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Focus on commercial rather than contract

December 2, 2010

“Sustained success is largely a matter of focusing regularly on the right things and making a lot of uncelebrated little improvements every day.” This quote from Theodore Levitt appears in an article in this week’s Economist magazine.

The article examines the success of the German economy, which has been sustained even in today’s challenging markets. It suggests that a significant factor in Germany’s continued strength is the resilience of its mid-market firms, or Mittelstand. These firms tend to operate in very specifc and targetted niches. What is especially interesting is that they have focused on core expertise, often producing items of little apparent interest (castors for beds, shaving brushes, car license plates, snuff, cleaning products). They have not sought mass expansion through acquisitions or development into new market sectors – indeed, it is said that they deliberately avoid competition with global giants (‘Don’t dance where the elephants play’).  Some 90% operate in the business-to-business market and most have achieved sustained growth over many years.

So is globalization a threat to these companies? Apparently not; in fact , the reverse is true. On average, they now have sales and support operations in 24 countries and for many, Germany represents a relatively small share of their income. In other words, they have grasped the opportunities presented by global markets and flourished within them.

What are the secrets of success? There are four consistent characteristics, none revolutionary, but of great effect when combined:

  1. They constantly innovate to stay ahead of potential rivals.
  2. They are relentless about customer service.
  3. Their salespeople are passionate about their products.
  4. They are dogged in their determination to open up new markets.

Niche opportuinities can become very attractive in a global context. This appears to be a message especially understood in Germany and Scandinavia – the article reveals that 80% of the world’s medium-sized market leaders are based in Germany and Scandinavia. But to win in that global context requires a readiness to develop offerings that are differentiated. Typically, that means attention to overall quality. It is interesting that many of the Mittelstand are now driven by service revenue, rather than the previous product-based income. They also tend to think far more in terms of their commercial offering, rather than the terms of contract. They are not risk averse; but by understanding their product, researching their markets and ensuring high quality, they manage their risk through performance, not through the legal terms of a contract.

It is, in fact, a story of “focusing regularly on the right things and making a lot of uncelebrated little improvements every day”. Not a bad philosophy for how we run our operations. Perhaps, as we enter 2011, it might be worth encouraging such an approach within your organization – maybe even building a documented record of achievements to which all are contributing. For those in Legal, Procurement, Contract and Commercial Management, let’s make it a year in which we exhibit those winning characteristics – innovation, service quality and passion for our products!

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