Soulmates – Peter Drucker’s Management Philosophy and German Mittelstand Champions
Winfried W. Weber, Mannheim University of Applied Sciences
A keynote speech at
Annual Meeting of Drucker Workshop, Waseda University, May 25th, 2013
I am delighted to be here and it’s really an honour to speak at your annual forum. Warm regards for you all from the colleagues of our German Drucker Society. I think, we all know that Peter Drucker is the most influential management thinker worldwide. In Germany, I know the statistics quite well because I run a website since 2004 where we count the managers’ votes on the question who is the most influential management thinker: Peter Drucker is number one in Germany since years and I think he is number one here in Japan as well.
The German Drucker Society at Mannheim—in the heartland of the German industry—is animated mostly by managers. We don’t have many professors or academics and not many consultants as members. Our society is run mostly by industrial managers from the southern part of Germany but we have also frequent guests and supporters from Switzerland and Austria or from Berlin and other parts of Germany.
We discussed how to apply Peter Drucker’s thinking in our society and started in 2010 with roundtables, our main activity (which is completed by publications of articles and books). Our typical roundtable is a meetings with about 40 mostly executives, CEOs and top managers from the German industry. I hope we soon have some guests from Japan as well. One highlight was for example to having Charles Handy with us. We discussed with him the similarities of his approach to the thinking of Peter Drucker. So it was an excellent afternoon and evening with Charles last autumn.
We discuss in our society very openly “what is management?” In Peter Drucker’s approach some of the practitioners of management are surprised that Peter Drucker never has been working as a manager. He started as a journalist and scientist. He studied liberal arts. He received his PhD in Law Sciences at Frankfurt University. As a present I brought you one copy of his 1932 doctoral thesis that I found in a good shape at the library of Frankfurt University. Peter Drucker started to look at management from a philosophical background. For him management is more than analytical and rational science. He learnt a lot at his two year project with Alfred Sloan’s company GM in the beginning of the 1940ies when he was one the first observes who asked large scale questions on the practice of management. Management has a lot to do with civilization and people. Peter Drucker was a pioneer in examining this extremely important function of society and influenced the practice of this profession. And vice versa also Peter Drucker was influenced by the practitioners of management and his theory grew through contrasting it with practical application. As the discoverer of management Peter Drucker saw this function in his first draft as a bias of science and craft. Management is more than science, it’s practice, it is down-to-earth and managers get skilled mostly by trial and error.
Peter Drucker was in 1950 at New York University the first professor on earth who held a chair of management. After his experiences at General Motors with Alfred Sloan and others he discovered in those years that it's even more than science, craft, trial and error or practice. Management had to do something with art as well, with creativity and vision. So how do we manage? And again: what is management? Managers work and decide in this triangle of science, craft and art. When Peter Drucker published his book about innovation about entrepreneurship he framed it lucidly: managing has to do with all of these three aspects. So, managing from Drucker-san’s approach starts from liberal art and starts as well from practice. But to survive in a long-term view managers have to integrate creative insights. And they need intuition and not least their heart to survive as organization, as a social system in society.
I think that our societies, the Japanese and the German have a lot of similarities. And Germans have a lot of respect for the Japanese culture, Japanese economy, Japanese engineers and not least for one phenomenon: you were the first country that discovered the relevance of Peter Drucker’s paradigm shift. You saw first Drucker-san’s inventions of management. Your managers, your scientists and journalists were the first that lighted out the importance of this man. And that is not an assumption of me. I did some research on that. It’s a fact by numbers: Japan was the first country worldwide in which Drucker’s books were bestsellers—with more than a million copies. Management books as best sold books, it didn’t happen first in the US or in Germany, in his native language. It happened in Japan, where you bought in the 1970ies more than a million of copies of one of Drucker’s books when Americans bought only 50,000 copies. To summarize it, Japanese managers were and are excellent observers on what is important in management, congratulations on that. Your managing culture has been open to his influence since the 1950ies and had opened your eyes widely to his philosophy.
In contrast to that -- if we from our Drucker Society ask German politicians, if we ask managers and if we ask professors it's different to Japan. A lot of people don’t know anymore Peter Drucker. He falls into oblivion in a lot of professional milieus in Germany. When I discuss with some visitors of my website www.managementdenker.de his influence on managers the results being No. 1 pretend that he is influential. But too much younger managers and almost no managers from public or social organizations have heard his name nowadays.
So who gives his vote to Peter Drucker at our ranking? You can say a lot of them come from medium-sized export oriented companies.
So, finally after this introduction that has elongated a little: that’s the link to my speech of today. I am talking about the interpretation of Peter Drucker in Germany from the people that admire him at most. His fans are primarily from the “Mittelstand” how we call in Germany the medium-sized and strongly export oriented companies. Most of our members of the German Drucker society, most of our guests, most of our visitors of the website are managers from medium-sized companies.
Those medium-sized globally orientated companies are the heart of the German economy—much more than all the well-known German big industrial brands. When international economist commentate “Germany did a good job in the last decade” and executives from all over the world ask for the secrets behind the German model, you can hardly reduce it only on the big German companies like Volkswagen, BASF, Siemens, BMW or Daimler. If we look at the Fortune‘s 500 list, the big German companies are compared to other countries, compared to Japan or US below average. We don’t have much big companies on a global perspective. We have some – but related to the size of our economy much less than France, the UK or Japan and much less than the US.
So my thesis is, the German model has to be focused on medium-sized companies. And Germany’s management is influenced very much by its “Mittelstand”-management approach. If you work in years with those “Mittelstand”-managers and their companies you can find so many soulmates in heart and in spirit to Peter Drucker’s management philosophy. If we have a look to the statistics and compare different factors in the last few years in Germany take the gross national product, the unemployment rate, the budget deficit or the household debt and so on. Germany’s economic deciders did quite a good job in the last years and mostly the medium-sized companies grew faster and were innovative. When you ask for the reasons of the dominance of medium-sized companies and sub-dominance of big companies there are many.
One main reason is—if you look at a German map of early 19th century—Germany as a state didn’t exist. Located in the center of Europe we had dozens of different small states with different cultures and laws and business people had sometimes more relations to the neighbors around these little states even when the neighbors spoke a different language. When Germany began to unify in 1848 we had some political trial-and-error decades and finally in 1870 Germany started to exist (and a lot of trial-and-error went on). So as a nation we are quite young and many of our ancestors didn’t have good experiences during the last centuries with a distant power of a centralized government. To point it out, Germany has strong regions within Europe and our “Mittelstand” companies are used to have small markets and many barriers. Germany’s business is very oriented both at home at its region and abroad no matter which customer you serve. We learned to do business across borders since centuries.
To give you a personal example: when my great-great-grandpa travelled let’s say 100 kilometers, he passed may be 10 borders and told his grandson stories about that time. When my grandpa started his career as a boy of a lower class family with 11 children, he began an apprenticeship as a precision mechanic at a knitting machine producer (a company that still exists and that is now a hidden champion). After some years in practice he was interested in watchmaking and moved to Switzerland. I am wearing a here watch produced by him. He came back to his home village and started a small family business, after some years he had a staff of around 15 or 20 people. He did his business from the beginning with an international prospective and exported his watches to Switzerland or to German the speaking regions of France earlier than to Northern Germany. He started with a small international network that was not uncommon at the beginning of the last century when we had a self employment rate of 40 per cent in this southwestern part of Germany. But he has not been globally orientated enough because his company (and the whole German watch industry) shut down in the 1950ies when strong Japanese competitors attracted customers with digital and non-mechanic watches.
Another reason to strengthen the success of our medium-sized companies is that we have politicians that know the differences of small and medium-sized and big industrial companies. Angela Merkel did a good job in the last years. For example, 2008-2009 the industrial production crashed in some cases by 50 per cent but workers didn’t get laid off—how? Because the government discussed with companies and unions the problems and supported not only big companies but many small and medium-sized companies with a so-called short-time labor program. So people didn’t get laid off. And when the orders came back in 2010 the skilled people started at once to work full-time.
I can give you some examples of such global Mittelstand companies. Some of them have export more than 95 per cent of their products, there are some that sell just 1% within Germany. We have a broad diversity, some are B2B businesses, some of them are in the end-customer business. Almost all of them have a focus and niche strategy. They use niche markets below the radar of the big companies and avoid strategies with competition on low prices.
Let’s have a look whether some of you in our audience have a product of such a German company. Who has a dog? Who is using a “Flexi” dog leash? Yesterday at Ueno park I saw a couple of those leashes.
Some of you have had a conversation with the main eponym of those hidden champion companies, Hermann Simon. He wrote a book that has been translated into Japanese 15 years ago. Hermann Simon has been a Professor of Marketing and had discussed the phenomenon of strong German Mittelstand medium-sized companies with his academic teacher Ted Lewitt. Hermann Simon found out that “Hidden Champions” are mostly a German phenomenon. From around 2,700 worldwide more than 1,300 hidden champions are located in Germany—by the way mostly on the German country side and in German provinces out of the big cities. If you take Japan, it's not in the Tokyo/Yokohama area, it's somewhere on the countryside where they are based.
So that’s the core success factor of the German model. And we have to add to those 1,300 champions another thousands of strong German competitors—second-class or third-class medium-sized companies as well and all of them are competing with each other.
I cannot run here to all of the secrets behind these success stories. But I can point out some main aspects.
Let us begin with the background of those businesses, they are mostly family-based. The second is about governance and leadership, that’s Peter Drucker’s approach you can say, and with the third aspect I would like to discuss with you training and lifelong learning training in those companies.
The approach of hidden champions is really different. They apply Peter Drucker, let’s say in a special way, different from other countries and from many classical management theories. Just a quote from Peter Drucker: “It's not size that is an impediment to entrepreneurship and the innovation”. Here you can see the similarities between the approach of those medium-sized companies and Peter Drucker’s thinking. The leaders of the global and export-oriented medium-sized companies are dedicated to quality and innovation and act globally from the beginning.
If we look those to those family businesses their success story has a lot to do with focusing. Take the example DORMA. This company is specialized in all kind of door related products, so you will see here a part of a door and they are world champion in door equipment. Or take the company Tente. They are world-class in producing casters for medical beds or similar products. The lesson is focusing on customer and niches ( Hermann Simon, Hidden Champions of the 21st Century, 2009).
If we have a look to a second success factor, the governance of medium-sized companies in Germany, you find a lot of approaches and practices that Peter Drucker wrote in his books. For example, continuity in leadership, you have in these companies an average CEO tenure of 20 years. In a typical big sized German company it's in average four or five years. That’s almost five times more time you spend as a CEO in a medium-sized champion than in a big sized company in Germany. Another phenomenon—you have more and more women in top positions. When the company has problems with its successors continuity in leadership could lead to a female CEO. You find more and more examples now where the successor in the CEO position is a daughter. Take Berthold Leibinger who build up with Trumpf the world champion in laser cutting machines for the automotive industry. He has been seen as the speaker of the German medium-sized champions for years. And now his daughter Nicola Leibinger-Kammueller, is running the company.
Some remarks that not everything is working well with our champions. They have some problems as well. If you take the example Putzmeister the former world champion in cement transport machines. It has been bought recently by his Chinese competitor Sany. Mr. Putzmeister in his late seventies hadn’t have build up a successor and now his company has changed ownership. So times are changing as well for German hidden champions.
The third factor I would like to point out is our dual education system—build up in centuries. Dual education and training, our non-academic approach to educate our younger generation is quite unique in the world. If you compare Germany with other countries and you look at the rankings of the top universities in the world there is only one German university on the top 50 list. You have WASEDA and Tokyo University and others. You find Harvard, Stanford, Yale. But where are the excellent German universities?
Germany’s education strengths lie in application which are difficult to measure in global education rankings. They lie in training engineers and knowledge technologists to take a term of Peter Drucker in a life-long learning process. We have excellent shop floor workers, highly motivated apprentices that are trained and who are training themselves for their whole professional life. You will see here 16 or 17 year old boys and girls, that are leaving school with good grades and starting their non-academic apprenticeship and become some years later a “meister” in their profession. Professor Ueda has started years ago with a similar approach at Saitama University’s Institute of Technologists. In Germany we have a long culture of apprenticeships that goes back to the 15th century and a culture dedicated to applying knowledge and technologies. Around 70% of our hidden champion workforce doesn’t have an academic degree. We have a culture of proudness at the German workforce where grandpa was a mechanic, pa was one and his daughter will become one as well.
Just a quote from Peter Drucker, “Famous is the German apprenticeship system, (…) it was one of the main factors in Germany is becoming the world’s leading manufacturer.” Drucker was right. It's unique in the world. We transferred it as well to universities. We have dual universities where you earn a bachelor in working and studying in a changeover of every three months. Or take my university, it’s is a university of applied science. That means if you are applying for a chair you have to have at least five years of practical experiences as a chemist, engineer or manager. Teaching management assumes that you have managed. You have to have practical experiences. Take my case—I have been a manager and consultant for more than 20 years before becoming a professor.
So, to draw the conclusion—there are some points that are similar between Germany and Japan where we can learn from each other. After my speech we can discuss it further with the aim how German and Japanese managers can collaborate and network to share ideas. And from the prospective of the Drucker Society’s what could we learn from each other? One remark is—from the global view—your economic approach and our approach is very similar, more similar than let’s say the US and the German approach. Japan and Germany are more industrial related and have a dedication on tangibles, precision and quality.
Therefore I propose a deeper collaboration among our societies. We should deepen our networking. The Drucker Workshop of Japan and the German Drucker Society and you as members and guests of the Drucker Workshop should embrace my invitation in working together. We could organize international roundtables. Come to Germany, come to Mannheim. We invite you to our roundtables in English. We are having workshops and you can join to them. We have speaker series. If you are interested in giving a speech at Mannheim, just announce it in advance. And I think we can enlarge our publishing. Ueda-san and Isaka-san, we had some excellent publishing and editing together. I would like to invite you to deepen the friendship among our societies. Thank you so much for affiliating me as a honorary member of the Japanese Drucker Workshop. And I thank you so much for the honor to having a speech at your annual meeting.
Dr. Winfried W. Weber (email: firstname.lastname@example.org) is Professor of Management at Mannheim University of Applied Sciences, Germany, where he directs the Mannheim Institute of Applied Management Research. He earned his PhD in Management /Economics from University of Witten-Herdecke (at Reinhard-Mohn-Chair of Leadership, Corporate Culture and Socially Evolution) with a specialization in sociological management theory. Winfried Weber worked as a social entrepreneur, consultant, training manager and health care manager. He is a member of various boards and founding President of the Peter Drucker Society of Mannheim, a non-profit organization. Avocational he runs Prof. Winfried Weber GmbH, a consultancy. In his book “Innovation durch Injunktion” (2005) he analyzed the influence of management thinkers like Peter Drucker, Henry Mintzberg or Tom Peters on managers. His book "Complicate your life" (2008) points out that complexity can be handled only by complexity. In 2010 he edited the 100th anniversary anthology “Peter F. Drucker’s Next Management”. Acknowledged Drucker disciples from four continents discuss why it is important to continue on the innovative trail Drucker built for the management discipline; and how his thinking can be applied for energizing the leadership of the 21st century’s business and society. On Winfried Weber’s website www.managementdenker.com he asks readers to address one question: “Who is the most important management thinker?” The result (current status in spring 2013): 25% of German speaking managers vote Peter Drucker.