How Germany’s top companies thrive in rough times

How Germany’s Top Companies Thrive in Rough Times

June 2013

Maintaining high performance in today’s volatile markets isn’t easy—even for leading players in one of the world’s most powerful economies.

When Accenture recently identified the top performers among Germany’s 500 biggest companies—the third such study in as many years (see Sidebar 1)—just 12 of the 25 leading companies had held on to their coveted status for three consecutive years. How did these growth champions manage to ride out the global recession so successfully?

Having previously looked at what characterizes top German companies, we knew that the best performers are exceptionally fast movers. They enter new markets more swiftly than their competitors, respond faster to business trends and rarely miss an opportunity to innovate—often by collaborating with customers and even competitors.

When we further analyzed in detail how the winning companies have managed to maintain their dominance—outstripping their peers in both growth and profitability—that agility turned out to be critical.

Continuous transformation
Indeed, Germany’s growth champions are masters of continuous transformation. At any given moment, they are ready to change course, responding to shifts in the economic outlook, market developments and their own fortunes with extraordinary speed.

By managing multiple product and technology lifecycles at the same time, they compensate for weaknesses in one area by focusing on another—with innovative products tailored for new, as well as traditional, markets.

Number of companies among Germany's 500 largest that were rated as top performers for three consecutive years Witness, for example, how the Wolfsburg-based Volkswagen Group has reduced its dependency on the lifecycle of single models by steadily expanding its product range across all eight of its global brands—VW, Audi, Bentley, Bugatti, Porsche, Lamborghini, SEAT and ŠKODA—and managing them in parallel, with different launch times in different markets. This mastery of several so-called S-curves simultaneously enables VW to serve new customer groups faster, and has helped sustain its remarkable compound annual revenue growth—9.2 percent on an average net profit margin of 4.0 percent between 2005 and 2011, compared with 6.5 percent and 2.1 percent, respectively, for its industry peers.1

Consider, too, how Voith, a Heidenheim-based industrial services and mechanical engineering company, has maintained year-on-year revenue increases thanks to a diversified portfolio approach that allows it to manage differing business cycles in its five core markets. The company compensates for declines in some markets by seizing growth opportunities in others, especially in such fast-growing emerging markets as China, India and Brazil.

Plainly, flexibility of this order hinges on exceptionally agile and versatile corporate structures. We found that to help create and sustain those structures, the growth champions balance three key enablers.


1. Financial firepower

The growth champions are significantly more profitable than other big German companies. And they reinvest more of those profits than their peers, especially in R&D—a practice that helps explain why they are also such leading innovators. Between 2007 and 2011, for example, the growth champions invested an average of 4.0 percent of their revenues in R&D, versus an average of 3.7 percent for their peers.

In addition, they’ve managed to boost their profitability, even in years of crisis. As a group, their operating margin rose by 2 percent between 2009 and 2011, for example, compared with an increase of just 0.6 percent for their peers (see chart ). Meanwhile, their capital retention ratio rose by 1 percent between 2007 and 2011, while that of their peers fell by 2 percent (see chart ).

Click to Enlarge Click to Enlarge


That, of course, helps explain how the top players managed not only to invest in the substance of their business—increasing their assets by 52 percent between 2007 and 2011, versus only 6 percent for their peers—but also to actually extend their lead in terms of profitability. Their net profit margin declined by just 13 percent in this critical period, compared with fully twice that proportion for their peers.

Click to Enlarge Low levels of debt and high levels of liquidity are equally significant (see chart ). On average, the growth champions had an equity-to-debt ratio of 1:1.7 while their peers’ ratio averaged 1:2.9. (The difference in liquidity was especially clear at the peak of the financial crisis.)


Thanks, for example, to a consistent strategy of using free cash flow for continuous debt reduction and a highly successful working capital management program, HeidelbergCement has not only weathered the storms of the recent past but is also securely positioned going forward. The company’s short-term liquidity is sufficient to cover loan repayments for the next two years. And with only 10 percent of its EBITDA in euros, it is well cushioned from diminishing demand in the Eurozone.

Leveraging all that financial firepower, the growth champions have been swift to seize opportunities, whenever they arise. Case in point: the Munich-based Linde Group, which in 2006 paid some €12 billion for the United Kingdom’s BOC Group and became the world’s largest supplier of gases used in industrial processes, with a market share of about 20 percent (see Sidebar 2).


2. Near-perfect information

The growth champions analyze the risks and opportunities of entering new markets much more consistently and systematically than their peers. And they are able to do so because they have access to better business intelligence.

Because of early adoption of state-of-the-art IT—and especially business intelligence and analytics software—top players can measure the most relevant performance indicators online, in real time. Furthermore, their employees have ready access to granular information about customers and suppliers because they have invested in technologies that facilitate collaboration and the swift exchange of information.

For the growth champions, indeed, IT is a strategic asset. And they invest in it continuously. Consider, for example, how one German healthcare company has invested in centralized databases, open source business intelligence solutions and other leading IT capabilities to improve the quality, security and accessibility of its data.


3. Values-driven leadership

Germany’s top players manage their companies for the long term. A couple of quarters of poor financial performance are not typically grounds for dismissing the CEO. Our research shows that the chief executives of growth champions enjoyed an average tenure of 7.6 years over the last two business cycles, compared with 6.7 years for their peers. And when we looked at the longest CEO tenures, the gap widened significantly—to an average of 18.5 years for the growth champions, versus 10.5 years for the others.

Top German companies also benefit from a particularly close collaboration with their workforce. Indeed, they seem to have been especially adept at leveraging the benefits of a long tradition of corporate governance that seeks to minimize industrial strife by incorporating employees in decision making through board representation and so-called works councils.


Management’s strong emphasis on shared values—the growth champions’ business reports and Internet homepages resonate with such collaborative notions as “integrity” and “motivation and performance”—has clearly strengthened their employees’ sense of belonging to the company and their commitment to its long-term success.

Relatively high levels of staff satisfaction have also served the growth champions well in volatile markets, allowing them to implement workforce adjustments more easily than their peers.

The Semiconductor Manufacturing Technology (SMT) division of the Oberkochen-based optical systems maker Carl Zeiss, for example, has been able to introduce flexible working arrangements throughout the group with the cooperation of labor representatives. SMT’s employees, like those of other growth champions, have been willing to be flexible around such issues as pay and conditions because they know that their long-term job prospects are relatively secure. Even in 2009, at the trough of the recession, leading companies had an employee turnover of just 4.1 percent of their employees, while the rest of the peer group had a turnover of 7.8 percent.


Germany’s top companies have recognized that managing with an emphasis on values helps build a strong, cohesive culture—a culture that creates continuity and enables the agility that so dramatically distinguishes them from their peers. Coupled with financial firepower and access to near-perfect information, that continuity has given them the strength to succeed in unprecedentedly volatile market conditions—and promises to sustain them into an uncertain future.

1. Three key aspects of business, so-called hidden S-curves—market relevance, distinctiveness of capabilities and talent development—mature and start to decline much faster than the overall financial performance of a company. High performers actively manage against these curves. (Back to story.)


For further reading
"Strategy at the edge," Outlook 2011, No. 2

"Jumping the S-Curve: How to sustain long-term performance," Outlook 2011,No. 1

"Mind the gap: Insights from Accenture’s third global IT performance research study," Accenture 2010

"Growth Studies Top 500/100 — Sustaining high performance through continuous transformation," Accenture 2013


Sidebar 1 | About the research
In collaboration with Die Welt, one of Germany’s leading newspapers, Accenture has been analyzing the country’s 500 largest companies—those posting annual sales of at least €1 billion—since 2010. Our goal: to identify those that have managed to outperform the average growth of their peers, both within their industry and overall.

The first two such studies sought to identify the distinguishing characteristics of these growth champions and pinpoint where they are focusing their energies for future growth. The third, which is the basis of this article, set out to discover just how such companies secure and maintain their dominance.

We wanted our analysis to include cycles of both economic recession and recovery—to ensure that we were identifying the very best performers, those that prosper despite market volatility. And we were especially interested to learn the secrets of success for the 12 companies among this year’s Top 25 that consistently have managed to maintain their place at the top—through all three periods, which included the Great Recession.

The base year for all three studies was 2005. But because we were particularly interested in capturing the effects of the most recent cycle in this year’s study, we focused on the period from 2007 to 2011, adjusting in rare instances to 2008.

We measured the peer group’s performance across dozens of variables, employing a process of elimination to isolate the most significant ones. These ranged from financial measures such as ROS, ROE and foreign direct investment to how successfully new technologies are implemented, for which we leveraged the criteria employed in the Accenture High Performance IT Study. We also examined less tangible considerations like corporate values and strategic objectives and their impact on how the company is managed. (Back to story)


Sidebar 2 | The Linde Group: Continuous transformation for competitive advantage
In 2006, when Linde paid €12 billion—more than six times that year’s operating profit—for UK-based BOC Group, some wondered if the German industrial gas and engineering company had overreached. They need not have worried.

By complementing Linde’s strengths in Europe with BOC’s extensive presence in the fast-growing Asian market for chemically synthesized gases used in steelmaking, oil refining, medical and other applications, the deal created the world’s largest supplier of such products—a global giant with annual sales of almost €12 billion.

The merger, moreover, promised to deliver significant financial advantages. Because the combined company could also cut selling and administrative expenses, as well as command better prices from its suppliers, it expected to be generating annual savings of €250 million within three years.

By then, of course, global markets would be in the grip of a severe downturn—the worst since the 1930s. Thanks, however, to rigorous cost cutting in the years running up to the crisis, Linde boasted the financial firepower to maintain and even boost its profitability.

Indeed, the company’s operating profit rose 22.6 percent between 2009 and 2010. Sales, too, were up, by 14.8 percent. And since 2009, Linde’s stock price has soared by more than 160 percent—fueled, in part, by an acquisition strategy that has continued to deliver opportunities for profitable growth.

Case in point: the 2012 purchase of US-based Lincare Holdings, a leading global provider of respiratory therapy equipment for homes (and which shares common roots with Linde, having started out as the German company’s Americas business more than 100 years ago). The acquisition could double Linde’s sales in North America—prompting CEO Wolfgang Reitzle to predict that the company will achieve its profit goal of €4 billion (versus €3.2 billion in 2011) by 2013, a year earlier than originally projected. (Back to story)


About the authors
Michael Brueckner leads Accenture Management Consulting in Austria, Switzerland and Germany. He is based in Frankfurt.

Peter Pfannes is a Berlin-based senior manager with Accenture’s Health & Public Service industry group.

Frank Riemensperger, Accenture’s country managing director for Germany, is the company’s geographic lead for Austria, Switzerland and Germany. He is based in Frankfurt.

The authors would like to thank Matthias Wahrendorff, a Munich-based senior manager at Accenture Research, for his contribution to the study.


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This Article is Tagged: Business and the Economy.
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About the authors

Michael Brueckner leads Accenture Management Consulting in Austria, Switzerland and Germany. He is based in Frankfurt.

Peter Pfannes is a Berlin-based senior manager with Accenture’s Health & Public Service industry group.

Frank Riemensperger, Accenture’s country managing director for Germany, is the company’s geographic lead for Austria, Switzerland and Germany. He is based in Frankfurt.

How Germany’s top companies thrive in rough times | Accenture Outlook 
The most successful German companies continuously transform themselves to increase and maintain overall competitiveness. And they owe this outstanding agility to a balanced combination of financial strength, IT-enabled insight and values-driven leadership.
German economy, Germany Top 500
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