Innovation and Entrepreneurship Research

The Future of Germany’s Hidden Champions in Times of Digital Transformation

Germany’s Hidden Champions (HCs) are firms which are highly successful global leaders in their respective market and rather unknown to the wider public. In particular, HCs are companies with less than 10.000 employees, have export rates of more than 50% and belong to the top three market players globally. According to previous studies, HCs employ approximately 500.000 people and generate revenues of over 150 billion Euros. Even though they do not invest more than comparable companies, they achieve a higher innovation success. At the same time, they generate higher profit margins, higher productivity and are less threatened by new entries and less exposed to price competition. Literature provides several explanations for their superior resource allocation. First, they seem to combine open innovation strategies with continuous internal R&D which facilitates new technological developments. Moreover, they seem to invest more into human capital and emphasize an innovative corporate culture that supports its better skilled employees in developing new ideas. Overall, through their special capabilities HCs represent a remarkable subset of mainly small- and medium-sized German companies with a great impact on the global economy.

However, the business environment has been experiencing tremendous change since the beginning of the century. In particular, the ongoing digitalization and closely related developments, such as the internet of things, big data or artificial intelligence, increasingly disrupt entire industries and existing ways of doing business. There are already numerous examples where long successful and established businesses have been replaced or even destructed because they were too slow to adapt to the new conditions. This is by far not a new development, nevertheless, the pace and scope of this development has increased significantly.

Since even formerly market leading companies are not immune to this disruption, this paper aims at analyzing whether HCs are better prepared for the digital transformation than other companies. Therefore, a digital maturity framework will be developed that asses the level of digitalization within companies. Furthermore, influencing factors as well as performance outcomes of this maturity framework will be investigated. This is possible through the application of a unique database of German firms. First, this database enables an identification of German HCs and their comparison with other firms from the same sector, size and age by using a matching technique. Second, eleven indicators for different types and areas of digitalization within these companies allow for the development of a digital maturity framework.

According to previous findings, HCs have superior dynamic capabilities and tend to put more emphasis on new technologies. Hence, one would expect that they are also better prepared for the digital future by showing higher levels of digitalization. However, the first findings of the analysis suggest that there is no significant difference in the level of digitalization between HCs and their control group. This may indicate, that HCs are indeed not better prepared for the challenges of the future and even be trapped in an innovator’s dilemma.