Mittelstand Firms Research Articles

Technological innovations of hidden champions: Evidence from patent data

AbstractThe hidden champion concept has received much interest in practice. As market leaders in niche markets, hidden champions represent the success of the (German) Mittelstand. Innovation is a key element of their strategy and their focus and niche market strategy are associated with specific technological capabilities. However, thus far, little quantitative empirical evidence exists about the innovation output of hidden champions. Drawing on a capability perspective and using patent data, the present study analyzes differences between hidden champions and comparable non‐hidden champion firms in their technological innovation. Our results show that hidden champions have a significantly larger technological innovation output but do not have a higher efficiency in their innovation creation compared to other firms from the same industry, size, and age. Moreover, the innovations produced by hidden champions show higher levels of technological depth and indicate lower levels of technological breadth. The sources of technological knowledge of hidden champions seem to be more inward oriented. Finally, innovations of hidden champions have similar technological impact, novelty and quality compared to those of other firms. Overall, our study supports many of the anecdotal beliefs about the innovation of hidden champions contributing to a better understanding of what makes hidden champions different from other Mittelstand firms. Practical implications for hidden champions and Mittelstand firms are discussed.

Stakeholder Pressures and Decarbonization Strategies in Mittelstand Firms

This study examines the influence of stakeholder pressures and family ownership on strategic decarbonization choices of German Mittelstand firms. It distinguishes between symbolic strategies focusing on compensating CO2-emissions and substantive strategies directed toward reducing carbon emissions. The relative pressure exerted by internal and external stakeholders on these strategic choices is examined. Data from 443 manufacturing firms reveal that overall stakeholder pressures increase the pursuit of decarbonization strategies. Internal stakeholders pressures are associated with increased reliance on substantive decarbonization strategies both in family-owned and non-family-owned firms. Pressure from external stakeholders are associated with increased reliance on both substantive and symbolic decarbonization strategies only in non-family-owned firms. No effect of external pressures was found in family-owned firms. Implications for theory, management practice, and policy makers are discussed.

From Nurturing the Successor to Attracting New Founders: How Firm Platforms Organize a Market for Selling Businesses

Abstract Firm platforms organize a market for selling Mittelstand firms in Germany. In doing so they face a challenge: to instill a market frame in a segment of the German economy that is known for its family embedding. This study examines the strategies firm platforms use to reframe ownership transfer from a gift passed on within the family to a commodity traded on a market. Building on a content analysis of the seven largest and most innovative firm platforms in Germany, this study reveals how firm platforms argue from within a gift exchange frame and shift its parameters in social, object, and time dimensions. This study makes a more general point by arguing that digital platforms function as cultural trailblazers in marketization. This study contributes to succession, digital platform, and marketization debates.

Information systems quality in management accounting and management control effectiveness

PurposeSeveral conceptual works suggest that more digitalized information systems in management accounting have the potential to make this corporate function more effective. Against this backdrop, this study aims to investigate the impact of information systems quality in management accounting on the effectiveness of management control systems. Additionally, this study examines the moderating effect of process automation.Design/methodology/approachA cross-sectional survey of 125 German Mittelstand firms and hierarchical regression analyses were used for data collection and analysis.FindingsThe findings confirm the assumed positive effect of information systems quality in management accounting on management control effectiveness. They also confirm the assumed moderating effect of process automation. The authors find that the relationship between information systems quality in management accounting and management control effectiveness is more pronounced if the firm features a higher degree of process automation.Originality/valueSeveral earlier case studies and a few quantitative studies indicated the potentially positive effect of high-quality information systems in management accounting on management control effectiveness. To the best of the authors‘ knowledge, this study is among the first to deliver quantitative proof of this relationship in the context of German Mittelstand firms. Moreover, the authors add to this literature the moderating effect of process automation in the relationship between information systems quality in management accounting and management control effectiveness.

Automation, organizational ambidexterity and the stability of employee relations: new tensions arising between corporate entrepreneurship, innovation management and stakeholder management

While previous entrepreneurship research has only seldom drawn on organizational ambidexterity, the analysis of the important contemporary tensions among entrepreneurship, innovation management and strategic management issues may be facilitated by more closely analysing organizational ambidexterity in entrepreneurial settings. In this paper, we follow this thinking and more closely analyse an often applied form of corporate entrepreneurship: automation. Such automation is transferring work that was formerly conducted by humans to machines and may thus result in new tensions between corporate entrepreneurship, innovation management and the management of organizational stakeholders such as employees. The present paper investigates whether increased automation lowers the stability of firms’ relationships with their employees. In addition, we expect that this relationship is moderated by organizational ambidexterity, as employees may have perceived ambidexterity as a signal that their firm will not overly invest in exploitation only, but maintain a balance between exploitation and exploration. Drawing on stakeholder theory, previous insights into corporate entrepreneurship and a survey of German Mittelstand firms, our findings show that highly ambidextrous firms are indeed more vulnerable to automation, leading to lower employee relational stability. Our findings thus suggest that in highly ambidextrous firms, novel tensions around automation-related corporate entrepreneurship will be detrimental to the stability of the firm’s relations with one of its key stakeholder groups: employees.

Digitalization and entrepreneurial firms' resilience to pandemic crises: Evidence from COVID-19 and the German Mittelstand

While stressing the relevance of context, the organizational resilience literature has so far not extensively examined resilience in times of healthcare crises such as the ongoing COVID-19 pandemic. The Parasite Stress Theory of Values suggests that such pandemic crises have detrimental impacts on entrepreneurial activity due to social distancing and its effects on interaction, collaboration, and innovation. However, alternatives to personal contact now available thanks to digitalization, have not yet been examined. We expect entrepreneurial firms with more digitalized business models to show higher resilience to pandemic crises, especially those highly affected by globalization and more for non-family businesses than for family businesses. Based on a survey of German Mittelstand firms in the midst of the crisis induced by COVID-19, our findings broadly support our expectations and thus help qualify the Parasite Stress Theory of Values and contribute to a better understanding of organizational resilience in times of pandemic crises.

The impact of transformational leadership on supplier relational stability: The moderating role of automation and globalization

AbstractStable relationships with suppliers have been portrayed in the literature as having several economic and sustainability benefits. However, while a buyer firm's transformational leadership can be theorized to improve stable supplier relations, recent global business trends such as automation and globalization may endanger this stability. In this study, we therefore analyze the relationship between a buyer firm's transformational leadership and supplier relational stability and examine whether it is moderated by the buyer firm being affected by automation and globalization. We test our assumptions using data from a survey of German Mittelstand firms and confirm the moderating roles of automation and globalization. Our study therefore provides an updated and more nuanced understanding of how transformational leadership can affect supplier relational stability. Our findings also provide indications of how sustainable supplier relations can be achieved.

How can family-owned Mittelstand firms use their unique resources to master the digitalization age? The role of family historical, venture, and collaborative capital

Family-owned Mittelstand firms have often been characterized as Janus-faced, meaning they can have two contrasting sides when it comes to innovation. On one side, they are technology leaders—especially in niche markets. On the other side, they can be slow adopters, deeply rooted in tradition. Digitalization is one of the biggest innovation challenges to firms of all sizes and ownership types. Research and observations in business practice show that while some family-owned Mittelstand firms master digitalization despite limited resources and traditional industries, others lag dangerously behind. So, how can family-owned Mittelstand firms prepare for a digital future, and which familial idiosyncrasies might help them? Based on current observations and interview data, we propose a framework for how these firms can use their unique resources to tackle challenges related to digitalization. To be successful in a digital world, they must leverage their family historical capital, family collaborative capital, and family venture capital. We highlight why and how these capital types should be linked to fully leverage their potential.

Financial managers and organizational ambidexterity in the German Mittelstand: the moderating role of strategy involvement

Relying on the upper-echelons perspective, this paper investigates the effect of financial managers’ characteristics on the level of organizational ambidexterity reached in German Mittelstand firms. These firms are often depicted as highly innovative and able to compete on worldwide markets despite significant resource constraints. We theorize that skilled financial managers are very important in making the optimal use of Mittelstand firms’ scarce resources and, in particular, for balancing exploitation and exploration, thus reaching high levels of ambidexterity. Our findings from a survey of German Mittelstand firms broadly confirm our expectations and show that financial managers’ individual entrepreneurial behavior correlates positively with the firms’ level of organizational ambidexterity. In addition, we find that firms with financial managers having enjoyed business education are more likely to reach high levels of ambidexterity if these financial managers are heavily involved in strategy development. Overall, these results indicate that well-suited financial managers are an important human resource for Mittelstand firms. In addition, our findings are among the first to show that financial managers not only influence finance and accounting choices, but also innovation-related outcomes such as organizational ambidexterity.

Is the German Mittelstand more resistant to crises?

In a globalized world with high international factor mobility, crises often spread quickly over large parts of the world. Politicians carry a vital interest in keeping crises as small and short as possible. Against this background we study whether the type of company of owner-managed SMEs, in Germany well-known as Mittelstand firms, helps increasing an economy’s crisis resistance. We study this issue at the example of the Great Recession of the years 2008/2009. Using micro panel data from the ifo Business Survey, we study the comparative performance of Mittelstand enterprises and find supporting evidence for the hypothesis that Mittelstand firms performed more stable throughout the Great Recession than non-Mittelstand firms. We also show that owner-managed SMEs performed significantly better than SMEs and owner-managed large enterprises. Thus, it is rather the combination of firm size and owner-management that leads to more crisis resistance.

Keeping it personal while growing the business: the German Mittelstand approach

PurposeFor firms that depend on personalized management as a key element of their competitive advantage, maintaining personalized management in the face of sustained growth presents a particular challenge. The purpose of this paper is to examine how firms in the Germanic Mittelstand have endeavored to “scale up” personalization.Design/methodology/approachDifferent ways of scaling up personalization are explained with examples.FindingsThe concept of personalization need not just concern customers, in contrast to conventional treatments of personalization. Mittelstand firms illustrate the scaling up of personalization to target stakeholder groups other than just customers.Research limitations/implicationsIn recent years, personalization has come to refer to the customization of products to the preferences of individual customers. In contrast, a neglected but important topic is personalization of and within firms. Personalization refers to imbuing a firm with the personal qualities of individual personalities indissociable from management of the company.Practical implicationsMethods for scaling up personalization need to be truly scalable to be effective. Methods that only enable a one-time enlargement in the scope of the personalized business are liable to fail in the longer run.Originality/valueBy examining personalization as an important characteristic of small to medium-sized firms that they wish to maintain as they grow larger, this study highlights a little noticed dimension of Mittelstand growth strategies – and endeavors to bring personality back into research on “personalization.”

Digital transformation in family-owned Mittelstand firms: A dynamic capabilities perspective

ABSTRACT Digital technologies are increasingly affecting industries worldwide in many ways. Although the adoption of digital technologies by firms has been studied extensively from a technical point of view, previous research lacks insight into the managerial aspects of digital transformation, which, given the transformation’s interdisciplinarity, might have substantial implications for information systems research. In particular, it is unclear how small and medium-sized family-controlled firms (known as family-owned Mittelstand firms) with resource constraints handle digital transformation. This paper addresses this gap by drawing on rich data from 127 semi-structured interviews in a multiple case study of 15 family-owned Mittelstand firms from Germany, Austria, and Switzerland. All of these firms are active in the manufacturing industry but vary in terms of their digital transformation progress. Based on within-case and cross-case pattern analysis, we propose that the digital transformation of Mittelstand firms is a process consisting of three stages, namely, process digitalisation, product and service digitalisation, and business model digitalisation, and we reveal triggers for each stage and the dynamic capabilities needed throughout this process. Moreover, we identify three combinations of enablers and barriers that support or hinder the development of dynamic capabilities and thus accelerate or impede the advancement of the digital transformation process.

Business model innovation through dynamic capabilities in small and medium enterprises – Evidence from the German Mittelstand

German Mittelstand firms are part of an institutional setting characterized by tightly knit relationships with internal and external stakeholders, which makes it more difficult for these firms to engage in business model innovation. The topic of how these firms have remained competitive over time has attracted growing interest from researchers. Therefore, this study investigates how dynamic capabilities can promote business model innovation for a sample of SMEs from the German Mittelstand (n = 285) and tests whether the different characteristics of these firms moderate this relationship. We find that specific dynamic capabilities are needed for the various aspects of business model innovation. Medium-sized firms profit from higher engagement with outside stakeholders, while balancing efficiency and flexibility, and small firms are advised to concentrate on revising their resource configurations. Moreover, we identify whether the innovativeness of Mittelstand firms is rooted in their individual characteristics or is a function of this institutional setting.

Responding to Digital Transformation by External Corporate Venturing: An Enterprising Family Identity and Communication Patterns Perspective

AbstractDigital transformation increasingly requires activities located outside firm boundaries, for example via alliances with start‐up companies. Despite this, German Mittelstand firms, primarily owned and managed by enterprising families and seen as role models of innovation, appear reluctant to place strategic emphasis on venturing outside the firm’s boundaries when it comes to digital transformation. Drawing on the concepts of identity and communication patterns, we theorize on the mechanisms behind this behaviour. Applying structural equation modelling to a sample of 254 members of the next generation in enterprising families from Germany, we find that family communication patterns impact the strategic priority for or against external corporate venturing via identity‐related considerations.

Is the German Mittelstand More Resistant to Crises? Empirical Evidence from the Great Recession

Germany’s comparatively good economic performance throughout the Great Recession of the years 2008/2009 is often attributed to the business model of the German Mittelstand firm. Somewhat surprisingly, this claim has never been backed by empirical evidence. In this paper we use micro panel data from the ifo Business Survey to study the comparative performance of Mittelstand enterprises, defined as owner-managed SMEs. We present supporting evidence for the hypothesis that Mittelstand firms performed more stable throughout the Great Recession than non-Mittelstand firms. We also show that owner-managed SMEs performed significantly better than SMEs and owner-managed large enterprises. Thus, it is rather the combination of firm-size and owner-management that leads to more crisis resistance.

Fuelling Germany’s Mittelstand with complementary human capital: the case of the Cooperative State University Baden-Württemberg

ABSTRACT While research on universities is well elaborated within the field of higher education, less effort has been made to study other institutions of tertiary education. Complementary to the need of hybrid (specific and general) human capital for German Mittelstand firms, the system of tertiary dual education in Germany has succeeded in hitting two birds with one stone. Though Germany has often been criticized for its low rate of university graduates, the critique has largely failed to acknowledge the differentiation of Germany's dual tertiary education model. By highlighting the case of Baden-Württemberg and its Cooperative State University system, we illustrate the diversity of Germany’s landscape of higher education institutions. It appears that the availability of a large pool of tertiary dual educated students contributes in particular to the advantage of Mittelstand firms in Baden-Württemberg.

Family Firms versus Private Equity: A struggle of business models? The example of the German printing industry

With the growth of the Private Equity (PE) industry an increasing number of firms remain for substantial periods in the ownership of PE companies. Today, PE owned companies are important and permanent competitors for many traditional Family Firms. The financial and commercial strategies of both types of firms differ substantially. The paper analyses the differences in structure and strategy of PE-owned and Family-owned companies with a particular focus on the functioning of German Family owned Mittelstand firms. Using the German Printing Industry as a case study we try to assess 1) why PE backed firms are particularly dominant in shrinking industries, 2) in how far competition from PE owned companies reduces the viability of the stakeholder focused strategies that are the core of many family firms’ success and 3) whether more widespread PE ownership will erode the institutional environment that has enabled the flourishing of the German Mittelstand.

Strategic discipline: inconspicuous lessons from Germanic Mittelstand firms

PurposeThe purpose of this paper is to develop the hitherto unexplored concept of strategic discipline.Design/methodology/approachThree fairly iconic firms of the Germanic Mittelstand (ALDI, Stihl and Hipp) are examined. The meaning and relevance of strategic discipline is derived.FindingsIntuitively, strategic discipline may seem like the antipode to the much-discussed concept of pivoting. In fact, strategic discipline is shown to be the natural corollary of strategic pivoting as a successive phase in a company’s development.Research limitations/implicationsIn fast-moving or fast-changing environments, strategic discipline may be inappropriate. Furthermore, the exercise of strategic discipline can restrain growth. Once firms have attained a certain size and saturation of the market, the desire for further growth may entail a willingness to loosen the hold of strategic discipline.Practical implicationsStrategic discipline can enable firms to avoid falling into common strategic pitfalls. From this paper, the authors distill three basic dimensions of strategic discipline: cultivating simplicity, resisting short-term temptations and focusing on implementability.Originality/valueThe success of firms depends as much on the strategic choices they make as upon the strategic choices they decide not to make. Most prior research has focused on the visible strategy choices companies have made a lot more than on the practically invisible history of strategic choices that firms have not made. This contribution does the opposite, filling an evident gap.

Communicating the family firm brand: Antecedents and performance effects

Abstract: Building a family business brand allows family firms to leverage a valuable idiosyncratic resource: their family nature (we are a family business). But, this is only possible if the owning family decides to reveal a family firm image (we want others to know that we are a family business). Family firms largely vary in that regard: While some family firms do strongly emphasize a family firm image, others do so at a lower level or not at all. Accordingly, this study applies mixed methods exploring and testing antecedents of the degree of revealing the family nature of the business in the context of German Mittelstand firms. In study 1, we develop hypotheses for the antecedents of that important managerial decision based on the family business literature as well as interviews with family firm executives. In study 2, we collect data (N = 196) from family firm CEOs to test our hypotheses. Results show that out of eleven antecedents, seven are significantly related to the degree of communicating a family firm image. For example, the tradition orientation of the enterprising family or the number of major business partners being family firms is positively linked to the degree of revealing the family nature, while innovation intensity of the industry or the degree of internationalization of the family firm show a negative relationship with communicating a stronger family firm image. A supplementary exploration of the link between gradual revelation of the family nature and performance on brand and firm level further serves as an inspiration for future research.

The Familiness Effect on CSR of Privatley Owned SMEs: Empirical Evidence from German Mittelstand Firms

Recent research has shown that Corporate Social Responsibility (CSR) of family business’s behavior should be analyzed in a differentiated way compared to earlier studies, by using a multidimensional framework for CSR. The few studies using multidimensional measures have often been applied to data samples of large, publicly listed family businesses (e.g. Block and Wagner 2014), leaving research of privately owned family SMEs largely unobserved. Furthermore, as family ownership or management has been the main defining trait of family businesses, other important characteristics of such businesses have often been neglected. We have tried to fill this gap by conducting research into how family influence in general affects the CSR of privately owned SMEs. Therefore, in our research we used the Family Influence Familiness Scale (FIFS) of Frank et al. (2017), which is a concept based on systems theory, and measures the interrelations between the subsystems: family and firm. We examined CSR towards employees and customers, as well as towards social and non-social stakeholders and explained SME specifics due to the concept of social capital (Putnam 1995). To test our hypotheses, we used data from an online survey sample conducted between November 2017 and February 2018, consisting of N = 213 privately owned SMEs, which represent the largest segment of the German Mittelstand. Our study results show positive effects of familiness on all three CSR dimensions. These results are contrary to previous findings using data samples of large, publicly listed family businesses, and moreover, show that familiness has a bigger influence on the CSR of SMEs than initially expected. This implies, that future research regarding CSR should focus on the different incentives of privately owned family SMEs and publicly listed large family firms. Also managers and policy makers should bear in mind that there are differences between large, publicly listed and smaller-sized, privately owned family businesses.