REIMAGINE THE FUTURE: “Hidden Champions”, Profit, Krise und Zukunft

Unter dem Motto “How To Rethink Tomorrow For You and Your Organization” diskutierten Prof. Dr. Kai Thürbach (TH Köln) und Prof. Dr. Marcel Hülsbeck (Universität Witten/Herdecke) mit Prof. Dr. Dr. h.c. mult. Hermann Simon (Autor von „Hidden Champions”, Mitglied der Thinkers50 Hall of Fame) über “Hidden Champions” und Entrepreneurship, Profit und Ethik, Krise und Zukunft.

Die Session am 6. Mai 2020 trug den Titel “Profit – After Corona more important than ever”. Anlass war das neue Buch von Hermann Simon mit dem Titel „Am Gewinn ist noch keine Firma kaputt gegangen“.

Prof. Dr. Dr. h.c. mult. Hermann Simon ist der einzige Deutsche, der in die „Thinkers50 Hall of Fame“ der weltweit wichtigsten Managementdenker aufgenommen wurde. Der Autor des Weltbestsellers „Hidden Champions“ war Professor für Marketing an den Universitäten Bielefeld und Mainz. Es folgten Stationen in Harvard und Stanford, am MIT und INSEAD, in Tokio und der London Business School. Er ist Gründer und Honorary Chairman der Unternehmensberatung Simon-Kucher & Partners und entwickelte sie zum Weltmarktführer für Preisberatung.

Zu seinen mehr als 30 Buchveröffentlichungen zählen neben „Hidden Champions – Aufbruch nach Globalia“, „Strategie im Wettbewerb“, „Preismanagement“, „Confessions of the Pricing Man“ und „33 Sofortmaßnahmen gegen die Krise“. Sein neuestes Buch „Am Gewinn ist noch keine Firma kaputt gegangen“ erschien dieses Jahr.

Prof. Dr. Marcel Hülsbeck und Prof. Dr. Kai Thürbach nahmen das Buch als Basis für die Diskussion. Hermann Simon vertritt die These, dass Unternehmen mehr Fokus auf Profitabilität legen sollten. Wer das nicht täte, bekomme Probleme:

„The Corona-crisis brings the hour of truth, and it’s exactly now. Companies which weren’t profitable in the past and have no reserves are the first to fail”, sagte Simon in der Diskussion.

Die Konferenz „Reimagine the Future“ wurde an zwei Tagen jeweils 24 Stunden entsprechend den Zeitzonen rund um die Welt als „Global Virtual Summit“ veranstaltet. Des Dearlove und Stuart Crainer von Thinkers50 moderierten die Veranstaltung. „Thinkers50 ist eine Londoner Organisation, die jährlich die 50 einflussreichsten Managementdenker auswählt. Für besondere Verdienste im Lebenswerk gibt es die Thinkers50 Hall of Fame,“ erläutert Tobias Krippendorff vom Deutschland.University-Netzwerk, der zusammen mit Kaihan Krippendorff den deutschen Part mitorganisiert hat. Die Einnahmen wurden von den Veranstaltern gemeinnützigen Organisationen gespendet. Mehr als 3000 Zuschauer aus etwa 50 Ländern nahmen teil. Studierende der TH Köln konnten mit Freitickets an der Konferenz teilnehmen.

Der erste Teil der Veranstaltung fand bereits im April statt. Mit dabei waren der Nobelpreisträger Paul Krugman und Alexander Osterwalder (Strategyzer, Entwickler des „Business Model Canvas“ und Autor von „Value Proposition Design“) sowie Wissenschaftler*innen der Universitäten Columbia, NYU und Wharton. Am zweiten Tag der Konferenz am 6. Mai standen Vorträge von Wissenschaftler*innen aus Harvard, MIT, London Business School und INSEAD auf dem Plan. Weitere Teilnehmer*innen der Konferenz waren z. B. Renee Mauborgne (Autorin der „Blue Ocean Strategy“ in Entrepreneurship und Innovation), Daniel Pink (Bestsellerautor), Faith Popcorn (Zukunftsforscherin) und Rosabeth Moss Kanter (Professorin an der Harvard Business School).

Hermann Simon beschäftigt sich seit langem mit Familienunternehmen. Viele der von ihm untersuchten „Hidden Champions“ sind deutsche Familienunternehmen. Marcel Hülsbeck und Kai Thürbach teilen den Bezug zu Familienunternehmen. Prof. Dr. Marcel Hülsbeck ist Akademischer Direktor des Wittener Instituts für Familienunternehmen (WIFU) und Inhaber des WIFU-Stiftungslehrstuhls für Management von Familienunternehmen. Prof. Dr. Kai Thürbach ist Inhaber der Professur für Unternehmensführung und Entrepreneurship an der TH Köln und unter anderem langjähriges Mitglied des Strategischen Beirats des Verbands „Die Familienunternehmer“. Er lehrt neben Entrepreneurship auch Führung und Ethik an der TH Köln. Themen, die die beiden im Gespräch mit Hermann Simon in unterschiedlichen Facetten ausführlich diskutieren konnten.

So behandelte das Gespräch auch das Verhältnis von Profit und Moral:

“I teach leadership and ethics. So, what should I tell my students about profit?”, fragte Professor Thürbach mit Blick auf den möglichen Konflikt zwischen beiden.

Im Folgenden können Sie die Fragen und Antworten im Detail nachlesen:

“REIMAGINE THE FUTURE
– How To Rethink Tomorrow For You and Your Organization”

Global Thinkers50-Summit on 6th May 2020, 1 PM CET

Session “Profit – After Corona more important than ever”

Interview and Discussion with Prof. Dr. Dr. h. c. mult. Hermann Simon, Prof. Dr. Marcel Hülsbeck, Prof. Dr. Kai Thürbach, TH Köln

Stuart Crainer (Moderator, Thinkers50):
Welcome to the “Reimagine the future” summit. This is our seventh session of the morning, afternoon or evening, depending on where you are. We have had some great sessions so far that have taken us to Sydney, Singapore, Australia, North Carolina, Paris, London, and now we’re heading to Germany. Remember during the session please feel free to send in your questions to the Q&A box.

We’re joined for this next fifty minutes by an intriguing trio. We have Hermann Simon. Hermann Simon is the chairman of Simon Kucher & Partners. Hermann is someone we inducted into the “Thinkers 50 Hall of Fame” deservedly last year in 2019. The first German inducted in the hallway of fame. He is the author of “Hidden Champions”, a really influential global book. Also, he is the author of “Power Pricing” and “Confessions of the Pricing Man”. Hermann is joined by Kai Thuerbach, Professor of Entrepreneurship at TH Köln and by Marcel Huelsbeck, Academic Director of the Witten Institute for Family Business. They’re going to be talking about “Profit – After Corona more important than ever”. And, as we established in our conversation beforehand, there is no question mark after that statement, it’s an exclamation mark!

Prof. Dr. Marcel Hülsbeck:
Thank you very much for the kind introduction, Stuart. Just before we start with our little talk here – what is our idea of this session: We would like to give you a head start by picking Hermann’s brain on the relevance of profit, before and after Corona, but then we’re counting on you as the audience to put your questions in the Q&A box. We have reserved ample time of the session to look after your questions and try to get the most out of the session for you. Okay Hermann, let me start with a simple question as an economist reading your new book about profit: How do you define profit? What is profit for you?

Prof. Dr. Dr. h. c. mult. Hermann Simon:
There is only one true definition of profit. Profit is what the owner of a company can keep after the company has fulfilled all obligations towards employees, suppliers, banks and the state. All other profit definitions, such as EBIT, EBITDA and extensions are not profit. For instance, the company WeWork uses a “Community Adjusted EBITDA”, which includes marketing expenditures as profit and Groupon reports an “Adjusted Consolidated Segment Operating Income”, which includes customer acquisitions costs. Is this profit? I don´t think so. Only what the owner can keep after having fulfilled all his responsibilities is profit. Nothing else is profit.

Prof. Dr. Marcel Hülsbeck:
Okay, so we have to divide the politics of profit from real profit in your view. You talk about economic profit in your book. What do you mean by that?

Prof. Dr. Dr. h. c. mult. Hermann Simon:
Economic profit is a more demanding benchmark. It’s the profit that exceeds the cost of capital, the so-called weighted average cost of capital. You could say that only economic profit is real entrepreneurial profit. Because if you don’t exceed your costs of capital, you better invest your capital elsewhere and not in your company.

Prof. Dr. Kai Thürbach:
Hermann, in preparation for today’s session you said: Everyone talks about the Corona-crisis, so I will keep my mouth shut about it. But what significance has profit for business in times of crisis?

Prof. Dr. Dr. h. c. mult. Hermann Simon:
The Corona-crisis brings the hour of truth, and it’s exactly now. Companies which weren’t profitable in the past and have no reserves are the first to fail. After the crisis, profit will become more important than ever because making profit will be critical for recovery, for instance, to pay back incurred debt. That will be the second hour of truth.

Prof. Dr. Kai Thürbach:
So what is the actual profit situation of companies? Could you share some empirical evidence? You also questioned people on the street about how much profit they thought companies earned. Do they have a realistic perception of what’s going on?

Prof. Dr. Dr. h. c. mult. Hermann Simon:
In Germany people believe that the net profit margin, after all costs and all taxes, is 23%. The real margin over many years is 3.4%. Similar in the US. The believe is 32% net profit margin, the reality is 4.9%. The record holders are the Italians. They think that the margin is 38%, the reality is 5%. There are two messages: Real net margins are 5% or less, typically. Furthermore, people overestimate profit margins by 600%. That's unbelievable.

Prof. Dr. Kai Thürbach:
All right. And according to your research there seem to be very significant differences in profitability between countries, between industry sectors and between different companies. Is that right?

Prof. Dr. Dr. h. c. mult. Hermann Simon:
Yes, that's absolutely right. The differences are indeed staggering. Switzerland is very profitable with a net margin of almost 10%. That's the average of Swiss companies! At the very bottom is Japan with 2.4%. The US reaches 4.9%, not great either. Actually, the margins in larger countries tend to be lower. That's probably due to more intensive competition. On the other hand, larger countries take advantage of economies of scale, but the net effect is that in larger countries margins are lower. When it comes to sectors, pharmaceuticals is usually one of the most profitable industries with net margins of 20%. Automotive is rather average with around 5%. Airlines are really bad: In the hundred years of their existence their accumulated profit is around zero, probably after Corona even slightly negative. So, their problem is not confined to the current crisis.

Prof. Dr. Kai Thürbach:
So what are typical reasons for low profitability?

Prof. Dr. Dr. h. c. mult. Hermann Simon:
The main reason are wrong goals: market share, revenue, sales orientation instead of profit orientation. This is exacerbated by conflicting goals between functions, for instance, between finance and marketing. Of course, wrong incentives such as stock options or sales-based commissions are closely related. Being in the wrong sector is also detrimental to profits – Airlines are an example. Overcapacities are another very effective profit killer. Then, social values play a big roll. That's one reason for the differences between countries. In Germany for example profit is a kind of social taboo. In other countries it's highly valued by people. That has an effect on the actual behavior.

Prof. Dr. Kai Thürbach:
What about size? Are large corporation more profitable or what is it then that drives profitability?

Prof. Dr. Dr. h. c. mult. Hermann Simon:
No, large corporations are not more profitable. The median of the net margin of the Fortune Global 500 is 4.49%. This tells us that half of these giants earn less than 4.5%. Most likely they don't make an economic profit, meaning that they don't recover their cost of capital. That’s the case for half of the Fortune Global 500. The public perception is misguided by a few profit stars. Facebook, for instance, makes 39% net after cost and taxes. Apple and Alphabet make around 22%. These margins are stellar, but they are rare exceptions.

Prof. Dr. Kai Thürbach:
Many of the profit stars seem to be rather young entrepreneurial companies if I understand you right. I'm a professor of entrepreneurship. What is your key message relating to profit for our founders and startup teams? What should I tell them?

Prof. Dr. Dr. h. c. mult. Hermann Simon:
Tell them that profit always depends on the combination of three profit drivers and there are only those three: price, volume and cost. And you must pay attention to all three. Stars like Facebook and Google have a unique combination: high prices due to a quasi-monopoly, low marginal costs – often zero marginal costs – and huge customer numbers. That’s the dreamland of profitability! My message to founders: Keep your eye on all three profit drivers and their interrelations. Don't confine yourself to one driver. For example, many startups are proud that they have many customers, but they don’t earn any money from these customers. The number of customers is useless if you don't have a positive margin per customer. Look at all three profit drivers and their interrelations. This is very important!

Prof. Dr. Marcel Hülsbeck:
Okay. Maybe I can take a little bit of another view. We talked about entrepreneurial firms, about the new economy kind of firms. Myself, as director of our Institute, I work a lot with family businesses who are not Facebook or Google or, in the sense that Kai might say, entrepreneurial. What about older incumbent firms? Are there still profit stars? How do they differ from weaker older firms?

Prof. Dr. Dr. h. c. mult. Hermann Simon:
We cannot make a general statement on your question, but I can respond with some specific observations. If I look at the German situation, margins are generally low, not much better than in Japan. But we have quite a few profit stars, the so-called “Hidden Champions”. These are midsize, little-known global market leaders. Their margins are about three times the German average. They often dominate their global markets. We have profit stars in all countries and usually they are characterized by strong market positions and a good combination of the three profit drivers.

Prof. Dr. Marcel Hülsbeck:
I think a lot of people who are watching us now know your book about “Hidden Champions”. What do you think, how can “Hidden Champions” cope with the crisis? What is your advice? Would they be better off after that or what will happen?

Prof. Dr. Dr. h. c. mult. Hermann Simon:
First, they were profitable in the past and ensuingly have high reserves and an equity ratio close to 50%. Thus, a very solid, strong financing. But the second reason for the ability to cope with the crisis and to survive is that their products are often indispensable. Let me give you a comparison between Toyota and a typical German “Hidden Champion”. If Toyota stopped selling cars today, what would happen? Not much! People would buy cars from Nissan or from Volkswagen or from somebody else. If the machines of the “Hidden Champion” Trumpf, the global leader in laser machines, would vanish today, we would have a real problem. These machines are in so many plants, that a substantial part of the manufacturing in the world would collapse. Trumpf machines are difficult to replace, at least in the short run. You could say they are indispensable. This indispensability makes “Hidden Champions” resilient. Of course, they are affected by the crisis. Often the purchase of their products can be postponed for some time, but eventually they are indispensable.

Prof. Dr. Marcel Hülsbeck:
So is there a general therapy in your view? What drives profitability for our companies?

Prof. Dr. Dr. h. c. mult. Hermann Simon:
As I said, there are only three profit drivers: price, volume and cost. The question is which one is the most effective? If we improve a driver by 1%, what happens to profit? This is the so-called profit elasticity. And I have a clear answer: 1% price improvement typically increases profit by 10%. Thus, the profit elasticity of price is 10, for costs it’s 6, and for sales volume it's 4. Of course, these are averages, typical for industrial products and also for many services. Therefore, we can summarize: Price is the most effective profit driver, followed by costs and sales volume in the third place. And there is another aspect: speed. Price changes can be implemented faster than changes in cost or sales volume.

Prof. Dr. Marcel Hülsbeck:
Well, on the other hand: When I talk to German family businesses, and lots of these “Hidden Champions” are family businesses, they take more pride in their social responsibility than in their profitability. Do you see a conflict between your call for profit and the social embeddedness of a company and its business ethics?

Prof. Dr. Dr. h. c. mult. Hermann Simon:
This conflict exists mostly or even only if a company is short-term oriented. Long-term profit orientation largely eliminates the conflict between shareholder and stakeholder value. Of course, a company must satisfy its employees, its customers, its suppliers, not only its shareholders. But never forget, “without profit no company will survive, because profit is the cost of survival”, as Peter Drucker said. And also remember: No company ever failed from making profit. That's actually the title of my German book and in a few months, we will have an American version.

Prof. Dr. Kai Thürbach:
A recent study quoted by McKinsey says only 7% of Fortune 500 CEOs believe that companies should mainly focus on making profits and not be distracted by social goals. What about that?

Prof. Dr. Dr. h. c. mult. Hermann Simon:
I doubt that these are the true opinions of CEOs. For me it sounds more like a tribute to the spirit of the times, than as a statement to be taken seriously. I quote here Nitin Nohria, the Dean of the Harvard Business School, who recently said to me, “The first ethical responsibility of a business leader is to make profit.” Yes, it's the first ethical responsibility of a business leader to make a profit! And my late friend Peter Drucker joined in when he said, “There is no conflict between profit and social responsibility. It is not a business that earns a profit that rips off society. It is a business that fails to do so.”

Prof. Dr. Kai Thürbach:
Very important topic. I also teach leadership and ethics. So, summing up: What should I tell my students about profit?

Prof. Dr. Dr. h. c. mult. Hermann Simon:
Tell them that freedom, ethics, and profit orientation are inextricably linked. They are the pillars of each free market economy. And to conclude, let me quote Wallace Brett Donham, who served as the second Dean of the Harvard Business School from 1919 to 1942, so for a very long time. He said, “We want to educate leaders who make a decent profit decently.”

Prof. Dr. Kai Thürbach:
Making a decent profit decently, that is the perfect statement to end this first part of the discussion. Hermann, thank you very much for these valuable insights. Now we will open up for questions from the audience.