors form a synergy that will lead to one result: global market leadership.