Hidden champions – crisis-proof and flexible stars

A study ordered by the Julius Raab Foundation researched the resilience of Austria’s family-run world and European market leaders.

By GEORG JUNGWIRTH and HELGA KRÉMER

They are not only top-class in their field; they are actually on top. They are often unknown to the average consumer because they are working in business-to-business. And they have mostly been family-run for a long time. They are hidden champions, the covert stars of the Austrian economy and international big players in their field.

In order to meet the scientific definition to be called a hidden champion, a company needs to fulfil four criteria: Foremost, hidden champions are among the top three on the world market or European market leader in their field. Secondly, they are hardly known to the average Joe as they usually operate business-to-business models. Thirdly, they need to be headquartered in Austria, even though the ownership structure is irrelevant. And finally, their annual turnover does not exceed 300 million euros. If they do, scientists no longer call them hidden champions but major world market leaders. In Austria, this would apply to Andritz, Doppelmayr and Swarovski, for example.

What does a hidden champion look like?

Almost two thirds of all hidden champions can be found in machine construction, the metalworking industry and the electrical industry. They are usually high-end manufacturers. If you wanted to describe a typical Austrian hidden champion, it would be a medium-sized company with a flat organisational structure run by a family.

Being family-run is often the key to success. Unlike companies listed on the stock exchange, family-run businesses do not have to answer to shareholders at the end of each quarter. Therefore, they can pursue long-term corporate strategies and goals. The scientists at the Campus 02 University of Applied Sciences in Graz point out though that “long-term” is a broad concept. Often such companies don’t think in quarters or years but in generations. And this has an effect on the corporate culture and the staff. There is often a reciprocal loyalty in family-run businesses: On the one hand, family businesses stand by their staff in difficult times and don’t let them go if business isn’t going according to plan. On the other hand, staff remain loyal to the company even when there is a better job offer elsewhere.

Factors of success

But what makes these family-run businesses from Austria so innovative and resilient? Which corporate culture can be found in such companies? And what can we learn from Austria’s world market leaders? Studies at the Campus 02 University of Applied Sciences have shown in the past that some of the most important factors of success of these businesses are connected to innovations. The Julius Raab Foundation (JRF) wanted to know more details and ordered a study from the university’s Department for International Marketing & Sales Management long before the Covid crisis took hold.

Photo: studio22.at

An internationally leading manufacturer of innovative lifting solutions: Palfinger is not only the world market leader for hydraulic loading cranes but also the technology leader.

On the one hand, the research project wanted to find out how the family-run world and European market leaders from Austria shape their innovation activities. On the other hand, the project aimed to analyse why these companies have been particularly resilient in the past and why they are more crisis-proof in an unstable economic environment. We wanted to know more about them being crisis-proof.

Resilience – hidden champions assess themselves

Specialist literature often defines resilience as the ability of individuals or organisations to master crises or challenging situations by making use of their own resources or by using them for innovations. Thus, resilience was deemed a factor worth researching in the JRF study in order to better understand the innovative capacity of businesses.

As part of the surveys, the researchers dealt in particular with the question of how capable the Austrian world and European market leaders are to ensure their companies’ survival in times of crisis.

Flexibility is an essential part of resilience. It describes a company’s ability to react flexibly and quickly to external changes (be they societal or organisational). On a scale from 1 to 5, with one being the best and five the worst, 26 percent of family-run world and European market leaders from Austria describe their flexibility as “very good”, 50 percent as “good” and 20 percent as “average”. Only two percent each said their flexibility was “bad” or even “very bad”.

The second part of a company’s overall resilience is indeed its economic resilience. The ability to master crises or challenging situations with internal resources was considered “very good” (42 percent) or “good” (47 percent) by the majority. Only 5 percent of those surveyed called this ability “average”, 3 percent “bad” and another 3 percent “very bad”.

Another question was whether family-run businesses are considered more resilient in times of crisis than other companies. 47 percent of respondents fully agreed that they are more resilient and 26 percent said they agreed partially. Only 3 percent rather disagreed and another 3 percent didn’t agree at all with

SAG, the leading producer of aluminium parts for vehicles

this suggestion. The remaining 21 percent of those surveyed thought that there is no difference between these types of businesses in terms of resilience. But overall, the majority considered family-run businesses more resilient. The main reasons for this belief seems to be the long-term strategies, the high flexibility and quickness of family-run businesses, a family-like corporate culture and a higher commitment of the owners.

The second statement regarding resilience said: “Our company is going to master all future challenges successfully.” 28 percent of respondents fully agreed with this and 47 percent partially agreed. Only 5 percent rather disagreed and 2 percent didn’t agree at all. With regards to companies having already survived existential crises in the past, the survey did not come to any conclusions. Respondents who were faced with an existential crisis usually refer to the economic and financial crisis of the years 2008/2009. The Covid crisis had not yet taken place when the study was conducted.

One manager’s answer was very interesting though: “The financial crisis was extremely threatening to our business, as it resulted in our market being completely wiped out. The market was simply gone without this being our fault. We are talking about 80 to 90 percent loss of turnover, which is absolutely massive. We needed a lot of strength but it also went to show that if your business model is healthy and all stakeholders such as owners, customers, banks and credit insurers pull in the same direction, such a crisis can be overcome.”

The last sentence could become a mantra for many economic victims of the Covid crisis.

The final question was how a company can become more crisis-proof. The results were mixed and there are no clear trends. Some ideas that were identified to hedge against crises were avoiding dependencies, opening up new business fields and markets, defining customer segments and offering an attractive range of products. Other aspects were establishing risk management, ensuring flexibility, pushing innovation, reflecting on your own actions and safeguarding the business with equity capital.

Resilience and innovation go hand in hand

The study shows that the vast majority fully agrees with the idea that innovative companies are more resilient and flexible than other businesses (73 percent). A further 18 percent partially agreed with it and only two percent rather disagreed. None of the respondents chose to answer “I fully disagree”. Overall, this question had found the highest agreement of all.

This high level of agreement was further researched in the qualitative survey. Almost 90 percent of respondents said that innovative businesses are more flexible than other companies. The main reason seems to be that innovative businesses analyse

Julius Raab Foundation

their environment more intensively and are therefore quicker to spot risks and trends. “If you are innovative you pay more attention to the future. You look to replace your current business, which probably has an expiration date, with new business. The question is only when,” said one respondent. Another one highlighted the factor time: “If I’m innovative I’m also finding out what the market wants. I can see changes early. I believe, that these types of companies are not better than others in their basic structure but they spot changes and threats earlier and can therefore react quicker.”

Summary of the JRF study

Austria’s family-run world and European market leaders base their success on the international markets mainly on their innovative and high-quality products and services. They do not only invest an above-average share of their turnover in research and The Julius Raab Foundation is a think tank based in Austria. It is a member of the Association for Charitable Endowment (Verband für gemeinnütziges Stiften).

In alignment with its entrepreneurial self conception, it also considers itself as a “do tank“. It strives to develop new political ideas that can positively transform Austria and Europe. The underlying values of freedom, responsibility, solidarity, equality of opportunity, and honesty serve as the basis for its ideas.

In honour of its namesake Julius Raab, the foundation promotes entrepreneurship as well as the Mittelstand and advances the idea of the eco social market economy in light of the 21st century.

www.juliusraabstiftung.at

development, they are also signified by a corporate culture that enables and fosters flexible approaches and creative solutions.

Without the strong focus on innovations and products of superior quality it would not be possible for a high-wage country to have almost 250 world or European market leaders despite an above average price level by international comparison. These model companies have excellent economic data and often have an equity ratio of 51 percent. The family-run world and European market leaders analysed in this study record an average turnover of 184 million euros and employ on average 1,081 staff. They can often be found in rural areas where they are often the largest employer in their region by far.

When it comes to innovations, these internationally successful companies focus mainly on product innovations but process and service innovations have constantly gained in significance over the last few years. They consider their research and development departments and their customers their most important source of innovation. On average, they need 22 months from their first idea to the market launch; thereafter, their products are available for 14 years on average. They usually involve their customers very early on in the innovation process and protect their innovations mainly through patents. Many of the surveyed world and European market leaders from Austria largely refrain from registering patents though as they believe the best protection is being at least one step ahead of their competitors.

They stay in the shadows but are not alone

When it comes to research and development, almost all Austrian market leaders cooperate with external partners such as universities, other research facilities and experts. They do not only hope for valuable inputs for the innovation processes; such cooperation is often also the basis for finding new skilled staff. 86 percent of the companies surveyed make use of subsidies from the state, the provinces and the European Union for their research and development. These monies make it easier to take on a higher risk during the development stage on the one hand, but on the other hand fulfilling certain criteria to gain access to subsidies and the red tape involved are considered inhibiting factors when claiming subsidies.

Overall, the innovative capacity is not only the most important factor of success of Austrian market and technology leaders, it is also the reason for them being highly crisis-proof and resilient in times of economic hardship. The surveyed family-run businesses where on average 74 years old; the oldest company in the study was actually founded in 1599. The fact that the Austrian world and European market leaders are run on average by the third generation is another clear indicator that they can overcome economic and financial crises successfully. These companies consider themselves flexible and they believe they are more resilient in challenging situations. They think that the reason for this is the high willingness of staff in family-run businesses to go the extra mile and the management’s commitment is higher than in other companies.

In the end there is always a new beginning

As mentioned early on, the study was ordered and conducted before the Covid crisis struck. It remains to be seen how good the self-assessment of the respondents was with regards to the economic effect of the Covid crisis.

“There are companies that innately have a bad atmosphere. They pretty much wait for a crisis to strike and then everything becomes even worse,” one of the respondents said when asked whether corporate culture has a positive effect on a company’s resilience and added: “If the atmosphere in a company is good then you maybe don’t see a crisis as a threat but as a challenge and then you are more likely to find a way out.” There is hardly anything to add to this. ◆

The expert on world champions

Prof Dr Georg Jungwirth has masterminded several detailed and comprehensive studies on Austrian hidden champions, even to detailed aspects and particular factors of success.

Campus 02 University of Applied Sciences Course International Marketing & Sales Management

8010 Graz, Körblergasse 126 Tel: +43/316 6002 8161, Fax: +43/316 6002 1230 georg.jungwirth@campus02.at www.campus02.at

About the study

Study design c qualitative individual interviews c quantitative interviews

Structured into three phases c qualitative pre-exploration c quantitative survey c qualitative individual exploration

39 questions for data collection in the areas c corporate structure c innovation c research and development c resilience

The most important results of the study can be found at www.juliusraabstiftung.at/publikationen/ studie-innovation-und-resilienz-bei-familiengefuehrten-kmus/ (in German) or as a booklet directly from the Julius Raab Foundation.

About the study’s participants

Of the roughly 200 hidden champions from Austria 60 were selected for the quantitative survey according to these criteria: c world or European market leaders, or number two or three on the world market respectively c family-run business c headquartered in Austria

Companies in the qualitative individual exploration c AKS Doma Solartechnik c Ekey biometric system GmbH c Getzner Werkstoffe GmbH c König Maschinen GmbH c Lumitech Lighting Solution GmbH c Palfinger AG c SAG c S.O.L.I.D. GmbH c Stahl Judenburg c Stoelzle-Oberglas GmbH c Teufelberger GmbH c Umdasch GmbH