The Hidden Champions and Digital Transformation

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The Hidden Champions and Digital Transformation

In Denmark, a considerable number of medium-sized companies can be characterised as ’Hidden Champions’. They s are called champions because they do well during economic upturns and downturns. They are particularly successful when it comes to economic performance – but also in the way they plan and handle production, innovation, and their employees. However, what do they do in relation to digitalisation? We explain this in the Danish report ‘De Skjulte Helte og Digitaliseringen af Virksomheden’ (’The Hidden Champions and Digitalisation of the Company’.

The hidden champions are part of Danish industry’s middle class and are often likened to the German ’Mittelstand’. They are highly successful export-oriented small and medium-sized companies that have been particularly good at adopting the latest technologies. Within this middle class, about a third of the companies are market leaders in their export markets, and at the same time, they are characterised by higher growth than other medium-sized manufacturers – called ’core companies’ in the report. 

Digitalisation takes place in all companies
The report is based on our first analysis of the hidden champions from 2013, The Hidden Champions - The Danish Industrial Motor of Growth, which points to successful roads to industrial production for medium-sized manufacturers in Denmark. This analysis showed how, among other things, strategy and business development determined the companies’ development and economic performance. Since 2013, digitalisation has been a central part of the development of any company. The question is whether this has changed the hidden champions’ business model in relation to digitalisation?

Consequently, the objective of the analysis was to examine how the hidden champions and the core companies have incorporated digital solutions in their production and interactions with suppliers and customers in the total value chain to explain their transformation towards Industry 4.0.

Internal focus on digitalisation in the companies
By looking at the extent of the digitalisation and its character the main result is that both the hidden champions and the core companies predominantly focus their digital transformation internally in the company and to a much lesser extent on digital transformation backwards or forward in the value chain.

On the one hand, there is a difference in the way that the hidden champions have much more focus on using digital systems in connection with the development of new products and production processes than the core companies. On the other hand, the core companies are more concerned about using digital data from their products to provide product service or after-sales services to their customers.

The strategic considerations of the companies are directed at continuous and increased investments in digital solutions.

The connection between digitalisation and economic performance
The analysis also examined the connection between digitalisation and economic performance. The hidden champions and the core companies universally agree that digitalisation leads to financial gains – although the size of the gains may vary. Most often the financial gains occur by using digital data from production, stores and warehouses, and markets for combined digital management of the company as well as using digital systems to develop new products and production processes.

In general, the hidden champions are more concerned with digital development and optimisation of production than the core companies. Apart from this the hidden champions and core companies are very alike. 

Challenges in connection with digitalisation
The companies point to three specific areas that create challenges in connection with digitation:

  • Insufficient level of digital competences and education
  • Considerable challenges in connection with extensive clearing and systemising work in relation to data and administrative and production-related processes
  • Challenges in connection with the development and design of digital systems and data structures.

Overall, the hidden champions still appear to be using a special business model, but the good economic times also appear to have made the core companies more successful.

The report is part of the so-called Performance Contract ‘Factory in a day’ financed by the Danish Agency for Institutions and Educational Grants. 

FACTS ABOUT THE PROJECT: ‘Factory in a day’ was a development project, a so-called Performance Contract (2016-2018), that focused on development of technological solutions that support mass customisation and quick and agile adaption of the production setup in relation to changes in market demand.
The starting point of ‘Factory in a day’ is the EU’s models for ’Factories of the Future’, the German ‘Industry 4.0’ and the US ‘Smart Manufacturing Leadership Coalition’. The purpose of the project was to find ways to translate and adapt the visions of Industry 4.0 to Danish conditions and demonstrate that digitalisation has an effect.

FACTS ABOUT THE REPORT: The analysis of the hidden champions and digitalisation is part of the development project ’Factory in a day’.
The purpose of the project was to examine how the hidden champions and middle-sized Danish manufacturers have incorporated digital solutions in their production and interaction with suppliers and customers in the total value chain to shed light on their transformation toward Industry 4.0. The purpose of the analysis was to:

  • Examine the extent and character of the digitalisation
  • Examine the companies’ strategic considerations, including uncovering working procedures and work processes, and identify challenges and barriers in connection with digitalisation.
  • To examine (test) the connection between digitalisation and economic performance

Consequently, an important part of the analysis was  to draw conclusions and learning to give inspiration to the development of technological service that can support the digitalisation of small and medium-sized manufacturers.