“Hidden Champions” is a term coined by Hermann Simon, a German academic and business leader, and used later in the title of his best-selling book Hidden Champions. Lessons from 500 of the world's best unknown companies published by Harvard Business School Press in 1996.
A Hidden Champion (HC) is a firm that is a medium-sized market leader, defined as being among the top three globally in sales in a particular market niche, and/or number one in the firm’s home continent. It will typically earn up to 5 billion euros in sales. However, it is “hidden’ because it falls under the radar to some extent, while quietly becoming a leader in its own field.
Simon first identified a large swathe of such firms in Germany, companies that were not household names but that enjoyed world market shares of over 50 percent, with the majority of their products being destined for export. He points out that Germany was by far the leading exporter in the world for many years (until surpassed by China in 2009), and that much of this success derives from the relatively little-known “Mittelstand” companies (small and medium-sized enterprises in German-speaking countries). However, very few business people, academics or journalists knew the names of these companies or were aware of the products and services they offer.
Exploring the reasons for the German HC phenomenon, Simon notes that Germany is a relatively decentralized country, with an open educational system that allows for upward mobility and individual advancement. This contrasts with many more centralized countries, such as France, which has a much more elite educational system, little upward social mobility and relatively little capital available for investments in new businesses. High property taxes mean that investors rely on the government to a larger extent, as individual effort does not generate the necessary capital surplus. Simon contrasts the typical longevity of German HCs with the situation in China, where emerging business leaders tend to go for an IPO relatively early on in order to obtain the necessary funds to enable continuous fast growth, and to fund greater levels of R&D. Conversely, German family-owned HCs may fail to realize that it might be time to relinquish some of their ownership control in order to go for rapid growth!
There are a number of key differences between Hidden Champions and other more well-known companies. The first is exhibited in their ambition for market leadership.
Ambition for market leadership
HCs exhibit a relentless ambition to be market leaders. They want to be world leaders in their field and they set high benchmarks! Their leaders possess a single-mindedness and focus on doing one thing better than anyone else. As Simon notes “their absolute focus on their missions makes them unbeatable”.
Market-driven
This takes the shape of having a relatively narrow range of specialized products and investing in the global marketing and sales of these. The specialized products are typically based on know-how and are improved over time through incremental innovations. This continuous improvement – “evolution not revolution” – is the major sales argument for such firms, i.e. selling based on performance/quality, rather than competing on price.
Digitalization
Hidden Champions seem to be at the forefront when it comes to digital transformation, particularly in the area of B2B. Their use of analytics and the long-term perspectives of these predominantly family-led firms have been advantageous in this respect. In addition, HCs tend to employ highly qualified staff with the expertise to drive forward their digital programmes.
Customer satisfaction
This may occupy 65% of HC’s attention, compared to 19% in other firms. HCs tend to work closely with their customer base in order to better understand their needs.
Workforce
The workforce mix is often different than in many other firms. HCs tend to employ highly qualified workers, many of whom are graduates, and there is very low turnover in the workforce, while the CEOs themselves often have long tenure. This stability is achieved by inspiring others with enthusiasm for the company’s mission and encouraging them to deliver the best performance.
Leadership style
HCs are often family owned, with the CEO being indivisible from the company. Their motivation derives primarily from their identification and satisfaction with their work. HCs exhibit a distinctive leadership culture, which is typically rather participative, but there seems to be a dichotomy here: HCs are authoritative at the macro level, with clear focus, goals and priorities, but more flexible when it comes to the detail of their day-to-day operations. Employees have the freedom to do what they consider to be right to make use of their full potential but, equally, must take responsibility for ensuring that their actions do not damage the firm.
Self-reliance
HCs tend to be wary of management fads and will tread their own path. They are far less likely to outsource or engage in strategic alliances and will often manufacture the components required for their products to a very high standard. In sum, they rely on their own strengths and prefer to go it alone.
Simon has added several new foci in his evolving research on HCs:
The increasing importance of digitalization (as life-long learning)
The emerging prominence of China, Chinese companies and participating in the Chinese market
Price transparency as a reality, as well as value transparency and continuously increasing price wars.
In sum, a successful strategy for an HC involves three intersecting circles:
Outer circle:
Focus
Closeness to and value offered to customers
Globalization
Taking advantage of the firm’s unique positive features
Middle circle (all in the context of digitalization):
Depth (in contrast to superficiality)
Highly motivated workforce
Innovation
Inner circle:
Strong leadership
Ambitious goals
Hidden Champions are models for strategy and management in the 21st century. They are leaders in digitizing their processes. They exploit their customer relationships and deliver real customer benefits. We can all learn from Hidden Champions!
Questions for the members of the Lorange Network:
Which qualities identified as belonging to Hidden Champions are relevant in your own firm?
Does the fact that HCs are predominantly family firms play a role in their leadership cultures?
Could an HC be a small enterprise or even a startup instead of a SME?
What are the potential downsides of the specialization strategies employed by HCs?
Hermann Simon is Chairman of Simon-Kucher & Partners, Strategy & Marketing Consultants, with 18 offices in Europe, Asia, and the United States. He is an expert in strategy, marketing and pricing, advising clients and speaking to business organizations worldwide. Prior to taking on consulting full-time, he was a professor of business administration and marketing at the Universities of Mainz and Bielefeld, and has served as a visiting professor at many universities, including Harvard Business School, London Business School, INSEAD, Keio University, Stanford, and MIT. Named one of Europe’s most influential management thinkers, he has served on the boards of numerous journals, including the International Journal of Research in Marketing, Management Science, and European Management Journal, and has published over 30 books, including the worldwide bestseller, Hidden Champions (1996), Power Pricing (1997), and Manage for Profit, Not for Market Share (2006). (140 words)
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