Transcript Innovation and the Family Business Champions

Keynote Presentation: Innovation in Family Businesses: A Prerequisite for Future Success
Dr. Josiane Fahed-Sreih
Director, the Institute of Family and Entrepreneurial Business
Lebanese American University
Innovation in the Family Business:
A pre-requisite for future success
Dr. Josiane Fahed-Sreih
Associate Professor of Management,
Founder and Director, Institute of Family and Entrepreneurial Business, Lebanese American
University
Chairperson, Departments of Hospitality Management and Marketing
Middle East Coordinator, Family Firm Institute, USA- Fellow Member FFI
Mobile: 961-3 411 811
Fax: 961-9 740 163
Email:[email protected];[email protected]
• In order to understand the importance of innovation
and how it impacts family businesses and their future
role, we have to understand the globalized world of the
future.
• Family Businesses are at least as important for
Globalization as publicly listed Corporations…
Globalization
• Would China Overtake the US?
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(Financial Times, April 30, 2014)
• China still has a long way to go before it overtakes the
United States
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(People’s Daily Online, May 8, 2014)
Where does the World
go???
Projections of the Gross Domestic
Products in 2030 in Billions of US $
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USA: 24520
Europe:22370
China:20900
Japan: 5800
Germany: 4710
Brazil: 4360
India: 4290
France: 3530
UK: 3270
Russia: 2730
Italy: 2670
Projections of the Gross Domestic
Products in 2030 in Billions of US $
Growth of GDP from 20132030 in Billions of US Dollars
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China =11780
USA=7720
Europe=5000
India=2420
Brazil=2120
Germany=1050
Japan=900
France=790
UK=730
Russia=610
Italy=600
Growth of GDP from 20132030 in Billions of US Dollars
• The first global league will include: US, China and
Europe.
• The Second Global league will include: Japan, Russia,
France, Germany, Italy, India, Brazil, UK…
Size and Growth of GDP and
Globalization
• Until 2050: Demography is Economy!
Demography
• There will be a permanent immigration into industrialized
countries.
• The US in 2012: 1,031,000
• The European Union total in 2012: 2,113,900
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Source: OECD- 28-05-2014
Permanent Immigration
in 2012
• Urbanization is the strongest trend, even more than
demography
• China is about to experience a population shift unparalleled in
history
• 350 million people are expected to move from rural areas to
the cities
• That’s more than the entire population of the United States
• The most important effect of urbanization is the decline in the
number of children
• Urbanization has a stronger impact than the contraception
campaigns
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Source: Das Volk Wil Vohen, Mark Seimmons, June 24, 2014 –p. 13
Urbanization
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Exports per Capita in the US in 2013 was:2634
In 2000 it was 985
In 1980:437
In 1950:23
In 1900:6
The Acceleration of
Export
• Globalization is and will be an enormous driver of
growth
• In 2030, China, the US and the European Union will be
the three poles of the Global Economy
• All the other countries play in the second global league
• Africa will play an increasingly important role with
uncertain outcomes.
Lesson 1
• How successful are individual
countries in Global
competition especially in
exports???
???
Exports in Billions of US $
between 2004-2013
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China: 13 900
Germany: 12 502
USA: 12 234
Japan: 6 988
France:5 238
Italy: 4 500
UK: 4 424
Korea: 4 155
Russia: 3 814
Spain: 2 638
Exports 2004-2013 in
Billions of $
Per Capita Exports, 20042013 in Billions of $
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Germany:153 936
Korea: 84 708
France: 79 805
Italy: 75 347
UK: 71 355
Spain: 57 100
Japan: 54 578
USA: 30 338
Russia: 28 671
China: 10 372
Per Capita Exports, 20042013 in Billions of $
• Countries/States do not export.
• “Only the strongest companies export” (Source: Professor Marc
Melitz of Harvard)
• Among the strongest companies are a number of Family
Businesses who export.
Who Exports?
• Top three in the World or Number 1 on its continent
• Revenues less than 5 Billions Euros
• Not well known for the general public
What is a Hidden
Champion?
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Revenues 325 Million Euros/ 750 Million Euros*
Employees 2040
+80% Family Owned or family dominated
ROCE 14%
ROE
25%
ROS
11%
Average Age 61 years / 277 Family owned HCs 93
years*
• *(Source: Nancy Lann: Understanding the internationalization of Family Owned
Hidden Champions, Jonkopping University Finland, August 2014 (N=277)).
Hidden Champions are
Family Businesses
WHAT IS BEHIND THIS GLOBAL
SUCCESS? WHAT IS REQUIRED
FOR SUCCESS IN THIS GLOBAL
WORLD?
Innovation
Strong
Manufacturing Base
Cost
Competitiveness
At the base of their
success
Country
Number of Patents
2003-2012
Patents per million
inhabitants
Germany
130 032
1590
Japan
108 418
847
Austria
6 366
749
France
44 363
674
USA
134 306
427
Italy
21 636
357
UK
20 893
337
Korea
9 859
197
Spain
3 649
79
Portugal
249
23
Greece
244
23
Russia
462
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Innovation
• Business Success in the Global world does not primarily
depend on large corporations but on family owned world
class businesses called the hidden champions.
• Innovation, Strong Manufacturing base and Cost
competitiveness are the factors of their success.
Lesson 2
• Why are they successful?
• How do they differ from large corporations?
• What can we learn from them?
Those hidden Champions
Family Businesses
• Growth and Market Leadership
• Going from Hidden champions to Big Champions
Extremely Ambitious
Goals
• “We want to become and stay Number
1 in the World”.
• 3B Scientific is the World market leader in
anatomical teaching aid.
3B scientific
• The Goal of Chematelli is world
wide technology and marketing
leadership.
• Chematelli is the world market leader in
special markets like lithium and cesium
Chematelli
• “ We lead by anticipating our customers’
expectations. Leadership means becoming
the benchmark for others. We set the
standards on the world market.”
• Sick is a world market leader in sensors.
Deep leadership: Sick
• “We want to create ultimate value as the World’s
undisputed leading supplier. It is our objective to be the
world’s most competitive provider. We go beyond present
market requirements. We envision the market’s future
needs.”
• Rosen group is the world leader in pipeline inspection
systems.
Deep Leadership: Rosen
group
• Success always begins with highly ambitious goals,
• The hidden champions go for ambitious goals and
market leadership
• The will and the energy to pursue these ambitious goals
is rooted in the entrepreneurs and their families.
Lesson 3
FOCUS AND DEPTH
• “We only had one customer and will only have
one customer in the future: The pharmaceutical
industry. We only do one thing, and we do it
right.”
• Uhlmann is the world’s market leader in packaging
systems for the pharmaceutical industry.
Uhlmann
• “We only focus on one thing but we do it
better than anyone else”.
• Flexi is the world’s market leader in retractable dog
leashes
Flexi
UNIQUENESS THROUGH DEPTH
• No outsourcing of core competencies
• “We produce all parts ourselves , based on the quality
standards we define” (Wanzl).
• “We grow our wood in our own plantations ‘ (FaberCastell).
• “We do everything ourselves, especially in R&D”
(Pepperl and Fuchs”)
Deep Value Chain
• Only focus leads to world class
• The hidden champions are highly focused on their
technologies and their markets
• Through a deep value chain they create unique
products and protect their know how
• Typically family businesses are better at focusing than
large corporations
Lesson 4
GLOBALIZATION
• Focus on product and know how
• Global Selling and Marketing
• Example: Karcher 100 subsidiaries in 60 countries
The Hidden Champions
Strategy
• Transnational strategy is the most common type of
internationalization adopted by family owned hidden champions
(66%)
• Transnational: “high local responsiveness and high global
integration”.
• Focus on both global efficiency and multinational flexibility.
• Socioemotional wealth has a negative effect on internationalization
of family businesses but less on family owned hidden champions.
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Source: Nancy Lann: Understanding the Internationalization of family owned hidden championsJohnkopping University, Finland August 2014 (n=277)
Internationalization of Family
owned Hidden Champions
• The hidden champions combine focus in product and
know how with global selling and marketing.
• Globalization is the growth booster for them
• They serve the target markets through their own
subsidiaries.
• Globalization is no longer a matter of size
• Any Family business can globalize if it has the right
competencies and the courage to transcend its national
and cultural boundaries.
Lesson 5
INNOVATION
Normal Firms= 3.0% Global 1000= 3.6% Hidden Champions= 6.0%
Innovation, R& D Intensity
Patents per1000
Employees
Large Corporations=6 Patents
Hidden Champions= 31
Cost per Patent
Large Corporations=2.713 Million Euros
Hidden Champions=0.529 Million Euros
Patents of Hidden Champions
versus Large Corporations
Drivers of Innovation
Drivers of Innovation
TOP VALUE TO CUSTOMERS
• Strategy value-oriented, not priceoriented
• Price premium 10-15%
• Service as good as product
Value to Customers
CLOSENESS TO CUSTOMERS
• Closeness to customer is the biggest strength of the
Hidden Champions
• Closeness to customers 88.7%
• Employees with regular customer contact 8% for large
corporations and 38% for hidden champions.
Market related strength
COMPETITIVE ADVANTAGES
Price
Product quality
Economy
Punctuality
Advise
Closeness to customers
Systems solution
Distribution
Ease of use
Made in Germany
Importance
Cooperations with suppliers
Patents
Advertising
Competitive Performance
Competitive Advantages
of the Hidden Champions
• Innovation is the precondition for market leadership.
• Closeness to customer is a natural trait of Family
Businesses and the greatest strength of the Hidden
Champions.
• Their strategies are value-oriented, not price-oriented.
• The Hidden Champions hold
strong competitive
positions.
• Advice, systems integration and ease of use are now
advantages which create higher barriers to entry.
Lesson 6
EMPLOYEES AND LEADERS
• “More soldiers than Generals!”
• High performance cultures
• High qualifications
• Low turnover
Employees
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1. Continuous investment.
2. Global-minded talent.
3. Strategic partnerships and relationships.
4. Open-source networks.
5. A relentless focus on sustainability.
Build a culture of
Innovation and Growth
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Partners speed innovation
Openness fuels innovation
Innovation is now flowing from anywhere to anywhere.
Sustainability spurs innovation, just as innovation
spurs sustainability
• Sustainability should be imbedded across the entire
value chain, Ex: a recyclable plastic bottle that's 30
percent made from plants.
Process of Innovation
• While there is great power in incremental innovation, I believe the
best organizations must create unexpected or disruptive
innovations.
• As Henry Ford explained, "If I'd asked the public what they wanted,
they would've said 'a faster horse.'"
• In our time, no one knew they needed an iPod, iPhone or iPad until
Steve Jobs dreamed them up. And who knew we needed Google or
Facebook or Twitter or limitless entertainment on Dish Network
until they came along?
• Today, for all of us, in business, government and civil society, the
choice is between innovation and irrelevancy.
• You either innovate or you become irrelevant.
Conclusion
• Dr. Josiane Fahed-Sreih
• Associate Professor of Management,
• Founder and Director, Institute of Family and Entrepreneurial Business,
Lebanese American University
• Chairperson, Departments of Hospitality Management and Marketing
• Middle East Coordinator, Family Firm Institute, USA- Fellow Member FFi
• Mobile: 961-3 411 811
• Fax: 961-9 740 163
• Email:[email protected];[email protected];
Contact Details