Not Everything Can Be Digitized. But Everything That Can Be Digitized Will Be

While global consumer giants such as Amazon and Apple often occupy the digital limelight, in Germany some of the most technologically innovative companies are medium-sized firms that are virtually unknown to the public but that are transforming business-to-business operations.

Some 70 top-level executives attended a unique C-Day event on IESE’s Munich campus this week entitled “Digitize like a Champion,” which featured Prof. Hermann Simon, the renowned management expert who first coined the term “hidden champions”. Prof. Simon explored how these medium-sized German companies have embraced digitization, innovation and globalization.

IESE Prof. Sandra Sieber led participants through a case study on developing a digital mindset, while Jochen Engert, co-founder of FlixBus, showed how his startup has leveraged technology to create one of Europe’s largest bus networks. Dean Franz Heukamp talked about the importance of executive education in the global business landscape.

“Not everything can be digitized. But everything that can be digitized will be,” Simon said. While the U.S. has dominated business-to-consumer digitization, Germany is particularly strong in business-to-business technological advances. That’s because many of the companies operate in more niche markets, use more complex processes, and have deep know-how that is not widely available on the market.

How Hidden Champions Have Maintained Dominance

Simon explained that he began his focus on hidden champions in the late 1980s by asking himself why Germany was and still is such a successful exporter. In the last decade, Germany has exported about twice as much as France or Italy and many of the leading exporters are medium-sized companies.

These hidden champions have three things in common: they are among the top three global players in their particular industry, they have annual revenue of less than 5 billion and they are generally not well known to the public.

So what makes them so successful? For Simon, it starts with the fact that they have strong and very stable leadership that cultivates long-term growth. They also have high-performing employees who are attuned to their markets and customers and are loyal to their companies.

At the same time, the companies focus on specific areas where they excel, and innovate in ways that put them ahead of competitors. Simon noted that Germany is the European country that registers the most patents annually. For example, 52% of patents on autonomous driving and 76% of suppliers in this area come from Germany, he said.

And while their headquarters may be located in a small town, these companies are globally oriented, which at the moment has prompted them to target Chinese markets.

FlixBus Revolutionizes Bus Transport

And sometimes innovation occurs in the most unlikely areas such as bus transport.

FlixBus Engert recounted how the company started six years ago with only five employees and a simple idea. It now has a network of 1,500 buses in 26 countries.

“FlixBus is a whole new experience. We planned everything through to the chocolate bar price and built a completely new technology platform to optimize capacity and pricing,” he said.

“We had a simple idea, a founding team and a few pages of text with our ideas,” he said.