European Management Journal Vol. 18, No. 6, pp. 663–674, 2000 2000 Elsevier Science Ltd. All rights reserved Pergamon Printed in Great Britain 0263-2373/00 $20.00 PII: S0263-2373(00)00057-8 Greek Hidden Champions: Lessons from Small, Little- known Firms in Greece IRINI VOUDOURIS, Athens University of Economics and Business SPYROS LIOUKAS, OECD, France, and Athens University of Economics and Business SPYROS MAKRIDAKIS, INSEAD, France, and University of Piraeus YIANNIS SPANOS, Athens University of Economics and Business The purpose of the research described in this paper is to first identify successful Greek SMEs that can be qualified as ‘hidden champions’ and second to uncover the factors that have contributed to their success. These factors relate to their choice of mar- kets served, their relationships with customers and suppliers, innovative behavior, leadership and human resources management practices. The find- ings suggest that four overall themes or ‘recipes’ may explain the success of these firms: (a) intense specialization in narrowly defined market seg- ments, (b) commitment to customer service, (c) innovative culture and adaptation to new techno- logies, and (d) strong leadership and a healthy organizational climate. 2000 Elsevier Science Ltd. All rights reserved Keywords: SMEs, Champions, Competitive advan- tage, Niche markets, Customer services, Inno- vation, Leadership Introduction Can small- and medium-sized enterprises (SMEs) in a small country like Greece survive, not to mention succeed, among today’s global giants? What stra- tegies should they adopt in order to compete against the large multinationals? Is their only chance to become niche players? Can they hope to expand beyond their home market? Can they secure a better or different relationship with customers other than European Management Journal Vol 18 No 6 December 2000 663 large competitors? Can they find ways to innovate and provide high value added products and services to their customers? What type of competitive advan- tage should they seek? These and similar questions are of critical importance for SMEs and become even more relevant in small countries, like Greece, on the periphery of the EU. The contribution of SMEs in terms of innovation, cre- ation of new jobs and economic revival of regions and localities is widely acknowledged (Dutta and Evrard, 1999). On the other hand, although nearly a million new firms register each year within the EU15 (EPU, 1997) it is also true that about an equal number exit the market, mainly because of their inability to compete against the large multinationals with their ample financial and human resources. According to a recent OECD study (OECD, 1997) a significant pro- portion of SME’s will be threatened by international competition and are unlikely to survive in the long run. Although it is difficult to come up with some gener- ally accepted conclusions it is recognized that cost cutting, outsourcing, mergers and networking as well as strategic alliances are commonly prescribed means to address the challenges of globalization (OECD, 1999). It is not clear, however, the extent to which those policies can ensure the long-term competi- tiveness of SME’s in small countries like Greece. Research on the subject is not sufficient to draw definite conclusions. In contrast, SMEs in advanced economies have been
Transcript
European Management Journal Vol. 18, No. 6, pp. 663–674, 2000 2000 Elsevier Science Ltd. All rights reservedPergamon
Printed in Great Britain0263-2373/00 $20.00PII: S0263-2373(00)00057-8
Greek HiddenChampions:Lessons from Small, Little-known Firms in GreeceIRINI VOUDOURIS, Athens University of Economics and BusinessSPYROS LIOUKAS, OECD, France, and Athens University of Economics and BusinessSPYROS MAKRIDAKIS, INSEAD, France, and University of PiraeusYIANNIS SPANOS, Athens University of Economics and Business
The purpose of the research described in this paperis to first identify successful Greek SMEs that canbe qualified as ‘hidden champions’ and second touncover the factors that have contributed to theirsuccess. These factors relate to their choice of mar-kets served, their relationships with customers andsuppliers, innovative behavior, leadership andhuman resources management practices. The find-ings suggest that four overall themes or ‘recipes’may explain the success of these firms: (a) intensespecialization in narrowly defined market seg-ments, (b) commitment to customer service, (c)innovative culture and adaptation to new techno-logies, and (d) strong leadership and a healthyorganizational climate. 2000 Elsevier Science Ltd.All rights reserved
Can small- and medium-sized enterprises (SMEs) ina small country like Greece survive, not to mentionsucceed, among today’s global giants? What stra-tegies should they adopt in order to compete againstthe large multinationals? Is their only chance tobecome niche players? Can they hope to expandbeyond their home market? Can they secure a betteror different relationship with customers other than
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large competitors? Can they find ways to innovateand provide high value added products and servicesto their customers? What type of competitive advan-tage should they seek? These and similar questionsare of critical importance for SMEs and become evenmore relevant in small countries, like Greece, on theperiphery of the EU.
The contribution of SMEs in terms of innovation, cre-ation of new jobs and economic revival of regionsand localities is widely acknowledged (Dutta andEvrard, 1999). On the other hand, although nearly amillion new firms register each year within the EU15(EPU, 1997) it is also true that about an equal numberexit the market, mainly because of their inability tocompete against the large multinationals with theirample financial and human resources. According toa recent OECD study (OECD, 1997) a significant pro-portion of SME’s will be threatened by internationalcompetition and are unlikely to survive in the longrun.
Although it is difficult to come up with some gener-ally accepted conclusions it is recognized that costcutting, outsourcing, mergers and networking as wellas strategic alliances are commonly prescribed meansto address the challenges of globalization (OECD,1999). It is not clear, however, the extent to whichthose policies can ensure the long-term competi-tiveness of SME’s in small countries like Greece.Research on the subject is not sufficient to drawdefinite conclusions.
In contrast, SMEs in advanced economies have been
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the subject of extensive research (see for example,Glifford and Cavanagh, 1985; Page and Jones, 1989;Taylor et al., 1990; Tonge et al., 1998). A particularlyinteresting study is that of Simon’s (1996) whichfocuses, mainly, on German firms and which hasbeen published in a book entitled ‘Hidden Champions:Lessons from 500 of the World’s Best Unknown Compa-nies’. As the subtitle of the book indicates, Simonidentifies a large number of small- and medium-sizedfirms that have not only managed to successfullycompete against the large multinationals but also toprosper in terms of better than average profits andstrong growth rates. Furthermore, such firms,although world class, are not well known, hence theterm ‘hidden’. Finally, the term ‘champions’ refers totheir dominant position in the global marketplacewhere they are either leaders, or close followers intheir respective market niches. The major purpose ofthis paper is to examine if the type of ‘hidden cham-pions’ identified by Simon also exist in less advancedand smaller countries like Greece?
Greece is an interesting case given its recent joiningof the Euro. As economic progress can only be achi-eved at the micro-level, it must be made sure that theGreek SMEs (making up the great majority of Greekfirms) can improve their competitive posture in orderto become capable of competing in the unified Euro-pean Union market. The research described in thisstudy is of particular interest for the Greek economyand firms so that it can be determined if there arealso Greek ‘hidden champions’ and if so how theirsuccess story can be replicated by other Greek SMEsin their competitive battle with other firms from theEU and outside.
The purpose of the research described in this paperis to first identify Greek SMEs that can be qualifiedas ‘hidden champions’, and second, to uncover thefactors that have contributed to their success. For afirm to qualify as a ‘hidden champion’, it has to haveachieved outstanding performance, sustained over arelatively long period of time, so that its success can-not be attributed to chance reasons. Some of the ques-tions to be answered are the following:
How do hidden champions choose their national and inter-national markets? Do they adopt new technologies? Dothey develop innovations on their own or are they fol-lowers? What is their relationship with customers, sup-pliers and other partners? What are the qualities of theiremployees and attributes of their leaders?
Answering these and similar questions provides away of finding commonalities among the hiddenchampions so that their overall operational and stra-tegic characteristics can be described and evaluated.
This paper is organized as follows. The first sectionbriefly describes the methodology used for carryingout the research as well as the analytical frameworkutilized. The second section presents the Greek hid-
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den champions and describes the factors that havecontributed to their success. There is also a conclud-ing section discussing the findings and their impli-cations and offering some directions for futureresearch.
Methodology and Analytical Framework
A major issue faced from the beginning by this studywas what firms to include and how to preciselydefine the hidden champions. Although some degreeof subjectivity is practically inevitable, it was decidedthat ‘hidden champions’ ought to be selected from allsectors of the economy (i.e. manufacturing, com-merce and services) and fulfil four criteria:
(a) they should be Greek owned,(b) they should employ more than 20 and lessthan 250 employees,(c) they should be internationally orientated byeither obtaining some of their revenues from out-side Greece or by being part of joint ventures orother types of cooperation1 with companies fromoutside Greece and finally,(d) they should have achieved excellent perform-ance, for the last five years (i.e. 1993–7) in severalfinancial measures with the main one being thereturn on own capital.
Using the ICAP database, a standard source of fin-ancial data on Greek firms, and following a multi-stage selection process (see Appendix A for a detaileddescription), 20 firms were selected that fulfilled thecriteria for ‘hidden champions’. Six of these firmswere in the industrial sector, another six were in thecommercial sector, and eight in the service sector ofthe economy (Table 1 shows a list of these twentyfirms).
The next stage was an in-depth interview with theCEOs of these twenty firms. Such an interview wasperformed using a predetermined, semi-structuredprotocol, that sought to collect qualitative infor-mation along the following four interrelated dimen-sions of competitive behavior:
(a) Market Scope(b) Customer/Supplier Relations(c) Operational and/or Strategic Innovation andTechnological Excellence and(d) Human Capital and Leadership.
The above four criteria that formed the basis of thein-depth interview were adapted from previousresearch studies in this area and especially from thework of Simon (1996). The interview constituted asignificant component of the final selection processso that the competitive position of the various firms
could be understood and the factors that contributedto their excellence could be better captured (Figure 1presents the framework on which this research studyhas been based).
Main Findings
Searching for hidden champions and determining thefactors of their success requires both a theoreticalframework and a great deal of empirical work. Thefinal findings/conclusions are a combination of bothobjective and subjective criteria that must be com-bined and interpreted accordingly. In the remainderof this section the major findings of our researchstudy are presented after the major characteristics ofthe hidden champions are described. In the next sec-tion the conclusions of this research are provided.
The Characteristics of the Hidden Champions
Table 1 presents information about the size and theproducts/services offered by the 20 hidden cham-pions identified in the first stage of this research.These firms are without exception family owned.They have been founded and are still managed byone or more of the initial founders. The ‘oldest’ ofthese 20 firms was established in 1952, whereas the‘youngest’ in 1992. Their performance over the entire1993–7 period was outstanding, as this was the rea-son they were selected. The average return on owncapital was 206 per cent while the average growth intheir revenues was above 40 per cent. Furthermore,the average return on own capital, for the entire1993–7 period, for each of these firms was well abovethe respective industry average (see Figure 2 Appen-dix B.). The same was true, in practically all cases,with respect to net profit margins and in the rate theirrevenues were growing (see Figures 3 and 4 Appen-dix B.).
Figure 1 Analytical Framework
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Markets
Despite being small or medium in size, most hiddenchampions are market leaders, with market sharevarying between 20 and 65 per cent. At the same timemost of these champions actively pursue opport-unities to expand in European and other markets.
The approach of hidden champions towards the mar-kets they serve is best characterized by the followingexcerpts recorded while interviewing the CEOs ofthese firms:
We are highly specialized
We don’t do things that we do not know about
We have experience, knowledge and infrastructure thatallows us to dominate the markets we operate
We carefully choose a market niche and then we do ourbest to dominate
We enter in depth not in breadth
We expand in similar markets abroad
Our goal is to increase our presence abroad and expand inrelated markets.
It appears that the hidden champions are, in the greatmajority of cases, highly specialized. They choosemarket niches that are driven by customer needs.Biodynamiki (one of the 20 firms), for example, speci-alizes in providing integrated solutions for all theneeds of medical laboratories which can use it for‘one stop shopping’. Biodynamiki’s competitors, onthe other hand, are not in a position to offer such acomplete package of products/services, obliging lab-oratories to have to go to two or more firms to fulfilall their needs.
Furthermore, most hidden champions prefer to serve
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Table 1 Size and Products/Services of the HCs
HCs Size (sales in million ECUs), Size (number of employees), Products/services1997 1997
narrowly-defined market niches while avoidingexpanding to new products/services and to newmarkets. A characteristic example is the hiddenchampion Scope, specializing in ‘face-to-face’ pro-motion of products. The company does not under-take promotional campaigns of any other kind (e.g.mass media advertising, billboards etc.). This way itcan continuously deepen its knowledge of customerneeds and exploit the acquired business experienceand knowledge so that it can differentiate itself fromits rivals. Another example is the hotel Electra whichsystematically focuses on a narrow market segment(repetitive, business customers as opposed tooccasional travelers), focusing on the needs of suchsegment by offering new, specialized services.
New products are developed and new markets areentered only as a response to extended customerneeds and only if they are directly and closely relatedto the existing ones. A case in point is Agrochoum,a company that trades agricultural products, whichprogressively enhanced its product mix followingcustomer demands for irrigation equipment.
It was found it was only in rare cases that the 20
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firms identified created a new market. One such casewas Geobiologiki, a machinery manufacturing com-pany, which has been introducing innovative pro-ducts that did not previously exist in the Greek mar-ket. In this respect the company, in close cooperationwith research institutes, developed and manufac-tured advanced rotor blades for wind generators,autonomous ‘compact’ sewage treatment plants, aswell as a shore protection and nourishment system,all of which became considerable success stories.Another example was Biodynamiki, which created amarket for quality control instrumentation not avail-able in Greece at the time. Similarly, DIS providedhighly innovative software solutions that earned itthe 1999 Prize of the European Industry Federation.In these three firms their strategy was one of inno-vation that required introducing new products/services and expanding into new markets rather thanspecializing in the niche market they have beenoperating.
Although the majority of the hidden champions arefocused in specialized markets they also pursueexpansion in related, foreign markets. An example isPrintec, a computer services company, which entered
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the Bulgarian market building with its expertise onATM systems. As it would be expected, the foreignmarkets most favored by the hidden champions arethose of the EU as well as those of the Balkans andthe Middle East which are geographically close toGreece.
Several hidden champions earn a considerable partof their revenues from exports. Especially interestingis the case of Archetypon, for which export sales con-stitute its sole source of revenue (the company pro-vides software engineering services to such cus-tomers as Microsoft and Lotus). A few of the hiddenchampions (i.e. Geobiologiki, Kaloidas, Printec,Spider) have created foreign subsidiaries to increasetheir exports, to gain direct control of their inter-national activities and to establish immediate contactwith the potential customers of the countries inwhich they want to expand.
Customers
One of the most pronounced characteristics of hiddenchampions is their emphasis and commitment oncustomer service. More specifically, they activelystrive to establish close contacts with customers andto develop a long-lasting relationship based on mut-ual trust. Within this context, hidden championsaccumulate valuable knowledge that results in thefrequent introduction of new products and servicesas well as improvements to existing ones. Moreover,close contact also helps to reduce the transactioncosts that usually arise in supplier–customer relation-ships. The resulting advantages compensate for thegreater dependence on single or very few customers(see below).
The CEOs’ of the hidden champions describe theircustomer philosophy as follows:
Our major goal is customer service rather than profits
Our strategy is not to minimize our costs but to providethe highest quality to our customers
Our objective is to add value for our customers
Reliability is our philosophy
Our customers pay us back with long-lasting trust in thequality of our products/services
We know very well the needs and strategies of our cus-tomers and we can propose customized solutions that bestserve their specific conditions.
The quality of products/services being offered by the
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hidden champions is so high that their customerscannot easily switch to competitors. The hiddenchampions put equal emphasis on reliability, speedof delivery as well as the continuous quest to under-stand customer needs in order to provide new sol-utions to satisfy their changing requirements/demands.
Parthenon, Lithographiki, DIS, and Prisma Optionsfor example, stressed that to outperform competitorsthey need to focus on quality and excellent customerservice rather than on lower prices. Agrochoumrecognizes its main competitive advantage is knowl-edge and experience of customer needs that permitit to offer products specifically customized to eachcustomer’s particular needs. Their main emphasis isnot towards lowering costs but instead, in exactlyproviding the products/services that the customerneeds. Euroelectriki, Neonakis and Printec have builttheir brand image on the basis of these imperatives.Fidele has established very close relationships withits customers, by constantly adapting to their parti-cular needs irrespective of customer requirement.
Seen from a different perspective, however, closerelationships tend to create dependence on customers.Scope for example, maintains a very small number ofcustomers (three multinationals operating in Greece),which it constantly monitors in order to enhance itsability to deliver the services it is expected to pro-vide. It seems then that hidden champions perceivetheir dependence on certain customers as an opport-unity rather than as a threat. Such an opportunity isused to build a unique position with their customersand hence, gain competitive advantages from theirintimate knowledge of their customers. This meansthat compared to their larger competitors, hiddenchampions are in the unique position to provide the ‘feel-ing’ of direct contact and personalized interaction withtheir customers.
Meridian, for instance, which provides travel andaccommodation services, relies on its own represen-tatives, in each of Greece’s main resort locations inthe Aegean, to ensure quality and have flexibility tomeet the demands of its customers. Archetypon, onthe other hand, has built its advantageous positionon a global scale by direct and continuous contactwith its international customers using advanced tele-communication technologies. Biodynamiki sustainsits competitive advantage by providing integratedturn-key solutions to its customers, coupled withhigh-quality consulting and support services andflexibility in adapting its offerings according to thespecific context of each customer.
Another common characteristic of hidden championsis the direct and continuous involvement of their lea-ders and executives in creating and maintaining closerelationships with their customers (both local and/orinternational). Key personnel from Archetypon, forexample, communicate systematically, via leased
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ISDN lines, with their counterparts in major cus-tomers. Alternatively top executives of hidden cham-pions often travel abroad in order to cultivate per-sonalized relationships with overseas clients. Thiswas one of the main reasons that has led Geobiolo-giki, Kaloidas, Printec and Spider to create foreignsubsidiaries through which they have been able toestablish direct contact with their clients and withoutrelying on intermediaries.
Technology and Innovation
The great majority of the hidden champions placeemphasis on innovation.
Their approach towards innovation is characterizedby the following quotes from their CEOs:
We are small but we innovate
We are constantly looking for better solutions to our cli-ents problems
Our main source of ideas is from our client
We get technology, from our suppliers, but we also haveour own ideas of better ways to apply it.
While part of their innovative activities may be basedon imitations or adaptations of success storiesdeveloped abroad, some hidden champions innovateof their own accord, coming up with original ideasand new products/services. Despite the disadvan-tages of small size, their innovations were observedmostly in marketing activities and in the way thatservices are being provided but also in the pro-duction process and R&D. Irrespective however, oftheir nature, their innovations appeared to stem fromthe extensive interaction between the hidden cham-pions and their customers and were associated withefforts to meet specific customer requirements.
The majority of hidden champions constantly moni-tor technological developments in their respectiveindustry and, together with the continuous interac-tion they have with their customers, they are success-ful in achieving incremental, and in some cases, rad-ical innovations that result in strengthening theirmarket position.
Innovations in products and services do not exhaustthe type of creative activities achieved by the hiddenchampions. Afissorama for example, a cards andposters producing and trading company, has success-fully utilized information and communication tech-nologies in innovative ways to improve its competi-tive position. ‘Celebration’, a division of Afissoramathat specializes in invitation cards, did the same in
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order to drastically reduce delivery time, while pro-viding customers the possibility to ‘design’ the pro-duct according to their particular, customized needsand taste. Similarly, Fidele, a producer of women’swear has been innovating in logistics and marketingby providing samples of its garment collection sixmonths earlier than its competitors.
Another common, technology-related, characteristicof hidden champions is their emphasis on investingin modern, frequently highly-expensive equipment(both hardware and software). In the interviews, theimportant issue that emerged was not the sophisti-cation of the equipment itself, also available to mostcompetitors, but rather the ability of the firm toexploit its potential to the maximum. For this reason,some of the hidden champions developed highlyinnovative ways to use such equipment to improvethe production process and the quality of productsas well as differentiate them from those of their com-petitors. Finally, hidden champions have managed tosecure a privileged relationship with suppliers so asto keep abreast with the latest technological develop-ments so that they can acquire them as soon as poss-ible, if deemed necessary.
Human Capital and Leadership
Hidden champions are also characterized by heavyemphasis on their human capital. They are activelycommitted to continuously develop the skills of theiremployees and keeping them as long as possible. Inturn, the employees are expected to act efficientlyand effectively within an environment usually domi-nated by the personality of the leader (and usuallythe founder) of the firm.
During the interviews, most of the hidden championsstressed the importance they attach to their people asthe principal means of developing and/or sustainingtheir firms’ competitive advantages. For this reasonthey were providing a pleasant working environmentfor all their employees in order to promote mutualtrust and encourage open communications betweenmanagement and employees. In their own words, thefollowing quotes express their attitudes and policiesabout their people:
The cost of losing an employee is very high
The company is committed to continuously training itsemployees
Our business is based on our people
We create long standing relationships with our employees
We are successful because everybody works hard; leaderand personnel alike
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The presence of the leader is helpful to all employees.
The leaders of hidden champions, both charismaticand authoritative, are the ‘soul of the company’. Theytake calculated risks, often intuitively, but also createa sense of safety and long-standing relationships withtheir employees. This is especially true in the case ofthe smaller-sized hidden champions such as Fidele,High-Plastic and Scope. In these firms the leader isresponsible for virtually all business functions(including general management, production, sellingand marketing) and is instrumental since in effect,he/she is being identified as the company itself andvice versa. In the larger-sized hidden champions, theleader usually remains responsible for strategicdecision-making while delegating most of the oper-ational ones to his/her managers.
The selection of the most appropriate personnelbecomes a crucial fact for the hidden champions andconstitutes an essential first step for creating an effec-tive organizational culture. Moreover, in most hid-den champions there is a heavy emphasis on continu-ous training as a key requirement for developing theskills and experience of managers and employeesalike. Mutual trust and open communication chan-nels complement the training and result in anenhanced organizational learning that encouragescreativity and innovation. In this respect, it is perhapsno exaggeration to argue that human capital consti-tutes one of the basic sources of the competitiveadvantages of hidden champions that contributetowards their excellence.
Discussion and Conclusions
The findings of this study cast some doubts on theprevailing view that in today’s globalized and hyper-competitive markets large size is the most critical fac-tor for succeeding. Instead, this study has shown thatsome of the leading Greek firms, characterized byhigh growth and profitability, are small- or medium-sized. They closely resemble what Simon (1996) hastermed ‘hidden champions’. Within the context of aneconomic environment where small- and medium-size firms face increased competition from largeinternationals, these hidden champions appear toview globalization more as an opportunity ratherthan as a threat and size not as a major disadvantage.
The findings of this study reveal that hidden cham-pions, although lacking the economies of scale andscope of their multinational competitors, can surviveand prosper through their overwhelming persistenceand strong commitment. Such persistence/commitment relates to the way they define markets,approach customers, innovate and treat/developtheir personnel. Although the specific strategieschosen by each of the hidden champions differaccording to their particular situation, the following
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four overall strategy themes, or ‘recipes’, can explaintheir strategic orientation:
1. Intense specialization in narrowly defined mar-ket segments: The hidden champions select a mar-ket niche where they offer specialized solutions.However, such a selected market niche usuallyserves as the point of departure for entering intorelated markets and expanding internationally.Hidden champions generally avoid diversificationand when they do, such diversification is closelyrelated to products/services they know best and isaimed at meeting complementary customer needsand at providing integrated solutions.
2. Commitment to customer service and quality:Close contact with customers increases learningopportunities and enables hidden champions toaddress the requirements of their clients by offer-ing unique, high quality products/services.Because of their persistence in satisfying their cus-tomers’ particular needs, hidden champions tendto go against current management practices andkeep production processes under their direct con-trol, rather than subcontracting or outsourcing it.Similarly, they do not grow through mergers andacquisitions, as they do not want to contaminatetheir own culture with those of ‘outsiders’. In thefew cases where subcontracting takes place, itinvolves secondary products, complementing theircore product lines, or services they cannot providethemselves. Finally, lowering their operationalcosts does not constitute one of their priorities,especially when quality may be affected.
3. Innovation: Hidden champions adopt innovationsalong the whole value chain (i.e. in the productionprocess or in the provision of services, in market-ing, in logistics) often driven by their heavyreliance on better satisfying their customers’ needsand through their close cooperation with theirsuppliers. Their way of implementing operationalinnovation is by closely monitoring new techno-logical developments and by frequently providingnew products and services developed by theirown or by adapting and/or imitating innovationsdeveloped elsewhere, particularly outside Greece.
4. Strong leadership and a healthy organizationalclimate: The leader of the hidden champions isinstrumental in formulating/implementing thefirm’s strategy and in promoting its norms andvalues as well as determining the organizationalclimate/culture. He/she serves as the catalyst thatdefines the purpose and provides the internalcoherence and direction needed to motivate man-agers and employees alike. Consequently the pur-pose, climate and culture of the firm is heavilyemphasized to all new employees and is used toa great extent when evaluating the performance ofemployees. Contrary to what one might expect,the ‘family’ model of management being adoptedby the hidden champions appears as an importantadvantage rather than a roadblock in the successof hidden champions.
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The above four strategic themes can be collectivelytaken as expression of an ‘endogenous’ or ‘inside-out’approach to strategy, relying on internal initiativeand capabilities. At first, in terms of Porter’s genericstrategy typology, this would resemble the focus-dif-ferentiation strategy. Taking it further, however, thefindings suggest a reliance on internal assets andcapabilities, i.e. charismatic leadership, organiza-tional climate/culture, capacity to better define cus-tomer needs and to provide innovative solutions andhigh quality services. Building on these internal capa-bilities, hidden champions compete in the marketplace and achieve an advantageous position withinnarrowly defined market segments. In fact, it couldbe argued that market definition or market achieve-ment follows from, or even presupposes, buildingsuch capabilities. In this respect our findings are inline with the recent resource-based theory that postu-lates that the essence of strategy is defined by thefirm’s unique resources and capabilities (Rumelt,1984).
The ‘recipes’ found to underline the success of hid-den champions are in line with previous literatureon the characteristics of excellent companies. Simon(1996) for example, studying his German ‘HiddenChampions’ found these top companies share a setof common traits that include utilization of a narrow,highly-specialized product line to meet customers’needs worldwide, avoidance of diversification andsubcontracting, close relationships with theircustomers/suppliers, strong leadership and inno-vation, among others.
In conclusion the ‘recipes’ of success of the hiddenchampions seem fairly simple but also not easy toimitate as they require a lot of hard work as well asinsistence and persistence. As noted by one of theleaders of a hidden champion: ‘it is not easy tobecome first; it takes too much effort and hard work’.
It appears therefore, that despite important contex-tual differences between the German and the Greekenvironment, the similarities are striking. Hence, itseems that we have the same pattern of competitivebehavior, which suggests that success rules may beglobal, at least for those small- and medium-sizefirms who distinguish themselves in achieving excel-lent performance. Taking it however a step further,
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may involve certain differences between the Greekand the German firms. First, in selecting internationalmarkets, geographical vicinity and psychologicalproximity may be more pronounced in Greek firmsin comparison to the German hidden champions.This difference may be related to the smaller size ofthe Greek firms and their limited internationalexperience. So the obvious question is whether or notGreek firms can compete in the heartland of Europe.Second, innovative efforts in Greek firms appear tobe more directed to the way services are offered asopposed to core technology. Thus the question is, canGreek firms can compete with international rivals, ofcomparable size, in technological and product inno-vation? Authoritative leadership styles prevail inboth Greek and German hidden champions, but thequestion which arises is whether or not there existsome unique features stemming from national andcultural factors. To satisfactorily answer these ques-tions would require further research that would becapable of further illuminating how small- andmedium-sized firms in various countries can success-fully compete with their giant counterparts that enjoysignificant economies of scale and scope.
This study of Greek hidden champions may haveimportant implications for Government policy aswell as other Greek firms, as Greece is entering theSingle European Currency. The findings of this studyshow, beyond doubt, that some firms have managedto succeed by drawing on their own initiatives anddrive, as opposed to taking advantage of Govern-ment support or EU programs. Thus, Greece’s heavybureaucracy and inadequate infrastructure, as well asall other major problems that hinder businessesoperating in Greece, do not seem to deter the hiddenchampions from achieving high growth and profita-bility. Some observers, therefore, express a degree ofoptimism for the future, saying that Greek firms cansucceed despite negative business conditions theyhave to operate in. Also, such conditions have to beseen from the perspective of a firm which becomesincreasingly transnational, and therefore meets alter-native policies and conditions in other countries. Onthe other hand, it could also be argued that if therewas a more positive business environment and if thegovernmental policy towards business was morepositive, achievements would be even higher andperhaps many more hidden champions couldemerge.
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Appendix A
Methodology for the Identification and Selection of Greek Hidden Champions
The identification and selection of the twenty HCs was carried out using the following steps:
I. Access to the ICAP database comprising of a population of 18,060 firms (i.e. 5380 manufacturing, 6920commerce and 5760 services firms)
II. Initial selection of 500 ‘candidate’ firms based on the following initial criteria: (a) Greek owned, (b) small –medium in size — more than 20 less than 250 employees, (c) international presence. After the initial screening,the ‘first’ 166 manufacturing, 166 commerce and 168 services firms were selected on the basis of averageReturn on Own Capital (over the 1993–7 period).
III. Selection of the ‘first’ 100 firms (33 manufacturing, 33 commerce, and 34 services firms) with the highesttotal composite rank in eight performance ratios. These were:
Performance Ratio Years
1. mROC Mean Return on Own Capital 1993–72. mNPM Mean Net Profit Margin 1993–73. mSG Mean Sales Growth 1993–74. mNPG Mean Net Profit Growth 1993–75. ROC97 Return on Own Capial 19976. NPM97 Net Profit Margin 19977. SG97 Sales Growth 19978. NPG97 Net Profit Growth 1997
A procedure similar to that of Business Week (1999) was used for calculating the composite performanceranking. More specifically:
1. In addition to Return on Own Capital, the ratios of Net Profit Margin, Sales Growth and Net Profit Growthwere calculated for all the first 500 companies identified in step II. All ratios were calculated for the fiveyear-period 1993–7 as well as for the last year 1997. In total eight ratios were used (i.e. four average andfour 1997 ratios). With these indices in hand we evaluated each of the companies.
2. We then ranked firms individually (manufacturing, commerce and services firms) on each of the eightratios, based on how well each firm performed against other companies in the same ratio. For each ratiothe top 20 per cent were ranked 1st, the next 20 per cent ranked 2nd and so on down to the bottom 20per cent that ranked 5th.
3. To calculate the composite performance ranking for each firm, we used its individual ratio ranking in thefollowing formula:
Where:❖ GmROC, GmNPM, GmSG, GmNPG 5 rankings (1st to 5th) of the average ratios: Return on Own Capital,
Net Profit Margin, Sales Growth, and Net Profit Growth, respectively, and❖ GROC97, GNP97, GSG97, GNPG97 5 rankings (1st to 5th) of the 1997 ratios: Return on Own Capital, Net
Profit Margin, Sales Growth, and Net Profit Growth, for the year 1997, respectively. Average and 1997 ROCratios were more heavily weighted (25 per cent for the average and 25 per cent 1997 ratio respectively)because ROC was the principal criterion for selecting the first 500 companies of step II.
4. Using the above formula each company was assigned a rank ranging from 1st to 5th, based on its compositeperformance. It is clear that a company assigned 1st in the composite ranking belongs to the top 20 percent of firms for each and every one of the eight performance ratios.
The resulting 100 companies (33 manufacturing, 33 commercial and 34 services firms) were the ‘first’ hundredwith the highest ranks.
IV. Selection of the top 20 firms (i.e. HCs) The 20 Greek Hidden Champions were selected on the basis ofbeing assigned the highest rankings but also of more subjective criteria, such as the innovative characterof their domain of activity. Finally, and unavoidably, on their willingness to participate in the study.
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Appendix B
Return on Own Capital, Net Profit Margin and Sales Growth of HCs and Sectors
Figure 2.
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Figure 3.
GREEK HIDDEN CHAMPIONS
Figure 4.
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GREEK HIDDEN CHAMPIONS
Note
1. This criterion was widely interpreted as openness to inter-national cooperation to go beyond e.g. exporting. It covers(1) the ability to source inputs across boarders, (2) to ‘thinkglobally’ and (3) the ability to market products or servicesin different nations. In the case of commerce and servicesfirms, points (1) and (2) were mainly applied.
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IRINI VOUDOURIS, SPYROS LIOUKAS,Athens University of Eco- Athens University of Eco-nomics and Business, Patis- nomics and Business, Patis-sion 76, Athens, 104-34 sion 76, Athens, 104-34Greece. Greece.
Irini Voudouris is Visiting Spyros Lioukas is ProfessorLecturer in the Department of Business Strategy at theof Management Science and Athens University of Eco-Technology of Athens Uni- nomics and Business. Cur-versity of Economics and rently he is Ambassador forBusiness. Currently she is Greece in the OECD. His
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