Peter Colman reveals what growth-focused SMEs can learn from the thriving, elite tier of mid-size companies that so often fly under the radar.
Webasto, Sick and Winterhalter may seem like three unusual and very different companies – they make sunroofs, sensors and dishwashers, respectively – but they share something in common. They’re all ‘Hidden Champions’, a term coined by the Founder and Honorary Chairman of Simon-Kucher, Professor Hermann Simon.
While a high proportion of these come from the German-speaking Mittelstand, we’ve found highly profitable, relatively small and mostly unknown companies originating in many countries around the world, including the UK.
These companies are world leaders in what they do, but they are also very private and all too often their many innovations and achievements go unnoticed. Instead, we hear about the success stories of the big corporates.
A company must meet three criteria to be considered:
- Be number one, two or three in the global market (or number one on the company’s continent, determined by market share)
- Have revenue below £3bn
- Have a low level of public awareness
By studying hidden champions over many years, we’ve identified some key characteristics (below) common to these companies that drive their success, with some important lessons you can apply to your own organisation.
How does the UK perform?
At the moment the UK is more UEFA Europa League than Champions League. There have been around 2,700 hidden champions identified and while the UK has produced 67, Germany has more than 1,300!
By following these lessons, you can become a UK hidden champion. You’ll need to remain extremely disciplined, know why your customers buy from you, and innovate to keep satisfying the most demanding of them.
But overarching all that is ambition. You have to have an intense desire and determination to become world class. The question is, how ambitious is your organisation?
Peter Colman will be leading a Discussion Room on‘Commercial Agility for Manufacturers during this Resurgent Crisis’ (Mon 9 Nov @ 15:15) at Manufacturing Leaders’ Summit as part Digital Manufacturing Week 2020.
He will also be delivering a presentation on ‘Ambitious, Focused and Innovative: 7 lessons from the Hidden Champions’ (Tues 10 Nov @ 11:45 and 15:45) in the Leadership and Strategy Arena.
Click here to register and join him.
Key characteristics of Hidden Champions
#1 Set extremely ambitious goals
It all starts with ambition. Hidden champions don’t just pay lip service to being number one globally; this is truly what they go after. And they don’t let the fact they’re often relatively small hold them back. They’re looking to be the global leader in their field.
Take for example this quote from Sick: “We lead by anticipating our customers’ expectations. Leadership means becoming the benchmark for others. We set the standards on the world market.”
#2 Disciplined focus and depth
The focus and depth of a hidden champion is one of the main points differentiating it from the big corporates. A hidden champion will follow a very narrow and deep strategy rather than diversifying into lots of different businesses.
A case in point is the dishwasher manufacturer Winterhalter. It focuses on selling to only a few sectors such as hotels and restaurants, but it doesn’t just sell the dishwasher but water conditioners, the detergents and the service too, the whole package.
The company is providing a complete solution for its customers while carving out its own niche.
#3 Think global
While many of the big companies are now starting to pay attention to emerging markets, a hidden champion has already set down roots in regions it sees current and future growth. In particular, we’ve seen a shift in revenues over the last 10 to 20 years towards emerging markets.
German sunroof manufacturer Webasto established itself in Asia as early as 1978. Having great focus and expertise, hidden champions are quick to infiltrate new markets making them so much more effective in their efforts to globalise. A hidden champion maintains focus while also being expansive in finding a customer base.
#4 Prioritise innovation
A hidden champion on average will spend an impressive 6% of its revenue on R&D. That is a long term mindset. As a percentage this is twice the amount of a standard corporate.
Not only that, champions produce more patents per thousand people, and they do it far cheaper than corporates. This innovation is core to growth because you can only lead the market if you’re willing to invest and keep changing your offering to match customers’ needs.
#5 Serve the world’s top customers
Hidden champions are very close to their most demanding customers. They may be not quite as slick at what is considered traditional marketing, but they open up their organisation and work with their customers in such a way that many of their employees have direct customer contact.
Furthermore, they use their top customers to drive innovation. It’s in tackling the problems of their most demanding customers that they source their next generation of innovations. They believe you can only be considered a world market leader if you serve the world’s top customers.
#6 Compete with the best
Hidden champions may thrive in their sector, but they have tough competition. What they do differently is face that competition head-on. As in athletics where competitors have a healthy respect for their top rivals, hidden champions use this competitive instinct to constantly drive them forward.
They actively take a performance-orientated approach. This means quality and innovation are paramount. What it doesn’t mean is trying to steal market share by reducing prices and having destructive effects on entire industry dynamics and profitability.
#7 Retain your top talent
Most important, hidden champions do an outstanding job at holding onto their leaders and top employees. Having said that, for new people coming into the organisation, it can be a very uncomfortable time because hidden champions can be almost cult-like in their behaviour.
People who don’t fit in tend to leave quickly, but those that do stay remain for a long time. Furthermore, the average tenure of a CEO at a hidden champion is 20 years, while a FTSE100 CEO is closer to five years.
Dr. Peter Colman, Partner and shareholder at Simon-Kucher & Partners
Peter leads the consultancy’s Technology, Industrials and B2B Services practices for the UK and Ireland. He has more than 20 years’ experience in consulting and industry, including helping clients through two past crises (Dot-Com Bubble & Global Financial Crisis).
He specialises in Commercial Excellence programmes to address strategy, pricing, sales & marketing, product management and digital transformation topics. Peter is a regular presenter at Manufacturing Leaders Summit, has contributed numerous articles for The Manufacturer and is a member of The Manufacturer MX Awards expert judging panel.
Professor Hermann Simon and the Hidden Champions
Professor Hermann Simon is the Founder and Honorary Chairman of Simon-Kucher & Partners. He is an expert in strategy, marketing and pricing. He is the only German in the “Thinkers50 Hall of Fame” of the most important management thinkers in the world.
Further insights can be found in his books on the subject, Hidden Champions: Lessons from 500 of the world’s best unknown companies, and Hidden Champions of the 21st Century: Success strategies of unknown world market leaders.
Simon-Kucher & Partners, Strategy & Marketing Consultants
Simon-Kucher & Partners is a global consulting firm with more than 1,400 professionals in 39 offices worldwide focusing on TopLine Power®. Founded in 1985, the company has more than 30 years of experience providing strategy and marketing consulting and is regarded as the world’s leading pricing advisor.