Ross BradsenRegional Director Southwestern OntarioSector Lead: Advanced ManufacturingDecember 11th, 2013

MITTELSTAND COMPANIES

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SMEs in Germany, Austria, Switzerland

• Owner-operated (many privately/family owned) with emphasis on long-term profitability (in contrast to the public corporations which face quarterly pressure to meet short term expectations).

• Focus on the final customer /end user as much as, if not more than, the immediate customer

• Achieve unprecedented efficiencies by designing a business model with a razor-thin focus and learning to do few things really well

• To compensate for their razor-thin focus... they diversify internationally and enjoy great economies of scale

Adapted from: http://en.wikipedia.org/wiki/Mittelstand

MITTELSTAND COMPANIES

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• Export-oriented, they focus on innovative and high value manufactured products and occupy worldwide niche market leadership positions in numerous segments

• They become leaders by being “the best” and charging premium prices over competition

• They maintain leadership by “staying the best” and “maintaining premium prices”. They do what’s in the best long term interests of the end user.

• They are not afraid to change. They innovate to stay “the best”

Adapted from: http://en.wikipedia.org/wiki/Mittelstand

MITTELSTAND COMPANIES

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• Germany's Mittelstand companies (SME) are a very important part of the country's economy. In 2003, these companies employed 70.2% of all employees in private business, according to the Institut für Mittelstandsforschung.[5] Some predicted their demise that year due to narrowing of credit availability and a record number of firms collapsing.[6] So far these predictions have failed to materialize, Mittelstand companies continue to employ 70% of Germany’s workforce.

Adapted from: http://en.wikipedia.org/wiki/Mittelstand

MITTELSTAND COMPANIES

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• Germany's Mittelstand companies (SME) are a very important part of the country's economy. In 2003, these companies employed 70.2% of all employees in private business, according to the Institut für Mittelstandsforschung.[5] Some predicted their demise that year due to narrowing of credit availability and a record number of firms collapsing.[6] So far these predictions have failed to materialize, Mittelstand companies continue to employ 70% of Germany’s workforce.

Adapted from: http://en.wikipedia.org/wiki/Mittelstand

1899

1913

1935

1961

18461934

1975

1923

1964

1924 1925

A selection of well known original Mittelstand companies – note their longevity

1926

ONTARIO COMPANIES

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• Natural resources > export > elsewhere doing the value-adding?

• Many Ontario Mfrs. are branch plants > branch plant mentality?

• Very good at doing what head office wants: Quality-Cost-Delivery

• Management is Operationally focused

• Good at managing inputs and meeting HQ or customer demands. Ready to serve: “I can quote on that”

• Operator or Innovator? Does management scour the world looking for opportunities to innovate? Do they invest in continuous R&D? Do they develop proprietary products? Can they raise risk capital? Do they focus on immediate customers and on end users? Can they resist pricing pressure by giving more/better than the competition?

ONTARIO COMPANIES

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• Mfg. driven by a growing list of obligations:

1980s QUALITY1990s QUALITY + COST2000s QUALITY + COST + DELIVERY2010s QUALITY + COST + DELIVERY + PRODUCT INNOVATION

ONTARIO COMPANIES

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• Mfg. driven by a growing list of obligations:

1980s QUALITY1990s QUALITY + COST2000s QUALITY + COST + DELIVERY2010s QUALITY + COST + DELIVERY PRODUCT INNOVATION

Operators Innovators

PRODUCTIVITY IS AN EQUATION

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• Lagging productivity versus the US is often cited as the challenge that must be addressed, but we focus mostly on the denominator.

Productivity = Outputs Inputs

Need More Focus Here

Historic FocusHere

VERTICAL INTEGRATION

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• Many Mfrs. have outsourced process steps (de-verticaled*). This started in the 1980s, driven by institutional shareholder pressure for short term financial results.

• Mfrs. that only “do one process well” have shed plant/capacity and have further distanced themselves from end-users. The result is lost inherent human know-how on how to leverage the value chain to innovate to meet evolving customer needs.

Clayton M Chistensen at OCE Discovery Event 2009

FINAL CUSTOMER or END USER

-----------------------MANUFACTURER-----------------------

VERTICAL INTEGRATION

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• Many Mfrs. have outsourced process steps (de-verticaled*). This started in the 1980s, driven by institutional shareholder pressure for short term financial results.

• Mfrs. that only “do one process well” have shed plant/capacity and have further distanced themselves from end-users. The result is lost inherent human know-how on how to leverage the value chain to innovate to meet evolving customer needs.

Clayton M Chistensen at OCE Discovery Event 2009

--MANUFACTURER-- FINAL CUSTOMER or END USER

VERTICAL INTEGRATION

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• Many Mfrs. have outsourced process steps (de-verticaled*). This started in the 1980s, driven by institutional shareholder pressure for short term financial results.

• Mfrs. that only “do one process well” have shed plant/capacity and have further distanced themselves from end-users. The result is lost inherent human know-how on how to leverage the value chain to innovate to meet evolving customer needs.

Clayton M Chistensen at OCE Discovery Event 2009

-------------------MANUFACTURER------------------- FINAL CUSTOMER or END USER

ONTARIO MITTELSTAND

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1882

1966

1957

1957

1927

Investors fare better in the fold: Family owned firms outperform others http://www.theglobeandmail.com/report-on-business/small-business/sb-managing/succession-planning/investors-fair-better-in-the-fold---family-owned-firms-outperform-others-study/article12738084/

Thank you