Episode #7. Hermann Simon: Hidden Champions Of Value Creation

The vast majority of businesses – the very backbone of the economic system – are derogatorily defined as small and medium enterprises by government statisticians. A better mental model is that they are the champions of value creation.

Hermann Simon is a renowned management thinker and author, chairman of the consulting firm Simon-Kucher and the founder and leader of the research project he calls Hidden Champions. Hidden Champions uncovered the data demonstrating that – compared to the larger and more publicized companies of the major stock indexes like the S&P 500 – small and medium businesses are typically more profitable, more efficient (higher revenue per employee), faster growing, better at investing in and producing innovation, and better at making a return on that innovation, i.e. creating new value.

Show Notes:

0:00 | Introduction

0:48 | The Role of Language in Business

1:27 | Introducing Hermann Simon

2:28 | Hidden Champions

3:09 | History & Background of Hidden Champions

4:46 | Performance Metrics for High-Performing Companies

7:36 | Common Quantitative Metrics

9:39 | Establishing Close Relationships with Customers

12:25 | Customer-Driven Relationship

13:49 | Employee Commitment

14:36 | Industrial Digitalization as Germans

15:50 | Tacit Knowledge

17:36 | Long-Term Goals in Companies

18:57 | Cultural Differences for Long-Term Goals

20:34 | Deepening the Value Chain

22:57 | Value Capture as an Expertise

24:48 | Pricing as a Skill

27:18 | Calculating Value Created for Customers

29:17 | Different Approaches to Financing

30:57 | Self-Financing

34:14 | Organization

36:51 | Emergent Strategy

39:20 | Wrap-Up on Hidden Champions

41:43 | Works of Hermann Simon

Knowledge Capsule

In his books and writings, Dr. Hermann Simon explores the characteristics and success factors of these Hidden Champions. Here is a summary of some of the key points and causal factors the highlights:

*    Niche Focus: Hidden Champions typically specialize in niche markets, focusing on narrow segments where they can achieve a dominant market share. They often serve niche customer needs with highly tailored products or services.

*    Global Market Leadership: Hidden Champions strive for global market leadership in their respective niches. They aim to become the best in the world in their specific domain, rather than merely being local or regional players.

*    Innovation and Differentiation: These companies emphasize continuous innovation and differentiation as key drivers of their success. They invest significantly in research and development, constantly striving to improve their products, processes, and technologies.

*    Customer Proximity: Hidden Champions maintain close relationships with their customers, which allows them to understand their needs deeply and respond quickly to changing demands. They often offer superior customer service and build long-term partnerships.

*    Operational Excellence: These companies excel in operational efficiency and effectiveness. They have lean and agile organizational structures, efficient processes, and high productivity levels. They continuously strive for operational improvements.

*    High-Quality Workforce: Hidden Champions focus on attracting and retaining talented employees who possess the necessary expertise and dedication. They provide a motivating work environment, invest in employee development, and foster a strong sense of commitment.

*    Internationalization: Many Hidden Champions have a strong international presence. They actively pursue global expansion, establishing subsidiaries and distribution networks in different countries to access new markets and customers.

*    Long-Term Orientation: These companies adopt a long-term perspective in their decision-making and strategy. They prioritize sustainable growth over short-term gains, often reinvesting a significant portion of their profits into research, development, and market expansion.

Dr. Hermann Simon’s research and insights into Hidden Champions provide valuable lessons for businesses seeking to achieve sustainable success. By focusing on niche markets, pursuing innovation, maintaining close customer relationships, emphasizing operational excellence, and cultivating a high-quality workforce, companies can strive to become Hidden Champions themselves.

Resources

Hermann’s book: Hidden Champions Of The 21^st Century: The Success Strategies of Unknown World Market Leaders

Hermann’s autobiography: Many Worlds, One Life.