15 Nov 2016
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Uncovering The Secrets of Mittelstand Success

Re: Vincent Dessain (MBA 1987); Juan Alcacer; Willy Shih

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HBS professors Ramon Casadesus‐Masanell, left, and Sunil Gupta, listened to a presentation about the layout of the Siemens Electronikwerk Amberg manufacturing facility during the faculty immersion in Munich. (photo by Willy C. Shih)

The remarkable success of the Mittelstand—small and mid-sized companies prevalent in German-speaking countries—has long captured the attention of global business practitioners and scholars. Why are these firms so competitive globally, particularly in emerging markets, and how have they managed to innovate and rejuvenate themselves again and again?

In June 2016, 14 faculty members representing diverse academic units at HBS traveled to Munich to probe the factors underlying the Mittelstand model. They visited companies both private and public, large and mid-sized, to understand the innovation environment. This faculty immersion, which was preceded by the Fung Global Symposium attended by German, Swiss, and Austrian leaders from business, government, and academia, was sponsored jointly by the School’s Division of Research and Faculty Development and Global Initiative.

Faculty cochairs Juan Alcacer, the James J. Hill Professor of Business Administration, and Willy C. Shih, the Robert and Jane Cizik Professor of Management Practice, together with Vincent Dessain (MBA 1987), executive director of the Europe Research Center, arranged visits to 11 companies across Bavaria. At firms such as Munich Re, BSH Hausgeräte, and Adidas, a faculty panel and company leaders participated in lively exchanges.

“We saw a number of factors that together make these companies competitive globally, even though they are in a high-wage economy,” says Shih. The primary attribute—among both family-owned Mittelstand firms like Faber-Castell and larger public corporations—is a clear focus on longevity and the future. As an example, Shih cites ARRI, the world’s largest manufacturer of professional motion picture equipment, which weathered a difficult transition from film to digital technology and has gone on to thrive.

Overall, German companies take a broad view of their responsibility to their constituencies, emphasize knowing their customers, and invest heavily in training employees. Further, Mittelstand firms tend to occupy narrow niches, often tools or component parts, with a strategy to dominate them globally. Companies of all sizes pursue innovation, sometimes with the support of research institutes, one of which provided ARRI with the technology and training to make the move to digital.

Faculty immersions generate ideas for new areas of inquiry, often leading to case studies and other forms of research. Throughout the five-day immersion, one theme emerged that will no doubt make its way into future classroom discussions: how to apply lessons learned from the region to cultures and economies around the world.

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