The philosophy and ecosystem of Hidden Champions

Hermann Simon

In 1987, the Harvard professor Theodore Levitt invited me to a conversation in Düsseldorf. Interested in the topic of international competitiveness, he had made the term “globalization” popular through a seminal article in the Harvard Business Review. That day he asked me a simple question: “Why is Germany so successful in exports?”¹

Germany had become the world’s export leader for the first time in 1986, and held that spot until China surpassed it in 2009. Since that time, German and US exports have been virtually equal, although Germany is only one quarter the size of the US in terms of population and gross domestic product.

Levitt’s question gnawed at me. Why is Germany so successful in exports? I thought first of large companies. Volkswagen, Bayer, Siemens, Bosch, and the like were all very strong exporters at the time. But this couldn’t be the explanation, because the United States, Japan, and even France had more Fortune Global 500 companies than Germany.

Little by little, I found out that there are a lot of medium-sized world market leaders in Germany whom nobody knows. Buried deep below the headlines of spectacular business successes and breakthroughs lies a largely ignored source not only of exports, but of management wisdom. I began to research these special companies and named them “Hidden Champions” for the first time in a 1990 article. Five years later, Harvard Business School Press published my first Hidden Champions book. Several editions followed, and the books have been translated into 25 languages. In China alone, more than one million copies have been sold.²

I define a Hidden Champion by three criteria: one of the top three in its world market, or number one on its continent; less than $5 billion in revenue; and hardly known to the general public.

I have discovered 3,000 Hidden Champions around the world. About 40 percent of them are from Germany. This category of companies seems unique to German-speaking countries, but hardly exists elsewhere.³

The more I dug into the Hidden Champions, the more fascinated I became by their ecosystems. A whole category of truly global competitors had remained hidden under a layer of invisibility, even secrecy. Few practitioners, journalists, or academics know the names of these companies or are aware of the products and services they offer, let alone the way they conduct their business in Globalia (the term I coined to describe the globalized world). Many of them enjoy world market shares of over 50 percent, numbers that few giant multinationals can match. And this hasn’t changed much since Levitt posed his question.

I did numerous surveys on the Hidden Champions to better understand their common philosophy and ecosystem. But much more impressive were my hundreds of visits to their sites, and especially the personal encounters with their founders, owners, and CEOs. If I had to choose one common root of the successes of the Hidden Champions, it would be their leaders. At first glance they are as diverse as people in general, but as I explored further I could distill several common traits, which deserve to be called “philosophical.” Their leadership and the cultures they create are very different from what large corporations typically do. Many of these traits have their own roots in the work of famous philosophers, both Eastern and Western.

Willpower

Having an idea and realizing it are two different things. If your idea or vision is to become the global market leader – the best in your market worldwide – you have a long and torturous road ahead of you. The Hidden Champions are proof that you have a chance to reach that goal only if you possess the combination of outstanding willpower and relentless ambition.

The definition of “will” or “willpower” leads us to the philosophers Arthur Schopenhauer (1788-1860) and Friedrich Nietzsche (1844-1900). Schopenhauer says: “A man can do what he wants, but not want what he wants.” In Nietzsche’s philosophy, the “will to power” is a central concept, understood as an irrational force that can be channeled to different ends.⁴This concept hardly ever appears in management literature. One exception is the work of Marvin Bower, the cofounder of McKinsey, who published books with the titles The Will to Manage and The Will to Lead.⁵

I found that willpower, combined with the relentless ambition to become the global market leader, are defining characteristics of the leaders of Hidden Champions. These traits forge a profound unity of person and purpose. The person and the company are indivisible. “His person and his company have always been one entity” is a common description of the late Hans Riegel of Haribo, world market leader in gummi bears. Heinz-Horst Deichmann, who founded the eponymous European market leader for shoes, said, “I savoured the smell of leather from my infancy. I love people and I love shoes.” Jake Burton, the founder of Burton Snowboards, advises: “Live your work.” These remarks reminded me of a finding about artists and scientists. In their collection of 12 case studies of famous creative people, Wallace and Gruber concluded that “[f]or many creative people the life is the work. They integrate rather than separate their personal life and their work.”⁶

As genuine people who identify completely with their companies, the leaders of the Hidden Champions have charisma and persuasive power. Their attitude toward work implies that money is not their primary driving force. Motivation derives primarily from these leaders’ identification and satisfaction with their work. Economic success is secondary. Their willpower and their absolute commitment and responsibility give such leaders tremendous credibility. They have no reservations about their work and assume full responsibility. True leadership can never be play-acted; it must reside in the leader’s core.

Focus

If you have the willpower to strive incessantly to become the best and the leader in your market, how do you pursue this goal? The answer is clear and simple. You have a chance only if you focus on the one thing you want to achieve. Only focus leads to world class. The literature on this subject is overwhelming and ranges from philosophical to trivial sources.⁷

Peter Drucker labels this trait “single-mindedness.” He knew the physicist Buckminster Fuller and the communication expert Marshall McLuhan personally, and said they “exemplify to me the importance of being single-minded. The Fullers and the McLuhans carry out a ‘mission’; the rest of us have interests. Whenever anything is being accomplished, it is being done by a monomaniac with a mission.”⁸ Bill Gates, the founder of Microsoft, echoed this, saying that “my success is that I have focused in on a few things.” These quotes fully capture the essence of Hidden Champion leaders: they are monomaniacs with a mission.

Manfred Bogdahn, the founder of Flexi, says: “We only focus on one thing, but we do it better than anyone else.” Flexi is the market leader in retractable dog leashes, with a global share of 70 percent. Beware of these monomaniacs as competitors! I have met them. They may be no smarter than you or I, but they are more obsessed with their ideas. Their absolute focus on their missions makes them unbeatable.

Self-reliance

Wilhelm Tell, the Swiss national hero, says in Friedrich von Schiller’s namesake play: “The strong one is most powerful alone.”⁹In the essay “Self-Reliance,” American philosopher Ralph Waldo Emerson recommends that all individuals avoid conformity and false consistency, and instead follow their own instincts and ideas.¹⁰

Many modern management fashions reject the relevance of self-reliance by insisting that managers seek their salvation outside the company. Two such popular tactics are outsourcing and strategic alliances. Outsourcing delegates to others everything that those others can produce more cheaply. Strategic alliances create the hope – often in vain – that cooperation with other companies makes one stronger.

The actions of Hidden Champions follow the classic tenets of Tell and Emerson, not the management fashions. They rely on their own strengths and prefer to go it alone. Two cases illustrate this “antiquated” attitude. Wanzl, the global leader in airport luggage carts, says: “We produce all parts ourselves, based on the quality standards we define.” You will find Wanzl carts in airports all over the world, even in Tokyo-Narita, in Beijing, and in Shanghai.

Faber-Castell, the global leader in pencils, states: “We grow our own wood in our own plantations.” When I challenged the late Count Faber-Castell by suggesting he ought to purchase his wood on the market instead, he responded: “Yes, when I took over from my father in 1978 we actually bought the wood. But I found that we never got the same consistent quality year after year. Therefore, I decided to grow our own wood.” Today, Faber-Castell runs its own plantation of 100 square kilometers in Brazil, where they grow the wood to make 2.3 billion pencils per year.

Many Hidden Champions even build the machines they use to make their end products. When I asked for an explanation, they said: “In order to achieve the superiority and uniqueness of our end product, we have to go several steps deeper in our value chain. There we create the unique processes, machines, and features which lead to the superiority in the end product.” This reveals a much more general and deeper lesson: You can never buy uniqueness and superiority on the market; you can only create it internally. Self-reliance may sound old-fashioned, but it is one foundation of the Hidden Champions’ successes.

Fearlessness

Fear is a recurring theme among philosophers, with Soren Kierkegaard’s “Fear and Trembling” perhaps the most prominent work. Nietzsche and Spinoza have also written about fear. Last but not least, Sigmund Freud wrote a lot about fear and anxiety. Fear protects us against all kinds of dangers, but it also contains us.¹¹

The opposite of fear is courage, a trait often ascribed to entrepreneurs. Berthold Leibinger, who led Trumpf to world market leadership in laser machines, regards “courage to take a risk” as the most important entrepreneurial quality. However, I would prefer to call the Hidden Champions’ entrepreneurs fearless rather than courageous.

They are not people who jump from the sky. Rather they appear to have understood and embraced the Chinese philosophy that “ignorance of your freedom is your captivity.”¹² The Hidden Champions’ leaders do not share the same inhibitions and fears as other people, so they can deploy their skills more effectively. It is really impressive to see how many of these leaders have conquered the world’s markets without higher education, foreign experience, or language skills. Interestingly, I see these traits again today in Chinese entrepreneurs who have set out to turn their companies into Hidden Champions. They may lack foreign experience and speak only rudimentary English, but they are fearless. Nowhere else in the world than in China do I encounter more entrepreneurs who raise their hands when I ask: “Who wants to become a Hidden Champion?”

Innovation

“Not to innovate is to die,” writes Christopher Freeman, the doyen of innovation theorists. Few would argue this point. However, when we talk of innovation, we typically think of radically new products and processes. Breakthrough innovators such as Apple and Google attract attention and become media darlings. But breakthrough innovations are rare in the real world. Berthold Leibinger of Trumpf observes real breakthroughs only once every 15 years in his high-tech laser sector.¹³

Hidden Champions rely on continuous improvement rather than on groundbreaking innovation. Wanzl says that their history “is a story of continual innovations” referring precisely to the goal of ongoing improvement. Breakthrough innovations in shopping or baggage carts remain the exception.

Sennheiser, one of the global market leaders in microphones and headphones, states: “Evolution, not revolution, has made the company strong.” Swarovski, the global market leader for cut crystal, still propagates the slogan of its founder: “Constantly improving what is already good.” For 120 years, the maxim of Miele, global market leader in premium washing machines, has been “Forever better.” This simple slogan expresses the determination to deliver the absolute top product in every market in the world. In a single year, the global leader in chain saws, Stihl, introduced 42 innovations, none spectacular.

Hidden Champions’ superiority is often based on doing many small things better than their competitors. Their products and services are closer to perfection, the result of a never-ending series of improvements rather than single breakthrough innovations. All this is similar to the Japanese kaizen method, which is often labeled “the philosophy of continuous improvement.”¹⁴ Levitt also described this tenet: “Sustained success is largely a matter of focusing regularly on the right things and making a lot of uncelebrated improvements every day.”¹⁵ The gradual innovation can also be seen as a realization of Immanuel Kant’s “middle way” between breakthrough innovation and zero innovation.¹⁶

What is the deeper meaning behind this innovation philosophy? With gradual innovation, even someone who is not an Einstein or a Steve Jobs can become world class. The Hidden Champions have proven this a thousand times over by doing something a little better every day.

Polarity

Contradictions or polarities are typical of the Hidden Champions and arise in many forms. There is simply no (mathematical) optimization for polarities like centralization versus decentralization or customer orientation versus technology orientation. Instead, the Hidden Champions have learned that it is better to permit flowing relationships or “gray areas” between these polarities, and to allow for different courses of action, depending on the situation. This thinking has deep philosophical roots.

In Western culture, we tend to distinguish right from wrong, true from false, black from white. By contrast, Eastern cultures consider the world as flowing, without strictly defined boundaries. Where people from the West see contradictions, people from the East see complementarities. Edward de Bono speaks of a Western stone culture and an Eastern water culture in this context. The philosopher Nicholas of Cusa (1401-1464) saw in all things coincidentia oppositorum (the opposites coincide).¹⁷

Lawrence and Lorsch address such contradictions in relation to centralization and decentralization in organizations.¹⁸ The physician Barry Johnson deals with similar issues in Polarity Management.¹⁹ Gore, the Hidden Champion and world market leader in Teflon-based products, includes specific polarities in its company philosophy. The principle of “freedom” applies to the extent that each employee has the freedom to do what he or she considers right. The freedom is, however, restricted by the “waterline” principle. As soon as a decision could hit the corporate ship below the waterline, a colleague must be consulted to share the responsibility for the decision. While the freedom principle encourages all employees to make use of their full potential, the waterline principle is intended to guarantee that the company does not suffer any serious damage.

The table below lists aspects in which the Hidden Champions practice such “both – and” courses of action.

One could interpret the strategy and leadership of the Hidden Champions as contradictory in many aspects. Yet precisely these contradictions and the capacity to handle them conform to Johnson’s proposals for the solution of “unsolvable problems.” The study conducted by Lawrence and Lorsch points in the same direction. The most successful organizations were those that displayed a high level of integration (centralization) as well as a high level of differentiation (decentralization).

Inspiration

Artists may acquire global fame as individuals. But in an economic enterprise, nobody can single-handedly create a world market leader. He or she always needs cooperation and support from others. Augustine of Hippo, bishop and philosopher, formulated the challenge: “What you want to ignite in others, must first burn inside yourself.”²⁰ The fire that burns in a leader alone is insufficient; he or she must ignite it in others, usually in many others.

According to Warren Bennis, we still don’t know why people follow certain leaders and don’t follow others. A key capacity among the leaders of the Hidden Champions is to inspire others with enthusiasm for the company’s mission and encourage them to deliver the best performance they can.²¹ I can only say that they are very effective and successful in this respect. Maybe the strongest proof is the extremely low employee turnover rate of 2.7 percent per year. The annual average for most countries lies between 10 and 20 percent. This cannot be attributed to superficial attributes such as style or communication, because many of the Hidden Champion leaders are not great communicators in the usual sense. I believe that the qualities discussed above — willpower, ambition, unity of person and purpose, focus, self-reliance, fearlessness, continual innovation — play a crucial role in the ability to ignite the fire in others. The last building block is continuity. The leaders of Hidden Champions stay at the helm for 20 years on average. For large corporations, the leaders’ average tenure is six years. That says everything about continuity and long-term orientation.

The Hidden Champions apply their own philosophy to strategy and leadership. They neither believe in nor follow many of the modern management fashions. Most of their practices can be traced back to prominent philosophers. The Hidden Champion leaders deeply understand and live their wisdom. They go their own ways. In essence, their only secret formula for success boils down to common sense – so simple, yet so difficult to achieve. This is the ultimate lesson of the Hidden Champions philosophy.

Hermann Simon is honorary chairman of Simon-Kucher & Partners. He was a professor at the Universities of Mainz and Bielefeld, and a visiting professor at Harvard Business School, Stanford, London Business School, INSEAD, Keio University in Tokyo, and the Massachusetts Institute of Technology. From 1995 to 2009 he was CEO of Simon-Kucher & Partners. His books include Confessions of the Pricing Man: How Price Affects Everything (Copernicus, 2015); Hidden Champions of the 21st Century, Success Strategies of Unknown World Market Leaders (Springer, 2009); Manage for Profit, Not for Market Share (HBR Press, 2006); and Power Pricing: How Managing Price Transforms the Bottom Line (The Free Press, 1997). He is a member of the Thinkers50 Hall of Fame.