The ascent of customer-centric ‘Digital Hidden Champions’ in Germany’s SME sector
By: Marc Glawogger
Tags: Digital, Manufacturing, B2B, Smart Manufacturing, Sme

How the German Mittelstand flourishes in the age of Manufacturing 4.0

German companies lke Siemens or Bosch are famous worldwide. But the mid-sized sector has also generated numerous global leaders, attracting foreign investors, especially from China (see previous article). Those firms emerged because of digital networking in industrial production, an era widely dubbed as Manufacturing 4.0 (“Industrie 4.0”). Innovative firms leading in the old economy, have an advantage digitalising its machines and automation technology and offering digital services. Especially in niches like engineering, automotive, electrical engineering, medical technology, those SMEs are the backbone of Germany’s economy.

Digital hidden champions relentlessly focus on their customers. Leading in their industry, they know the market and its customer’s value chain inside out. They think practical and put the customers’s requirements first. Giants like Amazon or Alibaba might dominate the B2C sphere, but in the complex B2B (niche) sector entry barriers are higher and deep industry knowledge is focal. Where engineering and software technology converge, German ‘digital hidden champions’ prevail.¹ B2C customers might not be put off by Amazon delivery delays by a few hours/a day, whereas in f.e. B2B intra-logistics are precisely defined and time-sensitive to ensure a smooth production run.²

The principal key success factor for Digital German Hidden Champions has been “customer focus”, a trait inherited from the pre-Digital age. — Hermann Simon (Simon Kucher & Partners)

Let’s unveil three hidden champions from three different sectors that all thrive in the digital age through impeccable customer-centricity:

(1) TeamViewer— Software

Back in 2005, being the owner of a software company himself, TeamViewer founder Tilo Rossmanith, did not want to travel to clients on-site to showcase software. Since there was no comparable solution on the market, he decided to develop one. Thanks to software by TeamViewer it is now possible to access another PC, a notebook, tablet or smartphone. Teamviewer solves a relevant problem for B2B customers. Industry 4.0 applications like e.g. external access to machines or smartglasses, promise a great future for the company that is already a leader in this area. TeamViewer has an installed base of 1.5bn€ devices, generating a whopping 100M€ net income on 160M€ revenues, that’s an a profit margin of 62%. In 2014, the firm exited for ca. 1bn USD to private equity firm Permira, making it one of few German Mittelstand unicorns.

(2) EOS — 3D printers

Bavarian-based firm EOS (Electro-Optical Systems) produces 3D printers, tapping a wide range of B2B applications: aircraft turbines, miniature components for computers or dental bridges for doctors. The lis of applications permeates the B2C space, too, with heels for shoes or jewellery. Due to shorter product cycles and more demanding customers, the application possibilities of 3D printing are now increasingly diverse. Where complexity and individuality converge, EOS thrives. It is now the world leader in high-end solutions in additive manufacturing. EOS has an installed base of >2,000 machines (value ca. 1M€ each) worldwide⁴. Take a look at one of their use cases in the video below:

EOS’ laser-sintering process for e-Manufacturing

The success story doesn’t go unnoticed. Consultancy Simon-Kucher & Partners named EOS a “Hidden Champion” already in the mid-2000s. These firms are characterized by high growth, innvattion and globalisation. In 2019, EOS was awarded the presitgious IKOM award by the Bavarian Industry Association VBW. Its goal is to promote the awareness of regional hidden champions for university students to curb the labor shortage in those technical jobs (see previous article). The company implements many best practices to attract high-skilled workers. First, new joiners start off with a „Welcome Day“, a primer on EOS’ strategies, processes and technologies; a great way to network cross-functionally. Second, every employee is assigned to a “Buddy”, i.e. an experienced mentor within EOS. Third, employees can choose from a wide range of in-house trainings to stay up-to-date with industry trends.⁵

(3) Schunk — Robotic hands

In todays’ digital age, hardly any single car is produced without the help of robots. Its ‘hands’, the grippers, weld, assemble and paint the vehicles at speed and with great precision. Heilbronn-based manufacturer Schunk’s deep customer knowledge is reflected in its broad product portfolio: They have more than 4,000 robotic hands in their programme. Still, the firm does not stop innovating. It spends an above-industry average 7.9 % of its revenue on R&D (Hidden champion avg: 7.2%)⁶. In 2016, Schunk presented a new gripper designed to ensure safe collaboration between humans AND robots (Figure 1).Customers include all of the leading auto brands.⁷ Schunk’s CEO, Henrik Schunk summarises the firm’s approach to customer-centricity⁸:

Schunk is taking on the perspective of its customers to guarantee a tailor-made product offering and holistic service package: To care for customers means to first understand what they need.“ (Henrik Schunk, Schunk CEO)