|By Winfried Weber| German Mittelstand has become a new role model for managers from all over the world. A pilot study of Mannheim Institute of Applied Management Research found that mostly managers from Asia and emerging countries are attracted by the German Mittelstand model and send delegations to learn more about it.
They come directly to Germany as the management education programs taught at business schools or training institutes do not include Mittelstand concepts. The steady flow of such delegations, however, occurs completely below the radar of international economic observers. These delegations are at times accompanied by journalists and scientists from their respective countries.
In economic theory and in the media Mittelstand champions have long been considered a niche strategy that did not merit global attention. But I am convinced that this model—which is much more than a niche strategy—is growing its influence among managers, including those of big conglomerates. German Mittelstand is at the forefront of a modern management model with reference to market leadership, globalization, customer orientation, innovation and motivation
We learn from these unorthodox and flexible companies how to survive in turbulent times and to become champions with their new strategies. Excellent products and services always are the basis on which long-term customer relationships are built up. This is accomplished through excellence as well as leadership in technology and innovation.
What are the questions management delegations that visit German Mittelstand companies ask? What makes this new role model of management different? The delegations are often interested in leadership models, strategies or customer relationship models. What they learn are different aspects of a new management model.
First:Management is about human beings. Mittelstand champions focus the attention on the workplace. In German Mittelstand companies you will find a collaborative spirit.Managers give their workers time and spend time around at the shop floor so that they can understand their strengths, weaknesses and potential. They build a personal relationship that lasts. As a Mittelstand manager it is also your task to reach out to your employees and help them grow. There has to be a culture of trust and commitment.
A positive outcome of such orientation is employee retention, which is another important key factor for most companies. Successful Mittelstand champions have an employee attrition rate of less than 2%. Long-term employment relationships are the key to high performance and motivation levels among the employees.
Second: The management of Mittelstand sets ambitious goals, which give to every worker an orientation and produce a unique collaborative spirit. Ambitious goals give an organization the chance that everyone pulls in the same direction and, with persistence, finally reaches the objective.
Third: Short-term profit is not everything. Only a small minority of Mittelstand champions are listed on the stock exchange. And even then they find means to keep preferential shares within the limit so that these can still be called family businesses. The goal of German Mittelstand is not short-term profit but long-term value.
. And also in those cases when—mostly in the fourth or fifth generation—the management is not comprised of family members, the principle of long-term orientation and sustainable customer relationship keeps the flock bound together. Take the example Freudenberg, a conglomerate still with a Mittelstand spirit. In its more than 160-year-old tradition, Freudenberg has always been a company characterized by commitment to values, responsible conduct and ethical standards. As many as 330 family members own this company in the 8th generation.
Freudenberg’s focus is set on reliable partnerships with its customers, long‑term orientation and financial solidity. Stock cannot be sold to non-family members. No stockholder holds more than 2% ownership. Freudenberg has a rule by which at least 40% of equity is held by family members.
Fourth: Mittelstand champions dominate their global niches and concentrate on the aspirations of their global customers. They are extremely focused
Typical statements of this strategy are “we want to be the best in our field” and “we want long-term commitment to this field”. This way they send a message of strong commitment to their customers. Everyone who works in such a partnership is dedicated on mutual technological leadership.
Take the examples Sennheiser or Heidelberger Druckmaschinen. You can still order parts of a 40-year old earphone or a hundred year old printing machine (the “Tiegel”). They have made it a point not to follow the practices set by the big players. To quote Joachim Kreuzburg from Sartorius, a cell cultivation champion, “we are not in the gold mining business. We sell shovels to gold miners” Products and services of German Mittelstand are customized. In their niches they try to achieve to be the technology leader, which means they keep up with the state-of-the-art in their sector.
To take care of the needs of their mostly B2B-customers, theyinvest more in innovations and R&D, with the result that they hold many patents in comparison to big groups although they enjoy relatively small financial resources. Mittelstand champions have five times more patents per employee than large companies. Their cost per patent is only one-fifth of the costs in large companies.
Fifth: German Mittelstand’s success story is based on the family business. The risk of failure in the German Mittelstand is also that they are a family business. Family business has a positive energy, but is very vulnerable, mostly when there are no succession plans for the third, fourth and other future generations.
Family businesses are different, more successful, more at risk, (potentially) more intelligent, financially different constructed, long-term orientated and long-lasting, more amenable to advices, more familial and provide for more entrepreneurial space (Schlippe/Groth).
The greatest danger for a family business is tribalization and warring clans. But some well-known failures of the past have given the German family businesses the insight to be more careful.. Within their networks the owners have learnt about family conflicts that can potentially destroy prestigious companies. Additionally, they get themselves the benefit of professional consulting to solve or prevent conflicts in the family businesses.
Winfried Weber’s next column will deal with the succession plans of German Mittelstand Champions.
