Subsidiarity as secret of success: “Hidden Champion” SMEs and subsidiarity as winning HRM configuration in interdisciplinary case studies

Fred Mear,Richard A Werner

doi:10.1108/er-03-2020-0141

Abstract

PurposeThis paper contributes to the theory of the relationship between human resource management (HRM) and innovation at small- to medium-sized enterprises (SMEs) by conducting a conceptual analysis of the question why Germany boasts by far the highest number of “Hidden Champion” SMEs. This is done by case studies from the army and public financial management of aid disbursal in developing countries. Implications for HRM at SMEs are discussed.Design/methodology/approachConceptual analysis using case studies.FindingsContributing towards filling the gap concerning theoretical underpinnings of the link between HRM and innovation, we suggest that interdisciplinary work from relevant organisational case studies indicates that the concept of institutional design to provide motivational incentives may be relevant, especially concerning high performance systems with bundles of HRM practices. Specifically, the fundamental principle of subsidiarity is found to be important.Research limitations/implicationsThe research is broadly applicable to organisations of all kinds, as the diverse case studies indicate. We point towards tentative implications for the firms that account for the majority of the work force, namely SMEs, and among them the most successful ones, the so-called “Hidden Champions”.Practical implicationsHR managers can improve motivation, performance and innovation by decentralising decision-making as far as possible, while ensuring the overall organisational goals are well understood and shared, and resources are dedicated to train and educate staff. Additionally, the conception of rank-order competitions complements the institutional design.Social implicationsGreater productivity and material performance as well as greater job satisfaction via larger autonomy and decision-making power on the local level can be achieved by the application of subsidiarity as key HRM configuration. This can be employed at SMEs, as discussed, but also other organisations. Further, the principle of subsidiarity and the greater emphasis on staff training and education may help reduce inequality.Originality/valueOur paper contributes towards filling the gap in the literature on the link between HRM and innovation, by identifying the role of subsidiarity. We introduce an interdisciplinary perspective, with contributions from economics and psychology, among others. We also contribute to the history of HRM.

Highlights

Interest in innovation and the factors that enable it has increased significantly in recent decades (e.g. Anderson et al, 2004)
This paper focuses on Human resource management (HRM) in highly successful, globally active small- to medium-sized enterprises (SMEs), known as “Hidden Champions”
To dispel the idea that the German phenomenon of Hidden Champions may be recent or ephemeral, we provided evidence that Germany did not achieve such an outcome over a short time period, such as the post-war era: When Germany was vanquished in 1945, the victors spent considerable resources on locating and obtaining its technologies, innovations, blueprints, prototypes and thousands of engineers and staff, since German technology was many years ahead of other countries

Summary

Introduction

Interest in innovation and the factors that enable it has increased significantly in recent decades (e.g. Anderson et al, 2004). It can immediately be seen that the German contingent is disproportionately large, significantly ahead of the much larger countries and competitors United States, China or Japan This supports the thesis that German export prowess is directly linked to the highly successful and innovative SMEs known as Hidden Champions. We take a broader view and consider the contrasting institutional, theoretical and methodological approaches pursued in the UK and Germany over the past two hundred years This indicates particular biases in both countries and sets the stage for our central argument, which is set out in the fourth section: We single out one particular design and incentive feature that we believe is central to explaining the German success story – the principle of subsidiarity –bundled as HRM configuration in combination with other principles, namely greater investment in training and staff development, as well as rank order/peer group competition. We point to relevant policy implications to foster innovative SMEs, especially in countries where there has been a problem with productivity, such as the UK

Robustness check

Findings

Discussion and conclusion