Regina M.

Neubauer

Business Models in the Area of Logistics

GABLER RESEARCH

Schriftenreihe der
HHL – Leipzig Graduate School of Management

In dieser Schriftenreihe werden aktuelle Forschungsergebnisse aus dem Bereich

Unternehmensführung präsentiert. Die einzelnen Beiträge spiegeln die wissenschaft-
liche Ausrichtung der HHL in Forschung und Lehre wider. Sie zeichnen sich vor allem
durch eine ganzheitliche, integrative Perspektive aus und sind durch den Anspruch
geprägt, Theorie und Praxis zu verbinden sowie in besonderem Maße internationale
Aspekte einzubeziehen.
Regina M. Neubauer
Business Models
in the Area of Logistics
In Search of Hidden Champions,
their Business Principles and
Common Industry Misperceptions

With a foreword by Professor Ludo Van der Heyden, PhD

RESEARCH
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detailed bibliographic data are available in the Internet at http://dnb.d-nb.de.

Dissertation HHL – Leipzig Graduate School of Management, 2010

1st Edition 2011

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Foreword V

Foreword

It has been more than ten years now that the concept of ‘4PL’ (Fourth Party Logistics)
in both theory and practice was introduced and proposed as the business model and
promise in logistics. By 4PL one thinks of one external logistics provider being
responsible for the total supply chain activities of a business customer. This is also
referred to as the ‘Total Integration Promise’. Discussions between supporters and
opponents have been numerous and have remained inconclusive.

This is where Dr. Regina M. Neubauer makes her contribution: ‘4PL’ or ‘Total
Integration’ has appeal and has been much discussed, but not to the extent and depth
that she has studied so in her dissertation. She holds that insufficient investigation has
led to the lack of conclusion of this debate. Hers is the first grounded research on the
topic, and the results are most interesting.

A second contribution that Dr. Regina M. Neubauer makes is the search in this sector
for so-called “Hidden Champions”, a term made famous more than two decades ago by
Hermann Simon. Her dissertation sheds light on how relatively smaller operators can be
Hidden Champions, and survive the competition with the giants that dominate the
industry.

In terms of data, Dr. Regina M. Neubauer has examined European logistics service
providers, including both small- and medium-sized enterprises, as well as large size
enterprises (LSEs), of which there is a much smaller number. The latter do not form the
core of her study, as their offer is more of a commodity type and they certainly do not
fall in the ‘Hidden Champion’ category. Based on this research, Dr. Regina M.
Neubauer is able to formulate and substantiate an original hypothesis as to how Total
Integration might work.

Total Integration, if it is to work, would require a ‘new breed’ of actors that would not
themselves run operations which the LSEs aim for. These new breeds would thus avoid
the conflict of interest that LSEs face by trying to both deliver and oversee a customer’s
logistical operations (a conflict that can only lead to sub-optimal logistics provision for
the customer). This conclusion thus hypothesizes the emergence of a ‘new breed’ of
VI Foreword

logistics actors exclusively focused on orchestrating the various actors engaged in a

company’s logistical network (both internal and external), and also designing the
optimal system for their corporate customers.

The dissertation also makes a contribution in identifying the business principles that
characterize the Hidden Champions: i) niche sovereignty by a practice of gradual
conquest and establishment of the niche; ii) choice for independence (and limited
network ties) in order to be able to ‘defend and attack’ niche leadership in the face of
customer opportunities and threats from other players, and consequently continuous
improvement and innovation; iii) focus on longer-term sustainability in relations so as to
gain and maintain the customers’ trust, that then becomes one of the key competitive
assets of Hidden Champions and also the basis for superior service delivery and
performance. Finally, it is clear that Hidden Champions are better at exploring
collaboration with their customers which involves role complementarities; LSEs on the
contrary try to minimize collaboration to their advantage (generating trust and risk
problems for the customer).

The remaining question at the end of the dissertation then is whether some Hidden
Champions or even non-Hidden Champions might transform themselves into this new
breed of logistics ‘orchestrators’ that would resemble a kind of flexible ‘my-SAP’
player who has the total view on a company’s logistical network. This question provides
useful input for further research.

Prof. Ludo Van der Heyden, INSEAD

Acknowledgements VII

Acknowledgements

This dissertation was inspired through practical experience in the area of logistics. I was
very motivated to contribute something of value to such a lively industry, which has
been subject to long-lasting changes during the past decade, while growing in
importance for every economy. During this period, the industry was also characterized
by strong mergers and acquisition activities which focused public interest on large size
enterprises, while small- and medium-sized companies were neglected. As the latter
companies can be considered the backbone of an economy, I focus my attention onto
this class.

My first thanks go to my thesis advisor, Professor Ludo Van der Heyden of INSEAD. I
thank him not only for the many inspiring discussions in Fontainebleau, Brussels and
Leipzig, and his scientific support for the thesis document in hand, but also for his
persistence and encouragement on my ‘journey to the final destination’. Professor Van
der Heyden’s comprehensive knowledge and broad practical experience, and, last but
not least, his charisma have been of great value. I would also like to thank Professor
Stefan Spinler of WHU for his willingness to act as a second reader.

Thanks are due to all the many practitioners, who supplied deep insights into their
companies and sacrified many hours in company visits, interviews and the supply of
information. I particularly value their readiness to disclose company data as small- and
medium-sized logistics companies are usually rather restrained in this regard.

I am especially indebted to my parents, who supported me throughout my ‘journey’. I

dedicate this dissertation to them. Finally, I thank Wilhelm Claßen for his affectionate
care and understanding.

Regina M. Neubauer
Content IX

Content

List of illustrations ..................................................................................................... XIII

List of tables ............................................................................................................. XVII
List of abbreviations .................................................................................................. XXI
1 Introduction ................................................................................................................ 1
1.1 Motivation and objectives .................................................................................... 4
1.2 Object of consideration: Hidden Champions ....................................................... 7
1.2.1 Origin of the term and criteria ................................................................. 7
1.2.2 Size and profitability ............................................................................. 11
1.3 Outline of the study ............................................................................................ 14
2 The area of logistics.................................................................................................. 21
2.1 Industry fundamentals ........................................................................................ 21
2.1.1 Origin of the term .................................................................................. 22
2.1.2 Definitions ............................................................................................. 23
2.1.3 Similarities and differences with supply chain management ................ 28
2.2 Recent developments .......................................................................................... 34
2.2.1 From value chain to value network ....................................................... 34
2.2.2 Environmental conditions ..................................................................... 41
2.2.2.1 Micro environmental factors ................................................... 41
2.2.2.2 Macro environmental factors .................................................. 46
2.2.3 Trends and current developments ......................................................... 50
2.3 Industry demography .......................................................................................... 52
2.3.1 Market volume ...................................................................................... 52
2.3.2 Market segments ................................................................................... 59
2.3.3 Large actors in the industry ................................................................... 62
2.3.4 SMEs and Hidden Champions in the area of logistics .......................... 64
3 Business models as an approach for analyzing companies .................................. 68
3.1 About business analysis ...................................................................................... 68
3.1.1 Environmental dynamics as a starting point ......................................... 68
3.1.2 Approaches for analyzing companies ................................................... 70
3.2 Business models: an approach for corporate analysis in a dynamic
environment ........................................................................................................ 75
3.2.1 Fundamentals of business models ......................................................... 75
3.2.1.1 Evolution of the terminology .................................................. 75
3.2.1.2 Purpose of business modeling ................................................. 78
3.2.2 Prevailing approaches ........................................................................... 79
3.2.3 Definition .............................................................................................. 85
3.2.3.1 Requirements of the framework .............................................. 85
3.2.3.2 Research framework................................................................ 86
3.2.4 Limits of business models ..................................................................... 89
4 Issues of empirical research and analysis .............................................................. 97
4.1 Methodology....................................................................................................... 97
4.1.1 Research challenges .............................................................................. 97
4.1.2 Research approach................................................................................. 99
4.1.2.1 Classification ........................................................................... 99
4.1.2.2 Representative research......................................................... 100
4.1.2.3 Explorative research .............................................................. 101
X Content

4.1.2.4 Experimental research ........................................................... 102

4.1.3 Research process .................................................................................. 103
4.1.3.1 Process....... ............................................................................ 103
4.1.3.2 Theory………........................................................................ 105
4.1.3.3 Reality………….................................................................... 105
4.1.3.4 Quality….…… ...................................................................... 106
4.2 Business model architectures ............................................................................ 107
4.2.1 Industry developments and business model architectures ................... 107
4.2.2 Derivation of business model architectures and comparisons ............. 108
4.2.2.1 Descriptions and characteristics ............................................ 108
4.2.2.1.1 Traditional architecture......................................... 108
4.2.2.1.2 Outsourcing architecture....................................... 109
4.2.2.1.3 Network architecture ............................................ 110
4.2.2.1.4 Integration architecture ......................................... 111
4.2.2.2 Research relevance ................................................................ 113
4.3 Survey of LSPs ................................................................................................. 113
4.3.1 Typology .............................................................................................. 113
4.3.2 LSPs relevant for research ................................................................... 119
4.3.3 Selection of LSPs for empirical research............................................. 120
4.4 Role of customers in empirical research ........................................................... 122
4.5 Questionnaire design ......................................................................................... 123
5 Formulation of hypotheses..................................................................................... 126
5.1 Formulation of micro hypotheses on business model components .................. 126
5.1.1 Micro hypotheses on Ambitions & Aims ............................................ 126
5.1.1.1 Single Source Hypothesis ...................................................... 126
5.1.1.2 Segmentation and Transaction Hypotheses ........................... 129
5.1.1.3 Commodity Trap Hypothesis ................................................ 131
5.1.2 Micro hypotheses on Implementation ................................................. 132
5.1.2.1 Cherry Picking Hypothesis .................................................... 132
5.1.2.2 Global Standard Hypothesis .................................................. 134
5.1.2.3 Virtual Logistics Hypothesis ................................................. 135
5.1.2.4 Complexity Hypothesis ......................................................... 137
5.1.2.5 Information Processing Hypothesis ....................................... 139
5.1.2.6 Complementarity and Reliability Hypothesis........................ 140
5.1.2.7 Rules Hypothesis ................................................................... 141
5.1.3 Micro hypotheses on Financials .......................................................... 142
5.1.3.1 Significant Turnover Hypothesis ........................................... 142
5.1.3.2 Risk Aversion Hypothesis ..................................................... 143
5.2 Formulation of macro hypotheses ..................................................................... 145
5.2.1 Customer Centricity Hypothesis: Egoism Syndrome as hurdle for
Total Integration .................................................................................. 145
5.2.2 Partnership Hypothesis: Collaborative entity as solution for Total
Integration ............................................................................................ 148
5.2.3 Size Compatibility Hypothesis: Minor company size as limitation
for Total Integration ............................................................................. 149
5.2.3.1 Correlation between size of LSP and size of customer ......... 151
5.2.3.2 Critical company size for Total Integration ........................... 152
6 Empirical results ..................................................................................................... 154
6.1 Evaluation of micro hypotheses and common industry misperceptions ........... 156
6.1.1 Misperceptions on Ambitions & Aims ................................................ 156
Content XI

6.1.1.1 The striving for single source misperception ........................ 156

6.1.1.2 The sector specificity and selection misperception ............... 164
6.1.1.3 The damnation to low margin business misperception ......... 167
6.1.2 Misperceptions on Implementation ..................................................... 173
6.1.2.1 The competition misperception ............................................. 173
6.1.2.2 The global standard misperception ....................................... 181
6.1.2.3 The asset misperception ........................................................ 184
6.1.2.4 The prevalence of complex internal settings……………..
misperception ........................................................................ 194
6.1.2.5 The reservation expectation misperception ........................... 196
6.1.2.6 The partner relationship misperception ................................. 199
6.1.2.7 Formality as a norm .............................................................. 201
6.1.3 Misperceptions on Financials .............................................................. 203
6.1.3.1 The market leadership misperception ................................... 203
6.1.3.2 The willingness to take risks misperception ......................... 206
6.2 Summary of the micro analysis ........................................................................ 208
6.3 Evaluation of the macro hypotheses and common industry misperceptions .... 214
6.3.1 The customers’ lacking attention misperception: Customers as
activators for innovation and/or business growth ............................... 214
6.3.1.1 Confidence and performance as a basis for innovation
and business growth .............................................................. 214
6.3.1.2 The reality of balanced responsibilities: The dream of
Total Integration .................................................................... 216
6.3.1.3 Escaping the commodity trap ................................................ 220
6.3.2 The collaboration misperception: The failure of collaborative
integration in the absence of special conditions .................................. 222
6.3.3 The power of smallness misperception: Issue of size ......................... 230
6.3.3.1 Similarity in company size is a wish but not reality ............. 230
6.3.3.2 Company size and survival ................................................... 235
6.4 Summary of the macro analysis ....................................................................... 239
7 In search of Hidden Champions: BMPS .............................................................. 242
7.1 Introduction to performance measurement and scoring ................................... 242
7.2 Scoring performance along the micro dimensions ........................................... 246
7.2.1 Incrementalism .................................................................................... 246
7.2.2 Scope ................................................................................................... 250
7.2.3 Gradual Conquest ................................................................................ 252
7.2.4 Customer Favor Striving ..................................................................... 254
7.2.5 Customer Proximity ............................................................................ 257
7.2.6 Entrepreneurship ................................................................................. 259
7.2.7 Simple and Fast Decision Making ...................................................... 261
7.2.8 Open Communication and Collaboration ............................................ 264
7.2.9 Strategic Self-Sufficiency ................................................................... 266
7.2.10 Mutual Trust ........................................................................................ 270
7.2.11 Niche Sovereignty ............................................................................... 272
7.2.12 Customer Granularity .......................................................................... 274
7.2.13 Conclusions on scoring the micro dimensions .................................... 275
7.3 Scoring performance along the macro dimensions .......................................... 278
7.3.1 Gradual Service Extension, Role Complementarity, and
Continuous Innovation ........................................................................ 279
7.3.2 Reliable Execution .............................................................................. 283
XII Content

7.3.3 Courage and Self-Confidence as well as Defense and Attack ............. 284
7.3.4 Conclusions on scoring the macro dimensions .................................... 287
7.4 The BMPS Framework ..................................................................................... 288
7.4.1 Developing the BMPS Framework ...................................................... 288
7.4.1.1 The BMPS Framework’s micro perspective ......................... 289
7.4.1.2 The BMPS Framework’s macro perspective ......................... 299
7.4.2 Results from the BMPS Framework .................................................... 306
7.4.3 Identification of starting points for improvements at non-Hidden
Champions ........................................................................................... 313
7.5 Comment on business principles ...................................................................... 323
8 Conclusions ............................................................................................................. 326
8.1 My main point: fallacy of Total Integration ..................................................... 326
8.2 Market and competitive implications: SMEs can not be neglected in any
serious study of the LSP industry ..................................................................... 330
8.3 Future research .................................................................................................. 334
Appendices ................................................................................................................... 337
Appendix 1: Overview of approaches to business models ....................................... 338
Appendix 2: Overview of approaches to strategy .................................................... 351
Appendix 3: Questionnaire/Interview Manual Logistics Service Provider .............. 354
Appendix 4: Questionnaire/Interview Manual Customer ......................................... 365
Bibliograhpy ................................................................................................................ 371
List of illustrations XIII

List of illustrations

Figure 1: Research objectives and value ....................................................................... 6

Figure 2: Three criteria a company has to meet to qualify as a Hidden Champion ...... 8
Figure 3: Outline of the dissertation ............................................................................ 17
Figure 4: Approaches to defining logistics .................................................................. 24
Figure 5: Most narrow term of logistics ...................................................................... 25
Figure 6: Phases-specific definition of logistics .......................................................... 25
Figure 7: Partnering-specific definition of logistics (example) ................................... 27
Figure 8: Overview of the terminology in the area of logistics ................................... 32
Figure 9: Developments in the industry from the 1970s towards the new
millennium and onwards .............................................................................. 37
Figure 10: From value chain to value network: Developments from the
perspective of participants’ roles ................................................................. 40
Figure 11: Micro environmental conditions: forces driving industry competition ....... 44
Figure 12: Macro environmental factors affecting the logistics industry
(examples) .................................................................................................... 47
Figure 13: Trend towards demand chain management.................................................. 51
Figure 14: Global logistics market value and forecast .................................................. 55
Figure 15: Actual and forecasted logistics market value according to Datamonitor .... 56
Figure 16: Total logistics and contract logistics volume in Europe .............................. 57
Figure 17: European TUL costs and logistics turnover 2007 by country...................... 58
Figure 18: Total logistics and contract logistics volume in Germany ........................... 59
Figure 19: Market volume for outsourced logistics in Germany 2007 by segments..... 61
Figure 20: Top LSEs presence in the European logistics industry ................................ 63
Figure 21: Number of transport services providers in the EU 27 in 2005 .................... 65
Figure 22: Approaches for analyzing companies .......................................................... 74
Figure 23: Occurrences of the term business model in scholarly reviewed
journals ......................................................................................................... 77
Figure 24: Purposes of business models ........................................................................ 79
Figure 25: Prerequisites for successful business models ............................................... 86
Figure 26: Categories and components of a business model ......................................... 88
Figure 27: The macro layer of a Business Model Framework ...................................... 89
Figure 28: Categories and components of strategy ....................................................... 95
Figure 29: Business models and strategy in view of static and dynamics..................... 96
Figure 30: Paradigm to empirical research: Adaptability to best practices ................... 98
Figure 31: Types of research approaches and main methodologies for
performance ............................................................................................... 100
Figure 32: Research process as iterative learning process .......................................... 104
Figure 33: Type I: Traditional Architecture and Traditional Business Model ............ 109
XIV List of illustrations

Figure 34: Type II: Outsourcing Architecture and Outsourcing Business Model ....... 110
Figure 35: Type III: Network Architecture and Network Business Model ................. 111
Figure 36: Type IV: Integration Architecture and Integrative Business Model .......... 112
Figure 37: Segmentation of LSPs ................................................................................ 117
Figure 38: Overview of customers studied in-depth .................................................... 123
Figure 39: Types of Assets .......................................................................................... 136
Figure 40: Correlation between risk and profit ............................................................ 145
Figure 41: Statements from theory and practice on hurdles for Total Integration
directly or indirectly based on customer-neglecting behavior of LSPs...... 146
Figure 42: Three organizational forms for Total Integration, by business model
partner(s) .................................................................................................... 148
Figure 43: Distinction of enterprises............................................................................ 151
Figure 44: Expected relationships between size of LSP and size of customer ............ 151
Figure 45: Basic and supplemental research data ........................................................ 154
Figure 46: Number of LSPs creating value for its various stakeholder groups ........... 157
Figure 47: Five main groups of value creation for customers ..................................... 158
Figure 48: Groups and examples of value creation for employees .............................. 160
Figure 49: Principle of Incrementalism ....................................................................... 163
Figure 50: Sector specificity of research cases LSP .................................................... 165
Figure 51: Customers decision triggers in the LSP selection process ......................... 167
Figure 52: Mission statements of LSPs studied in-depth............................................. 168
Figure 53: Visions of research cases LSP .................................................................... 169
Figure 54: Core competences of research cases LSP................................................... 170
Figure 55: LSP allocation in the logistics industry’s service offering portfolio and
adaptation behavior .................................................................................... 172
Figure 56: Types of services provided by LSPs studied in-depth ............................... 175
Figure 57: Share per service group based on individual total number of types of
services per LSP ......................................................................................... 176
Figure 58: LSPs’ scope relating to the number of types of services per service
group........................................................................................................... 177
Figure 59: Relationship between groups of services and success of an LSP............... 178
Figure 60: Reasons for LSPs’ service portfolio revisions ........................................... 179
Figure 61: LSPs’ global presence with personal locations by continent ..................... 181
Figure 62: LSPs’ representation with personal locations on continents ...................... 182
Figure 63: Ownership and access to assets by LSP ..................................................... 185
Figure 64: Ownership and access to assets by service ................................................. 186
Figure 65: Openness in providing insights on human resources issues ....................... 189
Figure 66: Awards........................................................................................................ 191
Figure 67: Innovations as capital ................................................................................. 192
List of illustrations XV

Figure 68: Employee productivity ............................................................................... 192

Figure 69: LSPs’ organizational forms........................................................................ 194
Figure 70: Research cases LSP’s behavior in terms of cooperation with partners
(by LSP) ..................................................................................................... 200
Figure 71: Research cases LSP’s behavior in terms of cooperation with partners
(by statement)............................................................................................. 200
Figure 72: Turnover development of research cases LSP ........................................... 205
Figure 73: Publication behavior of research cases LSP in terms of business result.... 207
Figure 74: Customers as activator for innovations and business growth
(examples) .................................................................................................. 215
Figure 75: Actual Integration versus Virtual Integration ............................................ 219
Figure 76: Logistics market dynamics (‘Commodity Syndrome’).............................. 222
Figure 77: Experience with joint ventures of research cases LSP............................... 224
Figure 78: Experience with collaborative entities of the further 95 LSPs studied ...... 225
Figure 79: Collaborative entities of 47 potential Hidden Champions ......................... 226
Figure 80: Eight special conditions for joint venture success ..................................... 229
Figure 81: Comparison of company sizes of collaborating potential Hidden
Champions and customers ......................................................................... 232
Figure 82: Competitive areas by size of LSP and size of customer ............................ 233
Figure 83: Market penetration approaches of SMEs and LSEs in logistics ................ 234
Figure 84: Relation between size of LSP and geography: four development
phases ......................................................................................................... 236
Figure 85: Duration of contracts with customers ........................................................ 237
Figure 86: Two surviving groups of LSPs in competition and distinction criteria ..... 238
Figure 87: Concepts for performance measurement in the area of logistics ............... 243
Figure 88: Types of LSPs according to stakeholder group scope ............................... 249
Figure 89: Relationship between sector scope and average contract duration ............ 251
Figure 90: Relationship between portfolio strength and international presence ......... 259
Figure 91: Relationship between asset ownership and performance........................... 261
Figure 92: Organizational Advantage and Organizational Deficit for meeting
demands regarding Product/Service and Market ....................................... 264
Figure 93: Redundancy and Self-Sufficiency of Product-Market-Offer in the
context of networking ................................................................................ 268
Figure 94: Independence Overextension and Network Advantage of Product-
Market-Offer in the context of independence ............................................ 269
Figure 95: Three groups of actors in terms of the business model components
Product-Market-Offer and Relationships ................................................... 270
Figure 96: Relationship between turnover development and adaptability in
Business Purpose as well as Customer Favor Striving .............................. 274
Figure 97: Potential Hidden Champions’ business principles ..................................... 289
XVI List of illustrations

Figure 98: The micro perspective of the BMPS Framework: business principles’
roles for sustainability in competition ........................................................ 291
Figure 99: Comparison of LSP M’s with the other LSPs’ moldings relating to the
micro perspective’s business principles’ roles for sustainability in
competition ................................................................................................. 293
Figure 100:LSP M’s attaching of significance to business principles in the micro
perspective .................................................................................................. 294
Figure 101: The standardized normal curve ................................................................. 297
Figure 102:The macro perspective of the BMPS Framework: business principles’
roles for sustainability in competition ........................................................ 301
Figure 103:Comparison of LSPs A’s, D’s and E’s with the other LSPs’ moldings
relating to the macro perspective’s business principles’ roles for
sustainability in competition ...................................................................... 302
Figure 104:Overview of research results ...................................................................... 306
Figure 105:LSPs’ status of Hidden Championship after consolidation of findings
from the micro and macro perspectives’ analysis ...................................... 308
Figure 106:Comparison of performance in the micro perspective by status of
Hidden Championship ................................................................................ 311
Figure 107:Comparison of performance in the macro perspective by status of
Hidden Championship ................................................................................ 312
Figure 108:Priority of business principles at Hidden Champions ................................ 313
Figure 109:Comparison of performance of Hidden Champions with Potential
Hidden Champions’.................................................................................... 314
Figure 110:Comparison of performance of Hidden Champions with Hidden
Championship Failures’ ............................................................................. 315
Figure 111:Hidden Champions’ business principles for managing tensions in
today’s area of logistics .............................................................................. 325
Figure 112:Explanatory statements justifying the fallacy of Total Integration ............ 328
Figure 113:Research cases customers’ most valued attributes of LSPs according
to final remarks of interview partners ........................................................ 330
Figure 114:Threats for SMEs in future logistics........................................................... 332
Figure 115:The future of logistics and its competitive groups ..................................... 333
List of tables XVII

List of tables

Table 1: Preview of this study’s research contents and research values .................... 20
Table 2: Definitions of SCM (examples) ................................................................... 29
Table 3: Terminology: ‘XPL discussion’, logistics, contract logistics and SCM ...... 33
Table 4: Structural analysis of the logistics industry ................................................. 43
Table 5: Overview of logistics market estimates ....................................................... 54
Table 6: Examples of LSEs in the European logistics industry ................................. 63
Table 7: The Top 10 contract LSPs in Germany........................................................ 64
Table 8: Top SMEs in contract logistics in Germany ................................................ 66
Table 9: Evaluation of approaches on business models ............................................. 84
Table 10: Categories and components of business models .......................................... 88
Table 11: Evaluation of approaches on strategy .......................................................... 92
Table 12: Categories and components of strategy ....................................................... 94
Table 13: Delimitation of business models from strategy ........................................... 95
Table 14: Means and their application to examine the quality of the research
design ......................................................................................................... 106
Table 15: Overview of segmentation approaches of LSPs ........................................ 114
Table 16: Segmentation of LSPs ................................................................................ 116
Table 17: Types of LSPs ............................................................................................ 118
Table 18: Types of LSPs and selection of relevant types for empirical research ...... 120
Table 19: Examples of prior knowledge causing supremacy hypotheses .................. 128
Table 20: Sector focus of LSPs (examples from the ‘Top 100+ Company List’) ..... 130
Table 21: Cost focus of customers ............................................................................. 130
Table 22: Industry incumbents and new entrants concentrating on advanced
service solutions (examples) ...................................................................... 134
Table 23: Examples of the importance of trust .......................................................... 137
Table 24: Prevailing views on LSPs organizational flexibility .................................. 139
Table 25: Examples demonstrating information exchange/transparency
reservation .................................................................................................. 140
Table 26: Prevailing views on the necessity of partnership networks (examples) .... 141
Table 27: Reasons for large company size being beneficial for risk-taking
(examples) .................................................................................................. 144
Table 28: Academic examples dealing with customers’ key role for business
success........................................................................................................ 147
Table 29: Arguments for SMEs limitations in Total Integration yet overcoming
through networks ....................................................................................... 153
Table 30: Customers’ views and attitudes on total supply chain leadership
(examples) .................................................................................................. 161
XVIII List of tables

Table 31: Examples of additional potential Hidden Champions reinforcing

findings on the Single Source Hypothesis .................................................. 162
Table 32: Potential Hidden Champions’ strategies in terms of geographic
coverage...................................................................................................... 183
Table 33: Customers’ views on LSPs’ asset ownership and treatment ...................... 193
Table 34: Number of LSPs’ subsidiaries .................................................................... 195
Table 35: Information exchange policies with detailed examples from research
cases LSP.................................................................................................... 197
Table 36: Overview of research cases LSPs’ information exchange policies ............ 198
Table 37: Views and behavior in the industry on relationships and networks with
partners ....................................................................................................... 201
Table 38: IT and contractual settings as norm in collaboration (examples) ............... 203
Table 39: Information about business results by research cases LSP ........................ 207
Table 40: LSPs’ risk-taking through investments for individualized and
outstanding service offerings...................................................................... 208
Table 41: Overview of (Sub-)Components of Business Model, Micro
Hypotheses, Evaluations, Common Industry Misperceptions and
Business Principles ..................................................................................... 213
Table 42: Statements from interviews at LSPs about service scope developments ... 217
Table 43: Attitudes of customers in terms of Total Integration offerings by LSPs.... 218
Table 44: Innovations in logistics (examples) ............................................................ 221
Table 45: Collaboration behavior of LSP research cases ........................................... 223
Table 46: Joint venture experience by research cases LSP ........................................ 225
Table 47: Reasons for the failure of joint ventures (examples) .................................. 227
Table 48: Customers’ interview partners views on the role of the LSP’s
company size .............................................................................................. 231
Table 49: Overview of Macro Hypotheses, Evaluations, Common Industry
Misperceptions and Business Principles .................................................... 241
Table 50: Quantitative and qualitative concepts for performance measurement ....... 244
Table 51: Scoring weights .......................................................................................... 246
Table 52: LSP C’s replies to value creation for stakeholder groups .......................... 247
Table 53: Value creation for stakeholder groups........................................................ 248
Table 54: Number of sectors served by LSPs............................................................. 250
Table 55: Average contract duration at LSPs ............................................................. 251
Table 56: LSPs’ openness to adaptation and management of changes relating to
Business Purpose (selected examples) ....................................................... 253
Table 57: Scoring LSPs’ positions in terms of Business Purpose and change
behavior ...................................................................................................... 254
Table 58: LSPs’ portfolio strength for Customer Favor Striving ............................... 255
Table 59: Comparison of the scores for Active Offering and Actual Deployment .... 257
Table 60: LSPs’ presence with personal locations on continents ............................... 258
List of tables XIX

Table 61: Evaluation of asset ownership applied on road transportation and

assembling.................................................................................................. 260
Table 62: Scoring LSPs’ organizations ...................................................................... 262
Table 63: Comparison of the scores for Product-Market-Offer and Organization .... 263
Table 64: Scoring information exchange ................................................................... 265
Table 65: Scoring the relation between networking and independence ..................... 267
Table 66: Comparison of scores for networking and Product-Market-Offer ............. 267
Table 67: Comparison of scores for independence and Product-Market-Offer ......... 268
Table 68: Scoring Exchange Mechanism and visibility ............................................. 271
Table 69: Comparison of the scores for Exchange Mechanism and
Product/Service .......................................................................................... 271
Table 70: Scoring development of turnover............................................................... 273
Table 71: Comparison of the scores for the components Business Purpose,
Product/Service and Performance Measurements ..................................... 273
Table 72: Scoring business result............................................................................... 275
Table 73: Business Model Scorecard for the micro layer .......................................... 275
Table 74: Overview of conducted comparisons and relationships amongst
selected micro dimensions ......................................................................... 277
Table 75: Scoring Gradual Service Extension ........................................................... 280
Table 76: Scoring Role Complementarity.................................................................. 281
Table 77: Scoring Continuous Innovation ................................................................. 282
Table 78: Summary of the scores on business principles identified in research on
the Customer Centricity Hypothesis .......................................................... 283
Table 79: Scoring Reliable Execution........................................................................ 284
Table 80: Scoring Courage and Self-Confidence...................................................... 286
Table 81: Scoring Defense and Attack....................................................................... 287
Table 82: Business Model Scorecard for the macro layer ......................................... 287
Table 83: Demonstration of the systematic structure of this study for developing
the BMPS Framework................................................................................ 288
Table 84: Overview of LSP research cases’ scores related to the micro
perspective’s business principles, their means and standard deviations .... 290
Table 85: Normal (Gaussian) distribution for business principles in the micro
perspective ................................................................................................. 298
Table 86: Overview of LSP research cases’ scores related to the macro
perspective’s business principles, their means and standard deviations .... 300
Table 87: Normal (Gaussian) distribution for business principles in the macro
perspective ................................................................................................. 305
Table 88: Hidden Champions’, Potential Hidden Champions’ and Hidden
Championship Failures’ average scores (means) in the micro
perspective’s business principles ............................................................... 309
XX List of tables

Table 89: Hidden Champions’, Potential Hidden Champions’ and Hidden

Championship Failures’ average scores (means) in the macro
perspective’s business principles................................................................ 310
Table 90: Comparison of LSP B’s performance with Hidden Champions’ ............... 316
Table 91: Comparison of LSP C’s performance with Hidden Champions’ ............... 317
Table 92: Comparison of LSP G’s performance with Hidden Champions’ ............... 317
Table 93: Comparison of LSP H’s performance with Hidden Champions’ ............... 318
Table 94: Comparison of LSP F’s performance with Hidden Champions’ ............... 318
Table 95: Comparison of LSP I’s performance with Hidden Champions’ ................ 319
Table 96: Comparison of LSP J’s performance with Hidden Champions’ ................ 319
Table 97: Comparison of LSP K’s performance with Hidden Champions’ ............... 320
Table 98: Comparison of LSP L’s performance with Hidden Champions’ ............... 320
Table 99: Potential Hidden Champions’ strongest and weakest dimensions ............. 322
Table 100: Hidden Championship Failures strongest and weakest dimensions ........... 323
Table 101: Assignment of Hidden Championship status to category of type of
LSP ............................................................................................................. 327
List of abbreviations XXI

List of abbreviations

1PL First Party Logistics

2PL Second Party Logistics
3PL Third Party Logistics
3.5PL Third.Five Party Logistics
4PL Fourth Party Logistics
5PL Fifth Party Logistics
ABV All-embracing-Based View
AG Aktiengesellschaft
(German terminology for a public limited liability
corporation)
AG & Co. KG Aktiengesellschaft & Compagnie Kommanditgesellschaft
(German terminology for a limited partnership whose
liable partner is a public limited company)
AMR Advanced Manufacturing Research
A/S Aktieselskab
(Danish terminology for a public limited liability
corporation)
ASA Allmennaksjeselskap
(Norwegian stock company)
ATL Arbeitsgruppe fuer Technologien der Logistik-
Dienstleistungswirtschaft
(workgroup for technologies in the logistics services
industry)
B2C Business-to-Consumer
BAG Bundesamt fuer Gueterverkehr
BLG Bremer Lagerhaus Gesellschaft
BMPS Business Model Performance Scoring
BMW Bayerische Motoren Werke
BMWi Bundesministerium fuer Wirtschaft und Technologie
bn Billion
bp business principle in micro dimension
BP Business Principle in macro dimension
B.V. Besloten Vennootschap
(Dutch terminology for a limited liability company)
BVL Bundesvereinigung Logistik
C Chapter
CA California
CAGR Compound Annual Growth Rate
CD Compact Disc
CEO Chief Executive Officer
CEP Courier, Express, Parcel
CHF Swiss Franc
CIS Corporate Information Solutions
CO2 Carbon Dioxide
CRM Customer Relationship Management
CSCMP Council of Supply Chain Management Professionals
DB Deutsche Bahn
D.C. District of Columbia
DHL Dalsey (Adrian) – Hillblom (Larry) – Lynn (Robert)
XXII List of abbreviations

(company letters according to family names of its

founders)
DKK Danish Krone
(currency of Denmark, including the autonomous
provinces of Greenland (Danskinut koruuni) and the Faroe
Islands (Donsk króna)
DM Deutsche Mark
(currency in Germany before introduction of the Euro)
DMG Deckel Maho Gildemeister
Dr. Doctor
DSV De Sammensluttede Vognmaend
DVV Deutscher Verkehrs-Verlag
DVZ Deutsche Verkehrs-Zeitung
EBIT Earnings Before Interest and Taxes
EBITDA Earnings Before Interest, Taxes, Depreciation, and
Amortization
ECR Efficient Customer/Consumer Response
ed. Editor
EDI Electronic Data Interchange
EES Equipment Electronic Systems
e.g. exempli gratia, for example
ERP Enterprise Resource Planning
et al. and other people or things (Latin et alii/alia)
et seq. et sequens (and the following one)
et seqq. et sequentes (and the/those following)
etc. et cetera (‘and so forth’)
EU European Union
EU 17 European Union of 17 Member States
EU 27 European Union of 27 Member States
EUR Euro
fig. figure
FM (Logistic) Faure Machet
(Founders’ last names)
FTE Full-Time Equivalent
FTL Full Truck Load
GCI Global Commerce Initiative
GDP Gross Domestic Product
GEFCO George E. Failing Company
GmbH Gesellschaft mit beschraenkter Haftung
(German terminology for a company with limited liability)
GmbH & Co. KG Gesellschaft mit beschraenkter Haftung & Compagnie
Kommanditgesellschaft
GmbH & Co. KG a.A., KG Gesellschaft mit beschraenkter Haftung & Compagnie
Kommanditgesellschaft auf Aktien,
Kommanditgesellschaft
GmbH & Co. OHG Gesellschaft mit beschraenkter Haftung & Compagnie
Offene Handelsgesellschaft
GPS Global Positioning System
h Micro hypothesis
H Macro hypothesis
HBS Harvard Business School
List of abbreviations XXIII

HEC Faculté des Hautes Etudes Commerciales

HR Human Resources
HUB Haupt-Umschlagbetrieb
(Place where traffic is exchanged across several modes of
transport)
i.e. id est, it is
IfM Bonn Institut fuer Mittelstandsforschung Bonn
(Institute for SME-Research, Bonn/Germany)
IFRS International Financial Reporting Standards
IKB Industriekreditbank
(IKB Deutsche Industriebank)
IL Illinois
Inc. Incorporated
IPL Integrationsplattform Logistik
(Integration Platform Logistics)
ISP International Specialty Products
IT Information Technology
Jr. Junior
JV Joint Venture
KGaA Kommanditgesellschaft auf Aktien
KMU Kleine und Mittlere Unternehmen
(small- and medium-sized enterprises)
KN Kuehne + Nagel
LCL Less than Container Load
LGI Logistics Group International
LLP Lead Logistics Provider
LSE Large Size Enterprise
LSP Logistics Service Provider
Ltd. Limited
m Misperception in micro dimension
M Misperception in macro dimension
m. Million
MA Massachusetts
mbH mit beschraenkter Haftung
(German terminology for limited liability)
MBV Market-Based View
MI Michigan

MIT Massachusetts Institute of Technology

Mr Mister
n.a. not available, not applicable
N.A. No Author
NBV Network-Based View
NJ New Jersey
N.L. No Location
No. Number
N.V. Naamloze Vennootschap
(Dutch terminology for a public limited liability)
corporation)
N.Y. No Year
NY New York
XXIV List of abbreviations

OEM Original Equipment Manufacturer

p. page
PA Pennsylvania
plc public limited company
pp. pages
RBV Resource-Based View
R&D Research & Development
RFID Radio Frequency Identification
ROA Return on Assets
RoW Rest of World
RWE Rheinisch-Westfaelisches Elektrizitaetswerk
S.A. Société Anonyme
SAP Systemanalyse und Programmentwicklung
(System Analysis and Program Development)
SCC Supply Chain Council
SCM Supply Chain Management
SCOR Supply Chain Operations Reference
SME Small- and Medium-sized Enterprise
S.p.A. Societá per Azioni
(Italian terminology for a limited share company)
SPL Seminar fuer Planung und Logistik
(University of Cologne)
TML Tailormade Logistics
TMS Transport Management System
TNT Thomas Nationwide Transport
TU Technische Universitaet
(Technical University)
TUL Transport, Umschlag, Lagerung
(Transportation, Transshipment, Warehousing)
TX Texas
UK United Kingdom
UML Unified Modeling Language
UPS United Parcel Service
US United States
USD United States Dollar
VAS Value-Added Services
Vol. Volume
VW Volkswagen
XPL eXtended Party Logistics
WestLB Westdeutsche Landesbank
WMS Warehouse Management Solution
WWW World Wide Web
XPL eXtended Party Logistics
ZLU Zentrum fuer Logistik und Unternehmensplanung
1 Š Introduction 1

1 Introduction

The area of logistics is important for the European economy in two ways. First, major
expenditures of businesses are in logistics, thereby affecting and being affected by other
economic activities. In the EU 17 logistics contributed to 5.5% of the GDP in 1997
(total logistics volume of 420 bn euros), 7.6% of the GDP in 2004 (total logistics
volume of 730 bn euros) and 7.4% of the GDP in 2007 (total logistics volume of 837 bn
euros) (Klaus and Kille 2008, p. 159; Klaus and Kille 2006, p. 43; Klaus and Mueller-
Steinfahrt 2000, p. 42; International Monetary Fund 2009).1 Improving the efficiency of
logistics may result in lower prices for consumers, higher profits for businesses, or both.
The result could be a higher overall standard of living and/or a higher tax base. Thus,
the area of logistics makes an important contribution to the economy as a whole.

Second, the area of logistics is a significant activity in facilitating the sale of virtually
all goods and services. It supports the movement and flow of many economic
transactions. While brand products are well-known to the public, logistics is not.
However, without logistics each business is like a car without an engine: if goods do not
arrive on time, in the proper place, in the proper condition or in the proper quality, sales
are impossible and economic activities throughout the supply chain will suffer. For
example, if automobile production has to be suspended because of lack of inventory
caused by unsatisfactorily-executed logistics, expenses of 335,000 euros per hour can be
incurred2 (Heriot-Watt University 2008, p. 42).

The latter is just one example demonstrating the real extent of the importance of
logistics for businesses and thus for an economy. Without smoothly-operating logistics,
businesses are likely to struggle. Nevertheless, in politics and economics this industry is
a neglected area. Yet it is undoubtedly one of the growth sectors in an industrial

1
The EU 17 countries are Austria, Belgium, Denmark, Germany, Finland, France, Greece, Ireland,
Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and United Kingdom. In
1997 the GDP for the EU 17 was USD 8,873.37 bn (equivalent to 7,600.97 bn euros at an exchange rate
of 1 EUR equivalent to USD 1.1674 as of 1 January 1999 when the euro was introduced to world
financial markets as an accounting currency). In 2004 the GDP for the EU 17 was USD 13,091.01 bn
(equivalent to 9,594.7 bn euros at an exchange rate of 1 EUR equivalent to USD 1.3644 as of
31 December 2004). In 2007 the GDP for the EU 17 was USD 16,574.43 bn (equivalent to 11,253.3 bn
euros at an exchange rate of 1 EUR equivalent to USD 1.47285 as of 31 December 2007).
2
The report from Heriot-Watt University states an amount of £300,000. This amount equals
334,881 euros at an exchange rate of £1 equivalent to 1.11627 EUR as of 31 October 2009.

R. M. Neubauer, Business Models in the Area of Logistics, DOI 10.1007/978-3-8349-6533-2_1,

© Gabler Verlag | Springer Fachmedien Wiesbaden GmbH 2011
2 1 Š Introduction

economy that has known a lot of retrenchment. In fact, as more production has been
outsourced abroad, logistics has grown in importance.

Even when mentioned, news and discussions about the area of logistics tend to concern
large size enterprises (LSEs) rather than small- and medium-sized enterprises (SMEs).
However, an economy that is aligned to success and growth cannot permit itself to
ignore this sector further, or treat it with neglect.

The increasing importance of logistics is justified in enormous changes in the macro

economic environment in the last two decades. These changes have led to a decisive and
profound redistribution of supply chain activities amongst producers and logistics
service providers (LSPs). Globalization and developments in the European Union, for
instance, dramatically impacted the ways of doing business. Locations for production
plants have been centralized and/or have been shifted to Asia, resulting in a strong
increase in transportation as well as shipping of raw materials and goods.

Besides this drive for centralization and economies of scale, producers have also started
to concentrate on their core competences, with the consequence that services like
transportation or warehousing increasingly were outsourced. Economic developments
have caused pressures on producers’ costs, leading to a rethinking of the focus of
activities and resulting in a further broadening of the scope of outsourcing. In its utmost
form, LSPs’ scope of services covers the management of total supply chains.
Consequently, the supply chain scopes of producers and LSPs have shifted. While the
scope of producers’ supply chains has decreased, the scope of the supply chains of LSPs
has increased. Outsourced activities by producers have been taken over by a network of
partners that I refer to as the supply chain network or value network. LSPs have started
to organize the physical, informational, financial and knowledge flows within these
value networks. I describe the service scope of an LSP that covers the management of
total supply chains as Total Integration or Integrated Supply Network Management. In
this study I use both self-defined terms synonymously.

Furthermore, competitive pressures have increased. In particular, LSEs in logistics have

been pushing commodity business. However, smaller LSPs that are open to innovation
and transformation can keep up with the developments in the competitive environment.
1 Š Introduction 3

Overall and across industries, promoting innovations has been considered a key strength
of SMEs, which themselves are considered the backbone of an economy (Haussmann et
al. 2006, p. 1). Traditional LSPs identify chances to escape the low margin
transportation business by gradually broadening their service scope.

This is where we must consider SMEs. By keeping pace with Total Integration, these
logistical SMEs are often outstandingly successful and long-term survivors in an
industry. Hermann Simon refers to such outstanding SMEs as “Hidden Champions”. He
identified them as the backbone of the lasting German export strength, and has lauded
their close relationships to customers as a pivotal element of their strategy (Simon 2007,
p. 11, p. 159 et seqq.; Simon 1996a, p. 98 et seqq.). In fact, SMEs are of high
importance for the economy. In Germany, for instance, more than 99% of the roughly
3.6 million companies belong to the small- and medium-sized economy. They represent
about 45% of the total economic performance and their turnover amounts to close to
40% of the total of all German companies. Germany’s SMEs employ about 20 million
persons (equivalent to more than 65% to 70% of all employees) and about 80% of the
trainees (BMWi 2009a, p. 7; BMWi 2009b).

It is surprising in view of the importance of SMEs that research on SMEs in logistics is

so limited. It is more than overdue. The two key reasons are their low attention in
research so far as well as their power of innovation that is required to offer Total
Integration solutions. I propose to search for Hidden Champions in logistics and to
identify sources for success and long-term survival. The search for Hidden Champions
is therefore also a search for ‘hidden success factors’ of SMEs in logistics, a field in
industry research that is not yet covered in any depth and unfamiliar to the public. I will
show that these SMEs have organizational capabilities that are unique and that
distinguish them from the LSEs in their sector, whose offer is much more of a
commodity service. I argue that in contrast to Hidden Champions with their power for
innovations, LSEs are subject to the commodity trap as they are captives to existing
solutions heading for economies of scale and economies of scope in their service
offerings.
At this stage I wish to make a final remark that the shift of supply chains amongst
producers and LSPs increased the confusion regarding the meanings of the terms
logistics and Supply Chain Management (SCM). It looks, when one examines the
4 1 Š Introduction

literature, as though the interesting aspect of transport flows and supplies resides in
SCM, but in fact the term described is logistics rather than SCM. In view of the
developments in the industry, particularly regarding the shift of supply chains, I clarify
the definitions for both terms. Accordingly, while both SCM and logistics manage the
total supply chain, i.e. procurement, production and distribution, it is only SCM that
covers total processes and activities. Logistics concentrates on designing products,
processes and supply chains, on the fulfillment of product demand and on the recycling,
reuse or disposal of products, whereas SCM also covers the processes of product
introduction as well as product promotion, pricing and merchandising. Contrary to
common opinion, the more important activity (in terms of volume) is logistics – and this
field ought not to think that it has lost in any real sense its prominence to SCM – the
latter is also too broad in scope of activities, as it also includes activities primarily in the
responsibility of producers. The simple element of shipment is today only a small
portion of (extended) supply chains. That is where logistics is major – and actually quite
prominent in any economic sense.

1.1 Motivation and objectives

This study is the result of an effort to develop a framework for exploring why some
small- and medium-sized LSPs are more profitable than others, or more profitable than
LSEs. The framework’s requirement was to be integrative with regards to both the
micro and macro layers of a business, i.e. explaining the most important
(sub-)components of a business model as well as its status and positioning in the macro
environment. Furthermore, the framework should be flexible, easy to use and applicable
for the totality of the various types of LSPs, which presupposes a well-structured
database. For example, users should be able to change moldings in business model
(sub-)components with the framework directly indicating the resulting movement
regarding the status in Hidden Championship. In order to create a tool for modeling
businesses in the area of logistics, the challenge was that the framework must be
comprehensive without risking becoming too complex. Every LSP should be able to
learn from successful companies through consideration of business model components’
moldings as well as by judging outcomes from making changes and customizations.
SMEs in logistics that are less successful can learn from Hidden Champions by
comparing their business model components’ moldings with those of Hidden
1 Š Introduction 5

Champions’ and identifying the differences. From this, specific actions can be derived.
Also, even large LSPs can learn a lot from Hidden Champions.

The main contribution of this dissertation is the development of an integrative

framework that deals with most aspects of logistics and allows the diagnosis of the
performance of a particular business model. I will refer to this framework as the
Business Model Performance Scoring (BMPS). In particular, this framework helps to
identify Hidden Champions in the area of logistics and also allows the distinguishing of
‘Hidden Champions’ from ‘Potential Hidden Champions’ and ‘Hidden Championship
Failures’. The ‘p’ of the word ‘potential’ in ‘potential Hidden Champions’ remains
lower-case (unless it is at the beginning of a sentence), as long as I have not identified
the true status of Hidden Championship. I used the word ‘potential’ as some of the LSPs
do not publish results. However, I assumed profitability if there have been no negative
news about struggling, especially if the LSPs still have been in business for decades. A
clear assignment of the research cases LSP to Hidden Championship status is made in
Chapter 7 only. The capital ‘P’ of the word ‘Potential’ in ‘Potential Hidden
Championship’ indicates either the LSP’s Hidden Champion status or that this could not
be clearly identified even after examination. An earlier distinction between Hidden
Champions, Potential Hidden Champions and Hidden Championship Failures was not
justified in my pre-selection approach and the aim to identify real success business
principles. Finally, regarding the geographic scope of the LSPs studied, my search for
Hidden Champions focuses on small- and medium-sized LSPs in Europe.

The framework has several uses which are developed in this dissertation. One major
application concerns proving or disproving the promise of Total Integration provided by
traditional LSPs. Resulting in Total Integration’s fallacy, it also points out that the area
of logistics will be dominated by a New Breed of actors who are able to manage and
integrate supply chain networks of LSEs, SMEs and customers for joint collaboration.
Such competences need to be developed, and are not easily acquired. Therein then lies
the defense of SMEs against their much larger brothers – who are also their competitors.

This study is meant as a contribution to strategic management research in the area of

logistics. In order to develop the BMPS and to achieve its objectives regarding the
identification of Hidden Championship status in a Total Integration environment, I first
6 1 Š Introduction

had to work out a host of definitions and clarifications on logistics market issues
(Chapter 2), business models (Chapter 3) and types of LSPs (Chapter 4), as they have
not yet been defined in the quality and scope required. Therefore, in Chapter 2 my study
will provide well-structured and condensed summaries and overviews on fundamentals,
developments and demography in the logistics industry. In Chapter 3 I present detailed
overviews of prevailing business models and strategy approaches that were required for
both the comprehensive definitions I provide in this work, and their distinction. In this
chapter also the micro and macro layers of my Business Model Framework are defined,
forming the basis for the hypotheses that I formulate later in Chapter 5. The main
contribution of Chapter 4 is an exhaustive classification of LSPs in the global market.

Following Chapter 4, my research study concentrates on the identification of SMEs’

status with regard to Hidden Championship and the reasons for success or failure of
LSPs. In this context, the research concentrates on the question of whether Total
Integration is the future concept in logistics. Figure 1 provides an overview of my
research objectives and the value this dissertation hopes to create. (Please note that all
tables and figures are sourced whenever cited. Tables and figures with no source
reference are provided by the author of this study.)

Logistics
Market

Hidden
Total
Integration
Champions
Types of Business
LSPs Models

Figure 1: Research objectives and value

This study is addressed to both academic research as well as actors in the industry. Both
LSEs and SMEs in logistics are provided with insights on success factors in the industry
and challenges of continued business. The aims of this study are to develop the basis for
a comprehensive framework as well as to explore the research topic and applicability of
this framework through an in-depth case study design. The limits of this study start
1 Š Introduction 7

when looking for a representative basis in the form of a statistical survey research for
making comparisons.

1.2 Object of consideration: Hidden Champions

Simon’s research about SMEs dates back to 1986, when he discussed the continuous
German export success with Levitt, at that time a marketing expert at the Harvard
Business School (Simon 2007, p. 11). Simon became internationally known when
publishing the term “Hidden Champion”, which he used for successful and long-term
surviving SMEs across the various types of industries. In 2007, Simon’s list with
Hidden Champions from Germany, Austria and Switzerland, which he has collected
over more than twenty years, contains 1,316 entries (Simon 2007, p. 30). Simon has
condensed the most important insights from his research in three circles and eight
lessons, which are leadership with ambitious goals (inner circle); decentralization, high
performance employees and depth (middle circle); and in the outer circle focus,
closeness to customer, innovation and globalization (Simon 2007, p. 401 et seqq.).

Today, the term ‘Hidden Champion’ is in use worldwide as the examples from the US,
Chinese or Korean publications show (Ewing 2004; Guanggao 2009; Jeong-ju 2009).
For a common understanding, the origin and the definition of the term ‘Hidden
Champion’ are presented at the beginning of this study (Section 1.2.1) while a further
sub-section (Section 1.2.2) deals with the role of size for profitability.

1.2.1 Origin of the term and criteria

The post-war economic success in Germany was justified by medium-sized production

companies, collectively known as Mittelstand. Each of these companies was expected to
be a worldwide market leader in a specific niche, that is in a part of the market or in a
sub-market segment rather than in a mass market or in a large market (Drea and Hanna
2000, p. 33; Markides and Geroski 2003, p. 5; Tektas and Kavak 2008, p. 3), while
neither seeking nor attracting publicity (Simon 1996a, p. 1). At the end of the 1980s,
Professor Hermann Simon, chairman of the worldwide consulting company Simon-
Kucher & Partners Strategy & Marketing Consultants (Simon-Kucher (ed.) 2009),
coined the term “Hidden Champions”. He defined it by three criteria that a company has
to meet for qualification (Figure 2) and used it for companies small and medium in size
across industries. The first articles with this term were published by Simon in the
8 1 Š Introduction

Zeitschrift fuer Betriebswirtschaft in 1990 (Simon 1990, pp. 875-890) and in the
Harvard Business Review on lessons from Germany’s midsize giants in 1992 (Simon
1992, pp. 115-123). In 1996, an article in the Business Strategy Review (Simon 1996c,
pp. 1-13) and his first edition entitled “Hidden Champions” followed (Simon 1996a;
Simon 1996b), the latter being translated into sixteen languages (Simon 2007, p. 12).
Simon’s term became internationally known. The three criteria by which the term is
defined are presented in the following.

• #1 or #2 (or #3)* in world market

• #1 in European market (on the continent)*

Criteria
for a Hidden
Champion
• Small or medium in size
Low public visibility • Not more than USD
3 and awareness 1 bn (3 bn euros*) 2
in turnover

* Extension in subsequent publication.

Figure 2: Three criteria a company has to meet to qualify as a Hidden Champion

(Simon 1996a, pp. 5-6)

According to Simon, the first criterion relates to market position. Hidden Champions
are “worldwide leaders in their markets” (Simon 1996a, p. vii) and have worldwide
market dominance (Simon 1996a, p. 1, p. 8, p. 18). Often with market shares of more
than fifty percent they are truly global (Simon 1996a, p. 1, p. 18). Hidden Champions
are the number one or number two in their world market (Simon 1996a, p. 5). In his
2007 edition of the book about Hidden Champions of the 21st century, Simon extended
this definition to also include the number three position in the world market, since many
more companies are internationally or even globally active compared to a decade ago
(Simon 2007, p. 29), causing a substantial increase in the size of the market.
Alternatively, Hidden Champions are defined to be in the number one position in the
European market (Simon 1996a, p. 5; Simon 2007, p. 29) or number one position on
their continent if the company is non-European (Simon 2007, p. 29). Market position is
defined by either absolute or relative market share. Absolute market share is measured
in percentage points and is calculated by dividing company turnover by total market
turnover. Alternatively, the relative market share is a company’s percentage share
divided by the percentage share of the strongest competitor (Simon 1996a, p. 8).
1 Š Introduction 9

Second, according to Simon, Hidden Champions are “small or medium in size” (Simon
1996a, p. 6). A company is small or medium in size if it does not generate more than
USD one billion in turnover (equivalent to 1.5 bn DM or 767 m. euros). In his
subsequent publication in 2007, Simon extended this limit to three billion euros, as he
observed that many Hidden Champions have grown beyond the billion dimension
without changing typical characteristics, strategies or leadership styles. In Simon’s
research, companies with typical characteristics of Hidden Champions are also
exceptionally included even if these companies’ turnover is higher than the defined limit
(Simon 1996a, p. 6, p. 18; Simon 1996b, p. 14; Simon 2007, p. 29). Simon further states
that Hidden Champions “remain relatively small or medium in size” (Simon 1996a,
p. 11) and their corporate culture favors continuity as well as steady rather than
explosive growth. In comparison to LSEs, Hidden Champions grow more slowly. They
have to grow by crossing borders due to small home markets (Simon 1996a, p. 11).

Third, Hidden Champions have “low public visibility and awareness” as defined by
Simon (Simon 1996a, p. 6; Simon 2007, p. 29). They are “scarcely known” (Simon
1996a, p. vii) and “remain hidden under a layer of inconspicuousness, invisibility, and
even secrecy” (Simon 1996a, p. 1). According to Simon, Hidden Champions “often
trade ‘invisible’ or low-profile products”, i.e. their products are often used in the
production process or subsumed by the final product (Simon 1992, p. 115; Simon
1996a, p. 18; Simon 2007, p. 27). Hidden Champions adhere to anonymity, discretion
and rejection of press contacts (Simon 1992, p. 116). While they are restrained to the
public they have high publicity, excellent reputation and very popular brands in their
markets. Hidden Champions are very well known and familiar to their customers but
competitors failed to notice their niches. However, within the last few years Simon
noticed an increasing opening. He argues that strong growth and fast
internationalization automatically cause more visibility (Simon 1996a, pp. 3-4; Simon
2007, pp. 27-28).

Simon states that in order to qualify as a Hidden Champion, a company must fulfill the
above three criteria. In addition, he mentions further typical findings that apply to
Hidden Champions across industries but which he did not integrate systematically in his
definition of criteria for a Hidden Champion. I introduce further findings from Simon to
my catalogue of criteria that I consider to be sustainable characteristics for Hidden
10 1 Š Introduction

Championship. Therefore, this study can be considered as a continuation of Simon’s

research. One of its research values is to extend Simon’s three criteria for Hidden
Championship by the following five sustainable characteristics.

First, and according to Simon, Hidden Champions’ practices are “more down to earth
than one might expect” (Simon 1996a, pp. 11-12). Operating mainly in stable rather
than in fashion or boom markets, their approaches are mostly unknown. According to
Simon, Hidden Champions draw vigilant attention to detail, commit to serving
customers continuously and are persistent (Simon 1996a, p. viii, pp. 11-12). Second,
Hidden Champions “have a remarkable record of survival” and “have excelled
throughout the world for decades” (Simon 1996a, p. vii, p. 18). Although occasionally
experiencing serious crises, they managed to survive well, sometimes even emerging
stronger. Thus, these companies may be longer lived (Simon 1996a, p. 11, p. 13). Third,
Hidden Champions “earn a large part of their revenue from exports, enabling them to
contribute heavily to a country’s trade balance” (Simon 1996a, p. 18). Fourth, Simon
found that Hidden Champions are “largely family owned” (Simon 1996a, p. 18) or
“closed held” (Simon 1996a, p. 11) and, fifth, he states that Hidden Champions are
“successful but not miracle companies” (Simon 1996a, p. 18).

In my search for Hidden Champions in the area of logistics, I apply both Simon’s three
criteria for a Hidden Champion as well as the five sustainable characteristics further
identified from Simon’s findings. Regarding Simon’s three criteria, his third criterion,
low public visibility and awareness, is implied in SMEs in logistics. The reason is that
small- and medium-sized LSPs ‘remain hidden’ due to logistics invisibility in the final
product. His second criterion, small or medium in size, was the key criterion for my
selection of potential Hidden Champions and their assignment to the various types of
LSPs (Section 4.3.3) since it is most measurable. I defined the criteria in the sense of
achieving a turnover of not more than one billion euros including the allowance of some
exceptions. The reason is that at this stage of the study Simon’s 1996 publication was
available only with its USD one billion limit. This value is equivalent to 856.6 m. euros
at an exchange rate of 1 EUR to USD 1.1674 as of 1 January 1999 when the euro was
introduced to world financial markets as an accounting currency (Antweiler 2001, p. 1).
After that I apply qualitative criteria as with Simon’s first criterion on market position,
which I use to prove or disprove of Hidden Championship in the course of my case
1 Š Introduction 11

study research (Section 6.1.3.1). Regarding the further identified characteristics, I also
applied the second (in business for decades), fourth (family-owned) and fifth (success)
characteristics of Hidden Champions in my selection of LSPs in a first step. This means
that LSPs were excluded from my database for the survey panel that were just recently
founded, listed on the stock market or that reported losses (the detailed process is
described in Section 4.3.3). An evaluation of the first (down to earth business practices)
and third (large proportion of foreign revenues) characteristics is made in the course of
the further empirical study of companies.

1.2.2 Size and profitability

Company size is of particular interest in this study. First, my research focuses on

companies small- and medium in size; I specifically do not target LSEs. Second, I
selected LSPs in terms of potential Hidden Championship according to Simon’s
criterion of company size regarding generated turnover. Third, according to common
understanding, profitability goes with size normally. However, Hidden Champions are
highly profitable companies even though they are small or medium in size (Simon 2007,
p. 36). This makes the trade-off between size and margin an important aspect when
searching for Hidden Champions. The difficulty is that SMEs are often privately held
companies that provide data neither about corporate profits nor about unit profits, thus
limiting the ability to draw conclusions. This section deals with company size and its
relation with profitability.

Discussions about the role of company size require the definition of a manageable
measure for describing classes of company size. As Kessler pointed out in his research
on company size, innovation and growth in value creation, there is no agreement on
company size and its scale (Kessler 1992, pp. 109-111). In Section 5.2.3 I defined
classes of companies by basically distinguishing between LSEs and SMEs. This was
necessary as a single hypothesis is dedicated to the issue of size (Section 5.2.3).

The key focus of this study is on SMEs. They are also the core of the economy. As
stated in the introduction in 1, in Germany, for example, 99.7% of all companies are
small or medium in size. SMEs have contributed to economic stability, to accelerated
economic progress and rapid industrialization while generating almost half of gross
value creation of a company’s sector. At the same time, SMEs promote innovations and
12 1 Š Introduction

contribute to further growth and employment (Arinaitwe 2006, p. 167; Haussmann et al.
2006, p. 1). While the majority of SMEs generally do not operate internationally, an
easily comprehensible, but very meaningful and thereby also successful group of
companies has a large degree of internationalization.

In contrast, LSEs outperform in meeting defined quantitative criteria, whereas a

common definition is lacking. Accordingly, companies are large in size if they achieve
an annual turnover of at least 100 m. DM, which equals about 51 m. euros3 and if their
number of employees is more than 1,000 (Schwietert and Middeke 1968, p. 20). The
classification scheme for company sizes after the European Union (EU) from 2005 uses
three criteria, as presented by the IfM. According to the EU’s definition, companies are
LSEs if the number of employees amounts to at least 250, and if the annual turnover
exceeds 50 m. euros or if the balance sheet total goes beyond 43 m. euros (Institut fuer
Mittelstandsforschung Bonn 2004, p. 4; see also Section 5.2.3). In his research on
Hidden Champions, Simon defined companies as LSEs if they achieve as a rule at least
one billion USD in annual turnover (Simon 1996a, p. 6), or more than three billion
euros in annual turnover (Simon 2007, p. 29). Lacking a general definition for
classification of companies according to size, I define a company as being large if its
turnover exceeds one billion euros. This value may be considered as an approximate
value; for example, a company may still be an SME if the turnover volume only slightly
exceeds this value and solid turnover figures were obtained over years.

The size of a company influences corporate strategy and consequently matters for
business success. Already in the 1960s and before, research dealt with the relationship
of size and profitability. An example is Stekler’s publication in 1963 on the relationship
between the size of firms and profitability measured by profit rates. Stekler states that
prior studies allow the inference that there is no tendency that the largest profitable
companies earn the highest rates of returns, i.e. these studies could not prove that the
ability to earn profits is positively correlated with size (Stekler 1963, p. 101). However,
researchers from these previous studies as well as Stekler noted that, with exceptions,
the ability to expand out of retained earnings is positively correlated with company size.
According to Stekler, the tax system also probably does not handicap but may even aid

3
1 EUR amounts to 1.95583 DM.
1 Š Introduction 13

the relative expansionary ability of smaller firms. In contrast, for larger companies the
ability to grow does not improve but LSEs would be handicapped without income that
is subject to very low effective tax rates. Stekler also concluded that there is a declining
relationship between profitability and size in terms of relative profitability of firms with
net income. Another research result is that the variability of the profit rates of firms
diminishes with size (Stekler 1963, pp. 100-102).

Welge and Holtbruegge refer to advantage sources of multinational companies that

SMEs can use if they become larger in size due to internationalization (Welge and
Holtbruegge 2006, pp. 142-143). Economies of scale, economies of scope and arbitrage
effects are stated as advantages of LSEs. Scale economies result when an increased size
of a single operating unit producing or distributing a single product leads to reduced
unit costs of production or distribution (Chandler 1990, p. 17). They can be achieved
mainly through standardization of company structures, systems, processes and
resources. Economies of scope result from joint production or distribution (Chandler
1990, p. 17) and can be realized for example through worldwide use of brands, by
serving customers that are operating globally or by pooling knowledge which has been
gathered from different markets. Arbitrage effects result from usage of national
differences like different factor costs, factor productivities or tax and interest rate levels.

One might conclude that LSEs have to be successful in the sense of profitability due to
these advantages. However, there are various trade-offs between these advantage
sources. Furthermore, research has proven superiority for profitability of small company
size. One major example is that SMEs are superior in terms of innovations, innovative
efforts or in planning innovation costs (Adams and Brock 1998, pp. 72-76). According
to Adams and Brock, LSEs’ inability to innovate is based on: a bureaucratic
organization, which means that qualities which are most useful in large companies do
not correspond to those most beneficial for technical creativity and human ingenuity; a
dominance of large administration hierarchies rather than liberal and unbound company
styles; and conservative attitudes by insisting on the status quo while simultaneously
being resistant to changes. The authors refer to LSEs as “resistance centres against
changes“ (Adams and Brock 1998, p. 78); missing familiarity with the different
working sequences of a company, its customers, markets and needs and to missing
consciousness for costs as is prevailing in companies small in size. The aim to become a
14 1 Š Introduction

LSE contradicts the power of innovations of SMEs, which can be an essential driver for
profitability.

1.3 Outline of the study

In this section the outline of my dissertation is presented. The aim is to provide an

overview of the structure, research content and value contributions of my study (for the
structure see also Figure 3 and for the content and research value see Table 1).

Overall, this dissertation is structured in three parts. In the first part the theoretical basis
is provided. I refer to this part as ‘Fundamentals’ (Figure 3). Herein, Chapter 2 deals
with the area of logistics as the industry in focus and Chapter 3 contains the framework
of the business model. My extensive study on a generic Business Model Framework
forms the core and basis for the following empirical research, which forms the second
part of this study (‘Empirical Research’ in Figure 3). In a third part (‘Finals’ in Figure
3), findings and outcomes are discussed, leaving room for future discussions and
research.

In more detail, this dissertation is subdivided into eight chapters (see yellow ellipses in
Figure 3). In this opening first chapter (‘Introduction’ in Figure 3), my motivation and
the objectives of this study are described (Section 1.1). The second section (1.2) of this
introductory chapter deals with Hidden Champions. It covers the origin of the term and
its criteria as well as the issues of size and profitability. This chapter concludes with the
outline of this study in this section.

Chapter 2 provides an overview of the area of logistics. First, industry fundamentals are
presented (Section 2.1), covering logistics-related terms and their relationships. Section
2.2 describes the developments in the industry from the 1970s onwards, micro and
macro environmental conditions as well as trends and current developments. The third
section in this chapter (2.3) is about industry fundamentals and provides an overview of
the market and its actors.

The following Chapter 3 deals with business analysis (Section 3.1) and business models
(Section 3.2) in particular. In the section on business models I present its fundamentals
1 Š Introduction 15

(Section 3.2.1), prevailing approaches (Section 3.2.2), my definition (Section 3.2.3), as

well as the delimitation of business models from strategy (Section 3.2.4).

Chapter 4 covers issues of empirical research and analysis. In Section 4.1 on

methodology, research challenges, the research approach and process are presented.
Next, business model architectures are derived and described (Section 4.2). Section 4.3
is dedicated to LSPs as an object of research. In Section 4.4 the role of customers in this
dissertation is presented and in Section 4.5 information on the questionnaire design is
given.

Chapter 5 presents the hypotheses that will be tested in this research. Section 5.1
contains the micro hypotheses on the business model categories Ambitions & Aims
(Section 5.1.1), Implementation (Section 5.1.2) and Financials (Section 5.1.3), while
Section 5.2 covers the macro hypotheses.

Chapter 6 presents findings and results with regard to each micro hypothesis (Section
6.1, summary in Section 6.2) and macro hypothesis (Section 6.3, summary in Section
6.4). At this stage of the dissertation no conclusions are made with regard to findings
and also no relationships to performance are covered.

The search for Hidden Champions continues in Chapter 7. Before further developing
my BMPS Framework, I cover the issues of performance measurement and scoring
(Section 7.1). After that, I score performance along the micro (Section 7.2) and macro
dimensions (Section 7.3). In Section 7.4 my BMPS Framework’s micro and macro
perspectives are developed (Section 7.4.1), the framework’s results are presented
(Section 7.4.2) and starting points for improvements at non-Hidden Champions are
identified (Section 7.4.3). Comments on business principles round off Chapter 7.

Chapter 8 is a concluding chapter that summarizes my main point (Section 8.1) as well
as market and competitive implications (Section 8.2). Finally, Section 8.3 provides an
outlook and hints for future research.

Figure 3 shows that throughout the study I stick to the structure defined in Section
3.2.3.2 on the research framework. In my search of Hidden Champions’ business
16 1 Š Introduction

models I distinguish between two principle dimensions, which are the micro and macro
dimension, whereas the micro dimension is further structured into ‘Ambitions & Aims’,
‘Implementation’ and ‘Financials’. For both the micro and macro dimension,
hypotheses are formulated for each of their defined component in the research
framework. For each of the hypotheses the empirical results are presented, and each
performance is scored. In this way, the structure (i.e. the order) is analogous to the
chapters on the hypotheses, empirical results and search for Hidden Champions. This is
shown graphically by the blue arrows in Figure 3.
 C1 Introduction
Object of consideration

Figure 3:
C2 Logistics C3 Business models
Fundamentals – Developments – Demography
1 Š Introduction

Fundamentals – Approaches – Definition – Limits

Fundamentals
C4 Empirical research and analysis
Methodology – Architectures – LSPs – Customers

C5 Hypotheses
Micro hypotheses on business model components Macro hypotheses
Ambitions & Aims Implementation Financials

Outline of the dissertation

h1 h2 h3 h4 h5 h6 h7 h8 h9 h10 h11 h12 H1 H2 H3

C6 Empirical results
Evaluation of micro hypotheses and common misperceptions Evaluation of macro hypotheses
Ambitions & Aims Implementation Financials and common misperceptions
m1 m2 m3 m4 m5 m6 m7 m8 m9 m 10 m 11 m 12 M1 M2 M3

C7 In search of Hidden Champions

Scoring performance

Empirical Research
Scoring performance along the micro dimensions Scoring performance
Ambitions & Aims Implementation Financials along the macro dimensions
bp 1 bp 2 bp 3 bp 4 bp 5 bp 6 bp 7 bp 8 bp 9 bp 10 bp 11 bp 12 BP 1 BP 2 BP 3
BMPS Framework
Micro perspective Macro perspective

C8 Conclusions
Main points – Implications – Future research

Finals
Legend: BMPS: Business Model Performance Scoring; bp: Business principle in micro dimension; BP: Business principle in macro dimension; C: Chapter;
h: Micro hypothesis; H: Macro hypothesis; m: Misperception in mirco dimension; M: Misperception in macro dimension.
17
18 1 Š Introduction

My BMPS Framework is the key research contribution of this study, which is structured
in line with the framework’s moldings in the micro and macro dimension as Figure 3
shows. Moreover, this study provides additional research values. The research contents
and research values are summarized in Table 1, with the major points listed here:
x Chapter 2 is an approach to create clarity in the confusion about terms used in the
area of logistics. Moreover, this chapter presents a condensed overview of
developments in the history and on the micro and macro environmental conditions. In
particular, I provide an overview of the global market, something that is still missing
and that shows the variety in prevailing views about market potentials.
x The terms business model and strategy are often used interchangeable. Chapter 3
contains an in-depth study of both terms, showing also their delimitations and
relationships, thereby filling an identified research gap when starting to work out a
framework.
x While the industry has been lacking a detailed structure of players in the industry,
Chapter 4 provides a comprehensive typology.
x Chapter 5 covers the hypotheses derived from prevailing knowledge.
x The questionnaires/interview manuals for LSPs and customers can be found in
Appendix 3 and Appendix 4. They are guidelines for in-depth analyses of LSPs. Please
note that all information from questionnaires and interviews is strictly confidential and
not intended for distribution due to interview partner requirements. Information is
available upon request and by permission of the LSPs only.
x Chapter 6 presents the state of the research cases LSP and highlights common
industry misperceptions.
x Chapter 7 is the identification stage for Hidden Champions.
x Chapter 8 presents the expected future state of the area of logistics and points to
identified further research gaps.

Overall this study is an approach for mapping the landscape in particular for small and
medium LSPs, but also for LSEs in logistics. My framework helps to clarify LSPs’
status of Hidden Championship, i.e. regarding Hidden Champions, Potential Hidden
Champions and Hidden Championship Failures.
1 Š Introduction 19

Chapter Research Research Value

Content
2 Industry Summary and overview on:
x Fundamentals:
- Definitions of terms in the area of logistics
- Relationships between logistics terms
x Developments:
- History
- Micro and macro environmental conditions
- Trends
x Demography:
- Market sizes
- Typology of actors
3 Framework Definition: Business model (delimitation from strategy)
x Micro perspective: 12 defined business model (sub-)components
x Macro perspective: 3 company comprehensive business model
dimensions
4 Research x Segmentation of LSPs
Objects x Selection of 308 LSPs with at-first-sight network business model or
integrative business model independent of size and Hidden Championship
status based on:
- Surveys (top SMEs in Europe and in single European countries)
- Magazines and newspapers (portraits of LSPs)
- Cooperations (associated/partnering SMEs in logistics)
- Primary research (other SMEs in logistics)
x Further selection resulting in 100 potential Hidden Champions and 8
interesting Failed Hidden Championships
x Assignment of representative industry coverage: 17 categories of LSPs
with 10 relevant for network business model or integrative business
model
x For each of the 10 relevant categories at least one LSP studied in-depth:
13 LSPs in total
x Strengthening LSPs’ research by adding customers’ perspective:
- Selection of customers of LSPs studied in-depth
- In total, 13 customers studied in-depth
5 Hypotheses x Basis for hypotheses is gathered knowledge from theory and reality
x Micro perspective: 12+1 hypotheses with one hypothesis on each of the
12 (sub-)components of a business model
x Macro perspective: 3 hypotheses for company comprehensive business
model dimensions
Appendix 3 Questionnaire/ x ‘Questionnaire/Interview Manual – Logistics Service Provider’:
and Research - Micro perspective: Structure according to the 12 (sub-)components of a
Appendix 4 business model
- Macro perspective: Structure according to the 3 company
comprehensive business model dimensions
x ‘Questionnaire/Interview Manual – Customer’:
- Micro perspective related issues
- Macro perspective related issues
6 Empirical x As-is status micro perspective:
Results - Representation of the situation for each of the 12 (sub-)components of a
business model without evaluation at this stage
- Outcome: 11 common industry misperceptions and 12+1 business
principles
x As-is status macro perspective:
- Representation of the situation for each of the 3 company
comprehensive business model dimensions without evaluation
at this stage
- Outcome: 3 common industry misperceptions and 6 business principles
20 1 Š Introduction

7 BMPS x Scoring performance:

- Micro dimensions
- Macro dimensions
x Consolidation of scores in BMPS Framework
x BMPS Framework’s research values:
- Impact of business principle for success/failure: 1 success (2 failures)
business principle(s) in micro dimension; 1 success (1 failure) business
principle in macro dimension
- Status of Hidden Championship: 4 Hidden Champions; 2 Potential
Hidden Champions; 7 Hidden Championship Failures
x Final result: 4 Hidden Champions with:
- 3 outstanding dimensions in micro perspective
- 3 outstanding dimensions in macro perspective
x Recommendations for improvements at Potential Hidden Champions and
Hidden Championship Failures
ÆIdentification stage for Hidden Champions
8 Conclusions x Fallacy of Total Integration provided by traditional LSPs
x Market implications
x Future research
Table 1: Preview of this study’s research contents and research values
2 Š The area of logistics 21

2 The area of logistics

Chapter 2 is an introduction to the area of logistics and provides an overview of the

industry which is the focus of this study. The aim of this chapter is to create a coherent
picture of the logistics industry and to provide the basic knowledge required for this
research study.

In the first section (2.1) I start with industry fundamentals. I begin with the history and
definitions of the term logistics. Logistics theory and practice lack unified and
established views and vocabulary. The rise of new terms such as third party logistics
(3PL), fourth party logistics (4PL) and logistics service provider (LLP) has caused
further confusion. In particular, the term SCM has emerged in the context of logistics.
In a separate sub-section I present the similarities and differences of logistics with
SCM. Section 2.1 is an attempt to present a more uniform view of the area of logistics.
The next section (2.2) covers developments in the industry including the presentation of
a historical review as well as the industry’s micro and macro environments. Finally,
Section 2.3 provides an overview of the size of the market, its segments and actors
through examples and numbers.

2.1 Industry fundamentals

Logistics is no longer just the transportation of goods from one point to another. Rather,
it consists in the management of complex services and processes. The variety and scope
of this industry is expressed, for example, in the definition of logistics management by
the worldwide association Council of Supply Chain Management Professionals
(CSCMP):

“Logistics management is that part of supply chain management that plans,

implements, and controls the efficient, effective forward and reverse flow and
storage of goods, services, and related information between the point of origin and
the point of consumption in order to meet customers’ requirements. Logistics
management activities typically include inbound and outbound transportation
management, fleet management, warehousing, materials handling, order fulfillment,
logistics network design, inventory management, supply/demand planning, and
management of third party logistics services providers. To varying degrees, the
logistics function also includes sourcing and procurement, production planning and
scheduling, packaging and assembly, and customer service. It is involved in all
levels of planning and execution-strategic, operational, and tactical. Logistics
management is an integrating function which coordinates and optimizes all logistics
activities, as well as integrates logistics activities with other functions, including
marketing, sales, manufacturing, finance, and information technology.” (Council of
Supply Chain Management Professionals 2009, p. 98).

R. M. Neubauer, Business Models in the Area of Logistics, DOI 10.1007/978-3-8349-6533-2_2,

© Gabler Verlag | Springer Fachmedien Wiesbaden GmbH 2011
22 2 Š The area of logistics

The definition confirms the broad field of logistics. Section 2.1 provides greater detail
about the term and the scope of the area of logistics.

2.1.1 Origin of the term

Logistical activities have existed since time immemorial. They are literally thousands of
years old, dating back to the earliest forms of organized trade. However, no specific
term was applied to describe these activities. The use of the term logistics has its origins
in war and the military for the efficient and effective distribution and storage of supplies
and personnel. The historical roots lie in the end of the 18th century, when the
emergence of large stationary armies, mainly in France, required a more systematic
planning and execution relating to the supply of the troops. The term logistics probably
originates from the French term ‘loger’. By the beginning of the 19th century
Napoleon’s military strategy relied on rapid movement over large areas. Throughout the
century headquarters became increasingly pre-occupied with the need to move troops
quickly. With the possibility of the use of rail as a means of transport, qualitative
requirements on military logistics activities increased. For example, the logistical
department of the large Prussian General Staff was called ‘railway department’ for a
long time. The rise of logistics’ recognition and emphasis is further exemplified by the
Allied victory in World War II where a lot of effort was put into first destroying the
Nazi logistical systems, and later into securing the supplies for the Allied forces in their
final march to Germany. To this day, specialized logistics departments plan and
implement logistical processes in armies (Lambert et al. 1998, p. 5; Wiendahl 2002,
p. 9).

Logistics gradually entered civil society, and in the early 1900s one finds research on
the distribution of farm products (Lambert et al. 1998, p. 5, quoting Crowell 1901).
However, until the 1960s, the term ‘logistics’ was not part of business management in
either Europe or Germany (Blom and Harlander 2003, p. 1; Klaus 1999, p. 16). The first
attempts to convert the term ‘logistics’ from a purely military use towards its present-
day business sense were made in the US. In 1955 Oskar Morgenstern used the term in
his publication “Note of the Formulation of the Theory of Logistics” (Blom and
Harlander 2003, p. 1). Five years later, in 1960, John F. Magee published an article with
the title “The Logistics of Distribution” in the Harvard Business Review (Magee 1960,
pp. 89-101). In Germany ten years later, the term ‘logistics’ had still not been fully
2 Š The area of logistics 23

integrated into business. For example, Dr. Gablers Wirtschaftslexikon from 1968 did
not even mention it at all, while the 1970 edition of the Brockhaus defined ‘logistics’
only in the military sense (Blom and Harlander 2003, p. 1). The term was first
introduced to business in Germany in 1971 by Goesta B. Ihde, who later also introduced
logistics as a business discipline (Merkel and Heymans 2003, p. 7).

As in the times when logistics was used in a military context, logistics remains a
decisive factor for competitive victory today. Competition is the ‘war’ of business
where moving goods and products are the weapons and ammunition of modern business
firms.

2.1.2 Definitions

Section 2.1.1 very briefly reviewed the emergence of logistics in business and
management. In fact, the definition of the term logistics is strongly influenced by the
industry’s developments in history. The term’s meaning has changed in line with
service offerings’ adaptations . Today’s area of logistics is characterized by the use of a
variety of acronyms, jargons and hype terms. Overcomplicated definitions, phrases and
words such as 3PL, 4PL, LLP or solution mystify the industry, which suffers from a
lack of a shared concept. As a result, the word logistics means different things to
different people. For example, an LSP paints the words ‘Integrated European Logistics’
on the side of its vehicles, but the company is still seen as a haulage carrier by people
whose perception of the industry remains that of unsophisticated truckers, rather than
that of integrators whose organizations design and manage total supply chains. The aim
of this section is to provide a clear view of the terms used in modern industry.

Definitions of the term ‘logistics’ in dictionaries of transport and logistics cover two
perspectives. First, logistics is the time-related positioning (movement and placement)
of resources (people and goods), i.e. its planning, execution and control to meet user
requirements. Second, logistics is a total concept of planning and organizing the supply
and movement of materials or goods from the original source through the value chain
stages to the final customer, i.e. logistics also includes supporting activities related to
movement and placement within a system organized to achieve specific goals (Lowe
2002, p. 147; TNT 2005, p. 59). The definitions show that logistics does not only mean
transportation, which is only one of its components. Its definition is complex and
24 2 Š The area of logistics

diverse and requires some more attention. Figure 4 summarizes possible approaches to
defining logistics. Definitions of logistics are either service-oriented (phases-specific or
performance-specific), provider-oriented (partnering-specific or player-specific) or
market-oriented (positioning-specific). These five types of logistics definitions (‘5Ps’)
are described below.

Definition of Logistics (“5Ps”)

Main distinction
criteria Service-oriented Provider-oriented Market-oriented

Sub distinction
criteria (“5Ps”) Phases-specific Performance-specific Partnering-specific Player-specific Positioning-specific

Orientation Value chain Resources and tasks Work sharing Perspective Customer focus

Types • Procurement logistics • Operative logistics • Third party logistics • Service sector • Commodity logistics
• Production logistics • Basic value-added • Fourth party logistics logistics • Specialized logistics
• Distribution logistics logistics • Logistics as company
• Expanded value- internal service
added logistics function

• Strategic logistics

Representative(s) Klaus and Kille (2006) / Baumgarten and Thoms Ehner et al. (2008) Zentes and Morschett Pfohl (2007)
Merkel and Heymans (2002) (2003)
(2003)

Figure 4: Approaches to defining logistics

First, phases-specific definitions are oriented on the processes of the value chain. It is
often qualified as procurement logistics, production logistics or distribution logistics if
logistics relates to procurement, production or distribution (see for example Merkel and
Heymans 2003, p. 4). In Germany, probably one of the most detailed research studies
on the term logistics was conducted by Professor Klaus from the University of
Erlangen-Nuremberg. Klaus’ definition is phases-specific. He uses the term TUL, which
means Transport (transportation), Umschlag (transshipment) and Lagerung
(warehousing) and distinguishes between most narrow TUL logistics (Figure 5) and
extended coordination logistics. Extended coordination logistics is the most narrow
TUL logistics plus (administrative) activities for order management and disposition,
company-comprehensive planning, coordination and disposition tasks as well as cost of
capital, deduction costs and other charges for inventory management in the supply chain
(Klaus and Kille 2006, p. 32).
2 Š The area of logistics 25

Logistics services

Production internal “TUL” services

“TUL” services of distribution

Pre- Work-in- Commissio- Storage Distribution Warehouse Outlet

Tra nsport Stage 1 in Stage 2 in
ma terial process ning produc- fina l trans- distri- storage
supply production production
stora ge stock tion pa rts products porta tion bution in shelves

Legend:
Most narrow term of logistics: production external “TUL” services without company internal logistics activities in the production
process (TUL/German: Transport [transportation], Umschlag [transshipment], Lagerung [warehousing])

Figure 5: Most narrow term of logistics

(Translated from Klaus and Kille 2006, p. 32)

My phases-specific definition of logistics applies in particular to online orders. It is

based on the current status of logistics research and practice, and is a summary which
highlights key components. I defined the value chain from communication and
customer order at the beginning to product entry at the customer and finalization of
payment processes. According to my phases-specific definition, logistics is the
designing, planning, organizing and managing of all process steps in the three process
areas of procurement, order management and fulfillment (Figure 6).

Communica tion
at the Site

Custo- Custo-
ORDER mer Re- Consu- mer Pay-
MANAGEMENT ceiving me/Use ment
Order

Customer Notifi-
Order
Order cation Pa yment
Return
&
Handing Accoun-
Over ting
Disposi- Trans- Pro-
Registe- Assembling cessing
tion/ Wa re- ring Pick & portation & After
Purchasing
Procure- housing Order Pa ck Distri- Sales
ment bution
PROCUREMENT FULFILLMENT
LOGISTICS
(designing, planning, organizing and managing all process steps)

Legend:
Trigger activity Activities (operative services and value-added services) Event indicating or completing activity Environmental influence

Figure 6: Phases-specific definition of logistics

Second, logistics can be defined as performance-specific. A performance-specific

definition is oriented on resources and tasks. Resources are either tangible or intangible.
Baumgarten and Thoms, for example, distinguish between operative and administrative
tasks in logistics. Part of operative logistics is production supply and -disposal in
industry as well as packing, packing disposal and return management in retail, whereas
26 2 Š The area of logistics

administrative tasks are strategic and coordinative (Baumgarten and Thoms 2002, p. 2).
My performance-specific definition of logistics is also related to tasks and distinguishes
between operative logistics, basic-value-added logistics, expanded value-added logistics
as well as strategic logistics (for more details see Section 2.2.1 with Figure 9 below in
this chapter).

I refer to a partnering-specific definition of logistics if the term is explained from a

work sharing perspective. Representatives of this third ‘P’ in defining logistics are, for
example, Ehner et al. (2008, p. 2). The terms used in this type of definition are first
party logistics (1PL, where the single party is the manufacturing company), second
party logistics (2PL), 3PL, 4PL as well as to some extent fifth party logistics (5PL), also
known as LLP. Here, I provide a summary of the prevailing views by defining the
various terms according to my findings (see also Table 3). Accordingly, the term 2PL is
used if the manufacturing company (first party) provides in-house all logistics activities
that are necessary to produce and distribute its goods to the customer (second party).
With 3PL the first party outsources to a third party (usually an external LSP) those of its
logistics activities which are necessary to produce and distribute its goods to the second
party. 4PL means that the first party outsources these logistics activities to several, if
not many, usually external 3PLs. Thereby, a further (fourth) party (LSP) is a ‘steering
man’ for multitude operating LSPs with the role of planning, constructing, integrating,
managing and optimizing all physical, informational, financial and knowledge flows
related to procurement, production and distribution that are provided by 3PL providers.
I refer to an LLP if the fourth party does not have own tangible resources, unlike a 4PL
which has its own tangible resources. Synonymous, but rarely used for LLP is the term
5PL. Some authors or practitioners (see for example Lutz 2003, p. 10) even use the term
3.5 party logistics (3.5PL) provider in the context of this X-party or ‘eXtended’-party
logistics (XPL) discussion, whereas the ‘X’ usually stands for the number of parties.
The term 3.5PL, which is rarely used, describes the situation when customers build their
own logistics infrastructure for reasons of increased trust, but also approach a 4PL or
LLP solution to achieve higher margins. In this study the XPL discussion is not further
pursued. While only the terms 3PL and 4PL/LLP are considered to be comprehensible,
the terms 2PL, 3.5PL and 5PL are unreasonably related to the original neologism with
indirectly achieving a quality ranking. For these reasons, I do not use the terms from the
XPL discussion unless necessary. Nevertheless, at this stage I want to make some
2 Š The area of logistics 27

clarifications by applying my phases-specific definition of logistics as presented in

Figure 6. The trigger activity, i.e. activities indicating operative and value-added
services (VAS), events indicating or completing an activity as well as the environmental
influence as presented in Figure 6 apply to Figure 7, i.e. in Figure 7 I use the outlines
from Figure 6 in order to assign LSPs to the activities and events. In my example, the
total value chain is served by four 3PLs. The third party logistics provider, 3PL1, is only
responsible for procurement with its activities purchasing, disposition/procurement and
warehousing. 3PL2 is in charge of registering orders and notification in order
management. 3PL3 is responsible for assembling, pick & pack, transportation &
distribution and handing over while 3PL4 takes care for order return, after sales and
payment & accounting processing. Further, either a 4PL or an LLP integrates and
manages all processes and activities provided by the four 3PLs (Figure 7).

Communica tion
a t the Site

Custo- Custo-
ORDER mer Re- Consu- mer Pay-
ceiving me/Use ment
MANAGEMENT
Order

Customer 3PL4
Order 3PL2

3PL3 3PL4

3PL3
3PL1 3PL1 3PL1 3PL2 3PL3 3PL3 3PL4

PROCUREMENT FULFILLMENT
connectivity
connectivity LOGISTICS connectivity

LLP 4PL
Legend:
3PL1 : Purchasing, Disposition/Procurement, Warehousing
3PL2 : Registering Order, Notification
3PL3 : Assembling, Pick & Pack, Transportation & Distribution, Handing Over
3PL4 : After Sales, Payment & Account Processing, Order Return
4PL / LLP: Integration & Management of the total processes/all 3PLs
3PL Third Party Logistics (Provider)
4PL Fourth Party Logistics (Provider)
LLP Lead Logistics Provider

Figure 7: Partnering-specific definition of logistics (example)

Fourth, logistics can be defined as player-specific. Here, the distinction is oriented on

the perspective of the party that is conducting the logistics processes. Zentes and
Morschelt, for example, refer to service sector logistics if logistics processes are
managed by an external provider and to logistics as a company-internal service function
if logistics activities are the responsibility of the producer (Zentes and Morschett 2003,
pp. 420-421).
28 2 Š The area of logistics

Finally, a market-oriented definition of logistics is positioning-specific and directed on

customer focus (Pfohl 2007, p. 58). Based on Pfohl’s differentiation, I refer to
commodity logistics if single services or integrated services are provided as a
commodity service for all customers in the market and to the term specialized logistics
if single services or integrated services are provided for individual needs of a specific
customer.

The term logistics traditionally covers operative services besides production –

transportation, transshipment and warehousing. The definition of the term logistics is
strongly influenced by developments in the industry’s history as shown in Section 2.1.1.
This applies in particular to the performance-, partnering-, player- and positioning-
specific definition of logistics. Overall, today logistics can be defined according to the
most distinct development in the service spectrum that is the move from traditional
services up to the construction and optimization of global networks.

In addition, the term contract logistics is common in the area of logistics. Contract
logistics describes integrated service solutions that contain different and in terms of
volume, essential, logistics activities which can be completed by value-added services
and that are provided by an LSP as part of a service contract with the customer. In
contract logistics services are designed individually for the customer (Weber et al. 2007,
pp. 37-38).

2.1.3 Similarities and differences with supply chain management

The terms logistics and SCM have become very related. In order to present their
relations and to delimit both areas, a definition of SCM is necessary in addition to the
definitions of logistics provided in the section above. I have used the definitions of
SCM from Ayers, Bowersox et al., Bundesvereinigung Logistik and BearingPoint,
Frazelle, Kopczak and Johnson as well as Wansel and Tittel as examples. To summarize
their definitions, SCM contains the aspect of covering the total value chain’s physical,
informational, financial and knowledge flows of all processes across a network of
companies (Table 2).
2 Š The area of logistics 29

Definition of SCM Source

Management of life cycle processes that support physical, informational, Ayers 2002, p. 5.
financial and knowledge flows when moving products and services from
suppliers to customers.
Companies “collaborating to leverage strategic positioning and to improve Bowersox et al. 2002, p. 4.
operating efficiency.”
Supply chain management is oriented on consideration of the total value chain Bundesvereinigung Logistik
across companies. and BearingPoint 2003,
p. 36.
Managing the network of facilities, vehicles and logistics information systems Frazelle 2002, p. 8.
that are connected by a company’s supplier’s suppliers and its customer’s
customers.
Supply chain management covers “all the processes from product generation Kopczak and Johnson 2003,
through end-of-life recycling and disposal.” p. 29.
Supply chain management is the control and optimization of material and Wansel and Tittel 2002,
information flows. It includes the total planning chain across all value steps p. 37.
from customers’ customers to suppliers’ suppliers.
Table 2: Definitions of SCM (examples)

According to the above definitions, there is some overlapping between SCM and 4PL or
supply chain manager and LLP. These examples show the lack of a shared concept and
the prevailing confusion. Therefore, I have worked out an overview that helps in
clarifying the distinctions and relationships between the terms logistics and SCM,
adding value to the discussions about industry terms (Figure 8). My presentation is
derived from a presentation by Kopczak and Johnson (2003, p. 29).
x SCM covers the totality of processes and activities along total supply chains. The
totality of the five processes and activities are ‘Design product, process and supply
chain’, ‘Introduce product’, ‘Promote, price and merchandise product’, ‘Fulfill product
demand’ and ‘Recycle, reuse or dispose of product’. SCM coordinates and integrates all
physical, informational, financial and knowledge flows from sub-suppliers to end-
consumers (light grey field in Figure 8).
x Logistics covers only the processes and activities ‘Design product, process and
supply chain’, ‘Fulfill product demand’ and ‘Recycle, reuse or dispose of product’. This
means that logistics does not target product introduction as well as product promotion,
pricing and merchandising. Like SCM, however, logistics is also related to the total
supply chain that covers procurement, production and distribution (darky grey fields in
Figure 8). The main distinction to SCM is that logistics does not approach processes and
activites that are primarily covered by the first party that is the producer, also referred to
as original equipment manufacturer (OEM) or manufacturer (black fields in Figure 8).
x The first party in SCM and logistics is the producer. A production company is
primarily responsible for research and development, production and sales. Activities
30 2 Š The area of logistics

that are covered primarily by the first party concern the product’s introduction as well as
its promotion, pricing and merchandising.
x The group of the producer’s customers forms the second party in SCM and logistics.
Customers may either be distributors/wholesalers, retailers, consumers of retailers or
end-consumers.
x The third party is the group of LSPs that is referred to as 3PL provider. 3PL
providers are partners of the manufacturer, for example, suppliers of raw materials or
distributors of the final products. A 3PL provider is responsible for a part or parts of a
supply chain only.
x The fourth party is an integrator or integrated provider which I refer to as LLP rather
than using the term 4PL provider. An LLP is responsible for the management of the
total supply chain. Unlike a supply chain manager, an LLP does not cover operational
processes and activities but is restricted to strategic, i.e. administrative, tasks.
x Supply chain players are all parties involved in a company’s supply chains.
(For reasons of complexity Figure 8 does not present the possibility of having several
3PL providers for single supply chain activities as this is usually the case in reality.)

Finally, a short note is required on the distinction between the terms logistics chain,
value chain and supply chain. According to TNT’s logistics dictionary, a logistics chain
includes all successive links involved in a logistics process (TNT 2005, p. 59). A value
chain can be defined as the representation of the conversion of primary materials into a
customer’s desired object (Lowe 2002, p. 267). According to Porter, the value chain is
the basic tool for a systematic examination of all activities a company performs and
how these activities interact in order to analyze sources of competitive advantage
(Porter 1985, p. 33). A supply chain is, firstly, the continuous link from raw materials
supply through production to delivery of the finished product to the end-consumer.
Second, it is the total sequence of business processes from either a single company or a
multiple company environment (Lowe 2002, p. 237). In this study the term supply chain
is used for total business processes of a network of parties, while the term value chain
refers to a single company’s internal business processes, and logistics chain to
consecutive steps in a logistics process.
2 Š The area of logistics 31

To conclude this section, a summary of definitions regarding the ‘XPL discussion’,

logistics, contract logistics and SCM is provided in Table 3. This terminology is
relevant for this study.
 32

Recycle,
reuse or
dispose of

Figure 8:
product

Fulfill
product
demand

Promote, Physical flow

price and
merchandise Informational flow
product Financial flow
Knowledge flow

Processes (activities)
Introduce
product

Design
product,
process and
supply chain
Procurement Production Distribution

Overview of the terminology in the area of logistics

Systems-/
Sub- OEM/ Distributors/ Consumers End-
components Reta ilers
suppliers manufacturers wholesalers consumers
suppliers
Third party First party Second party

Fourth party
First party: producer
Second party: consumers
Third party: LSPs
Fourth party: integrator/LLP

(Based on Kopczak and Johnson 2003, p. 29; adapted for the logistics industry)
Activities covered primarily by first party Third party
Logistics activities
SCM Supply chain players
2 Š The area of logistics
2 Š The area of logistics 33

Term Short description

2PL • A manufacturer’s logistics activities are conducted in-house.

• Consumers receive goods from the manufacturer directly.
• No third party (in the sense of a market player or market participant) is involved in
providing logistics activities.
3PL (Provider) • Logistics provider offers selected operative, basic value-added or expanded value-
added services.
• Logistics provider uses own tangible resources and systems.
(While in theory and practice the terms tangibles as well as intangibles are
common, in this work the terms tangible resources and intangible resourses are
used.)
3.5PL4 • The concept emerged out of the weakness of an LLP/5PL provider in terms of
(Provider) having no assets, leading to a lack of trust among customers. Therefore customers
build their own infrastructure or acquire companies with assets.
• The concept emerged out of the strength of 4PL/LLP/5PL in terms of achieving
high margins. It is the move from 3PL to 4PL/LLP.
4PL (Provider)5 • The focus of the service offering is on strategic services.
• The aim is to offer total solutions, also referred to as one-stop-concept or one-stop-
solution, and covers the planning, construction, integration, management and
optimization of (logistics) networks, i.e. all physical, informational, financial and
knowledge flows related to procurement, production and distribution.
• Ownership of operative and strategic systems and networks (intangible
resources/soft assets and tangible resources/hard assets).
5PL (Provider)6 • A virtual (logistics) provider managing (logistical) networks.
• No ownership of physical assets (logistics assets/hard assets/tangibles resources).
• The term LLP is often used synonymously.
LLP • Provider’s concept is analogous to a 4PL provider’s concept.
• Unlike a 4PL, an LLP does not have its own tangible resources/hard assets but has
access to an extensive network of partners. In this way, neutrality in service
provision is guaranteed.
Logistics • Traditionally operative services besides production which are transportation,
transhipment and warehousing.
• The most distinct development is that the service spectrum has been extended from
traditional services up to the construction and optimization of global networks.
Contract • Integration of several logistics functions within a close, individualized relationship.
Logistics • Service spectrum covers operative and/or value-added and/or strategic services.
• The relationships are long(er) term.
• Relationships are formalized on a contractual basis (‘contract’).
• The business volume exceeds considerable minimum annual turnover. In practice
the minimum value is an annual turnover of 0.5–1 m. euros per year
(HypoVereinsbank et al. 2004, p. 7).
Supply Chain • Flow of products, information, finance and knowledge across all levels of value
Management added and all processes from product, process and supply chain design to product
(SCM) recycling, reuse or disposal.
• Integration and coordination across companies from sub-suppliers to end-
consumers.
Table 3: Terminology: ‘XPL discussion’, logistics, contract logistics and SCM

4
The 3.5PL concept is, for example, discussed in Lutz 2003, p. 10.
5
Origins of the term 4PL go back to 1996 when Accenture (formerly Anderson Consulting) coined
the term fourth party logistics (Helmke 2001b, p. 3). US literature increasingly dealt with the issue in the
following years (see e.g. Copacino 1997, p. 43; Bade and Mueller 1999, pp. 78-80; Stone 1999, p. 103)
with European literature to follow (see e.g. N.A. 2001a, p. 6; Baumgarten 2001a, pp. 36-38; Moeller
2005, p. 9).
6
The term 5PL is rarely used. This definition is based on Gericke 2003, p. 37.
34 2 Š The area of logistics

2.2 Recent developments

During the past forty years, logistics has developed from a business function that was
strongly concentrated on physical operations into an integral, process- and customer-
oriented management and business leadership concept. The future of logistics is shaped
by trends and current developments as well as by macro and micro environmental
factors. LSPs have to take them into account for the reason that logistics will remain
decisive for competition in the future.

2.2.1 From value chain to value network

The area of logistics is characterized by constant change. Each of the past four decades
formed a new milestone in logistics’ development (the following explanations are based
on Baumgarten and Thoms 2002 as well as on Baumgarten and Walter 2000).

The phase of classical logistics was in the 1970s. Logistics was mainly concerned with
the flow of materials and goods. The aim was to guarantee the availability of materials
and goods in the production process. LSPs’ responsibility for inbound and outbound
logistics covered operative services, in particular transportation, transshipment,
warehousing, commissioning, packing and freight forwarding, including optimization.
Often logistics was embedded in the functional organization of a company with
dissociated functions of logistics. Also, in the 1970s the development of information
technology was still low. Consequently, work structures were redundant and efficiency
low; parts of processes were uneconomic and order management times were long
(Baumgarten and Thoms 2002, p. 62; Baumgarten and Walter 2000, p. 3).

The 1980s were characterized by the development of logistics management. Logistics

had a cross-section function with the aim of optimizing functional comprehensive
sequences. Functional interfaces between procurement, production and sales causing
decreases in effectiveness and efficiency were in the focus of interest. From this time
onwards, logistics management optimized logistics services by integral consideration of
previously separately planned and headed functions. In addition to operative services,
LSPs increasingly offered basic value-added services such as warehouse value-add,
provision of materials synchronized to production, or quality control (Baumgarten and
Thoms 2002, p. 62; Baumgarten and Walter 2000, p. 3).
2 Š The area of logistics 35

Functional integration and company comprehensive integration are the two

developments recorded in the 1990s. In this period a transformation from a functional
perspective towards a flow-oriented perspective occurred. Construction and
optimization of process chains (functional integration) and of value chains (company
comprehensive integration) were the focus of interest. The field of logistics increasingly
covered not only the company itself but all companies involved in the value chain.
Logistics aimed at creating efficient flows of materials and goods. Its tasks were to
coordinate information flows, to reduce information deficits through the development of
new technologies and to manage own inventories. With functional integration, the
process-oriented and integral view allows a comprehensive optimization of the process
chain that also included development and recycling besides procurement/supply,
production and sales/distribution. Furthermore, order fulfillment accompanies
production and distribution as the responsibility of LSPs. With company-comprehensive
integration, the company is no longer the sum of single disassociated functions but an
integral system of value chains of suppliers, producers, retailers and customers
(Baumgarten and Thoms 2002, p. 62; Baumgarten and Walter 2000, pp. 3-4).

Today, logistics goes beyond a single company’s borders. LSPs offer customized end-
to-end logistics solutions for the entire, extended supply chain (Pfohl 2006, p. 3).
Logistics is the worldwide integration of value chains. I refer to this as Integrated
Supply Network Management. Supply chain partners cooperate, aiming to construct and
optimize the total supply chain from suppliers’ suppliers to customers’ customers in
global supply networks. LSPs no longer offer just operative or value-added services but
have entered the field of strategic services. Examples of LSP activities are merge in
transit, or the optimization of the distribution network. Customers are the focus of
interest as they influence the total supply chain process through their requirements
(Baumgarten and Thoms 2002, p. 62; Baumgarten and Walter 2000, p. 4).

Figure 9 summarizes the developments in the industry from the 1970s towards the new
millennium and onwards touching all LSPs independent of company size. The horizon
of logistics increased from efficient flow management of materials and goods up to
comprehensive, customer-oriented optimization of total supply chains. Consequently,
logistics is a strategic instrument for business management and a decisive factor in
competition (Baumgarten and Walter 2000, p. 4). This confirms Magee’s view that
36 2 Š The area of logistics

industrial logistics and trends in logistics technology will receive increasing attention
from business. Moreover, Magee’s perspective of logistics with a pure concentration on
physical distribution and distribution systems has been surpassed by far. Magee pointed
in particular to three revolutionary changes that have taken place, which are the strides
forward in information-handling methods, the acceptance of materials-handling
methods and the progress in ways of looking at the logistics problem and at methods for
analyzing distribution systems (Magee 1960, p. 89 et seq., p. 100).
 Functions Exemplary
Period Phase Developments in the area of logistics
and tasks activities

Figure 9:
Inbound Outbound • Transportation
Optimiza- • Transshipment
Classi- Transportation Transportation
2 Š The area of logistics

tion of dis- • Warehousing

1970s cal Procurement Transshipment Production Transshipment Sales
Warehousing Warehousing
associated services • Freight forwarding
logistics functions Operative (customs,
Logistics Logistics documents, etc.)

Optimiza- • Warehouse
tion of value-add
Cross- Transportation Transportation function • Provision of
1980s section Procurement Transshipment Production Transshipment Sales materials
compre-
basic

function Warehousing Warehousing synchronized

hensive
sequences to production,
quality controls
Construction/
Functio- Functional integration Order Fulfillment optimization • Inventory
nal and
Value-added services

Development Supply Production Distribution Recycling of process management

compa-
expanded

1990s chains • Advanced IT

ny com-
Company comprehensive integration services
prehen- Construction/
LSP LSP LSP • Inventory
sive in- Supplier Producer Retailer Customer
optimization
ownership
tegration of value chains

World- Integrated Supply Producer Global Supply

Network Management Network Construc- • Merge in transit
2000s wide tion/optimi-
Supplier (Extended • Optimization of
integra- zation
and on- Supply Chain) the distribution
tion of of global
wards network
Strategic services

value Retailer
networks
chains Client

(Based on Baumgarten and Thoms 2002, p. 62; Baumgarten and Walter 2000, p. 2)
Responsibility of the area of logistics.

Developments in the industry from the 1970s towards the new millennium and onwards
37
38 2 Š The area of logistics

In my view, the above description of developments in the industry requires two basic
adaptions. First, the value chain as presented prior to the 2000s has to be further
specified as it covers more than procurement, inbound logistics, production, outbound
logistics and sales. Second, the phase beyond the 2000s, with its strong network
characteristics, has to be further detailed in terms of the value chain participants, as this
is a development of major impact on the logistics industry and on doing business in
general. Figure 10 shows my presentation of developments in the industry as an
improved alternative to Figure 9.

In the 1970s and 1980s the traditional value chain was of interest for logistics. There
was clear work-splitting between the LSP and the producer. Logistics tasks
concentrated on operations management in inbound logistics/raw material supply and
outbound logistics/delivery only. The responsibilities of the producer were on the value
chain activities of research and development, product design, process development,
procurement, production/product transformation, marketing, sales and after-sales
service. This means that the producer’s roles covered product development, i.e. its
design and product-to-market activities, operations management in particular regarding
assembly, as well as process management like integration of complementary vertical
and horizontal resources and competences.

In the 1990s an advanced value chain was the focus of LSPs which increasingly took
over more activities from producers. The roles of logistics concentrated on operations
management by providing operative services like outbound logistics and value-added
services like assembling, as well as on process management by providing strategic
services like integration of complementary vertical and horizontal resources and
competences. Specifically, the value chain activities of LSPs were process development,
procurement, inbound logistics/raw material supply, production/product transformation,
outbound logistics/delivery and after-sales service (see dark grey arrows in part ‘1990s:
Advanced Value Chain’ in Figure 10). The producer, as the other party in providing
value chain activities, focused on product development with product design and
product-to-market activities. The producer was specifically responsible for research and
development, product design, marketing and sales.
2 Š The area of logistics 39

However the key turnaround in the industry has happened since the turn of the century
with the rise of value networks. There are no longer just the two parties of an LSP and a
producer. Now, business is networking with four types of participants. The first group
of participants is the product designers who are responsible for product development.
The second group is formed by several producers who are responsible for a part of a
final product. All these parts are consolidated by outsourcers. I describe this role of
outsourcers with the phrase ‘cooking transformation’ of the production process. The
third group of network participants is the retailers who are in charge of retailing, while
LSPs, as the fourth group, are responsible for supply chain operations and integration.

With my presentation of developments in the industry in Figure 10 I would like to

highlight the decisive change in the industry with value chain activities moving away
from the producer to other parties. This aspect is, for instance, also covered in a
publication by Hirn and Neukirchen (2001, pp. 294-304). The authors state that
companies increasingly leave production and focus on product development and
branding. While at that time it could not be categorically stated whether this strategy
would result in future success and long-term survival due to the constantly changing
industry, from my perspective this seems to have been proven at least in the medium
term as many companies like Adidas or Nokia, among others, pursue this strategy.
However, there are contrarians like the Spanish clothier Zara which manages a lot of
design, warehousing, distribution and logistics functions itself instead of relying on
outside partners (Ferdows et al. 2004). This example shows the tension remaining
regarding this development in the industry.

Summarizing the essence of this section, liberalization, in particular in the EU, and
globalization, have led to a fracturing, if not to an explosion, of the value chain, where
companies are doing less and less themselves. Companies’ value chains are becoming
smaller, while their partners’ are becoming larger. One of the changes of major impact
was the outsourcing of manufacturing away from design and service. All of this leads to
the emergence and growth of the logistics function and industry while the
manufacturing industry is decreasing – a development that applies in particular to
Europe. This provides the interesting distinction between value chain and value network
which is that logistics is what makes the value network work.
 40

Inbound
Research Process Production/ Outbound After-
Product Procure- Logistics/
& Develop- Product Marketing Logistics/ Sales Sales
Design ment Raw Material
Development ment Transformation Delivery Service
1970s and Supply
1980s:
Traditional LSP Producer
Product
Value Chain In- and
Development,
Outbound Production,
Logistics
Retailing

Inbound
Research Process Production/ Outbound After-
Product Procure- Logistics/
& Develop- Product Marketing Logistics/ Sales Sales
Design ment Raw Material
Development ment Transformation Delivery Service
Supply
1990s:
Advanced LSP Producer
Value Chain Operations
Management/ Product
Process Development
Management

Outsourcers
Production
“Cooking
Transformation”
2000s and Product Designers Retailers
onwards: Product
Retailing
Value Development
Network LSPs
Supply Chain
Operations/
Integration

Legend: Group of value chain participant or network participant Logistics

Roles and responsibilities Producers and other value chain or network participants

Figure 10: From value chain to value network: Developments from the perspective of participants’ roles
2 Š The area of logistics
2 Š The area of logistics 41

2.2.2 Environmental conditions

Section 2.2.2 aims to identify the causes of current developments in the area of logistics.
For this reason an analysis of the micro and macro environments is conducted. For the
micro environment analysis I applied Porter’s concept of structural analysis of
industries and searched for the underlying sources of the five competitive forces. The
macro environment analysis covers causes from the ecological, economical, legal,
political, sociological and technological fields.

2.2.2.1 Micro environmental factors

In the course of the literature review, I analyzed articles, surveys and presentations in
terms of environmental factors that affect the area of logistics. Applying the concept of
Porter with its five competitive forces and their allocated sources (Porter 1980, pp. 3-
29), examples of logistics were assigned. The analysis considers the competitive forces
acting on all types of providers operating in current logistics. Based on the examples, an
evaluation is made whether the sources have a high, moderate or low impact on industry
competition. This evaluation is subjective and based on the literature review as well as
on practical experience. Table 4 presents this structural analysis of the industry that fits
for the area of logistics.
42
Forces Sources of the forces
driving
industry
competition
Potential Barriers to entry:
entrants Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution
channels
Cost disadvantages
independent of scale
Government policy
Expected retaliation from
entrenched competitors
Industry Numerous or equally
competitors balanced competitors
Slow industry growth
High fixed or storage costs
Lack of differentiation or
switching costs
Capacity augmented in large
increments
Diverse competitors
High strategic stakes
High exit barriers
Continued on next page
2 Š The area of logistics
Examples of the industry Evaluation:
that fits the area of logistics impact on
industry
competition
Regarding total solutions, the changed, increasingly low
heterogenous and individualized needs of customers require a
variety of engagements in logistics and a steadily increasing
service spectrum
Reduced loyalty of customers; risky investments in building a high
brand name by newly-emerged companies focussing on strategic
tasks, while established companies (usually asset-intensive
companies) are already well-known
High capital requirements for asset-intensive companies; moderate
companies with soft assets invest in knowledge, advertising, etc.
Shorter contract times/increased frequency for tenders and low-
‘auctions’ of tenders; psychic costs of serving a relationship moderate
Existing competitors with stronger ties to channels, in particular high
new market entrants joining networks have to deal with building
strong relationships to third parties (higher trust for established
companies)
Declining costs at established companies due to improved high
methods and more efficient processes; shared learning for
players founded within existing companies
Due to deregulation in the postal market, postal operators are high
moving heavily into the area of logistics
Strong commitment of established companies to the industry: high
foundation of subsidiaries providing total solutions, acquisitions
of companies which offer total solutions, driving out of
companies which tried to move into the industry during the age
of new information and communication technologies
Tendency for concentration; a few relatively balanced companies high
in terms of their size and perceived resources have the resources
for retaliation
The European logistics market grew by roughly 8% from 2004 to moderate
2007; the volume also increased due to higher prices for fuels
and road charges
Individualized service offerings provided just-in-time low
High individualization of customers’ needs low
Less risky than in commodity business as the demand for low
logistics services is not cyclical in general and services are
differentiated
Intensified competition: market players from various industries high
(IT, consultancy, etc.); market players are diverse in strategies
(operative/strategic service provider), origins (logistics, IT,
consultancy), personalities (owner/individual with
many years of experience in transportation) and relationships to
their parent companies (start-ups, merged divisions)
Postal operators increased efforts to establish a solid position in moderate
logistics for becoming global market leaders with potential
willingness to sacrifice profitability (discussion of cross-
subsidizing)
After the ‘e-Hype’, e-Logistics providers and e-Commerce low
enablers left the market and were barely missed
2 Š The area of logistics
Continuation from previous page
Forces Sources of the forces
driving
industry
competition
Substitutes Pressure from substitute
products
Buyers Buyer group is powerful if:
it is concentrated or purchases
large volumes relative to
seller sales
the products it purchases from
the industry represent a
significant fraction of the
buyer’s costs or purchases
the products it purchases from
the industry are standard or
undifferentiated
it faces few switching costs
it earns low profits
buyers pose a credible threat
of backward integration
the industry’s product is
unimportant to the quality of
the buyer’s products or
services
the buyer has full information
Suppliers Supplier group is powerful if:
it is dominated by a few
companies and is more
concentrated than the industry
it sells to
it is not obliged to contend
with other substitute products
for sales to the industry
the industry is not an
important customer of the
supplier group
the suppliers’ product is an
important input to the buyer’s
business
the supplier group’s products
are differentiated or it has
built up switching costs
the supplier group poses a
credible threat of forward
integration
Table 4: Structural analysis of the logistics industry
(Based on Porter 1980, pp. 3-28; sources for the examples: Baumgarten and Thoms 2002,
pp. 8-9, p. 67, p. 83, p. 104; Fritzen 2005, p. 12; Heaton 2004, p. 94, p. 96; Helmke 2002,
p. 3; Klaus 2003, p. 70, pp. 79-151; Klaus and Kille 2008, p. 45; Kuehner 2002, p. 23; N.A.
2003b, p. 6; Schmeling 2003, p. 10; Truszkiewitz 2002, pp. 55-56)
43
Examples of the industry Evaluation:
that fits for the area of logistics impact on
industry
competition
Use of potentials with new IT; changes in supply chain low
responsibilities, for example insourcing
The number of producers requiring logistics services is large and moderate
producers are of a wide range of sizes; however, dependence on
specific buyer groups with similar requirements on services (e.g.
“Freshnet” as defined core sector for food/catering trade at Thiel
Logistik AG, Luxemburg)
Outsourcing (focus on core competencies); “phenomenon of high
forward shifting” (“Phaenomen der Vorwaertsverlagerung”):
shifting complexity towards distributors
Trend towards individualization of services but services are not moderate
very differentiated; increased requirements on quality of the
European logistics systems which have to meet individual needs
Switching costs are linked to the contract; trend towards reduced low
period of validity of logistics contracts
(Depending on target group) ---
Customers with their own experience in logistics due to their moderate
own activities in the past or partly still today
Service (delivery at the right quality, in the right quantity, in the moderate
right place, at the right time) is especially important in
e-Commerce
Cost transparency; possibility for comparison of products and moderate
prices worldwide due to the Internet
Depending on the specific market the degree of concentration of low-
the top 10 companies in Europe stretches between 7% (industrial moderate
contract logistics, in particular industrial production supply,
spare part distribution and other ‘business-to-business’ contract
logistics) and 69% (CEP – courier, specialized express services
and parcel); suppliers are often large companies, in particular
airports or ocean carriers, but they are not numerous
Possibility of the introduction of Deutsche Post’s Packstation low
(picking up of the delivery by the customer at a specified place)
in the business-to-consumer area also for the business-to-
business area
Trend towards services from a single supplier: providers in the moderate
area of logistics offering the total solution have a strong position
as suppliers’ direct access to buyers is interrupted by this party
positioned in-between
Input is important to service provision in particular for high
companies with hardly any assets or no assets at all
In general, similarity of services; differences in quality (e.g. low
delivery without losses, etc.)
Highly-skilled, experienced employees with the ability to high
integrate global value chains in the buyer group
44 2 Š The area of logistics

I counted the number of high, moderate and low evaluations per force in order to gauge
the strength of their effect on industry competition. For example, the industry
competitors force has two high, two moderate and four low evaluations. This procedure
was similarly applied to the other four forces leading to the results as presented in
Figure 11. The force of potentential entrants with five high, 1.5 moderate and 1.5 low
evaluations is a force with a high impact on industry competition. The forces buyers
(one high, five moderate and one low evaluation), suppliers (two high, 1.5 moderate and
2.5 low evaluations) and industry competitors are forces with moderate impact on
industry competition while the force substitutes has a low impact.

POTENTIAL High: 5
ENTRANTS Moderate: 1.5
Low: 1.5

High: 2 Threat of
Moderate: 2 new entrants
Low: 4
INDUSTRY
Bargaining power COMPETITORS Bargaining power
of suppliers of buyers
SUPPLIERS BUYERS
High: 2 High: 1
Moderate: 1.5 Rivalry Among Moderate: 5
Low: 2.5 Existing Firms Low: 1

Threat of
substitute products
or services

Low: 1 SUBSTITUTES

Legend:
Force with high impact on industry competition.
Force with moderate impact on industry competition.
Force with low impact on industry competition.

Figure 11: Micro environmental conditions: forces driving industry competition

(Based on Porter 1980, p. 4)

My judgements of the overall strength of the five forces on industry competition

originate in the arguments below.
x I assess the power of new market entrants as high. Well-established LSPs in the
industry have been known by customers for years. These LSPs often provide
individualized and Total Integration solutions by setting up subsidiaries or through the
acquisition of companies as a response to new entrants. Furthermore, in entering global
networks, new entrants have to manage hurdles such as costs and efforts for creating
2 Š The area of logistics 45

trust and building relationships, both very well-established at LSPs that have been in
business for decades.
x The power of buyers on industry competition is moderate. Despite the trend towards
individualization, logistics services are not highly differentiated. If logistics generates a
large volume of a producer’s costs or is a vital part of their business, buyers are more
willing to switch or to insource logistics services again. Buyers are independent and
price-sensitive.
x Suppliers’ power is assessed as moderate. LSPs operate in a strong network of
partners. They may own assets for offering services or access those of other parties. For
example, airports or ocean carriers are vital suppliers if it is not feasible to transport
goods by road. But employees in logistics have become highly-skilled, leading to the
expectation of increasing forward integration towards total solution offerings.
x There is also moderate rivalry in the logistics industry. Major players offer similar
commodity services, while SMEs concentrate on individualized offerings. Rivalry is
mainly driven by the lack of diversity, a large number of LSPs and easy expansion.
x The threat of substitutes in logistics is weak although according to current industry
developments in-house logistics, consultancies and IT companies have to be considered
as possible providers for substitute services. Advances in technology may change the
way logistics is provided but their impact is also low.

Overall, my analysis identified a tension between current developments in the industry

with the rise of new value chain participants (2.2.1) and the high strength of the force
potential entrants in industry competition. According to my findings from literature
review and experience, new value chain participants have to deal particularly with five
barriers to market entry.

The first barrier is that new entrants have difficulties in establishing a brand and
reputation. LSPs that have been in business for decades are well-established and well-
known to customers. New entrants have to make large investments to create such a good
brand and high reputation in the industry. A further barrier is that new entrants are
restricted in accessing networks. Well-established LSPs have strong global networks.
Success in Integrated Supply Network Management requires new entrants to have a key
strength in relationship building. The third barrier is that new entrants lack knowledge.
The area of logistics is traditionally a low margin business. Offering single services or
46 2 Š The area of logistics

integrated services for an anonymous market requires experience, for example in terms
of improving methods for making processes more efficient. In contrast to moving boxes
or transporting goods the spectrum of activities for LSPs is today very complex. Fourth,
in the course of deregulation, postal operators are approaching the area of logistics
aggressively as the example of Deutsche Post shows and finally, there is a fierce
competition initiated from established LSPs. LSEs in logistics strongly defend their
market position through the acquisition of new entrants that help to enhance the service
portfolio.

Moreover, industry competition is intensified and strongly characterized by

concentration of a few relatively balanced companies from many industries. Buyers
increasingly focus on core competencies and outsource other activities. Thereby, the
LSPs key power is in their inputs’ importance to the buyers’ business. LSPs with
highly-skilled and experienced employees who are able to integrate complex supply
chains have a strong power to overcome the hurdles in today’s industry competition and
to compete with the arising new value chain participants.

2.2.2.2 Macro environmental factors

Besides micro environmental factors, factors from the macro environment also
influence the developments in the area of logistics. In this section the aim is not to
provide an all-embracing list but to highlight important factors from each of the six
dimensions of the legal, sociological, ecological, technological, economical and
political environment. Figure 12 provides examples of issues in the macro environment.
 • Deregulation and privatization
• EU East Enlargement
• Introduction of toll charges
• Cross-border transportation regulations, norms
and issues (e.g. putting goods from trucks on trains
when moving from Germany into Switzerland)
WestLB Panmure 2000, p. 23)
• Networking of companies
• Building and further developing
cooperations and strategic alliances to
cover a broad service spectrum in a
network of partners
• Corporate mergers and acquisitions (designed
to merge international logistics expertise with
domestic warehousing and distribution capabilities)
• Intensified collaboration between producers and distribu-
tors due to reduced depth in production and fractal
distribution of value creation and know-how
• Increasing shift of initiative in value-added
benefit towards the end-consumer
• New distribution channels
• Merging of logistics competencies
Gooley 2002b, p. 45, p. 47; Klaus and Kille 2008, p. 18; RFID Journal
• Globalization/global expansion of markets
Figure 12: Macro environmental factors affecting the logistics industry (examples)
• Market stagnation
• Cutbacks in resources
• New business models
2004, p. 9; Kuehner 2002, p. 23; N.A. 2001b, p. 1 ; N.A. 2001c, p.1; Wereldsma 2008, p. 21;
(Based on Baumgarten and Thoms 2002, p. 8, p. 67, p. 83, p. 104; Eyefortransport 2003, p. 1;
• Safety legislation due to terrorism • Transition to a post-industrial society
• Environmental directives • Stagnation of growth in industrial production
• Conditions for working safety in Western Europe
(e.g. hours allowed for driving a • Financial crisis
truck) • Influence of private equity investors
• Increased demand for individualized
2 Š The area of logistics
products and services
• Social burden caused by higher contributions
to, for example, health insurance leading to
Legal additional costs in wages
• Share of persons with higher education and
Political Environment Sociological share of qualified employees increases
Environment Environment
Macro
Environment
Economical Ecological
Environment Environment
Technological
Environment • Growing environmental sensibility
• Dramatic increase in requirements on
• Acceleration of frequency of economic safety, prevention and sustainability
activity in an on-demand world • Demand for reduction in CO2 emissions
• Shorter product life cycles • Environmental pollution
• Dynamic of technology change • Increasing costs in road transportation
• Networking (Internet, Intranet) due to ecological taxes (e.g. “Oekosteuer”
• Automatization (robotics) in Germany) and road tolls for
• Comprehensive locating (e.g. through GPS) lorries and trucks
• Software/database developments allowing • Increasing recycling tasks for
controllability and automization of product and LSPs due to stronger
information flows by means of, for example, RFID ecological laws
47
48 2 Š The area of logistics

On the macro level, the economical, technological and ecological environments have
the strongest impact on the area of logistics. The key factors in the economical
environment are globalization, awareness of the importance of an optimized
organization as well as concentration on core competencies. Due to the globalization of
production and global economy traffic transport, logistics has also become
internationalized. The demand for large networks and competition is increasing. An
optimized organization of structures and processes by lean management, process
management or event management is viewed as a success factor in the industry. The rise
of outsourcing due to a concentration on core competencies leads to reduced complexity
and increased financial performance (Klaus and Kille 2008, p. 18; Straube and
Borkowski 2008, p. 17; Weber et al. 2008, p. 7).

The technological environment also has a strong impact on the area of logistics. New
technologies are enhancing the requirement for communication and integration and the
frequency of economic activity in an on-demand business world is accelerating. Also,
success or failure in competition is dependent on time and speed. Technology and
product cycles are shorter and just-in-time production is increasingly replacing large
inventories. With IT logistics, systems are more flexible and enable operations in a
dynamic field. Furthermore, technological progress provides new options for logistics
design. For example, networking is narrowing as a result of the Internet, comprehensive
locating is possible with GPS or controllability and automization of product and
information flows is enabled by means of RFID and other technologies (Klaus and Kille
2008, p. 18; Weber et al. 2008, p. 35).

In the past few years the importance of ecology has increased in logistics due to
growing environmental threats and sensibilities. In particular, the industry has to be
concerned with reductions in CO2 emissions as on average 10% to 20% of the CO2
emissions of a product are caused by transportation alone (Arretz and Jungmichel 2008,
p. 5). Germany, for instance, has the political aim of reducing greenhouse gas emissions
by 40% from 1990 to 2020. As of 2006, the aimed reduction was being missed by 2.5
percentage points. The share of total traffic (persons and goods without air and sea
traffic) on total CO2 emissions was roughly 18% in Germany in 2007. Although the
transportation of goods accounts for only roughly six percent of total CO2 emissions (in
2005, without air traffic), its share of emissions of total traffic, currently at around 30%,
2 Š The area of logistics 49

is continuously increasing. This shows that for the future even stronger ecological
requirements on goods traffic are to be expected (IKB Deutsche Industriebank 2008,
p. 3). A final example of the ecological environment is that requirements on safety,
prevention and sustainability will increase dramatically (Klaus and Kille 2008, p. 18).

One of the key characteristics of the sociological environment is the transition to a post-
industrial society. While in Western Europe in particular the growth in industrial
production of goods stagnates, customers increasingly demand individualized products
and services as well as the enrichment of goods through services (Klaus and Kille 2008,
p. 18).

The political environment is mainly shaped by the deregulation and privatization of

state-owned communication and transportation companies. The abolition of public, i.e.
not fixed by market and competition, prices and entrance rights has triggered a
revolution. In particular, strong decreases in prices for the transportation of parcels and
other goods has led to a hard rationalization pressure in these markets. Traditional
service providers, i.e. formerly fully state-owned operators, started to give themselves
new structures, to create new products and services in new qualities and to
commercializing these aggressively. They searched for possibilities of rationalization,
of improving quality and flexibility. Thus, by deregulation logistics also has become an
impulse giver and enabler of innovations in many areas of the economy. To mention
just two examples, the German postal incumbent Deutsche Post AG with DHL as the
umbrella brand for its express and logistics business since 2003 (Deutsche Post 2005,
p. 31) or the German rail operator Deutsche Bahn with its business unit DB Schenker
Rail (Deutsche Bahn 2009, cover page) are very strong competitors in the area of
logistics today. They are usually hybrid LSPs that operate in several business segments
(Klaus and Kille 2008, p. 18).

Finally, regarding the legal environment, rules and norms such as those concerning
conditions for working safety, e.g. maximum hours allowed driving a truck, also
influence the area of logistics. Furthermore, safety legislation due to terrorism or
environmental directives are being increasingly approved (Wereldsma 2008, p. 21).
50 2 Š The area of logistics

In this Section 2.2.2 my research contribution is the identification of micro and macro
environmental conditions that are the causes for developments in the industry as
described in Section 2.2.1. A summary and overview of my findings is given. In the
micro environment, the key conclusions are that the force potential entrants has a high
impact on industry competition, whereas the forces industry competitors, suppliers as
well as buyers have a moderate impact while substitutes’ impact is low. This is of
special interest as industry developments demand for new market participants. Providers
in the area of logistics are challenged to overcome many barriers in industry
competition. Besides these micro environmental issues, the area of logistics is strongly
impacted by economical, technological and ecological factors from the macro level.

2.2.3 Trends and current developments

As described in Section 2.2.1, the industry has developed from classical logistics in the
1970s towards integrated supply chain management in the 2000s. The first decade of the
21st century is inclining to the end and a new period in the area of logistics is
crystallizing which is customer-driven. Customers’ expectations decisively influence
the future concepts in the industry. While in the past four decades complexity and scope
of requested logistics services has increased continuously, this trend is now being
strengthened even further.

In the context of a highly customer-driven business, the requirement on supply chains is

an increasingly dynamic and less static responsiveness, and the intensity of
collaboration is high. I use the term demand chain management to describe this current
and future concept.

Integration in demand chain management means ad-hoc availability compared to

disassociated functions in the 1970s and transactional integration in Integrated Supply
Network Management. Demand chain organization is end-to-end, i.e. integrated rather
than departmental or intra-company. The management approach is collaborative instead
of hierarchical as in the 1970s or characterized by instruction and control as in the
2000s. While local technical solutions were used in classical logistics, Enterprise
Resource Planning (ERP) solutions that ensure greater coordination of business
processes (Lowe 2002, p. 85) shaped Integrated Supply Network Management. By
comparison, currently and in future supply chain participants are web-connected. This
2 Š The area of logistics 51

allows real time operations rather than responses in days, weeks or even months.
Performance is no longer measured primarily in terms of costs as it was in classical
logistics or in terms of costs and quality as in Integrated Supply Network Management,
but – since it is driven by stakeholders rather than customers or providers – in terms of
turnover and profit. Figure 13 provides an overview of past and future trends in the area
of logistics.

Supply chain responsiveness

Static Dynamic
High
Intensity of
collaboration
Low 1970s 2000s 2009+
Integrated Supply Demand Chain
Dimension Logistics
Network Management Mangement
Integration Disassociated Transactional Ad-hoc availability

Organization Departmental Intra-company End-to-end/integrated

Management approach Hierarchical Instruction and control Collaborative

Technology Local solution ERP Web-connected

Time Months/weeks Weeks/days Real time

Performance Costs Costs and quality Turnover and profit

Figure 13: Trend towards demand chain management

(Based on Wereldsma, D. 2008, p. 20)

Demand chain management as the future of the area of logistics will be characterized by
serving ‘smart’ customers, a differentiated buying experience, rich-media information,
greater personalization, the shift from products to services and solutions as well as the
commoditization of quality. According to the GCI (GCI et al. 2006, pp. 9-10), there are
six critical areas of opportunity for growth and improved performance, i.e. for
customer-driven behavior in demand chain management. There will be a new interface
with the customer (‘shopper’) for a two-way dialogue (shopper dialogue), open
platforms for distributed data-sharing models (information sharing), synchronized
production with full integration of upstream suppliers (synchronized production), a
move from retailer brand-centric logistics to geographic-centric logistics with more
collaboration on transportation and consolidation (integrated logistics/home fulfillment),
economic development and environmental protection aiming at a higher quality of life
for everyone (sustainability) as well as shared services, shared information and
52 2 Š The area of logistics

collaboration leading to, for example, organizational development or improved trust

(company cultural and behavioural changes).
As a reaction to these trends and current developments, LSPs have to review and
transform their business models. High priority is on focussing on core competencies and
on commoditizing existing offerings. However, LSPs have to provide differentiated
services to add value and to succeed in the dynamic customer-driven industry.
Additions to service offerings are, for example, the provision of end-to-end supply
chain visibility, business process re-engineering or supply chain analysis and
improvement.

2.3 Industry demography

This section provides an overview of the sizes of the global, European and German
logistics markets based on estimates from Klaus and Kille, the Fraunhofer Institut,
Datamonitor and Armstrong & Associates. A segmentation of logistics is feasible from
several perspectives. I present the approach by Klaus and Kille, who segment by the
functional area of logistics, means of transport and geography. Following this, I provide
an overview of LSEs in the European logistics industry. LSEs are the one group of
actors, SMEs are the other. I also present examples of German LSEs and German SMEs
offering contract logistics services. Section 2.3 ends with a closing remark on the
number of LSPs in Europe and on Hidden Champions in the industry.

2.3.1 Market volume

Only a few researchers, experts, authors or institutions have concentrated on a detailed

analysis of the size of the market for logistics. The Fraunhofer Institut (Professor
Klaus), Armstrong & Associates, and Datamonitor are the best-known sources, being
industry standard and with long-term experience in market analyses. I cite these sources
in this section without making further explanations or evaluations of market potentials.
The first source, the Fraunhofer Institut Integrierte Schaltungen/Arbeitsgruppe für
Technologie der Logistik-Dienstleistungswirtschaft ATL has published estimates on
market volumes in its regular study on the ‘Top 100’ in logistics. The key authors Klaus
and Kille have focused on market estimates for Germany and Europe (Klaus and Kille
2008, 2006). Similarly, it is the supply chain market research and consulting company
Armstrong & Associates which regularly estimates the logistics market volume for the
US. The worldwide association of supply chain management professionals, the CSCMP,
2 Š The area of logistics 53

also relies on the market figures from Armstrong & Associates (Wilson 2005). Market
research by Datamonitor (2008a; 2008b; 2008c; 2008d) covers the global logistics
industry. Datamonitor is a business information company specializing in industry
analysis. Its market volume estimates are extremely divergent from those of Klaus and
Kille as well as from those of Armstrong & Associates. These differences show the
confusion in literature regarding to statements on market volumes. One of the essential
reasons might be a different view of what logistics is and which services should be
included in the total logistics volume. Logistics can be defined very narrowly or very
expansively (Klaus 1999, p. 39; for data sources, gaps and quality as well as
incompatibilities or limits of information value regarding Klaus’ market research, see
Klaus and Kille 2008, pp. 41-44). Datamonitor’s procedure was shown to be extremely
untransparent by a request by Kille (also on behalf of the Fraunhofer Institut) for an
explanation as to the radical differences in data. The figures from Klaus and Kille are
based on several estimates as well as on statistics which are publicly available. Kille
suspects that the figures of Datamonitor contain only the volumes of the LSPs, as well
as only transport and warehousing but no administration, capital and management costs
(Kille 2009). Datamonitor did not comment on the request for an explanation for the
difference to the other sources’ market estimates. One of my contributions to research in
the area of logistics is summarizing available estimates on market volumes.
Accordingly, Table 5 provides an overview of the published logistics market volume
estimates from the three key sources mentioned. To avoid this kind of confusion in
market volume estimates a clear definition of terms in the area of logistics as clarified
and provided in Section 2.1.2 is a necessary prerequisite. My research finals in that
section should be helpful for future market volume estimates and a more shared
understanding.
54 2 Š The area of logistics

[in bn EUR] Geography Kla us and Kille Datamonitor Armstrong & Associates
(CSCMP)
2004 2007 2004 2007 2004 2007
Germany – 170 1 205 5 378 40 12
Total
Logistics
Germany – 672
Contract
Logistics
Europe – 730 3 837 6 1609 177 13
Total
Logistics
Europe – <360 4
Contract
Logistics
US – 145 10 163 14 74416
Total
Logistics
US – 66 17
Contract
Logistics
Global – 4,2007 475 11 573 15
Total
Logistics
Global –
Contract
Logistics
1 Klaus and Kille 2006, p. 43.
2 Klaus and Kille 2006, p. 73; market segment “consumer goods distribution and consumer goods contra ct logistics” (21.5 bn EUR) and
market segment “industrial contract logistics” (45.5 bn EUR).
3 Klaus and Kille 2006, p. 43; value for seventeen European countries.
4 Klaus and Kille 2006, p. 164.
5 Klaus and Kille 2008, p. 159; projection of total logistics costs.
6 Klaus and Kille 2008, p. 159; projection of the sum of total logistics costs; value for seventeen Europea n countries.
The value is 905.8 bn EUR for twenty-nine European countries.
7 Klaus and Kille 2008, p. 45.
8 Datamonitor 2008c, p. 9; excha nge rate as of 30 May 2009; 1 EUR = 1.4043 USD.
9 Datamonitor 2008b, p. 9; exchange rate as of 30 May 2009; 1 EUR = 1.4043 USD.
10 Datamonitor 2008d, p. 9; exchange rate as of 30 May 2009; 1 EUR = 1.4043 USD.
11 Datamonitor 2008a, p. 9; excha nge rate as of 30 May 2009; 1 EUR = 1.4043 USD.
12 Datamonitor 2008c, p. 9; excha nge rate as of 30 May 2009; 1 EUR = 1.4043 USD.
13 Datamonitor 2008b, p. 9; exchange rate as of 30 May 2009; 1 EUR = 1.4043 USD.
14 Datamonitor 2008d, p. 9; exchange rate as of 30 May 2009; 1 EUR = 1.4043 USD.
15 Datamonitor 2008a, p. 9; excha nge rate as of 30 May 2009; 1 EUR = 1.4043 USD.
16 Wilson 2005, p. 2 [text]; excha nge rate as of 31 December 2004; 1 USD = 0.73314 EUR.
17 Wilson 2005, pp. 9-10 [presentation]; exchange rate as of 31 December 2004; 1 USD = 0.73314 EUR.

Table 5: Overview of logistics market estimates

The table shows the extremely divergent market volume figures, signaling the
prevailing confusion in this perspective. For 2007 Klaus and Kille estimated the global
logistics volume at around 4,200 bn EUR (Klaus and Kille 2008, p. 45). However,
Datamonitor’s market volume amounts to only about 14% of this value, with 573 bn
EUR in 2007 (Datamonitor 2008a, p. 9). Further and more detailed estimates on the
global logistics market volume are only available from Datamonitor. These are
presented in the following two figures.
2 Š The area of logistics 55

CAGR: 5.3%
800 8
741.0
CAGR: 6.2%
694.6
700 654.1 7
621.6
595.6
600 573.0 6
533.9
503.5
500 475.0 5
450.8

% Growth
EUR bn

400 4

300 3

200 2

100 1

0 0
2003 1 2004 2005 2006 2007 2008 2009 2010 2011 2012

Legend: Actual figure global logistics market value in EUR bn

Forecast figure global logistics market value in EUR bn
% Growth
CAGR Compound Annual Growth Rate
1 Figure % Growth not available

Figure 14: Global logistics market value and forecast

(Based on Datamonitor 2008a, p. 9, p. 31; exchange rate as of 30 May 2009: 1 EUR =
USD 1.4043)

Datamonitor expects a growth of close to 65% from 2003 (global logistics market
volume of 450.8 bn EUR) to the estimated value of 741.0 bn EUR for 2012. The actual
CAGR is 6.2% from 2003 to 2007 and the estimated CAGR is 5.3% from 2007 to 2012
(Figure 14).

Datamonitor’s publications further allow conclusions on the development of the market

shares of Europe and the US from the total global logistics market volume (Figure 15).
The market shares for Europe were 34.6% in 2003 and 30.9% in 2007. The European
market share is expected to amount to 24.6% in 2012. For the US the market share was
30.8% in 2003 and 28.4% in 2007. It is expected to be 26.1% in 2012. These figures
show that the market shares of Europe and the US on the total global logistics market
will decline continuously. With a market share in Europe decreased by 3.7 percentage
points from 2003 to 2007 and an expected decline by 6.3 percentage points from 2007
to 2012, the volume is expected to decline by 10 percentage points from 2003 to 2012
overall. The US market share declined by 2.4 percentage points from 2003 to 2007 and
is expected to decline by 2.3 percentage points from 2007 to 2012. The overall decrease
from 2003 to 2012 is expected to amount to 4.7 percentage points. While both the
European and American share of the global logistics market volume has been declining
56 2 Š The area of logistics

(though volumes in absolute numbers have grown), the fall is much stronger for Europe
than for the US. The market volume has shifted increasingly to other countries around
the world. The market share of Rest of World (RoW) increased from 34.6% in 2003 to
40.7% in 2007 and is expected to account for 49.4% in 2012.

Logistics Market Value 2003 – Logistics Market Value 2007 – Logistics Market Value 2012 -
Actual Actual Forecast
[in bn EUR] [in bn EUR] [in bn EUR]

741.0 182.0

40.7
193.1
573.0 177.1

450.8 156.1
40.2
365.9
162.9
36.5
138.7

233.0

156.0

Global Europe Germany US RoW Global Europe Germany US RoW Global Europe Germany US RoW

Exchange rate as of 30 May 2009: 1 EUR = 1.4043 USD

RoW Rest of World
Sources: Datamonitor (ed.). 2008a. Global Logistics. Industry Profile. New York/London/Frankfurt/Sydney. December 2008, p. 9, p. 31.
Datamonitor (ed.). 2008b. Logistics in Europe. Industry Profile. New York/London/Frankfurt/Sydney. December 2008, p. 9, p. 27.
Datamonitor (ed.). 2008c. Logistics in Germany. Industry Profile. New York/London/Frankfurt/Sydney. December 2008, p. 9, p. 28.
Datamonitor (ed.). 2008d. Logistics in the United States. Industry Profile. New York/London/Frankfurt/Sydney. December 2008, p. 9, p. 28.

Figure 15: Actual and forecasted logistics market value according to Datamonitor

Next, a closer look at the actual and forecasted volume figures for the US, European and
German markets is presented.

For 2004 the CSCMP estimated the total logistics costs in the US at 744 bn euros7
(Wilson 2005, p. 2 [text]; Wilson 2005, p. 1, p. 7 [presentation]). This figure surpasses
Datamonitor’s estimates by 145 bn EUR for 2004 and 163 bn EUR for 2007
(Datamonitor 2008d, p. 9).

7
Calculation of the stated USD 1,015 bn by the CSCMP at a rate of USD 1 equivalent to
0.73314 EUR (exchange rate as of 31 December 2004).
2 Š The area of logistics 57

The key source for European market volume estimates is the ‘Top 100’ study in
logistics with its regular updates from the Fraunhofer Institut with Professor Klaus as
the main author. While the study is regularly published, the developments are not
captured. For this reason, my contribution is the provision of such presentations (for an
overview of the logistics market volumes see Figure 16 and for an overview of the
contract logistics market volumes see Figure 18). Regarding the EU 17 countries, the
total logistics market grew by 62.2% from a value of 450.2 bn EUR in 19978 to 730.0 bn
EUR in 2004. For the same countries and for the same period, the contract logistics
market grew very strongly by 180.6% from a value of 128.3 bn EUR in 1997 to fewer
than 360.0 bn EUR in 2004. The logistics market volume for the EU29 countries from
2005 (market value of 799.6 bn EUR) to 2008 (market value of 950.0 bn EUR)
increased by 18.8%.

1997 1 2001/2003 2004 2005 2006 4 2007 2008

950.0
799.6 855.6 905.8
730.0
583.8
450.22
<360.0 <389.6
<262.7
128.33
n.a. n.a. n.a.

Legend: 1 The total logistics and contract logistics volume date from around 1997.
2 The logistics volume equals the sum of enlarged logistics costs; the sum is 880.6 billion DM;
1 EUR amounts to 1.95583 DM.
3 The contract logistics volume equals the share of the segment industrial contract logistics, which is 28.5%;
projection based on the distribution in Germany.
4 Own calculation based on the prognosis of a market growth of roughly 7%.
Total logistics volume in billion EUR for the EU 17 (1997, 2001/2003, 2004) and for the EU 29,
i.e. for the 27 EU countries plus Switzerland and Norway (2005, 2006, 2007, 2008)
Contract logistics volume in billion EUR for the EU 17 (1997, 2001/2003, 2004) and for the EU 29,
i.e. for the 27 EU countries plus Switzerland and Norway (2005, 2006, 2007, 2008)

Figure 16: Total logistics and contract logistics volume in Europe

(Based on Klaus and Kille 2008, p. 79, p. 159; Klaus and Kille 2007, pp. 55-56;
Klaus and Kille 2006, p. 43, p. 164; Klaus 2003, p. 69; Klaus and Mueller-Steinfahrt 2000,
pp. 41-42)

In Europe the largest logistics market is the German market (Figure 17). In 2007 the
logistics turnover amounted to 205 bn EUR. Of this, the value of narrow logistics/TUL
costs9, i.e. the value of logistics turnover without costs for order management, logistics
planning and administration as well as warehousing, is 142 bn EUR. The Dutch

8
According to Klaus, the projections of the logistics volume date from around 1997.
9
See Section 2.1.2 for the detailed definition of narrow logistics/TUL costs.
58 2 Š The area of logistics

logistics market and the UK logistics market are ranked second and third with 113 bn
EUR and 108 bn EUR of logistics turnover. These figures show that Germany is by far
the largest logistics market in Europe with a share of 22.6% of the total European
market volume of 905.8 bn EUR in 2007. The market share for the Dutch logistics
market is 12.5% and for the UK it is 11.9% (Klaus and Kille 2008, p. 159).

Narrow logistics/TUL costs in bn EUR

205
Logistics turnover in bn EUR

142

113
108

83 83
75 78

57 57
46
32 32
28
19 22 23 20 22
14 16 17 13 16 16
6 9 9 13 10 11 12
4 5

Country

Figure 17: European TUL costs and logistics turnover 2007 by country
(Based on Klaus and Kille 2008, p. 159)

Finally, the German logistics market as the largest in Europe is looked at in more detail
based on the Fraunhofer Institut’s market estimates. From 1997 to 2008 the logistics
market volume increased by 76.7% from 124.5 bn EUR in 199710 to 220.0 bn EUR in
2008 (Figure 18). Unfortunately, figures for the contract logistics market are available
only for 1997, 2001/2003 and 2004. From 1997 to 2004 the contract logistics market
volume grew by 88.7% from 35.5 bn EUR to 67.0 bn EUR. In comparison, the total
logistics volume increased by only 36.1% in the same period. The growth of the market
for contract logistics was stronger by 53 percentage points than for the total logistics
market volume in Germany.

10
According to Klaus, the projections of the logistics volume date from around 1997.
2 Š The area of logistics 59

19971 2001/2003 2004 2005 20065 2007 20085

Segment Segment
contra ct contract
logistics as logistics as
“growth “growth
winner“ winner“

189.4 205.0 220.0

124.5 160.02 169.4 175.7
35.5 58.63 67.04
n.a. n.a. n.a. n.a.

Legend: 1 The total logistics and contract logistics volume date from around 1997. The logistics volume equals to the sum of
enlarged logistics costs; the sum is 243.4 billion DM; 1 EUR amounts to 1.95583 DM; the contract logistics volume
equals to the share of the segment industrial contract logistics which is 28.5%.
2 Correction from 150 billion EUR (“Top 100“ survey from the year 2003) to 160 billion EUR
(“Top 100“ survey from the year 2006).
3 Market segment “consumer goods distribution and consumer goods contract logistcs”:
19.3 billion EUR; market segment “industrial contract logistics”: 39.3 billion EUR.
4 Market segment “consumer goods distribution and consumer goods contract logistics”:
21.5 billion EUR; market segment “industrial contract logistics”: 45.5 billion EUR.
5 Prognosis.
Total German logistics volume in billion EUR
German contract logistics volume in billion EUR

Figure 18: Total logistics and contract logistics volume in Germany

(Based on Klaus and Kille 2008, p. 159; Klaus and Kille 2007, pp. 55-56, pp. 66-67;
Klaus and Kille 2006, p. 43, p. 73; Klaus 2003, p. 41, pp. 69-70, p. 112, p. 117; Klaus and
Mueller-Steinfahrt 2000, pp. 41-42)

In summary, the area of logistics lacks a shared concept about market volumes. This
demonstrates the scarcity of knowledge and the confusion regarding this issue. My
research contribution is the provision of an overview of data available. Overall, the
market for the area of logistics contains a great potential with high expectations on
future growth.

2.3.2 Market segments

In literature, specifically in Klaus and Kille (2008), the volume for the logistics industry
is further specified by its sub-segments. Before presenting the figures for the German
logistics industry’s sub-segments, a short note on market segmentation in logistics
should be made.

A segmentation of logistics markets is feasible from many perspectives, such as

transport objects (e.g. food transports), customer lines of business or customer types
(e.g. publishing house logistics), type of order and execution (e.g. express freight),
means of transport (e.g. tank and silo transports), traffic network structure (e.g. relation
forwarding agents) or functional connections (e.g. spare parts logistics). Despite clear
segmentation, definitions can nonetheless often be confused as delimitations are
60 2 Š The area of logistics

blurred. Clear assignations are not always possible or LSPs may earn revenues from
side segments which are not separately reported.

Klaus and Kille segment logistics markets according to functional areas, means of
transport and geography. Their first segment, bulk and direct cargo traffic logistics
(point-to-point logistics), includes the sub-segments national bulk cargo logistics;
national general cargo load traffic; heavy transports and crane services; national tank
and silo transports; and national other cargo load traffic with special equipment. The
sub-segments from the second segment, industry and consumer goods logistics national
requiring handling, i.e. markets for Less than Container Load (LCL; consignments that
do not fully fill a shipping container) freight transports (Lowe 2002, p. 139), are
national general LCL freight traffic; consumer goods distribution and consumer goods
contract logistics; industrial contract logistics, particularly industrial production supply
and spare part distribution; hanging dress logistics; high tech goods, fair logistics, new
furniture and move transports; terminal services, non-integrated warehousing,
transshipment and other logistical value-added services; and CEP – parcel, courier and
specialized express services. The third segment, international transports and logistics
systems, consists of cross-border transport and forwarding services with the focus on
either road and rail or on ocean shipping and seaport forwarding. It also contains cross-
border air cargo carrier and services of air forwarding (Klaus and Kille 2008, pp. 39-41,
p. 87 et seqq.). Out of the four largest sub-segments in terms of market volume in
billion EUR, two are from the second and two are from the third segment. The largest
sub-segment is industrial contract logistics followed by cross-border transport by sea,
CEP and cross-border transport by road and rail. The volume of each of the four largest
sub-segments exceeds 10 bn EUR (Figure 19).
2 Š The area of logistics 61

German logistics market Sub-segment Volume [in bn EUR]

100% = 204.1 bn EUR
Industrial contract logistics, particularly industrial
production supply, spare part distribution and other 13.8
‘business-to-business’ contract logistics
Cross-border transport and forwarding services,
focus ocean shipping/seaport forwarding 11.5

CEP – parcel, courier and specialized express

services 10.5

Cross-border transport and forwarding services,

focus road and rail 10.4

Consumer goods distribution and consumer

goods contract logistics 9.1

Outsourced National general cargo load traffic 8.8

(§100.0
Cross-border air cargo carrier and services of
bn EUR) air forwarding 7.8
Terminal services, non-integrated warehousing,
49% transshipment and other logistical value-added 7.1
51% services
National bulk cargo logistics 6.1

Insourced National general LCL freight traffic 5.9

(§104.1
bn EUR) National tank and silo transports 3.6

High tech goods, fair logistics, new furniture

and move transports 3.4

National other cargo load traffic with special

equipment 2.9

Heavy transports and crane services 0.9

Hanging dress logistics 0.4

Figure 19: Market volume for outsourced logistics in Germany 2007 by segments
(Based on Klaus and Kille 2008, p. 45, p. 92, p. 97, p. 102, p. 105, p. 108, p. 112, p. 121,
p. 125, p. 128, p. 130, p. 133, p. 137, p. 141, p. 144, p. 147)

Of the three sub-segments with the largest volumes in Germany in the above figure, the
largest – industrial contract logistics, particularly industrial production supply, spare
part distribution and other ‘business-to-business’ contract logistics – is also the one of
most interest to SMEs and Hidden Champions, independent of the country of origin.
This sub-segment offers great opportunities for LSPs of this size, unlike the second
(cross-border transport and forwarding services, focus ocean shipping/seaport
forwarding) which particularly requires heavy investments in ships, and the third, CEP
(parcel, courier and specialized express services) –, which requires heavy investments in
distribution networks. DVZ, the German logistics magazine, for example, pointed to
French GT Logistics (Klingsieck 2008, p. 9) and Belgium Tailormade Logistics (TML)
(Kloss 2008, p. 18) as logistics champions in industrial contract logistics. GT Logistics,
which does not directly provide transportation, manages the logistics processes for the
paper manufacturer Smurfit Kappa in France. TML is responsible for the integrated
product flow from South-Korea to the end-customer within LG Electronics’ home
appliance segment. Amongst its activities, TML takes care of custom formalities,
62 2 Š The area of logistics

packing or advertising material. These are just two examples for the demonstration of
industrial contract logistics solutions.

2.3.3 Large actors in the industry

The competitive landscape of the area of logistics is dominated by the group of large
players. According to my final research results, these LSPs offer a large-scale business
with cost focus and therefore, I refer to this group by the term ‘commodity players’. A
commodity player usually generates logistics revenues of several billion euros per
annum. Table 6 shows examples of top LSEs in the European logistics industry.
European leaders are, for instance, the German Deutsche Post AG, the Danish A. P.
Møller – Mærsk A/S, the Swiss Kuehne + Nagel International AG or the British CEVA
Group plc. I calculated the share on the total European logistics revenues of the top ten
LSEs from Table 6. Accordingly, the ten LSEs together generate approximately 15.1%
of the total European logistics revenues of 950 bn EUR in 2008 (Figure 20).
2 Š The area of logistics 63

Country Logistics
Logo of Name of
of Head- Revenues 2008 Remarks Sources
LSP LSP
quarters (in m. EUR)
Deutsche Post AG 41,534 Revenues Express (13,637 m. EUR), Deutsche Post AG 2009,
Global Forwarding/Freight (14,179 m. p. 52.
EUR) and Supply Chain/CIS (13,718
m. EUR).
A. P. Møller - 26,410 Revenues Container shipping and A. P. Møller - Mærsk A/S
Mærsk A/S related activities (146,032 m. DKK), 2009, pp. 12-13.
APM Terminals (15,888 m. DKK),
Tankers, offshore and other shipping
activities (27,349 m. DKK) and
Shipyards, other industrial companies
interest in Danske Bank A/S, etc.
(7,599 m. DKK); exchange rate as of
17 March 2009: 1 EUR = 7.4544 DKK.
Deutsche Bahn AG 19,334 Revenues DB Schenker Rail (4,654 m. Deutsche Bahn AG 2009,
EUR) and DB Schenker Logistics p. 63.
(14,680 m. EUR).
Kuehne+Nagel 14,211 Revenues Seafreight (10,032 m. CHF), Kuehne + Nagel
International AG Airfreight (3,859 m. CHF), Road & International AG 2009,
Rail Logistics (2,853 m. CHF) and pp. 124-125.
Contract Logistics (4,732 m. CHF);
exchange rate as of 30 May 2009: 1
EUR = 1.51127 CHF.
CMA CGM 10,753 Total revenue 2008: 15.1 bn USD; CMA CGM 2009, p.1.
exchange rate as of 30 May 2009: 1
EUR = 1.40430 USD.
SNCF 7,726 2007 turnover for the profession SNCF 2008, pp. 16-17.
including inter-division turnover.

CEVA Group plc. 6,329 Revenues Contract Logistics and CEVA Group plc. 2009,
Freight Management. p. 5.

Hapag-Lloyd AG 6,220 Revenues Container Shipping 2008. Hapag-Lloyd AG 2009,

p.1.

Panalpina World 5,875 8,878 m. CHF net forwarding revenue Panalpina World Transport
Transport (Holding) 2008; exchange rate as of 30 May (Holding) Ltd. 2009, p. 17.
Ltd. 2009: 1 EUR = 1.51127 CHF.
DSV A/S 5,022 37,435 m. DKK revenues Road, Air & DSV A/S 2009, p. 2.
Sea and Solutions; exchange rate as of
17 March 2009: 1 EUR = 7.4544 DKK.

Table 6: Examples of LSEs in the European logistics industry

Top LSEs’ share of total European logistics revenues

[in bn EUR; 100% = 950.0 bn EUR (2008)]
950.0

806.7 §15.1%

Figure 20: Top LSEs presence in the European logistics industry

(Based on Table 6 and its sources)
64 2 Š The area of logistics

Since this study concentrates on contract logistics that describes the most recent
developments in the industry, examples of LSEs in the German contract logistics
industry are listed in Table 7.

No. Logo LSP Group Logistics Contract Contract

Revenues 2006 Revenues 2006 Logistics Logistics
(in m. EUR) (in m. EUR) Revenues 2006 Revenues 2006
(in m. EUR) in percentage
from Group
Revenues
1 Deutsche Post AG 60,545 39,934 11,957 19.7
2 HAVI Logistics 1 2,300 2,300 2,300 100.0
3 DB Schenker 30,053 13,232 2,123 7.1
4 Fiege 1,750 1,750 1,630 93.1
5 Rhenus 9,000 2,300 1,300 14.4
6 Volkswagen Logistics 104,875 1,922 1,300 1.2
7 Kraftverkehr Nagel 1,205 1,205 1,205 100.0
8 Arvato 19,297 1,010 1,010 5.2
9 MGL 59,882 700 700 1.2
10 Hellmann 2,647 2,647 439 16.6
1 Formerly Alpha Management (renamed in July 2008).

Table 7: The Top 10 contract LSPs in Germany

(Based on Klaus and Kille 2007, pp. 199-200)

According to Klaus and Kille, the Top 8 contract LSPs in Germany – Deutsche Post
AG, HAVI Logistics, DB Schenker, Fiege, Rhenus, Volkswagen Logistics,
Kraftverkehr Nagel and Arvato – managed to generate contract logistics revenues of
over one billion euros in 2006 (Table 7). This group of large LSPs has to be considered
in contrast to the group of SMEs and Hidden Champions about which some information
is given in the next section.

2.3.4 SMEs and Hidden Champions in the area of logistics

While the market share of the top ten LSPs in the logistics industry regarding turnover
is approximately 15%, their share of the total number of LSPs is low. In fact, in 2005
more than 1.1 m. LSPs were operating in the 27 EU countries11 (European
Commission/Eurostat 2009, p. 124). Spain is the country with most LSPs by number

11
The 27 EU countries are Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta,
Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and United Kingdom.
2 Š The area of logistics 65

(223,300 LSPs), followed by Italy (154,400 LSPs) and Poland (131,900 LSPs).
Germany, with its 84,100 LSPs, is ranked fifth (Figure 21).

[in 1000s, excluding Malta]

223.3

154.4

131.9

1104.3 93.5
84.1
68.2
65.8
44.9
34.5
31.1

172.6

United Czech
EU-27 Spain Italy Poland France Germany Greece Kingdom Republic Hungary Sweden Other 17

Country

Figure 21: Number of transport services providers in the EU 27 in 2005

(Based on European Commission/Eurostat 2009, p. 124 and its sources Eurostat (SBS) and
information from Member States)

In addition to the low interest in public and poor focus in research, it is the strong
emphasis on the total number of LSPs which motivates my research on SMEs and
Hidden Champions in the area of logistics. These LSPs’ revenues are usually below one
billion euros and they are thus not well known to the public and are not the focus of
research interest. However, SMEs and Hidden Champions’ business is characteristized
by interesting dynamics. According to my research findings, while logistical SMEs and
Hidden Champions are small, may be more vulnerable in case of unforeseen
developments and are at the risk of being taken over by other, usually large LSPs, they
are also more agile and competitive. According to Klaus and Kille, top SMEs in
contract logistics that challenge LSEs in the area of logistics are, for example,
Schnellecke, BLG, D.Logistics, Hans Geis, Betz, Lehnkering, Hoyer, Kieserling,
Mosolf or Online Systemlogistik (Table 8).
66 2 Š The area of logistics

No. Logo LSP Group Logistics Contract Contract

Revenues 2006 Revenues 2006 Logistics Logistics
(in m. EUR) (in m. EUR) Revenues 2006 Revenues 2006
(in m. EUR) in percentage
from Group
Revenues
1 Schnellecke 820 520 385 47.0
2 BLG 760 760 364 47.9
3 D. Logistics 322 322 200 62.1
4 Hans Geis 516 516 166 32.2
5 Betz 760 620 160 21.1
6 Lehnkering 600 525 125 20.8
7 Hoyer 837 837 100 11.9
8 Kieserling 280 280 60 21.4
9 Mosolf 400 400 50 12.5
10 Online Systemlogistik 1,058 808 37 3.5

Table 8: Top SMEs in contract logistics in Germany

(Based on Klaus and Kille 2007, pp. 200-202)

According to Klaus and Kille’s ‘Top 100’ list of leading LSPs in Germany, only eight
LSPs with contract logistics service offerings12 were listed which might be potential
Hidden Champions with a logistics turnover of at least 500 m. euros and below one
billion euros in 2007. The figure rises to 60 potential Hidden Champions if considering
the ‘Top 100’ LSPs with a logistics turnover of at least 100 m. euros and below one
billion euros. From the full list containing the top 168 LSPs, only slightly more than
half (88 LSPs) are potential Hidden Champions in contract logistics with a total
logistics turnover of at least 50 m. euros and below one billion euros (Klaus and Kille
2008, pp. 227-230). Although this source indicates listed LSPs as top providers, I refer
to potential Hidden Champions at this stage as I do not yet know whether these LSPs
meet all criteria of a true Hidden Champion.

Of the ‘Top 100’ LSPs listed by Klaus and Kille, only six of the ten LSPs that generate
a turnover below one billion euros operate in contract logistics. I concentrate on this
area for the reason that since the beginning of this decade, German LSPs that focus on
transportation have only had to deal with high cost pressures (IKB 2004, p. 1) and
increasingly with pressure on business success (IKB 2008, p. 1). It is predominantly
SMEs in transportation that are most prone to insolvency. (IKB 2005, p. 1). For

12
LSPs for that turnover are listed in the segments ‘Industrial contract logistics, particularly
industrial production supply and spare part distribution’ and ‘Consumer goods distribution and consumer
goods contract logistics’.
2 Š The area of logistics 67

example, the number of insolvencies rose by 20% in 2008 and further increases were
expected for 2009, back up to the high of 1,703 insolvencies in the logistics industry
that occurred in Germany in 2002 (IKB 2008, p. 1). In comparison to the total economy,
failure in logistics is above average (IKB 2007, p. 1). The situation is more
advantageous for LSPs that focus on services of higher value-add (IKB 2005, p. 1). In
international competition, SMEs in the German logistics industry can be partially very
successful through specialization and by focusing on specific fields (IKB 2007, p. 1).
Thus, searching for Hidden Champions in the area of contract logistics seems to be most
promising. Publications about the number of true Hidden Champions in the logistics
industry in Europe or individual countries could not be gathered during the research
process. For comparison, Simon noted in his first book on Hidden Champions that he
had identified more than five hundred Hidden Champions across industries in Germany
(Simon 1996b, p. vii, p. 5).

In summary, in Chapter 2 I focus on industry fundamentals, recent developments and

industry demography of the area of logistics. The reason for this is to provide clarity in
prevailing confusion about the industry. In particular, I worked out an overview of the
terminology in use and the relationships between terms. My research about industry
developments resulted in the tension between the need for new market participants to
arise and the high barriers identified for new entrants in demand chain management. I
also provide overviews about estimates on market volumes. These figures are rarely, if
at all, available and vary widely between authors, confirming the discrepancy in the
views about the market. Overall, this chapter contains the basic information that is
necessary to understand the area of logistics which is the focus of this research study.
68 3 Š Business models as an approach for analyzing companies

3 Business models as an approach for analyzing companies

The analysis of the environmental conditions in Section 2.2.2 shows that logistics
managers increasingly face new difficulties when making business decisions. Fierce
global competition, rapid changes in the environment or intensive use of new
technologies are just three causes. The economic environment for LSPs can be
described by the characteristics of rising diversity, increased complexity, greater
uncertainty and stronger demand for adapting to change than ever before. Therefore,
managers need a clear framework which allows them to analyze their company and to
decide on specific business issues and changes in the context of the environmental
conditions. Taking into account the environment and possible approaches for analyzing
companies in this chapter, I defined the business model as a framework that helps
managers to understand their business. By studying single business model components
and their interrelations in the current state as well as by making changes, the tool is
designed to enable managers to learn about business opportunities and to adapt to
environmental changes.

3.1 About business analysis

Environmental dynamics impact business analysis. In Section 3.1.1 I outline

characteristics of the logistics industry’s environment and in Section 3.1.2 I present a
generic overview of concepts for analyzing a business. I conclude with the decision and
arguments for the framework that is applied to search for Hidden Champions in
logistics.

3.1.1 Environmental dynamics as a starting point

Business analysis within the logistics industry requires a tool that does not operate in a
vacuum. The reason is that environmental conditions influence business activities and
long-term success. In particular during the last decade, LSPs’ environment has
becoming increasingly diverse, complex and uncertain. Operators in the industry have
to deal with the pace of change through rapid adaptability. The starting point for
defining a framework for company analysis forms the consideration of these four
environmental conditions and their key challenges, which are described in more detail
below.

R. M. Neubauer, Business Models in the Area of Logistics, DOI 10.1007/978-3-8349-6533-2_3,

© Gabler Verlag | Springer Fachmedien Wiesbaden GmbH 2011
3 Š Business models as an approach for analyzing companies 69

First, the logistics industry is characterized by diversity. Section 2.2.1 shows that the
area of logistics was subject to a strong development. The spectrum of logistics services
has been expanded enormously from the classical logistics in the 1970s to worldwide
integration of value chains in the 21st century. With an increasing relative size of the
service sector, diversity also increases, as Hodgson argues (Hodgson 2003, p. 471).

Second, the logistics industry is complex. Global supply chain networks’ core activity
of integration requires strong interactions between people and between people and their
technology. Growing diversity of interactions is one driver for complexity in the view
of Hodgson (Hodgson 2003, p. 472). The author also states that complexity is driven by
new and varied organizational forms that lead to increased productivity and help to
manage the exponential rise of products and processes (Hodgson 2003, p. 471). The
formation of global supply chain networks leads to increased complexity. Complexity in
turn is a mechanism for generating diversity (Andriani 2001, p. 258).

Third, the logistics industry is characterized by uncertainty. Uncertainty and related risk
is closely connected to complexity. The more complex an environment is the more
various, dynamic and unpredictable the situations are (Wytenburg 2001, p. 118).

Fourth, adaptability to rapid change in the logistics industry secures positions of

competitive advantage. Fine (1998, p. 6) thinks of industries’ rates of evolution as
‘clockspeeds’. Depending on an industry’s product clockspeed, process clockspeed and
organization clockspeed, each industry evolved at a different rate. In today’s logistics
industry of rapid change, managers have to find new ways of keeping up with a fast
industry ‘clockspeed’.

Diversity, complexity, uncertainty and adaptability to change are mutually interrelated.

For example, industry clockspeed is one possible cause of rising complexity. Another
example is that advances and changes in increasingly shorter time frames cause
uncertainty. The question is which concepts logistics managers should use for business
analysis and for coping with the four factors of environmental dynamics. The key
prerequisite for the concept is that it is able to cope with environmental dynamics.
70 3 Š Business models as an approach for analyzing companies

3.1.2 Approaches for analyzing companies

Several approaches for analyzing companies are in focus of management literature and
application. I assigned approaches to four groups according to time periods and
distinguished them according to their emphasis inside the company (‘internal
emphasis’), outside the company (‘external emphasis’) or both (‘internal and external
emphasis’).

Approaches for analyses with external emphasis were applied particularly in the 1970s
and 1980s. The unit of analysis was the industry or the competitive environment in
which the company is operating. I refer to company analysis based on a market-based
view (MBV). The key argument of the MBV is that the structure of an industry or
competitive environment is decisive for profitability. The emphasis is clearly on
phenomena at the industry level. Representatives for MBV company analysis are for
example Mason (1939), Bain (1956, 1968) or Caves and Porter (1977). Bain, for
example, is concerned with the environmental settings within which companies operate
and in how they behave in these settings. His view is essentially external and
‘behavioristic’, not taking into account an internal approach (Bain 1968, pp. vii-xiv).
Other examples of concepts within the MBV are the concept of competitive strategy
(Porter 1980) or business strategy. Strategy deals with questions like which customers
and positions should be targeted or which choices and trade-offs should be made. For
example, according to Mintzberg, strategy is the plan, ploy, pattern, position and
perspective for locating an organization in an environment (Mintzberg 1988, p. 13 et
seqq.).13

While the internal view is neglected in MBV approaches, the second group – which was
prevailing in the 1980s and 1990s – has an internal emphasis, i.e. its concepts
concentrate on company internal issues and phenomena. Analysis is resource-based and
often referred to as the resource-based view (RBV). In the RBV, a company’s internal
resources are considered to be decisive for profitability. Representatives are for example
Wernerfelt (1984), Barney (1986, 1991) or Hamel and Prahalad (1994). One concept of
the RBV is business process analysis. It implies the horizontal view of the business

13
The issue of strategy and its delimitation from business models is covered in more detail in section
3.2.4.
3 Š Business models as an approach for analyzing companies 71

cutting across the organization from product inputs to outputs. Analysis focuses on the
process as “a structured, measured set of activities designed to produce a specified
output for a particular customer or market.” (Davenport 1993, p. 5, p. 7). Hamel and
Prahalad’s concept of core competencies is probably one of the most cited and used.
According to the authors, core competencies are competitively unique capabilities and
skills that enable a company to deliver fundamental customer value, but they are also
process- and manufacturing-related competencies that yield sizable cost benefits to the
producer. Core competencies represent the sum of learning across individual skill sets
and organizational units (Hamel and Prahalad 1994, pp. 203-205). The aim of strategic
behavior is to concentrate on today’s business’ core competencies and to search for new
fields of operations for one’s own core competencies. The future of the company is
defined primarily via core competencies. Organizational form is a further example of a
RBV analysis. Here, organizational structure and design as well as processes involved
in running an organization are the focus of analysis (Tolbert and Hall 2009, p. 17). The
reporting of relationships, the shape of the organization or the division of labor across
the organization are also reported. Davis and Olsen’s research, for example,
concentrates on organizational structure and management concepts in the context of
management information systems (Davis and Olsen 1985, pp. 331-364). Another
example is the MIT’s Center for Coordination Science’s initiative on Inventing the
Organizations of the 21st Century. Malone and Laubacher refer to an organizational
model of micro businesses that conduct transactions with one another on a global basis.
According to the authors, electronic networks will cause a shift to elastic networks as
dominant business organizations (Malone and Laubacher 1998, p. 148). Further
examples of analysis with emphasis inside the company are Wernerfelt’s concepts on
resource position barrier and resource-product matrices (Wernerfelt 1984), Barney’s
concept of strategic factor markets (Barney 1986), the concept of link between company
resources and competitive advantage (Barney 1991), or the concept of competing on
capabilities (Stalk and Evans and Shulman 1992; Sutton 2005).

In the 1990s and 2000s, the emphasis of company analyses was focusing outside the
company again. Relationships were considered to be decisive for profitability. I refer to
a network-based view (NBV) of company analysis. Key concepts include value systems
(Porter and Millar 1985), value nets (Brandenburger and Nalebuff 1996),
interorganizational systems (Klein 1996), relationships of a company within a network
72 3 Š Business models as an approach for analyzing companies

(Dyer and Singh 1998, p. 661), value webs (Selz 1999) or strategic networks (Gulati et
al. 2000). Just as an example, a value system is embedding a company’s value chain in a
larger stream of activities that includes the value chains of suppliers, the channels, and
buyers. Analysis deals with the creation of competitive advantage by optimizing or
coordinating the linkages that connect physical and information-processing value
activities inside a company and that create interdependencies between a company’s
value chain with those of its suppliers and channels (Porter and Millar 1985, p. 3). A
value net, as a further example, is a map or diagram that serves as a visual
representation of the game of the business. In particular, value nets point out ways how
a relationship between players can combine competition and cooperation
(Brandenburger and Nalebuff 1996, p. 9).

To summarize, although approaches for analyzing companies with external emphasis do

not ignore internal characteristics of a company in full, the focus is clearly on the
industry level. MBV analysis looks at the industry as a group of companies with
products or service offerings that substitute each other. The delimitation is carried out
via the role of the product or service at the customer. The MBV overlooks companies
that have advanced structural changes in the industry. It is too narrow in terms of the
description of changes. The future of the company is defined primarily from the market
perspective. Moreover, approaches for analyzing companies with internal emphasis
have a strong concentration on the company’s internal resources. They neglect the
company’s position in the external environment, which perhaps led to a move towards
business analysis with external emphasis again in the 1990s/2000s. Due to new
information and communication technologies, concentration was rather on networks
than on the market, but company internal issues are neglected in the NBV as well.

In the context of today’s environmental dynamics in the area of logistics, the question is
whether the classical issues of analysis in strategic management business unit, industry,
and company (Bettis 1998, p. 357) – that are in single focus and emphasize either
company internals or externals are sufficient to capture the changes in the logistics
industry. I argue that they are not sufficient or even harmful if changes occur that cannot
be identified by these approaches. Therefore, approaches with emphasis inside and
outside focus, i.e. on both company internal and external issues, have to be further
considered. Future business analysis might be based on concepts with internal and
3 Š Business models as an approach for analyzing companies 73

external emphasis while also taking into account well-established concepts that have
been in use for decades. My argument is that industry structure, internal resources and
relationships are decisive for profitability. I refer to an all-embracing-based view (ABV)
of company analysis with the concept of competitive advantage and the business model
as exemplarily concepts. According to Porter, cost advantage and differentiation are the
two types of competitive advantage which grows fundamentally out of the value a
company is able to create for its buyers. Superior performance can only be achieved
with sustainable competitive advantage. Porter adds that a company must at the same
time know which competitors to attack, and how the array of competitors has an
influence on the industry’s structure (Porter 1985, p. xvi, p. 62 et seqq., p. 119 et seqq.,
p. 203). The ABV of company analysis needs to take a totality of a company and its
environment into consideration. Business model analysis is such a concept for analyzing
companies with an ABV. According to Amit and Zott, a company’s business model is
“an important locus of innovation and a crucial source of value creation for all
stakeholders.” (Amit and Zott 2000, p. 2). It is the most important tool of analysis in
order to understand how existing structures have to be adapted due to changes through
environmental dynamics. Business model analysis contains not only the architecture of
product and service operations but also the connectivity of the totality of a company’s
business environment. For example, it includes the value-add a company is causing for
its customers and how this value can be generated and with which partners. Other
representatives of business model analysis are Afuah (2004) or Mitchell and Bruckner
Coles (2004a; 2004b).

In summary, the area of logistics with its constantly evolving ways of doing business
and its fast-cycle implementations as well as its heavy reliance on networks requires an
analytical concept that combines elements from both the internal and external emphasis.
The evaluation of prevailing approaches for company analysis leads me to the
conclusion that the business model has to be the selected concept for company analysis
in the area of logistics. The concept of a business model helps in tackling at least some
of the aspects of diversity, complexity, uncertainty and adaptability to rapid
environmental changes by highlighting decisive issues for business success and pointing
out the relationships between them. A summary from my literature review on prevailing
approaches for analyzing companies is presented in Figure 22.
 EXTERNAL EMPHASIS INTERNAL EMPHASIS EXTERNAL EMPHASIS INTERNAL AND EXTERNAL EMPHASIS
74

Period / Concepts Representatives Period / Concepts Representatives Period / Concepts Representatives Period / Concepts Representatives
Approach / (Year) Approach / (Year) Approach / (Year) Approach / (Year)
View View View View
1970s/1980s / Environmental Mason (1939) 1980s/1990s / Resource Position Wernerfelt (1984) 1990s/2000s / Value Systems Porter/Millar 2000s/onwards / Competitive Porter (1985)
Settings and Bain (1956, 1968) Barrier and (1985) Advantage
Market-based Barriers to Caves/Porter Resource-based Resource-Product Network-based All-embracing
view (MBV) / Competition (1977) view (RBV) / Matrices view (NBV) / view (ABV) /
Competitive Porter (1980) Strategic Factor Barney (1986) Value Nets Brandenburger/ Business Model Amit/Zott (2000)
Structure of an Company‘s Relationships are Industry
Strategy Market Nalebuff (1996) Afuah (2004)
industry or internal resources decisive for structure, internal
Mitchell/Bruckner
competitive are decisive for profitability resources and
Coles (2004)
environment is profitability relationships are
decisive for Business Strategy Mintzberg (1988) Firm Resources Barney (1991) Interorganizational Klein (1996) decisive for
profitability Markides (2000) Systems profitability

Business Process Davenport (1993) Network Dyer/Singh (1998)

Relationships

Core Hamel/Prahalad Value Webs Selz (1999)

Competencies (1994)

Figure 22: Approaches for analyzing companies

Organizational Tolbert/Hall (2009)1 Strategic Networks Gulati/Nohria/
Form Davis/Olsen (1985) Zaheer (2000)
Malone/Laubacher
(1998)
Competing on Stalk/Evans/
capabilities Shulman (1992)
Sutton (2005)

1 Hall published the first edition in 1972.

3 Š Business models as an approach for analyzing companies
3 Š Business models as an approach for analyzing companies 75

3.2 Business models: an approach for corporate analysis in a dynamic

environment

Section 3.2 deals with the business model as an approach for corporate analysis in a
dynamic environment. The aim of this section is to provide a clear view of the Business
Model Framework that represents reality in a structured, simplified and understandable
way. I start with fundamentals of business models, the evolution of the terminology and
the purpose. Next, I provide an overview of prevailing business model approaches.
Resulting from the knowledge I gathered, I defined my requirements for the framework
and present my definition valid for this research. In addition, I delimited the concept of
the business model from strategy in order to avoid misunderstandings and to ensure a
clear understanding.

3.2.1 Fundamentals of business models

The terms ‘business’ and ‘model’ had already been applied for decades before it became
increasingly popular to use the terminology business model. The evolution of the
terminology business model and its purpose are part of the fundamentals which are the
subject of this section.

3.2.1.1 Evolution of the terminology

One of the first systematic research approaches relating to change and growth in
industrial companies is Alfred Chandler’s on comparative business history. In 1962 he
investigated the changing strategy and structure of companies (Chandler 1962). Three
years later, Ansoff’s publication concerned business strategy formulation and
management in the sense of an active process of determining and guiding the course of
a company towards its aims (Ansoff 1965). These two authors’ concepts can be
considered as antecedents to business modeling.

The terms ‘business’ and ‘model’ have been subject to management literature for
decades. Regarding the term business, Drucker in particular worked on the issue of what
business is. He defined business starting from the understanding of its purpose. In his
sense, people create and manage a business but it cannot be defined in terms of profit.
Business is determined by a customer who is created by business action. Creating a
customer is the only valid definition of business purpose. To discharge this purpose, the
76 3 Š Business models as an approach for analyzing companies

company must control wealth-producing resources. Business is the specific organ of

growth, expansion and change in an economy (Drucker 1999a, pp. 54-62; Drucker
1999b, pp. 32-39; Drucker 1954, pp. 34-41). A business has the two entrepreneurial
functions of marketing and innovation and the administrative function of productivity.
Profit, in turn, is the result of business performance in marketing, innovation and
productivity as well as a premium for the risk of uncertainty (Drucker 1999a, p. 57,
p. 62, p. 65; Drucker 1999b, p. 35, p. 39, p. 44; Drucker 1954, p. 37, p. 41, p. 46 et
seq.). A first test of a business does not focus on profit maximization but on the
achievement of sufficient profit to cover the risks of economic activity and to avoid
making losses (Drucker 1999a, p. 55; Drucker 1999b, pp. 33-34; Drucker 1954, p. 36).
As Drucker states, it “is the first duty of a business to survive.” (Drucker 1999b, p. 44;
Drucker 1954, p. 46).

The meaning of the term ‘model’ as covered in standard dictionaries is broad. For
example, it is used to describe an architect’s set of designs for a projected building, the
‘argument’ of a literary work or an object or figure made of clay or wax or the like,
intended to be reproduced in a more durable material. Most suitable to economics is
probably the understanding in the sense of a “simplified or idealized description or
conception of a particular system, situation, or process … that is put forward as a basis
for calculations, predictions, or further investigation” (Simpson and Weiner 1989,
p. 940 et seq.). According to a dictionary of economics, a model is defined as a
“simplified system used to simulate some aspects of the real economy.” Good models
concentrate on the essential points they are studying and work out results of any change
in the assumptions (Black 2003, p. 302). To achieve this, three prerequisites of
abstraction have to be met: concentration on the essential and suppression of irrelevant
details; precision, which means creating the possibility to determine the validity for
each statement; and explicitness, which means the inclusion of all important facts
(Kilov 2002, p. 8 et seq.).

Mulvaney and Mann discuss different classes of models. According to the authors,
models can be distinguished in tangible and intangible models. ‘Tangible models’ are
‘iconic models’, ‘analogue models’ and ‘symbolic models’. A model is called iconic if
it physically resembles the real thing that it is intended to represent. If one quantity is
used to represent another, the authors use the term analogue model. This is for example
3 Š Business models as an approach for analyzing companies 77

a graph, where distances on a piece of paper are used to represent sales volume.
Symbolic models are applied for the representation of quantities and relationships
between them. ‘Intangible models’ are usually verbal models that are described by
managers’ words. They are also but not very often mathematical models. A further
term, explicit models, is used by Mulvaney and Mann if managers extend and quantify
verbal models with data (Mulvaney and Mann 1976, p. 1 et seqq.).

Like the terms ‘business’ and ‘model’, which have been in use individually for several
decades, the origins and first uses of the term business model also appeared in single
publications decades ago already (see for example Bellman et al. 1957, p. 474 or Jones
1960, p. 619 et seqq.). However, the term business model rose to real prominence only
some decades later. For tracing the appearance of the term, Staehler as well as
Osterwalder and Pigneur and Tucci, for example, applied Abrahamson and Fairchild’s
method (Abrahamson and Fairchild 1999, p. 716 et seqq.) on counting articles with
specific key words. The result is that the popularity of the term business model is a
relatively young phenomenon that is strongly connected to the rise and diffusion of
commercial activities of the Internet at the beginning of this millennium (Staehler 2002,
p. 37 et seq.; Osterwalder 2004, p. 23).

Word string “business model“ in all articles in the Business Source Premier database on scholarly business journals,
including several variations of the original term like “e-business model“
667
In Title 609 617
In Full Text
491

262

128
57 66
36 22 30
0 7 0 10 0 15 0 18 0 18 0 0 1 1 3 16 11

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Figure 23: Occurrences of the term business model in scholarly reviewed journals
(Osterwalder and Pigneur and Tucci 2005, p. 6)

Figure 23 shows the increasing use of the term business model, starting with the
technological advance and the rise of information and communication systems from the
1990s onwards. The age of new technologies contributed to a large reduction of many
kinds of transaction costs, e.g. of search costs, contracting costs and coordination costs
(Tapscott and Ticoll and Lowy 2000, pp. 7-9). In this period Internet start-ups and
78 3 Š Business models as an approach for analyzing companies

companies used the term business model to explain their competitive position compared
to old-established companies in the industry. One of the most popular examples is eBay.
Bunnell, for example, researched this company and its business model in detail (Bunnell
and Luecke 2000).14 To some extent, the business model concept replaced the industry
as the unit of analysis (see for example the case of Dell Computer Corporation in
Kraemer and Dedrick and Yamashiro 2000).

3.2.1.2 Purpose of business modeling

My understanding of the purposes of business models is based on the views of Kilov,

Eriksson and Penker as well as Osterwalder. I therefore start with a short recall of their
views of business modeling’s purposes before summarizing the findings.

According to Kilov, the purpose of business models and models in general is to create
understanding. Original situations are often very complicated. Through their translation
into substantially simplified models, essential characteristics of the modeled world are
pointed out. Only those aspects, actions, and relationships that are of interest to
stakeholders are picked and chosen. Modeling a business means getting insights into its
essentials and helps to manage complexity. Kilov states that “good models provide for
clear and explicit treatment of complicated problems.” They serve as a framework for
decision-making about the future direction of the business (Kilov 2002, pp. 1-3).

In their study on business modeling with UML, Eriksson and Penker state several
arguments for business modeling. According to the authors, business models help to
better understand the key mechanisms of existing businesses and to act as a basis for
creating suitable information systems supporting the business. Business models are the
basis for improving the current business structure and operations and show the structure
of an innovated business. Moreover, business models are a means for experimentation
with new business concepts or for copying or studying a competitor’s concept, for
example by benchmarking on the model level. Finally, they help to identify outsourcing
opportunities (Eriksson and Penker 2000, pp. 7-8).

14
See also as another example of the evolution of business models in B2C e-Commerce the case of
Fabmart, a pureplay Internet retail platform which was established in 1999. However, in 2003 the
company transformed into Fabmall, becoming a multi-channel retail business (Kumar and Mahadevan
2003).
3 Š Business models as an approach for analyzing companies 79

Osterwalder assigned the purposes of business models to five categories –

understanding and sharing, analyzing, managing, prospects and patenting. First,
business models contribute to understanding and sharing the business logic of a
company as they help to capture, visualize, understand, communicate and share the
logic. Second, business models help to analyze the business logic of a company by
improving measuring, observing and comparing. Third, business models improve the
management of the business logic of a company. Fourth, business models help to foster
innovation and increase readiness for the future through portfolios and simulation.
Finally, business models may have an important role in the legal issues of patenting as
companies increasingly seek to patent e-Business processes (Osterwalder 2004, pp. 19-
22).

Using Kilov’s, Eriksson and Penker’s as well as Osterwalder’s remarks, I derived a

summarizing statement on the purpose of business models. The purpose of business
models is to guarantee a smooth process flow from guiding a business from its current
position to a promising future while concentrating on the key essentials and insights of a
company in the transformation process (Figure 24).

Process Understand the Get insights into Manage the future

Step business the business of the business

• Presentation • Analyzing business • Improving structure

• Demonstration • Highlighting essentials • Making decisions
Purpose • Clarification • Experimenting
• Simplification - Innovations
- New concepts
• Explanation - Competitive concepts

Figure 24: Purposes of business models

3.2.2 Prevailing approaches

There is no agreement in the literature about the nature, components and illustration of
business models. Although the term business model was already in use in the 1960s and
experienced its hype in the age of new technologies from the 1990s onwards, it was not
covered in dictionaries of business and management (Buehner 2001; Cross 1999; Helms
2000; Oxford University Press and Market House Books 1998; Warner 2002).
80 3 Š Business models as an approach for analyzing companies

Researching literature on business models gives the impression that theorists and
practicians who have used the term do not have a clear view. Therefore, it is necessary
to explore existing literature on business models to review definitions and the views by
theorists and practicians and to compare prevailing approaches in order to derive an
overall view.

From the variety of business model views covered in the literature, I captured 33
approaches of the term which were published by 24 authors. The number of approaches
exceeds the number of authors as some of the authors revised their views. From these
sources I prepared a tabular overview (Appendix 1) containing the columns author(s),
year of publication, source, research context, business model definition, business model
components as well as more details on the components or examples.

I then reviewed these 33 approaches with the goal of narrowing the field of
understanding. A closer look at them revealed that several issues are treated. I assigned
these issues to definition and/or classification. Approaches also contained components,
a system or network aspect, a graphical representation, the delimitation from strategy, a
dynamic or change aspect or they covered success measures. From the total of 33
approaches, 24 approaches, i.e. 73%, contained a definition of the term business model,
76% referred to a system or network aspect in the sense of connectivity between parties
and/or components and 74% defined the components of a business model. Only roughly
30% of the approaches contained classifications of business models and provided a
graphical representation, 27% of the approaches include a dynamic or change aspect,
21% delimit business models from strategy and just 18% cover success measures (Table
9).

Overall, every second author’s business model approach is closely related to the fields
of entrepreneurship and the age of new technologies. The entrepreneurship aspect is
covered by Afuah (2004, p. 9 et seqq.); Campbell et al. speak about business models in
relationship with corporate venturing (Campbell and Birkinshaw and Morrison and van
Basten Batenburg 2003, p. 35), while Hamel and Miles et al. view them from the
innovation perspective (Hamel 2000, pp. 65-66; Miles and Snow and Miles 2000,
p. 309). In Amit and Zott (2001, p. 493 et seqq.), the business model approach has a
strong relation to the age of new technologies. They offer the business model construct
3 Š Business models as an approach for analyzing companies 81

as a unit of analysis for research on value creation in e-Business similar to Weill and
Vitale (Weill and Vitale 2001, p. 33). The approaches of Applegate et al. as well as of
Venkatraman and Henderson are closely related to the information age (Applegate and
Austin and McFarlan 2002, p. 94 et seqq.; Venkatraman and Henderson 1998, p. 33 et
seqq.), while Mahadevan (2000, p. 55 et seqq.), Rappa (2003), and Tapscott et al.
(Tapscott and Ticoll and Lowy 2000, p. 3 et seqq.) refer to the Internet or the web and
Chesbrough to technology (Chesbrough 2003, p. 63 et seqq.). While business modeling
is considered as a simplification of reality (see in particular Kilov 2002, p. xii, p. 1), the
key aspects, however, are the linkages in systems of parties and components (see for
example Afuah and Tucci 2003, p. 4; Alt and Zimmermann 2001, p. 7 or Slywotzky
1996, p. 4). Some authors claim that a delimitation of business models from strategy is
difficult, if at all possible, as both are interrelated (Afuah 2004, p. 12; Chesbrough and
Rosenbloom 2002, p. 534). A good definition of a business model requires a detailed
description of the business model components, as demanded by Van der Heyden
(2004).15

15
In 2009, Van der Heyden – in cooperation with Santos and Spector – published a working paper
that presents a theory of business model innovation within incumbent firms. The paper expands upon past
definitions of business models. It identifies a “set of elemental activities”, a “set of organizational units
that perform the activities”, a “set of linkages between the activities” and a “set of governance
mechanisms” as the four separate but interrelated components (Santos et al. 2009).
 82

Author(s)
No. Key Points/Evaluating Comments/Remarks
(Year)

System/Net-
work Aspect1

Classification
Components
Delimitation
from Strategy

Definition
Graphical
Representation
Dynamic/
Change Aspect
Success
Measures

• Integrative approach: combination of entrepreneurship perspectives (implementation,

Afuah Allan
1a financials) and strategy (positioning)
(2004) • High relation makes it more difficult to delimit both
Afuah Allan,
• Business model as system: components, linkages between components and dynamics
1b Tucci Christo-
pher L. (2003) • Delimitation between business models and strategy difficult

• Business model as system: components, linkages between components and dynamics

Afuah Allan,
1c but list of components does not explicitly address causality between components or
Tucci Christo- processes and change
pher L. (2001)
• List of components is applicable to both native and real-world business models
Alt Rainer, Zim- • As there will not be a single business model, authors propose a framework with generic
2 mermann Hans- components and linkages between components
Dieter (2001) • Connectivity/delimitation to/from strategy is doubtful
Amit Raphael,
• Strong focus on understanding the drivers behind value creation in e-Business
3a Zott Christoph
(2000) • Clear distinction of business models from revenue models

Amit Raphael, • Integrative approach: combination of entrepreneurship perspectives and strategy

3b Zott Christoph • Clear distinction between value creation (business model) and value appropriation
(2001) (revenue model)
Applegate Lynda
• Clear distinction of “Information Age business models” from “Industrial Age business
4a M., Austin Robert
D., McFarlan models”
• Research focus on business in the Information Age
Warren F. (2002)

Applegate Lynda • Model as simplified depiction to understand reality

4b
M. (2001) • “Model differentiators” used to distinguish various types of e-Business models

Campbell An-
drew, Birkinshaw • Components are defined and limited in terms of corporate venturing
Julian, Morrison
5 • Broad area of management covered: financial perspective besides implementation and
Andy, van Bas- strategic aspects
ten Batenburg
Robert (2003)

Chesbrough • Research on business models in the context of technology

6a
Henry W. (2003) • Competitive strategy as part of a business model

Chesbrough
Henry W., • Value capturing from early stage technology as research focus
6b
Rosenbloom • Competitive strategy as part of business models
Richard S. (2002)
1 System/Network Aspect in the sense of connectivity between parties and/or components. Legend: Issue covered
Issue partly covered
Issue not covered
[Continued on next page.]
3 Š Business models as an approach for analyzing companies
 [Continuation from previous page.]

Author(s)
No. Key Points/Evaluating Comments/Remarks
(Year)

System/Net-
work Aspect1
Success
Measures

Classification
Components
Delimitation
from Strategy

Definition
Graphical
Representation
Dynamic/
Change Aspect

Hamel Gary • Innovation/revolution through new business models

7
(2000) • Competition between business models, not between products or companies

Hedman Jonas,
• Secondary literature is strong basis of publication
8 Kalling Thomas
(2002) • Broad area of management covered

Kilov Haim • Modeled world as simplification of reality

9
(2002) • Approach difficult for application in research

Magretta Joan • Story not real actions

10a
(2002) • Components and construction can only be derived as they are not explicitly mentioned

Magretta Joan • Story not real actions

10b
(2002) • Components and construction can only be derived as they are not explicitly mentioned

Mahadevan B. • Critical streams to business are in focus

11
(2000) • Internet context shapes presented approach

Markides
• Focus on strategy and business definition
12 Constantinos C.
• No precise presentation what a business model is
3 Š Business models as an approach for analyzing companies

(2000)
Miles R. E.,
• Approach presented in terms of innovation
13 Snow C. C.,
Miles G. (2000) • Generic approach in presenting a business model

Mitchell Donald
W., Bruckner • Components based on question words
14a
Coles Carol • Consultants with research focus on business models
(2003)
Mitchell Donald
W., Bruckner • Components based on question words
14b
Coles Carol • Case studies used to demonstrate shapings of components
(2004)
Mitchell Donald
W., Bruckner • Case studies used to demonstrate shapings of components
14c
Coles Carol • Consultants with research focus on business models
(2003)

Rappa Michael • Focus on the web

15
(2003) • Types of business models in the Internet world are key issue

1 System/Network Aspect in the sense of connectivity between parties and/or components. Legend: Issue covered
Issue partly covered
[Continued on next page.] Issue not covered
83
 [Continuation from previous page.]
84

Table 9:
Author(s)
No. Key Points/Evaluating Comments/Remarks
(Year)
Delimitation
from Strategy
Dynamic/
Change Aspect
Success
Measures

System/Net-
work Aspect1

Classification
Components

Definition
Graphical
Representation
Rosenblum
David, Tomlinson • Research issue “bottom-feeders” (serving unprofitable customers and buyers)
16
Doug, Scott • Attractiveness of business for customers and company as key goal of a business model
Larry (2003)

Slywotzky Adrian • Key issue is the construction of business designs

17
J. (1996) • Components are assigned to structuring processes

Tapscott Don,
• No primary research on what business models are
18 Ticoll David,
Lowy Alex (2000) • Focus on b-webs

Timmers Paul • Focus on models for Business-to-Business Trading

19a
(1999) • Limited intensity on what business models’ components are

Timmers Paul • Focus on models for Business-to-Business Trading

19b
(1998) • Limited intensity on what business models’ components are

Evaluation of approaches on business models

Van der Heyden • Detailed description of business models’ components
20
Ludo (2004) • Information from interview (no publication)

Venkatraman N.,
• Key focus on interdependence of customer, asset and knowledge
21 Henderson John
C. (1998) • Business models in the view of the new e-age

Viscio Albert J.,

• Alternatives to classical business model
22 Pasternack,
Bruce A. (1996) • Approach to present characteristics for success

Weill Peter,
• Structured approach in research on e-Business models
23 Vitale Michael R.
(2001) • Critical aspects highlighted

Yip George S. • Difference between strategy and business models as major issue
24
(2004) • Demonstration of a business model’s components by application of a case study

1 System/Network Aspect in the sense of connectivity between parties and/or components. Total of 33 24 10.5 24.5 25 10 7 9 6
Legend: Issue covered In % 73 32 74 76 30 21 27 18
Issue partly covered
Issue not covered
3 Š Business models as an approach for analyzing companies
3 Š Business models as an approach for analyzing companies 85

3.2.3 Definition

In this section I present the requirements for a Business Model Framework before I
introduce the definition applying to this study.

3.2.3.1 Requirements of the framework

According to Porter, the two approaches to theory building are models and frameworks.
Models abstract complexity to isolate a few key variables whose interactions are
thoroughly checked. The applicability of findings is restricted because no model
incorporates all the variables of interest or even comes close to it. Yet theory building
by models can ensure logical consistency and helps to reveal the subtle interactions
within a limited set of variables. Frameworks, seek to capture complexity, and
encompass many variables. They identify relevant variables and can be seen as almost
expert systems. As Porter states, “theory embodied in frameworks is contained in the
choice of included variables, the way variables are organized, the interactions among
the variables, and the way in which alternative patterns of variables and company
choices affect outcomes” (Porter 1991, pp. 97-98). I refer to the term framework rather
than model due to the specifics and complexity of the logistics industry, which need to
be captured comprehensively.

Through formalization in the context of information and communication systems, Picot

et al. refer to an organization and event model that is used to realistically illustrate facts
when modeling companies. A model has to cover the aspects of ‘how’, ‘with what’,
‘who’ and ‘when’ (Picot et al. 2001, p. 221). According to the authors, a successful
transformation of a company towards an adaptable and flexible organization requires
concentrating on the process. The key focus is not the product or service a company
offers, but how it is produced or delivered with the help of partners, suppliers and
possibly customers (Picot et al. 2001, p. 225).

Based on Van der Heyden’s demand for a clear description of the components and on
Picot et al.’s experience, the key requirement for the framework developed in this
dissertation is a formalization of the components and their characteristics using
universal techniques of description. This is necessary for evaluation. The framework
should not only concentrate on the service scope itself, i.e. on the variety of services
86 3 Š Business models as an approach for analyzing companies

offered, but it should also include the role of stakeholders. The formal definition should
be based on the components defined, and include success measures.

A good business model based on these conditions must lead to success. According to
Magretta, business models are “stories that explain how enterprises work” (Magretta
2002b, p. 87). They are successful if they end in a rich stream of profits. Good business
models are better than competing models as they may offer more value to customers and
completely replace the old way of entrepreneurship by becoming standards for the next
generation of entrepreneurs. They furthermore create new, incremental demand, they
neither fail the narrative nor the numbers test and they are difficult to replicate
(Magretta 2002b, pp. 88-92). Figure 25 summarizes those prerequisites, which are also
supposed to apply to my Business Model Framework.

6 1
Creating a strong
competitive advantage by Representing a better
changing the industry’s way than existing
economies and by making alternatives
replication difficult

Neither failing the

narrative test (story Prerequisites Offering more value to a
5 makes sense) nor the for a successful discrete group of 2
numbers test (profit and business model customers
loss add up)

Shifting existing Completely replacing the

revenues among old way of doing things
companies or even and becoming the standard
creating new, for the next generation of
incremental demand entrepreneurs to beat
4 3

Figure 25: Prerequisites for successful business models

(Based on Magretta 2002b, pp. 88-92)

3.2.3.2 Research framework

One research contribution of this study is the development of a framework that covers a
business in a comprehensive manner. My Business Model Framework is designed to
adequately represent how new customers can be attracted. This is the only valid
definition of the purpose of business according to Drucker (Drucker 1954, p. 37). A
comprehensive representation of a business consists of an internal and an external
perspective. I use the terms ‘micro layer’ for the internal perspective and ‘macro layer’
for the external perspective. One reason for extending the micro layer of my Business
3 Š Business models as an approach for analyzing companies 87

Model Framework by a macro layer is that Total Integration requires analyzing

‘external’ factors. This applies in particular to collaboration with customers and other
LSPs. Another reason is that the issue of size is important for survival in the
competitive logistics industry and therefore, requires looking beyond company borders.
Parts of either the micro layer or macro layer are paraphrased with the term
‘dimension’. For analyzing business models in the area of logistics, I apply an explicit
approach in the sense of Mulvaney and Mann (Mulvaney and Mann 1976, p. 1 et seqq.;
see 3.2.1.1.), which means that, in general, the framework is described verbally.
However, in some parts this approach is extended by quantifying variables.

The micro layer of the business model is the core of the framework. It consists of the
three categories Ambitions & Aims, Implementation, and Financials. The components
of the Ambitions & Aims category are Value Proposition, Target Group, and Business
Purpose. The Implementation category comprises the components Product-Market-
Offer with Product/Service and Market as subcomponents; Internal Structure with the
subcomponents Input Factors, Organization and Communication; and the Value
Network component with the subcomponents Relationships and Exchange Mechanism.
Financials as the third category covers the components Performance Measurements and
Rewards (Table 10 and Figure 26). The corresponding question words for each of the
component’s respective subcomponents and their descriptions can be found in Table 10.
For example, the component Rewards from the Financials category answers the
question of ‘how much’ a business earns, i.e. it shows the business result or margin or
provides information on shareholder compensation.

A separate note is required on process as a potential component of a business model,

which is discussed by Van der Heyden (Van der Heyden 2004) or in Alt and
Zimmermann (Alt and Zimmermann 2001, p. 6). In my definition of the micro layer,
‘process’ is not a separate component of a business model, because the components are
actually involved in making the process. For example, process is part of the
subcomponent Input Factors, when describing how means and techniques are applied
for conducting business. Modeling is always process-related and online auctions, for
instance, are not a business model in itself, but instead a pricing mechanism.
88 3 Š Business models as an approach for analyzing companies

Cate- Components and Question Description

gories subcomponents of
business model
Ambi- Value Proposition What x Needs of customers fulfilled
tions & x Value, benefits and advantages created for other
Aims stakeholders like investors, partners, employees or society
Target Group Who x Customers
x Customer/market segments (e.g. private households/
companies, children/adults, etc.)
Business Purpose Why x Vision and mission
x Goals
Imple- Product- Product/ What x (Portfolio of) Product(s) sold including
men- Market- Service design/configuration
tation Offer x (Set of) Service/information provided
Market Where x Geographical presence (local/global market reach)
x Go-to-market-mechanism
Internal Input With x Means and techniques for conducting business/for
Structure Factors What accomplishing goals and performing tasks
x Building blocks of internal architecture: firms’ resources,
capabilities and core competencies (asset and capital
intensity, technology, employees’ skills and know-how)
Organi- How x Business system, value chain, scope of business activities
zation and tasks
x Company infrastructure, internal organization,
organizational resources, core processes
Commu- How x Channels of communication
nication x Coordination mechanism
Value Relation- With x Companies’ systems, relationships and networks to
Network ships Whom customers and partners
Exchange How x Exchange mechanisms (communication, coordination)
Mechanism x Interfaces to customers and partners
Finan- Performance How x Financing/funding structure, costs/cost structure
cials Measurements x Financial targets in terms of pricing, revenues
x Reporting and control mechanism
Rewards How x Business result/margin
Much x Shareholder compensation

Table 10: Categories and components of business models

Business
model

Ambitions Implemen-
Categories & Aims tation
Financials

Compo- Value Target Business Product- Internal Value Performance Rewards

nents Proposition Group Purpose Market-Offer Structure Network Measurements

Product/ Exchange
Sub- Market Relationships
Service Mechanism
compo-
nents Input Communi-
Organization
Factors cation

Figure 26: Categories and components of a business model

The micro layer of a business model is supplemented by the macro layer. It consists of
three company comprehensive business model views. The macro layer covers the legal
relationship of the business models of the LSP and the customer or a joint business
3 Š Business models as an approach for analyzing companies 89

model of both parties. Also, it deals with the role and impact of size of a company on
the business model components (Figure 27).

Legal Relationship Size

Business Model Business Model Business Model Business Model Business Model Business Model
LSP Customer LSP – Customer LSEs Hidden Champions Other SMEs

Figure 27: The macro layer of a Business Model Framework

From above explanations I derive some summarizing statements on my business model

definition. A business model is a comprehensive representation of a business. The core
of modeling is the internal perspective of a company, which I refer to as the micro layer
of a business. The macro layer, i.e. the external perspective, complements the
comprehensive coverage of a business. A business models’ micro layer includes the
categories Ambitions & Aims of a company, the issue of Implementation as well as
Financials resulting from business activities. Business modeling requires all single
(sub-)components to be analyzed. From the external perspective, the business model of
an LSP has to be analyzed in relation to the customer’s business model and in terms of
company size. The analysis of both the micro and macro layer provides insights into
how to create a customer and thus how to sustain in competition.

3.2.4 Limits of business models

Literature often lacks a clear distinction between the terms business model and strategy
or uses them interchangeably. Some exceptions and approaches for a distinction of both
terms are available (see in particular Zott and Amit 2003, p. 37). In this section I carry
out a more detailed delimitation of the term business model from strategy. The reason
for covering this issue is that by definition of the topic, this study is about searching for
Hidden Champions’ business models and not for their strategies. This presupposes to
eliminate the existing misunderstandings and to create a uniform and clear
understanding of both concepts.

The origin of the term strategy can be found in military or war (Grant 2002, p. 14). For
management education, the concept of corporate strategy was developed at the Harvard
Business School in the early 1960s and became part of the business policy courses
taught by Kenneth R. Andrews and C. Roland Christensen amongst others (Christensen
et al. 1987, p. viii; Uyterhoeven et al. 1977, p. vii; Staehle 1999, p. 603). Despite its
90 3 Š Business models as an approach for analyzing companies

long history, the term strategy is still lacking a coherent view. Markides states that there
is surprisingly little agreement on what strategy really is despite decades of academic
research and an obvious importance of a superior strategy to the success of an
organization (Markides 2000, p. 193). Magretta argues that the reason for the
controversial and skeptical views on strategy is that definitions have “encompassed
everything from elaborate analytic exercises and five-year strategic plans, to
companywide brainstorming sessions, to simple vision statements” (Magretta 2002a,
p. 71). As further examples, Hedman and Kalling as well as Yip also refer to the
problems with strategy theory (Hedman and Kalling 2002, p. 104; Yip 2004, p. 18).

In dictionaries of business and management, the term strategy is only partly covered.
Definitions can be found for example in ‘The Oxford Dictionary for International
Business’ (Oxford University Press and Market House Books 1998, p. 846), the
‘International Encyclopedia of Business and Management’ (Warner 2002, Vol. 7,
pp. 6120-6130) or in the ‘Dictionary of Business Terms’ (Cross 1999, p. 342). Other
dictionaries like the ‘Management-Lexikon’ (Buehner 2001) or ‘The Encyclopedia of
Management’ (Heyel 1982) do not cover the field of strategy or strategy-related issues
at all, while other dictionaries like the ‘Encyclopedia of Management’ (Helms 2000,
pp. 870-909) do not cover the term strategy itself but related issues and terms.

The condition of the understanding of strategy highlights the need that this study has to
provide an overview of various views on strategy and to derive an overall valid
approach that also allows a clear distinction from business models. I used management
literature to capture existing approaches of strategy, i.e. its definitions and components.
The tabular overview of prevailing approaches from 17 authors can be found in
Appendix 2.

I prepared a table summarizing the key contents of the approaches of strategy from
these authors by highlighting their components (Table 11). Of these 17 authors, two
revised their views once and one author twice, which leads to 21 approaches in total. I
assigned the components to the three categories overall purpose, competition and
dynamic. The components of the category Overall Purpose are Mission, Goals &
Objectives, and Winning & Performance. Positioning & Differential Advantage, Plans
& Patterns & Existing Policies, Ploys & Tactics & Implementation, and Partnering &
3 Š Business models as an approach for analyzing companies 91

Collaboration are assigned to Competition. The components Decisions and Changes in

time belong to the category Internal Dynamics. Of the 21 approaches the component
Positioning is included most (twelve). The other key components, which are included in
ten approaches, are Goals & Objectives, Winning & Performance, Plans & Patterns &
Existing Policies, and Decisions.
92 3 Š Business models as an approach for analyzing companies

Categories/
Compo- Key Author Overall Purpose Competition Dynamic
nents (Year)
Mission Goals & Winning Positio- Plans & Policies Collabo- Decisions Changes
Objec- & Perfor- ning Patterns & Tactics ration in Time
No. tives mance & Ploys

1 Afuah (2004)

2 Andrews (1987)

3a Ansoff (1988)

3b Ansoff (1965)

4a Barney (2002)

4b Barney (1996)

5 Burgelman (2002)

6 Chandler (1966)

7 Chesbrough (2002)

8 Drucker (1964)

9 Ghemawat (1991)

10 Grant (2002)

11 Learned (1965)

12 Magretta (2002)

13 Markides (2000)

14 Oster (1999)

15a Porter (1998)

15b Porter (1996)

15c Porter (1991)

16 Weill (2001)

17 Yip (2004)

™ 1 10 10 12 10 4 1 10 4

Legend: Component covered

Component not covered

Table 11: Evaluation of approaches on strategy

3 Š Business models as an approach for analyzing companies 93

From the evaluation in Table 11 I deducted a comprehensive definition and overview of

a strategy’s categories and components (Table 12). The table also contains examples of
terms used in the definition and views about strategy. I defined Overall Purpose,
Competition (‘4Ps’) and Internal Dynamics as the three categories of strategy. Overall
Purpose covers the components Mission, Goals & Objectives and Winning &
Performance. The category Competition (‘4Ps’) includes Positioning & Differential
Advantage, longer-term Plans & Patterns & Existing Policies, short-term and medium-
term Ploys & Tactics & Implementation as well as Partnering & Collaboration. The two
components Decisions and Changes are part of the category Internal Dynamics.

Key words of regular use when dealing with finding a definition on strategy are
competition and competitors, competitive advantage, competitive strategy, concept and
positioning. Figure 28 also shows the fundamental role of the category Competition.
Strategy specifies both corporate dynamics as well as competitive dynamics. The
categories Overall Purpose and Competition have a competitive effect or relate to a
process where the category Internal Dynamics has its own effect. In the category
Overall Purpose, goals define the course and direction of a company. The component
Winning & Performance of the same category point out possible gaps. The category
Competition highlights for example a company’s opportunities and threats, which may
cause adaptations in the category Internal Dynamics.
94 3 Š Business models as an approach for analyzing companies

Categories Components of Examples for terms used in definition/

strategy understanding of strategy
Overall Mission • Top management’s view of what the organization seeks to do
Purpose and become over the long term
Goals & • Specific performance targets in each of the areas covered by a
Objectives firm’s mission
• Aiming for value creation, value capturing or sustainability
Winning & • Yardsticks for performance measurement
Performance • Result
• Yielding a superior return on investment
• Outperforming the market
• Competing successfully1
Competition • Definition of the business being in and in relation to other
(4Ps)
Positioning & organizations
Differential • The way that a firm relates with its competitive environment
Advantage • Creating a defendable position through offensive and defensive
actions
• Difference of system (business model) from competitors’
• Choosing a different set of activities from rivals
• Being different
• Competitive threat
• Competitive advantage
• Prevailing/surviving in competition
• Determination of a company’s course
Plans & • Planning actions
Patterns • Planning deployment of capabilities
(longer-term) & • Pattern of resource allocation
Existing Policies • Pattern of behavior
• A (set of) guideline(s)
• Program
• Theory
• Specific actions (new policies) that firms undertake to
Ploys & Tactics & implement their strategies
Implementation • Maneuvers to outwit an opponent (ploy)
(short-term & • Competing successfully2
medium-term)
• Relationships with external environment
Partnering & • Internal relations
Collaboration
Internal Decisions • Making choices
Dynamics • Making trade-offs in competing
• Sets of decision-making rules for guidance of organizational
behavior
Changes • A very specific plan of action directed at a specified result
within a specified period of time
• Dynamic activities used to change position or business model
1 Assignment also to category “Ploys & Tactics & Implementation (short-term & medium-term)”.
2 Assignment also to category “Winning & Performance”.
Table 12: Categories and components of strategy
3 Š Business models as an approach for analyzing companies 95

Internal Dynamics

Overall Purpose
Goals & Winning &
Mission
Objectives Performance
Decisions

Changes
Competition (4Ps)
Positioning & Plans & Ploys & Partnering &
Differential Patterns Tactics & Collaboration
Advantage (longer-term) Implementation
& Existing (short-term &
Policies medium-term)

Categories Components

Figure 28: Categories and components of strategy

From my approaches to define a business model and strategy, some issues relating to a
distinction have to be pointed out.

First, strategy is the link between a company’s internal and external environment. It
covers the corporation (micro internal environment), the industry (micro external
environment) and the society (macro external environment). Business models cover the
micro internal environment, i.e. the corporation only (Table 13).

Type/Layer of Environment Coverage Business Model Strategy

Micro internal environment Corporation
Micro external environment Industry
Macro external environment Society

Applicable Not applicable

Table 13: Delimitation of business models from strategy

Second, there is uncertainty relating to the aspects of static and dynamics in business
models and strategy. For example, Yip states that the defined elements of strategic
positioning by Porter “make up a static positioning of where the company wants to be
and could just as well be described as a business model.” Yip adds that most examples
used by Porter and other authors on strategy “tend to describe static business models”
(Yip 2004, p. 19). According to my view, a business model is static while strategy is
dynamic.
96 3 Š Business models as an approach for analyzing companies

Third, there are interrelations between business models and strategy. Business models
can be the starting point for innovations. Companies may change parts of their business
model consciously in order to achieve competitive advantages. Such a conscious change
of the business model, a business model innovation, is a company’s strategy. With a
strategy, a company’s present position moves to a new position in future. This aspect is
presented in Figure 29.
High

Business
Model
Development

Business
Model
Low

Past Future

Time

Figure 29: Business models and strategy in view of static and dynamics

Fourth, contrary to strategy business models are formulated more broadly in terms of
subject areas. Hedman and Kalling argue that this is founded in business model’s
history with relation to the age of new technologies and start-ups and their demand for
investments, which has required founders to present and market their entire business
model comprehensively to raise financial resources (Hedman and Kalling 2002, p. 105).

In short, strategy is the dynamic approach for achieving a company’s overall purpose
while managing competition and internal dynamics. Thereby, a business model is the
platform for executing strategy.
4 Š Issues of empirical research and analysis 97

4 Issues of empirical research and analysis

This chapter deals with research methodologies (4.1) and the architectures of business
models in logistics (4.2.). In Section 4.3 a classification of LSPs is conducted,
arguments for their research relevance are presented and the process of selecting LSPs
for the empirical research is described. Section 4.4 is dedicated to the role of customers
for empirical research and gives background information about customers involved.
Section 4.5 deals with questionnaire design.

4.1 Methodology

This section covers challenges for the researcher in conducting an empirical study of
small- and medium-sized LSPs. Possible research approaches are demonstrated and the
chosen process is presented.

4.1.1 Research challenges

As in other areas of management, also in logistics researchers have to deal with the
trade-off between academically accepted modeling, optimizing or simulating and
reflecting real-life complexity and real-life problems. Especially in logistics, empirical
research has to deal with the problem of finding appropriate causal models (New and
Payne 1995, pp. 60-67). The problems in formulating presumed causal links is
elucidated in the total supply chain perspective, which addresses inter-company
operations spanning the single organization boundary. As a result, partners are
concerned about revealing undisclosed data. In addition, the overall ‘big picture’ with
its set of commercial and managerial issues is far more complex than considering the
technical issues of material and information flow, resulting in the challenge of
concentration on key issues (New and Payne 1995, p. 67). Based on New and Payne’s
discussions about research paradigms (New and Payne 1995, pp. 60-77), the paradigm
underlying this study is presented in Figure 30.

R. M. Neubauer, Business Models in the Area of Logistics, DOI 10.1007/978-3-8349-6533-2_4,

© Gabler Verlag | Springer Fachmedien Wiesbaden GmbH 2011
98 4 Š Issues of empirical research and analysis

Environment
• Context in which a
business operates
• Macro/micro environment
Micro
Macro

Practice Integration Partnership

• Things an organization/
LSP may do
• Business model categories
Ambitions & Aims and
Implementation
(Own capability)
• Quality of links between
LSP and its customers and
its network partners
• Companies with which the
LSP collaborates
• Customer company as well
as network partners
(Network capability)

Performance
• LSP’s outcome
• Business model category
Financials

Figure 30: Paradigm to empirical research: Adaptability to best practices

The above figure demonstrates a paradigm with five components. The component
environment covers the context in which a business operates, i.e. the macro and micro
environment (Section 2.2.2). Environmental factors mediate and influence the ‘how’ of
how logistics practice affects performance, the ‘how’ of partnerships’ inducement of
performance and the ‘how’ of impacting performance by quality of integration between
an LSP, its customers and its network partners. Practice – things an organization, i.e. an
LSP may do – affects performance by single moldings of the components within the
LSP’s business model categories Ambitions & Aims and Implementation. The quality
of links between an LSP and its customers and network partners impacts performance.
As presented in Section 2.2, it is this link, i.e. integration, which is the key in today’s
logistics industry. In this paradigm, good or interesting practices (‘best practices’)
adopted may be identified by their good or interesting results, i.e. by competitive
advantages achieved or optimum performances given. In order to suit particular
situations with particular environmental characteristics, these practices may require
adaptations. Therefore, the underlying research paradigm is called ‘adaptability to best
practices paradigm’. It is no longer only the LSP but also its customers and network
partners who play a key role in this system. Performance is the outcome of an LSP, e.g.
4 Š Issues of empirical research and analysis 99

operating profits or losses or share prices achieved, demonstrated by the business model
category Financials. Thereby, empirical research deals with the issue of performance as
a component in a system. The challenge of the empirical research and analysis is to
identify adaptability of processes and data collected of Hidden Champions and to search
their business model specifics that are causal for long-term success and survival and
thus become a guidance for applicability by other SMEs.

As business models are static in view, empirical research concentrates on the system’s
issues described. In reality this system goes beyond with feedback and response taking
place between the components, e.g. logistics practice influences the environment or
performance influences network partnerships. This view is not covered in this study,
although alluded to by the dark grey circle embracing all components in Figure 30.

4.1.2 Research approach

In this section research approaches are classified and their utilization for this study is
presented.

4.1.2.1 Classification

From a Hidden Champion’s point of view the basis for above-average success and
business excellence is supposed to be in their unique and outstanding molding of single
business model components in a way other companies are unable to imitate. This
strongly company-related alignment requires a sophisticated research methodology
which is flexible enough to identify those specific characteristics. For this reason and
the reasons of the topic’s complexity with its idiosyncratic and unique nature as well as
the variety of types of competitors, a hybrid research approach would facilitate this
study. Figure 31 provides an overview of possible approaches in the empirical research
and their methodologies for performance.16

16
Detailed descriptions on the methodologies observations, interviews, experiments and content
analysis can be found in Atteslandes (Atteslander 1991, p. 95 et seqq. on observations, p. 129 et seqq. on
interviews, p. 205 et seqq. on experiments and p. 226 et seqq. on content analysis).
100 4 Š Issues of empirical research and analysis

Research Approaches Main Methodologies

• Interviews R
Representation • Observations

• Case Studies R
Exploration
• Content Analysis

• Survey Research R
Experimentation • Experiments
R Applied Not applied

Figure 31: Types of research approaches and main methodologies for performance

The classification results in three types of research approaches, namely representation,

exploration and experimentation, with two main methodologies identified for each. The
research approaches are described in more detail in the next sections and applied
methodologies are presented.

4.1.2.2 Representative research

The two main methodologies of representation are interviews and observation, both
aimed at reflecting reality. This study is given a representative character by conducting
a questioning in the special form of intensive interviews. I formulated detailed LSP and
customer questionnaires with the interview guidance is given considerable grounds for
own judgment. Schnell et al. refer to using an interlocution manual (Schnell et al. 1988,
pp. 352-354). The research methodology of observation was not chosen for the reason
that a systematic record of developments and events at LSPs and companies at their site
for a specific time period was not possible for reasons of confidentiality or lack of
resources for support.

By using the questionnaires as interlocution manuals it was possible to make use of two
strengths of this special form of interview. First, the interview partner’s framework can
be included, i.e. insights about the experience of interview partners and relevancy can
be gained (Schnell et al. 1988, p. 352). Second, central questions can be brought to
discussion in decisive moments (Atteslander 1991, p. 174 et seq.).

In comparison to a standardized interview, the weaknesses of such a manual also have

to be considered, applied as described in Atteslander (1991, p. 175) to conducting
4 Š Issues of empirical research and analysis 101

interviews with representatives of the logistics SMEs. First, an increased knowledge and
experience of the interviewer is required, i.e. practical examples and excellent
comments on logistics strategy awake the interviewed person’s interest in a discussion
and create the path for providing more insights. Second, the influence of the interviewer
is stronger with data quality depending on the interviewer’s quality. Third, the demand
on the interviewee’s readiness to participate and on the competencies is enlarged. This
is challenging in particular in the logistics industry which is well-known for its
restraints in publishing company data. Also, the questions cover areas that only
interview partners from the top management would be able to answer. Fourth, the
higher time requirements are in particular critical in conjunction with the requirement of
top management inclusion. Finally, results are less comparable and thus more difficult
to evaluate. For example, in question 2.6.1 (Appendix 3). LSP A mentioned exact
numbers on own and subcontracted trucks while LSP L was not able to provide detailed
figures and answered that although it has a variety of transport equipment, it has not
developed as an asset-intensive LSP but more intellectually based.

4.1.2.3 Explorative research

This study’s character is mainly explorative as the “fine-grained” research methodology

(Harrigan 1983, p. 398 et seq.) of in-depth case studies – I prefer using the term
‘research cases’ – was chosen. This methodology would also assess the extent to which
Barney’s (1991, pp. 106-112) four criteria – valuable, rare, imperfectly imitable, non-
substitutable – a resource must satisfy in order for it to provide a company with a
sustainable competitive advantage are fulfilled. Moreover, it is a matter of this study to
gain knowledge rather than to secure knowledge. Qualitative case study research is
supposed to be a suitable research methodology for building and broadening theory.
Although searching for uniqueness instead of central tendencies in a group seems to be
a retreat in research, it is the unique and extraordinary company which is defining the
rules of competition and creating new breakthroughs (Godfrey and Hill 1995, p. 530;
Aharoni 1993, p. 43). The investigation of the outstanding company identifies the
means by which it was made sustainable, and the dynamics of the shifts and changes
(Aharoni 1993, p. 43).

The construction of case studies is characterized by openness and allows the use of
numerous qualitative and quantitative data sources (Bonoma 1985, p. 203). In this
102 4 Š Issues of empirical research and analysis

dissertation, case studies – research cases LSP and customers – are used for reasons
transferred from Eisenhardt, who describes the strengths of gaining knowledge from
case studies (Eisenhardt 1989, p. 546 et seq.). Accordingly, with case studies the
probability of generating novel theory is given. Also, there is the likelihood of testing
emergent theory with readily measurable constructs and verifiable hypotheses as well as
the likelihood of empirical validity of the resulting theory due to close ties between
theory-building process and evidence.

However, weaknesses of theory-building from case studies as outlined by Eisenhardt

(Eisenhardt 1989, p. 547) apply to this research study. First, overly complex theory is
yielded due to robust data collection and due to an intensive use of empirical evidence
which is lacking the simplicity of overall perspective. Second, a narrow and very
idiosyncratic phenomenon without level of theory generality is described (see also
Harrigan 1983, p. 398).

4.1.2.4 Experimental research

Most research strategies are experimental to some extent. Therefore it is difficult to

determine unambiguously when the research methodology of experiments is applied
(Atteslander 1991, p. 205). In contrast to representation, experiments have three
decisive advantages (Atteslander 1991, p. 207-208), namely the possibility to include
persons or things for trial to represent social correlations, the construction of extreme
situations and the testing of hypotheses under strong conditions. Also, it is the most
secure method of identifying causal relations in the area of social phenomenon.

Although experiments either real or virtual in their classical forms, e.g. in the form of
laboratory and field experiments, projective experiments and ex-post-facto procedures,
simultaneous and successive experiments as well as simulations and planning games,
are not considered to be an appropriate methodology for business models in the area of
logistics, some experimental character was considered to be necessary. For this reason,
survey research was chosen as the methodology for research. Unlike interviews as
research methodology, in which one or only a few selected LSPs are targeted, survey
research aims at multiple LSPs, i.e. it is a methodology with large research scale. All
analytical and empirical data were prepared and collected in an exhaustive database,
which is the key source for uncovering new insights on questions raised and validation
4 Š Issues of empirical research and analysis 103

or rejection of the hypotheses. Survey research is considered to be the methodology for

identification of differences in single business model components’ moldings. These
differences across the various types of LSPs are expected to reveal competitive
advantages. The experimental character in this empirical study is included in the
adaption of questioning during the interviews if the interviewees go into specific
interesting directions. For example, interview partners who provided access to their
customers’ sites were asked more intensively on the issue of customer relationships.
The specifics of such situations allowed in the experimentation more depth regarding
the perspective of customers as partners.

4.1.3 Research process

This section describes the research process in more detail. It forms the basis for the
empirical studies within this dissertation.

4.1.3.1 Process

The starting point and trigger for working on this dissertation’s topic is personal and
practical experience from reading industry literature, previous research activities and
work experience in the field of logistics consulting. It is the primary source for prior
knowledge. In addition, prior knowledge is based on secondary sources, i.e. on literature
analysis. Knowledge is based on extensive reviews of books on business management
and the area of logistics, articles in management and logistics magazines and
newspapers, electronic media like online articles in databases and the World Wide Web
or specific industry publications like handbooks on ‘Who’s Who’ in the logistics
industry. Additional information was gathered from surveys focusing on logistics,
outsourcing and supply chain management as well as from presentations of companies
and experts on conferences and other industry events prepared for analysts and
customers. Literature analysis was supplemented by companies’ presence in the World
Wide Web and by their publications like company presentations, brochures and other
material up to primary company information gathered by talking to companies’
employees. Based on both experience and literature analysis, i.e. on common industry
and academic knowledge, the resulting prior knowledge led to interesting issues and
problems in the industry. Questions were raised which needed to be checked and
hypotheses were formulated. Together with prior knowledge questions and hypotheses
shape the theoretical part of this study.
104 4 Š Issues of empirical research and analysis

The applied research methodologies interviews, case studies (to some extent only) and
survey research (Figure 31) form the starting point for this dissertation’s practical part.
Their outcomes are aspects of reality, i.e. new insights into questions that have arisen
and validation or rejection of hypotheses. By observation and abstraction of theory and
reality, ‘new’ knowledge is created. Thereby, reality is observed and structured due to
existing theoretical knowledge with previous hypotheses not being rejected but
corrected according to observed states. Research is considered as a learning process
with permanent interaction between questions about reality, data gathering and critical
reflection on new insights which undergo theoretical assimilation and result in new
questions. Kubicek designates this approach in which the researcher is an active
participant as iterative heuristic (Kubicek 1977, p. 14 et seq.). In this study the research
process is understood as a cyclical iterative learning process. Figure 32 provides an
overview of the research process with its iterative character.

Observations

Interviews

Questions New Insights (Representation)

Experience
szw

Case 
(Primary) Prior Creation of “New Aspects
Studies*
Knowledge“
jœš›–T
Knowledge of Reality ”Œ™

(Exploration) Ÿ
Präsentation

Wer wir sind

Grieshaber Transpor t + Logistik

Bad Säck in gen, Juni 2005

Literature Validation/
Hypotheses
Analysis Rejection Survey
(Secondary) Research
(Experimentation)

Abstraction

{GoG lGvGyG€ yGlGhG sGpG{G €

Legend:

Specific industry publications Primary gathered information Issues of research and

Personal experience Database – quantitative data
like handbooks on ‘Who‘s Who’ from companies analysis
Database – qualitative data Expected response to
Practical experience Surveys in the area of logistics szw
 Case LSP X research issues
Books on business Presentations from companies or jœš›–T
Dissertation‘s final outcome * Only to some extent
Case Customer x
Präs enta tion

”Œ™
management/logistics
W er wir sind

conferences (research objectives)

Grie shabe r Tr ansport + L ogist ik

applicable
Ba d Säc kin ge n, Jun i 20 05

Articles in management/logistics Companies‘ presence in the Questionnaire/Interview Manual Theoretical basis/

magazines and newspapers WWW y Logistics Service Provider y state of reality
Electronic media like articles Companies‘ publications like Questionnaire/Interview Manual Input and transformational
in databases and the WWW annual reports or brochures y Customer y factors

Figure 32: Research process as iterative learning process

(Based on Kubicek 1977, p. 14 et seq.; Tomczak 1992, p. 84)

This dissertation’s research focus is broadened by supplementing the LSPs’ perspective

with customers’ views. In terms of the representative character of this study a separate
in-depth questionnaire for LSPs and customers was deployed (Appendices 3 and 4).
These interviews with both parties mainly took place during personal visits to their
4 Š Issues of empirical research and analysis 105

company sites, or in the case of some interviews during an extensive phone call. In
total, interviews took place at twenty-six companies, of which thirteen were LSPs and
thirteen customer companies. Usually, several interviews were necessary at each
company, also with different interview partners. To foster the explorative research
approach, two LSPs were studied more intensively (LSPs D and M) including some of
their customers. The insights gained from the interviews were fostered by visiting and
observing selected company sites. The experimental character of this study is underlined
by the inclusion of the customers’ perspectives. Key issues addressed by customers
influence the database’s content. The directions of findings may completely move in an
unexpected manner.

4.1.3.2 Theory

Theory is considered to be the critical issue of this research study for two reasons. First,
it forms the basis for identifying and analyzing phenomenon in the industry. This
resulted in Integrated Supply Network Management as the core issue. Secondly, it is a
starting point for an in-depth classification and selection of LSPs. Besides a detailed
segmentation, it also helped to force a clear distinction between LSEs and SMEs with
the latter consisting of Hidden Champions and others. Also, the selection of the right
LSPs and cases was done based on theoretical prior knowledge and not by random
sampling. The aim is to focus efforts on theoretically useful LSPs by searching for those
which replicate or extend the prior knowledge (Eisenhardt 1989, p. 533).

4.1.3.3 Reality

Research oriented on reality attempts to describe, to explain, and to solve practical

relevant problems and phenomena with theoretical directed empiricism (Tomczak 1992,
p. 83). The object area and insights can be gained by experiences and discoveries of
apparent contradictions between putative knowledge and putative facts (Kubicek 1977,
p. 11; Popper 1973, p. 370 et seqq.; Popper 1969, p. 104). While in fundamental science
empirical research has the purpose of searching for the truth by examining hypotheses,
in science oriented on reality or use it is directed at the registration of typical problems
that have arisen in practice with the aim of developing possible realities and the
examination of models developed (Ulrich, H. 1998, p. 162 et seq.; Ulrich, H. 1981,
p. 10). With this dissertation’s research aligned on practical use, the tradition of
106 4 Š Issues of empirical research and analysis

business management as applied social science is continued (Kubicek 1977, p. 14;

Ulrich 1984, p. 168 et seqq.) by aiming at evaluating practice.

4.1.3.4 Quality

The flexibility of analyzing data in survey research is a chance to advance in theory

building. However, there is the danger of lacking transparency and consequently results
may lack recognition. In order to compensate for this trade-off it is necessary to present
interesting or frame-breaking theories meeting the tests of good theory or concept
development like analytical conclusions or logical coherences, and which are grounded
in convincing evidence (Eisenhardt 1989, p. 549). Accordingly in this study the analysis
of data is guided by theory. The quality of the research process is examined with the
means construct validity, internal and external validity as well as reliability (Yin 1989,
p. 40 et seq. and Table 14).

Means to Description Activities

examine
research
quality
Construct Empirical examination of the
validity theoretical construct being
equivalent to the (measured)
variable (Kuss 1987, p. 63).
Internal Measure for identifying
validity influential relationships.
External Robustness of research results
validity against specifics of the
applied methods and the
situation (Kuss 1987, p. 64),
i.e. generalization of results
with identified relations also
to be expected in other
situations (Boehler 1985,
p. 38).
Reliability Measure for conformity, i.e.
repetition of the analysis of
the same case with the same
results (Yin 1989, p. 45).
Table 14: Means and their application to examine the quality of the research design
(in general)
Comparison of results with theoretical declarations and
additionally obtaining confirmation from interview
partners.
Searching for relations between observed phenomena with
specific results originating in previous phenomena.
Making sure that all alternative explanations were
considered (Yin 1989, p. 42 et seq.). Setting up theoretical
explanation patterns whereas possible relations are
described based on theoretical pre-understanding (Yin
1989, pp. 113-115). Internal validity is strengthened if
theoretical relationships match empirically founded
relationships. Each case is considered as a single unit and
also groups of cases are built with mutuality and
differences are analyzed (Yin 1989, pp. 109-113).
Striving to generalize a particular set of results to some
broader theory (Yin 1989, p. 44). By applying the method
of triangulation, external validity is warranted (Bonoma
1985, p. 201).
Documentation of the total research process in detail (Yin
1989, p. 45).
4 Š Issues of empirical research and analysis 107

Within this dissertation I applied the means suggested by Yin to examine the quality of
research. An example of the first means to examine the research process of this
dissertation, construct validity, is dealing with the issue of Total Integration. In theory,
Total Integration is claimed to be the future concept. Consequently, empirical research
aims to identify success factors of Total Integration. The results were compared with
theory and statements on this issue by several managers from one company. Regarding
internal validity, a cyclical iterative learning process was chosen as the research process.
External validity is given in some transfer of results to related areas. Finally, by
conducting in-depth studies asking questions to several top managers of a company,
reliability is secured.

4.2 Business model architectures

While the first part of Chapter 4 deals with the theoretical part of the research
methodology, now the focus is shifting towards practice, with business models’
architectures being described first.

4.2.1 Industry developments and business model architectures

Business model architectures are influenced by developments in the industry with

relation to partnership strategies and logistics networks (see also Chapter 2). The 1970s
were marked by a classical provider-customer relationship with the LSP service
spectrum covering single traditional, i.e. operative, services. The situation changed
sometime in the 1980s when companies recognized economic benefits by also
outsourcing value-added services to LSPs. This turnaround had decisive consequences
for future partnerships in logistics as it initiated a process in which the extent of
outsourcing increased through the course of time, in dependency upon the concrete
demands and the intensity of cooperation within a logistics network. At a later stage,
hollow17 companies arose with a large network of partners and currently the role of
global network integrators, as the most significant form of this process is dominating
discussions in the area of logistics.

17
Jenster et al. refer for example to a ‘hollow’ if a company is heavily outsourced (Jenster et al.
2005, p. 5).
108 4 Š Issues of empirical research and analysis

4.2.2 Derivation of business model architectures and comparisons

The developments in the area of logistics form the starting point for the derivation of
architectures and therefore defining distinctive types of business models in logistics. In
this section the various forms are described in more detail and discussed in terms of
research relevance.

4.2.2.1 Descriptions and characteristics

The analysis of the developments in the industry resulted in the identifying of four
major milestones. These can be used to define four types of business model
architectures. The architecture is the molding of the business model’s transformation,
i.e. the molding of the components Internal Structure and Value Network. In principal,
it is transformation which defines the distinctive forms of business models. Of course,
other components differ across various types of business models as well but their
moldings are defined and influenced by the way of transformation. Research of this
study resulted in the definition of four types of architectures and thus four types of
business models, which are traditional, outsourcing, network and integration
architecture or business model.

4.2.2.1.1 Traditional architecture

In its classical form the task of logistics was to physically supply markets with goods.
By providing transportation, transshipment and warehousing, companies operating in
logistics formed the connecting part between procurement and production as well as
between production and distribution. Within this stage Klaus describes logistics as the
science of transfer functions (Klaus 1993, p. 7; Klaus 1999, p. 25). In this business
model analysis logistics is referenced by the traditional architecture in which an LSP is
the ‘connector’ between partners in the horizontal supply chain of a single firm (Figure
3318).19

18
This figure is a graphical presentation of the content from Table 10 and Figure 26 adapted to the
traditional architecture.
19
For explanation see, for example, the part ‘1970s and 1980s: Traditional Value Chain’ in Figure
10.
4 Š Issues of empirical research and analysis 109

Value Proposition

Structure1
Ambitions

Margin
& Aims
Target Group
Business Purpose

Product-Market-Offer
Product/Service Market

Internal Structure & Value Network

Implementation

Causing Costs
Traditional Architecture Transformation Single Firm

I O C

Obtaining
Performance Measurements

Income
Finan-
cials

Rewards

Legend:
First Party – Company
Second Party – Customer
Relationships/Exchange Mechanisms:

Flow of Product/Service I Input Factors Internal Structure

Flow of Information/Communication O Organization Value Network
Flow of Money C Communication 1 Margin structure of business model/generated
value for owner(s) and other stakeholder(s)

Figure 33: Type I: Traditional Architecture and Traditional Business Model

4.2.2.1.2 Outsourcing architecture

As the interfaces between the company functions procurement, production and

distribution decreased efficiency, function comprehensive sequences were developed
and optimized (Landesbank Baden-Wuerttemberg (ed.) 2001, p. 7). It was around 1980
when integration was evolving (Wilson and Delaney 2001, p. Figure #8: Logistics
Evolution to Supply Chain Management) with value-added services being increasingly
outsourced to LSPs. This advanced approach is described as outsourcing architecture
with LSPs no longer being ‘connectors’ but ‘partners’ in the value chain (Figure 3420).

20
This figure is a graphical presentation of the content from Table 10 and Figure 26 adapted to the
outsourcing architecture.
110 4 Š Issues of empirical research and analysis

Value Proposition

Structure1
Ambitions

Margin
& Aims Target Group
Business Purpose

Product-Market-Offer
Product/Service Market

Internal Structure & Value Network

Implementation

Causing Costs
Outsourcing Architecture Transformation Value Chain

I O C

Obtaining
Performance Measurements

Income
Finan-
cials

Rewards

Legend:
First Party – Compa ny
Second Party – Customer
Third Parties – Value Chain Partners (Suppliers, Distributors, etc.)
Relationships/Exchange Mecha nisms:
Flow of Product/Service I Input Factors Internal Structure
Flow of Information/Communication O Organization Value Network
Flow of Money C Communication 1 Margin structure of business model/genera ted
value for owner(s) and other stakeholder(s)

Figure 34: Type II: Outsourcing Architecture and Outsourcing Business Model

4.2.2.1.3 Network architecture

It then started that LSPs took over responsibility for order fulfillment and with the trend
towards broader service programs and increasing specialization not only distribution
and procurement relations became more complex but also the efforts in terms of
communication and coordination (Merkel and Heymans 2003, p. 10). Companies
created a value network of numerous third party providers in previous and subsequent
processes of distribution as well as for internal logistics activities. The underlying
architecture is called network architecture (Figure 3521).

21
This figure is a graphical presentation of the content from Table 10 and Figure 26 adapted to the
network architecture.
4 Š Issues of empirical research and analysis 111

Value Proposition

Structure1
Ambitions

Margin
& Aims
Target Group
Business Purpose

Product-Market-Offer
Product/Service Market

Internal Structure & Value Network

Implementation

Causing Costs
Network Architecture Transformation Value Network

I O C

Obtaining
Performance Measurements

Income
Finan-
cials

Rewards

Legend:
First Party – Company
Second Party – Customer
Third Parties – Value Chain Partners (Suppliers, Distributors, etc.)
Relationships/Exchange Mechanisms:

Flow of Product/Service I Input Factors Internal Structure

Flow of Information/Communication O Organization Value Network
Flow of Money C Communication 1 Margin structure of business model/generated
value for owner(s) and other stakeholder(s)

Figure 35: Type III: Network Architecture and Network Business Model

4.2.2.1.4 Integration architecture

Reengineering of business processes as highlighted at the beginning of the 1990s by

Hammer and Champy (1993) also left behind its signs in logistics. Today, LSPs are
fundamentally rethinking and radically redesigning their business processes in order to
achieve enormous improvements in performance measures (see definition of
reengineering in Hammer and Champy 1993, p. 32). They take on the role of an
integrator who is able to manage and coordinate suppliers, the producer, retailers and
customers, i.e. an integrated network, while being the single point of contact to the
customer and producer. Integration architecture is referred to if the customer is in the
center of interest and its total supply chain is managed. A business model with
112 4 Š Issues of empirical research and analysis

transformation through integration architecture is called an integrative business model

(Figure 3622).

Value Proposition

Structure1
Ambitions

Margin
& Aims

Target Group
Business Purpose

Product-Market-Offer
Product/Service Market

Internal Structure & Value Network

Implementation

Causing Costs
Integration Architecture Transformation Integrated Network

I O C

Obtaining
Performance Measurements

Income
Finan-
cials

Rewards

Legend:
First Party – Company
Second Party – Customer
Third Parties – Value Chain Partners (Suppliers, Distributors, etc.)
Fourth Party – Integrator
Relationships/Exchange Mechanisms:

Flow of Product/Service I Input Factors Internal Structure

Flow of Information/Communication O Organization Value Network
Flow of Money C Communication 1 Margin structure of business model/generated
value for owner(s) and other stakeholder(s)

Figure 36: Type IV: Integration Architecture and Integrative Business Model

These four types of architectures and business models – traditional, outsourcing,

network and integration – shape the business model components Internal Structure and
Value Network. Both components are the core of a business model with effects on all
other components.

22
This figure is a graphical presentation of the content from Table 10 and Figure 26 adapted to the
integration architecture.
4 Š Issues of empirical research and analysis 113

4.2.2.2 Research relevance

As described in the second chapter, 4PL and Total Integration solutions are the most
discussed concepts in logistics within the last few years. Due to their high expected
margins, they are proposed as the future concept in the area of logistics. The key
question to be checked arising from prior knowledge (Figure 32) relates to Integrated
Supply Network Management as the key challenge in logistics. For these reasons
research concentrates on the architecture and business model described in 4.2.2.1.4., i.e.
business model integration is looked at both within the LSP and business integration
between the LSP and the customer.

4.3 Survey of LSPs

The LSPs are the focus of the third part of Chapter 4. Prevailing logistics knowledge
lacks a comprehensive typology with traditional and newly emerged LSPs. However,
for research regarding Total Integration not only traditional companies but also new
market entrants have to be included. The reason is that according to discussions in
literature and practice, a good future in the area of logistics is predicted for new market
entrants. Therefore, I have worked on the segmentation of market players and suggest a
typology that is extensive in scope. In a second step, the types of LSPs relevant for this
study are selected. Thirdly, the process of selecting LSPs for the empirical study is
presented.

4.3.1 Typology

The search of Hidden Champions requires the analysis of all possible and relevant types
of LSPs. This presupposes a comprehensive segmentation. In literature several
approaches to classifying providers have been made. Besides some academics (in
particular Professor Klaus, University of Nuremberg and Professor Baumgarten, TU
Berlin), preliminary organizations and banks also deal with distinguishing LSPs. Table
15 provides an overview of selected available segmentations. The approaches reach
from very simple segmentations (Vogel or eyefortransport) to very detailed
presentations (in particular Klaus and Bundesamt fuer Gueterverkehr).
114 4 Š Issues of empirical research and analysis

Segmentation Examples Author(s)

criterion
Network density x Without network hFraunhofer ATL and HypoVereinsbank (ed.) 2004, pp. 30-33.
x Dense network
Type of service x Basic services hFraunhofer ATL and HypoVereinsbank (ed.) 2004, pp. 30-33.
x Value-added services hKlaus and Mueller-Steinfahrt 2000, pp. 29-30; Klaus 2003,
p. 36 et seq.; Klaus and Kille 2006, p. 37 et seq..
hBundesamt fuer Gueterverkehr 2005, pp. 3-13.
hIKB Deutsche Industriebank (ed.) 2004, p. 8; IKB Deutsche
Industriebank (ed.) 2005, p. 5.
hVogel 2001, p. 9, p. 12.
hZentes and Morschett 2003, p. 427.*
hBaumgarten and Thoms 2002, p. 64.
hWeber et al. 2002, p. 32.
Served x Transportation hKlaus and Mueller-Steinfahrt 2000, p. 29 et seq.; Klaus 2003,
functional area x Warehousing p. 36 et seq.; Klaus and Kille 2006, p. 37 et seq..
Traffic carrier x Road hKlaus and Mueller-Steinfahrt 2000, p. 29 et seq.; Klaus 2003,
used x Sea p. 36 et seq.; Klaus and Kille 2006, p. 37 et seq..
Geography x National hKlaus and Mueller-Steinfahrt 2000, p. 29 et seq.; Klaus 2003,
covered x International p. 36 et seq.; Klaus and Kille 2006, p. 37 et seq..
h Vogel 2001, p. 9, p. 12.
Extent of service x Single service hBundesamt fuer Gueterverkehr 2005, pp. 3-13.
offering x Total solution
Performance x No certainty hLehmann Brothers (ed.) 2001, p. 3.
criterion x Time guarantee
Size of goods x FTL hLehmann Brothers (ed.) 2001, p. 3.
handled x Envelopes
Asset-intensity x Asset-based hLehmann Brothers (ed.) 2001, p. 3.
x Non-asset based hSeuring et al. 2003, p. 341.**
hZentes and Morschett 2003, p. 247.*
hWeber et al. 2002, p. 32.
Function of x Resource provider heyefortransport (ed.) 2004, p. 6.
partnership x Business partner
Level of service x Low hSeuring et al. 2003, p. 341.**
integration x High hBaumgarten and Thoms 2002, p. 64.
Expected x Low EBIT hWeber et al. 2002, p. 32.
margin x High EBIT
* Based on Baumgarten and Zadek 2002, p. 4.
** Amended from Baumgarten and Kasiske and Zadek 2002, p. 35.

Table 15: Overview of segmentation approaches of LSPs

The above approaches are predominantly restricted to a part of the industry only.
Furthermore they are very broad and not very detailed in definition, e.g. distinction by
transportation and haulage carriage only. One of the contributions of this study is to
derive a detailed overview of LSPs based on the existing segmentations and prevailing
knowledge in the industry. While some of the segmentation criteria are applied as well,
some are for specific reasons not. I do not include performance criteria, as keeping
timeframes in transportation is a specific value-add of the service of transportation and
included in the criterion type of service. Also, size of goods handled is excluded. All
goods relevant for logistics are covered, independent of size. Envelopes, for example,
are part of the postal industry and therefore out of the scope. Furthermore, function of
4 Š Issues of empirical research and analysis 115

partnership is not a criterion for my segmentation approach. The reason is that the
function is a result of the ‘sum’ of the respective moldings of all relevant criteria.
Finally, I exclude expected margin as margins are the result of the performance.
However, the criteria business experience in the sense of years in operation and
company size were added.

Applying these conditions, the segmentation of companies operating in the area of

logistics is conducted according to four steps. The first distinction is the number of
companies involved, whether it is a single company or a collaborative entity between
two or more companies (provider(s) and/or customer(s)). Second, in the case of a single
company it is the business experience or the number of years in operation which
distinguishes the providers, i.e. distinction between traditional companies and new
market entrants. Thereby, the term ‘traditional companies’ is used for classical carriers.
They supplement their single existing service offering of transportation by value-added
services which can either be provided with their own assets or via subcontracts. New
market entrants, however, are companies with no or little logistics assets. They provide
logistics services via subcontracts. Examples of this type of companies are IT providers
or consulting companies. Third, in the case of traditional companies the classical
distinction between transportation companies and haulage contractors is made (criterion
‘type of service’). Fourth, after segmentation by the previous three steps, the remaining
criterion are used simultaneously; these are network density, served functional area,
traffic carrier used, geography covered, extent of service offering, asset-intensity, level
of service integration and company size.

Seventeen types of LSPs (with two additional superordinate groups) are the result of this
segmentation (Table 16 and Figure 37 for the segmentation and Table 17 for a definition
of the providers identified).
116 4 Š Issues of empirical research and analysis

Table 16: Segmentation of LSPs

 Single companies in the area of logistics

Traditional companies New market entrants

Transportation companies Haulage contractors

Small self- International

Medium- Medium-
driving logistics Specialized
Niche Traditional sized sized Transport In-house ‘Outside
carriers groups logistics
providers carriers sector haulage brokers providers conquerors’
(sub- (global subsidiaries
specialists carriers

Figure 37: Segmentation of LSPs

carriers) players)

National Air & Contract

CEP Land
4 Š Issues of empirical research and analysis

postal/rail ocean logistics

providers carriers
operators carriers providers

Asset- Non-asset-
intensive intensive
contract contract
logistics logistics
providers providers

Provider- Provider-
provider customer
entities entities

Collaborative entities in the area of logistics

Legend: 1 st step; 2 nd step; 3 rd step; Types of LSPs; Superordinate group

117
118 4 Š Issues of empirical research and analysis

No. Type of LSP Short description/Key characteristics

1 Small self-driving • Carriers for larger transportation companies (sub-carriers)

carriers • Transportation only, regional
(sub-carriers) • Partly one employee only (self-driving), up to ten vehicles
2 Niche providers • Specialization of vehicles to market segments (e.g. transportation of spacious
and heavyweight goods or automobiles)
• Usually regionally only
3 Traditional carriers • Work for direct customers (long-term customer-relationships with regional
companies)
• Transportation (11-50 vehicles), frequently also with one/few warehouses
4 Medium-sized • Transportation specialized to sectors
sector specialists • Service offering partly extended (contract logistics)
• § 50-150 vehicles
5 Medium-sized • Focus on parcel services and partial loads
haulage carriers • Highly standardized service offering (rather organization of transports than
transports), warehousing, value-adding services
A* International • Large traditional haulage contractors and groups
logistics groups • Large, dense European/worldwide networks
(global players) • Extensive service offering
6 National postal/ • Service portfolio covering (almost) all important logistics segments
rail operators • Currently only Deutsche Post DHL with complete service spectrum
7 CEP providers • Courier, express, parcel service providers with own very dense networks
(land, air, ocean)
• Without specialization on specific services
8 Land carriers • Specialists in land transportation
• Sometimes with focus on groups of customers
• Increasingly contract logistics services as supplement
9 Air & ocean • Worldwide operating haulage contractors with focus on air and ocean freight
carriers • Increasingly contract logistics services as supplement offering
B* Contract logistics • Key business focus is the provision of value-added services
providers • Usually long(er)-term customer relationships on a contractual basis
10 Asset-intensive • Ownership of tangible resources/‘hard assets’
contract logistics • To a minor extent: intangible resources/‘soft assets’ for service provision
providers
11 Non-asset- • Without tangible resources
intensive contract • Service portfolio mainly consists of management/integration offerings
logistics providers
12 Transport brokers • Arrangement of transports
• Without ownership of vehicles
13 Specialized • Frequently subsidiaries of international logistics groups
logistics • Extended services up to integration of overall logistics services
subsidiaries
14 In-house providers • Subsidiaries of production companies/retailers
• Overall logistics services for group up to the sale of services to the external
market
15 ‘Outside • Traditional outside companies to the logistics industry (e.g. consulting
conquerors’ companies/IT companies)
• Integration services
• Non-asset-intensive companies
16 Provider-provider • Companies/cooperations between traditional companies and/or new market
entities entrants
17 Provider-customer • Companies/cooperations between traditional companies and customer(s) or
entities between new market entrants and customer(s)
* ‘A’ and ‘B’ are superordinate groups.
Table 17: Types of LSPs
4 Š Issues of empirical research and analysis 119

4.3.2 LSPs relevant for research

The study’s sample size was limited by excluding those types of LSPs that were not
ready to support the intention of this study to identify success principles of Hidden
Champions in contract logistics, in particular in terms of Total Integration. Accordingly,
the following types were excluded for the reasons stated, with the remaining types
becoming part of the study sample:
x Small self-driving carriers are out of the scope of the study due to their lack of
resources to provide contract logistics or total solutions offerings.
x Niche providers are not included in the study as this type of provider also does not
provide contract logistics or total solutions offerings.
x Traditional carriers are out of the scope too due to their lack of contract logistics and
total solutions offerings.
x Despite national postal/rail operators offerings of contract logistics and total supply
chain integration, this type of providers is taken out of the survey sample due to their
large company size, which does not meet the defined size criterion of a Hidden
Champion.
x Although CEP providers partially offer contract logistics and total solutions
offerings, those companies are out of the scope due to these offerings’ low weight in
relation to the companies’ total business.
x Transport brokers do not provide contract logistics or total solutions offerings.
x ‘Outside conquerors’ are able to provide contract logistics and total solutions
offerings but they usually do not fit with a Hidden Champion’s criterion of being in the
logistics business for decades.

As a result of these exclusions, the ten remaining types of LSPs of the study sample are
medium-sized sector specialists, medium-sized haulage carriers, land carriers, air &
ocean carriers, asset-intensive contract logistics providers, non-asset-intensive contract
logistics providers, specialized logistics subsidiaries, in-house providers, provider-
provider entities and provider-customer entities. Table 18 lists all seventeen types of
LSPs resulting from the typology and highlights the ten relevant types for further
research (lines in grey color). It was my intention to prepare at least one research case
for each relevant type of LSP, whereas I prepared two cases for the medium-sized sector
specialists and three cases for the asset-intensive contract logistics providers.
Experience has shown that using between four and ten cases works well as it is a
120 4 Š Issues of empirical research and analysis

sufficient number to generate theory with much complexity and to convince empirical
grounding while not being too difficult to cope with the complexity and data volume
(Eisenhardt 1989, p. 545). For these reasons, the total number of thirteen in-depth
research cases LSP were considered to be sufficient. By choosing cases from each
relevant type of LSP, I wished to ensure that any inferences made were relevant for the
entire area of logistics.

Inclusion Number of
No. Type of LSP (Yes: 9 / Reason for exclusion research
No: X) cases LSP
1 Small self-driving carriers (sub-carriers) X Lack of resources for provision of contract logistics services 0
2 Niche providers X Contract logistics services out of business scope 0
3 Traditional carriers X Lacking contract logistics services 0
4 Medium-sized sector specialists 9 2
5 Medium-sized haulage carriers 9 1
6 National postal/rail operators X Company size not relevant to size of a Hidden Champion 0
7 CEP providers X Contract logistics minor business part only 0
8 Land carriers 9 1
9 Air & ocean carriers 9 1
10 Asset-intensive contract logistics providers 9 3
11 Non-asset-intensive contract logistics providers 9 1
12 Transport brokers X Contract logistics services out of business scope 0
13 Specialized logistics subsidiaries 9 1
14 In-house providers 9 1
15 ‘Outside conquerors’ X Company history not relevant to history of a Hidden Champion 0
16 Provider-provider entities 9 1
17 Provider-customer entities 9 1

Table 18: Types of LSPs and selection of relevant types for empirical research

4.3.3 Selection of LSPs for empirical research

After the exclusion of seven types of LSPs, ten types of LSPs remain. The objective of
the next step was to assign company names to these remaining ten types. Starting point
for assignment was to capture an extensive list of LSP names based on four types of
sources. First, I used key market surveys (in particular Datamonitor 1999; Fraunhofer
ATL and HypoVereinsbank 2004; Klaus 2003; Transport Intelligence 2004; Transport
Intelligence 2003). The second type of sources relates to lists and rankings of LSPs
published in magazines and newspapers like in Chemical Week (2003, pp. 19-22) or
VerkehrsRundschau (2004, pp. 15-34). Logistics cooperations like System Alliance
formed the third source of companies for assignment as their members were expected to
be small and medium in size. Finally, as it is a search for ‘Hidden’ Champions, a lot of
LSPs were identified in the process of primary research conducted over the course of
time including hints found in various publications, in particular in German and
4 Š Issues of empirical research and analysis 121

international logistics magazines and newspapers. As a result, a list of 308 LSPs was
generated.

The survey from Klaus (2003) is used to demonstrate the further approach for the
process of selecting LSPs to be studied in-depth. First of all, only those LSPs offering
contract logistics services were chosen from the European ‘Top 100’ list (Klaus 2003,
pp. 201-204) and countries top providers lists (Klaus 2003, pp. 157-197). Following
this, those LSPs whose turnover (turnover of LSP itself as well as turnover of relating
group) was larger than one billion euros were excluded. The reasons are that large LSPs
are not ‘hidden’ but usually well-known to the public and the second criterion for
Hidden Championship refers to this size limitation (Figure 2). This second step aimed to
exclude LSPs that do not meet criterion for Hidden Champions as defined in Chapter 1.
The same procedure was applied to the other surveys and to the other three types of
sources used. The result is a list with 108 potential Hidden Champions for which I use
the term ‘Top 100+’ (‘Top 100+ Company List’).23 For these LSPs extensive material
was captured and analyzed. After that, eight of these LSPs had to be excluded for
various reasons, for example because it transpired that they are not profitable and make
losses, that they had been taken over in the meantime, or due to their supply chain
integration offering being less than claimed. However, for the identification of Hidden
Champions’ success principles and arguments, those excluded companies were
nonetheless used for argumentation in the empirical research process to follow.
Furthermore, LSPs without any information about their results remained on the list if no
indications on troubles in profitability were mentioned anywhere and no other reasons
for exclusion were identified. Finally, the remaining names of LSPs were assigned to
the remaining ten types of LSPs that were identified in Section 4.3.2. I refer to the
resulting complete overview as the ‘Top 100+ Company List’. To ensure
representativeness, from this derived list, for each type of LSP, one LSP was chosen for
in-depth analysis including interviews and company visits. Due to the strong weight of
medium-sized sector specialists, two LSPs were chosen from this type and three LSPs
were chosen from the asset-intensive contract logistics providers’ type. As a result
thirteen potential Hidden Champions representing ‘common industry practice’ are

23
Company lists (in particular the ‘Top 100+ Company List’) and databases are confidential and not part
of this publication.
122 4 Š Issues of empirical research and analysis

selected as research cases LSP. Among them ‘best in class’ cases, i.e. Hidden
Champions have to be identified.

The remaining LSPs in the ‘Top 100+ Company List’ are used for empirical research
and analysis as well, but to a lower degree, i.e. for strengthening and supporting
findings at selected stages.

The selection of the thirteen LSPs for in-depth analysis was not done by any specific
criterion but by the LSPs’ willingness to participate and support this empirical research
study. In the following, I refer to these thirteen LSPs primarily by the terms ‘LSPs
studied in-depth’ and ‘research cases LSP’. Through the selection of at least one LSP
per type of LSP, the coverage of the whole spectrum of possible market players is
guaranteed for the empirical research. The selected LSPs are representative of their
individual type of LSP. They are dominant in a way that they had managed to pass the
selection process that aimed at identifying potential Hidden Champions. Due to
participating interview partners’ requests to treat information confidentially, I refer to
LSPs’ names in the text by using the term ‘LSP’ followed by a capital letter. For the
thirteen LSPs this results in the capital letters from ‘A’ to ‘M’. For the thirteen
customers studied in-depth I used Roman numbers, resulting in the numbers ‘I’ to
‘XIII’. While company names remain confidential, the information gathered from the
companies is used absolutely. This approach was preferred to one that discloses
company names but limits usage of data. Therefore, the applied method of
anonymization creates the best prerequisites for the most valuable results possible.

4.4 Role of customers in empirical research

A business model’s success depends strongly on the conformity with customers’

demands and expectations. In order to validate or reject hypotheses conclusively, the
customers’ perspective was taken into account by conducting company visits and
personal interviews with selected LSPs’ customers.

Thirteen mainly on-site personal interviews at LSPs’ customers took place by using a
separate customer questionnaire (Appendix 4). Eight customers’ headquarters are based
in Germany, two customers’ headquarters are in the US and one customer each has its
headquarters in France, Netherlands and Sweden. The customers’ core businesses vary
4 Š Issues of empirical research and analysis 123

across industries, with three customers basically active in automotive, two in bicycles
and one each in electronics, furniture, healthcare, drugstore, office products, books, toys
as well as logistics (Figure 38). Customer companies were primarily selected based on
outstanding collaboration with an LSP or interesting outsourcing projects.

Personal customer interviews Personal customer interviews

by country (headquarter) by industry (core business)
Automotive 3
1
1 Bicycles 2
Electronics 1
1 Furniture 1
Healthcare 1
Drugstore 1
2 8 Office products 1
Books 1
Toys 1
Logistics 1

Figure 38: Overview of customers studied in-depth

4.5 Questionnaire design

The key objective of my empirical research was to examine the state of Total
Integration solutions at small- and medium-sized LSPs. As basic sources for research I
developed two questionnaires, one each designed for interviewing LSPs and customers.
The questionnaires’ specific aim was to test the validity of the micro and macro
hypotheses that were formulated based on prior knowledge from experience and
literature analysis. For this reason, detailed questionnaires were designed and structured
according to the definition of a business model’s components and the activities and
behavior of a business in its macro environment. By covering both the micro and macro
layer, the questionnaires also provide hints on requirements for business model
integration. The empirical research was designed as an exhaustive survey with thirteen
in-depth LSPs and thirteen in-depth customer questionnaires supplemented by selected
answers to specific parts by LSPs from the ‘Top 100+ Company List’ and further
customer examples from literature. For the twenty-six companies studied in-depth, the
questionnaires were used as a data pool in which all information was captured. This
means that prior to the interviews I filled the questionnaires with all answers I could
124 4 Š Issues of empirical research and analysis

already find in freely available sources like the companies’ Internet pages, their
company brochures, magazines or newspapers. Only after this, the responses from the
interview partners were added. With this approach, usually those questions for which
available publications were lacking or limited in information were in the focus of the
interview. This enhanced the probability of gaining insights into the totality of the micro
and macro layer. Also, by including external information as well as the interviewers’
observations and experiences, individual results can be looked at critically. Any
intentions of interview partners to point out interesting issues only and market their
company are thus cushioned.

With regard to the questionnaire design, the structure of the ‘Questionnaire/Interview

Manual – Logistics Service Provider’ is in line with the structure of the categories and
components of a business model (Table 10 and Figure 26) and the definition of the
macro layer of a business model (Figure 27) in Section 3.2.3.2. Therefore, the
questionnaire for LSPs is structured in three parts. The first part captures company
information. It contains generic information like contact details about the LSP and the
interview partner as well as requests for documents. The second part deals with the
micro perspective of a business, raising questions on the subcomponents and
components of a business model. Finally, the third part is on the macro perspective. It
covers overall views, in particular relating to causes for internal adaptations at the LSP,
to the scope as well as strengths and developments of the portfolio of service offerings,
to the evaluation of criteria used for selecting customer projects, to the characteristics of
the relationships to customers, to cooperations with partners and customers as well as to
specific forms of other agreements entered.

In analogy to the LSPs’ questionnaire, the ‘Questionnaire/Interview Manual –

Customer’ is structured in three parts as well. The first part covers the generic questions
relating to contact details of the company and the interview partner. Part two deals with
the micro perspective and is entitled ‘Partnership Initiating Questions’. It presents the
customer’s supply chain, its core competencies, its priorities in selecting an LSP,
insights into the relationship or cooperation with the LSP like form and details of the
cooperation, reasons for outsourcing or outsourced activities as well as the description
of the values created by the LSP. The third part of the macro perspective contains the
questions related to collaboration. It covers the customer’s agreement with the LSP’s
4 Š Issues of empirical research and analysis 125

offering including its flexibility in adaptation, the satisfaction with the LSP’s locations,
IT and technology issues like systems in use and ‘soft factors’ regarding connectivity
with the LSP. Further issues relate to human capital of the customer company and the
LSP, to processes including visibility into process steps, to the organizational structure,
which also indicates contacts to the LSP’s staff, to communication issues like frequency
or points of contacts as well as to relationship issues like activities and ‘soft factors’.
Finally, customers were asked to evaluate their LSP’s performance and to indicate joint
awards received.

For all fields of questions in the micro and macro layers, business and management
literature was studied to ensure that the questions contain all key aspects. Questions
were formulated that were most suitable for evaluation, with a preference for asking for
quantitative data rather than for qualitative information. However, result presentation
based on quantitative data was often not possible due to the specific issues or for the
reason that interview partners stated subjective impressions to many questions.
However, this information is of particular value as Total Integration, the key issue of
this study, is also subject to ‘soft factors’ to a large extent. In such cases the findings
were summarized and evaluated with best knowledge and conscience to enable
objective results and to allow conclusions to be drawn. Through this approach to
clustering answers into categories, the difficulties in measuring ‘soft factors’ were
overcome to a certain degree.

For the reason that the LSP questionnaire covers the overall strategy of an LSP,
interview partners had to be selected from the top management. Therefore, I talked, e.g.
to the CEO (LSPs F and K), the CIO (LSP A), the Managing Director (LSPs L and M),
the Head of Sales (LSPs D, E, and G), the Head of Marketing and Communications
(LSPs B, C, and J), the Head of Service Center Logistics (LSP H) and the Global
Consulting Leader (LSP I). Regarding the customer questionnaires the interview
partners were in the positions of the Head of SCM, the Head of Logistics or a Logistics
Manager.
126 5 Š Formulation of hypotheses

5 Formulation of hypotheses

In this chapter the hypotheses for the empirical study are formulated based on
experience and the literature analysis (see left part on theory in Figure 32). The
hypotheses contain the totality of a business (micro layer) and its existence in the
environment (macro layer). The distinction in these two layers is described in Section
3.2.3.2 on the research framework. Thus and at first, for each of my defined
(sub-)components of a business model (Table 10 and Figure 26) a single micro
hypothesis is formulated (Section 5.1). These micro hypotheses are used to examine
particular aspects of a business model. Second, three macro hypotheses are formulated
that concern the overall business model of LSPs and their customers (Section 5.2). The
purpose of the macro hypotheses is to examine overall issues on Hidden Champions and
their business model. Each micro hypothesis and each macro hypothesis is summarized
in boxes at the end of each section.

5.1 Formulation of micro hypotheses on business model components

This section treats the micro hypotheses which are formulated for each component and
subcomponent of a business model as defined in Table 10 and Figure 26. The
hypotheses are based on prevailing knowledge in theory and reality. This is represented
by exemplary statements by well-known scientists in literature and by statements from
industry experts.

5.1.1 Micro hypotheses on Ambitions & Aims

I start with micro hypotheses for the following three business model components: Value
Proposition, Target Group and Business Purpose. These components form the category
Ambitions & Aims.

5.1.1.1 Single Source Hypothesis

The business model component Value Proposition deals with value creation of the LSP
for its customers as well as with the benefits and advantages created for other
stakeholders of the LSP, in particular for investors, partners, employees and society.
With macro environmental trends favoring network economies (Section 2.2.2.2),
customers have to deal with managing a much larger number of interfaces with
suppliers, distributors and other partners in their supply chain. The integration of

R. M. Neubauer, Business Models in the Area of Logistics, DOI 10.1007/978-3-8349-6533-2_5,

© Gabler Verlag | Springer Fachmedien Wiesbaden GmbH 2011
5 Š Formulation of hypotheses 127

partners has an increasing priority for LSPs who have identified new possibilities for
value creation in these relationships. Value creation is expected from replacing single
solutions by an optimized integrated concept. Theory claims that designing and
optimizing existing logistics processes increases productivity due to synergy effects
from integration (see, for example, Baumgarten and Darkow 2002, p. 1). The
importance of integration and overall leadership has been emphasized with increasing
frequency, qualifying the topic as a core issue at many conferences and business
meetings as well as in publications. Researchers like Hau L. Lee from Stanford
University or Helmut Baumgarten from the Technical University Berlin, as well as
company representatives like Christian Schneider from Schenker or Detthold Aden
from BLG Logistics Group, discussed integration. Table 19 presents their statements,
amongst others; these statements illustrate views prevailing in theory (in particular from
researchers at universities) and in practice (from practicians operating in logistics).
These views are representative of the importance of integration and value creation in the
industry.
128 5 Š Formulation of hypotheses

Origin of Author Statement24 Source

knowledge (Organization/Company)
Integrator/Customer
Theory Axel Neher
(Philipps-University,
Marburg)
Hau L. Lee
(Stanford University)
Helmut Baumgarten/Felix
Kasiske/Hartmut Zadek
(Technical University
Berlin)
Robert Lieb
(Northeastern University)
Peter Klaus
(University Erlangen-
Nuremberg)
Practice Christian Schneider
(Schenker AG)
UPS Supply Chain
Solutions
(Integrator)/Philips Medical
Systems (Customer)
LGI Logistics Group
International
(Integrator)/Paul Hartmann
AG (Customer)
Detthold Aden (CEO)
(BLG Logistics Group)
Kuehne + Nagel
International AG
(Integrator)/Nortel
Networks (Customer)
Table 19: Examples of prior knowledge causing supremacy hypotheses
The 4PL provider takes over the Neher 2001, p. 52.
logistics management of the total
supply chain.
Integration creates value (higher Lee 2000, p. 36.
profit margins, improved customer
service performance, faster
response time, reduced inventory
investment and write-offs while
doubling returns on assets,
multiplied shareholder values, etc.).
4PL providers (system integrators) Baumgarten and
will be increasingly challenged to Kasiske and Zadek
take over planning and management 2002, p. 32, p. 35.
tasks of all logistics activities from
supplier to the final customer.
“… several large-scale 4PL Lieb and Hickey N.A.,
agreements have been reported in p. 5.
the past year”.
Contract logistics’ (trendily called Klaus 2003, pp. 106-
3PL, 4PL and LLP) large growth 107.
potential is derived from its
definition (tight individual
relationship between providers with
several logistics functions being
integrated, longer-term contracts,
considerable annual turnover of at
least 500,000 to 1 m. euros).
In the logistics industry there is the Schneider 2003, p. 16.
trend towards providers able to
offer a complete bundle of
integrated logistics solutions for
customers becoming larger and
more influencing.
Within the ‘Door-to-Room’ project Practical experience;
covering Europe, Philips Medical N.A. 2004b, p. 32-33.
Systems handed over logistics
services to a single source (UPS
Supply Chain Solutions).
In 2003, Paul Hartmann searched Practical experience.
for one partner able to manage all
carriers and taking over operative
tasks.
All from a single source. One-Stop- Aden 2000, p. B3.
Shopping is the motto.
Kuehne + Nagel International AG Practical experience;
established a new division (KN Stubbs 2003;
LeadLogistics) for offering one- Gooley 2002a, pp.9-10.
stop-solutions to its customers.

These statements all argue for total supply chain solutions and one-stop-concepts, i.e.
for complete outsourcing to a single supplier. LSPs are expected to offer tasks like

24
The statements are either translations from German into English or a representation of indirect
citations. In the case of a direct citation the statement is written in quotation marks.
5 Š Formulation of hypotheses 129

management and integration services that are higher level than those traditionally
provided.

Based on these statements, a first hypothesis, called the Single Source Hypothesis, is
presented. Hereby, Single Source is contrary to Multiple Source, with the latter
characterized by insourced and partially outsourced logistics activities to several
providers, instead of full outsourcing to one single supplier. Single Source also covers
the complete service portfolio while Multiple Source refers to one or a few specific
services only.

1. Single Source Hypothesis: LSPs’ primary aim ought to be becoming the sole
partner for their customers with overall responsibility for all of their customers’
comprehensive logistics processes. Managing a customer’s total supply chain
leads to increased value for that customer.

5.1.1.2 Segmentation and Transaction Hypotheses

According to Porter, overall cost leadership and differentiation are the two differing
generic strategic approaches to outperforming competitors (Porter 1980, p. 35). Further
arguments are presented by Anderson and Narus (2003, p. 43). These authors claim that
profitable and sustainable growth requires a fine-grained disciplined approach to get,
leverage and document knowledge about customers. This allows me to formulate the
Segmentation Hypothesis, which states that LSPs focus on a few sectors and derive
competitive advantage their way. Table 20 provides a few examples that substantiate
this hypothesis as well.
130 5 Š Formulation of hypotheses

Company Name Logo Country Sector Focus Source

Karl Dischinger • Automotive logistics Karl Dischinger

Logistikdienstleister procurement Logistikdienstleister (ed.)
GmbH & Co. KG • Brand name products 2006.
logistics
Hoyer GmbH/ • Chemicals Hoyer (ed.) 2005a.
Hoyer Group • Food
• Petroleum
• Gas
• Silo logistics
• Technical/logistical
activity
Schachinger Logistik • Brand name products PR (ed.) 2006.
Holding GmbH & Co. • Food
KG • Healthcare
• Automotive
• Construction logistics
TRADISA - • Automotive Tradisa (ed.) 2006.
Transportes y • Petroleum products
Distribución, S.A. • Industrial sectors
(e.g. consumer
electronics)
Unyson Logistics • Pharmaceutical Unyson Logistics (ed.)
(Hub Group) industry N.Y., p. 4.
(sample delivery)
Table 20: Sector focus of LSPs (examples from the ‘Top 100+ Company List’)

LSPs’ focus on sectors is in harmony with customers’ requirements. Literature and

practice suggest that customers primarily focus on cost and quality (see Table 21). With
sector focus, the efficiency and experience of LSPs is expected to rise, which may result
in lower prices and better quality.

No. Requirement on LSP Source

1 According to the roughly 530 responses from the survey “Networks and net Voigt 2003,
effects in transportation logistics”* from the Technical University of Darmstadt, pp. 1-2.
the second most important requirement on transportation services is price (graded
with the score of 5.7 with 1 equivalent to low and 8 equivalent to high;
punctuality is ranked first with a score of 6.2).
2 Costs is such a decisive factor in the selection process of an LSP that the N.A.
management of Brita GmbH, a leading producer of water filter systems, insourced 2005b, p. 5.
logistics services for at first three years in autumn 2005 when realizing that Brita
was able to provide high quality at competitive costs.
3 According to Professor Jahns and Professor Darkow, customers’ answers to the Jahns and
question about criteria for LSP selection are at first quality and second price** in Darkow
all relevant surveys. 2006, p. 1.
* The original German title of the survey is “Netzwerke und Netzeffekte in der Transportlogistik”
** The following criteria are spatial proximity, service and image.

Table 21: Cost focus of customers

5 Š Formulation of hypotheses 131

The further micro hypothesis which I call Transaction Hypothesis covers this customer
perspective and also relates to the business model component Target Group like the
Segementation Hypothesis.

2a. Segmentation Hypothesis: LSPs offer Total Integration concepts to carefully

selected sectors. They are able to serve the target sectors more effectively by
better meeting needs and/or more efficiently by having lower costs (Porter 1980,
p. 38). Besides, they are experts in knowing their customers and they are highly
familiar with their customers’ sector.

2b. Transaction Hypothesis: Customers do not search for establishing mutually

beneficial relationships with sector specialists. Moreover, customers select their
LSPs mainly based on general objective factors such as pricing and geographical
scope.

5.1.1.3 Commodity Trap Hypothesis

In general, financial aspects are dominating the goal setting of businesses, with profit
maximization as the key performance indicator (Macharzina 1999, p. 161 et seqq.;
Woehe and Doering 2000, p. 125). In the area of logistics, the positive effect of offering
value-added services on the basis of improved profit margins is a standard practice
(DVZ (ed.) 7 June 2005, p. 5; Tomic 2005, p. 11; Weber et al. 2002, p. 31 et seq.) that is
well-known to smaller LSPs. The provision of value-added services is a lever to break
out of the commodity trap and to improve margins (see for example Skinner 1974,
p. 113 et seqq., p. 121).

This view is strengthened by similar experiences in other sectors such as the chemicals
sector. Research identified differentiation through service and relationship management
as sources for competitive advantage, while the blind allegiance to cost leadership is
increasingly viewed as subjecting the company to the dangers of the commodity trap
(Robinson and Clarke-Hill and Clarkson 2002, p. 149, pp. 162-163). Another example
in the packaging industry is value creation for customers through package design as
described by Napolitano (2002, p. 16). The risk of mature products being seen as
132 5 Š Formulation of hypotheses

commodities by consumers is reduced if marketeers apply creative packaging and

strategic branding.

Despite these arguments, the prevailing hypothesis remains that operative services, in
particular transportation and warehousing services, are still the major activities provided
by small- and medium-sized LSPs. The German provider Karl Dischinger
Logistikdienstleister GmbH & Co. KG, for example, changed the ‘sector carriage’ part
from its company name to ‘support team’. However, despite owning 200 fleet units and
30,000 m2 warehousing space, the company still seems to provide traditional services
on a broad scale (Karl Dischinger Logistikdienstleister (ed.) 2006). The next hypothesis
that relates to the business model component Business Purpose, the Commodity Trap
Hypothesis, examines the commodity trap in the logistics industry:

3. Commodity Trap Hypothesis: Smaller LSPs are suffering or are trapped in

low margin transportation business.

5.1.2 Micro hypotheses on Implementation

The second category of my self-developed business model, labeled Implementation

(Table 10 and Figure 26), refers to Product-Market Offer with Product/Service and
Market as subcomponents, and to the ways these products and services are brought to
market. These include the Internal Structure, with Input Factors, Organization and
Communication as subcomponents, as well as the Value Network, with the
subcomponent Relationships and Exchange Mechanism. The micro hypotheses relating
to this second category are formulated as stated below.

5.1.2.1 Cherry Picking Hypothesis

The hypothesis related to the business model subcomponent Product/Service is

connected to the Commodity Trap Hypothesis (Section 5.1.1.3). The starting position
for research and analysis is the product-market offer. Research in this perspective was
5 Š Formulation of hypotheses 133

already conducted more than twenty years ago when Carolyn Y. Woo25 tried to
determine the factors that distinguish low-return market-share leaders from high-return
market-share leaders. One of her research results was that high-return leaders have a
higher value-added factor than low-return leaders. Woo stated as a reason that a high
value-added factor affords more opportunity for differentiation according to product
characteristics and cost structure. Thus a high value-added factor enables better control
over performance in the market (Woo 1984, p. 52). Outsourcing of logistics services
from pure transportation up to integrated logistics functions has been widely discussed
in logistics literature over the last decade (see in particular Rabinovich et al. 1999,
pp. 353-373; Razzaque and Sheng 1998, pp. 89-107). This increasingly has triggered
competition between industry incumbents, but has also generated new competition
between incumbents and new entrants concentrating on those advanced services, i.e. on
expanded value-added and strategic services only. Table 22 provides examples of
industry veterans and New Breeds of providers that concentrate on advanced service
solutions.

25
Carolyn Y. Woo was assistant professor at the Krannert School of Management at the Purdue
University. She published her research results in the Harvard Business Review in 1984 (Woo 1984, pp.
50-54).
134 5 Š Formulation of hypotheses

Provider Company/ Country Service focus Source

type Logo of origin
Industry Honold Logistik • Outsourcing partner for the whole Honold Logistik
veterans Gruppe GmbH supply chain Gruppe (ed.). 2006.
& Co. KG

Müller - Die lila • Specialization on consulting and Müller – Die lila

Logistik AG implementation of procurement, Logistik (ed.).
production and distribution solutions 2006.
Swisslog • Global provider of logistics solutions Swisslog (ed.).
Holding AG for warehouses, distribution centers and 2006, p. 4.
hospitals

New JPMorgan • ‘One-stop-shop’ associated with JPMorgan Chase

Breeds of Chase Vastera moving goods across international Vastera (ed.). 2005.
providers borders

4flow AG • Supply chain management consulting 4flow (ed.) N.Y.,

• Software and content for the design of p. 12.
logistics networks
• Business process reengineering
IBM Integrated Transformational outsourcing services IBC (ed.). 2005.
Supply Chain including
• Logistics
• Direct materials sourcing
• Supply chain optimization
Table 22: Industry incumbents and new entrants concentrating on advanced service solutions
(examples)

Thus the micro hypothesis, the Cherry Picking Hypothesis, concerns the types of
services provided, i.e. the position of advanced logistics for the various LSPs, as well as
the new type of competitors entering their segment.

4. Cherry Picking Hypothesis: In the high-margin advanced services logistics

business, selected industry incumbents compete with new entrants coming from
outside the traditional logistics industry.

5.1.2.2 Global Standard Hypothesis

With the evolution of manufacturers to operate globally, logistics has had to manage the
flows across the global supply chain. The emergence of truly global LSPs is the result
of global manufacturers having to deal with potentially overwhelming economic
pressures like economic downturns, upheavals, currency devaluations, the ramping-up
of the European Union or new mega markets (Boysen et al 1999, p. 196 et seq.).
Requirements in global logistics exceeding their own assets meant that manufacturers
had to seek outside help. Personal experience of consulting in the logistics industry
taught me that whilst large LSPs were expected to provide logistics services globally,
5 Š Formulation of hypotheses 135

smaller LSPs were putting full effort into dispersing any doubts about their capability of
managing global logistics activities, not only by global presence through networking but
also with their personal locations. The Global Standard Hypothesis related to the
business model component Market refers to these strivings.

5. Global Standard Hypothesis: Small and medium LSPs are able to manage
today’s global logistics processes. They are present with their personal locations
all over the world.

5.1.2.3 Virtual Logistics Hypothesis

Next, the hypothesis on the business model component Input Factors is formulated.
Logistical performance is often measured in terms of asset-intensity, which refers to the
ratio of tangible and intangible services provided to the total assets or resources utilized
in the provision of the activities. Thereby, resources are defined as the tangible and
intangible assets a company uses to conceive of and implement their strategies (Hitt et
al. 2001, p. 138). Figure 39 defines the two types of assets in more detail. Tangible
resources are the visible (money) value of a company, either in the form of current
assets, fixed (long-life) assets or investments (Edvinsson and Malone 1997, p. 23).
Intangible resources, so called nonphysical assets (The Brookings Institution (ed.) 2001,
p. 1) or soft assets, are claims to future benefits without physical or financial
embodiment (Lev 2001, p. 5). These are generated by innovation, organizational
designs or human resource practices (Lev 2001, p. 7) for usage in service provision (The
Brookings Institution 1001, p. 9 et seq.).
136 5 Š Formulation of hypotheses

Types of Assets

Tangibles (“physical assets”1/“hard assets”) Intangibles (“nonphysical assets”3/“soft assets”)

• Visible (money) value of companies • Claims to future benefits without physical or financial
• Three types2: (stock, bond) embodiment4
- Current assets • Generated by innovation (discovery), unique
(consumed/sold < 1 year; e.g. inventories, organizational designs, human resource practices5
account receivables) • Contribute to or are used in the provision of services 6
- Fixed (long-life) assets • Examples: technology, intellectual capital, trust,
(life > 1 year; e.g. plant, equipment, warehouses, reliability, trust if reliable on capabilities,
trucks, call center, machines; depreciated over organizational capabilities, brand name,
multiple financial reporting periods) customer satisfaction, flexibility, goodwill
- Investments
(e.g. holdings in stocks and bonds)
1 Lev 2001, p. 1.
2 Edvinsson and Malone 1997, p. 23.
3 The Brookings Institution (ed.) 2001, p. 1.
4 Lev 2001, p. 5.
5 Lev 2001, p. 7.
6 The Brookings Institution (ed.) 2001, pp. 9-10.

Figure 39: Types of Assets

While the measurement of tangible resources can be difficult and the assignment of a
financial value for tangible resources may require considerable subjective judgment, it
is an even more complex preposition with intangible resources (The Brookings
Institution (ed.) 2001, p. 16). Because intangible resources are inherently difficult to
define, to determine with certainty or precision, to measure, to quantify and to account
for (The Brookings Institution (ed.) 2001, p. 15), research on the role of asset-intensity
in logistics is lacking.

Obviously, intangible resources drive a lot of the growth in the economy. At the same
time, the importance of investments in tangible resources for economic growth
decreases. The Brookings Task Force on Intangibles describes this phenomenon as
unseen wealth (Blair and Wallman 2001). Transferred to the area of logistics,
nonphysical factors are expected to be key value drivers. As an example, customers’
trust is an intangible resource that greatly influences the capacity for value creation and
without trust effective and efficient performance may not be possible. In Table 23 the
importance of trust is strengthened by exemplary statements from theory and practice.
This leads me to the formulation of the following hypothesis, the Virtual Logistics
Hypothesis, that concerns the growing requirement of intangible resources based LSPs.
5 Š Formulation of hypotheses 137

Origin of Author Statement Source

knowledge (Organization/Company)
Theory John Hagel III and Marc Trust is one of the key attributes for Hagel III, J. and Singer,
Singer building an infomediary business. M. 1999, p. 78ff.
Charles Handy ”Virtuality requires trust to make it Handy, C. 1999, p. 112.
work”.
Henri Savall and Véronique “The absence of performance and Savall, H. and Zardet,
Zardet trust inexorably leads to the demise V. 1997, p. 134.
of the firm or, at best, to an artificial
survival.”
Suh-Yueh Chu (National “A lack of trust among supply chain Chu and Fang 2006,
Ping Tung Institute of partners often leads to ineffective p. 224.
Commerce, Taiwan) and and inefficient performance.”
Wen-Chang Fang (National
Taipei University, Taiwan)
Practice Burkhard Schwenker and Restructuring and growth are Roland Berger Strategy
Stefan Boetzel (Roland achieved with an integrative Consultants (ed.) 2005,
Berger Strategy concept of a trust-based p. 3.
Consultants) organization.
Hugo Fiege (Fiege Group) Services are trust goods. With Fiege, H. 2002, p. 15.
decision for an LSP mutual trust
may enormously reduce economic
and social complexity.
Table 23: Examples of the importance of trust

6. Virtual Logistics Hypothesis: Customers’ trust in and desire for a one-stop-

solution offer requires LSPs to be heavily non-asset-based. In contrast to the
historically asset-intensive transportation providers, successful LSPs are today
intangible assets based and have hardly any tangible assets, thus relying on the
provision of virtual logistics solutions.26

5.1.2.4 Complexity Hypothesis

As stated before, probably the factors most influencing LSP organization have been
globalization, i.e. increased geographic scope, and the demand for broader service scope
going beyond traditional warehousing and logistical services to include value-added
services like wrapping or labeling. The two factors are related in the sense of delayed
customization and broad content.

First, arguments from literature on increasing complexity of the international

environment are provided by Bartlett and Ghoshal, who studied organizational
responses to increased global scope in the 1990s. According to the authors, the most

26
The Virtual Logistics Hypothesis is strongly connected to the Global Standard Hypothesis as
logistics solutions primarily based on intangibles simplify or even just enable global service offerings.
138 5 Š Formulation of hypotheses

critical constraint when attempting to respond to the increased demand for geographic
scope is limited organizational capability. Going global multiplies a company’s
organizational complexity by typically adding a third dimension to the existing
business- and function-oriented management structure. The researchers stated that
companies must develop multidimensional organizations allowing them to optimize
efficiency, responsiveness and learning simultaneously. According to their research, the
most successful companies systematically differentiated tasks and responsibilities
within the organization, built and managed interdependence among the different units of
the companies and searched for complex mechanisms to coordinate and co-opt the units
into sharing a vision of the strategic tasks (Bartlett and Goshal 1992, pp. 3-13).

Second, broader service scope is characterized by too much internal complexity. New
product or service development creates difficulties in adapting to increased complexity
in management. To be successful, companies increasingly need change management
capabilities. Also, researchers at Michigan State University revealed in a study of
research and development projects at 137 North American manufacturers in 2000 that
the greater and earlier design and manufacturing are integrated, the better companies
can cope with other complexities and technological uncertainty. A proven methodology
for designing and creating a product or service is for example the 3P program, which
stands for product and production preparation, calling for five-day structured sessions
bringing together manufacturing, engineering, design, procurement and maintenance
personnel, as well as shop-floor operators (Moody 2001, p. 13).27

Whilst these results apply to manufacturers, the validity is to be transferred to the LSPs
in the core of this study. It is to study whether these companies, often with very strong
ties to the founder or a family and a long tradition of knowing how to do business,
operate according to the success patterns described above. Examples found in theory
and practice (Table 24) leave doubts, leading to the formulation of the Complexity
Hypothesis on the business model component Organization.

27
For example, the 3P program with roots at Toyota has been successful in efforts at Pella, Maytag,
Black & Decker, Daimler and other manufacturers (Moody 2001, p. 13).
5 Š Formulation of hypotheses 139

Origin of Author Statement Source

knowledge (Organization/Company)
Theory Helmut Baumgarten “The purpose of logistics as an Baumgarten, H. and
(Technical University integrator between internal Wolff, S. 1999, p. 60.
Berlin, Logistics functions and external supply chain
Department) and Stefan partners is rarely effective in strictly
Wolff (ZLU) functional organizations.”
W. Lemoine and Lars The organization of companies in Lemoine, W. and
Dagnæs (Institut for the transport sector has been Dagnæs, L. 2003,
Transportstudier) changing in response to new p. 213.
strategies and demands from the
industrial world.
Practice Karsten Schween Current performance is McKinsey&Company
(McKinsey&Company) characterized by skill gaps in terms (ed.) 2003, p. 11.
of operations and change
management. The strategic
implication for LSPs is to establish
their own ‘operating systems’ to
enhance internal efficiency.
Uwe Riedel and Matthias For outsourcing to be successful Riedel, U. and Sure, M.
Sure (KPMG Advisory business models must be designed 2005, p. 5.
Services) sufficiently flexibly for enhancing
or reducing the extent of outsourced
services later on.
Table 24: Prevailing views on LSPs organizational flexibility

7. Complexity Hypothesis:28 Smaller providers struggle in adapting their

organization to changing market requirements. Their ‘execution system’ lacks the
resilience required for a flexible response to customer needs and might show
instability.

5.1.2.5 Information Processing Hypothesis

Loch et al. identified Alstom Transport Equipment Electronic Systems (EES) as an

example of excellence in supplier integration (Loch et al. 2003, pp. 63-83). One of the
reasons is that the company’s contractual partnership with the supplier Gespac and the
partnership with Ardelec are characterized by communication being “at the heart”
(Gespac) and by complete transparency (Ardelec). In contrast, the reputation of the
logistics industry emphasizes its reservations in terms of information provision and
processing as my own experience has shown (for examples see also Table 25).

28
The Complexity Hypothesis covers the issue of ‘Minimal Size’.
140 5 Š Formulation of hypotheses

Author Statement Source

(Organization/Company)
Herbert Stommel Efficient supply chain management requires Stommel, H. and
(Technical University information transparency amongst partners as well as Zadek, H. 2004,
Berlin) and Hartmut Zadek neutral steering of the partners. These requirements p. 124.
(Visality Consulting contradict in most cases practical behavior.
GmbH)
Agamus Consult It is the variety of systems (61% of survey N.A. 2003a, p. 5.
Unternehmensberatung respondents) which is the most decisive barrier and
GmbH and Clepa problem in supply chain collaboration besides the
complexity of process integration of single companies
(55%) and the fear of transparency (47%).
Peter Richter Skilled SMEs miss many of their relatively large Richter, P. 2002,
(CEO, KOOB) growth chances in cross-border logistics services as p. 22.
information about their specific offerings does not
reach potential customers abroad.
Table 25: Examples demonstrating information exchange/transparency reservation

Thus, the hypothesis on information provision and processing, i.e. on the business
model component Communication is formulated as follows and referred to as
Information Processing Hypothesis:

8. Information Processing Hypothesis:29 There is a correlation between

qualitative information processing of an LSP with its customer and company size.
Accordingly, smaller providers whose customers are usually similar in size are
typically private and reserved in terms of communicating company data. They
process information only if required. Effective and regular qualitative
information exchange and processing is only offered by larger scale providers.

5.1.2.6 Complementarity and Reliability Hypothesis

The next hypothesis relates to the component Relationship of a business model.

According to Coyne and Dye, in network-based businesses like in transportation and
logistics, customers and LSPs particularly value the links in a network (Coyne and Dye
1998, p. 100). The importance of networks is even greater for one-stop-concept
offerings. Strong and solid partnerships of LSPs with other providers are considered to
be an indispensable prerequisite for such a solution. Personal experience has shown that
these partnerships have to be complementary and based on reliable behavior (for
prevailing views in theory and reality see also Table 26). Successful SMEs are expected

29
The Information Processing Hypothesis covers the issue of ‘Minimum Scale’.
5 Š Formulation of hypotheses 141

to meet this prerequisite. This leads me to the Complementarity and Reliability

Hypothesis.

Author Statement Source

(Organization/Company)
Matthias Meyer, Stefan
Weingaertner and Fabian
Doering (based on
E. Fleisch)
Georg M. Urban (Daimler
AG)
Detthold Aden
(CEO, BLG Logistics
Group)
Table 26: Prevailing views on the necessity of partnership networks (examples)
Development from sales to buyer market, Meyer, M. and
progressing globalization and increasingly rapid Weingaertner, S. and
change are the most important economic drivers for Doering, F. 2001,
networking. pp. 16-17.
There is action required for logistics in terms of Urban, G. M. 2001,
partnership networks in the automotive industry. pp. 13-14, p. 20.
Network management is the first topic area
developed from the compelling action “Integration
Platform Logistics” (IPL) of the “Research for the
production of tomorrow” program of the German
Federal Ministry for Education and Research. It
originated from a public discourse in the Smart
factory in Hambach.
The automotive industry does not need island Aden, D. 2004,
solutions but networks. Thus, BLG Logistics Group p. 183, pp. 186-187.
and E.H. Harms Automobile-Logistics bundled its
services for final vehicle logistics for its customers
Daimler, VW and Audi.

9. Complementarity and Reliability Hypothesis: LSPs have a strong network

with other providers. In this network, partners’ assets and services are regarded
as complementary and provide mutually beneficial cooperation opportunities.
The network is thus characterized by reliability in collaboration.

5.1.2.7 Rules Hypothesis30

The starting point for analyzing success characteristics related to the business model
component Exchange Mechanism are Handy’s considerations on trust and the virtual
organization. Handy’s thoughts on organizations start from views about the future of
libraries as concepts and activities rather than places and buildings. Similarly, the author
rethinks the meaning of an organization and discusses the managerial dilemma between

30
LSPs’ behavior relating to information processing is covered in the hypothesis on the business
model component Communication in Section 5.1.2.5. The hypothesis deals with the state of
communicating with customers in terms of regularity of oral or written information flows and depth of
information content provided. Whilst the Rules Hypothesis on the business model component Exchange
Mechanism is closely related, the distinction in this work is that here LSPs’ behavior in dealing with
collaboration results is evaluated.
142 5 Š Formulation of hypotheses

the rules of trust for managing people31 and a managerial tradition that believes
efficiency and control to be closely linked. Handy states several examples where
organizations tend to be arranged on the assumption that people cannot be trusted or
relied on and oversight systems have to be set up to prevent people from doing the
wrong thing. These views are here transferred to the context of provider-customer
relationships. The analysis starts from arranging successful relationships and setting up
a box of contracts while partners cannot be trusted (Handy 1999, pp. 107-120). In this
context I define the Rules Hypothesis:

10. Rules Hypothesis: Exactly-defined rules and clear contracts are the norm
and the most effective way to guarantee effective performance. Mutual trust is
enhanced by integrating systems and through greater transparency, but formal
contracts dominate and define the relationship.

5.1.3 Micro hypotheses on Financials

Micro hypotheses eleven and twelve refer to two business model components:
Performance Measurements and Rewards.

5.1.3.1 Significant Turnover Hypothesis

The first criterion for a Hidden Champion is defined as being a leader relative to the
strongest competitors. Leadership and thus rankings of top LSEs are often derived from
the value of turnover. The most famous example is the regular study of the ‘Top 100’
providers from Professor Klaus and his team at the University Erlangen-Nuremberg. It
is one of the key logistics surveys that carefully observes the logistics industry in
Europe.32 Top rankings in general and the positions of the studied LSPs are in the center
of the first hypothesis on Performance Measurements in the business model category
Financials. In principal, Hidden Champions’ turnover has to be smaller than one billion
euros (see Figure 2), which is in contrast to the criterion of leadership as defined by

31
Handy defines seven cardinal principles of trust which are “Trust is not blind”, “Trust needs
boundaries”, “Trust demands learning”, “Trust is tough”, “Trust needs bonding”, “Trust needs touch” and
“Trust requires leaders” (Handy 1999, pp. 112-116).
32
For the latest edition used in this dissertation see Klaus and Kille 2006. A completely revised and
updated edition was published in 2007.
5 Š Formulation of hypotheses 143

common sense in the industry. Thus, the hypothesis formulated is the Significant
Turnover Hypothesis:

11. Significant Turnover Hypothesis: Market leadership is typically defined in

terms of turnover. This applies in particular to LSEs, since high turnover offers
the opportunity of economies of scale.

5.1.3.2 Risk Aversion Hypothesis

The final micro hypothesis refers to the business model component Rewards. Rewards
are described by business result and shareholder compensation (Table 10). The
hypothesis in this section is based on arguments relating to business result in the sense
of profit. Drucker, for example, refers to two functions of profit. Within the first
function, he outlined the coherence between profit and result, with profit being “the test
of performance”, i.e. the result of the performance of the business in marketing,
innovation and productivity. As second function he states that profit is “the premium for
the risk of uncertainty” (Drucker 1999a, p. 65). Other authors like Covin and Slevin
(1991, p. 7) as well as Guth and Ginsberg (1990, p. 5) emphasize that corporate
entrepreneurship, a company’s venturing and innovation activities as well as
organizational strategic renewal are conductive to improved profitability. Derived from
these arguments, the correlation of risk and profit is applied to logistics.

Based on practical experience, LSEs are expected to be in a favorable position in terms

of dealing with the risk of uncertainty. For example, if signing volume contracts with
the option for enhancing mass, LSEs favor from a competitive position for four reasons
(Table 19). First, as in the case of DHL Solutions, LSEs benefit from access to assets
from other group divisions. Second, investments are easier for companies with a strong
resource base; see for example A. P. Møller-Mærsk. Third, LSEs benefit from
experience, like Ryder from its global operations. Fourth, substantial volume mass
ensures partnerships with leading carriers. This allows supply in peak times also (see for
example Panalpina). These examples concern LSEs, and a natural question is to ask
whether these opportunities may be available to SMEs.
144 5 Š Formulation of hypotheses

No. Size benefit for dealing with risk Logo Example Source
of uncertainty
1 Combination of assets/ DHL Solutions (Deutsche Appel, Chiavi,
access to other divisions’ assets Post AG): and
Combination of the strength Flickinger.
of Express Logistics, former 2005, p. 9.
Airborne Logistics and DHL
Solutions
2 First mover advantage based on A. P. Møller-Mærsk: Thomson
relieved investment due to Terminal investments in Financial (ed.)
availability of resources China resulting in a strong et al. 2004,
position in the context of the p. 3.
privatization of Chinese
railways and the giant deep
sea port in Shanghai
3 High share of global 3PL Ryder: Ryder (ed.).
turnover/experience Key customer Applied N.Y.; N.A.
Materials selected their 2005a, p. 15.
partner due to global
credentials (amongst others);
global 3PL turnover of Ryder
is USD 5.2 bn
4 High priority to systematic care and Panalpina World Transport Panalpina
maintenance of partnerships with (Holding) Ltd.: World
leading carriers Substantial volume mass Transport
ensures partnerships with (ed.). 2007,
leading carriers p. 2.
Table 27: Reasons for large company size being beneficial for risk-taking (examples)

Also, the correlation between profit and risk is to be viewed in terms of companies’
risk-taking behavior relating to corporate entrepreneurship. Figure 40 presents the
correlation between entrepreneurial risk and profit as well as the basic experience of the
SME and LSE situation. Corporate entrepreneurship is easier for smaller companies.
However, from experience it is expected that the SMEs’ risk-taking behavior is either
lower than the LSEs’ and thus profit is below the LSEs’ (see left light grey part in
Figure 40) or their risk-taking is higher than the LSEs’, thus resulting in loss or low
profit (see right light grey part in Figure 40). The question remains whether SMEs can
keep pace with the LSEs’ willingness to take risks (for expectations on LSEs’ risk-
taking behavior and related profit see the dark grey part in Figure 40).
5 Š Formulation of hypotheses 145

High

Legend:
SMEs (expectation)
Profit

LSEs (expectation)
* Amongst others: market risk, size,
momentum, glamour, venturing,
Low

innovation, organizational strategic

renewal
Low High
Risk*

Figure 40: Correlation between risk and profit

Searching for Hidden Champions earning high profits, the hypothesis focuses on the left
light grey part in the above figure. Accordingly, the hypothesis in reference to the
business model component Rewards is the Risk Aversion Hypothesis that is defined as
following:

12. Risk Aversion Hypothesis: Smaller LSPs are more risk averse due to size
disadvantages and therefore struggle in earning highly-lucrative margins.

5.2 Formulation of macro hypotheses

While the micro hypotheses above were formulated for the single (sub-)components of
an LSP’s business model, the three macro hypotheses in this section cover the business
models of the LSP and customer as a whole. These views on the total business model(s)
are necessary to strengthen and further develop this study’s final results, while insights
gained from the evaluation of the micro hypotheses are included as well. The first two
macro hypotheses are based on the type of legal relationship between LSP and
customer, while the third hypothesis deals with the size of the actors.

5.2.1 Customer Centricity Hypothesis: Egoism Syndrome as hurdle for Total

Integration

The underlying legal form of collaboration of the first macro hypothesis is the classical
LSP-customer relationship (Figure 27). Such a relationship is based on contracts in
146 5 Š Formulation of hypotheses

which the rules for collaboration are fixed. There are two business models in the focus
of considerations, the business model of the LSP and the business model of the
customer. While LSPs’ primary aim is to become the sole partner of their customers
(see 5.1.1.1 for Single Source Hypothesis), practicians claim that Integrated Supply
Network Management is subject to struggling caused by customer-neglecting behavior
of the LSPs (for exemplary statements of practicians see Figure 41).

(1) Dealing for the benefit of

their own interest at the
disapproval of an optimal
(4) Total integration requires solution across the total
consultants to successfully chain may be problematic.
transition from strategic
planners to managers and (Baumgarten 2001a, p. 36)
implementers. (2) Customers have little
(Foster 1999, p. 35) interest in a neutral
integration service offering
(3) High branches, (they want to bind the
management, IT, supply chain strictly
logistics and consul- to their own interest).
tancy competences are (Resch 2003, p. 17)
required. Few providers
can meet these broad
range of capabilities.
(Nissen and Bothe 2002,
p. 22; Gordon 2003, p. 53)

Figure 41: Statements from theory and practice on hurdles for Total Integration directly or indirectly
based on customer-neglecting behavior of LSPs
(Translations and reproductions of statements by own words)

Possible hurdles in Total Integration as stated in the above figure shall be summarized
by the four arguments of providers’ selfishness, customers’ squeeze-in, lacking
knowledge, and deficiency in business model adjustment (the number in brackets below
refers to the number of the example in Figure 41).

(1) Providers’ Selfishness Argument: LSPs put too much weight on their own company
and interests. They neglect – at least partially – customers’ expectations and needs.
Their own profit requirement pushes them to do so.
(2) Customers’ Squeeze-In Argument: LSPs align customers to their capabilities and
solutions. Any given company’s capabilities and solutions are not fully, or only to a
small extent, adapted to a particular customers’ requirement.
(3) Lacking Knowledge Argument: LSPs do not know enough about the customers and
their industries even though they might be experts in their fields. Providers do not shift
5 Š Formulation of hypotheses 147

flows of interest to their customers. From the other perspective, customers do not
disclose full information either.
(4) Deficiency in Business Model Adjustment Argument: Changes in a business model
is one of the hardest things to pull off, so LSPs do not adapt their business models to the
changed market conditions. They simply consider themselves to be a Total Integration
provider.

Also, neglecting or partially disregarding customers – a typical accompanying effect of

something which shall be called the ‘Egoism Syndrome’ – is the opposite to what
generic management literature suggests. It argues that the key to business success are
customers – their demands being waken and a careful segmentation and selection within
a band width or by adaption of the band width are conducted (Table 28 presents
academic examples).

Area of Business Key point(s) Source

customer management
theory topic
Custo- Out- Most successful companies have best connections to Day 2003, p. 77.
mers as performing their customers and are able to create and maintain an
key to rivals integrated focus on organizational orientation,
success configuration and information about customers.
Supplier- For profitable, sustainable growth suppliers need a Anderson and Narus
customer fine-grained disciplined approach to getting, 2003, p. 43.
business leveraging and documenting knowledge about their
customers.
Customer- Successful companies consider the person behind the Davenport and
knowledge transaction besides knowing rich transaction data Harris and Kohli
management (mix of technology and human aspects). 2001, pp. 63-64.
Build-to-order Being effective requires companies and their suppliers Holweg and Pil
manufacturing first to understand what customers want (customer- 2001, p. 74, p. 76.
centric view).
Competing for Customers play an active role in creating and Prahalad and
value competing for value; customers are a source of Ramaswamy 2000,
competence and competitors. pp. 80-81, p. 86.
Rising Customer Balance of power through customer information shifts Hagel III and
customer information from companies to consumers, who demand value in Rayport 1997, p. 53.
demands exchange for information about themselves.
Require- Customer The relationship between loyalty and profits is weak Reinartz and Kumar
ment of loyalty and can only be strengthened by managing both at the 2002, p. 90, pp. 93-
customer same time; making loyalty profitable requires 94.
segmen- different relationship management strategies to be
tation chosen for different customer segments.
Table 28: Academic examples dealing with customers’ key role for business success

The relationship between LSP and customer – in particular the weight of customers for
an LSP’s business activities – is the subject of the first macro hypotheses, the Customer
Centricity Hypothesis:
148 5 Š Formulation of hypotheses

I. Customer Centricity Hypothesis: Possible causes for the struggling of

Integrated Supply Network Management are based on LSPs’ self-centred
behavior. LSPs are concentrating too strongly on their own needs and
requirements at the expense of customers’ needs. They simply underestimate the
potential full value of customer knowledge and service, and do not develop the
relationship required for business success.

5.2.2 Partnership Hypothesis: Collaborative entity as solution for Total

Integration

The setting for the second macro hypothesis concerns the establishment of a
collaborative entity between the LSP and the customer to succeed in Total Integration,
i.e. in Integrated Supply Network Management (Figure 27). Such a collaborative entity
can be a loose relationship, an equal partnership, a joint venture, a dedicated unit, a
jointly-formed subsidiary, an alliance, or something similar. It requires the development
of a collaborative business model, which cannot be accomplished by the LSP alone.

Figure 42 demonstrates the difference between this section and the previous section.
While in Section 5.2.1 considerations focus on the business model of the LSP only
(number 1 in the figure), in this section a collaborative business model of the LSP and
the customer is in the focus (number 3 in the figure). Number 2 is not subject of the
macro hypotheses but it is for example targeted in the provider classification (category
‘In-house providers’, see Figure 37 and Table 17) and in the final outlook of this
dissertation (Chapter 8).

3 Legend:
1 Sub-unit at LSP
1 2
2 Sub-unit at Customer
3 Collaborative entity (e.g. joint venture)
LSP Customer Subject of the Partnership Hypothesis

Figure 42: Three organizational forms for Total Integration, by business model partner(s)
5 Š Formulation of hypotheses 149

From knowledge gathered during literature analysis and practical experience there are in
particular four arguments for success of a collaborative business model.

x Materialism Argument: LSPs concentrate too much on ‘hard factors’ such as money
earned and neglect ‘soft factors’ like mistrust, fears or misperceptions.
x Trust-Confidence-Underrating Argument: LSPs do not want to realize that even
through the use of mediators, trust and confidence are significant issues which cannot
be ignored easily.
x Risk-Fear Argument: LSPs have to deal with increasing risks as customers prefer
shorter contract durations for remaining independent and flexible (see for example
Straube et al. 2005, p. 8). Also, contracts are based on tight calculations and filled with
harsh punishments in the event of exiting.
x Self-Overassessment Argument: LSPs overestimate their ability for global design,
management and organization of customers’ supply chains.
Based on these arguments, the Partnership Hypothesis was formulated.33

II. Partnership Hypothesis: With a joint (organizational) entity of an LSP and its
customer, and possibly with other provider(s), overall supply chain responsibility
can be achieved. Total Integration is envisaged and aimed for from the beginning
of the partnership.

5.2.3 Size Compatibility Hypothesis: Minor company size as limitation for Total
Integration

The role of company size for Total Integration is in the focus of the third macro
hypothesis, which is formulated based on the definition in Figure 27. It deals with the
general facet of whether size matters, size is indifferent or size does not matter for the
ability to provide Integrated Supply Network Management.

While Kastl and Roedl show the difficulty of explaining the German term ‘Mittelstand’
(Kastl and Roedl 2000, p. 11), I start my explanation with a principle distinction

33
The Partnership Hypothesis is the organizational form of customer centricity (Section 5.2.1). Both the
Customer Centricity Hypotheses and the Partnership Hypothesis are related but nontheless different.
150 5 Š Formulation of hypotheses

according to which enterprises are either large or small and medium in size, thus either
called LSEs or SMEs (see following Figure 43). The distinction is based on qualitative
aspects in the sense of the coherence between enterprise and owner as well as on
quantitative aspects, i.e. definitorial indicators. Qualitative aspects are the identity
between ownership and personal responsibility for the enterprise’s activities, the
identity of ownership and personal liability for the entrepreneur’s and the enterprise’s
financial situation, personal responsibility for the enterprise’s success or failure or the
personal relationship between employer and employees. Quantitative aspects concern
criteria such as turnover, number of employees, profit, fixed assets, balance sheet total,
value added as well as other characteristics such as market share or production method
(IfM Bonn 2004, pp. 1-2).

Research suggests two sources for the classification of LSPs. The first source is the EU
classification scheme for SMEs which is relevant in Germany, e.g. at the IfM Bonn
(2004, p. 4). The second source is Simon’s distinction of SMEs in Hidden Champions
and Others (Section 1.2.1). Both sources apply quantitative aspects for distinction.

Based on the EU classification scheme for SMEs from 2005, companies are LSEs if
three criteria apply: the number of employees amounts to at least 250, annual turnover
exceeds 50 m. euros and the balance sheet total goes beyond 43 m. euros. Accordingly,
enterprises are SMEs if the number of employees is between 10 and 249, annual
turnover is between 2 and 50 m. euros and the balance sheet total amounts to 2–43 m.
euros a year (see the EU classification scheme for SMEs; IfM Bonn 2004, p. 4). By
applying this dissertation’s definition derived from Simon, LSEs achieve at least USD
one billion in annual turnover34 (Simon 1996a, p. 6). According to Simon, companies
are small or medium in size if they achieve less than USD one billion in turnover
annually. Simon extended this criterion to three billion euros in his following book on
Hidden Champions in 2007 (Simon 2007, p. 29). However, this extension is not taken
into account in the further study. The author further distinguishes between Hidden
Champions and Others. Enterprises are Hidden Champions if they are leading in a
niche, invisible, approved sustainable, competitive beyond geography and

34
According to the original source (Simon 1996a, p. 6), a company “should not generate more than
approximately U.S. $1 billion in sales revenue”.
5 Š Formulation of hypotheses 151

entrepreneurial (Section 1.2.1). If these criteria are not fulfilled by SMEs then they are
assigned to the category ‘Others’.

Enterprises

LSEs SMEs

Hidden
Others
Champions

Figure 43: Distinction of enterprises

Based on the distinction between LSEs and SMEs, further considerations have to be
made on this section’s initial facet of whether size matters, is indifferent or does not
matter. Therefore, the next two sections deal with the correlation between the size of the
LSP and the size of the customer as well as a potentially required minimum size of
LSPs for the provision of Total Integration.

5.2.3.1 Correlation between size of LSP and size of customer

Logistics researchers and practicians, for example from Fraunhofer ATL (Tripp 2005,
p. 5), claim that there is a correlation between company size of the LSP and company
size of the customer. It is expected that logistics LSEs offer their services mainly to
customers medium and large in company size (dark grey area in Figure 44) while
logistics SMEs are expected to concentrate on providing services for customers similar
in size only (light grey area in Figure 44). Other fields are of minor importance or few
relationships are expected (two white areas in Figure 44).

Size LSP
small medium large

1 X
Legend:
Expected main correlations of logistics SMEs and customers‘ sizes
Expected main correlations of logistics LSEs and customers‘ sizes
X
Expectation of minor importance respectively hardly any correlations
1
Competitive area of LSEs and SMEs in logistics?
X 2
Multiple customers
2
Size Customer Multiple LSPs
small medium large X Similarity in company size

Figure 44: Expected relationships between size of LSP and size of customer

Beyond this expert view, this study searches for answers on four further aspects:
152 5 Š Formulation of hypotheses

x Do LSEs and SMEs in logistics both compete for medium-sized customers (black
colored rectangle in Figure 44)?
x Are the ‘X’s in Figure 44 ‘ideal’ constellations, i.e. is it necessary to have an ‘exact’
similarity in company size for a successful business relationship?
x What is the proportion between on-diagonal and off-diagonal correlations?
x Are special logistics concepts prevailing for specific correlations? For example, do
large LSPs manage multiple small customers by an outsourcing concept (Number 1 in
Figure 44) or do large customers collaborate with multiple small LSPs (Number 2 in
Figure 44)?

These further aspects have to be looked at in order to answer the initial question at the
beginning of Section 5.2.3 on the role of company size for business success.

5.2.3.2 Critical company size for Total Integration

Experts often claim that Total Integration is restricted to LSEs only and is out of
business scope for SMEs. The argument is that companies of minor size are unable to
provide services in the context of global operations. Manfred Kuhr, representative CEO
of BLG Logistics Group, for example, stated that logistics is a distinctive fastidious
business with global dimensions resulting in an extreme process of concentration and
that the harsh choice is either to grow or to withdraw (Kuhr 2003, p. 134).

In general, the key reasons stated for logistics SMEs struggling to offer Total
Integration solutions is the lack of physical, informational, financial and knowledge
resources. It is often argued that SMEs do not have the required resources for extending
the service scope or for making investments to expand in geographic reach. However,
for managing integrated supply networks globally, access to a strong base of tangible
resources and intangible resources is considered to defuse the gap. Table 29 provides
examples of these views.
5 Š Formulation of hypotheses 153

Argument35 Source

Many small- and medium-sized LSPs have a considerable need for Baumgarten 2001b, p. 15.
catching up with developing IT competence.
Without partnership engagement in cooperative networks, haulage Goepfert 2002, p. 9.
carriers are component providers only.
“… networks, in which transport firms are linked to each other through Lemoine and Dagnæs 2003,
alliances, and no control over the members’ assets is exerted, are better p. 210.
vehicles to reach the target of internationalisation than traditional (Result of Ludvigsen’s network
corporate systems based on mergers and acquisitions.” study in 2000.)
For providing European logistics, LSPs need locations in the individual Helmke 2003, p. 3.
countries, not necessarily by having their own transport networks but by (Interview with Heinz Graeber,
using existing networks. spokesman Fiege Group.)
Table 29: Arguments for SMEs limitations in Total Integration yet overcoming through networks

In summary, the following hypothesis, the Size Compatibility Hypothesis, is the starting
point for research and analysis on the role of company sizes for Total Integration.
III. Size Compatibility Hypothesis36: Integrated Supply Network Management is
a comprehensive concept with limited scope for SMEs. If at all and at best, SMEs
in logistics are able to provide Total Integration services for customers of similar
size only. Although SMEs in logistics put efforts into overcoming their resource
shortage, they are nevertheless very limited in full concept implementation.

35
The statements are translations from German into English. In the case of the direct citation the
statement is written in quotation marks.
36
Also the term ‘Natural Size Hypothesis’ is applicable.
154 6 Š Empirical results

6 Empirical results

In this chapter I present my empirical research results. At this stage of my study I do not
provide further analyses and evaluations of data. Data are descriptive and are based on
two groups (Figure 45). The first group, which I shall call basic research data,
comprises data about LSPs. The second group, which I shall call supplemental research
data, contains data about customers. Both parties (LSPs and customers) were looked at
to identify gaps or dissonances between individual research findings. The aim was also
to make the survey findings stronger all round by adding customer views to research
results from LSPs.

Basic Research Data Supplemental Research Data

LSPs Customers

No. Extent Data No. Extent Data

Literature Literature
research/ research/
In-depth written written
cases about materials In-depth materials
13 potential 13 customer
Hidden Interviews cases Interviews
Champions
Personal Gaps Personal
visits or visits
Dissonances
Selected
insights from
additional Literature research/
87 potential Selected
written materials
Hidden insights and
Champions arguments
Va- from Literature research/
Arguments rious written materials
additional
from com- customers
panies not Literature research/
8 qualifying as written materials
Hidden
Champions

Total no. of LSPs: 108 Total no. of customers: 13 + X

Figure 45: Basic and supplemental research data

In total, basic research data comprise facts and figures from 108 LSPs (‘Top 100+
Company List’).37 The extent of data inclusion is differentiated according to the three
groups of research cases LSP, selected insights from additional potential Hidden
Champions and arguments from companies not qualifying as Hidden Champions.

37
I call it ‘100+’ as the list contains 100 potential Hidden Champions plus a further eight LSPs which do
not qualify as Hidden Champions.

R. M. Neubauer, Business Models in the Area of Logistics, DOI 10.1007/978-3-8349-6533-2_6,

© Gabler Verlag | Springer Fachmedien Wiesbaden GmbH 2011
6 Š Empirical results 155

The method of raising data followed the principle of triangulation (Bonoma 1985,
p. 201; Lamnek 1989, p. 384), which is defined as a method of determining a position
by multiple reference points and the combination of methodologies for investigation of
a phenomenon (Lamnek 1989, p. 384). The basis for the in-depth case analysis is the
‘Questionnaire/Interview Manual – Logistics Service Provider’ (Appendix 3), which is
structured on the basis of the constitutive elements of a business model (Section
3.2.3.2). The questionnaire was used consistently with some modifications relating to
the respective type of LSP. Answers to the questions were gathered from three sources,
namely literature, i.e. written materials, personal visits at companies’ sites, and personal
interviews with the companies’ leadership, mainly with their managing directors and in
the other cases with managers directly reporting to them. Full questionnaires and
databases built up are confidentially available upon request and by permission of the
LSPs.

The second group of data included – selected insights from additional potential Hidden
Champions – covers data from an additional eighty-seven LSPs. With facts and figures
from literature research, i.e. from written material, the empirical study attained a greater
strength and enabled a tighter examination of the insights.

The third group of included data, arguments from companies not qualifying as Hidden
Champions, contributed to the research results to a minor extent only. Eight companies
were found to be insignificant in terms of meeting the criteria of a Hidden Champion
due to them being unprofitable and failing in their business activities, being too large in
size or too recently founded. Nevertheless, I kept their data for completeness.

While the result presentation of the thirteen research cases LSPs forms the core of this
chapter, findings at the customer level are shown as well by providing facts and figures
about customers supplemental research data (see right side in Figure 45). Thereby, data
are included in the two different extent groups of thirteen in-depth research cases
customers (Figure 38) and selected insights and arguments from additional customers.
By request of the surveyed companies, company names and findings will remain
anonymous. Similar to the research cases LSP the basis for an in-depth analysis of
customers is the ‘Questionnaire/Interview Manual – Customer’ (Appendix 4) based on
the defined framework of a business model in Section 3.2.3.2. Answers to the questions
156 6 Š Empirical results

were also gathered from literature, i.e. written materials, from personal visits at the
customers’ sites and from personal interviews with the head of the logistics or SCM
department. Full customers’ questionnaires and databases built up are confidentially
available upon request and by interview partners’ permissions.

At some points of the presentation of empirical research I added selected insights and
arguments from various additional customers which I found in literature, i.e. in written
materials. As stated before, I added the customer perspective to identify gaps and
dissonances in respect to the LSP perspective and to further strengthen the research
results.

6.1 Evaluation of micro hypotheses and common industry misperceptions

In this section the evaluation of basic research data, i.e. data about 108 LSPs, and
supplemental research data, i.e. data about thirteen research cases and various further
customers (’13 + X’), is presented (see Chapter 6, in particular Figure 45). The thirteen
in-depth LSP cases, supplemented by the thirteen in-depth customer cases, form the
core of the presented results. If findings disprove or reject micro hypotheses, arguments
for misperception are proposed. I use the term misperception for prevailing incorrect
views or misinterpretation of LSPs’ business model components’ moldings. Finally,
micro hypotheses are restated if appropriate and principles of business success are
defined. At the end of each section the overall outcome, i.e. the key learning, is
summarized in a box.

6.1.1 Misperceptions on Ambitions & Aims

6.1.1.1 The striving for single source misperception

The Single Source Hypothesis states that LSPs are heading for leadership with regard to
their customers’ total supply chain. LSPs claim that collaboration with a sole partner
leads to a tremendous increase in the customer’s productivity. Empirical examination of
this hypothesis is mainly based on the answers of the thirteen research cases LSP to the
questions in part 2.1. ‘Value Proposition’ in the ‘Questionnaire/Interview Manual –
Logistics Service Provider’. Findings were supplemented by selected insights on Value
Proposition from additional potential Hidden Champions. Also, customer views and
6 Š Empirical results 157

attitudes about total supply chain leadership were added to identify potential
dissonances.

Section 2.1 of the ‘Questionnaire/Interview Manual – Logistics Service Provider’ deals

with value creation of LSPs for their stakeholder groups. The questionnaire captures
value creation for customers, investors, partners and employees as well as contributions
to society. Twelve LSPs studied in-depth stated that they created values for their
customers, who are the key stakeholder group.38 Seven of the thirteen research cases
LSP emphasize that they create value for their employees and society. Contrary to
expectations and thus very interesting is that only four LSPs reported about value
creation for their partners. This seems to be a paradox, as networking is very necessary
for SMEs in logistics if it is aimed at offering total supply chain solutions. At this stage
the degree of satisfaction with partners remains open. Also surprising is that none of the
interview partners at the LSPs commented on value creation for the stakeholder group
of investors (Figure 46).

Customers
12

Investors Employees
7
0

4
7
Partners Society

Figure 46: Number of LSPs creating value for its various stakeholder groups

Relating to the stakeholder group of customers, 91 statements39 were made from the
twelve research cases LSP. These statements were allocated to five defined main
groups, which are process improvements, quality increases, cost savings, transparency
increases and improved customer relationship (Figure 47). With roughly 45% of the
statements relating to process improvements, this group is the key focus for value

38
The thirteenth research case LSP (LSP J) did not state values created for customers. The reason is
that LSP J has hardly any contacts to customers. According to its business model LSP J’s partners are its
customers.
39
Result of counting all statements on value creation for customers.
158 6 Š Empirical results

creation for customers. However, only 11 statements were made in terms of cost
savings, while 26 statements related to quality increases. The interviewed LSPs
explicitly pointed out the need for delivering excellent quality. Excellent quality is
understood in the sense of providing service offerings at a high quality level, e.g. on
time, in the right volume or with a service degree above expectations and with required
flexibility.40 LSPs aim to achieve customer dependency on their services to prevent any
possible and intended replacement of their LSP. Thus, excellent performance and
quality is considered as the means to creating a strong position with their customers.

41 [Number of responses relating

to group of value for customer]

26

11
8
5

Improvements Increases of Cost savings Increases of Improved

of processes quality transparency customer
relationship

Figure 47: Five main groups of value creation for customers

(number of statements relating to respective group from the twelve relevant
LSPs studied in-depth)

The above figure allows some conclusions on management priorities. Obviously process
improvement, quality increases and cost savings are the key priorities, in this order.
There seems to be a strong relationship between these ‘hard factors’, with the
expectation of process improvements leading to quality increases and cost savings.
Customers are thus most interested in their LSP’s performance. ‘Soft factors’ seem to
be secondary, with transparency increases ranking fourth and improved customer
relationship ranking fifth only.

40
Depending on the LSPs’ service spectrum, various measures for quality excellence are used. Just
to mention one example: the quality of a CEP provider that promises to fulfill its express parcel service
(delivery) within twenty-four hours after placing the order is measurable by the indicator ‘Mean Delivery
Reliability šതI’ (number of service orders delivered on schedule / total number of service orders)
(Delfmann and Wickinghoff 1999, p. 149.) In this case, excellent quality is achieved if the CEP provider
delivers more than 90% of all orders within the promised delivery time.
6 Š Empirical results 159

Relating to the stakeholder group of employees, the statements of the LSPs’ interview
partners were assigned to four groups – social culture, working environment, employee
characteristics and education (Figure 48). The results are:

x Firstly, LSPs are characterized by having a pronounced social culture with esteemed
employees. For example, employees are given awards for outstanding achievements.
Any barriers are removed which hinder direct access for employees of every company
level to the top management. It is quite common that top managers share the table
during lunch with lowest-level employees. Another example is the organization of
group sport events like football matches or joint participation at running events like
team marathons.
x Secondly, potential Hidden Champions provide an exemplary working environment.
They arrange working places in a fair and ethical manner. They take care of employees’
safety.
x Thirdly, potential Hidden Champions’ employees are highly motivated. They have
developed in the course of their affiliation to the LSP. This growing into an outstanding
company community has a big impact in terms of company commitment and thus leads
to low staff turnover.
x Fourth, employees at potential Hidden Champions are very well-educated. They have
a strong experience as well as a broad and deep knowledge. Trainings are a common
tool to ensure high qualifications.

Figure 48 cites two statements from each of the four groups and indicates LSPs to
whom statements are applicable (names in brackets). The performance of LSP F in
terms of value creation for employees is special as it is the only LSP stating value
creation for employees in more than two groups.
160 6 Š Empirical results

• Esteeming employees (awards, top management access) (D, F)

Social culture • Team-/community building (family days, sports teams) (D, K)

Working • Fair and ethical places to work (C)

environment • Safe locations (C, F)
Employees*
Employee • Highly motivated (G)
characteristics • Internally established/very low staff turnover (F)

• Experienced and knowledgeable staff (L)

Education
• Trainings to ensure high qualifications (M)

* Covers statements from seven of the thirteen in-depth studied LSPs only, as six LSPs did not indicate values created
for their employees; anonymous LSP names in brackets.

Figure 48: Groups and examples of value creation for employees

(derived from the statements of the LSPs studied in-depth)

Relating to society as the third major stakeholder group, SMEs in logistics have a strong
local relation. Seven of the thirteen research cases LSP stated values created for this
group. In particular, residentiary organizations are supported by LSPs’ charity donations
and activities (LSPs C and D) or local sports events are sponsored (LSP E). It is
considered to be natural to undertake actions for protecting the environment (LSPs A,
C, F and K), even by establishing their own foundation (LSP C). Measures like
supporting medical research are also undertaken (LSP M). Social responsibility for local
issues substantiates the solidarity of the management to its immediate environment.

Four LSPs studied in-depth provided statements in terms of value creation for partners.
While one of the interview partners (of LSP D) evaluates the value as being low,
LSPs H, J and L highlight the meaning of operating in a well-functioning network of
partners. Networks are considered to enable a broadening of the scope of services
(LSP J) and to ensure a high level of service provision (LSP L). The role of partners is
to provide services which the LSPs are unable to do by themselves (LSP H). With only
three (LSPs H, J and L) of the thirteen LSPs convinced about value creation in
partnerships, the result is astonishing.

While large LSPs, in particular those that are listed on the stock exchange, put strong
efforts on satisfying investors by achieving high share prices, SMEs neglect this
stakeholder group but they have to deal with the issue of ownership interests. The
success of the SMEs often depends on a single person or family being in charge. If the
6 Š Empirical results 161

owners’ interests in the company decline, the company will become a candidate for low
performance and, eventually, a candidate for a sale.

Two major findings are the outcome of analyzing issues of value creation for an LSP’s
stakeholder groups relating to the Single Source Hypothesis.

First finding: SMEs in logistics do not primarily strive for being the single manager of
their customers’ logistics activities. Even more, by striving for excellence in service
provision, logistics SMEs’ first priority is to secure a strong position in the customer’s
supply chain. Customers increase the intensity of their relation to their LSPs
continuously over time if they are convinced of the LSPs’ high quality service delivery.

Second finding: Total supply chain offering by a single source, i.e. by one LSP, requires
the customer’s agreement. The thirteen customers studied in-depth were asked for their
views and attitudes in terms of total supply chain leadership. In Table 30, I present a
number of representative customer statements.

Customer Statement(s) on total supply chain leadership

(industry)
Customer I • Our collaboration with LSP A started with a basic service; together we developed the
(automotive) service spectrum further at a later stage.
• Our job is to preserve competition amongst LSPs.
• Our position is characterized by supremacy in total supply chain.
• Organizationally we are our group’s 4PL department.
Customer II • We have to be considered as systems leader in logistics operations.
(automotive) • Our job is to put the different modules together; one of the modules is assigned to
LSP H.
Customer VIII • Total supply chain supremacy is the ‘must’ position for the producer.
(toys) • Supply chain leadership is the key to customer contacts and identifying customer
needs.
Table 30: Customers’ views and attitudes on total supply chain leadership (examples)

The key argument for the failure of the single source approach of LSPs can be found in
these prevailing views and attitudes. Thus, the overall responsibility for the total supply
chain with its complex planning and management tasks remains with the customer, who
keeps control and intellectual capital inside the company. Only logistics processes
outside this customer core competence are outsourced. Potential Hidden Champions
collaborate with their customers in the provision of logistics services. Only with LSPs
and customers focusing on their respective core competences is maximum customer
value created. These two findings are demonstrated by further examples in Table 31.
162 6 Š Empirical results

LSP’s company LSP company Country Example reinforcing findings

name (group)/ logo/customer
customer company logo
Finnlines Oy The first of the LSP’s four company values is customer
focus. The company is aware of being chosen due to
competence and expertise (Finnlines 2006, p. 4).
Infracor GmbH / Klaus Koester, Managing Director ISP, about the
(Degussa AG)/ company’s relationship with its LSP:
International x We have “first-hand experience of how Infracor GmbH
Specialty has developed from a traditional service division at
Products (ISP) Degussa into a customer-oriented service-provider.”
x “…, there has been a clear improvement in customer
focus.”
x “The close relationship that has grown up over the
years is certainly a major advantage.”
x “Although we operate our high-voltage units ourselves,
all support services have been sourced from Infracor
since 1998”.
(Infracor 2007)
Bibby In 1985 Bibby’s relationship with Nisa Today’s began.
/
Distribution The partnership developed over the years as did Nisa
Limited (Bibby Today’s business. Besides productivity, Bibby increased
Line Group)/ service quality. The customer extended the volume levels
Nisa Today’s continuously from around 16 million cases per year in
1992/1993 to more than 50 million cases in 2002 (Bibby
Distribution 2006).
Table 31: Examples of additional potential Hidden Champions reinforcing findings on the Single
Source Hypothesis

The knowledge gathered on Value Proposition during the empirical study allows me to
draw two conclusions:

First, potential Hidden Champions deliver high performance in quality of service. Due
to their excellent service delivery they are increasingly asked from their customers to
take over further tasks in the customer’s supply chain. Thus, potential Hidden
Champions spread out stealthily and with hardly any notice in their customers’ supply
chain over time. In other words, a strong position of an LSP in a customer’s supply
chain is not a state achieved after winning a large announcement and signing a big
customer contract. It is more a relationship process over time.

Second, as also stated by Normann and Ramírez, potential Hidden Champions

“mobilize customers to take advantage of proffered density and create value for
themselves” (Normann and Ramírez 1993, p. 69). In the logistics industry in which
value occurs in complex constellations, potential Hidden Champions improve quality of
service delivery continuously and additionally make their customers more intelligent.
LSPs are customers’ activators for process improvements and value creation. It is this
“dialogue between competencies and customers” (Normann and Ramírez 1993, p. 70)
6 Š Empirical results 163

that explains the survival and success of LSPs in their customer relationships. For
example, in the case of identified weaknesses in the customers’ logistics processes,
potential Hidden Champions initiate meetings for discussing solutions. Also, customers
are informed about new logistics solutions and also options for implementation at the
customer’s site are presented by the LSP.

I call this knowledge gain from analyzing the business model component Value
Proposition at potential Hidden Champions Principle of Incrementalism. It is a trust-
building mechanism initiated and experienced by both the LSP and the customer
through open dialogues and collaboration. Visually it can be explained by two stairs
from two sides ending at a joint top (Figure 49). At this ‘top’ the total supply chain
management remains at the customer with several, but selected supply chain parts being
dedicated to the LSP. The response from customers to excellent service delivery by their
LSPs is to allow the increase of small commitments.

Pre- Work-in- Commissio- Storage Distribution Warehouse Outlet

Transport Stage 1 in Stage 2 in
material process ning produc- final trans- distri- storage
supply production production
storage stock tion parts products portation bution in shelves

Customer
LSP

Trust Building Mechanism

Figure 49: Principle of Incrementalism

In summary, the Single Source Hypothesis is to be rejected in part. The main

explanation for the Single Source misperception is lacking willingness of customers to
outsource total supply chain leadership, i.e. the control barrier, notwithstanding a desire
of LSPs to assume such a position. However, the Single Source Hypothesis is to be
restated for potential Hidden Champions:
164 6 Š Empirical results

1. Principle of Incrementalism. Potential Hidden Champions are able to

enhance their position with their customers over time due to a strong commitment
to service excellence. Outstanding performance based on considerable dedication
of the management to its employees increases both customer trust and the
outsourced logistics activity spectrum. LSPs’ relationships to customers are
characterized by an open dialogue regarding process and service mobilization.

6.1.1.2 The sector specificity and selection misperception

While LSPs can focus on a few tasks or can have a broad scope relating to logistics
tasks provided, focus and scope is also applicable to sectors. The point of
commencement for the analysis of the business model component Target Group is the
Segmentation Hypothesis. It states that LSPs focus on only a few carefully selected
sectors. Service provision is expected to be more satisfying or more efficient if LSPs
have very specialized sector knowledge. For these reasons this research targeted the
sector specificity.

Interview partners from the research cases LSP were asked about their sector
specialization. The defined sectors were automotive, chemicals, consumer goods/retail,
food/drink, furniture, healthcare, high tech and textile/fashion. Other sectors could also
be stated if none of the listed was applicable. For drawing a conclusion, the total
number of target sectors was determined for each of the LSPs. As the result in Figure 50
shows, LSPs do not follow a niche strategy in terms of sector specificity. Only less than
one-quarter of the analyzed LSPs concentrate on five sectors or less.
6 Š Empirical results 165

J Many 1, 2
G Many 2
E Many 2
H 18
B 14 Legend:
M 14
1 Sectors of partners
F 9 2 No specific sector focus,
D 8 variety of sectors served;
exact figure not available
C 7 Narrow sector focus
I 6 Several sectors targeted
L 3
A 2
K 1

Figure 50: Sector specificity of research cases LSP

For reducing their dependency from one or a few sectors, the majority of LSPs prefer
developing concepts which can be transferred easily to a variety of sectors. They
actively market their logistics services for many sectors and to a larger number of
customers in each sector. Risk management, for example in terms of turnover losses due
to customer insolvency or more intensive use of sector specific investment in assets, is
enhanced, which has further benefits in terms of new contract negotiations.

In summary, the Segmentation Hypothesis is to be rejected. The sector specificity

misperception can be explained by potential Hidden Champions sector scope:

2a. Principle of Scope: LSPs’ strategic and core capabilities are transferable
across sectors. Such transfer reduces risks and enhances the LSPs’ position in
contract negotiations with customers.

For the business model component Target Group, a second hypothesis was formulated
which is the Transaction Hypothesis (Section 5.1.1.2). The reason was to capture the
perspective of the customer, i.e. the target group, in addition. In particular, the argument
had to be specified that ‘hard factors’, mainly price and costs, decide who the LSP of
choice is. Thus, customers were asked to provide insights into their decision process of
choosing their outsourcing partner for logistics activities. The interview results allow
the conclusion that the selection process is accompanied by three groups of triggers
(Figure 51).
166 6 Š Empirical results

The first group – I call it the Primary Decision Trigger – covers market conditions.
Answers from customers’ interview partners on the Primary Decision Trigger mainly
relate to service execution. Besides price (14% of total number of responses), which is
considered as the basic frame condition criterion, it is the expected quality in service
fulfillment and quality standard (12%) and reliability (11%) by which customers select
their LSPs. With excellence in service execution including good pricing being a
necessary prerequisite, success or failure in competing for contracts will be decided
increasingly based on the second and third group of triggers in future.

The second group, the Key Decision Trigger, covers customer convenience and
constitutes resource-based criteria. The interview partners of the customer companies
mentioned the criterion location (9%), business experience (5%) and service portfolio
(5%). Additionally, in this group are the collaborative criteria trust (6%) and ‘fit’
between LSP and customer (5%). Furthermore, flexibility in service execution is
decisive (5%).

Due to the changes in the logistics landscape, it is the third group of triggers which will
have the deepest impact on the LSP selection in future. It covers deep capabilities which
are invisible and not obvious for LSPs. This group of triggers, thus called the Hidden
Decision Trigger, is mainly based on collaborative criteria. Interview partners
mentioned the issues of company structure and customer contact (3% each) as well as
company size, counter business, reputation, impression and special situation (1.6%
each). The further stated frame condition criteria were costs (3%) and advanced IT
systems (3%), the executive criteria adaptability to customer (3%) and performance
(2%), and the resource-based criteria is the importance of asset-intensity or availability
of resources (3%).
6 Š Empirical results 167

Group of Group of Criteria Criteria Context

Decision and Percentage of (Examples) of
Triggers Total Statements Triggers

Primary
Decision Market
23% Quality, Reliability Conditions
Trigger
14% Price

Key
Decision 19% Location, Business Experience, Service Portfolio
Customer
Trigger 11% Trust, Fit LSP-Customer Convenience
5% Flexibility

14% Company Structure, Customer Contact, Others

Hidden Costs, IT
Decision 6% Deep
5% Adaptability to Customer, Performance Capabilities
Trigger Asset-intensity/Availability of Resources
3%

Legend: = Executive criteria = Resource-based criteria = Collaborative criteria = Frame condition criteria

Figure 51: Customers decision triggers in the LSP selection process

In other words, while price and excellence in service fulfillment are perceived as being
a basic precondition, LSPs’ resources and their way of collaboration with customers
decide who will be the LSP of choice. Thus, the Transaction Hypothesis is to be
rejected partially. Customers confirmed that sector specificity is not the criterion for
LSP selection, but general objective factors such as pricing are not the main criteria for
selection of the LSP. This partial selection misperception from the view of customers
can be explained by the:

2b. Principle of Intangible Service: While price and quality are considered as
basic preconditions in the LSP selection process, customers’ decisions are based
on two factors influencing the method of collaboration: First, customers’ choices
are made from convenience perspectives and second, LSPs’ deep capabilities and
resources for engaging in service provision are decisive.

6.1.1.3 The damnation to low margin business misperception

The third micro hypothesis relating to the business model component Business Purpose,
which I call Commodity Trap Hypothesis, states that smaller LSPs are captives of the
low margin transportation business. In Table 10 I described Business Purpose by a
company’s vision and mission as well as goals. For this reason empirical research on the
168 6 Š Empirical results

Commodity Trap Hypothesis concentrates on the analysis of mission statements and

visions as well as on potential Hidden Champions’ core competences.

First, I captured the mission statements of all LSPs studied in-depth, which totaled fifty-
seven declarations. These were assigned to and summarized in sixteen objects, those
once more in four target fields (Figure 52).

Percentage of total statements Target field of

Object of mission statement
by in-depth studied LSPs mission statement
Total solution offering 14.0% Management and
Entire network management 5.3% integration capturing
Sole partner with one interface 7.0%
Customer partnership 5.3%
Weighty partner
Leading provider in target segment 3.5% positioning
System partner 3.5%
SCM/logistics specialist 3.5%
Individual solution provision 15.8%
Innovation 3.5%
Offering
Broad range of skills 3.5% specialization
IT/connectivity 3.5%
Value-added services 1.7%
Geographic focus 15.8%
People focus 5.3% Value
Efficiency increase 5.3% commitment
Excellence 3.5%

Figure 52: Mission statements of LSPs studied in-depth

Relating to the object of mission, the most numerous statements refer to individual
solution provision (15.8% of all statements), geographic focus (15.8%) and total
solution offering (14.0%). Other content of the mission statements is less often
mentioned:

x In the target field ‘Management and integration capturing’, 5.3% of all statements
relate to entire network management. Total solution offering with 14.0% of assigned
statements is part of the mission statement of more than sixty percent of the research
cases LSP.
x In the target field ‘Weighty partner positioning’, 7.0% of statements can be assigned
to a sole partner with one interface, 5.3% to customer partnership and 3.5% each to
leading provider in target segment, system partner and SCM/logistics specialist.
x In addition to the 15.8% of statements on individual solution provision as object of
mission, four further objects are part of the target field ‘Offering specialization’.
6 Š Empirical results 169

Accordingly, 3.5% each were made to innovation, broad range of skills and
IT/connectivity. 1.7% of statements referred to value-added services.
x Finally, in the target field ‘Value commitment’, besides geographic focus with
15.8%, 5.3% each relate to people focus as well as efficiency increase. 3.5% of LSPs’
statements are about excellence as object of mission statement.

Second, the visions of the research cases LSP are in focus of interest. Surprisingly, the
LSPs are restrained in terms of publishing their visions. Twelve objects of vision were
identified. These were assigned to five target fields of vision, which are ‘Management
and integration capturing’, ‘Weighty partner positioning’, ‘Offering specialization’,
‘Value commitment’ and ‘Company development’ (Figure 53). The objects stated twice
as the others are full-service philosophy (within the target field ‘Management and
integration capturing’), partnership (within ‘Weighty partner positioning’) and delivery
excellence (within the target field ‘Value commitment’). The other objects of vision are
management rather than operation, leading provider, responsibility of part of OEM’s
supply chain, innovation, virtual networks with permanent system visibility, continuous
innovation, survival, partnerships and acquisitions as well as extending market position.

Objects of visions of in-depth studied LSPs Target field of vision

• Full-service philosophy Management and

• Management rather than operation integration capturing

• Partnership
Weighty partner
• Leading provider
positioning
• Responsibility of part of OEM’s supply chain

• Innovation Offering
• Virtual networks with permanent system visibility specialization

• Delivery excellence Value commitment

• Continuous innovation
• Survival Company
• Partnerships and acquisitions development
• Extending market position

Figure 53: Visions of research cases LSP

170 6 Š Empirical results

Third, the research cases LSP were asked for their core competences.41 For seven LSPs
the provision of individualized solutions is the core competence, followed by four
statements each relating to transportation, provision of value-added services and system
solutions. Three LSPs mentioned technology, two LSPs network management and one
LSP logistics innovations as their core competence (Figure 54).

Individualized solution provision 7

Transportation 4
Value-added services provision 4
System solution provision 4
Technology 3
Network management 2
Logistics innovations 1

Number of in-depth studied LSPs with respective core competence

Figure 54: Core competences of research cases LSP

As intermediate summary, potential Hidden Champions’ mission statements do not

allow a conclusion to be drawn regarding whether they are captured to the low margin
transportation business due to their strong declarations on issues like individual solution
provision, total solution offering or sole partner with one interface. Additional real
insights into LSPs’ visions are not possible due to their restrained company visions.
However, asked about their core competences, four of the LSPs mentioned
transportation. This forms one of the points of commencement in Chapter 7 in which I
screen for Hidden Champions.

At this stage, I like to verify the micro hypothesis in more detail through the
examination of the transferability of Collins and Porras’ findings on reasons for
becoming elite institutions that are able to renew themselves and to achieve superior
long-term performance (Collins and Porras 1996, p. 65). The authors, whose research
focused on companies’ visions, found that elite institutions preserve the dynamic of the
core while stimulating progress. Thereby, a well-conceived vision consists of the two
major components of core ideology and envisioned future. Core ideology (the ‘yin’ in
the scheme) defines the enduring character, i.e. a consistent identity, of an organization.

41
LSPs were allowed to state more than one competence.
6 Š Empirical results 171

Envisioned future (the ‘yan’ in the scheme) consists of a 10-to-30-year audacious goal
as well as vivid descriptions of what it will be like to achieve the goal (Collins and
Porras 1996, p. 66, p. 73.). As the research cases LSP are restrained in terms of
declaring a company vision, the identification of the ‘cores’ of the LSPs is based on
their core competences (Figure 54), which are grouped for better demonstration. Value-
added services provision is combined with individualized solution provision to the core
‘individualization’. The reason is that individualization of logistics solutions is not
possible without providing value-added services. Also, provision of system solutions is
expected to be impossible for SMEs in logistics without having strong networks. Thus,
a second core shall be called ‘system’. Logistics innovations are a necessary
prerequisite for individualizing solutions and often relate to technology. Accordingly,
‘technology’ remains as the third core and ‘transportation’ as the fourth core.

These four cores are arranged in a matrix based on the advancement in type of service
offering and scope of service offering. I placed ‘transportation’ at the bottom left as this
service is neither broad in scope nor an advanced logistics activity, ‘technology’ is
placed at the bottom right as it is a less historical logistics service but not broad in
scope, ‘individualization’ is placed in the center and ‘system’ as the proclaimed future
of logistics is placed at the top right. The LSPs studied in-depth were allocated to these
cores according to their core competences (Figure 55):

x LSPs B, G, J and L claimed that transportation is their key business. While it is the
single core competence for LSPs G, J and L, LSP B is taking efforts to broaden its
competence spectrum by providing value-added services. Thus only LSP B will be
placed in the Yan while LSPs G, J and L will be in the Yin.
x LSPs C, I and K claimed to be technology experts. While offering total solutions is
hardly possible with technology alone, LSP I, which stated only technology as its core
competence, is placed in the Yin. LSPs C and K are also specialists in the areas of
individualization and system besides technology. From their business focus, technology
is not the major part and thus neither LSP are assigned to the technology core.
x However, LSPs C and K consider individualizing solution provision as their core
competence just as done by LSPs A, E, F, H and M. While LSPs A, C and K are also
‘system’ experts, a more detailed view on their business focus allows the assigning of
172 6 Š Empirical results

LSPs A, C, E, F, H and M to the core individualization. Further research suggests that

only for LSPs E and M is an assignment to the Yan justified.
x From in-depth LSP analysis, LSPs D and K seem to be the only two LSPs with
system as their main competence. Both are assigned to the core ‘system’. While LSP K
seems to be limited in further advancement according to research, LSP K is assigned to
the Yin. Research suggests that LSP D is promising in advancing in offering system
solutions. Therefore, LSP D is placed in the Yan.

z
System Legend:
K D
Scope of service offering

Xxx Core purpose

z
z
Individu-
X LSP stagnating in company
progress
alization
A, C, E, M X LSP with audacious goal for
F, H company progress, i.e. for
z escaping the commodity trap by
adaptions of business solutions
in order to achieve higher
z z margins
Trans- Techno-
porta- logy Core ideology
tion B I
G, J, Envisioned future
L z z

Advancement in type of service offering

Figure 55: LSP allocation in the logistics industry’s service offering portfolio and adaptation behavior
(transferred from Collins and Porras’ model of articulating a vision;
Collins and Porras 1996, p. 67)

As Figure 55 shows, almost seventy percent of the research cases LSP left the low
margin transportation business and have penetrated gradually into the more profitable
value-added and strategic service offering businesses as applies for technology,
individualization and system. Only four LSPs (B, G, J and L) seem to be in danger of
being stuck in the low margin transportation business. This applies in particular to LSPs
G, J and L, as they lack indications of escaping the commodity trap.

Figure 55 also demonstrates that for four LSPs, indicators for stimulating progress could
be discovered (white company letters in the Yan), while for the others it could not be
(black company letters in the Yin). The conclusion is drawn that only companies able to
6 Š Empirical results 173

stimulate progress are able to be successful long-term. According to this analysis, LSPs
B, D, E and M are most likely to be successful.

In summary, the Commodity Trap Hypothesis is mainly to be rejected. The damnation

to the low margin business misperception can be explained by the:

3. Principle of Gradual Conquest: First, potential Hidden Champions consider

the low margin transportation business as an initiator for further business only.
They follow the strategy of conquering service offering scope gradually. Second,
they also stimulate progress of their Core Ideology towards an Envisioned Future
in the course of business operations.

In Chapter 7, the above findings form one of the starting points for identifying Hidden
Champions. I refer to progress or advancement in service scope provision to an
Increased Commitment Model. In the chapter about screening for Hidden Champions,
the findings are further specified and it is analyzed whether in reality LSPs first have to
operate in the low cost and low margin business before developing relationships with
profit achievements.

6.1.2 Misperceptions on Implementation

6.1.2.1 The competition misperception

This section searches for arguments for proof or refutation of the fourth micro
hypothesis, the Cherry Picking Hypothesis, which was formulated to conduct analysis
on the business model component Product/Service. According to this hypothesis,
industry incumbents compete with new market entrants, e.g. with specialized logistics
subsidiaries, in-house providers and ‘outside conquerors’ (Figure 37) in the high-margin
advanced services logistics business, in particular in providing one-stop-solutions or
concepts close to this distinctive form. The question is whether advanced services are
indeed the main part of potential Hidden Champions’ service portfolios. Thus, this
174 6 Š Empirical results

section deals with the scope of services offered by the LSPs studied.42 Their service
portfolios were analyzed in terms of the possibility of a one-stop-solution offer with
their own assets, where the LSP is responsible for the customer’s comprehensive
logistical processes. For this analysis, services were grouped into operative, basic value-
added, expanded value-added and strategic services. Each service group consists of
several types of services (see also Figure 9):
x Operative services: transportation, transshipment, warehousing, freight forwarding.
x Basic value-added services: customization and other warehouse value-add, transport
planning and optimization, selection of transport mode, production value-add, after-
sales services/reverse logistics, financial settlement.
x Expanded value-added services: inventory management, inventory ownership,
assembling, facility management, advanced IT services.
x Strategic services: merge in transit, construction/optimization of the distribution
network, integration of global supply chains. Thereby, merge in transit is a
transportation concept by which delivery chains of different origins are brought
together. As a consequence, warehousing steps become needless and advantages in
terms of time and accumulation of capital are achieved (Kuemmerlen 2005, p. 46).

In the analysis, five issues were targeted for argumentation of the Cherry Picking
Hypothesis. These five issues are presented in the next paragraphs.

First, information gathered from the research cases LSP was evaluated in terms of the
share of LSPs with respective type of service in their portfolio (Figure 56).

42
The analysis refers to the questions in section ‘2.4. Product/Service Offering’ in the
‘Questionnaire/Interview Manual – Logistics Service Provider’ (Appendix 3). Results and their
evaluations refer to the findings from the thirteen LSPs studied in-depth.
6 Š Empirical results 175

Average
Service Percentage of in-depth studied LSPs
Type of service coverage per
group with service offering
service group
Transportation 77
Operative Transshipment 46
services Ø 65.5%
Warehousing 77
Freight forwarding 62
Customization and other warehouse value-add 62
Transport planning and optimization 62
Basic Selection of transport mode 38
value-added Ø 50.2%
Production value-add 31
services
After-sales services/reverse logistics 77
Financial settlement 31
Inventory management 15
Expanded Inventory ownership 0
value-added Assembling 54 Ø 32.2%
services Facility management 15
Advanced IT services 77
Merge in transit 0
Strategic Construction/optimization of the distribution network 77
services Ø 33.3%
Integration of global supply chains 23

100%

Figure 56: Types of services provided by LSPs studied in-depth

x In the service group operative services, 77% of the LSPs provide transportation and
warehousing respectively, 62% freight forwarding and 46% transshipment. The average
coverage of this service group by the totality of LSPs amounts for 65.5%.
x Relating to the service group basic value-added services, 77% offer after-sales
services/reverse logistics, 62% customization and other warehouse value-add as well as
transport planning and optimization respectively. With more than 30%, selection of
transport mode, production value-add as well as financial settlement are also part of the
LSPs’ service portfolios. Overall, basic value-added services are provided by roughly
half of the thirteen LSPs.
x In the service group expanded value-added services, advanced IT services are
provided by 77% and 54% do assembling activities. However, the other three types of
services in this group (inventory management, inventory ownership, facility
management) are provided by only 15% or not at all as is the case for inventory
ownership. Overall, the average coverage in this service group is only 32.2%.
x Construction/optimization of the distribution network is the key strategic service
which 77% of the LSPs provide. Integration of global supply chains is part of the
service portfolio for less than one-quarter of the LSPs and merge in transit is provided
by none of the LSPs. The average coverage on strategic services by the research cases
LSP amounts to only one-third.
176 6 Š Empirical results

This analysis shows that potential Hidden Champions mainly focus on operative
services and basic value-added services. Services under expanded value-added services
and strategic services are part of only roughly one-third of LSP service portfolios.

Second, further analysis concentrates on single LSPs’ focus on service groups. Based on
each LSPs’ individual total number of types of services in their service portfolio, the
share of operative services, basic value-added services, expanded value-added services
as well as strategic services are calculated (Figure 57).

A 40 40 10 10
B 11 56 11 22
C 25 37 13 25
D 28 29 29 14
E 37 25 25 13
F 31 46 15 8 Legend:
G 36 46 9 9 = Operative services (%)
= Basic value-added services (%)
H 28 36 29 7 = Expanded value-added services (%)
I 67 33 = Strategic services (%)

J 60 20 20
K 33 67
L 44 44 12
M 43 14 43

100%

Figure 57: Share per service group based on individual total number of types of services per LSP

As the figure shows, the first eight LSPs provide services from each service group.
Three LSPs do not provide strategic services at all (LSPs J, L and M). LSPs I and K are
most outstanding in terms of more advanced, i.e. strategic services. Apart from LSPs I
and K, all other eleven LSPs’ share of operative services and basic value-added services
amounts for more than 50%. Again, the analysis’ finding is that potential Hidden
Champions do concentrate less on advanced, i.e. expanded value-added and strategic
services, than expected.

Third, the above view is further differentiated. At the beginning of this section, the
types of services were defined for each service group, with four types for operative
services, six types for basic value-added services, five types for expanded value-added
services and three types for strategic services. Figure 58 presents the LSPs’ scope
6 Š Empirical results 177

relating to the number of types of services per service group. For example, LSP C offers
two services from the four potential types of services in the service group operative
services, thus 50%.43 LSP C also offers 50% of potential types of services in the service
group basic value-added services, i.e. LSP C offers three of six service types.44
Moreover, LSP C offers advanced IT services from the five potential service types of
the group expanded value-added services only, thus 20%. Finally, two strategic services
are part of LSP C’s portfolio, which amounts to two-thirds due to three service types in
this group in total.45

[Share on total number of type of services per service group in %]

LSP Operative Basic Expanded Strategic
services value-added value-added services
services services
A 100 67 20 33

B 25 83 20 67

C 50 50 20 67

D 50 33 40 33

E 75 33 40 33

F 100 100 40 33

G 100 83 20 33

H 100 83 80 33

I 0 0 40 33

J 75 17 20 0

K 0 17 0 67

L 100 67 20 0

M 75 17 60 0

Figure 58: LSPs’ scope relating to the number of types of services per service group

Above figure shows clearly that none of the potential Hidden Champions is able to offer
all types of services. This is graphically presented by white bars at all of the LSPs

43
The two operative services which are provided by LSP C are transportation and warehousing.
44
The three basic value-added services are customization and other warehouse value-add, transport
planning and optimization as well as after-sales services/reverse logistics.
45
The two strategic services are construction/optimization of the distribution network and integration
of global supply chains.
178 6 Š Empirical results

studied in-depth. As a conclusion, we can say that without networks, none of the LSPs
would be able to offer a one-stop-solution.

Fourth, in the course of my empirical studies it was my experience that there are two
‘critical points’ which SMEs in logistics should not miss to be successful. If companies
provide too few advanced services, i.e. concentrate too strongly on operative services
only, they are in danger of being taken over by another, competitive LSP who has a
more complete offer. If they lie too strongly on the advanced services side, they are in
danger of being taken over by the key customer, who eliminates the contract with the
LSP and executes a takeover of the LSP for in-house provision of the previously
outsourced logistical services. LSPs’ long-term success and survival are expected if
their service spectrum is neither too operative nor to strategic, i.e. if their service scope
is in the ‘middle’ (Figure 59).

Legend:
LSP D X Successful
Success

LSP
X Unsuccessful
LSP
… Critical point
in service
LSP A offering
LSPs’ result

Danger of takeover Danger of takeover

by competitive LSP by key customer
LSP G LSP K
Failure

Operative Basic value-added Expanded value-added Strategic

Services’ share from total turnover

Figure 59: Relationship between groups of services and success of an LSP

Fifth, I further experienced that LSPs hold on to their core competences with the service
portfolio not being subject to frequent changes. This is the finding from looking at the
issue of service portfolio revisions (in the sense of progressing towards more advanced
services) and asking the interview partners at the LSPs for reasons to adapt the service
portfolio (Figure 60).
6 Š Empirical results 179

Reasons Interview partners‘ responses in %

Customer needs 80

Market requirements 40

Synergy effects 20

Cost advantages 20

Expected special orders 0

Expected profit increase/loss reductions 0

Resource/skill shortage 0

Figure 60: Reasons for LSPs’ service portfolio revisions

LSPs do not regularly adapt their service portfolio due to internal reasons; portfolio
revisions are driven by external needs. The main trigger to break through portfolio
continuity takes place due to a major customer’s requirement. 80% of the interview
partners confirmed this reason for adapting the service portfolio. They further stated that
in most cases service portfolio changes are not the results of strategic company
decisions but the results of a development process in significant customer relationships.

Dynamics and change in customer relationships has been in the focus of management
literature with corresponding explanations for the developments in the area of logistics.
Reinartz and Kumar for example found in their studies (Reinartz and Kumar 2002,
pp. 86-94) that loyal customers are not necessarily those who generate profit. According
to the authors, the reason for a weak link between loyalty and profits has a lot to do with
the crudeness of the methods most companies use for the decision about whether or not
to maintain customer relationships. When profitability and loyalty are considered
simultaneously then different customers need to be treated in different ways. In
logistics, LSPs obviously apply different approaches to different customers, i.e.
potential Hidden Champions manage both profits and loyalty at the same time by
offering new and innovative higher margin offerings to important customers. Prahalad
and Ramaswamy (Prahalad and Ramaswamy 2000, pp. 79-87) dealt with the evolution
and transformation of customers in general. While from the 1970s until the 1990s
customers were a passive audience, since 2000 they have become active players, i.e. co-
creators of value. Making use of customer competence is also one success criterion in
logistics when approaching a higher margin service offering.
180 6 Š Empirical results

Interview partners’ further-stated reasons for revising the service portfolio are market
requirements (40% of the statements) as well as synergy effects (20% of the statements)
and cost advantages (also 20% of the statements). However, they are considered to be
less important.

The results from the five argumentation fields above shall be summarized here. First,
potential Hidden Champions are not mainly active in the high-margin advanced services
logistics business (Figure 56). Second, roughly one-quarter of the research cases LSP do
not provide strategic services at all. For approximately eighty-five percent of the LSPs,
operative services and basic value-added services amount to more than fifty percent
(Figure 57). Third, none of the potential Hidden Champions is able to provide a one-
stop-solution offer (Figure 58). Fourth, pure concentration on strategic services does not
lead to long-term business success and survival (Figure 59). Fifth, adaptations of the
service portfolio in the sense of progressing towards more advanced services are not to
the result of the threat of competitive LSPs. Potential Hidden Champions mainly revise
their service portfolio due to developments in customer relationships (Figure 60).

Thus, the in-depth studies establish that the one-stop-product or service portfolio is not
at the top of LSPs’ agendas. Therefore, potential Hidden Champions do not compete in
the high-margin advanced services logistics business. Even more, their product or
service portfolio is characterized by outstanding innovations, individualization and
continual improvements to meet customer needs. As a conclusion, the industry is not
merely characterized by competition between logistics incumbents and New Breeds of
providers, but by competition for meeting customers’ needs best.

In summary, the Cherry Picking Hypothesis is to be rejected. The competition

misperception can be explained by the:

4. Principle of Customer Favor Striving: Traditional and New Breeds of

providers do not merely initiate competition amongst providers. They
independently focus on meeting their customers’ needs in the best way possible.
6 Š Empirical results 181

6.1.2.2 The global standard misperception

The interview partners from the research cases LSP were asked to list their locations in
order to determine their geographic coverage without help from partners. Geographic
coverage was used for validation or refutation of the Global Standard Hypothesis in
Section 5.1.2.2. LSPs were supposed to include locations that they supply and that they
serve, with the prerequisite of at least fifty percent ownership. I defined geographic
coverage by the five types regional, national, continental, multi-continental and truly
global, with the term international applying to the last four stages. While global
operations are possible through partnerships and networks without personal assets, this
aspect is not considered here.

According to the interview partners’ statements, all LSPs are operating internationally
in the sense that they supply and serve over multiple continents. The locations stated
were assigned to the five continents Europe, Asia-Pacific, North-America, South-
America and Africa. None of the LSPs has ownership in locations on the sixth continent
Australia. Thus, none of the LSPs studied in-depth is truly global. On average, the LSPs
have their personal locations on 2.8 continents with 38.5% of the LSPs having their
personal locations on two continents, 46.1% on three continents and only 15.4% on four
continents. These figures, in particular the share of LSPs with locations on four
continents, again make clear that global coverage based on personal assets is low
(Figure 61).

On average LSPs have

15.4% personal locations
on 2.8 continents
38.5%
Personal locations on two continents

46.1% Personal location on three continents

Personal locations on four continents

Figure 61: LSPs’ global presence with personal locations by continent

182 6 Š Empirical results

All LSPs are based in Europe or have at least one personal location on this continent. A
strong presence can also be found in Asia-Pacific with 54% of the LSPs with their
personal locations. 38% of the research cases LSP are represented by their personal
locations in North-America, while only one LSP is located in South-America and Africa
(Figure 62).

100%

100%

54%
38%

8% 8%
Europe Asia- North- South- Africa
Pacific America America

Figure 62: LSPs’ representation with personal locations on continents

Above figure again confirms that SMEs in logistics are not truly global players if
measured in terms of locations on continents. This view was taken independently of
factors such as distance to home country or other specific difficulties and characteristics
of a continent. I verified the finding that SMEs are not truly global players by
researching the other 95 LSPs from the ‘Top 100+ Company List’. Potential Hidden
Champions’ strategies relating to geographic coverage is demonstrated by selected
examples in Table 32.
6 Š Empirical results 183

Example LSP / Logo Country Strategy Source

1 BLG Detthold Aden, CEO, stated in an interview N.A. 2008, p. 33.

Logistics that in contract logistics BLG Logistics Group
Group AG & followed customers from the automotive sector.
Co. KG Activities are also provided abroad in and near
customers’ plants in South Africa, Brazil, US,
Malaysia, Italy and Slovakia.
2 FM Logistic By taking over Premium Logistics (formerly Klingsieck 2006,
Giraud) in 1995, activities from France as well p. 12.
as Central Europe and Eastern Europe were
expanded to Southern European countries
(Portugal, Spain, Italy).
3 H. Essers & Essers’ network is considered as “almost Findeis 2007,
Zonen NV unlimited”. The LSP operates within the p. 13.
‘Eurologistics’ network with roughly 46
regional partners.

4 Transportes Azkar is a specialist for packaged goods N.A. 2007a;

Azkar S.A. transportation services all over Spain and Dachser (ed.)
international as well as contract logistics. The 2009.
LSP is market leader in the Iberian Peninsula
with a network of 85 subsidiaries for packaged
goods in Spain and Portugal. Azkar’s share of
turnover in Spain and Portugal amounts to
about 86%, equivalent to roughly 320 m. euros.
5 Gondrand Mr Weller from Gondrand stated that unlike Schmidt 2006,
Group LSEs in logistics, Gondrand is not able to p. 14.
create its own worldwide network. As a
medium-sized LSP, Gondrand has to export the
business with customers. For example,
Gondrand developed together with the
customer Deckel Maho Gildemeister (DMG) a
logistics concept in Shanghai.
Table 32: Potential Hidden Champions’ strategies in terms of geographic coverage

The examples in Table 32 show the following five strategies:

x If the logic is to meet customer needs, then customers also define global presence, or
not (Example 1).
x If global presence is required, LSPs bypass their restriction in meeting this need by
founding subsidiaries or acquiring small local LSPs in strategically important countries
(Example 2).
x Potential Hidden Champions are experts in creating networks with local market
leaders in a specific country or region and in entering cooperations with local partners,
correspondents and agents (Example 3).
x Moreover, for successful LSPs it is not global presence that defines company
excellence but an outstanding level of business services in a niche area and for a
specific region (Example 4).
184 6 Š Empirical results

x Additionally, LSPs extend their own geographic coverage in the event of expecting a
long-term, strategically important and financially sound business relationship
(Example 5).

In summary, the Global Standard Hypothesis is to be rejected. The global standard

misperception can be stated instead as follows:

5. Principle of Customer Proximity: LSPs do not target global standards in

service delivery. Single customer relationships define market coverage through
company locations or through complementary local partnerships.

6.1.2.3 The asset misperception

In Section 5.1.2.3 the Virtual Logistics Hypothesis was defined. It states that LSPs with
mainly intangible assets are more successful than asset-intensive LSPs. The reason is
that customers’ trust in the LSP to provide a one-stop-solution offer increases.
Consequently, research and analysis in this section concentrates on types of LSP assets.

First of all, I looked at logistics LSEs and their types of assets. Both non-asset-based as
well as asset-intensive LSPs are dominating the industry. Certain logistics experts
continue to consider that their key problem is how to fully occupy their large fleet while
also keeping pace with the development of global supply chains and the need to manage
them effectively. LSE in logistics like Kuehne + Nagel International AG, traditionally
non-asset-based, operates hardly any means of transport in order to avoid the pressure to
fully use and operate the capacity. Kuehne + Nagel International AG has a large
network that provides it with the flexibility to achieve maximum efficiency as required
by customers (Helmke 2001a, p. 5). In contrast, other large groups acquire most often
asset-intense logistics SMEs, for example the Danish DSV A/S acquired Koninklijke
Frans Maas Groep N.V., mainly in order to complete its own European network in road
transportation (N.A. 2006a, p. 1; N.A. 2006b, p. 2).

To answer the question of whether the situation is similar at potential Hidden

Champions, their state and ideal mix of tangible assets and intangible assets is examined
and presented (for results see Figure 63 and Figure 64). I asked my interview partners at
6 Š Empirical results 185

the LSPs to provide answers to the question of ownership and access to assets. Answers
were expected on assets in the areas of road, rail, sea as well as air transportation,
transshipment, warehousing, assembling and IT & technology. Interview partners
should either differentiate between ownership of assets (white), partial ownership of
assets with additionally access to third parties’ assets via contracts (marbled), access to
third parties’ assets via contracts only (light grey), out of business scope with third party
handling if required (dark grey) as well as out of business scope (black). For better
presentation and differentiation, credits were assigned to the answers with five credits
for ‘white’ replies, four credits for ‘marbled’ replies, three credits for ‘light grey’
replies, two credits for ‘dark grey’ replies as well as one credit for ‘black’ replies. The
sum of credits per LSP defined the arrangement in the sequence in the presentation.46

LSP
G F H M L D K A C E B J I
Service
Road

Rail

Sea

Air

Transship-
ment
Ware-
housing
Assembling

IT &
Technology
Total Credits 35 34 33 29 27 26 26 25 24 23 22 19 12

Asset state Asset-intensive Asset-indifferent Non-asset-based

Legend: Ownership of assets (five credits/service)

Partial ownership of assets, additionally access to third parties’assets via contracts (four credits/service)
Access to third parties’assets via contracts (three credits/service)
Out of business scope if required handling via third parties (two credits/service)
Out of business scope (one credit/service)

Figure 63: Ownership and access to assets by LSP

In the above figure, three states in assets were defined based on total credits. I call the
LSPs studied in-depth asset-intensive if total credits in my analysis are above 30. LSPs
are non-asset-based if total credits are below 20. For all other total credits, LSPs are

46
LSP D was placed before LSP K despite same total credits. The reason is that LSP D provided two
‘white’ replies, i.e. one reply more than LSP K relating to the highest category of ownership and business
scope in assets.
186 6 Š Empirical results

asset-indifferent. As a result, LSPs G, F and H are asset-intensive, LSPs I and J are non-
asset-based and all others are asset-indifferent. This finding is used in Chapter 7 when
screening for Hidden Champions by linking empirical research results with potential
Hidden Champions’ performance.

While Figure 63 is presenting ownership and access to assets by LSP, findings can also
be presented by service (Figure 64). In this figure, numbers refer to the sum of LSPs
with their own assets (white), with partial ownership and additional access to third
parties’ assets via contracts (marbled), with access to third parties’ access via contracts
only (light grey), with service out of business scope but access to third parties if
required (dark grey) as well as with service out of business scope at all (black). Again, I
assigned between one and five credits to the answers. For example, the total credit in
warehousing is calculated by (4 x 5 + 6 x 4 +1 x 3 + 2 x 1) resulting in 49 total credits.
Calculation is applied similarly for the other services. The sum of credits per service
defined the arrangement in the sequence in the figure.

Total
Service Number of in-depth studied LSPs
Credits

IT & Technology 13 65

Warehousing 4 6 1 2 49

Road 3 6 2 2 47

Assembling 6 1 6 39

Transshipment 3 2 3 5 38

Sea 1 3 2 3 4 33

Rail 4 1 3 5 30

Air 3 2 3 5 29

Legend: Ownership of assets (five credits/service)

Partial ownership of assets, additionally access to third parties’ assets via contracts (four credits/service)
Access to third parties’ assets via contracts (three credits/service)
Out of business scope if required handling via third parties (two credits/service)
Out of business scope (one credit/service)

Figure 64: Ownership and access to assets by service

The main finding from Figure 64 is that there are three services for which more than
fifty percent of all representatively studied LSPs regard full or at least partial ownership
6 Š Empirical results 187

of assets as important. These are IT & technology (100% of the LSPs), warehousing
(77% of the LSPs)47 as well as road transportation (69% of the LSPs).48 Obviously
potential Hidden Champions’ asset ownership has its main focus on the traditional
operative logistical services but in addition, almost half of the LSPs possess assets for
providing assembling, i.e. advanced services. Thus, LSPs also concentrate on services
from which higher margins are expected. While ownership in IT and technology is
considered self-evident, LSPs are open for investments required for advanced services.
According to the six LSPs that own assembling appliances, these assets were usually
installed due to individual needs of customers.

Concerning the other four services, transshipment as well as transportation by other

modes, i.e. by sea, rail and air, less importance is prevailing at the LSPs. These services
are out of business scope for more than fifty percent of the LSPs, or they provide these
services only by handling via third parties if required. Transshipment as well as
transportation by rail and air is out of business scope at five LSPs and four LSPs do not
provide transportation services by sea. Each of these three transport modes and
transshipment is offered by three other LSPs only through outsourcing to third parties.
However, contracts do not exist for access to third parties’ assets as is the situation with
two other LSPs for transshipment as well as transportation by sea and air and with one
further LSP for rail transportation services.

Summarizing the state in ownership and access to assets by LSPs, two points have to be
mentioned. First, as established by the selection process for the research cases LSP,
those studied meet the criteria for potential Hidden Champions at first glance. The first
view on ownership and access to assets does not clearly show whether Hidden
Champions are asset-based, asset-indifferent or non-asset-based providers (Figure 63).
Second, potential Hidden Champions asset ownership relating to traditional operative
logistical services is significant. The reason might be that Hidden Champions have been
in business for decades and thus this state in asset ownership has its origins in tradition.
However, the studied LSPs are also open for investments to provide high-margin

47
31% of the research cases LSP provide warehousing with their own assets only and 46% make use
of third parties’ assets in addition to their own warehousing spaces.
48
23% of the research cases LSP operate with their own vehicles only and 46% access third parties’
assets for road transportation if capacity is required.
188 6 Š Empirical results

services, in particular assembling, in order to meet customer requirements (Figure 64).

The studied LSPs stressed their openness to invest in tangible assets necessary for
advanced service offerings as well as to invest in intangible assets.

This stated readiness to invest in intangible assets caused me to question leadership and
human resource issues. I expected answers to the questions whether successful LSPs
need a very open and progressive leadership style and what top managements’ behavior
and attitude relating to their staff is. The replies should give an insight into whether an
LSP’s people are the key asset and thus a prerequisite for managing the development
from a traditional asset-intensive LSP towards an LSP providing advanced services and
operating a more intangible assets-based business. The interview partners were asked to
provide their views on leadership and human resources issues.

According to interview partners’ replies relating to leadership, top managers have tight
roots to the company either by being the founders or their successors. Decision
processes are centralized and shaped by the owning family with fast decision making
pace. Leadership positions are stable and only a small share of total employees is in
management positions (for example, at LSP G five percent of total staff at the
maximum).

Top managers can be characterized as leaders and integrators who define the culture and
shape the company. Their characteristics are impatience, entrepreneurial behavior,
energetic and emotional acting going along with future-oriented thinking (in particular
applicable to LSP M). Their leadership style is described as being cooperative, team-
oriented, fast and straight while being open-minded and giving staff the freedom to
make decisions within their fields of responsibility. There is a closeness of the CEO and
of the top managers to their staff, creating a family flair and engendering high loyalty.
The spirit of the leadership is omnipresent in the LSPs studied.

However, it is the strong concentration on one or a few very strong personalities at the
top which decides business success or failure. More successful LSPs make
arrangements for management succession far ahead. Top management change, e.g.
appointing young family members or managers from outside the family, is often
connected with successful turnaround from a capital-intensive LSP towards an
6 Š Empirical results 189

employee-intensive LSP. Acquisitions for advancing into a more value-added logistics

business often result in managers of the acquired company being at the top of the
combined LSP even years later (for example at LSP M).

After interviewing about leadership, I targeted staff issues at the representatively studied
LSPs to answer the question whether people are the key asset or not. Interview partners’
openness and demonstrated willingness to provide insights on selected human resources
issues is shown in Figure 65. Roughly half of the interview partners is reserved in terms
of information, either to keep information secret or due to a low attribute of importance.
Thus, subsequent accomplishments refer to replies from seven LSPs.

LSP
A D B F I M J C E G H K L
HR Issue
Recruiting

Training

Incentives

Employee
Suggestions
Total 4 4 2 2 2 2 1 0 0 0 0 0 0
Insights

Legend: Insights on human resources issue provided.

No insights on human resources issue provided.

Figure 65: Openness in providing insights on human resources issues

All seven LSPs have several processes in place regarding recruiting, training, incentives
and employee suggestions:

x Recruiting: While there are hardly any personnel changes at the top management,
vacant positions at the other organizational levels are preferably filled from internally.
The reason is that the company culture is secured if the proportion of external new hires
is kept at a minimum. For example, LSP D even has its own temporary work company
that staffs positions and projects with internal personnel.
x Training: Unlike LSEs in logistics, potential Hidden Champions train their staff for
being a generalist instead of a specialist, most often through employee development
programs in an internal academy (for example at LSP D).
x Incentives: Roughly 31% of the representatively studied LSPs provided an answer on
their internal incentive behavior. LSPs A and D give a qualification based pay which is
190 6 Š Empirical results

variable and oriented on performance. In addition, LSP D grants monetary rewards for
improvement suggestions and a bonus for not being sick. As further examples, LSP B
shares the profit with employees and LSP M’s incentives are connected to submitted
ideas.
x Employee suggestions: Only about 31% of the LSPs were open to discuss their
attitude and behavior relating to the human resource issue. Most interesting is that
LSP D even created a special program which is mainly applied for suggestions relating
to processes, savings and pricing arrangements. Based on this program, employees are
granted monetary rewards.

A short conclusion is given below based on the gathered insights on leadership and
staff:

Leadership: Top management is closely interlocked with company ownership. In fact,

the spirit of the leadership is omnipresent. The cause of successful transformation from
a traditional asset-intensive LSP towards an LSP providing advanced services and
operating a business with more intangible assets is often linked with management
change.

Staff: Interview partners were either open or reserved in providing insights on human
resources issues. Those LSPs who replied have several processes in place regarding
recruiting, training, incentives as well as employee suggestions. All interview partners
emphasized that employees are the key asset for successful business transformation.

In addition, the interview partner stressed that top management expects full
commitment of the staff to the employer. More than two-thirds of the potential Hidden
Champions, i.e. roughly 69%, have received a unique or regular award confirming
company excellence or excellence in certain areas. Such awards are considered to be the
employees’ achievement. The other approximately 31% of LSPs have not received an
award so far, but this partly influenced by the popularity of awarding in the country of
the LSP’s headquarters. For example, in Northern European countries awarding is less
popular. Figure 66 shows the categories in which potential Hidden Champions received
their awards, the number of LSPs that have been awarded in the respective category and
their share from total research cases LSP.
6 Š Empirical results 191

Award category Number of LSPs and share from total LSPs studied

High quality customer solutions 7 54%

Partnership 4 31%

Strong and dynamic growth 2 15%

Top provider 2 15%

Network modelling 2 15%

Technological excellence 2 15%

Environmental contributions 1 8%

Innovations 1 8%

Figure 66: Awards

Most interestingly, potential Hidden Champions generate public attention by excellent,

i.e. high quality, customer solutions with more than 50% of the LSPs being granted an
award in this category. Just to give an example relating to the above figure, LSP D has
received numerous awards so far. Besides awards for high quality customer solutions,
LSP D has been granted the award in the category of innovations. At a European
university research is done on innovation management at medium-sized companies. The
Professor who heads this research identified LSP D’s holistic approach for logistics
solutions as preeminent and innovative. LSP D is excellent in the sense that the
company provides logistics services along the total supply chain. The potential Hidden
Champion managed to reorganize procurement, warehousing and delivery processes for
the medical technique division of a global electronics producer. This management
service by the LSP contributed to productivity increases worth millions of euros.

Finally, human resources are the intangible assets that shape customer capital,
innovation capital and process capital.

In terms of customer capital, the key finding is that potential Hidden Champions have
very tight relations with very few customers which last long-term. At least 50% of the
LSPs focus on a business relationships with one or a few major customers. Two-thirds
of the LSPs collaborate long-term with their customers.

Regarding innovations, the interview partners mentioned eight process innovations,

eight innovative individualized customer approaches, five innovative solutions and
three technology innovations (Figure 67).
192 6 Š Empirical results

Number of innovations from the

Type of innovation thirteen in-depth studied LSPs

Process 8
Individualized customer approach 8
Solution 5
Technology 3

Figure 67: Innovations as capital

For findings relating to process capital, LSPs’ employee productivity was the focus of
the research. This indicator is important as employees are logistics process managers.
For this reason, employee productivity was calculated (Figure 68).

EUR
300,000

250,000

200,000
Legend:
1 Category “provider-provider
150,000 entity” does not allow comparisons.
3
2 No turnover figure available.
100,000 3 Figures from turnover and number
of employees from different years.
50,000

A B C D E F G H I J 1 K2 L M LSP

Figure 68: Employee productivity

Out of eleven LSPs’ figures received, four LSPs’ employee productivity is at least
200,000 euros (LSPs A, F, G and L) and only at LSP C it is below 100,000 euros.

For making the final conclusion on findings regarding the Virtual Logistics Hypothesis
customers’ perspectives on LSP asset ownership and treatment have to be
supplemented. Table 33 provides some examples that representatively demonstrate the
prevailing indifference of customers’ views. Nevertheless, one of the key messages of
the interview partners at customer companies is that they trust potential Hidden
Champions due to their experience in the asset-intensive business. They value their in-
depth know-how gained over many decades that enables them to provide highly
innovative and individualized services. Customers are also convinced that LSPs’
employees are highly skilled in planning, organizing, coordinating and managing tasks.
6 Š Empirical results 193

Requirement of asset Assumption of preferential Source

ownership treatment of own assets
No Yes No Yes
x Interview at Customer I
x Interview at Customer II
x Interview at Customer V
x Interview at Customer IX
x Interview at Customer XII
Table 33: Customers’ views on LSPs’ asset ownership and treatment

Finally, all findings from this section are summarized:

For historical reasons, potential Hidden Champions still have a large ownership in
assets to provide traditional services. However, there is a clear tendency towards more
investments in tangible assets for providing more advanced services and in intangible
assets that supplement the traditional business with planning, organization and
management tasks. This trend is even intensified at LSPs with an entrepreneurial leader
or through management change.

Potential Hidden Champions regard their employees as key assets for business success.
They treat their employees as people in a friendly social environment. Thus the basis for
employee intensive business solutions and individualized customer innovations is
created.

Customers are indifferent in asset ownership of their LSPs. On the one hand, credibility
relating to experience in implementing operative services requires personal resources.
On the other hand, impartiality is impeached. Customers might fear that LSPs use their
own assets to occupy capacity in full instead of more suitable assets from a partner.
Hidden Champions solve this dilemma by offering one or very few single services with
their own resources at most favorable conditions. No other services are part of the core
competence and therefore part of their planning, organization and managing tasks with
implementation by third parties.

In summary, the Virtual Logistics Hypothesis has to be confirmed in part for the reason
that potential Hidden Champions demonstrate the tendency towards investments in
intangible assets for advanced logistical solution offerings. But the asset misperception
is currently still valid due to LSPs’ very strong ownership in assets for traditional
194 6 Š Empirical results

service provision. However, the state of asset ownership at potential Hidden Champion
is characterized by the following principle:

6. Principle of Entrepreneurship: Potential Hidden Champions’ leaders are

entrepreneurs who force innovative, more advanced solutions. In doing so, they
manage to transform the asset portfolio barely unnoticeably. As a result, their
business tends to be intangible assets based relating to low margin services. Also,
they are open to invest in tangible assets to offer high-margin services, which are
often innovative new solutions designed for specific customer needs. The key
asset for this development is the staff, which is brought up to follow the spirit of
the leadership.

6.1.2.4 The prevalence of complex internal settings misperception

The Complexity Hypothesis was formulated in association with the business model
component Organization. According to this hypothesis, SMEs in logistics struggle in
organizational adaptations to market needs for the reason that they lack the resilience
required for responding flexibly to demands.

Ten interview partners from the LSPs shared information about their LSP’s
organizational form (Figure 69). Half of those LSPs is organized functionally (38.4%
from the total number of LSPs), i.e. according to their supply chain functions, such as
finance, logistics or IT. 23.1% of LSPs are organized by divisions, i.e. by their service
groups, and 15.4% of LSP organizational forms are the matrix.

LSP A B F J K I L M D H C E G
Org.-form
Functional
23.1%
38.4%
Divisional
15.4%
Matrix 23.1%

N.A.

Figure 69: LSPs’ organizational forms

Regarding Organization, the interview partners from the ten LSPs stated two further
issues. First, potential Hidden Champions prefer a flat organization with only a few
6 Š Empirical results 195

management positions, which allows direct communication and quick decision making.
Second, within the development process from a traditional LSP towards a more
advanced LSP, organizations are restructured but struggle with the new matrix
organization and decentralization. The renunciation of the simple, flat organization as a
consequence is considered as losing a competitive advantage and is not viewed as a
long-term solution.

Potential Hidden Champions’ number of subsidiaries is captured next. It varies from a

total of 59 to no subsidiaries. Overall the LSPs’ number of subsidiaries is easily
comprehensible. Four LSPs (H, F, I and E) have more than 20 subsidiaries (dark grey
fields in Table 34). LSPs G, J and K do not have any subsidiaries (white fields in Table
34). All other LSPs’ number of subsidiaries is one-digit (light grey fields in Table 34).

LSP H F I E A C D M L B G J K
Number 59 33 24 21 9 6 5 4 2 1 0 0 0

Table 34: Number of LSPs’ subsidiaries

In summary, based on interview partners’ statements the Complexity Hypothesis is to

be confirmed in part as potential Hidden Champions struggle with organizational
adaptations. Complex organizational structures are temporary states, if at all. The
hypothesis is to be rejected partially as potential Hidden Champions regard their flat and
simple organizational form as a competitive advantage. The reasons are that decision
processes are less complex and customers have direct access to their LSP at every
company level which makes the LSPs’ relationships to customers special, open and fair.
Thus, the prevalence of complex internal settings misperception can be explained by
the:

7. Principle of Simple and Fast Decision Making: Potential Hidden Champions’

organizational structure is kept as simple as possible. Their flat hierarchy
simplifies and speeds up decision making.
196 6 Š Empirical results

6.1.2.5 The reservation expectation misperception

On basis of the business model component Communication, the Information Processing

Hypothesis was formulated. It states that SMEs in logistics are reserved in
communication of company data. With the majority of logistical SMEs not being listed
on the stock market, publication of data is restricted to minimum requirements only.

From the analysis of the more than one hundred LSPs (‘Top 100+ Company List’), it
turned out that these LSPs have excellent methods of communicating and collaborating
with customers, partners and employees. Like LSEs in logistics, they have excellent IT
systems and strong information exchange platforms. In addition, they outperform in
‘soft factors’, as in creating closeness or trust, e.g. with ‘open book’ policies prevailing,
meaning that customers see their third party LSP’s costs and pay those as contracted
with the third party LSP collecting a management fee.49 The examples of information
exchange policies of the LSPs studied in-depth in Table 35 provide representative
insights relating to communication and collaboration. The statements from the LSPs can
be assigned to three groups, which are simple and open communication processes (light
grey lines), transparency through IT connectivity (medium grey lines) and special
communication states (dark grey lines).

49
In contrast, a ‘closed book’ is spoken of when a fixed-price contract was signed where the
customer does not see the third party LSP’s costs. Fixed price often varies by volume (Ton and
Wheelwright 2005, p. 21).
6 Š Empirical results 197

LSP Statement(s) on information exchange policy Source

D For the sake of customers, partners and employees, communication Interview with LSP D’s
processes are characterized by simplicity and without complexity at all Director of Sales and
company levels. Marketing.
E Fast, straight and open communication and leadership style. Interview with LSP E’s
Head Sales Contract
Logistics.
G Conviction that results are already improved through better Interview with LSP G’s
communication (which is applicable to the post-merger period in Head of Sales and
particular). Marketing.
H Interaction is characterized by individual responsibility, an open Interview with LSP H’s
dialogue and confidence in the competence of the other party; conflicts Head of Service Center
are brought out into the open. Logistics; company
brochure.
I Pursuing lifetime partnerships with customers by joint development of LSP I’s Annual Report
service processes and support services. 2004.
L Company’s competitive advantages are simplicity in doing business and Interview with LSP L’s
in getting hold of the LSP, quick response to customer requests and Managing Director.
dealing on an electronic basis; assignment of dedicated contact persons
to each customer.
M Positioning as single point of contact for customers, i.e. customers’ Interview with LSP
contact person for all issues emerging. M’s Managing Director
and Management
Trainee.
B Self-developed IT systems and Transport Management System (TMS) Interview with LSP B’s
connect all CEP providers, thus partner-comprehensive and on-time Head of Marketing.
communication; customer care 24 hours/7 days per week;
communication, information and service system grants access to all
available sales figures at any time.
F “We literally create the platform for an exchange in which there is LSP F’s company
mutual understanding.”; standard Warehouse Management System brochure; interview
(WMS) developed internally for customers in order to steer the data with LSP F’s Managing
exchange centralized between customer and LSP. Director Logistics
Services.
J Online documentation of consignment tracking. LSP J’s company
presentation.
A In 2003 the leadership decided to document its strategy, which resulted LSP A’s strategy paper.
in the publication of an annual strategy paper; this paper is
communicated to customers, partners and employees to inform about the
group’s path being pursued.
C Working in close partnership with all customers, meaning to create one LSP C’s company
powerful team for supply chain transformation. brochure; company
values.
K LSP personnel are staffed onsite at the customer to facilitate speed of LSP K’s webpage.
implementation and project deliverables.
Legend: Statements emphasizing simple and open communication processes.
Statements emphasizing transparency through IT connectivity.
Statements emphasizing special communication states.

Table 35: Information exchange policies with detailed examples from research cases LSP

The above examples are summarized in Table 36. It shows that more than 50% of LSPs’
information exchange policies are characterized by simple and open communication
processes. Three LSPs emphasize transparency through IT connectivity. LSP A is
unique in that the provider explicitly publishes a strategy paper for stakeholders. LSP C
198 6 Š Empirical results

forces joint provider-customer teams and LSP K even serves from the customer’s
location.

Information LSP D E G H I L M B F J A C K
Exchange Policy
Simple and open
communication processes
Transparency through IT
connectivity
Strategy paper for stakeholders

Joint LSP-customer team

Joint location

Note: The light grey, medium grey and dark grey colors refer to the colors and lines in Table 35.

Table 36: Overview of research cases LSPs’ information exchange policies

The interview partners described contacts to customers and partners as being close and
very personal. This is in accordance with SMEs’ ‘shirt-sleeved’ way of doing business.
Open dialogue at any time and on every company level reinforces confidence in the
other party. Feedback meetings take place regularly with conflicts being brought into
the open. This applies to all LSPs studied in-depth except for LSP K. For example,
while LSP C builds a common team of its own staff and employees from the customer
to ensure a best-in-class communication, LSP K states, that communication is restricted
to necessary integration even though having a joint location. Overall, communication is
the key means for creating trust as the basis for successful long-term business
relationships. It gives the impression that a re-integration of services into the customers’
organization is easily possible at any stage and reduces customers’ fears.

In summary, the Information Processing Hypothesis is to be rejected. The reservation

expectation misperception can be explained by the:

8. Principle of Open Communication and Collaboration: Open communication

and collaboration, for example through ECR, create trust and lead to successful
long-term business relationships. The tautology of ‘open relationships’, i.e.
transparency, as well as ‘joint communication’, describes the cause for trust as
the result.
6 Š Empirical results 199

6.1.2.6 The partner relationship misperception

By definition of the business model as research framework, the component

Relationships was outlined as companies’ systems, relationships and networks to
customers and partners. The related Complementarity and Reliability Hypothesis refers
to strong networks of LSPs which are mutually beneficial and characterized by reliable
collaboration.

For the examination of this hypothesis I asked my interview partners from the LSPs to
provide insights into relationships and cooperation behavior. Figure 70 and Figure 71
present the most important answers. These answers do not lay any claim to
completeness of possible statements concerning cooperation. Almost 80% of the LSPs
collaborate with partners to close internal resources gaps and thus be able to fulfill
customer needs. Close to half of the LSPs have access to a network, while one LSP is
even organized as a network. Network partners are either required to provide services in
addition (for volume) or to provide additional types of services (for service scope). For
example, if an LSP that offers warehousing services needs more space, it may store
goods in a partner’s warehouse (volume). If an LSP with core competences in
transportation needs IT solutions for its offer to its customer, it may collaborate with a
provider focusing on IT offerings (service scope). Roughly 30% of the LSPs prefer to
make their own investments and acquisitions in the case of service requirements. Three-
quarters of the LSPs that shared this view are operating with partners, although LSP C
does not rely on partners or networks at all. LSP K is also restrained in partnering and
networking.

Interview partners shared further information about their cooperation behavior. LSP F,
for example, acquired former partners when realizing that advantages through
ownership outweighed those through partnerships. LSP K’s partnering and networking
is directed by customer requirements. LSP A is convinced that cooperations are subject
to failure if undertaken for new market entry. From all interviews, the contact persons
from LSPs A and F most emphasized the issue of cooperation behavior. They consider
partnerships to be important to some extent and for a certain timeframe but
simultaneously indicate that ownership in resources is their long-term strategy.
200 6 Š Empirical results

Coopera- LSP A B C D E F G H I J K L M ™
tion behavior
Partners 10 77%

Network * 6 46%

Preference on own invest- 4 31%

ments and acquisitions
Acquisition of former 1 8%
partners
Customers direct 1 8%
partnering and networking
Cooperations for market 1 8%
entry are subject to failure

Legend: Statements/experience made.

Not stated/not applicable.
LSPs most emphasizing cooperation behavior.
LSPs restrained in partnering and networking.
* Organization as network .

Figure 70: Research cases LSP’s behavior in terms of cooperation with partners (by LSP)

Statements/ Not stated/

experience made not applicable

Partners 77% 23%

Network 46% 54%

Preference on own investments

and acquisitions 31% 69%

Acquisition of former partners 8% 92%

Customers direct partnering

8% 92%
and networking

Cooperations for market entry

8% 92%
are subject to failure

Figure 71: Research cases LSP’s behavior in terms of cooperation with partners (by statement)

In fact, two opponent positions at the LSPs became obvious. With the customers’
business becoming global, it has proven to the majority of the potential Hidden
Champions that partnerships or networks are the most competitive advantage. However,
with some of the LSPs having had negative experiences with their partners, the view
was reversed. The interview partner from LSP A even stated that roughly one-quarter of
orders are not fulfilled in a satisfying manner by its partners. Their partners deliver
services either too late or in poor quality, e.g. by causing transport damages.
Consequently, some of the activities are covered via additional investments. The quality
of partners defines the sustainability of partnerships. While some of the LSPs have
managed to build a network of excellent partners, other have not. Finally, the need for
6 Š Empirical results 201

capacity decides about investments or networking. Substantial business volume

constitutes investments or acquisitions for reducing the risk of partners’ cancellation of
the relationships. In this context, previous partners are also subject to being taken over.
Three further examples prove these developments identified at the LSPs studied in-
depth (Table 37).

LSP Views and behavior on relationships and networks with partners Source

GEFCO Only those providers can be truly successful that work out a direct Lauenroth, L.
Deutschland network access. However, SMEs in logistics can not afford the costs for 2006a, p. 1.
GmbH establishing a European network of at least 1.5 bn EUR. In these cases
the solution is forming cooperations and alliances with other providers.50
Müller – Die For Müller, Poland should become a starting platform for new business in N.A. 2007b,
lila Logistik all of Eastern Europe. However, the LSP did not rely on cooperations or p. 3.
AG alliances but made strong investments. In 2007 three million EUR were
invested in the logistics service center in Gliwice and in several project
starts of the Polish subsidiary.
Geis Group The German Geis Group took over Bischoff Spedition. Prior to the Lauenroth, L.
acquisition, both LSPs were partners within the packaged goods 2006b, p. 1.
cooperation IDS Logistik.
Table 37: Views and behavior in the industry on relationships and networks with partners

In summary, the Complementarity and Reliability Hypothesis is valid in part only.

Partner relationship misperception can be explained by the:

9. Principle of Strategic Self-Sufficiency: Although having a strong network of

partners, LSPs value being self-sufficient. Potential Hidden Champions are able
and willing to make their own strategic investments in order to remain
autonomous. This ensures reliable and outstanding service provision for
customers at all times.

6.1.2.7 Formality as a norm

Relating to the business model component Exchange Mechanism, the Rules Hypothesis
was formulated. It states that a value network of customers and partners is characterized
by clear formal agreements. Also, systems interfaces ensure transparency, which is
required for mutual trust (Section 5.1.2.7).

50
Reproduced and translated statement from Oliver Gross, CEO, GEFCO Deutschland GmbH.
202 6 Š Empirical results

The issue of Exchange Mechanism was covered in a minor section in the LSPs’
questionnaire and in the interviews at the LSPs. Here, the interview partners were asked
to give some statements on visibility into process steps relating to service/operations,
customer, partner, technology, knowledge and capital management. Only a few
statements were made as several comments from previous sections also apply (in
particular from Section 5.1.2.5 on the Information Processing Hypothesis and from
Section 6.1.2.5 in which the Principle of Open Communication and Collaboration was
presented).

Accordingly, this section adds only a few more insights, in particular on Exchange
Mechanisms with customers. Overall, the research cases LSP fix clear agreements in
contracts with customers about achieving cost savings, administration fee payments or
profit sharing. Despite these clear contractual settings, fears remain among the
customers regarding becoming transparent, losing control and handing over core
competences. However, potential Hidden Champions have recognized that trust is a
fundamental factor for collaboration which is not only simply created by defining rules
and norms. Even more, the studied LSPs create a cooperative atmosphere with LSP and
customer having matching goals. In this sense, connectivity and visibility through
information technology is important. For example, LSPs apply ‘open book’ procedures
or create visibility across the supply chain. In Table 38 some further examples show this
finding.
6 Š Empirical results 203

Origin of example Statement on Exchange Mechanism Source

Long-term survey of The key for success in logistics management is integrated Neumann and
McKinsey & utilization of IT. Delfmann et al.
Company and SPL 2000, p. 68.
Outsourcing of Polished IT and a trustworthy partner are keys for success in N.A. 2003c,
procurement by outsourcing. For both Schiesser and its LSP, Gebrüder Weiss p. 16, p. 18.
Schiesser, one of the Group, all processes are transparent and chronologically
leading German represented. Both the LSP and the customer have the possibility to
underwear see the current status of orders.
manufacturers
Interview with We fixed clear agreements in contracts relating to quality and Interview with
representative from service delivery. If our LSP’s (LSP H) service delivery is poor, the Customer
Customer XIII LSP is subjected to indemnity. This is the case for example if XIII’s
warehouse space is not available for a specifically defined time. But representative.
whilst clearly fixed rules are the basis, the strength of our LSP is its
way of fair collaboration.51
Table 38: IT and contractual settings as norm in collaboration (examples)

In summary, the Rules Hypothesis is to be confirmed. This can be explained by the:

10. Principle of Mutual Trust: The formal process of defining rules and norms is
the basis for trust. Moreover, potential Hidden Champions create a social
atmosphere of joint partners with common targets.

6.1.3 Misperceptions on Financials

6.1.3.1 The market leadership misperception

The Significant Turnover Hypothesis was formulated with reference to the business
model component Performance Measurements. Here, findings on the relationship
between market leadership and significant turnover in the logistics industry are
presented.

As stated in Section 5.1.3.1, the survey on the ‘Top 100’ in logistics, which is revised
and updated every few years (see for example, Klaus and Kille 2006), ranks LSPs
according to turnover figures. This key publication about the European logistics
industry was used to check the positions of the research cases LSP in detail. The result
is that if listed at all, the positions of these LSPs are insignificant. Only two LSPs are
within the top ten in their home country and only three LSPs are within the top hundred

51
Statement reproduced and translated from German.
204 6 Š Empirical results

in Europe. The modest weightiness of the logistical SMEs studied in this dissertation
can be explained by two factors. First, LSPs studied in-depth do not focus on high
volume business connected with achieving high turnover.52 Second, their core business
is so specific that a comparison is infeasible. For example, LSP A is one of the market
leaders in Europe in its specific sector and LSP B is also a European market leader in
one specific sector. LSP D even created a new market for LSPs with an outstanding
business solution. Restricted to its home country, LSP G is a major ocean freight
forwarder while its market share in total logistics is below five percent in the country.
LSP H is a European market leader in container local traffic and LSP I is the number
four globally in its specific solutions offered. LSP K is intensively connected and
committed with all its resources to one global customer, i.e. LSP K is the customer’s
integrator.

With their niche strategy, most of the LSPs were able to continuously increase turnover
figures, as Figure 72 shows. Market leaders in specific niche areas increase their
turnover in the course of time by growing with their customers, as in the case of host of
the studied providers (LSPs A, B, C, D, G, H, and M). For others turnover decreased
and increased again (LSPs E and F, with LSP E’s decrease being caused by losing one
customer with a high share on turnover). Only LSP I’s turnover decreased during the
past three years.53

52
This can be explained by limited turnover as criterion for a Hidden Champion in particular.
53
Turnover figures for LSP J, K and L are not available or the figure is not applicable in the case of
the provider-provider entity.
6 Š Empirical results 205

¨ Turnover 60
Growth Over
Previous Year 50
(in %) Legend:
40 Group I = LSP A
30 = LSP B
= LSP C
20 = LSP D
Ø13.1% = LSP E
(2004)
10 = LSP F
= LSP G
0 = LSP H
2000 2001 2002 2003 2004 2005 2006 = LSP I
Year
-10 Group II
= LSP M

-20
[Turnover figures for LSP J, K and L are not available or the figure is not applicable in the case of the
provider-provider entity.]

Figure 72: Turnover development of research cases LSP

(Figures from companies’ publications and questionnaires)

In the above figure, two groups of LSPs can be identified for further differentiation. I
marked them symbolically but not exactly with the two black eclipses. For assignment
to group, the most recent growth rate was decisive. Thus, Group I contains those LSPs
that managed to achieve turnover growth beyond the 2004 average of 13.1%. The
respective LSPs are D, E, G, H, and M. In Group II LSPs A, B, C, F, and I are
summarized. Their turnover growth was below the 2004 average.

Obviously, potential Hidden Champions are leaders relative to their strongest

competitors in their targeted niche areas but they are not market leaders in respect to
high volume business in the logistics industry as a whole. In fact, potential Hidden
Champions play an active role in defining the rules in logistical niche areas. They offer
cost-effective and efficient solutions which they adapt flexibly to customer needs. Thus,
their positive development of turnover is derived by intensifying existing customer
relationships and not by broadening their customer base.

In summary, the Significant Turnover Hypothesis is to be rejected. The market

leadership misperception can be explained by the:
206 6 Š Empirical results

11. Principle of Niche Sovereignty: Potential Hidden Champions remain hidden

in terms of market leadership. In fact, they are not characterized by market
leadership but by segment leadership, i.e. by niche sovereignty. They are either
European market leaders in a specific sector, European market leaders in their
newly created industry segment by innovations, market leaders in providing a
specific mode of transportation, market leaders in providing a specific solution or
leaders in outperforming all competitors in all requests for proposals of one
customer.

6.1.3.2 The willingness to take risks misperception

The final micro hypothesis, the Risk Aversion Hypothesis, refers to the business model
component Rewards. It states that logistical SMEs struggle to earn high margins as they
are more risk averse than LSEs. Finally, in this section some insights are given on the
business results.

The logistics industry in general and privately owned logistical SMEs in particular are
very reserved in terms of publishing financial data. Accordingly, six of the thirteen
LSPs studied in-depth were not disposed to provide information about business results.
The other seven LSPs are profitable. Four of them, however, reported declining profits
in recent years (LSPs C, E, I and K). The remaining LSPs B, G and L did not indicate
that they are struggling, for example due to increasing pressures from environmental
conditions in the industry (Section 2.2.2). The LSPs’ publication behavior and
information on business result are shown in Figure 73 and Table 39.
6 Š Empirical results 207

13

Total number Number of Number of LSPs without LSPs with

of in-depth LSPs hiding LSPs with indication of declining profits
studied LSPs results positive results declining profits in recent years

Figure 73: Publication behavior of research cases LSP in terms of business result

State of Rewards LSP A D F H J M B G L C E I K

No insights on business results

Positive results/profits in recent years

No indication of declining profits in recent years

Indication of declining profits in recent years

Table 39: Information about business results by research cases LSP

The limited information about potential Hidden Champions’ “premium for the risk of
uncertainty” as designated by Drucker (Section 5.1.3.2) does not allow an ultimate
conclusion. Based on preceding findings and experience from visiting the LSPs and
conducting interviews, it can be concluded that LSPs with individualized and
outstanding service offerings are profitable and do not struggle to survive. The reason is
that potential Hidden Champions are not risk averse because they are open to offer
specialized and new services that require risky investments. Representatively, Table 40
presents three examples of LSPs that heavily invested in assets in order to offer
individualized solutions to selected customers. In addition, established long-lasting
customer relationships reduce LSPs’ risks and secure positive business results over
time.
208 6 Š Empirical results

Example LSP / Logo Country Risk-taking through investment Source

1 Quehenberger With Logotec, Quehenberger has a value- N.A. 2006c,

Logistik AG adding logistics solution offering for the pp. 42-43.
entire supply chain of high-tech companies.
For example, Quehenberger is the LSP for
Xerox. Investments in cranes or special
lifting devices, such as stair climbing trucks
for delivering and preparation of equipment
for use, were required. Services provided
include unpacking, placing, installing,
training as well as removing old equipment
and packaging material.
2 Reichhart Reichhart invested in its own logistics Reimann, S.
Logistik center (80 employees, 180,000 storage 2006, p. 7.
Group places, roughly 100,000 different articles in
stock) for the LSP’s largest customer,
Stahlgruber, a motor vehicle parts
wholesaler. Besides commission, Reichhart
provides all distribution services, not only
to Stahlgruber’s locations but also directly
to customers, with its own vehicles.
3 Rieck Investments in new locations with a focus N.A. 2006d,
Holding on air freight (near the airports of p. 13.
GmbH & Co. Frankfurt/Main and Berlin Tegel). The
KG reason for these investments is that frequent
customers increasingly operate
internationally and Rieck was afraid of
losing these customers to LSEs that are able
to provide global logistics services.
Table 40: LSPs’ risk-taking through investments for individualized and outstanding service offerings

In summary, the Risk Aversion Hypothesis is to be rejected. The willingness to take

risks misperception can be explained by the:

12. Principle of Customer Granularity: Customer granularity refers to focusing

on one or a few established customer relationships in one or several sectors. This
strong key customer focus is risky for potential Hidden Champions. In order to
fulfill key customers’ needs, investments for individualized operations are made.
However, it is exactly this approach which generates turnover and thus profits.

6.2 Summary of the micro analysis

The common view in the area of logistics does not apply to SMEs and in particular not
to potential Hidden Champions. The results of the empirical study reject six of the
formulated micro hypotheses in full, a further six micro hypotheses in part and confirm
only one micro hypothesis. Logistical SMEs’ and potential Hidden Champions’
business models are designed according to specific business principles. Before making
6 Š Empirical results 209

an evaluation of the macro hypotheses, a summary of this first part of the results is
presented in the Table 41.
210 6 Š Empirical results

1 Value Proposition

Single Source LSPs’ primary aim ought to be becoming the sole partner for their customers
Hypothesis with overall responsibility for all of their customers’ comprehensive logistics
processes. Managing a customer’s total supply chain leads to increased value
for that customer.
The striving for single source misperception

Principle of Potential Hidden Champions are able to enhance their position with their
Incrementalism customers over time due to a strong commitment to service excellence.
Outstanding performance based on considerable dedication of the management
to its employees increases both customer trust and the outsourced logistics
activity spectrum. LSPs’ relationships to customers are characterized by an
open dialogue regarding process and service mobilization.

2 Target Group

Segmentation LSPs offer Total Integration concepts to carefully selected sectors. They are
Hypothesis able to serve the target sectors more effectively by better meeting needs and/or
more efficiently by having lower costs. Besides, they are experts in knowing
their customers and they are highly familiar with their customers’ sector.
Customers do not search for establishing mutually beneficial relationships with
Transaction sector specialists. Moreover, customers select their LSPs mainly based on
Hypothesis general objective factors such as pricing and geographical scope.
The sector specifity and selection misperception

Principle of LSPs’ strategic and core capabilities are transferable across sectors. Such
Scope transfer reduces risks and enhances the LSPs’ position in contract negotiations
with customers.

Principle of While price and quality are considered as basic preconditions in the LSP
Intangible Service selection process, customers’ decisions are based on two factors influencing the
method of collaboration: First, customers’ choices are made from convenience
perspectives and second, LSPs’ deep capabilities and resources for engaging in
service provision are decisive.

3 Business Purpose

Commodity Trap Smaller LSPs are suffering or are trapped in low margin transportation
Hypothesis business.
The damnation to low margin business misperception

Principle of First, potential Hidden Champions consider the low margin transportation
Gradual Conquest business as an initiator for further business only. They follow the strategy of
conquering service offering scope gradually. Second, they also stimulate
progress of their Core Ideology towards an Envisioned Future in the course of
business operations.
6 Š Empirical results 211

4 Product/Service

Cherry Picking In the high-margin advanced services logistics business, selected industry
Hypothesis incumbents compete with new entrants coming from outside the traditional
logistics industry.
The competition misperception

Principle of Traditional and New Breeds of providers do not merely initiate competition
Customer Favor amongst providers. They independently focus on meeting their customers’
Striving needs in the best way possible.

5 Market

Global Standard Small and medium LSPs are able to manage today’s global logistics processes.
Hypothesis They are present with their personal locations all over the world.
The global standard misperception

Principle of LSPs do not target global standards in service delivery. Single customer
Customer Proximity relationships define market coverage through company locations or through
complementary local partnerships.

6 Input Factors

Virtual Logistics Customers’ trust in and desire for a one-stop-solution offer requires LSPs to be
Hypothesis heavily non-asset-based. In contrast to the historically asset-intensive
transportation providers, successful LSPs are today intangible assets based and
have hardly any tangible assets, thus relying on the provision of virtual logistics
solutions.
The asset misperception

Principle of Potential Hidden Champions’ leaders are entrepreneurs who force innovative,
Entrepreneurship more advanced solutions. In doing so, they manage to transform the asset
portfolio barely unnoticeably. As a result, their business tends to be intangible
assets based relating to low margin services. Also, they are open to invest in
tangible assets to offer high-margin services, which are often innovative new
solutions designed for specific customer needs. The key asset for this
development is the staff, which is brought up to follow the spirit of the
leadership.

7 Organization

Complexity Smaller providers struggle in adapting their organization to changing market

Hypothesis requirements. Their ‘execution system’ lacks the resilience required for a
flexible response to customer needs and might show instability.
The prevalence of complex internal settings misperception

Principle of Potential Hidden Champions’ organizational structure is kept as simple as

Simple and Fast possible. Their flat hierarchy simplifies and speeds up decision making.
Decision Making
212 6 Š Empirical results

8 Communication

Information Processing There is a correlation between qualitative information processing of an LSP

Hypothesis with its customer and company size. Accordingly, smaller providers whose
customers are usually similar in size are typically private and reserved in terms
of communicating company data. They process information only if required.
Effective and regular qualitative information exchange and processing is only
offered by larger scale providers.
The reservation expectation misperception

Principle of Open communication and collaboration, for example through ECR, create trust
Open Communication and lead to successful long-term business relationships. The tautology of ‘open
and Collaboration relationships’, i.e. transparency, as well as ‘joint communication’, describes the
cause for trust as the result.

9 Relationships

Complementarity and LSPs have a strong network with other providers. In this network, partners’
Reliability assets and services are regarded as complementary and provide mutually
Hypothesis beneficial cooperation opportunities. The network is thus characterized by
reliability in collaboration.
The partner relationship misperception

Principle of Although having a strong network of partners, LSPs value being self-sufficient.
Strategic Self- Potential Hidden Champions are able and willing to make their own strategic
Sufficiency investments in order to remain autonomous. This ensures reliable and
outstanding service provision for customers at all times.

10 Exchange Mechanism

Rules Exactly-defined rules and clear contracts are the norm and the most effective
Hypothesis way to guarantee effective performance. Mutual trust is enhanced by
integrating systems and through greater transparency, but formal contracts
dominate and define the relationship.
---

Principle of The formal process of defining rules and norms is the basis for trust. Moreover,
Mutual Trust potential Hidden Champions create a social atmosphere of joint partners with
common targets.

11 Performance Measurements

Significant Turnover Market leadership is typically defined in terms of turnover. This applies in
Hypothesis particular to LSEs, since high turnover offers the opportunity of economies of
scale.
The market leadership misperception

Principle of Potential Hidden Champions remain hidden in terms of market leadership. In

Niche Sovereignty fact, they are not characterized by market leadership but by segment leadership,
i.e. by niche sovereignty. They are either European market leaders in a specific
sector, European market leaders in their newly created industry segment by
innovations, market leaders in providing a specific mode of transportation,
market leaders in providing a specific solution or leaders in outperforming all
competitors in all requests for proposals of one customer.
6 Š Empirical results 213

12 Rewards

Risk Aversion Smaller LSPs are more risk averse due to size disadvantages and therefore
Hypothesis struggle in earning highly-lucrative margins.
The willingness to take risks misperception

Principle of Customer granularity refers to focusing on one or a few established customer

Customer Granularity relationships in one or several sectors. This strong key customer focus is risky
for potential Hidden Champions. In order to fulfill key customers’ needs,
investments for individualized operations are made. However, it is exactly this
approach which generates turnover and thus profits.

Legend:
No. (Sub-)Component of Business Model

Micro Hypothesis Content of Micro Hypothesis

Confirmation/Rejection Common Industry Misperception

of Micro Hypothesis
Rejection
Partial Rejection/
Partial Confirmation
Confirmation
Business Principle Content of Business Principle

Table 41: Overview of (Sub-)Components of Business Model, Micro Hypotheses, Evaluations,

Common Industry Misperceptions and Business Principles
214 6 Š Empirical results

6.3 Evaluation of the macro hypotheses and common industry misperceptions

This section presents empirical results and insights from analyses on the Customer
Centricity Hypothesis, the Partnership Hypothesis and the Size Compatibility
Hypothesis. Similar to the evaluation of the micro hypotheses in Section 6.1, data and
other information for the evaluation of the macro hypotheses are mainly from the
thirteen research cases LSP. In addition, insights from other potential Hidden
Champions from the ‘Top 100+ Company List’ were supplemented. For strengthening
arguments, customers’ perspectives are further included at selected stages.

6.3.1 The customers’ lacking attention misperception: Customers as activators

for innovation and/or business growth

The first macro hypothesis, the Customer Centricity Hypothesis, states that LSPs’
behavior is so self-centered that they overlook providing customer value in favor of
succeeding in Integrated Supply Network Management. Therefore, this section analyzes
Total Integration in the context of a classical provider-customer relationship. This
requires not only looking at the business model of the external LSP (‘business model in
logistics’), but also including perspectives from the customer’s business model
(‘logistics in business model’) as well as the adaptability of the LSP to the customer’s
business model. If appropriate, findings from the research on the micro hypotheses are
considered as well.

6.3.1.1 Confidence and performance as a basis for innovation and business

growth

One of the key insights from literature research and personal interviews is that in
successful relationships LSPs actively involve customers in their business activities.
Potential Hidden Champions focus on collaboration for developing innovative service
solutions and for the expansion of the service spectrum. Figure 74 presents six typical
examples.
 Logo LSP Country Innovation initiated by customer Source Logo Customer Country
Gebrüder Weiss For warehousing and pan-European Practi- Bischofszell
GmbH/ distribution of tasty sauces: cal Nahrungsmittel
Gebrüder Weiss selection of batches for shipments is performed expe- AG
Group by an order-picking robot which was specially rience. (Migros)
developed; a pallet can be prepared for shipment
6 Š Empirical results

in only ten minutes (daily output is 100 pallets).

UPS Supply Chain Repair solution jointly developed and introduced: N.A. Toshiba
Solutions construction of a repair center to which custo- 2004a,
(UPS) mers can either send their mobile computer, p. 8.
bring it to a UPS store or to a Toshiba partner;
fast repair at the center: customers receive their
computers latest after four days (instead of 14).
FM Logistic Pooling for food retail: each vehicle is loaded Carrefour
Kloss
with articles from various manufacturers (thus
fully-loaded trucks on the road); customer‘s 2005, p.
search for cost savings resulted between five to 10. Auchan
ten percent (while contributing to clean air).
[Statements by Michel Reichert, Director FM Logistic].
Simon Hegele Joint project “Refurbished Systems”: Simon Siemens Medical
Gesellschaft fuer preparation of used appliances in medical Hegele Solutions
Logistik und technique (offering the total service chain: (ed.) (Siemens)
Service mbH disassembly, total preparation cycle, 2005,
final assembling). pp. 4-5.

Simon Hegele Rollout and new delivery of Kérastase boutiques Simon L‘Oréal
Gesellschaft fuer (installation completely at drugstore) based on Hegele
Logistik und customer‘s demand. (ed.)
Service mbH 2004,
p. 8.

Figure 74: Customers as activator for innovations and business growth (examples)
ARS Altmann Customer initiated innovative rail logistics/ ARS BMW
AG Automobil- wagon techniques; LSP was the first private Alt-
logistik operator in rail business in Germany. mann
(ed.)
2005,
p. 10.
215
216 6 Š Empirical results

In the above examples customers play an active role in the LSPs’ business activities.
The molding of customers’ key position is strongly connected to confidence and
performance. Previous analyses on the micro hypotheses strengthen the importance of
performance and quality to the extent of the service offering and business growth (as for
example presented in the Principle of Incrementalism which resulted from the analysis
on the Single Source Hypothesis). The importance of trust is emphasized repeatedly (for
example in the Principle of Open Communication and Collaboration or enhancement of
trust by systems integration in the Rules Hypothesis). As other studies also found (see
for example Morgan and Hunt 1994, p. 31), confidence is the central element for
strengthening the relationship with the customer. Potential Hidden Champions’
customers do not lack required attention: even more customers are in the center of
business activities. This can be explained by the:

Ia. Principle of Gradual Service Extension: Confidence and excellent

performance are the two prerequisites for building relationships. If both apply,
customers increasingly accept their LSP and gradually offer to take over
additional services. Thereby, customers actively contribute to logistics
innovations and service extensions.

6.3.1.2 The reality of balanced responsibilities: The dream of Total Integration

In the previous section confidence and performance were identified as prerequisites for
customers’ readiness to increasingly outsource logistics services. This presupposes that
LSPs are open to transforming from a traditional SME in logistics into an LSP with an
advanced service offering. By means of that, LSPs are able to meet growing customer
needs and to provide Total Integration offerings. Table 42 contains the statements of the
interview partners from the LSPs studied in-depth. These views exemplarily show
attitudes and expectations in terms of service scope developments, in particular towards
Total Integration.
6 Š Empirical results 217

LSP Attitudes and expectations in terms of service scope developments

(statements from the interview partners)
A For example, we extended the transportation service offering for Customer I, a large global
automotive group, gradually.
B Total Integration is the responsibility of customers.
C Business development is a joint process of customer and LSP. Our consulting department is an
outstanding element of collaborative integration.
D For example, our relationship with a large global producer of medical systems (Customer X) started
roughly twenty-five years ago with transportation services. Today, the service offering covers a large
part of the supply chain.
E Increasing dovetailing of LSP and customer in service fulfillment, which no longer occurs at the
LSP’s location only but may also be either performed at the customer’s property or within a joint
entity for a limited time period. The service spectrum enhances and new niches are entered as the
LSP develops with customers’ requirements changing over the course of the years.
F For example, we supplemented the operative services at a liquor and juice producer by value-added
services at a later stage of the relationship.
G At the beginning of a relationship, customers are not aware of needs an LSP can fulfill.
Requirements become obvious over the course of time.
H For example, our relationship with a large chemical company started more than thirty years ago.
While in the beginning only transportation services were provided, contract logistics services were
added at a later stage.
I Our company developed from a facility constructor towards a manager of integrated solutions.
J Small companies are unable to offer total solutions.
K Total Integration fails if the LSP is strongly connected to one customer. It may be successful if many
customers are managed while there are no close connections to selected customers.
L Customers consider LSPs as consultants.
M For example, roughly ten years after starting our relationship with a garden machinery company, we
introduced assembling services in addition.
For example, a German toy distributor and a producer of high value bicycles increased the service
spectrum outsourced to us over the course of time.

Table 42: Statements from interviews at LSPs about service scope developments

Also, attitudes and expectations from customers relating to Total Integration offerings
were captured during the interviews at customers’ sites. Table 43 shows that more than
fifty percent of the customers are convinced that Total Integration has to remain within
their own responsibility. 31% of the interview partners stated that LSPs lack the abilities
required for such a service scope and that integration by customers keeps competition
alive. Furthermore, some interview partners referred to customers’ influences on LSPs’
service scope developments and customers’ low readiness to handover full
responsibility. Total Integration by customers is considered a means to securing know-
how and preserving core competences as well as intransparency.
218 6 Š Empirical results

Customer I II III IV V VI VII VIII IX X XI XII XIII

Statement
Total Integration is customers’ role

Total Integration by LSPs is impossible/

LSPs lack ability for Total Integration
Customers take care of keeping competition
alive/consider Total Integration disadvantageous
Customers define direction of service scope
developments
Customers are not yet ready for handing over
Total Integration to LSPs
Customers value core competence, know-how
and intransparency
Statement by customer made.
Statement not made by customer.

Table 43: Attitudes of customers in terms of Total Integration offerings by LSPs

From empirical statements the first conclusion is that LSPs’ service scope develops in
two sequences. LSPs first establish a strong position in one segment, i.e. reinforce the
service offerings in a single supply chain activity. Then adaptation occurs either with
regard to business scope/service extension (offering advanced services, i.e. VAS and/or
strategic services besides operative services) or with regard to global scope/geography
(i.e. specific single service offering in a region is provided internationally in future as
well). This finding is to be presented in more detail.

Accordingly, business growth imperative is achieved by total business unit management

and shall be called actual integration by ‘vertical supply chain conquest’ (top part in
Figure 75). Causes for expansion in ‘depth’ of the service offering are mainly based on
‘hard factors’ such as costs and quality. LSPs which are strong in service provision for
selected business units shall be called logistics commodity providers (e.g. LSPs A
and H).

From the other point of view, while customers gain confidence in the course of their
relationship with their LSP, they extend the scope of outsourced activities. By
increasingly taking over additional tasks, LSPs extend the scope of supply chain
integration horizontally. This is spoken of in terms of service flow management and
virtual integration, as Total Integration is not achieved in full. LSPs pursue a ‘horizontal
supply chain conquest’ (below part in Figure 75). Causes for expansion in ‘breadth’ of
the service offering are mainly based on ‘soft factors’ such as experience. LSPs D, F
and M are representatives for virtual integration.
6 Š Empirical results 219

Inbound
Manufacturing/
Business … Procure-
ment
Logistics/
Raw Material
Supply
Product
Transformation …
Unit
Manage-
ment: … Business Business Business
…
Scope Scope Scope
Actual
Integration
(‘Vertical
Supply … …

Global

Global
Global

Scope

Scope
Scope
Chain
Conquest’)

Service
Flow
Manage- Research Process
Inbound
Manufacturing/ Outbound After-
Product Procure- Logistics/
ment: &
Development Design
Develop-
ment ment Raw Material Product
Transformation
Marketing Logistics/
Delivery
Sales Sales
Service
Virtual Supply

Integration
(‘Horizon-
tal Supply
Chain
Conquest’)

Figure 75: Actual Integration versus Virtual Integration

The dilemma that SMEs in logistics approach a sequential service extension with
vertical extension occurring before horizontal extension is the first finding in this
section. Insights gained repeatedly confirm that LSPs first expand in-depth of a specific
activity within the service scope offered before they grow and extend their service scope
to other areas of the customer’s supply chain. In other words, existing services are
reinforced before expanding the service scope in breadth within a defined area of the
customer’s supply chain.

From interview partners’ replies and other research experience, a second conclusion on
the first macro hypothesis can be drawn. Despite LSP attempts to creep into the
customer’s supply chain over the course of time, the aim is an optimal balance of
sharing supply chain responsibility between LSP and customer with Total Integration by
the LSP not being achieved in full. The customer’s role is that of a total integrator
defining and allocating exact roles and responsibilities. Customers define modules of
activities for third parties and plan how they fit best within the supply chain. The
customer is a systems leader with the task of putting modules together instead of
focusing on one-stop-concepts. In other words, the approach is not to find one logistics
champion but the right LSP for the right business. This finding very strongly refutes the
dream of one LSP offering Total Integration and also explains why supply chain
compliance remains with the customer. Moreover, potential Hidden Champions focus
on customer needs and align their business model to customer requirements.
220 6 Š Empirical results

In summary, although LSPs have managed to increase their position in their customers’
supply chains, the integration promise failed. The imagining of LSPs being customers’
total integrators is a dream, not reality. Nevertheless, potential Hidden Champions do
not neglect customers as a source of value creation. This finding can be explained by
the:

Ib. Principle of Role Complementarity: Successful LSP-customer relationships

are characterized by balancing responsibility for the customer’s supply chain, i.e.
the relationship is characterized by clarity in complementary roles. Total
Integration through LSPs is limited to a defined part of the supply chain and
amounts to a certain extent of the service scope only. The overall lead remains at
the customer, who is in the role of the supply chain integrator.

6.3.1.3 Escaping the commodity trap

While the dream seems to have burst, reality is to be considered as shelter for three
issues, with the third being more important than the first two. Firstly, there is nothing
wrong with having a few experts, i.e. supply chain partners, as the Total Integration
concepts hold many dangers for both the external LSP and the customer. Secondly,
there is nothing wrong with taking over the responsibility of a part or parts of the supply
chain only, with specialization and concentration on core competencies being crucial for
business success. Thirdly, innovation and business growth imperative are an approach
out of the commodity trap. Earlier empirical studies like on companies in the
commodity chemicals sector by Robinson et al. (Robinson and Clarke-Hill and
Clarkson 2002, p. 149, p. 163) and by Anderson and Narus (Anderson and Narus 2004,
p. 190 et seqq.) found that companies seek methods of differentiation by offering
additional value-added services and of value creation through market offerings which
are bundles of services, programs and systems. In Table 44, three typical examples of
approaches of LSPs in escaping the commodity trap through innovation and business
growth imperative are presented.
6 Š Empirical results 221

LSP Innovation(s)

54
midiData / midiData’s specialization is on high-tech logistics. The LSP’s service scope covers the whole
supply chain from picking up products from manufacturers’ plants to ready-to-use
installation. For example, site placement of copy machines is one of the services offered.
F LSP F searched for an alternative for a joint venture solution. The LSP no longer only
provides services at its personal locations but also moves to the customer’s location, as is the
case with a large Northern European furniture producer for example.
M LSP M developed assembling solutions for a large garden machinery company. By
establishing a crane gadget in the LSP’s warehouse, roofs can be fixed onto tractors.

Table 44: Innovations in logistics (examples)

From empirical research and practical experience I found that in contrast to potential
Hidden Champions, LSEs with their commodity offer are captives to existing solutions
and thus subject to the commodity trap. While LSEs concentrate on marketing their
commodity offer, this approach ‘kills’ innovation and prevents the introduction of new
solutions. Securing and forcing product innovations instead of Total Integration focus is
the solution for SMEs operating in the area of logistics to escape the commodity trap
(Figure 76). Moreover, potential Hidden Champions are not only innovative but also
respond quickly with new solutions for new customer needs. This finding can also be
explained by potential Hidden Champions’ continuous alignment in drawing attention
to customers and can be summarized by the:

Ic. Principle of Continuous Innovation: Potential Hidden Champions are

innovators instead of commodity providers or generalists.

54
midiData was taken over by Wincanton beginning of 2005.
222 6 Š Empirical results

High
Securing
Product Challenger
Innovation

Process Normal Legend:

Price

Innovation/ Market LSEs – Captive to existing solutions.

Optimization Dynamics LSEs – Target Inter Position.
Hidden Champions.

Commodity
Trap
Low

Low High
Quality/Adaptability/Flexibility

Figure 76: Logistics market dynamics (‘Commodity Syndrome’)

In summary, the Customer Centricity Hypothesis which emphasizes LSPs’ customer

neglecting behavior does not apply to potential Hidden Champions. This finding can be
explained by the three principles of Gradual Service Extension, Role Complementarity
and Continuous Innovation. Potential Hidden Champions aim at gaining customers’
confidence and for achieving high performance. They target a cooperative form of
collaboration in which responsibility is balanced between both parties. Unlike providing
a commodity offering, potential Hidden Champions actively search for innovations with
the customer at the center of business activities. Even in the case of business
relationships working smoothly, potential Hidden Champions care for their customers
intensively. They actively seek to increase customer benefits and foster the relationship.
This is particularly important as outsourcing contracts are limited in terms of duration
and public announcements taking place at the end of contract durations. The stronger
the processes between customer and LSP are interlinked and the more individualized
customer solutions are provided, the less likely customers will be to move to a new
LSP. Otherwise LSPs’ only solution for not losing the assignment is making
concessions regarding the price.

6.3.2 The collaboration misperception: The failure of collaborative integration in

the absence of special conditions

The Partnership Hypothesis states that an LSP is able to offer Total Integration services
if forming a joint entity with the customer and possibly with other LSPs in addition.
Thus, the content of analysis in this section is the joint business model of either a joint
6 Š Empirical results 223

venture or other legal form of a partnership like strategic cooperations or alliances

between one or more LSPs and a customer.

Overall and across industries, strategic alliances are rather the exception with Hidden
Champions, as they conflict with their traditional attitude. Even in entering foreign
markets, only 16.8% form alliances (Simon 2007, pp. 280-283). Simon’s finding is in
contrast to Doz and Hamel, who claim that networks, coalitions, alliances and strategic
partnerships are a necessity for the success of both industry giants and ambitious start-
ups alike (Doz and Hamel 1998, p. ix). In this respect, the state in logistics was
analyzed with the role of a collaborative entity as enabler for managing relations in
integrated supply networks or developing and implementing new solutions as one
subject in the interviews at LSPs. The interview partners were asked to provide insights
about collaboration behavior (Table 45) and experience with joint ventures (Figure 77).

LSP research case Collaboration with LSP Collaboration with customer

A

B
C

K N. A. N.A.

M
Legend: JV(s) or JV(s) and other entities for Strategic cooperation(s) No collaborative entity N.A. Not Applicable
collaboration like strategic cooperation(s) only (LSP K is a JV)
or network partnership(s)

Table 45: Collaboration behavior of LSP research cases

224 6 Š Empirical results

The table above shows that with the exception of LSPs B and G, all of the LSPs have
experience in collaboration either with competitive LSPs, their customers or both.55
Thereby, three-quarters (nine of twelve relevant LSPs) of the LSPs have experience in
collaborating with other LSPs and six of the twelve relevant LSPs have experienced
with joint ventures. Concerning collaboration with customers, five of the twelve
relevant LSPs confirmed collaborative experience and one-third even entered joint
ventures with customers.

13
1

2
4
2
Total LSP LSP LSP LSP LSP LSP
number of is a JV without JV with with at with with
in-depth experience >= 1 JV least 1 JV critical ‘neutral’
studied failure(s) today comments statement
LSPs and no JV on further about JV
any longer existence existence
of JV(s)

Figure 77: Experience with joint ventures of research cases LSP

Next, joint ventures were looked at in more detail. Overall, joint ventures turned out to
be very disappointing, as Figure 77 demonstrates. Out of seven LSPs with joint venture
experience, only two of the LSPs’ interview partners did not confirm the failure of a
joint venture with an LSP or customer or did not make a critical statement on the further
existence. Three LSPs’ joint ventures failed and there are no longer engagements in this
respect. Only LSPs D’s and H’s customer joint venture continue to exist. LSPs D and H
pointed out the major advantage of their collaborative entity. The interview partners
stated that their customer joint ventures contribute to customer retention, which is

55
LSP K was taken out of the sample size due to being a joint venture.
6 Š Empirical results 225

particularly important if long-term investments as well as staff and knowledge transfers

are required.

For linking joint venture experience with performance at a later stage of this study when
screening for Hidden Champions, the presentation in Figure 77 is adapted by assigning
experience to LSPs (Table 46). Analysis requires looking at the perspectives of two
groups, the critical LSPs (medium grey) and those behaving neutrally (dark grey).

JV experience LSP B G I J M C E F A H D L
LSP without JV experience

LSP with >= 1 JV failure(s) and no JV any longer

LSP with critical comments on further existence of JV(s)

LSP with “neutral” statement about JV existence

Table 46: Joint venture experience by research cases LSP

The joint venture experience of the thirteen LSPs studied in-depth was verified by
additionally reviewing the experiences with joint entities of the 95 other LSPs in the
‘Top 100+ Company List’. As Figure 78 shows, the LSPs confirm the percentage of
experience with joint entities of the thirteen research cases LSP. Roughly fifty percent
of the LSPs have formed joint entities so far.

108
13

48

95

47

Total number In-depth LSPs LSPs denying LSPs with

of LSPs studied studied or hiding collaborative
studied LSPs in part colloborative entities’
entities’ experience
experience

Figure 78: Experience with collaborative entities of the further 95 LSPs studied
226 6 Š Empirical results

In a next step, the 47 LSPs with collaborative entity experience were asked for the types
of collaboration entered (Figure 79, several responses possible). Alliances were formed
by five LSPs, joint foundations by six LSPs, partnerships by seven LSPs, participations
by fifteen LSPs and cooperations by sixteen LSPs. Twenty-two LSPs explicitly stated
experience with joint ventures, with half of them having one or two joint ventures only:
five LSPs have had three to six joint ventures and only three LSPs have experience with
more than six joint ventures. Three LSPs are a joint venture. A further evaluation of the
joint ventures’ existence with answers from all twenty-two LSPs was not possible due
to information reservation.

11
22

15 16
5
6 7
5
3
Alliance(s) Joint Partner- Partici- Coopera- Joint LSP is LSP with LSP with LSP with more
foundation(s) ship(s) pation(s) tion(s) venture(s) joint venture 1 or 2 joint 3 to 6 joint than 6 joint
ventures ventures ventures

Figure 79: Collaborative entities of 47 potential Hidden Champions

Based on the above insights, the conclusion is that the Partnership Hypothesis is to be
rejected in part. The hypothesis is to be rejected due to findings from empirical research.
In particular, analysis of the research cases LSP shows that five of the seven LSPs with
joint ventures cancelled their collaborative entity or are struggling to keep it going. In
these cases the integration promise failed in the case of collaborative integration as well.

The reasons for the failure of joint ventures are internally-based, in terms of lacking
equality of rights, the missing fit in terms of business area or personnel view, the
absence of precisely-defined rules and norms, the changed impact and leadership on
performance as well as requirements on resources and capabilities. Also, external
factors influence the success or failure of a joint venture. The reasons are mainly based
on changing customer situations and developments in the competitive landscape. Table
47 presents exemplary reasons for the failure of joint ventures.
6 Š Empirical results 227

Survey LSP Statement(s) Source

sample
LSPs A • No clearly defined rules of the game in advance Interview
studied • No profit sharing
in-depth • ‘Chains’ are not set tight enough
• Requirement of strong management capabilities
(which got lost for the daily business of the group)
• Disparity with partners
• Extremely high cultural differences
• Difficulties in putting through the culture of the LSP
C • Indifferences in relationship already in tender phase Interview
E • Covering business areas of the future Interview
(which should be integrated totally in the group)
• Partners’ ambitions on which benefits the LSP shall
not gain (e.g. in the case of being listed on the stock
market)
• Cancellation of customer relationship in the case of
customers insourcing logistics or being taken over
F • Occurrence of personal differences after new Interview
responsibilities in joint venture management
• Aiming for leadership by the LSP (in particular due
to investments)
H • Business area implicates LSP’s core business and Interview
does not supplement in weak areas
• Overlaps due to close relationship/group affiliation
in the past
I • Danger of limiting business with other partners if Interview
close cooperation with one or a few selected
competitors
• Joint venture business with high probability for
worsened service quality levels
M • Business activity is not suitable for collaboration Interview
Further Vedes Logistik • Changed joint venture frame conditions: Müller – Die lila
LSPs GmbH & impossibility of meeting profit targets with the Logistik AG
Müller – Die expected turnover decreases (ed.). 2005, p. 1.
lila Logistik
AG
Hoyer GmbH/ • Changing market dynamics Hoyer (ed.)
Hoyer Group • Confirmation of strategy to strongly grow outside 2005b, p. 10,
Central Europe/to have global activities led to the p. 29.
acquisition of the remaining joint venture shares/full
ownership in Hoyer-Odfjell)
KN • Capital share of 45 percent acquired, resulting in a Kuehne + Nagel
LeadLogistics majority stake (95 percent) in PT Kuehne + Nagel International AG
Inc./Kuehne + Sigma Trans, Indonesia (ed.). 2005,
Nagel p. 142; Kuehne +
International Nagel
AG International AG
(ed.). 2006,
p. 116, p. 152.
Table 47: Reasons for the failure of joint ventures (examples)

Empirical research findings suggest several prerequisites for the success of collaborative
entities. Joint ventures are advisable only if the following eight special conditions apply
(Figure 80):
228 6 Š Empirical results

x Mutuality: Both the LSP and the customer have the responsibility for up to the total
supply chain.
x Adaptation: LSP and customer align their business models to the best of the joint
entity.
x Equalization: LSP and customer have equal opportunities and threats. Equitable
deal structures, mutual investments, continual improvements or creative partnering form
the basis of trust.
x Respect: By equal consideration of all partners’ needs, ‘soft’ obstacles for
sustainable and longer-term relationships are surpassed.
x Independence: While commitments must be made in the short-term when forming a
joint venture, the independence of partners has to be secured in the long-term. The
reason is that over the course of time the joint venture may become stuck. Joint venture
partners that are characterized by a loss of independence may keep to a minimum efforts
which are required for the joint entity to leave the position of being trapped.
x Freedom: Both partners agree on and fix an exit option for both parties. By doing so,
joint venture partners are not ‘prisoners’ of an entity which failed in achieving results
and goals.
x Maturation: Joint venture partners invest on an ongoing basis in collaboration and
integration resources, capabilities and skills if required.
x Openness: If required, joint venture partners collaborate with other LSPs as well.
Collaboration with other partners and their integration is a solution for vertical
extension of the service scope, e.g. in the case of service extension in geography/new
market entries.
6 Š Empirical results 229

Openness Adaptation

Maturation Equalization
Mutuality

Freedom Respect

Independence

Figure 80: Eight special conditions for joint venture success

In summary, despite the analysis resulting in a partial rejection of the Partnership

Hypothesis, collaboration with partners and customers has always been important (see
for example Ohmae 1989, p. 144; Ohmae stated that globalization makes alliances
necessary “as vehicle for customer-oriented value.”). Therefore, the Partnership
Hypothesis is to be confirmed in part as well. In logistics, collaboration is essential for
managing needs. Struggling and failure is caused by lacking attention to required
special conditions. Successful partnerships require people to increase learning and
developing skills for collaboration. Partnerships are often characterized by the LSP’s
business model dominating with the customer controlling. Although Total Integration
by collaboration does not seem to be a solution nor sustainable in the long-term,
collaboration between LSPs and customers is essential for managing logistics needs and
for creating short-term customer value. This partial collaboration misperception can be
explained by the:

II. Principle of Reliable Execution: Collaboration is successful if the partners

stick to special conditions and to agreements made. Through collaboration,
customer value is created and LSPs manage to intensify customer relationships.
230 6 Š Empirical results

6.3.3 The power of smallness misperception: Issue of size

The Size Compatibility Hypothesis states that company size is a limiting factor for
logistical SMEs’ ability to provide Integrated Supply Network Management solutions.
The hypothesis states that if at all, SMEs are able to provide Total Integration solutions
only to small or medium-sized customers. Thereby, access to networks is indispensable
as SMEs in logistics lack the resources required for service fulfillment. Section 6.3.3
deals with the role of company size for Total Integration offerings.

6.3.3.1 Similarity in company size is a wish but not reality

For verification of the Size Compatibility Hypothesis, interview partners from the
customers and LSPs were asked to provide their views on the role of company size in
collaborations. Their replies were also compared with the actual state of company sizes
in collaborations.

According to the majority of the interviews of customers, company size of the LSP is an
important factor for collaboration. While almost half of the customers claim that size
matters in principal, the same number is convinced that it is indirectly important. The
arguments of the first group relate to advantages in terms of collaboration, adaptability
and independency if LSPs are similar in company size, e.g. similarity allows
negotiations to be conducted at eye level. The other group also prefers working with an
LSP similar in size but demands that the LSP has to be large enough to meet geographic
needs, to adapt and to grow with customer needs and to be able to integrate the
customer proactively. Only one customer stated that the LSP is chosen independently of
company size but by the best-in-class solution (Table 48).
6 Š Empirical results 231

Role of size Arguments Customer Content of respective customer statement

III Similar way of collaboration if of similar

Collaborative Advantage
Size matters
Adaptability Advantage
in principal
Independency Advantage
company size
XII Higher commitment if similar in size
VI Flexibility to needs requires specific size
X LSPs fit customers into existing system
XI Unlike LSPs, SMEs grow with customer
VIII Restriction of business volume at LSP

IV Defence of good position in a region

LSP has to be large enough VII Locations’ closeness to customer’s
No clear to meet geographic needs IX Closeness to production sites necessary
statement
on principal LSP has to be large enough V Ability to grow with customer required
importance to adapt and grow with XIII Service portfolio extension if needed
of size/ customer needs
size matters Importance of joint business for LSP
LSP has to be large enough I
indirectly
to integrate customer
proactively
Size does Case-specific best-in-class II Decisions depending on location/project
not matter choice
in principal

Table 48: Customers’ interview partners views on the role of the LSP’s company size

The research cases LSP were not asked specifically for their views on the role of
company size for collaboration. However, more than half of the interview partners, i.e.
seven of the total of thirteen, addressed the issue by themselves. Roughly 85% of these
interview partners (from LSP B, F, G, I, L and M) argued that size conformity is
required. The reasons for conformity are based on adaptability and organizational
advantages. LSP B referred to improved communication as an organizational advantage,
to higher readiness for individualization of solutions and to higher effectiveness for
customers. Increased flexibility, e.g. resulting in faster response, is an issue for LSPs F
and M, with the latter also stating higher commitment, better possibilities for mutual
involvement in the other party’s business and organizational advantages. For LSP G,
size conformity is a prerequisite for business success while for LSP I it is required for
adaptability to geographic scope. According to LSP L, more demanding tasks can be
implemented and managed only with size similarity. LSP E’s interview partner
emphasized size irrelevancy for the reason that partner selection is considered as an
issue of decision makers. Overall, like customers’ interview partners, LSPs’ interview
partners also pointed out the need for being able to grow with the customer besides
focusing on niches for business success.
232 6 Š Empirical results

Unlike both customers and LSPs interview partners’ emphasis on size conformity, the
majority of potential Hidden Champions’ customers are not similar in size in reality
(Figure 81). Size conformity is even not at all applicable if the customers’ groups are
considered. Roughly 92% of the logistical SMEs studied in-depth work for LSEs. The
result changes slightly if applying the size classification to the customers’ specific
division which is in charge of the logistics collaboration. The interview partner of
Customer XII (a German small/medium-sized division of a large US group) confirms
the allowableness of this view by stating that “outsourcing is not a group decision”. In
practice, responsibility for logistics is in the hands of single divisions, e.g. at the US
group it is a management task of the country boards. Taking divisions’ sizes of my case
studies, customers are small and medium in size in slightly more than fifty percent of
the cases. With close to half of the customers still being classified as LSEs, the
conclusion is that SMEs in the area of logistics approach large LSPs’ target group
(Figure 82). In practice, the competitive area of LSEs and SMEs is no longer restricted
to small- and medium-sized customers but enhanced to the area of large customers
(either in full in the case of Group consideration or in part with division consideration).
In summary, similarity in company size is a wish but not reality.

Size Classification applied to Group Size Classification applied to Division

13 1 13 7
VIII 12 IV
I I
II I II V
III II III VIII
IV III IV X
V IV V XI
VI V VI XII
VII VI VII XIII 6
VIII VII VIII I
IX IX IX II
X X X III
XI XI XI VI
XII XII XII VII
XIII XIII XIII IX
Total Thereof Thereof Total Thereof Thereof
(number of) small-/ large (number of) small-/ large
in-depth medium- customers in-depth medium- customers
studied sized studied sized
customers customers customers customers

§ 92% of customers § 54% of customers

are LSEs are LSEs

Figure 81: Comparison of company sizes of collaborating potential Hidden Champions and customers
6 Š Empirical results 233

Size Classification applied to Group Size Classification applied to Division

Legend:
Size Size
LSP LSP Main relationships
Small Medium Large*

Small Medium Large*

logistics SMEs and
customer sizes
Main relationships
logistics LSEs and
customer sizes
Minor importance/
hardly any relationships
Competitive area
Size Size * Not subject of analysis
Small Medium Large Customer Small Medium Large Customer

Figure 82: Competitive areas by size of LSP and size of customer

Further examples from the ‘Top 100+ Company List’ as well as experience from
practice confirm that SMEs in logistics compete with logistical LSEs for customers.
Potential Hidden Champions manage to enter niche areas of large customer companies.
They are successful in creating special business relationships. Just to mention three
examples:

x Example 1: From 2002 onwards, the Dutch LSP Ewals Cargo Care B.V. developed a
strategy for positioning in the one-stop-solution offering market. Besides business
redirection, information technology had to be verified, resulting in the establishment of
the e-Logistics Control subsidiary and in implementing Quintiq. This allows the
managing of all product flows between Scania locations in Benelux, France and
Scandinavia (Quintiq (ed.) N.Y., pp. 1-2).
x Example 2: For large customers in food retail like Carrefour or Auchant, French
family business FM Logistic applies a pooling solution, i.e. trucks are loaded with
goods from various producers in order to have fully-loaded trucks (Kloss 2005, p. 10).
x Example 3: The German Reichart Logistik Gruppe is a specialist for outsourcing
projects in the automotive sector with BMW being the LSP’s third largest customer
(Reimann 2006, p. 7).

From the other point of view, LSEs also do not necessarily concentrate on large
customers but penetrate SMEs’ markets. For example, LSEs acquire SMEs for entering
the contract logistics market segment or they offer selected mass customized solutions if
many small customers can be targeted. With LSEs, clear operation systems and ad-hoc
feature procedure customization is transferred to small- and medium-sized customer
companies despite dealing with some cultural aspects. The examples of Kuehne + Nagel
234 6 Š Empirical results

International AG, A.P. Møller - Mærsk A/S and Panalpina World Transport
demonstrate this market approach:

x Example 1: Through the acquisition of ACR, Kuehne + Nagel International AG

attained regional expansion in Europe as well as a significant strengthening of its
contract logistics business in sectors in which it had previously hardly been present
(Jung and Hornborstel 2006, p. 7).
x Example 2: At the Swiss Panalpina World Transport, the SME segment accounts for
around three-quarters of turnover (Panalpina World Transport (ed.) 2005, p. 4).
x Example 3: The Danish A.P. Møller - Mærsk A/S has no particular concentration of
customers and is not especially dependent on certain customers (A.P. Møller - Mærsk
A/S 2005, p. 29).

Figure 83 presents SMEs’ and LSEs’ market penetration approaches.

Size
LSP
Large

Market Market
Approach Dominance
LSEs in logistics LSEs in logistics Legend:
Medium

Mass
* Market approach to
Customization*
some extent if many
small customers
Existing market
Market Market Approached market
Dominance Approach Direction of market
Small

SMEs in logistics Hidden Champions penetration

Hidden Champions Niche Size

& Others Area Customer
Small Medium Large

Figure 83: Market penetration approaches of SMEs and LSEs in logistics

The above analysis on the correlation between company size of the LSP and company
size of the customer is the wish of both parties, but it is not reality. Both SMEs and
LSEs attack the other’s key market. SMEs offer services in niche areas while the LSE
approach is mass customization. In other words, SMEs are convinced about their niche
service offering. They are self-confident in targeting customers independently of size.
This power of smallness misperception can be explained by the:
6 Š Empirical results 235

IIIa. Principle of Courage and Self-Confidence: Potential Hidden Champions

are convinced about their abilities to work for large customer companies. They
are willing to be confronted with large-scale project challenges.

6.3.3.2 Company size and survival

In previous sections, the importance of the ability to manage global logistics processes
for Total Integration was emphasized repeatedly, in particular in Sections 5.1.2.2 and
6.1.2.2 on the Global Standard Hypothesis and its evaluation. According to the Principle
of Customer Proximity, potential Hidden Champions do not primarily target global
standards in service delivery. Research experience suggests a development process in
the course of important customer relationships. Moreover, four development phases in
relation to size of the LSP and geographic scope were identified (Figure 84).

In Phase 1, small LSPs provide their services to customers locally. Some of these LSPs
manage to escape this weak, i.e. low, margin position and expand their services to a
region through either internal growth or by acquisitions. These LSPs have extensive
networks for European and worldwide service provision as well (Phase 2). These LSPs
are successful up to a critical medium company size in Phase 2, i.e. they are Hidden
Champions. However, they struggle if they grow further through expansion by forming
joint ventures (Phase 3) and, eventually, they are even subject to acquisition by LSEs
(Phase 4). The figure demonstrates that only two types of LSP will remain competitive
in Integrated Supply Network Management in the long-term and thus survive. These are
the LSEs in logistics (Phase 4) and the Hidden Champions (Phase 2). All other LSPs
small and medium in size are either subject to lagging (Phase 1), to failure (Phase 3) or
to takeover by large LSPs (Phase 4).
236 6 Š Empirical results

Large LSE in logistics as acquirer/

SMEs in logistics as subject to acquisition

Legend:
Growth through expansion
by forming joint venture(s) SMEs
Size of LSP
Medium

Hidden Champions

Failed Champions

LSEs
Hidden
Champions Critical Development Stage
Small

SMEs Growth through

expansion
Initial/ by own power Growth through
historical (internal growth expansion
business or acquisitions) by networking
Local/ Home-Country/ Continent/ World
Region Nation Multi-Continent
Geography

Figure 84: Relation between size of LSP and geography: four development phases

It is a challenging if not inextricable task for LSPs below a critical company size to
offer a comprehensive service spectrum on a European or even worldwide level. For
long-term survival in logistics and success in Integrated Supply Network Management
in particular, logistical SMEs strongly depend on excellent logistics networks. The
importance of networks is strengthened as LSPs have to deal with uncertainty in
sustainability of customer relationships, with irregular or unforeseen orders and with
low customer retention. For example, the interview partner from Customer X stated that
while in the 1980s contract durations were longer than twenty years, contracts are today
signed for a very short period of time. Figure 85 presents current contract durations
which confirms that continuation of customer relationships and thus long-term survival
is under regular reassessment.
6 Š Empirical results 237

Customer Contract duration in years

1 2 3 4 5 6 7 8 9 10
I Dependency from investments

II Transportation Dependency from complexity of services

Legend:
III
Usual contract
IV
duration
V
Exceptions
VI
VII Extension option

VIII Frame contract with

IX annual price
negotiation
X One contract with 7 years’duration plus extension option one year; other contract for 10 years
XI
XII
XIII

Figure 85: Duration of contracts with customers

In such an uncertain business environment it is the compelling task for SMEs in

logistics to efficiently use capacities and resources. Proponents of Hidden Champions’
initiatives for building networks by bundling services, capacities and know-how (for
example Baumgarten 2001b, p. 15) refer to high flexibility, kept autonomy, gathered
regional strengths or high synergy effects as advantages in the competition with LSEs.
In some cases networks are the only solution if asset ownership is not an option to
pursue. For example, SMEs in logistics do not usually have the capital required to buy
ships or planes for providing sea freight or air freight services. From the other point of
view, the challenges with networks are for example slow decision processes in changing
markets, majority decision on deployment or keeping pace with state-of-the art IT
competence.

The sustainability of these network initiatives will not only be defined by factors related
to LSPs. Factors may either be related to customers’ and competitors’ strategic
decisions and associated sector-specific or case-specific tasks. It is the customer
securing competition in logistics as the interview partner of Customer I stated. Even if
continuing to focus on niches, potential Hidden Champions are not immune to the trend
towards consolidation.

In summary, the Size Compatibility Hypothesis is to be rejected on the one hand but
also to be confirmed on the other hand. As presented in Section 6.3.3.1, the hypothesis
238 6 Š Empirical results

is to be rejected for the reason that for being successful and for surviving in competition
SMEs in logistics attack customer target groups of LSEs in logistics, i.e. potential
Hidden Champions provide niche offerings to large customer companies. However, this
section’s findings suggest confirming the Size Compatibility Hypothesis as company
size of the LSP is an issue for survival. Observations in practice and research have
shown that the two groups will continue to compete. The first group is represented by
LSEs. They are commodity builders with their own networks which are either
constructed through their own strengths or by acquisition of less successful autonomous
SMEs in logistics. Hidden Champions are LSEs’ competitors. They are innovative niche
specialists with access to networks, for example by forming cooperations. Other SMEs
not acquired by LSEs either have to transform to Hidden Champions or they will be
subject to liquidation. Their failure in Total Integration is a consequence of lacking the
required company size and specialization (Figure 86).

Enterprises – Integrated Supply Network Management

LSEs SMEs

Hidden Champions Others

Ab- Trans-
Die
sorb form

Mass customization Strategy Niche specialization

Commodity builder Role Niche specialist

Integration Function Innovation

Network ownership Asset ownership Network access

Market leader in scope Market position Market leader in niche

Specified service scope
All services from a single source Service scope
from a single source
Key competitive
Price Multi dimensions
factor
Key success
Duplication Flexibility & adaptability
factor

Figure 86: Two surviving groups of LSPs in competition and distinction criteria

Again, the power of smallness is underestimated. The role of company size for survival
of the LSP can be explained by the:
6 Š Empirical results 239

IIIb. Principle of Defense and Attack: Potential Hidden Champions manage to

survive in competition. They defend a specific company size, i.e. a position of
being small enough to remain independent and attack a growth position of being
large enough to follow customers in international business.

6.4 Summary of the macro analysis

Unlike in Section 6.1 and Section 6.2, the analysis in Section 6.3 targets the total
business models of the LSP and the customer instead of single business model
components. From observations and analysis, three core topics were identified – the
function of the customer, the role of collaboration as well as company size of LSP and
customer. Accordingly, three macro hypotheses were formulated with research resulting
in a rejection of the Customer Centricity Hypothesis as well as the Size Compatibility
Hypothesis and a partial rejection of the Partnership Hypothesis. Also, six business
principles were identified (Table 49). As logistics has grown more complex, small- and
medium-sized LSPs should consider these six principles in addition to the findings on
single business model components in order to stay on the road to success.
240 6 Š Empirical results

Customer Centricity Possible causes for the struggling of Integrated Supply Network Management
Hypothesis are based on LSPs’ self-centred behavior. LSPs are concentrating too strongly
on their own needs and requirements at the expense of customers’ needs. They
simply underestimate the potential full value of customer knowledge and
service, and do not develop the relationship required for business success.
The customers’ lacking attention misperception

Principle of Confidence and excellent performance are the two prerequisites for building
Gradual Service relationships. If both apply, customers increasingly accept their LSP and
Extension gradually offer to take over additional services. Thereby, customers actively
contribute to logistics innovations and service extensions.

Principle of Successful LSP-customer relationships are characterized by balancing

Role Complementarity responsibility for the customer’s supply chain, i.e. the relationship is
characterized by clarity in complementary roles. Total Integration through LSPs
is limited to a defined part of the supply chain and amounts to a certain extent
of the service scope only. The overall lead remains at the customer, who is in
the role of the supply chain integrator.

Principle of Potential Hidden Champions are innovators instead of commodity providers or

Continuous Innovation generalists.

Partnership With a joint (organizational) entity of an LSP and its customer, and possibly
Hypothesis with other provider(s), overall supply chain responsibility can be achieved.
Total Integration is envisaged and aimed for from the beginning of the
partnership.
The collaboration misperception

Principle of Collaboration is successful if the partners stick to special conditions and to

Reliable Execution agreements made. Through collaboration, customer value is created and LSPs
manage to intensify customer relationships.

Size Compatibility Integrated Supply Network Management is a comprehensive concept with

Hypothesis limited scope for SMEs. If at all and at best, SMEs in logistics are able to
provide Total Integration services for customers of similar size only. Although
SMEs in logistics put efforts into overcoming their resource shortage, they are
nevertheless very limited in full concept implementation.
The power of smallness misperception

Principle of Potential Hidden Champions are convinced about their abilities to work for
Courage and large customer companies. They are willing to be confronted with large-scale
Self-Confidence project challenges.

Principle of Potential Hidden Champions manage to survive in competition. They defend a

Defense and Attack specific company size, i.e. a position of being small enough to remain
independent and attack a growth position of being large enough to follow
customers in international business.
6 Š Empirical results 241

Legend:
Macro Hypothesis Content of Macro Hypothesis

Confirmation/Rejection Common Industry Misperception

of Macro Hypothesis
Rejection
Partial Rejection/
Partial Confirmation
Confirmation
Business Principle Content of Business Principle

Table 49: Overview of Macro Hypotheses, Evaluations, Common Industry Misperceptions and
Business Principles
242 7 Š In search of Hidden Champions: BMPS

7 In search of Hidden Champions: BMPS

In this chapter all definitions, explanations and findings of the previous chapters are
systematically applied for the presentation of the key contribution and results of my
research study: my Business Model Performance Scoring Framework (BMPS
Framework).

This chapter is structured in five major sections. In the first (7.1) I provide a brief
overview of the content covered so far. I also show possible concepts for performance
measurement in the area of logistics and arguments for the development of a specific
framework that is applicable to a business model with all its components. Section 7.1
closes with basic information on my scoring. In the two following sections I score
performance along the micro (Section 7.2) and macro (Section 7.3) perspective. Based
on my scoring of both perspectives I present my BMPS Framework in Section 7.4, with
Section 7.4.1.1 covering the micro perspective and 7.4.1.2 the macro perspective.
Section 7.4.2 shows the findings achieved by applying my framework. On one level, the
framework helps to identify success and failure business principles that impact the
sustainability of SMEs in the industry. On another level, it helps to identify the Hidden
Champions among my research cases. Moreover, the framework shows on which
business model dimensions Potential Hidden Champions and Hidden Championship
Failures – in contrast to Hidden Champions – put too much or too little emphasis, thus
indicating starting points for improvements towards successful business operations and
Hidden Championship. This is shown in Section 7.4.3. In a final major Section (7.5) I
provide some comments on business principles.

7.1 Introduction to performance measurement and scoring

In Section 3.2.3 I show my definition of a business model which is used to structure this
study. The structure is first applied in the presentation of the hypotheses in Chapter 5
and then for the provision of the empirical results in Chapter 6. In Chapter 6 I present
my research cases’ overall state on single business models dimensions only. At this
stage no further explanations or evaluations are provided and Chapter 6 purely reflects
the as-is situation at the LSPs studied in-depth. Therefore, some further work is
necessary to make evaluations and to measure performance. This is the content of
Chapter 7 in which I show a possibility for measuring performance based on a Business
Model Scorecard.
R. M. Neubauer, Business Models in the Area of Logistics, DOI 10.1007/978-3-8349-6533-2_7,
© Gabler Verlag | Springer Fachmedien Wiesbaden GmbH 2011
7 Š In search of Hidden Champions: BMPS 243

Before starting the process of scoring and measuring performance I reviewed the
literature on what performance is, and how it can be measured. Thereby, I analyze
existing concepts in terms of applicability to my work.

Let me first start with some comments on the term itself. The word ‘performance’ is
etymologically traceable to the old- and Anglo-French root ‘parfournir’ which means to
execute, to complete or to reach (Harper Collins Publishers (ed.) 1991, p. 1158;
Simpson and Weiner 1989, p. 543 et seq.). In English economic literature the term
performance is not uniformly understood (Eccles and Nohria and Berkley 1992, p. 146;
Emmanuel and Otley and Merchant 1990, p. 31; Ford and Schellenberg 1982, p. 50) and
according to Eccles, “… the exact nature of performance is never entirely clear.”
(Eccles and Nohria and Berkley 1992, p. 146). As a way out of the definition difficulties
Otley argues that performance should not be defined tightly. In other words, its content
is always discussable (Otley 1995, p. 49).

While literature indicates a lack of a coherent view of the term performance, in reality
performance requires a definition and measure. In companies’ definition of performance
the usefulness and reasonableness from the view of the users is in the foreground.
Measures are part of concepts which are either quantitative and/or qualitative (Figure
87). Performance measurement concepts which LSPs apply are, for example, AMR’s
and the SCC’s quantitative methodologies or the MIT’s concept that defines four
qualitative characteristics for supply chain excellence and success. HBS’s Balanced
Scorecard typically contains both quantitative as well as qualitative measures. These
four performance measurement concepts are briefly introduced in Table 50.

Legend:
Supply-Chain- Balanced Four
Top-25- Scorecard Characteristics
Methodology (HBS) for Excellence Quantitative
(AMR) and Success Qualitative
in SCM Quantitative and
(MIT) Qualitative
SCOR-
Model
(SCC)

Figure 87: Concepts for performance measurement in the area of logistics

244 7 Š In search of Hidden Champions: BMPS

Concept Institute/ Performance Measures Source(s)

Authors
Supply- AMR • Return on Assets (ROA) Straube and
Chain-Top- • Inventory Turnover Cetinkaya
25- • Last twelve months’ development of income 2008, p. 4.
Methodology compared to the previous year
SCOR- SCC • Four-level model based on five core management SCC N.Y.
Model processes (Plan, Source, Make, Deliver, Return) pp. 4-5, p. 8;
• Metrics aligned to performance attributes/key objectives SCC/Francis
(Reliability, Responsiveness, Agility, Cost, Assets), e.g. N.Y., p. 5.
- Perfect Order Fulfillment (Reliability)
- Order Fulfillment Cycle Time (Responsiveness)
- Downside Supply Chain Adaptability (Flexibility)
- SCM Cost (Cost)
- Return on Working Capital (Assets)
• Each process can be further described by type
(Planning, Execution, Enable)
Balanced HBS/ • Looking at the business from four perspectives: Kaplan and
Scorecard Robert S. - Financial Norton 1996,
Kaplan - Internal Business Process p. 75 et
and - Learning and Growth seqq.;
David P. - Customer Kaplan and
Norton x For each perspective goals and relating measures are Norton 1992,
defined pp. 71 et
seqq.
Four MIT • Logistics supports and supplements the company strategy Straube and
Characte- and is part of it Cetinkaya
ristics for • Logistics stands in effective relations to its own 2008, p. 4.
Excellence unmistakable operative business operations; it saves
and Success competitiveness future-oriented
in SCM • Logistics must correspond to a balanced catalogue of
performance aims as well as to key financial data
• Logistics concentrates on some few guidelines and
practices which confirm each other and support the
operative procedure so that operative goals are
accomplished optimally
Table 50: Quantitative and qualitative concepts for performance measurement

According to my analysis, each of the four concepts for performance measurement in

logistics that is presented as an example in Table 50 has its strengths and weaknesses as
summarized below.
• AMR’s Supply-Chain-Top-25-Methodology provides clear performance figures.
However, the concept’s weaknesses are that it uses only quantitative measures that have
limited focus. Also, the concept does not provide starting points for improvements.
• SCC’s SCOR-Model’s strength is that performance measures are oriented on
customers’ expectations. However, it focuses on quantitative measures only, is strongly
process-oriented and provides no starting points for improvements.
• The Balanced Scorecard is an overall concept with quantitative and qualitative
measures. Its advantage is the inclusion of the customer’s perspective. However, the
model construction lacks orientation on business model dimensions, in particular on
macro dimensions.
7 Š In search of Hidden Champions: BMPS 245

• MIT’s concept of the four characteristics for excellence and success in SCM is very
strong in its field but focuses on qualitative measures only. Its construction is also not
comprehensive in terms of micro and macro business model dimensions. In addition, no
starting points for improvements are given.

Overall, the four concepts for performance measurement lack hints for working on
improvements for sustainability in competition and do not cover micro and macro
dimensions of a business model comprehensively. These two reasons are past of the
motivation to develop and present my own framework. However, to some extent the
above four concepts offer more detailed measures which can be applied in addition to
my BMPS Framework. For example, the BMPS Framework does not cover detailed
quantitative measures like return on working capital as is the case in the SCOR-Model
or the ROA which is used in AMR’s methodology. Hence, the four concepts presented
have to be considered as supplementary concepts for performance measurement.

The four concepts considered above are oriented on the past which is in particular true
for quantitative measures. Consequently, success which can be proved today does not
provide a guarantee for sustainability. Nevertheless, performance measurement concepts
are important and have to be moved into focus more strongly. This is of particular
importance as many LSPs have no or at least no operating key performance indicator
system for the different operative and/or administrative corporate divisions (Boecker
2007, p. 9). Moreover, measuring success in logistics has been likened to determining
the number of the grains of sand (Straube and Cetinkaya 2008, p. 4). A well structured
concept helps to deal with the challenges. These two states as well as the prevailing
restraint of LSPs in information sharing make it extremely important, but also difficult,
to develop a performance measurement framework which satisfies scientific claims.
However, the BMPS Framework with its comprehensive coverage should advance
research in this area one decisive step ahead. In fact, literature lacks in the applicability
of methods of scoring. As my study aims at the search for Hidden Champions in the
area of logistics, some kind of scoring has to be conducted in order to judge the status of
my research cases’ status in terms of Hidden Championship.

According to my defined scoring process, I aimed to score each dimension of the micro
as well as of the macro dimension for every research case. The basis for scoring forms
246 7 Š In search of Hidden Champions: BMPS

the data presented in Chapter 6. More specifically, I use the as-is status of the single
research cases in the single micro and macro dimensions of a business model for
scoring. I apply four score values that are 1, 2, 3 and 4, where the lower the number the
higher the impact on business success. Therefore, the best score value is 1 indicating
competitive advantage, while 4 is the lowest score value, indicating competitive
liability. An overview of the scoring weights used for my Business Model Scorecard is
presented in Table 51.

Score Value Score Value Competitive Status Color

(Number) (Meaning)
1 Excellent Competitive Advantage
2 Good State of the Art/Competitive Benchmark
3 Acceptable Below Competitive Benchmark
4 Low Competitive Liability
Table 51: Scoring weights

7.2 Scoring performance along the micro dimensions

The above defined scoring weights are then applied in the following sections on scoring
performance along the micro (7.2) and macro dimensions (7.3). I start with scoring
performance along the micro dimensions in this section. Thereby, I present a separate
sub-section for each dimension of the business model’s micro layer. Each of these sub-
sections starts with the representation of the as-is status on this dimension for every
research case. I then define the criteria for assigning the score value to the molding of
each LSP in that dimension. This is where I link each business model dimension’s
molding to performance. Each sub-section finishes with a summary about my findings
when scoring the single business model dimension for my research cases. However, in
Section 7.2 linkages between all micro dimensions moldings and scoring results have
not yet been made. This is the content of Section 7.4, whereas in Section 7.2 I
concentrate on the presentation of scoring the single dimensions for each of my research
cases.

7.2.1 Incrementalism

The first scoring relates to the business model component Value Proposition. The
respective hypothesis is the Single Source Hypothesis stating that LSPs aim for overall
supply chain responsibility which also leads to increased customer value (Section
5.1.1.1). According to the empirical analysis and results (Section 6.1.1.1) LSPs tend to
enhance their position gradually in the course of time. In the progress of the relationship
7 Š In search of Hidden Champions: BMPS 247

the research cases gain customers’ trust and conquer increasingly a part of their
customers’ supply chain, while also securing their strong position achieved so far. I
refer to this as the Principle of Incrementalism. Thereby, LSPs’ relationships to
customers, employees and society is special. In particular their dialogues with
customers are characterized by openness, and the dedication of the management to the
employees is outstanding, both promoting a strong commitment to excellence in
performance and quality.

As a basis for scoring performance on the business model component Value Proposition
I chose the research cases’ scope on stakeholder groups. Therefore, I checked for replies
of my interview partners on value creation for each of the five stakeholder groups
(customers, partners, employees, society and investors). For exemplary demonstration I
present an extract of my database for LSP C (Table 52). LSP C’s focus on the
stakeholder groups of customers, employees and society is indicated by an ‘x’, which
leads to the total number of three stakeholder groups for which value is created. This
process is applied to the other research cases as well wherein in case of one or more
replies regarding a stakeholder group this is marked with an ‘x’ (Table 53).

Stakeholder Value Created Indication

Group (selected exemplary statements taken from database) for Value
Creation
Customers • Individualized solutions for individual customer needs and objectives x
• Flexible and responsive solution offerings
• Achieved optimum service levels
• Provision of real-time information and reports
• Enhanced and strengthened customer relationships (working as one team)
Partners [No statements made]
Employees • Locations as safe, fair and ethical place to work x
Society • Execution of charity events and activities x
x Group foundation for environmental protection activities
Investors [No statements made]
Number of stakeholder groups for which value is created 3
Table 52: LSP C’s replies to value creation for stakeholder groups
248 7 Š In search of Hidden Champions: BMPS

LSP A B C D E F G H I J* K L M
Value for customers x x x x x x x x x x x x
Value for partners x x x x
Value for employees x x x x x x x
Value for society x x x x x x x
Value for investors
Number of stakeholder groups for 2 1 3 4 2 3 2 2 1 1 3 3 3
which value is created
Score 3 4 2 1 3 2 3 3 4 4 2 2 2
Legend: x = Indication for value creation by the research case for the stakeholder group.
* = Value creation for customers is not applicable as LSP J is an association (network) of LSPs;
therefore, LSP J has no direct access to customers.
Score: 1 = Excellent = Value creation for four to five stakeholder groups
2 = Good = Value creation for three stakeholder groups
3 = Acceptable = Value creation for two stakeholder groups
4 = Low = Value creation for only one stakeholder group

Table 53: Value creation for stakeholder groups

Next, I counted the number of stakeholder groups for which my interview partners
indicated value creation. I defined the score value as excellent if value is created for
four to five stakeholder groups, as good if value is created for three stakeholder groups,
as acceptable if value is created for two stakeholder groups and as low if value is
created for one stakeholder group only. As a result, LSPs D, C, F, K, L and M are
special as they create value for three (LSPs C, F, K, L and M) or four (LSP D) of the
five stakeholder groups (Table 53). Table 53 also shows that value creation for
customers is key in all research cases.56

The information from Table 53 is presented in Figure 88. It demonstrates more clearly
the intensity of stakeholder focus which is an indicator for a specific type of LSP. I refer
to a Provider-Oriented-Collaborator if the LSP focuses on partners as stakeholder
group only as it is with LSP J. A Customer-Oriented-Collaborator targets value
creation for customers and partners (LSP H), whereas a Customer-Centralizer puts the
customer in the center of business activities (LSPs A, E, G, B and I). LSP L is a
Resources-Carer that values customers, partners (for network as key resource) and
employees (for human capital as resource) for business success. I refer to an Image-
Builder (LSPs C, F, K and M) if society (external image-building) and employees
(internal image-building) are in the foreground besides the customers. I define LSP D as
a Networker as this research case aims for value creation to a broad scope of
stakeholders (customers, partners, employees and society).

56
LSP J is an exception. As an association (network) of LSPs, LSP J has no direct access to
customers and therefore value creation for customers is not applicable.
7 Š In search of Hidden Champions: BMPS 249

Low

5
Number of Stakeholder Groups

4 D Legend:

Networker

Intensity Stakeholder Focus

C C
F F Image-Builder
3 K K
M M Resources-Carer
L
A Customer- Centralizer
E
2 G Customer-Oriented-Collaborator
H
Provider-Oriented-Collaborator
B
I
1 J

High

Customers Partners Employees Society Investors

Stakeholder Group

Figure 88: Types of LSPs according to stakeholder group scope

Figure 88 shows that there is no uniform behavior of my research cases in terms of the
scope of value creation for stakeholder groups. About half of the LSPs target at least
three stakeholder groups, thus having a low to medium intensity of stakeholder focus
(LSPs D, C, F, K, M and L). The others concentrate more on a single or two stakeholder
groups, thus having a medium to high intensity of stakeholder focus. This applies to
Customer-Centralizer, Customer-Oriented-Collaborators and Provider-Oriented-
Collaborators (LSPs A, E, G, H, B, I and J). In addition, Table 53 and Figure 88 also
show that potential Hidden Champions are not under pressure to meet investors’
interests which allows them to shift efforts to the other stakeholders in full. For
example, unlike companies that are listed on the stock exchange, potential Hidden
Champions do not need to put a lot of efforts into pursuing strategies for satisfactory
share price developments. Rather, they can focus on developing solutions to meet
individualized customer needs.

In summary, potential Hidden Champions aim to become a single source supplier for a
part of the customers’ supply chain through excellent service provision. By doing so
they become irreplaceable to customers, which is in particular applicable if LSPs
mobilize their customers. Customer mobilization is a qualitative parameter which is
difficult to score but necessary for incremental positioning at the customer. Potential
250 7 Š In search of Hidden Champions: BMPS

Hidden Champions are convinced that their chosen specific stakeholder group focus is a
competitive advantage for achieving a strong position.

7.2.2 Scope

My research on the business model component Target Group is about validating or

refuting the Segmentation Hypothesis that states that LSPs focus on carefully selected
sectors (Section 5.1.1.2).57 The result from Section 6.1.1.2 is that potential Hidden
Champions transfer their strategic and core capabilities across sectors rather than
focusing on specific sectors.

For the scoring of Target Group as part of my Business Model Scorecard I use the
information from Figure 50 in Section 6.1.1.2. In Table 54 the sector scope of my single
research cases is presented. The table shows that only three of the research cases (LSPs
A, K and L) focus on three or less sectors only, whereas LSPs E, G, J, B, H and M offer
their services to more than ten sectors. I assign an excellent score value to LSPs that do
not focus on specific sectors but target many, a good score value to LSPs that target
more than ten sectors but not more than twenty, an acceptable score value if LSPs focus
on five to ten sectors and a low score value if LSPs have a strong sector focus on up to
five sectors.

LSP A B C D E F G H I J K L M
Number of sectors 2 14 7 8 Many* 9 Many* 18 6 Many* 1 3 14
Score 4 2 3 3 1 3 1 2 3 1 4 4 2
Score: * = No specific sector focus, variety of sectors served; exact figure not available
1 = Excellent = No sector focus; targeting many sectors
2 = Good = Targeting more than ten sectors but no more than twenty
3 = Acceptable = Focus on five to ten sectors
4 = Low = Sector focus on up to five sectors

Table 54: Number of sectors served by LSPs

The interesting finding is that potential Hidden Champions offer customized solutions
which they can apply to customers from a variety of sectors. This is shown as the sector
scope from nine of my thirteen research cases targets more than five sectors. Potential
Hidden Champions’ competitive basis relies on solutions and processes rather than on

57
The Principle of Intangible Service which also resulted from the analysis of the business model
component Target Group is not part of the Business Model Scorecard as the Principle of Intangible
Service is based on the customers’ perspective.
7 Š In search of Hidden Champions: BMPS 251

sector-specific knowledge. They are flexible in offering services that go beyond basic
needs of single sectors (Principle of Scope). The advantages of a broad sector scope are
risk reduction and a favorable position in contract negotiations with customers. The
latter is of particular importance as contract durations in the area of logistics are
becoming shorter and shorter.58 To gain further insights and identification of differences
in LSPs’ behavior I looked at the relationship between number of sectors served (Table
54) and average contract durations (Table 55). This relationship is presented in Figure
89.

LSP A B C D E F G H I J K L M
Ø contract >10 3 - 5-7 1-21 - - 3 - n.a.3 n.a.4 1 3-5
durations (years) 3-52
1 Average duration for contracts without investments
2 Average duration for contracts with investments
3 Not applicable as network
4 Not applicable as joint venture

Table 55: Average contract duration at LSPs

Average Legend:
Contract
Duration
Many
Low and acceptable score in terms of
sector scope
… A1
Very good and excellent score in terms
10 of sector scope
9
8 1 Not applying to transportation services
7 with short-term contract durations
2 Durations for contracts without
6 D
investments
5
3 Duration for contracts with
4 M E3 investments
3 B H
2 Letters indicate LSP;
E2 LSPs C, F, G and I did not indicate their
1 L
Sector average contract durations;
Scope Presentation for LSP J (network) and K
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 … Many (joint venture) is not applicable

Figure 89: Relationship between sector scope and average contract duration

Above figure shows that in general LSPs with a narrow sector scope, i.e. LSPs that
focus on less than ten sectors, have a higher average contract duration as in the case of
LSPs A and D. LSPs B, E, H and M with a broad sector scope have a low average
contract duration, i.e. their contract duration is five years at the maximum if investments
are required. The key information from Figure 89 – either narrow sector scope and high
average contract duration or broad sector scope and low average contract duration – is

58
Exceptions from short contract durations are made if large investments are required.
252 7 Š In search of Hidden Champions: BMPS

not confirmed by the position of LSP L only. In fact, these two groups disclose a
tension between the decreasing contract durations in the industry and investments that
are necessary for meeting the demands for logistics in the 2000s and onwards regarding
a broadening of the service scope (Figure 9). Low or no investments at all might mean
low competitiveness of the sector and hence high monopoly power. Moreover, it could
also be a result of Hidden Champions’ selection of customers with whom they can
invest. Thereby, contract renewal or extension is strongly related to investments made.
With rising volume of investments LSPs negotiate for longer contract durations, thus
initiating long-term and more intensive relationships to customers. Narrow sector scope
with low average contract duration as in the case with LSP L is opposite to current
demand and may be a possible cause of business failure. However, while renewals or
extensions of contracts with low average duration also demonstrate customers’
satisfaction, this impedes for LSPs from developing and offering more individualized
customer solutions as demanded.

7.2.3 Gradual Conquest

Sections 5.1.1.3 and 6.1.1.3 cover the hypothesis and findings on the business model
component Business Purpose. Thereby, the Commodity Trap Hypothesis states that
SMEs in logistics are captives to the low margin transportation business. The result of
the empirical research is that the transportation business is an initiator for further
business and for offering additional services.

In Section 6.1.1.3 the research cases are positioned in the logistics industry’s service
offering portfolio and it is differentiated between LSPs that stimulate progress by
adaptation in the course of their business operations and those that do not (Figure 55).
According to the findings, more successful LSPs manage to leave the low margin
transportation business and to provide individualized solutions or systems. In addition,
they are open to change and have clear visions for managing these. These findings are
the basis for scoring related to Business Purpose. As an example, the adaptation
behavior of four LSPs and their assigned score value is presented in Table 56.
7 Š In search of Hidden Champions: BMPS 253

LSP Adaptation behavior relating to Business Purpose Score

B The core business of LSP B is the organisation of product delivery as well as its coordinated 3
and controlled passing to the customers. Moreover, LSP B added to its business purpose
consultancy and financial service provider to its customers.
D LSP D is a service provider, partner and expert for all supply chain areas. Moreover, LSP D 1
considers its business purpose in developing future oriented business strategies in the area of
total logistics solutions.
E LSP E provides individualized solutions primarily for medium-sized customers. Moreover, 1
transportation services as ‘core’ of the business purpose are advanced in the sense that
LSP E creates access to a strong international LCL freight net to offer value-added services
globally.
M The business purpose of LSP M is to offer customer specific and preferably integrated 1
warehousing, transportation and distribution solutions. LSP M adapted its business ‘core’
and now describes itself as “full service 3PL+ partner”, with the plus symbolizing the ability
to create pro-active problem solving concepts as well as to implement optimizations in the
customers’ supply chains.
Table 56: LSPs’ openness to adaptation and management of changes relating to Business Purpose
(selected examples)

In Table 57, LSPs’ position relating to gradual conquest in the sense of moving into
higher margin businesses and adaptation behavior is scored for each of the research
cases as presented in Table 56. The basis for this scoring is the allocation of the LSPs as
provided in Figure 55. LSPs D, E and M are the ones with the highest score. The reason
is that these three LSPs manage to offer high-margin services besides having a strong
change and adaptation behavior.

For scoring, I assign a score value of 1 for an excellent business purpose and change
behavior if the LSP’s core business purpose is on individualization and system, if there
is a high commitment to change and adaptation and a strong readiness to expand the
service offering gradually. I refer to LSPs with a score value of 1 as Service Operator.
The score value is 2 if the LSP’s core business purpose is also on individualization and
system but if there is low commitment to change and adaption and low readiness to
expand the service offering gradually. These LSPs are System Operators. The assigned
score value is 3, if LSPs’ core business purpose is transportation and technology. These
LSPs – I refer to Flexible Technology Operators – have a high commitment to change
and adaptation and a strong readiness to expand the service offering gradually. Rigid
Technology Operators’ core business purpose is on transportation and technology.
However, they are characterized by low commitment to change and adaptation and low
readiness to expand the service offering gradually.
254 7 Š In search of Hidden Champions: BMPS

LSP A B C D E F G H I J K L M
Score for position in terms of business 2 3 2 1 1 2 4 2 4 4 2 4 1
purpose and change behavior
Score: 1 = Excellent business purpose and change behavior (Service Operator)
2= Good business purpose and change behavior (System Operator)
3= Acceptable business purpose and change behavior (Flexible Technology Operator)
4= Low business purpose and change behavior (Rigid Technology Operator)

Table 57: Scoring LSPs’ positions in terms of Business Purpose and change behavior

According to the Business Model Scorecard on Business Purpose, LSPs D, E and M

obtain an excellent score (Service Operators). The reason is that these three LSPs
manage to provide high-margin services and to adapt their business purpose and service
portfolio gradually. LSPs D, E and M escape the commodity trap successfully. LSPs A,
C, F, H and K are System Operators that provide high-margin services but lack in
adaptation to future successful business models. The core business of the Flexible
Technology Operator, LSP B, is low-margin transportation. However, LSP B is
successful in managing change and adaptation of the service portfolio for achieving
higher margins in future. The Rigid Technology Operators LSPs G, I, J and L are in the
commodity trap. The core business of the four LSPs is in offering low-margin
transportation services or highly competitive technology services. LSPs G, I, J and L do
not indicate required efforts to change and adapt their business purpose for future
success. In other words, LSPs G, I, J and L are in danger of future business failure if
these LSPs do not adapt to more successful service portfolios, i.e. if they do not change
their business purpose adequately. LSP B’s position is less critical than that of the other
three as LSP B makes some adaptation efforts.

Scoring the Business Purpose shows that Service and System Operators rather than
Flexible and Rigid Technology Operators manage to escape the commodity trap. This is
an important finding due to the trend towards increasing demand for individualized
service offerings.

7.2.4 Customer Favor Striving

For the business model component Product/Service I defined the Cherry Picking
Hypothesis (Section 5.1.2.1) which states that in the high-margin advanced service
business industry incumbents compete with new market entrants. My empirical research
demonstrates the competition misperception and the Principle of Customer Favor
Striving (Section 6.1.2.1), i.e. both incumbents and new entrants focus on meeting
customer needs rather than on defeating competitors.
7 Š In search of Hidden Champions: BMPS 255

The key finding described in Section 6.1.2.1 is that potential Hidden Champions are
strong in strategic and expanded value-added services while still offering basic value-
added and operative services by themselves. LSPs have to create and foster a service
portfolio which allows very flexible adaptations in their offerings to meet individualized
customer needs. In this section I will further analyze my findings and identify possible
differences amongst my research cases in terms of the service portfolio. I begin with an
overview (Table 58) which I will describe below.

LSP A B C D E F G H I J K L M
Coverage operative services 100 25 50 50 75 100 100 100 0 75 0 100 75
(percentage)
Coverage basic value-added 67 83 50 33 33 100 83 83 0 17 17 67 17
services (percentage)
Coverage expanded value-added 20 20 20 40 40 40 20 80 40 20 0 20 60
services (percentage)
Coverage strategic services 33 67 67 33 33 33 33 33 33 0 67 0 0
(percentage)
Scoring operative services 1 4 3 3 2 1 1 1 4 2 4 1 2

Scoring basic value-added services 2 1 3 3 3 1 1 1 4 4 4 2 4

Scoring expanded value-added 4 4 4 3 3 3 4 2 3 4 4 4 3

services
Scoring strategic services 3 2 2 3 3 3 3 3 3 4 2 4 4

Value of portfolio strength for 17 17 18 18 17 14 16 12 20 22 20 19 20

Customer Favor Striving
Score 3 3 2 2 3 4 3 4 1 1 1 2 1
Score: 1 = Excellent = Customer Favor Striving with excellent deployment of services (value portfolio strength: >=20)
2 = Good = Customer Favor Striving with good deployment of services (value portfolio strength: 18-19)
3 = Acceptable = Customer Favor Striving with acceptable deployment of services (value portfolio strength: 16-17)
4 = Low = Customer Favor Striving with low deployment of services (value portfolio strength: <16)

Table 58: LSPs’ portfolio strength for Customer Favor Striving

First, I list the percentage coverage of the total number of services59 from each of the
four categories of services (light grey rows in Table 58) based on the information from
Figure 58 (Section 6.1.2.1). For example, LSP G offers all of the four services in the
category operative services, i.e. transportation, transshipment, warehousing as well as
freight forwarding, thus 100%. Regarding basic value-added services, LSP G offers
customization and other warehouse value-add, transport planning and optimization,
selection of transport mode, after-sales services/reverse logistics as well as financial
settlement. However, LSP G does not provide the sixth type of service in this category

59
For single services of each category see also question 2.4.1. in the ‘Questionnaire/Interview
Manual – Logistics Service Provider’ (Appendix 3).
256 7 Š In search of Hidden Champions: BMPS

which is production value-add and thus covers only roughly 83%. In terms of expanded
value-added services LSP G only offers advanced IT services but not inventory
management, inventory ownership, assembling, and facility management, that is 20% of
the expanded value-added service types. Relating strategic services LSP G provides
construction/optimization of the distribution network but not merge in transit as well as
integration of global supply chains, equaling 33% of strategic service types only.

Then, the coverage of each category was scored in the dark grey rows in Table 58. For
operative services I assign the score 1 for a coverage of types of services between 76%
to 100%, the score 2 for a coverage of 51% to 75%, the score 3 for a coverage of 26% to
50% and the score 4 for a coverage of 0% to 25%. The scores for basic value-added
services are 1 for 81% to 100%, 2 for 51% to 80%, 3 for 26% to 50% and 4 for 0% to
25%. Expanded value-added services are scored as 1 if the coverage is between 81% to
100%, as 2 for 41% to 80%, as 3 for 21% to 40% and as 4 for 0% to 20%. The scores
for strategic services are 1 for a coverage of 100%, 2 for a coverage between 67% to
99%, 3 for a coverage between 33% and 66% and 4 for a coverage between 0% to 32%.
In the example of LSP G the scores are 1 for operative services, 1 for basic value-added
services, 4 for expanded value-added services and 3 for strategic services.

Finally, in the black row in Table 58 the scores per LSP were summed up with those of
the expanded value-added services and strategic services taken double. The reason is
that expanded value-added and strategic services are the ones that allow best adaptation
to changing customer needs besides contributing to high margins. The resulting figure is
the value of portfolio strength for Customer Favor Striving. The calculation for LSP G’s
value is 1+1+4x2+3x2=16. Based on this figures the final scores are assigned. For
values of 20 or higher the final score of the Business Model Scorecard is excellent (1),
for the values 18 and 19 the score is good (2), for the values 16 and 17 the score is
acceptable (3) and for values below 16 the score is low (4). According to this analysis,
LSPs I, J, K and M are the LSPs with best prerequisites for excellent deployment of
services while LSP F’s and H’s service portfolio are weakest for proactive Customer
Favor Striving.

Whilst in Table 58 the actual service portfolio of the LSPs is scored, in Table 57 LSPs’
7 Š In search of Hidden Champions: BMPS 257

position relating to gradual conquest of higher margin offerings as well as adaptation

behavior is scored. The question is whether there are distinctions between potential
Hidden Champions’ actual service portfolio (Actual Offering) and adaptation behavior
(Active Deployment). To identify distinctions the scores from the evaluation on the third
and fourth hypothesis are compared (Table 59). The distinctions are scored according to
the definitions of scores below the table.

LSP A B C D E F G H I J K L M
Active Deployment (Table 57) 2 3 2 1 1 2 4 2 4 4 2 4 1
Actual Offering (Table 58) 3 3 2 2 3 4 3 4 1 1 1 2 1
Score Comparison 2 4 3 1 1 1 3 1 4 4 4 4 1
Score: 1 = Excellent = Excellent in Active Deployment and Actual Offering or
Active Deployment scored two levels higher than Actual Offering or
Active Deployment scored excellent and one level higher than Actual Offering
2 = Good = Active Deployment scored one level higher than Actual Offering with Active Deployment not scored
excellent
3 = Acceptable = Both Active Deployment and Actual Offering scored good or
Actual Offering scored one level higher than Active Deployment
4 = Low = No scoring difference between Active Deployment and Actual Offering with both scores acceptable
or low or
Excellent or good Actual Offering and lower scored Active Deployment or
Actual Offering scored two levels higher than Active Deployment

Table 59: Comparison of the scores for Active Offering and Actual Deployment

The result of this comparison is that there are two groups of LSPs amongst the research
cases. One group is active in Customer Favor Striving with a broad scope of service
portfolio. This applies in particular to LSPs D, E, F, H, and M, as well as (with minor
restrictions) to LSP A. Even if the current service portfolio is weak in terms of high
margin offerings these LSPs are active in deploying their actual offering to best meet
customer needs. The other group (LSPs B, I, J, K, and L as well as LSPs C and G) does
not manage to make best use of the service portfolio. LSPs in this group fail to fully
exploit their service offering to the best of Customer Favor Striving.

7.2.5 Customer Proximity

In Section 5.1.2.2 the Global Standard Hypothesis, stating that SMEs have locations
worldwide and are able to manage global logistics processes, is formulated for
analyzing Market as the fifth business model (sub-)component. The analysis resulted in
the global standard misperception. Findings are that potential Hidden Champions do not
primarily focus on global operations but provide outstanding niche solutions in a
specific region where they have a strong presence. Moreover, potential Hidden
Champions’ market coverage by own locations or through complementary local
258 7 Š In search of Hidden Champions: BMPS

partnerships is defined by specific customer relationships. I refer to the Principle of

Customer Proximity.

In Table 60 the market coverage of the research cases is presented. The score is formed
based on the quotient of the number of personal locations and the number of continents
with personal locations. For example, LSP A has seven personal locations on three
continents, resulting in an average of 2.3 locations on one continent. The table shows
that only LSP B has an excellent presence with personal locations on its selected
continents. LSPs F, H, and I have a good presence while the other nine LSPs have an
acceptable or low presence on their selected continents only.

LSP A B C D E F G H I J K L M
Number of personal locations 7 24 6 4 3 22 8 10 20 1 6 4 9

Number of continents with 3 2 4 3 2 3 3 2 3 1 4 2 3

personal locations
Average number of personal 2.3 12 1.5 1.3 1.5 7.3 2.7 5 6.7 1 1.5 2 3
locations per continent
Score 3 1 4 4 4 2 3 2 2 4 4 4 3
Score: 1 = Excellent = Excellent presence with personal locations on a continent (>=10 locations on a continent)
2 = Good = Good presence with personal locations on a continent (between 5 and 10 locations on a continent)
3 = Acceptable = Acceptable presence with personal locations on a continent (between 2 and 5 locations on a continent)
4 = Low = Low presence with personal locations on a continent (< 2 locations on a continent)

Table 60: LSPs’ presence with personal locations on continents

In the context of increasing customer needs for global operations (Section 2.2.2) I
further searched for differences amongst LSPs’ in terms of the relationship between
portfolio strength (Table 58) and international presence (Table 60). The reason is that
the business model component Product-Market-Offer is comprised of the
subcomponents Product/Service and Market (Table 10). Refering to literature in this
context, Chatain and Zemsky address suppliers’ dilemma between choosing a broad
scope to facilitate the establishment of relationships and choosing a narrow scope to
minimize organizational trade-offs. They refer to specialist, generalist and hybrid as the
three generic scope strategies (Chatain and Zemsky 2006). Unlike Chatain and Zemsky
I do not target hybrids for complexity reasons as I include the dimension Market. As a
result, I identified four distinctive types of LSPs when looking at the Product-Market-
Offer (Figure 90).
7 Š In search of Hidden Champions: BMPS 259

4 J, K C, D, L E
International International
International Presence Specialists Generalists

3 M A, G

2 I F, H
Geographic-Focused Geographic-Focused
Specialists Generalists

1 B

1 2 3 4
Portfolio Strength
LSP A B C D E F G H I J K L M
Score portfolio strength (‘Actual Offering’) 3 3 2 2 3 4 3 4 1 1 1 2 1
Score international presence 3 1 4 4 4 2 3 2 2 4 4 4 3

Figure 90: Relationship between portfolio strength and international presence

LSPs have either a broad or narrow international presence. Also, they either have a
broad service offering and thus potential Hidden Champions are generalists, or they
have a narrow service offering and are thus specialists. If the LSPs are assigned to a
matrix, LSPs C, D, J, K, L and M are International Specialists, LSPs A, E and G are
International Generalists, LSP I is a Geographic-Focused Specialist and LSPs B, F and
H are Geographic-Focused Generalists. In summary, SMEs in logistics are indifferent
in terms of portfolio strength and international presence. Obviously, there is no clear
success strategy in terms of geographic-focused/international specialists/generalists.

7.2.6 Entrepreneurship

For the business model subcomponent Input Factors I defined the Virtual Logistics
Hypothesis (Section 5.1.2.3) which states that LSPs’ assets have to be intangible, based
on creating customers’ trust in and desire for one-stop-solutions. According to my
research results (Section 6.1.2.3), potential Hidden Champions develop their tangible
assets based low-margin services into intangible offerings and invest in tangibles for
offering high-margin services. I refer to this as the asset misperception which is
confirmed by potential Hidden Champions’ acting according to the Principle of
Entrepreneurship. The reason for LSPs’ investment strategy is their innovation and
260 7 Š In search of Hidden Champions: BMPS

entrepreneurial striving which results in the provision of innovative individualized

customer solutions.

For a more detailed analysis of the research cases’ asset ownership, I use road
transportation and assembling for a presentation by examples. Regarding the scoring for
road transportation a score of 1 is assigned if the LSP does not offer road transportation,
a score of 2 is assigned if the LSP uses subcontractors only, a score of 3 is assigned if
the LSP uses subcontractors and its own vehicles and the score of 4 is assigned if the
LSP uses own vehicles only. The scoring for assembling is 1 if the LSP has its own
assembling appliances and the score is 4 if assembling is out of the LSP’s business
scope.60 The average of the resulting two scores for road transportation and assembling
is the score for the Business Model Scorecard. The scores are rounded, e.g. for 3.5 the
value of 4 is used. According to the scoring, LSP A, F, G, H and M are the only five
LSPs with good asset ownership which is required for successful provision of advanced
services in the sense of innovative individualized customer solutions.

LSP A B C D E F G H I J K L M
Road transportation 3 2 4 3 4 3 2 3 1 4 1 3 3
Assembling 1 4 4 3 1 1 1 1 4 4 4 4 1
Score 2 3 4 3 3 2 2 2 3 4 3 4 2
Score: 1 = Excellent = Excellent asset ownership for advanced services provision
2 = Good = Good asset ownership for advanced services provision
3 = Acceptable = Acceptable asset ownership for advanced services provision
4 = Low = Low asset ownership for advanced services provision

Table 61: Evaluation of asset ownership applied on road transportation and assembling

At this stage, I link the scoring result from Table 61 with insights on performance
gathered from Table 39 in Section 6.1.3.2. If the profitable LSPs do not indicate
declining profits in recent years, performance is scored with 1. In the case of declining
profits, performance is scored with 2. For all other LSPs that provided no insights on
performance the result situation is scored 3.

60
There is no scoring in-between (score 2 or 3) as the research cases either have their own
assembling appliances or they do not consider assembling as part of their business scope.
7 Š In search of Hidden Champions: BMPS 261

Score of Result’s Situation

3 A, F, H, M D J

2 E, I, K C

1 G B L

1 2 3 4
Score of Asset Ownership’s Situation

Figure 91: Relationship between asset ownership and performance

Due to logistical SMEs reservation in terms of publishing results, insights could be

gathered from only seven LSPs. Three of them – LSPs G, B and L – reported profits
without indication of declining profits in recent years. Their scores of the asset
ownership’s situation differs from 2 to 4. According to the research results from Figure
63, LSPs B and L are asset-indifferent and LSP G is asset-intensive. The other four –
LSPs E, I, K and C – have had a declining profit situation in recent years. Their scores
of the asset ownership’s situation are acceptable or low. LSPs C, E and K are asset-
indifferent and LSP I is non-asset based (Figure 63). As far as the gap in performance
data allows, the research cases indicate that profitable LSPs have acceptable or low
scores of the asset ownership’s situation (circle in Figure 91) rather than excellent or
good scores in the asset ownerhip’s situation (dotted circle in Figure 91). Due to poor
data quality, the conclusion, that poorer scores in the asset ownership’s situation are
connected with declining profits can not be proven and would be inadmissible.

7.2.7 Simple and Fast Decision Making

Research and analysis on the seventh business model (sub-)component concentrates on

organizational issues at LSPs. In Section 5.1.2.4 I present the Complexity Hypothesis
according to which SMEs in logistics struggle in adapting their organization to respond
flexibly to customer needs. According to my findings (Section 6.1.2.4), potential
Hidden Champions prefer flat organizations as they allow fast decisions and direct
262 7 Š In search of Hidden Champions: BMPS

access at every organizational level for customers. I refer to the prevalence of complex
internal settings misperception and the Principle of Simple and Fast Decision Making.

Scoring the business model subcomponent Organization is based on qualitative

statements from the interview partners. The assignment to the four scores is made
according to the statements’ most equivalent content. Organizations are scored 1 if the
organization is flat and allows direct communication. For the score of 2 the LSP’s
management is five percent of the employees at the maximum. LSPs with many
divisions and many subsidiaries are scored 3, and LSPs having difficulties with the
matrix organization or claiming that they have weaknesses with the decentralized
organization are scored 4. The result is shown in Table 62. According to this scoring,
the organizations of LSPs J, K, L and M are excellent.

LSP Exemplary statements regarding Organization Score

(reporting relationships, layers of management, span of control, etc.)
A x Only three areas of responsibility (sales/branch offices/quality, logistics, finance/ 2
holdings/personnel)
x Customer I claims that structures for decisions are not clear and the executive board
members hinder the implementation of special projects
B x Company is too large for collaboration with small customers who get lost in the 3
organization
x Organization is broad rather than focused
C x Customers specially value the separate consulting department that allows discussing 2
individualized needs
D x Many difficulties with the matrix organization 4
x Partly out-of-place managers
E x Adaptations and connectivity to customers IT systems 3
x Challenges in integration of several subsidiaries
F x Country organization implies several challenges 3
G x Only four to five percent of total number of employees are managers 2
H x Organizational challenges resulting from aggressive acquisition strategy (second most 4
active acquirer in the national transport and logistics market)
x Dealing with the challenges of the matrix organization
I x Decentralized organization is considered as weakness of the company 4
x Organization form is inefficient
J x Flat organization 1
K x Organization is aligned to single customer needs 1
L x Flat organization with four levels at the maximum 1
M x Flat organization 1
x Direct communication with customers
Score: 1 = Excellent = Flat organization allowing easy decision processes and easy access for customers
2 = Good = Organization that still allows easy decision processes and good access for customers
3 = Acceptable = Organization deals with minor hurdles
4 = Low = Organization is struggling with many hurdles

Table 62: Scoring LSPs’ organizations

7 Š In search of Hidden Champions: BMPS 263

Research regarding the Complexity Hypothesis includes the validation or refutation of

whether an enhanced geographic scope requires adequate organizational capabilities and
whether meeting the demand for a broader service scope results in higher internal
complexity. Starting from this, LSPs’ scores in terms of geographic and product/service
scopes are compared with the scores relating to organization (Table 63).

LSP A B C D E F G H I J K L M
Score portfolio strength for 3 3 2 2 3 4 3 4 1 1 1 2 1
Customer Favor Striving (7.2.4)
Score presence with personal 3 1 4 4 4 2 3 2 2 4 4 4 3
locations on continents (7.2.5)
Score organizations (7.2.7) 2 3 2 4 3 3 2 4 4 1 1 1 1

Table 63: Comparison of the scores for Product-Market-Offer and Organization

Table 63 leads to following four outcomes – of which three apply to the research cases –
that are presented in Figure 92.
• If the score for Organization is two or three points higher than that for
Product/Service, i.e. if Organization is scored excellent or good and Product/Service is
scored acceptable or low only, then I speak in terms of Organizational Advantage for
Product/Service. This outcome does not apply to the research cases.
• If the score for Organization is two or three points lower than for Product/Service,
than I speak of in terms of Organizational Deficit for Product/Service. According to this
analysis, LSPs D and I are struggling. In other words, D’s and I’s score is excellent or
good in terms Product/Service but organizational hurdles hinder from full exploitation
of their outstanding offering.
• If the score for Organization is two or three points higher than for Market, i.e. if
Organization is scored excellent or good and Market is scored acceptable or low only,
then I speak in terms of Organizational Advantage for Market. This applies to LSPs C,
J, K, L and M.
• If the score for Organization is two or three points lower than for Market, then I
speak in terms of Organizational Deficit for Market. At LSPs B, H and I organizational
hurdles hinder them from taking full advantage of an outstanding geographic coverage.
264 7 Š In search of Hidden Champions: BMPS

Legend:
4 Product/Service
Market
Organization
3
SCORE

Organizational
Advantage for
Market
Organizational
2 Deficit for
Market
Organizational
1 Deficit for
Product/Service
A B C D E F G H I J K L M
LSP

Figure 92: Organizational Advantage and Organizational Deficit for meeting demands regarding
Product/Service and Market

Overall, the comparison shows that LSPs B, D, H and I have an excellent or good
product/service and/or market offer but they might struggle in exploiting its competitive
advantage in full due to organizational hurdles. The comparison further indicates that
LSPs C, J, K, L and M have an excellent or good organization that allows an approach
to a more successful product/service and market strategy.

7.2.8 Open Communication and Collaboration

Empirical research regarding the business model subcomponent Communication is

about searching for validation or refutation of the Information Processing Hypothesis
(Section 5.1.2.5). This hypothesis states that smaller LSPs whose customers are usually
similar in size are typically reserved in terms of communicating company data whereas
effective and regular qualitative information exchange and processing is offered by
logistical LSEs. Research results in the reservation expectation misperception (Section
6.1.2.5). According to findings, potential Hidden Champions apply the Principle of
Open Communication and Collaboration. They manage to create customers’ trust which
is the key prerequisite for long-term business relationships.

At this stage, the role of communication for business success is further analyzed by
scoring the information exchange policies of the research cases. In addition to the
information from Table 35 and Table 36 in Section 6.1.2.5 I use qualitative statements
from the interview partners as indicators for the scores. An assignment is made
according to the statements’ most equivalent content. LSPs achieve a score of 1 if the
LSP lives key interaction principles, keeps an open dialogue or brings conflicts out into
7 Š In search of Hidden Champions: BMPS 265

the open. Score 2 equals to interactive decision making with frequent and regular
personal contacts. If statements indicate close contacts in general only, a score of 3 is
assigned. LSPs with communication policies restricted to give necessary integration are
assigned a score of 4. According to this scoring, the information exchange policies of
LSPs A, C, G, H and I are scored excellent (Table 64).

LSP Exemplary statements on information exchange Score

A x It is the LSP’s policy, to provide required data and services at any time at every location 1
to the respective responsible employee
x Interaction with customers is a company value
x Publication of a strategy paper for stakeholders
B x Access to sales figures at any time through the communication, information and service 3
system
C x Creation of one team consisting of LSP’s and customer’s employees 1
D x No regular contact to customers but easy contact if demanded 3
E x Conversation with the customer takes place twice per month if services are provided at 2
the customer’s location
x Conversation with the customer takes place once per month if services are provided at the
LSP’s location
x Annual meetings with the customer for reviewing past collaboration and fixing future
collaboration
F x Standard offering for customers is the warehouse management system that steers data 3
exchange between customer and LSP centrally
G x Philosophy is living open dialogues for customer’s trust and confidence 1
H x Interaction with customers as key principle 1
x Open dialogues
x Conflicts are brought out into the open
I x Value statement for open and clear communication 1
x Advocating open dialogues
x Proactive communication with customers
J x Daily contact of the managing director to companies’ managers and their inclusion into 2
decision processes
x Transparency through IT connectivity
K x Communication is restricted to necessary integration 4
L x Assignment of dedicated contact persons to each customer 3
M x Personal meetings of the owner with key customers 2
Score: 1 = Excellent = Interaction, open dialogue, active solving of conflicts
2 = Good = Interactive decision making, frequent and regular personal contacts
3 = Acceptable = In general close contacts
4 = Low = Necessary integration only

Table 64: Scoring information exchange

At this stage, a final comment on the link between information exchange behavior and
performance is made. As presented in Table 39 in Section 6.1.3.2, LSPs B, G and L
have had positive results without indicating decreases in recent years. While LSPs B’s
and L’s information exchange is scored acceptable, only LSP G is excellent in
communication. In contrast, LSPs C, E, and I have excellent or good scores in
information exchange but their profits have declined in recent years. LSP K as the
266 7 Š In search of Hidden Champions: BMPS

fourth LSP indicating declining profits has a low score on the business model
subcomponent Communication. However, the low willingness of LSPs to indicate data
on results does not allow a final statement about a clear indication of a relationship
between communication and performance.

7.2.9 Strategic Self-Sufficiency

In Section 5.1.2.6 the Complementarity and Reliability Hypothesis was formulated for
empirical research on the business model component Relationships. It states that LSPs
have a strong network with other LSPs which is characterized by reliability in
collaboration. Assets and services are complementary and provide mutually beneficial
cooperation opportunities. The key finding which is presented in Section 6.1.2.6 is that
potential Hidden Champions have a strong network of partners but they also secure their
independence by own investments. By doing so, a reliable and outstanding service
provision can be guaranteed at any time. I refer to the partner relationship misperception
and the Principle of Strategic Self-Sufficiency.

Based on this research outcome the score on the business model component
Relationships consists of the scoring for networking and independence. It is based on
the information from Figure 70 in Section 6.1.2.6. Networking is scored based on three
indicators for LSPs cooperation behavior. These indicators are ‘Partners’, ‘Network’ as
well as ‘Cooperations for market entry’ (not being subject to failure). Independence is
scored based on Figure 70’s cooperation behavior indicators ‘Preference on own
investments and acquisitions’, ‘Acquisition of former partners’ as well as ‘Customers
direct partnering and networking’ (not being applicable). The score is 1 if three of the
indicators apply, 2 if two of the indicators apply and 3 if only one indicator applies. The
score value of 4 is given only if none of the indicators was stated. The average of
scoring networking and independence is the final value for the Business Model
Scorecard on the component Relationship with figures being rounded, e.g. for 2.5 the
value is 3.

The proceeding in scoring is shown through the example of LSP F. Relating to

networking, LSP F stated making use of partners and not having had the experience that
cooperations are subject to failure. Thus, two of the three indicators apply, which is a
score of 2 for networking. Relating to independence, LSP F prefers its own investment
7 Š In search of Hidden Champions: BMPS 267

and acquisitions. LSP F has acquired former partners and did not confirm on customers
direct partnering and networking. Thus, LSP F’s score is 1 as three of the indicators for
independence apply. The sum of the scores for networking and independence is three,
which is divided by two and due to rounding the final score is 2. As a result, a good
relation between a strong network and independence can be found at LSPs D, E, F, I, J,
L and M (Table 65).

LSP A B C D E F G H I J K L M
Scoring networking 3 2 3 1 1 2 2 2 2 1 3 1 1
Scoring independence 2 3 2 3 3 1 3 3 2 3 4 3 3
Score 3 3 3 2 2 2 3 3 2 2 4 2 2
Score: 1 = Excellent = Excellent relation of strong network and independence
2 = Good = Good relation of strong network and independence
3 = Acceptable = Acceptable relation of strong network and independence
4 = Low = Weak relation of strong network and independence

Table 65: Scoring the relation between networking and independence

An interesting point is whether there is a relationship between the scores for networking
and the scoring on the business model component Product-Market-Offer. Therefore, I
compare LSPs’ portfolio strength for Customer Favor Striving, LSPs’ presence with
personal locations on continents and networking. The scores are shown in Table 66 and
the comparisons are also shown in Figure 93.

LSP A B C D E F G H I J K L M
Score portfolio strength (Table 58) 3 3 2 2 3 4 3 4 1 1 1 2 1
Score presence with personal 3 1 4 4 4 2 3 2 2 4 4 4 3
locations on continents (Table 60)
Score networking (Table 65) 3 2 3 1 1 2 2 2 2 1 3 1 1

Table 66: Comparison of scores for networking and Product-Market-Offer

268 7 Š In search of Hidden Champions: BMPS

4 Legend:

Product/Service
Market
3
SCORE

Networking
Product/Service
Network
2 Redundancy
Market
Network
Redundancy
1 Product/Service
Self-Sufficiency
A B C D E F G H I J K L M
LSP

Figure 93: Redundancy and Self-Sufficiency of Product-Market-Offer in the context of networking

The figure shows that LSPs D, E, J, L and M have a Market Network Redundancy in the
sense that although these LSPs have an excellent network they are not able to score
excellent or good in market coverage. Once more this view confirms the finding from
Section 6.1.2.6 on potential Hidden Champions’ Principle of Strategic Self-Sufficiency,
i.e. the partner relationship misperception. LSPs E, F, and H have excellent or good
networking scores but fail in transformation to Product/Service in which their scores are
acceptable or low (Product/Service Network Redundancy). Only LSP K manages to
have an excellent Product/Service offering with acceptable networking. LSP K is self-
sufficient relating to Product/Service (Product/Service Self-Sufficiency).

In a similar way to the above comparison, the relationship between scores for indepen-
dence and the scoring on the business model component Product-Market-Offer is in
focus (Table 67 and Figure 94).

LSP A B C D E F G H I J K L M
Score portfolio strength (Table 58) 3 3 2 2 3 4 3 4 1 1 1 2 1
Score presence with personal 3 1 4 4 4 2 3 2 2 4 4 4 3
locations on continents (Table 60)
Score independence (Table 65) 2 3 2 3 3 1 3 3 2 3 4 3 3

Table 67: Comparison of scores for independence and Product-Market-Offer

7 Š In search of Hidden Champions: BMPS 269

Legend:
4 Product/Service
Market
Independence
3
SCORE

Product/Service
Independence
Overextension
Market
2 Independence
Overextension
Product/Service
1 Network Advantage
Market
A B C D E F G H I J K L M Network Advantage

LSP

Figure 94: Independence Overextension and Network Advantage of Product-Market-Offer in the

context of independence

Figure 94 shows that LSPs J, K and M have a network advantage in terms of

Product/Service (Product/Service Network Advantage) and LSP B in terms of market
coverage (Market Network Advantage). At LSP C networking would be useful for better
market coverage, i.e. LSP C is characterized by Market Independence Overextension.
By networking LSP F could improve Product/Service offerings (Product/Service
Independence Overextension).

By summarizing the above considerations three groups of potential Hidden Champions

relating to the business model components Product-Market-Offer and Relationships can
be identified (Figure 95). First, there are the Networkers (LSPs B and C), second, the
Individualists (LSPs D, E, H and L) and third, the Matchers (LSPs F, J, K and M) that
all approach both networking and independence. This summary shows that amongst all
research cases only LSPs B and C are true networkers and thus the finding from Section
6.1.2.6 regarding the partner relationship misperception is reinforced.
270 7 Š In search of Hidden Champions: BMPS

Issue LSP A B C D E F G H I J K L M

Product/Service
Network Redundancy
Networking

Market
Network Redundancy
Product/Service
Self-Sufficiency
Product/Service
Independence Overextension
Independence

Market
Independence Overextension
Product/Service
Network Advantage
Market
Network Advantage

Legend: Networker: LSPs B and C

Individualist: LSPs D, E, H and L
Matcher: LSPs F, J, K and M
No statement possible: LSPs A, G and I

Figure 95: Three groups of actors in terms of the business model components Product-Market-Offer and
Relationships

7.2.10 Mutual Trust

For the business model component Exchange Mechanism the Rules Hypothesis is
formulated (Section 5.1.2.7). According to this hypothesis, exactly defined rules and
clear contracts are the norm and the most effective way to guarantee effective
performance. Mutual trust is enhanced through systems’ integration and transparency.
My research findings which are presented in Section 6.1.2.7 validate this hypothesis. I
refer to the Principle of Mutual Trust for the prevailance of the formal process of
defining rules and norms as basis for trust.

The research cases’ behavior in terms of Exchange Mechanism and visibility is scored
based on statements from the interview partners which are given in part 2.10 in the
‘Questionnaire/Interview Manual – Logistics Service Provider’. Due to its qualitative
aspect scoring is difficult and mainly based on personal evaluation from insights
gathered during the visits at the LSPs’ sites, from interviews and from published
information. The assignments are made according to the statements’ best fit with
indicators defined through the examples. Hence, a score of 1 is assigned for total
customer integration and full visibility. The LSP’s Exchange Mechanism is scored 2 if
transparency is ensured in all processes. A score of 3 is assigned if visibility is secured
through interactive contact and limited to relevant areas. Score 4 applies if only
information technology is deployed for information exchange or possibilities for
7 Š In search of Hidden Champions: BMPS 271

personal exchange are given. As Table 68 shows, Exchange Mechanism and visibility
of LSPs A, D and E are excellent and good at LSPs B, C, I, K and M.

LSP Examplary description of information exchange Score

A x Goal is the integration of customers into platform concepts 1

B x Transparency into all processes 2
x Broad scope in information technology
C x Creation of visibility across the supply chain 2
x Visibility for customers from anywhere in the world through latest technology
D x Common SAP solution for data exchange between customers and LSP 1
E x ‘Open book’ policy 1
F x Necessary data exchange through WMS solution 4
G x Honest communication of necessary information 4
x Reference to EDI only
H x Interactive contact with customers 3
I x One division with focus on creating transparency and processing real-time information 2
J x Universal tracking and tracing 4
x Use of centralized and decentralized systems
K x End-to-end visibility of all material and finished products moving within a supply/ 2
distribution chain
L x Assignment of dedicated contact persons to each customer 4
M x Regular performance reports provide clear insights into all activities and disclose 2
possibilities for further improvements
Score: 1 = Excellent = Excellent in Exchange Mechanism/visibility (total customer integration, full visibility)
2 = Good = Good in Exchange Mechanism/visibility (full transparency into processes)
3 = Acceptable = Acceptable in Exchange Mechanism/visibility (visibility to relevant areas through interactive contact)
4 = Low = Low in Exchange Mechanism/visibility (basic information technology, personal exchange)

Table 68: Scoring Exchange Mechanism and visibility

Throughout this study the importance of trust is emphasized. For example, trust is part
of the Virtual Logistics Hypothesis in Section 5.1.2.3. Most importantly, trust is
considered as a key element for Total Integration and thus it is the core issue for the
Principle of Incrementalism in Section 6.1.1.1 and for the Principle of Customer Favor
Striving in Section 6.1.2.1 which is applied with regard to the business model
subcomponent Product/Service. Now the question is whether there is a relationship
between Exchange Mechanism and Product/Service (Table 69).

LSP A B C D E F G H I J K L M
Score Exchange Mechanism 1 2 2 1 1 4 4 3 2 4 2 4 2
(Table 68)
Score portfolio strength (Table 58) 3 3 2 2 3 4 3 4 1 1 1 2 1
Exchange Mechanism scored higher
than Product/Service
Exchange Mechanism scored lower
than Product/Service
Exchange Mechanism and
Product/Service with identical score
Table 69: Comparison of the scores for Exchange Mechanism and Product/Service
272 7 Š In search of Hidden Champions: BMPS

The outcome is indifferent as there is one group of LSPs that have a higher score on
Exchange Mechanism than on Product/Service (LSPs A, B, D, E, and H). The other
group (LSPs G, I, J, K, L and M) has lower scores in Exchange Mechanism despite
having excellent (LSPs I, J, K and M) or good (LSP L) scores on Product/Service. Four
of the seven LSPs which have managed to achieve profits in recent years (B, C, E, G, I,
K and L, Table 39) belong to the latter group with Exchange Mechanism scoring lower
than Product/Service (LSPs G, I, K and L). Although due to data restrictions in terms of
publishing performance figures an overall valid statement is not possible, there is the
tendency to refute a relationship between an excellent or a good score in Exchange
Mechanism and an excellent or a good score in Product/Service and excellent or good
performance.

7.2.11 Niche Sovereignty

For the eleventh business model (sub-)component, Performance Measurements, the

Significant Turnover Hypothesis was formulated (Section 5.1.3.1). Total turnover is
used as possible indicator for market leadership. The outcome of my empirical research
(Section 6.1.3.1) is that potential Hidden Champions remain hidden in terms of market
leadership measured in terms of turnover (market leadership misperception) but they are
characterized by niche sovereignty (Principle of Niche Sovereignty). Potential Hidden
Champions define their niches either by concentration on a specific sector, by creation
of a new industry segment through innovative solutions, by focusing on a specific mode
of transportation or specific solutions, or they define one specific key customer as their
niche. Within the targeted niche successful LSPs manage to increase turnover in the
course of time and to foster their excellent position in the niche.

The Business Model Scorecard on the component Performance Measurements is about

scoring the development of turnover at the research cases. The score is 1 if turnover
increases in the course of time. A score of 2 is assigned if the LSP manages a successful
turnaround, i.e. increases turnover again after a decrease. If the turnover figure is not
available or not applicable for comparison with other LSPs, score 3 is applied. For
decrease of turnover in the course of time the LSP is scored 4 on the business model
component Performance Measurements. Figure 72 from Section 6.1.3.1 is the basis for
scoring. For example, the turnover growth of LSP A is indicated as positive for 2004
over 2003 by the peach lozenge in Figure 72 while the turnaround in turnover
7 Š In search of Hidden Champions: BMPS 273

development at LSP E is shown by the orange rectangle that was below 0 in 2003 and
above 20% in 2004.

As Table 70 shows, LSPs A, B, C, D, G, H, and M have an excellent turnover

development. LSPs E and F have managed to successfully cope with a turnaround in
turnover development, thus scoring 2. From the research cases only LSPs J, K and L
with acceptable scores as well as LSP I with a low score do not fulfill the prerequisite
for a Hidden Champion in terms of the business model component Peformance
Measurements.

LSP A B C D E F G H I J K L M
Score 1 1 1 1 2 2 1 1 4 3 3 3 1
Score: 1 = Excellent = Positive development of turnover
2 = Good = Successful turnaround in turnover development
3 = Acceptable = Turnover remains hidden or is not applicable for comparisons
4 = Low = Negative development of turnover

Table 70: Scoring development of turnover

(Based on information from Figure 72)

Now the question has to be answered whether there is a possible relationship between
turnover development and adaptability in Business Purpose as well as Customer Favor
Striving. Therefore, the scores of the three related business model (sub-)components
Business Purpose, Product/Service and Performance Measurements are compared in
Table 71 and in Figure 96.

LSP A B C D E F G H I J K L M
Score Business Purpose (7.2.3) 2 3 2 1 1 2 4 2 4 4 2 4 1
Score Product/Service (7.2.4) 3 3 2 2 3 4 3 4 1 1 1 2 1
Score Performance Measurements 1 1 1 1 2 2 1 1 4 3 3 3 1
(Table 70)

Table 71: Comparison of the scores for the components Business Purpose, Product/Service and
Performance Measurements
274 7 Š In search of Hidden Champions: BMPS

Legend:

Turnover
4 development
Adaptability in
business purpose
Customer favor
3
SCORE

striving
Strong relation-
ship with both
2 parameters
Strong or medium
relationship with
both parameters
1 Strong or medium
A B C D E F G H I J K L M with one and low
relationship with
LSP the other
parameter

Figure 96: Relationship between turnover development and adaptability in Business Purpose as well as
Customer Favor Striving

The comparison shows that at LSPs C, D, E, L and M turnover development strongly

correlates with adaptability in Business Purpose for better meeting customer needs and
with Customer Favor Striving. Here the scores differ only slightly, i.e. by one level at
the most. Still for LSPs A, B, F, J and K there is a strong (scores differ one level only)
or medium (scores differ two levels) correlation of turnover development with the two
components. At LSPs G, H and I at least one of the two compared parameters, i.e.
adaptability in Business Purpose and Customer Favor Striving, does not correlate with
the score on turnover development. As a result, however, with proof from ten of the
thirteen research cases, there is a correlation between turnover development and the
LSPs’ approach in adapting their Business Purpose to meeting customer needs.

7.2.12 Customer Granularity

The Risk Aversion Hypothesis in Section 5.1.3.2 – which is formulated regarding the
business model component Rewards – states, that smaller LSPs are more risk averse due
to size disadvantages and therefore struggle in earning high margins. However, my
research finding is that potential Hidden Champions take risks by focusing on a few
strong and established key customers from one or several sectors. This approach is risky
for logistical SMEs as it includes making heavy investments to offer individualized
customer solutions. With this approach they manage to increase turnover and profits in
the course of time as reward for their successful business relationships (Section 6.1.3.2).
I refer to the willingness to take risks misperception and the Principle of Customer
Granularity regarding this research finding.
7 Š In search of Hidden Champions: BMPS 275

Now the profit development of the research cases is scored in Table 72. A score of 1 is
assigned to LSPs that have succeeded in increasing profits in the course of time. LSPs
that are still profitable but also reported decreasing business results are scored with 2. If
the LSP is constrained in publishing any figures of its business results the score is 3 and
for unprofitable LSPs a score of 4 is assigned. Table 39 in Section 6.1.3.2 is the basis
for scoring.

LSP A B C D E F G H I J K L M
Score 3 1 2 3 2 3 1 3 2 3 2 1 3
Score: 1 = Excellent = Profitable LSP
2 = Good = Profitable LSP but also with decreasing profits in the course of time
3 = Acceptable = LSP not disposed to provide result figures
4 = Low = Unprofitable LSP

Table 72: Scoring business result

According to the scoring and as far as data are available, LSPs B, G and L are most
successful in terms of the business model component Rewards as they have managed to
raise profits increasingly in the course of time. LSPs C, E, I and K are also profitable
but they have also had to deal with profit decreases. All other LSPs have not been
willing to provide any information about their business result.

7.2.13 Conclusions on scoring the micro dimensions

In the above sections (7.2.1 to 7.2.12) the twelve dimensions of a business model’s
micro layer are scored. The resulting Business Model Scorecard for the micro layer is
shown in Table 73.

Business model’s micro dimension LSP

A B C D E F G H I J K L M
Score Value Propostion (Table 53) 3 4 2 1 3 2 3 3 4 4 2 2 2
Score Target Group (Table 54) 4 2 3 3 1 3 1 2 3 1 4 4 2
Score Business Purpose (Table 57) 2 3 2 1 1 2 4 2 4 4 2 4 1
Score Product/Service (Table 58) 3 3 2 2 3 4 3 4 1 1 1 2 1
Score Market (Table 60) 3 1 4 4 4 2 3 2 2 4 4 4 3
Score Input Factors (Table 61) 2 3 4 3 3 2 2 2 3 4 3 4 2
Score Organization (Table 62) 2 3 2 4 3 3 2 4 4 1 1 1 1
Score Communication (Table 64) 1 3 1 3 2 3 1 1 1 2 4 3 2
Score Relationships (Table 65) 3 3 3 2 2 2 3 3 2 2 4 2 2
Score Exchange Mechanism (Table 68) 1 2 2 1 1 4 4 3 2 4 2 4 2
Score Performance Measurements (Table 70) 1 1 1 1 2 2 1 1 4 3 3 3 1
Score Rewards (Table 72) 3 1 2 3 2 3 1 3 2 3 2 1 3
Table 73: Business Model Scorecard for the micro layer
276 7 Š In search of Hidden Champions: BMPS

At this stage I would like to address three issues. First, while scoring is based on the
empirical research results that are presented in sections 6.1.1, 6.1.2 and 6.1.3, it is
sometimes difficult to carry out due to the weight of qualitative statements. For
example, a finding of my research on the business model component Value Proposition
is, that customer mobilization through the LSP which is a single source supplier for a
part of its customer’s supply chain, is decisive to the LSP having become irreplaceable
to customers. However, customer mobilization is a qualitative statement that is very
difficult to score. Nevertheless, scoring has been done according to all information
provided and insights gained during the interviews and visits at the research cases’ sites.
These difficulties have to be dealt with on several dimensions but are solved by defining
scoring rules as precise and adequately as possible.

Second, while scoring the micro layer of the business model, Total Integration as the
key issue and origin for this research study had to be kept in focus. For this reaon
scoring single dimensions is no longer sufficient and further comparisons have to be
made and relationships amongst dimensions have to be derived. These comparisons and
relationships are chosen and conducted due to their relevancy for Total Integration. An
overview of them is presented in Table 74.
7 Š In search of Hidden Champions: BMPS 277

Business model’s Comparison / Relationship Result

micro dimension
Value Proposition [No comparisons are made / No relationships are derived]
Target Group [No comparisons are made / No relationships are derived]
Business Purpose [No comparisons are made / No relationships are derived]
Product/Service Comparison of the scores for Active Indifferent behavior at the research cases –
Offering and Actual Deployment two groups with either:
x Deploying the actual offering for meeting
customer needs best
x Not making best use of the service
portfolio
Market Relationship between portfolio Indifferent behavior at the research cases –
strength and international presence four groups:
x International Specialists
x International Generalists
x Geographic-Focused Specialists
x Geographic-Focused Generalists
Input Factors Relationship between asset Profitable LSPs have rather acceptable or low
ownership and performance scores of the asset ownership’s situation
Organization Comparison of the scores for Indifferent behavior at the research cases –
Product-Market-Offer and three outcomes:
Organization x Organizational Deficit for
Product/Service
x Organizational Advantage for Market
x Organizational Deficit for Market
Communication [No comparisons are made / No relationships are derived]
Relationships Comparison of scores for networking Indifferent behavior at the research cases –
and Product-Market-Offer three outcomes:
x Market Network Redundancy
x Product/Service Network Redundancy
x Product/Service Self-Sufficiency
Comparison of scores for Indifferent behavior at the research cases –
independence and Product-Market- four outcomes:
Offer x Product/Service Network Advantage
x Market Network Advantage
x Market Independence Overextension
x Product/Service Independence
Overextension
Exchange Comparison of the scores for Indifferent behavior at the research cases –
Mechanism Exchange Mechanism and two groups with:
Product/Service x Exchange Mechanism scored higher than
Product/Service
x Exchange Mechanism scored lower than
Product/Service
Performance Comparison of the scores for the Indifferent behavior at the research cases –
Measurements components Business Purpose, four groups:
Product/Service and Performance x Strong relationship with both parameters
Measurements x Strong or medium relationship with both
parameters
x Strong or medium with one or low
relationship with the other parameter
Rewards [No comparisons are made / No relationships are derived]
Table 74: Overview of conducted comparisons and relationships amongst selected micro dimensions

Table 74 shows that there are tensions every LSP faces when aiming to become a Total
Integration provider. These tensions are dealt with indifferently in the research cases. In
this context, Dodd and Favaro also identified three tensions every company independent
278 7 Š In search of Hidden Champions: BMPS

of industry faces, which are Profitability Versus Growth, Short Term Versus Long Term
and Whole Versus Parts (Dodd and Favaro 2006, pp. 62 et seqq.). The authors’ key
finding is that if companies ignore the common bond which underlies a tension, good
performance on one objective will inevitably lead to a poor performance on the other
objective. According to the authors, customer benefit is the common bond between
profitability and growth, sustainable earnings between short-term and long-term, and
diagonal assets between whole and parts (Dodd and Favaro 2006, pp. 71-74).

The conclusion I draw from my scoring of the business model’s micro layer, and
summarizing key objectives for Total Integration, is that LSPs which aim at becoming
such a provider also face three specific tensions. I refer to the first tension as Scope
Versus Focus, which primarily tangents LSPs’ Product-Market-Offer. Independence
Versus Networking is the second tension which is for example implied in managing the
trade-off between asset ownerhip and outsourcing services to other LSPs. Finally, it is
the tension between Performance Versus Sustainability that LSPs have to deal with.
This is of particular interest as the industry is traditionally characterized by low margins
and strong activities regarding mergers and acquisitions.

In conclusion, the comparisons and relationships as summarized in Table 74 disclose a

strong indifference in the research cases’ behavior in managing the tensions
characteristic for Total Integration. Analyzing the micro layer of a business model does
not result in an unique perspective of the research cases’ strengthening of common
bonds between objectives. Therefore, there is a need to look at the macro layer and to
conduct additional scoring and evaluations.

7.3 Scoring performance along the macro dimensions

While in Section 7.2 the micro dimensions are scored, in Section 7.3 scoring of the
macro dimensions is conducted, i.e. relating the overall business model of the LSP and
the customer. Again each sub-section starts with a summary containing the hypothesis,
misperception and business principle. The weights used for scoring the macro
dimensions correspond to the weights used for micro dimensions’ scoring as defined in
Table 51.
7 Š In search of Hidden Champions: BMPS 279

7.3.1 Gradual Service Extension, Role Complementarity, and Continuous

Innovation

The first hypothesis on the macro layer is formulated regarding the legal relationship
between the LSP and the customer. In the focus of the hypothesis are the business
models of both parties covering the question of how the business model of the LSP fits
with the business model of the customer (Figure 27). I refer to ‘macro’ as the legal
relationship with the customer as a third, i.e. external party, is involved in the analysis.
It does not primarily focus on dimensions inside the LSP but rather includes the
‘Function of Customer’ for Total Integration.

In Section 5.2.1 failure of Integrated Supply Network Management is the given reason
in the Customer Centricity Hypothesis which states that LSPs are self-centred in
behavior and focus too strongly on their own requirements while neglecting customers’
needs. It further states that LSPs simply underestimate the potential full value of
customer knowledge and service, and do not develop the relationship required for
business success. However, empirical research resulted in the insight of the
misperception relating to lacking attention to customers. For arguments I identified in
Section 6.3.1 the business principles of Gradual Service Extension (confidence and
excellent performance increase customers’ readiness to outsource additional services
gradually while they actively contribute to logistics innovations), Role
Complementarity (successful LSP-customer relationships are characterized by
balancing responsibility for the customer’s supply chain, i.e. the relationship is
characterized by clarity in complementary roles with a defined part of the supply chain
for the LSP and the overall lead at the customer) and Continuous Innovation (potential
Hidden Champions are innovators rather than commodity providers or generalists).

First, the scoring related to the LSP case studies’ behavior in terms of Gradual Service
Extension is carried out. LSPs are assigned a score of 1 if their key strength is adapting
to customers’ needs and growing with their customers from the beginning of a customer
relationship, proven and intensively demonstrated over years. A score of 2 is given if
LSPs make strong efforts in extending their service offerings, not from the beginning
but from a later stage of their relationships to customers. LSPs with limited business
activities in extending service offerings, in particular with focus on basic value-added
services, are scored with 3. If LSPs do not demonstrate any efforts in Gradual Service
280 7 Š In search of Hidden Champions: BMPS

Extension they are assigned a score of 4. The assignment of the LSPs is basically made
according to examples and the overall impression gathered during the in-depth
empirical research of the selected LSPs (Table 75).

LSP Representative examples for behavior in terms of Gradual Service Extension Score

A Relationship with a tractor manufacturer for almost twenty years; in the beginning the key 2
service was only to deliver tractors to dealers; later on also inventing and delivering
retrofitting services for all types of tractors as well as dispatching accessories to the dealers
B Philosophy to develop from an LSP with customer-specific SCM solutions to an LSP with 3
customer-specific Customer Relationship Management (CRM) solutions, i.e. aiming for
customer retention through value-added services like financial services
C Partner for a large brewery in the United Kingdom for ten years; apart from transportation 3
only operates and manages a distribution center
D One of the core strengths is an ongoing adaption of the service offering to customer needs 1
E Strong efforts to grow with customers; for example for a writing tools producer the LSP 1
prints text onto pencils, fills ink into pens or adds tags and wrapping
F Partner for a liquor producer for close to ten years; key service has been transportation of 2
bottles but increasingly inclusion of the LSP into the production process; for example adding
CDs to bottles for special Christmas sales besides transportation
G Transportation partner for a Swiss engineering company; value-added services have been 3
supplemented but target only the distribution offering
H Partner for the chemical industry for more than thirty years; while in the beginning 2
transportation was the single service, provided contract logistics offerings have been
supplemented in the course of time
I LSP suffers from short contract duration with customers, i.e. investments in e.g. automation 4
for service scope extension are considered to be not lucrative
J Core business has been to manage a transportation network only that enhances the 4
geographic reach for its partners
K Most significant intensity for service extension by developing from an external partner to an 1
internal full-service LSP in the course of time
L Strong concentration on the core business of transportation and movement services but with 3
some efforts for service extension by basic value-added service offerings like packing
services
M Strategy to grow with the customers; for example start of a relationship with a premium 3
bicycle producer ten years ago with offering transportation services only; three years later
warehousing services were added; currently the customer does not expect to further increase
the outsourcing spectrum
Score: 1 = Excellent = Overall excellent behavior in Gradual Service Extension
2 = Good = Overall good behavior in Gradual Service Extension
3 = Acceptable = Overall acceptable behavior in Gradual Service Extension
4 = Low = Overall weak behavior in Gradual Service Extension

Table 75: Scoring Gradual Service Extension

Empirical research provides the insights that LSPs D, E and K are outstanding in terms
of adapting their service portfolios to customer requirements. In the course of their
relationships to customers LSPs A, F and H have also extended their service portfolios.
While LSPs I and J neglect portfolio revisions better meet customer needs, the
remaining LSPs’ (B, C, G, L and M) efforts in gradual service extension are limited.
7 Š In search of Hidden Champions: BMPS 281

In a next step scoring is conducted for the state of Role Complementarity. Table 76
provides examples which are representative of the overall state of LSPs’ relationships to
their customers. In general, an assignment of scores is difficult due to lack of
measurable parameters and thus scoring is primarily based on practical insights. If the
relationship of LSP and customer is characterized by clearly assigned roles and
responsibilities the assigned score is 1 and it is 2 if there are already some restrictions.
The score is 3 if clarity in operative and integrative responsibilities is missing. Role
Complementarity is scored 4 if there are no indicators for cooperation in Total
Integration services.

LSP Representative examples for behavior in terms of Role Complementarity Score

A Key focus on transportation with clearly assigned role from Customer I; the global 1
automotive group dedicated the transportation part of its supply chain to LSP A whose
responsibility includes also all related value-added services
B Clear agreement on customers being responsible for Total Integration 2
C Highly adhering to joint collaborative integration 1
D Within almost three decades of collaboration clearly assigned roles and responsibilities for 1
Customer X’s supply chain
E Dovetailing of LSP and customer in managing supply chain parts 3
F Active approach by the LSP to fill an important part of the customer’s supply chain 3
G Role allocation is not clearly defined from the beginning of the partnership but develops in 3
the course of time
H Close and interactive contacts with customers for process developments and definitions as 3
key competitive strength; clarity in complementary roles partially missing
I LSP’s role is to manage integrated solutions 2
J Clear focus on network management with viewing customers as the only ones able for Total 4
Integration
K The clear assignment to Total Integration is considered to be disadvantageous against 4
assigning complementary roles for LSP and customer
L Assignment of operative service parts of the customers’ supply chain; LSP lacks in fulfilling 3
customers’ expectations for consulting services
M In principle clear role dedications but fragile in stability in the course of the relationship 2
Score: 1 = Excellent = Overall excellent in Role Complementarity
2 = Good = Overall good in Role Complementarity
3 = Acceptable = Overall acceptable in Role Complementarity
4 = Low = Overall weak in Role Complementarity

Table 76: Scoring Role Complementarity

(examples for arguments based on Table 42 in Section 6.3.1.2)

According to insights gathered during empirical research, LSPs A, C and D target Role
Complementarity very strong. Also, LSPs B, I and M are focusing on Role
Complementarity but with minor restrictions in collaborative behavior. With LSPs J
and K rejecting cooperation for integrative services, all remaining LSPs’ (E, F, G, H
and L) relationships with customers are characterized by very limited efforts in Role
Complementarity.
282 7 Š In search of Hidden Champions: BMPS

The third business principle identified during research on the Customer Centricity
Hypothesis is Continuous Innovation. LSPs are assigned a score of 1 for excellent
innovation capital if they find outstanding specialized solutions for very specific
customer needs. A score of 2 is assigned for good, a score of 3 for acceptable and a
score of 4 for low innovation capital. Scoring is based on the overall, i.e. prevailing
state of innovation at the LSPs discovered during empirical research (Table 77).

LSP Representative examples for behavior in terms of Continuous Innovation Score

A Solutions for repairing 1

B Special concept for pharma logistics (cooling logistics) 2
C Europe’s leading RFID implementation program 4
D Outstanding innovative total solutions 1
E Specialized assembling offerings 1
F Convenience offerings like assembling or recycling 3
G Alternative transportation offerings 4
H Specialized assembling offerings 1
I Offering leasing options 1
J Premium service offering for transportation of temperature controlled and sensitive goods 4
K Highly flexible reactions on customers’ volatile needs 3
L Networking for being flexible to respond to the growing investor based business in the home 2
country
M Specialized assembling offerings 1
Score: 1 = Excellent = Overall excellent innovation capital
2 = Good = Overall good innovation capital
3 = Acceptable = Overall acceptable innovation capital
4 = Low = Overall weak innovation capital

Table 77: Scoring Continuous Innovation

(based on the part ‘Innovation capital’ in question 2.6.2.2. of the ‘Questionnaire/Interview
Manual – Logistics Service Provider’)

Insights gained from the LSPs have shown that close to half of the research cases LSPs
(A, D, E, H, I and M) are excellent innovators. Eight of the thirteen LSP research cases
have excellent or good (in addition LSPs B and L) innovation capital. The remaining
five LSPs fail to offer innovative solutions or only offer new services that are already
common in the industry.

In Table 78 individual scores on the three business principles identified when doing
research on the Customer Centricity Hypothesis are summarized and the average score
for each of the LSPs is added.61 This shows that LSPs A and D address attention to

61
If the average figure was .4 or less it was rounded down to the lower integer number and if the
average figure was .5 or over it was rounded up to the next higher integer number.
7 Š In search of Hidden Champions: BMPS 283

customers in an excellent manner, followed by LSPs B, E, H, I and M which still put

lots of effort into paying attention to customers. While lack of attention to customers
applies wholly to LSP J, this also applies to some extent to LSPs C, F, G, K and L.

LSP A B C D E F G H I J K L M
Score Gradual Service Extension 2 3 3 1 1 2 3 2 4 4 1 3 3
Score Role Complementarity 1 2 1 1 3 3 3 3 2 4 4 3 2
Score Continuous Innovation 1 2 4 1 1 3 4 1 1 4 3 2 1
Average score on the Customer 1 2 3 1 2 3 3 2 2 4 3 3 2
Centricity Hypothesis

Table 78: Summary of the scores on business principles identified in research on the Customer
Centricity Hypothesis

In summary, half of the research cases’ business model fits excellently or well with the
business model of the customer. These LSPs successfully manage to exploit the legal
relationship with the customer, i.e. dragging out a ‘macro’ dimension, in the sense of
company externals for surviving in the area of logistics and enhancing business
relationships.

7.3.2 Reliable Execution

A joint business model of LSP(s) and customer is the second perspective I analyze
regarding a business model’s macro layer. I refer to ‘macro’ as the analysis is no longer
LSP internal only but also includes customers and other LSPs, i.e. external parties. In
other words, the ‘Role of Collaboration’ is in focus. In Section 5.2.2 the Partnership
Hypothesis is formulated stating that overall supply chain responsibility can be aimed
for from the beginning of the partnership that is based on a joint (organizational) entity
of an LSP and its customer, and possibly with other LSPs. However, empirical research
has shown that collaboration works only to some extent which I refer to as the
collaboration misperception. Collaboration works if the business principle of Reliable
Execution is followed (Section 6.3.2). For successful collaboration, partners have to
stick to special conditions and to make agreements. Through collaboration, customer
value is created and LSPs manage to intensify customer relationships.

Now, I score Total Integration attempts through partnerships in Table 79. Assignment to
scores is based on the results from Table 45 in Section 6.3.2. LSPs receive a score of 1,
if they have entered into joint ventures with LSPs and customers or have formed other
entities for collaboration like strategic cooperations or network partnerships. A score of
284 7 Š In search of Hidden Champions: BMPS

2 is assigned if joint venture experience has been made with either LSPs or customers or
if only strategic cooperations have been formed with both LSPs and customers. For
experience restricted to strategic cooperations with either LSPs or customers the score is
3, and it is 4 if no collaborative entities have been formed so far or if the LSP is already
a joint venture itself.

LSP Collaboration behavior of LSP research cases Score

regarding the provision of integration services
A JVs with LSPs; no collaborative entities with customers 2
B Neither collaboration with LSP nor with customer stated 4
C JV with LSP; no collaborative entities with customers 2
D JVs with LSPs; JV with customer 1
E Strategic cooperation with LSP and partner in networks; JV with customers 1
F No collaborative entities with LSPs; JV with customer 2
G Neither collaboration with LSP nor with customer stated 4
H JVs and cooperations with LSPs; JVs and partnerships with customers 1
I Cooperations in supply chain development and management consulting with LSPs only; no 3
collaborative entities with customers
J Cooperations with LSPs and partner in networks only; no collaborative entities with 3
customers
K [Not applicable as LSP K is a JV] 4
L JV with LSP, cooperations and partnerships with LSPs; no collaborative entities with 2
customers
M Cooperations with LSPs and partner in networks; cooperations with customers 2
Score: 1 = Excellent = Very strong efforts for collaboration in order to provide integration services
2 = Good = Strong efforts for collaboration in order to provide integration services
3 = Acceptable = Acceptable efforts for collaboration in order to provide integration services
4 = Low = No efforts at all for collaboration in order to provide integration services

Table 79: Scoring Reliable Execution

The above table shows that LSPs D, E and H have undertaken very strong efforts for
collaboration with both customers and LSPs in order to provide integration services.
The efforts of LSPs A, C, F, L and M are strong. Partnership is not a key point for LSPs
I and J with a score of 3 as well as for LSPs B, G and K that are scored 4 (the latter for
the reason, that it is a JV itself, which does not state any collaborative behavior). Thus,
for roughly two third of the research cases collaboration with LSPs and customers is
important for offering strategic, i.e. integrative services.

7.3.3 Courage and Self-Confidence as well as Defense and Attack

The third macro view relates to company size. Size is important in the external
perspective as for example in competition. The factor of size is implied also in Hidden
Championship that is restricted to small- or medium-sized LSPs in contrast to LSPs that
are large in size. For this reason, my empirical research is conducted in order to verify
7 Š In search of Hidden Champions: BMPS 285

the Size Compatibility Hypothesis that I formulated for the analysis of the issue of size
(Section 5.2.3). The hypothesis states that Integrated Supply Network Management is a
comprehensive concept with limited scope for SMEs. If at all and at best, SMEs in
logistics are able to provide Total Integration services only for customers of similar
size. Although SMEs in logistics put efforts into overcoming their resource shortage,
they are nevertheless very limited in full concept implementation. My result on the Size
Compatibility Hypothesis is the power of smallness misperception (Section 6.3.3) with
potential Hidden Champions’ business principles Courage and Self-Confidence
(conviction and willingness to be confronted with large-scale project challenges) as well
as Defense and Attack (defense of a specific company size, i.e. a position of being small
enough to remain independent and attack a growth position, i.e. being large enough to
follow customers in international business).

Now potential Hidden Champions’ Courage and Self-Confidence in approaching large

customers is scored. According to the EU Commission’s definition, customers are
considered to be large if they have 250 or more employees, if their turnover exceeds
50 m. euros and if their yearly accounting balance is higher than 43 m. euros (IfM 2004,
p. 4). The research cases LSP are assigned a score of 1 if almost only large customers
are served. Their score is 2, if there is a dominance of large customers in the portfolio
supplemented by small- and medium-sized companies. For LSPs that have a balanced
mix of small/medium and large-sized customers the assigned score is 3 while LSPs that
serve only small- and medium-sized customers are scored with 4 (Table 80).
286 7 Š In search of Hidden Champions: BMPS

LSP Courage and Self-Confidence (customer portfolio) Score

A Core industry segment of automotive is characterized by large customers 1

(>80% of customers are automotive manufacturers)
B Customer list is dominated by large OEMs 2
C Customer list is dominated by large customers 2
D Portfolio with hardly any small- or medium-sized customers 1
E Avoidance of dependency on a specific customer, i.e. at the most 10% of turnover 3
generation by one customer; both small/medium as well as large customers are served
F Customer reference list dominated by large global players 2
G Mainly local, small- or medium-sized customers served 4
H Main customer groups are large forwarders, industrial and trading companies, automotive 1
manufacturers or airlines
I Both small/medium and large customers in reference portfolio 3
J Small-/medium-sized customers/partners only 4
K Large customers only served 1
L Only small- and medium-sized customers are served 4
M Customer portfolio is characterized by a mix of customers’ sizes 3
Score: 1 = Excellent = Primarily services for large customers only
2 = Good = Dominance of large customers
3 = Acceptable = Balanced mixed customer portfolio (small/medium and large customers)
4 = Low = Prevailing small- and medium-sized customers

Table 80: Scoring Courage and Self-Confidence

According to Table 80, the most courageous and self-confident LSPs are A, D, H and K
(score of 1) followed by LSPs B, C and F (score of 2). LSPs E, I and M (score of 3) and
LSPs G, J and L (score of 4) are reserved in approaching large customers with their
service offerings.

Finally, LSPs are scored in terms of applying the business principle of Defense and
Attack (Table 81). This principle states that potential Hidden Champions survive in
competition for the reason that they manage to defend their independence while
expanding to be able to operate globally. LSPs are scored excellent if they manage to
defend their independent position and manage to create prerequisites for growth for
being successful in global business. If LSPs have minor lacks in creating attacking
prerequisites their score is good. If they fail in natural growth and thus lack
prerequisites for attacking LSEs in logistics their score is acceptable. LSPs that lose
their independent or reviewable small- and medium company size are scored low. The
parameter used for assignment is LSPs’ turnover development as presented in Figure
72, i.e. excellent scored LSPs’ turnover growth is beyond the 2004 average of 13.1%
while it is below for acceptable scored LSPs (Table 81).
7 Š In search of Hidden Champions: BMPS 287

LSP A B C D E F G H I J K L M
Score Reliable Execution 3 3 3 1 1 4 4 4 3 2 4 2 1
Score: 1 = Excellent = Defense of independent position and creation of attacking prerequisites
(turnover growth beyond the 2004 average of 13.1%; Figure 72)
2 = Good = Defense of independent position but with minor lacks in creating attacking prerequisites
3 = Acceptable = Failure in natural growth (turnover growth below the 2004 average of 13.1%; Figure 72),
thus lacking attacking prerequisites
4 = Low = Loss of independent or reviewable small/medium company size

Table 81: Scoring Defense and Attack

According to Table 81 above, LSPs D, E and M are the ones most likely to survive in
competition (score of 1), followed by LSPs J and L (score of 2). In terms of securing the
competitive position the situation is precarious for LSPs A, B, C and I (score of 3) and
even critical for LSPs F, G, H and K.

7.3.4 Conclusions on scoring the macro dimensions

Sections 7.3.1, 7.3.2 and 7.3.3 present the scoring of a business model’s macro layer.
The Business Model Scorecard for the macro layer is summarized in Table 82.

Business model’s macro dimension LSP

A B C D E F G H I J K L M
Average score Legal Relationship: business model 1 2 3 1 2 3 3 2 2 4 3 3 2
LSP and business model customer (Table 78)
Score Legal Relationship: joint business model LSP 2 4 2 1 1 2 4 1 3 3 4 2 2
and customer (Table 79)
62
Average score Size (from Table 80 and Table 81) 2 3 3 1 2 3 4 3 3 3 3 3 2
Table 82: Business Model Scorecard for the macro layer

Table 82 shows that LSP D scores excellently in all macro dimensions. Also LSPs A, E
and M perform overall well in the macro layer. However, the analysis also shows poorly
performing LSPs, in particular LSPs G, J and K. The remaining ones are somewhere in
between. As a conclusion, scoring the macro layer as summarized in Table 82 discloses
a strong indifference in the research cases’ behavior in managing macro dimensions for
Total Integration. A similar conclusion – indifferent behavior among all potential
Hidden Champions – is drawn from the Business Model Scorecard for the micro layer.
This is an indicator for Hidden Champions and Hidden Championship Failures to be
among all LSP research cases. Therefore, I had to further develop my BMPS
Framework which is shown next.

62
If the average figure was .4 or less it was rounded down to the lower integer number and if the
average figure was .5 or over it was rounded up to the next higher integer number.
288 7 Š In search of Hidden Champions: BMPS

7.4 The BMPS Framework

Chapter 7 started with a section about the definition of performance in literature and the
presentation of existing concepts for performance measurement. A brief evaluation of
these example concepts shows that there is a need for a comprehensive framework
which covers a business model in full and provides starting points for improvements.
Filling this gap is the role of my BMPS Framework.

7.4.1 Developing the BMPS Framework

The BMPS Framework consolidates all findings obtained so far in analogy to the
structure of the whole research approach. As indicated in the previous section, the
objective of developing this framework is to provide a comprehensive tool for SMEs in
logistics that helps to evaluate their business models and to define strategies that
increase sustainability in the competitive environment. The BMPS Framework is a
simplified approach that discloses potential sources for business failure and
demonstrates holes for business opportunities.

The hypothesis for the BMPS Framework is that Hidden Champions outperform other
SMEs in certain business model components or perhaps in a group of them as well as in
certain macro dimensions. For validation of this hypothesis, the results from the LSP
research cases are consolidated and evaluated. Thereby, the development of the BMPS
Framework is based on a systematic pattern. The micro and macro hypotheses from
Chapter 5 are linked with the representation of the as-is situation in both perspectives in
Chapter 6 and with the scoring results from Section 7.2 and Section 7.3. The structure
of this study, i.e. the application of an identical order throughout the research study on
single dimensions, is presented for one micro and one macro dimension in Table 83.

Perspective Section/ Section/ Section of Scoring

(Business Hypothesis Misperception and Principle Performance
Model Resulting from the Represen-
Component*) tation of the As-Is-Situation
Micro Section 5.1.2.3/ Section 6.1.2.3/ Section 7.2.6
(Input Factors) Virtual Logistics Hypothesis The asset misperception/
Principle of Entrepreneurship
Macro Section 5.2.2/ Section 6.3.2/ Section 7.3.2
Partnership Hypothesis The collaboration misperception/
Principle of Reliable Execution
* Applicable to the micro dimensions only.
Table 83: Demonstration of the systematic structure of this study for developing the BMPS Framework
7 Š In search of Hidden Champions: BMPS 289

The identification of potential Hidden Champions’ business principles is the result of

Chapter 6 in which empirical research findings on the hypotheses from Chapter 5 are
represented. Figure 97 provides an overview of these findings.

Defense Gradual
and Service
Attack Extension

Customer
Incrementa-
Granularity
lism
Niche
Sovereignty
Scope
Legend:
Mutual Trust Micro Layer:
Courage and Gradual
Self- Conquest Role Business Model Category “Ambitions & Aims“
Potential
Confidence Comple- Business Model Category “Implementation“
Hidden Champions’ Business Model Category “Measures & Financials“
mentarity
Strategic Business Principles
Self-Sufficiency Customer Favor Macro Layer:
Striving Function of Customer
Role of Collaboration
Open LSP‘s Size
Communication
and Colla-
boration Customer
Simple and Proximity
Fast Decision Entre-
Making preneurship

Reliable Continuous
Execution Innovation

Figure 97: Potential Hidden Champions’ business principles

These business principles form the dimensions of the BMPS Framework. Based on the
fundamental distinction between the micro and macro perspective, the BMPS
Framework consists of two layers covering these two perspectives. The framework’s
micro perspective is presented in Section 7.4.1.1 and Section 7.4.1.2 deals with the
macro perspective.

7.4.1.1 The BMPS Framework’s micro perspective

The first step for the development of the BMPS Framework’s micro perspective is to
consolidate single scoring results on each micro hypothesis for all of the business model
(sub-)components, i.e. for all related identified business principles (Table 84). This table
forms the basis for the graphical presentation of the micro perspective of the BMPS
Framework in terms of business principles’ roles for sustainability in competition
(Figure 98).
 Scores
290

Business Principle \ LS P A B C D E F G H I J K L M
Incrementalism 3 4 2 1 3 2 3 3 4 4 2 2 2

Table 84:
Scope 4 2 3 3 1 3 1 2 3 1 4 4 2
Gradual Conquest 2 3 2 1 1 2 4 2 4 4 2 4 1
Customer Favor Striving 3 3 2 2 3 4 3 4 1 1 1 2 1
Customer Proximity 3 1 4 4 4 2 3 2 2 4 4 4 3
Entrepreneurship 2 3 4 3 3 2 2 2 3 4 3 4 2
Simple and Fast Decision M aking 2 3 2 4 3 3 2 4 4 1 1 1 1
Open Communication and Collaboration 1 3 1 3 2 3 1 1 1 2 4 3 2
Strategic Self-Sufficiency 3 3 3 2 2 2 3 3 2 2 4 2 2
M utual Trust 1 2 2 1 1 4 4 3 2 4 2 4 2
Niche Sovereignty 1 1 1 1 2 2 1 1 4 3 3 3 1
Customer Granularity 3 1 2 3 2 3 1 3 2 3 2 1 3
™ S core Values 28 29 28 28 27 32 28 30 32 33 32 34 22

their means and standard deviations

䌥 Mean Mean Mean S tandard 2*S tandard Mean A, D, E, M Mean A, D, E, M
A-M A-M A-L A, D, E, M Deviation Deviation ./. 2*S tandard + 2*S tandard
Business Principle Deviation Deviation
Incrementalism 35 2.6923 2.7500 2.2500 0.9473 1.8947 0.3553 4.1447
Scope 33 2.5385 2.5833 2.5000 1.1266 2.2532 0.2468 4.7532
Gradual Conquest 32 2.4615 2.5833 1.2500 1.1983 2.3966 -1.1466 3.6466
Customer Favor Striving 30 2.3077 2.4167 2.2500 1.1094 2.2188 0.0312 4.4688
Customer Proximity 40 3.0769 3.0833 3.5000 1.0377 2.0755 1.4245 5.5755
Entrepreneurship 37 2.8462 2.9167 2.5000 0.8006 1.6013 0.8987 4.1013
Simple and Fast Decision M aking 31 2.3846 2.5000 2.5000 1.1929 2.3859 0.1141 4.8859
Open Communication and Collaboration 27 2.0769 2.0833 2.0000 1.0377 2.0755 -0.0755 4.0755
Strategic Self-Sufficiency 33 2.5385 2.5833 2.2500 0.6602 1.3205 0.9295 3.5705
M utual Trust 32 2.4615 2.5000 1.2500 1.1983 2.3966 -1.1466 3.6466
Niche Sovereignty 24 1.8462 1.9167 1.2500 1.0682 2.1364 -0.8864 3.3864
Customer Granularity 29 2.2308 2.1667 2.7500 0.8321 1.6641 1.0859 4.4141
™ S core ø Mean A-M ø S cores ø S cores ø S tandard ø 2*S tandard
Values A-L A, D, E, M Deviation Deviation
383 2.4551 30.0833 26.2500 1.0175 2.0349

Legend: Grey (Business Principle) = Business principle relating to potential Hidden Champions' business model component for competitive advantage
Black (Business Principle) = Business principle relating to potential Hidden Champions' business model sub-component for competitive failure
White (LSP) = Indication for Hidden Championship

Overview of LSP research cases’ scores related to the micro perspective’s business principles,
7 Š In search of Hidden Champions: BMPS
7 Š In search of Hidden Champions: BMPS 291

Incrementalism
24
Customer Granularity 26 Scope
28
30
Niche Sovereignty 32 Gradual Conquest
34
36
38
Mutual Trust 40 Customer Favor Striving

Strategic Self-
Customer Proximity
Sufficiency

Open Communication
Entrepreneurship
and Collaboration
Legend:
Business principle Simple and Fast
indicating competitive Decision Making
advantage
Business principle indicating
competitive failure
Total score value of business
principle from the LSP research cases

Figure 98: The micro perspective of the BMPS Framework: business principles’ roles for sustainability
in competition

Table 84 and Figure 98 provide insights relating to two perspectives. First, the overview
discloses the business principles which matter, i.e. the business principles most
responsible for competitive advantage and those most responsible for competitive
failure. While an outstanding low average score value of a business principle is an
indicator of competitive advantage, outstandingly high average score values give a
signal for potential competitive failure. Thus, on the one hand, it is Niche Sovereignty
(grey business principle in Table 84 and Figure 98) which is based on the business
model component Performance Measurements from the business model category
Financials (Table 10), that most contributes to competitive advantage. Open
Communication and Collaboration also makes a good contribution to competitive
advantage but this business principle is not such an ‘outlier’ as Niche Sovereignty and
therefore, it shall be neglected here. On the other hand, Customer Proximity and
Entrepreneurship are the business principles responsible for competitive failure, i.e.
Market and Input Factors are the two business model subcomponents from the category
Implementation (Table 10) that are most critical for Hidden Championship (black
business principles in Table 84 and Figure 98).
292 7 Š In search of Hidden Champions: BMPS

Second, the above consolidation provides an indicator for Hidden Championship which
might apply to LSP M. With LSP M’s total score value of 22 (Table 84), it significantly
differs from the higher total score values of the other LSPs. Therefore, LSP M is an
‘outlier’. While the lower the total score value the more highly the LSP is evaluated,
this does not necessarily imply that all of the other LSPs are not Hidden Champions.
Nevertheless, LSP M’s business model is of special interest when researching business
principles of SMEs in logistics and searching for the sources of success and long-term
survival in the industry.

With an average score value of each 33.3 for the business model components of the
category Ambitions & Aims as well for the business model subcomponents of the
category Implementation these two categories have a higher total score value than the
category Financials with 26.5 as average score value (Figure 98). This, however, is not
surprising as the analysis started after a pre-selection of potential Hidden Champions,
i.e. knowledge about an LSP’s poor performance led to its exclusion from empirical
reseach (Chapter 4).

Since LSP M seems to be very robust and special, LSP M’s moldings in the different
dimensions shall be distinguished from the other twelve LSPs’ average total score
values for all dimensions (Figure 99). In Figure 99 the moldings of LSP M are shown
by the grey line and the average from the other twelve LSPs is shown by the black line.
7 Š In search of Hidden Champions: BMPS 293

Incrementalism
1.0
Customer Granularity 1.2 Scope
1.4
1.6
1.8
Niche Sovereignty 2.0 Gradual Conquest
2.2
2.4
2.6
2.8
3.0
Mutual Trust 3.2 Customer Favor Striving

Strategic Self-
Customer Proximity
Sufficiency

Open Communication
Entrepreneurship
and Collaboration
Simple and Fast
Decision Making
Legend:
LSP M
Ø LSPs A-L

Figure 99: Comparison of LSP M’s with the other LSPs’ moldings relating to the micro perspective’s
business principles’ roles for sustainability in competition

The figure shows that LSP M is stronger than the average of the other LSPs (LSPs A to
L) in eleven of the twelve dimensions measured in terms of the difference between LSP
M’s scores in all single dimensions with the average scores in the single dimensions of
LSPs A to L. The differences, i.e. higher scores are 0.8, 0.6, 1.6, 1.4, 0.1, 1.0, 1.5, 0.1,
0.6, 0.7 and 0.9 credits in the order of the first eleven dimensions and a lower score of
0.8 in the twelfth dimension.63 Differences of at least 1.0 credits are an indicator of
LSP M’s most outstanding business principles in comparison to the average of the other
twelve LSPs. Accordingly, the most outstanding business principles are Gradual
Conquest (difference of 1.6 credits), Simple and Fast Decision Making (difference of
1.5 credits), Customer Favor Striving (difference of 1.4 credits) as well as
Entrepreneurship (difference of 1.0 credits). In other words, LSP M’s business model
(sub-)components that contribute most to an LSPs’ competitive advantage are Business
Purpose, Organization, Product/Service and Input Factors. A further comparison of the
score values of LSP M and the average of LSP A to L leads to a second group of
advantageous business principles which includes Niche Sovereignty, Incrementalism,

63
The values for the differences are based on the comparisons of the values in columns ‘M’ and
‘Mean A-L’ in Table 84 for each business principle.
294 7 Š In search of Hidden Champions: BMPS

Mutual Trust, Scope as well as Strategic Self-Sufficiency. The scoring difference of the
advantageous business principles is between 0.6 to 0.9 credits. The third group covers
business principles which are neglected by LSP M. In particular, the comparison of
LSP M’s moldings in micro dimensions with the average of the other twelve LSPs
shows that LSP M’s score is lower (by 0.8 credits) only in the twelfth dimension with
its business principle of Customer Granularity. Also, Customer Proximity as well as
Open Communication and Collaboration with the minimum scoring difference of 0.1
each are two further neglected business principles of LSP M. Figure 100 shows
LSP M’s attaching of significance to the business principles and thus business model
(sub-)components.

Related Business Model

Significance Business Principle
(Sub-)Component

Gradual Conquest Business Purpose

Simple and Fast Decision Making Organization
Most outstanding Customer Favor Striving Product/Service
Entrepreneurship Input Factors

Niche Sovereignty Performance Measurements

Incrementalism Value Proposition
Advantageous Mutual Trust Exchange Mechanism
Scope Target Group
Strategic Self-Sufficiency Relationships

Customer Proximity Market

Neglected Open Communication and Collaboration Communication
Customer Granularity Rewards

Figure 100: LSP M’s attaching of significance to business principles in the micro perspective

Most interesting from above finding is that the overall analysis of business principles of
the LSP research cases resulted in Entrepreneurship as being one of the two business
principles indicating competitive failure (Table 84 and Figure 98). However,
Entrepreneurship is one of the four most outstanding business principles and
characteristics of LSP M’s specialty.

The above findings, which disclose in particular the significance of business principles
and their respective business model (sub-)components, i.e. that the application of
descriptive statistics leads to the identification of the Hidden Champions have to be
further verified. By calculation of the mean, of the standard deviation as well as the
7 Š In search of Hidden Champions: BMPS 295

normal (Gaussian) distribution the statistical significance of LSP M, for which Hidden
Championship is indicated above, can be examined. These calculations also enable the
identification of potentials for Hidden Championship of specific types of LSPs
according to the segmentation in Figure 37.

Applying descriptive statistics requires the definition of the formulas for calculation of
the mean, the standard deviation and the normal (Gaussian) distribution. Additionally,
the formula for the variance is required for the reason that the standard deviation is the
square root of the variance.

The mean is calculated by dividing the sum of a set of quantities by the total number of
the set’s quantities. The value is also called arithmetic mean or average and in this study
σ୶
it is denoted with the letter x with a bar above it. The formula for the mean is šത ൌ
୬

where the symbol 䌥is used for summation and n for the number of data which is
normally called the sample (Karris 2007, p. 1-15 et seq.). The variance Ɂଶ is defined by
the following formula, whereas n equals the number of data, i.e. observations in the
sample, š୧ equals the i-th observation in the sample and šത equals the mean (based on
ଵ
Winston 2007, p. 288): Ɂଶ ൌ ୬ିଵ σ୧ି୬ തሻଶ. As stated above the square root of Ɂଶ is
୧ିଵ ሺš୧ െ š

called standard deviation (Karris 2007, p. 9-14; Winston 2007, p. 288). Thus, the
formula for the standard deviation which is denoted as į is: Ɂ ൌ ξɁଶ . The normal
distribution, also called Gaussian distribution,64 is usually presented in standardized
୶౟ ି୶
form. In this study it is denoted by Z with the formula  ൌ where Ɂ୮ is the standard
ஔ౦

deviation for a business principle of a particular LSP (based on Karris 2007, p. 10-13).
Then š is zero and the standard deviation as well as variance are one. Figure 101
presents the standardized normal curve and the areas within 1, 2, and 3 standard
deviations from š taken as zero.
In this study the scores (Table 84) are normalized, i.e. the normal distribution is
calculated for each LSP and each of its business principles. Thus for each LSP the
summation can be formed from the values calculated for each business principle. This
result is used to distinguish the LSPs according to their status in terms of Hidden

64
Carl Friedrich Gauss (1777-1855) was a German mathematician (Dunnington and Gray and Dohse
2004, p. 8; O’Connor and Robertson 2008, p. 1 of 6).
296 7 Š In search of Hidden Champions: BMPS

Championship. I defined the following classification mechanism and use this as

heuristic or ad-hoc classification for Hidden Champions, Potential Hidden Champions
and Hidden Championship Failures.

The basic idea is that a total value below -1 might be an indicator for a Hidden
Champion. As the area between -3į and +3į equals approximately 99.73% and between
-1į and +1į approximately 68.27%, the area for Hidden Championship is roughly
15.7%.65 In Figure 101 the respective area is indicated by the bar in grey color.
Furthermore, Potential Hidden Champions’ value is between -1 and 0. In Figure 101 the
respective area is indicated by the bar in white color. A positive total value, i.e. positive
sum of the twelve calculated normal distributions for each business principle, might
indicate potential failure in Hidden Championship. In Figure 101 the respective area is
indicated by the bar in black color. Figure 101 further indicates high probability for
Hidden Championship in the area between -3 and -1, medium probability for Hidden
Championship in the area between -1 and +1 and low probability for Hidden
Championship in the area between +1 and +3. Accordingly, the probability for Hidden
Championship is 16%.66

65
(99.73-68.27)/2 = 15.73.
66
99.73 percentage points minus 68.27 percentage points equals 31.46 percentage points. Half of this
result (15.73 percentage points) is added to 68.27. The resulting 84 percentage points indicate the
probability not being a Hidden Champion.
7 Š In search of Hidden Champions: BMPS 297

0,4
0,35
0,3
0,25
f(Z) 0,2 x¯ = 0

0,15 f(Z) = Probability density

function of the normal
0,1 distribution
0,05 x
¯ = Mean
Z, į = Standard deviation
-3 -2 -1 0 +1 +2 +3
-3į -2į -1į Z 1į 2į 3į

Hidden Potential Failed

Champions Hidden Hidden
Champions Championships

High probability for Medium probability for Low probability for

Hidden Championship Hidden Championship Hidden Championship

Area between -1į and +1į equals to approximately 68.27% of the total area; one standard deviation: -1į < Z < +1į
Area between -2į and +2į equals to approximately 95.45% of the total area; two standard deviations: -2į¯< Z¯< +2į
Area between -3į and +3į equals to approximately 99.73% of the total area; three standard deviations: -3į¯< Z¯< +3į
¯ ¯
Figure 101: The standardized normal curve
(Based on Karris 2007, pp. 10-13 et seq.)

The means, standard deviations and normal (Gaussian) distributions were calculated
(Table 84 and Table 85) by using Microsoft Excel. According to the above described
assignment of LSPs in terms of their status relating to Hidden Championship, the results
are (Table 85) that LSPs A, D, E, G and M are Hidden Champions, LSPs B and C are
Potential Hidden Champions and LSPs F, H, I, J, K and L are expected to fail in
becoming Hidden Champions.

In summary, by using normal distribution the statistical significance of LSP M is

confirmed, i.e. LSP M is a Hidden Champion. This status also applies to LSP A, D, E
and G if analyzing the micro dimension only. For the remaining LSPs Hidden
Championship is questionable (LSPs B and C) or can not be proven (LSPs F, H, I, J, K
and L).
 Normal (Gaussian) Distribution
298

Business Principle \ LS P A B C D E F G H I J K L M

Table 85:
Incrementalism 0.3248 1.3804 -0.7308 -1.7864 0.3248 -0.7308 0.3248 0.3248 1.3804 1.3804 -0.7308 -0.7308 -0.7308
Scope 1.2973 -0.4780 0.4097 0.4097 -1.3656 0.4097 -1.3656 -0.4780 0.4097 -1.3656 1.2973 1.2973 -0.4780
Gradual Conquest -0.3852 0.4494 -0.3852 -1.2197 -1.2197 -0.3852 1.2839 -0.3852 1.2839 1.2839 -0.3852 1.2839 -1.2197
Customer Favor Striving 0.6240 0.6240 -0.2774 -0.2774 0.6240 1.5254 0.6240 1.5254 -1.1787 -1.1787 -1.1787 -0.2774 -1.1787
Customer Proximity -0.0741 -2.0014 0.8895 0.8895 0.8895 -1.0377 -0.0741 -1.0377 -1.0377 0.8895 0.8895 0.8895 -0.0741
Entrepreneurship -1.0568 0.1922 1.4412 0.1922 0.1922 -1.0568 -1.0568 -1.0568 0.1922 1.4412 0.1922 1.4412 -1.0568
Simple and Fast Decision Making -0.3224 0.5159 -0.3224 1.3541 0.5159 0.5159 -0.3224 1.3541 1.3541 -1.1607 -1.1607 -1.1607 -1.1607
Open Communication and Collaboration -1.0377 0.8895 -1.0377 0.8895 -0.0741 0.8895 -1.0377 -1.0377 -1.0377 -0.0741 1.8531 0.8895 -0.0741
Strategic Self-Sufficiency 0.6991 0.6991 0.6991 -0.8156 -0.8156 -0.8156 0.6991 0.6991 -0.8156 -0.8156 2.2137 -0.8156 -0.8156
Mutual Trust -1.2197 -0.3852 -0.3852 -1.2197 -1.2197 1.2839 1.2839 0.4494 -0.3852 1.2839 -0.3852 1.2839 -0.3852
Niche Sovereignty -0.7921 -0.7921 -0.7921 -0.7921 0.1440 0.1440 -0.7921 -0.7921 2.0164 1.0802 1.0802 1.0802 -0.7921
Customer Granularity 0.9245 -1.4792 -0.2774 0.9245 -0.2774 0.9245 -1.4792 0.9245 -0.2774 0.9245 -0.2774 -1.4792 0.9245
™ Normalized S cores -1.0184 -0.3855 -0.7687 -1.4514 -2.2816 1.6667 -1.9124 0.4897 1.9043 3.6888 3.4081 3.7018 -7.0413

Legend: Grey (LSP) = Hidden Champion

White (LSP) = Potential Hidden Champion
Black (LSP) = Hidden Championship Failure

Normal (Gaussian) distribution for business principles in the micro perspective

7 Š In search of Hidden Champions: BMPS
7 Š In search of Hidden Champions: BMPS 299

7.4.1.2 The BMPS Framework’s macro perspective

In a further step single scoring results on each macro hypothesis, i.e. for all business
principles identified for the macro perspective, are consolidated (Table 86). As in the
micro perspective the resulting table forms the basis for the graphical presentation.
Figure 102 shows the results of the macro perspective of the BMPS Framework.
 Scores
300

Business Principle \ LS P A B C D E F G H I J K L M
Gradual Service Extension 2 3 3 1 1 2 3 2 4 4 1 3 3

Table 86:
Role Complementarity 1 2 1 1 3 3 3 3 2 4 4 3 2
Continuous Innovation 1 2 4 1 1 3 4 1 1 4 3 2 1
Reliable Execution 2 4 2 1 1 2 4 1 3 3 4 2 2
Courage and Self-Confidence 1 2 2 1 3 2 4 1 3 4 1 4 3
Defense and Attack 3 3 3 1 1 4 4 4 3 2 4 2 1
™ S core Values 10 16 15 6 10 16 22 12 16 21 17 16 12

䌥 Mean Mean Mean S tandard 2*S tandard Mean A, D, E Mean A, D, E

A-M A-M A, D, E Other Deviation Deviation ./. 2*S tandard + 2*S tandard
Business Principle Deviation Deviation
Gradual Service Extension 32 2.4615 1.3333 2.8000 1.0500 2.1001 -0.7667 3.4334
Role Complementarity 32 2.4615 1.6667 2.7000 1.0500 2.1001 -0.4334 3.7667
Continuous Innovation 28 2.1538 1.0000 2.5000 1.2810 2.5621 -1.5621 3.5621
Reliable Execution 31 2.3846 1.3333 2.7000 1.1209 2.2418 -0.9085 3.5751
Courage and Self-Confidence 31 2.3846 1.6667 2.6000 1.1929 2.3859 -0.7192 4.0525
Defense and Attack 35 2.6923 1.6667 3.0000 1.1821 2.3643 -0.6976 4.0309
™ S core ø Mean A-M ø S core ø S core ø S tandard ø 2*S tandard

principles, their means and standard deviations

Values Value A, D, E Value Other Deviation Deviation
189 2.4231 8.6667 16.3000 1.1462 2.2923

Legend: Grey (Business Principle) = Business principle relating to potential Hidden Champions' component for competitive advantage
Black (Business Principle) = Business principle relating to potential Hidden Champions' component for competitive failure
White (LSP) = Indication for Hidden Championship

Overview of LSP research cases’ scores related to the macro perspective’s business
7 Š In search of Hidden Champions: BMPS
7 Š In search of Hidden Champions: BMPS 301

Gradual Service
Extension
28

30
Defense and Attack 32 Role Complementarity

34

36

Courage and Self-

Continuous Innovation
Confidence

Reliable Execution
Legend:
Indicator for
competitive advantage
Indicator for
competitive failure
Total score value from the
LSP research cases

Figure 102: The macro perspective of the BMPS Framework: business principles’ roles for sustainability
in competition

As in the micro perspective the tabular and graphical presentation for the macro
perspective on scoring results (Table 86 and Figure 102) provide insights relating to two
perspectives. First, the presentations demonstrate the macro perspective’s business
principles’ contribution to competitive advantage and failure. The business principle of
Continuous Innovation (grey business principle in Table 86 and Figure 102) has an
outstanding low average score and is thus the business principle with the highest
contribution to competitive advantage. Second, an indicator for potential competitive
failure is an outstanding high average score of a business principle. According to the
above Table 86 and Figure 102, it is the business principle of Defense and Attack (black
color in both presentations) that is responsible for competitive failure, i.e. that is most
critical for Hidden Championship.

Further, scoring of the business principles in the macro perspective further indicates
which LSPs might be Hidden Champions. The total score values from LSPs A, D and E
are significantly lower than that of the other LSPs (Table 86). This might be an
indicator for excellence in macro perspective business behavior. However, this finding
alone does not allow the conclusion that the other LSPs are not Hidden Champions.
302 7 Š In search of Hidden Champions: BMPS

Looking at the differences in behavior of LSPs A, D and E in comparison to the other

LSPs is of particular interest in the search for Hidden Champions in logistics in order to
identify their success business principles. Therefore, the average of LSPs A’s, D’s and
E’s moldings in each dimension of the macro perspective are distinguished from the
other LSPs’ average total score values for every dimension (Figure 103). In Figure 103
the average moldings of LSPs A, D and E are shown by the grey line and the average
from the other LSPs is shown by the black line.

Gradual Service
Extension
1.0
1.2
1.4
1.6
1.8
Defense and Attack 2.0 Role Complementarity
2.2
2.4
2.6
2.8
3.0

Courage and Self-

Continuous Innovation
Confidence

Reliable Execution

Legend:
Ø LSPs A, D, E
Ø Other LSPs

Figure 103: Comparison of LSPs A’s, D’s and E’s with the other LSPs’ moldings relating to the macro
perspective’s business principles’ roles for sustainability in competition

Figure 103 presents clearly the finding that LSPs A, D and E outperform the other LSPs
in all macro dimensions. The average values of LSPs A’s, D’s and E’s scores for
business principles in the macro perspective exceed the average values of the other
LSPs in all six dimensions. Measured in terms of each dimensions’ difference between
LSPs A’s, D’s and E’s average values with the other LSPs’ average values, the
exceeding values for LSPs A, D and E are 1.5, 1.0, 1.5, 1.4, 0.9 and 1.3 credits in the
order of the six dimensions from Table 86.67 If applying the systematic introduced in

67
For each business principle, the values for the differences are based on the comparisons of the
values in the columns ‘Mean A, D, E’ and ‘Mean Other’ in Table 86.
7 Š In search of Hidden Champions: BMPS 303

Section 7.4.1.1 in which differences of at least 1.0 credits indicate Hidden Champions’
most outstanding business principles, this applies to all business principles from the
macro perspective except for the principle of Courage and Self-Confidence. The latter
business principle’s total scoring difference is 0.9 and thus it is an advantageous
business principle which is defined for a difference of 0.6 to 0.9 credits. According to
the systematic in Section 7.4.1.1, Hidden Champions do not have neglected business
principles in the macro perspective.

Most interestingly from the first insight gained through scoring in the macro perspective
is that the overall analysis of business principles resulted in Defense and Attack as
being a business principle which might indicate competitive failure (Table 86 and
Figure 102). However, Hidden Champions also consider Defense and Attack as one of
the five most outstanding business principles.

The above insights gained have to be further verified by application of descriptive

statistics (in analogy to the micro perspective). By calculation of the mean, standard
deviation and normal distribution the statistical significance of LSPs A, D and E for
Hidden Championship can be examined. The definitions of the parameters for
calculation are presented above when applied to the micro perspective. In particular, the
standardized normal curve in Figure 101 with its definitions of LSPs’ status in Hidden
Championship applies to the macro perspective as well.

The approach to application of descriptive statistics for analysis of the BMPS

Framework’s macro perspective is similar to the approach used in the micro
perspective’s analysis. Using Microsoft Excel, single scores for all business principles
in the macro perspective and for every LSP are presented in the Table 86. The average
scores (three columns with ‘Mean’ in Table 86) and į (column ‘Standard Deviation’ in
Table 86) for each of the six business principles were calculated. The results were used
to calculate the normal distribution for each business principle of each LSP (Table 86).
Finally, the summation was formed from the six individual values for normal
distribution for each LSP.

Resulting from descriptive statistics in the macro perspective there are the two groups of
LSPs which are Hidden Champions and Failed Hidden Champions. Unlike in the micro
304 7 Š In search of Hidden Champions: BMPS

perspective’s analysis the results do not leave room for restrictions in and possibilities
for Hidden Championship. In other words, according to macro perspective results, there
are no Potential Hidden Champions as total value of none is between -1 and 0.
Therefore, there are two groups of LSPs according to descriptive statistics in the macro
perspective. The one group, LSPs A, D, E, H and M, is that of the Hidden Champions
(Table 87, grey LSPs), as their total values of the normal distribution are below -1 (see
definition in Figure 101). All other LSPs’ (the other group) total value for normal
distribution is positive, which indicates Hidden Championship Failure (Table 87, black
LSPs). For definition of Hidden Championship status see Figure 101.
 Normal (Gaussian) Distribution

Business Principle \ LS P A B C D E F G H I J K L M

Table 87:
Gradual Service Extension -0.4395 0.5128 0.5128 -1.3919 -1.3919 -0.4395 0.5128 -0.4395 1.4652 1.4652 -1.3919 0.5128 0.5128
Role Complementarity -1.3919 -0.4395 -1.3919 -1.3919 0.5128 0.5128 0.5128 0.5128 -0.4395 1.4652 1.4652 0.5128 -0.4395
Continuous Innovation -0.9007 -0.1201 1.4412 -0.9007 -0.9007 0.6605 1.4412 -0.9007 -0.9007 1.4412 0.6605 -0.1201 -0.9007
Reliable Execution -0.3431 1.4412 -0.3431 -1.2353 -1.2353 -0.3431 1.4412 -1.2353 0.5490 0.5490 1.4412 -0.3431 -0.3431
Courage and Self-Confidence -1.1607 -0.3224 -0.3224 -1.1607 0.5159 -0.3224 1.3541 -1.1607 0.5159 1.3541 -1.1607 1.3541 0.5159
Defense and Attack 0.2603 0.2603 0.2603 -1.4316 -1.4316 1.1062 1.1062 1.1062 0.2603 -0.5856 1.1062 -0.5856 -1.4316
™ Normalized S cores -3.9757 1.3322 0.1568 -7.5121 -3.9308 1.1745 6.3683 -2.1172 1.4500 5.6890 2.1205 1.3309 -2.0863

Legend: Grey (LSP) = Hidden Champion

Black (LSP) = Hidden Championship Failure
7 Š In search of Hidden Champions: BMPS

Normal (Gaussian) distribution for business principles in the macro perspective

305
306 7 Š In search of Hidden Champions: BMPS

7.4.2 Results from the BMPS Framework

The analysis of the BMPS Framework’s micro perspective (Section 7.4.1.1) and macro
perspective (Section 7.4.1.2) results in two major outcomes which I call research values.
The first research value concerns the identification of success and failure business
principles impacting sustainability of SMEs in logistics. The second research value
relates to the identification of LSPs’ status in terms of Hidden Championship. Figure
104 summarizes my findings.

Model BMPS

Perspective Micro Macro

Success
Research Business Principles Niche Sovereignty Continuous Innovation
Value I:
Impact of Customer Proximity
Business Failure
Defense and Attack
Principles Business Principles
Entrepreneurship

Research Hidden Champions A, D, E, G, M A, D, E, H, M

Value II:
Status of Potential
Hidden Champions B, C ---
Hidden
Champion-
ship Hidden Champion-
F, H, I, J, K, L B, C, F, G, I, J, K, L
ship Failures

Figure 104: Overview of research results

In terms of my ‘Research Value I’ the success business principles, i.e. business

principles that most contribute to Hidden Championship are Niche Sovereignty (micro
perspective) and Continuous Innovation (macro perspective). Customer Proximity and
Entrepreneurship are the two failure business principles identified through the micro
perspective’s analysis while in the macro perspective Defense and Attack is the business
principle contributing most to failure. These success and failure business principles
were identified by examination of all LSP research cases, i.e. potential Hidden
Champions.

The second research value of this study relates to the status of Hidden Championship,
i.e. to the differentiation between Hidden Champions, Potential Hidden Champions and
Hidden Championship Failures. The micro perspective’s analysis led to the
identification of LSPs A, D, E, G and M as Hidden Champions as well as LSPs B and C
as Potential Hidden Champions. LSPs F, H, I, J, K and L are expected to fail in
7 Š In search of Hidden Champions: BMPS 307

becoming Hidden Champions. Based on the macro perspective’s analysis LSPs A, D, E,

H and M are Hidden Champions and all other LSPs have failed in becoming a Hidden
Champion in logistics.

As the results from the micro and macro perspectives’ analysis are slightly different
relating to the second research outcome, it is necessary to consolidate the status of
Hidden Championship from the micro and macro perspective (Figure 105).68 The
consolidation shows that only those LSPs are true Hidden Champions which are overall
excellent. This means that true Hidden Championship is identified both in the micro and
macro perspectives’ analysis. This applies to LSPs A, D, E and M whereas LSP A is an
LSP from the category medium-sized sector specialists, LSPs D and E are asset-
intensive contract logistics providers and LSP M is a land carrier. LSPs are assigned to
the category of Potential Hidden Champions if they were either identified as Hidden
Champion or Potential Hidden Champion in one perspective only. This applies to LSPs
B, C, G and H. While LSPs G (Hidden Champion according to micro perspective’s
analysis, Hidden Championship Failure according to macro perspective’s analysis) and
H (Hidden Champion according to macro perspective’s analysis, Hidden Championship
Failure according to micro perspective’s analysis) are overall excellent in one
perspective, LSPs B and C are Potential Hidden Champions from the micro perspective
only and Hidden Championship Failures according to macro perspective’s analysis.
Finally, LSPs F, I, J, K and L are Hidden Championship Failures or false Hidden
Champions. They are overall poor performers in both the micro and macro perspective.

68
LSPs are assigned to the matrix based on the overview of research results in Figure 104.
308 7 Š In search of Hidden Champions: BMPS

Champion
Hidden H AD
EM Legend:
Macro Perspective

Hidden
ship Failure Hidden Champion

Champion
Hidden Champion- Potential

Potential
Hidden
Champion

Hidden
Championship
FIJ Failure

KL BC G
Hidden Champion- Potential Hidden
ship Failure Hidden Champion Champion

Micro Perspective

Figure 105: LSPs’ status of Hidden Championship after consolidation of findings from the micro and
macro perspectives’ analysis

Now it is of interest to answer the question about the differences in business behavior of
Hidden Champions in comparison to Potential Hidden Champions and Hidden
Championship Failures. Therefore, the mean, i.e. average scores for each of these three
groups and for each business principle were calculated. The means are presented in
Table 88 for the micro perspective and in Table 89 for the macro perspective.
 Scores
A D E M Mean B C G H Mean F I J K L Mean
Business Principle \ LSP A, D, E, M B, C, G, H F, I, J, K, L

Table 88:
Incrementalism 3 1 3 2 2.3 4 2 3 3 3.0 2 4 4 2 2 2.8
Scope 4 3 1 2 2.5 2 3 1 2 2.0 3 3 1 4 4 3.0
Gradual Conquest 2 1 1 1 1.3 3 2 4 2 2.8 2 4 4 2 4 3.2
Customer Favor Striving 3 2 3 1 2.3 3 2 3 4 3.0 4 1 1 1 2 1.8
Customer Proximity 3 4 4 3 3.5 1 4 3 2 2.5 2 2 4 4 4 3.2
Entrepreneurship 2 3 3 2 2.5 3 4 2 2 2.8 2 3 4 3 4 3.2
Simple and Fast Decision M aking 2 4 3 1 2.5 3 2 2 4 2.8 3 4 1 1 1 2.0
Open Communication and Collaboration 1 3 2 2 2.0 3 1 1 1 1.5 3 1 2 4 3 2.6
Strategic Self-Sufficiency 3 2 2 2 2.3 3 3 3 3 3.0 2 2 2 4 2 2.4
M utual Trust 1 1 1 2 1.3 2 2 4 3 2.8 4 2 4 2 4 3.2
Niche Sovereignty 1 1 2 1 1.3 1 1 1 1 1.0 2 4 3 3 3 3.0
Customer Granularity 3 3 2 3 2.8 1 2 1 3 1.8 3 2 3 2 1 2.2
7 Š In search of Hidden Champions: BMPS

Legend: Grey (LSP/Mean) = Hidden Champion

White (LSP/Mean) = Potential Hidden Champion
Black (LSP/Mean) = Hidden Championship Failure

average scores (means) in the micro perspective’s business principles

Hidden Champions’, Potential Hidden Champions’ and Hidden Championship Failures’
309
 Scores
310

A D E M Mean B C G H Mean F I J K L Mean

Business Principle \ LSP A, D, E, M B, C, G, H F, I, J, K, L

Table 89:
Gradual Service Extension 2 1 1 3 1.8 3 3 3 2 2.8 2 4 4 1 3 2.8
Role Complementarity 1 1 3 2 1.8 2 1 3 3 2.3 3 2 4 4 3 3.2
Continuous Innovation 1 1 1 1 1.0 2 4 4 1 2.8 3 1 4 3 2 2.6
Reliable Execution 2 1 1 2 1.5 4 2 4 1 2.8 2 3 3 4 2 2.8
Courage and Self-Confidence 1 1 3 3 2.0 2 2 4 1 2.3 2 3 4 1 4 2.8
Defense and Attack 3 1 1 1 1.5 3 3 4 4 3.5 4 3 2 4 2 3.0

Legend: Grey (LSP/Mean) = Hidden Champion

White (LSP/Mean) = Potential Hidden Champion
Black (LSP/Mean) = Hidden Championship Failure

average scores (means) in the macro perspective’s business principles

Hidden Champions’, Potential Hidden Champions’ and Hidden Championship Failures’
7 Š In search of Hidden Champions: BMPS
7 Š In search of Hidden Champions: BMPS 311

By presenting the means from Table 88 in Figure 106, three business principles turned
out to be of outstanding interest to Hidden Champions in the micro perspective. These
principles are Gradual Conquest, Mutual Trust and Niche Sovereignty.

Incrementalism
1.0
Customer Granularity Scope
1.5
2.0
Niche Sovereignty 2.5 Gradual Conquest
3.0
3.5
Mutual Trust 4.0 Customer Favor Striving

Strategic Self-
Customer Proximity
Sufficiency

Open Communication
Entrepreneurship
and Collaboration
Simple and Fast
Decision Making

Legend:
Ø Hidden Champions (LSPs A, D, E, M)
Ø Potential Hidden Champions (LSPs B, C, G, H)
Ø Hidden Championship Failures (LSPs F, I, J, K, L)

Figure 106: Comparison of performance in the micro perspective by status of Hidden Championship

The presentation of the average values for the macro dimension’s business principles
from Table 89 shows that Hidden Champions outperform the other LSPs in all macro
dimensions. Thereby the focus of Hidden Champions is on Continuous Innovation,
Reliable Execution and Defense and Attack (Figure 107).
312 7 Š In search of Hidden Champions: BMPS

Gradual Service
Extension
1.0
1.5
2.0
Defense and Attack 2.5 Role Complementarity
3.0
3.5
4.0

Courage and Self-

Continuous Innovation
Confidence

Reliable Execution

Legend:
Ø Hidden Champions (LSPs A, D, E, M)
Ø Potential Hidden Champions (LSPs B, C, G, H)
Ø Hidden Championship Failures (LSPs F, I, J, K, L)

Figure 107: Comparison of performance in the macro perspective by status of Hidden Championship

The priorities of business principles in the micro and macro perspectives at Hidden
Champions as presented in Table 88, Table 89, Figure 106 and Figure 107 are
summarized in Figure 108. The figures after the name of the business principle in this
presentation indicate the average score of the business principle at Hidden Champions. I
have defined business principles as success business principles if their average score
value is up to 1.5. These business principles are targeted with first priority at Hidden
Champions. Average score values from 1.6 to 2.5 indicate second priority business
principles while all others are of third priority. The summary shows that in contrast to
the findings in Table 84 and Figure 98 on success business principles of potential
Hidden Champions, identified Hidden Champions’ success business principles are also
Gradual Conquest and Mutual Trust besides Niche Sovereignty in the micro
perspective. In Table 86 and Figure 102 Continuous Innovation was identified as
success business principle in the macro perspective when analyzing potential Hidden
Champions. Figure 108 shows that identified Hidden Champions also focus on Reliable
Execution and Defense and Attack.
7 Š In search of Hidden Champions: BMPS 313

Significance Business Principle Business Principle

(Micro Perspective) (Macro Perspective)

First Priority Gradual Conquest 1.3 Continuous Innovation 1.0

Mutual Trust 1.3 Reliable Execution 1.5
(score up to 1.5) Niche Sovereignty 1.3 Defense and Attack 1.5

Open Communication
and Collaboration 2.0
Incrementalism 2.3
Second Priority Gradual Service Extension - 1.8
Customer Favor Striving 2.3
Role Complementarity - 1.8
(score from 1.6 to 2.5) Strategic Self-Sufficiency 2.3
Courage and Self-Confidence - 2.0
Scope 2.5
Entrepreneurship 2.5
Simple and Fast Decision Making 2.5

Third Priority Customer Granularity - 2.8

(score from 2.6 Customer Proximity - 3.5
and beyond)

Figure 108: Priority of business principles at Hidden Champions

This leads me to the key success parameter which I refer to as the Survival Hypothesis.

Survival Hypothesis: First, Hidden Champions follow the strategy of conquering

service offering scope increasingly while stimulating business progress in the
course of operations. By defining rules and norms they create trust and establish
strong partnerships. Moreover, they are segment leaders (micro perspective).
Second, Hidden Champions are innovators which successfully collaborate with
customers by sticking to special conditions and agreements. They survive in
competition by defending an independent position and attacking in international
business (macro perspective).

7.4.3 Identification of starting points for improvements at non-Hidden

Champions

Hidden Champions may be referred to as ‘best-in-class’ organizations that are a

framework worth aiming for by other LSPs. Therefore, this study continues with
comparing the average scoring results from the Hidden Champions LSPs A, D, E and M
with the score values of single Potential Hidden Champions (Figure 109) and Hidden
Championship Failures (Figure 110). The average score value of the Hidden Champions
is indicated by the grey line with the grey squares in both figures while the LSP in
314 7 Š In search of Hidden Champions: BMPS

comparison is represented by the black line with the black squares. The business
principles are listed starting left with the least prioritized at Hidden Champions in the
order taken from Figure 108. Business principles in which the compared LSP performs
weakly are marked by a dark grey circle. They indicate an initiating point for
improvements in order to transform into a Hidden Champion. Contrary, business
principles in which the LSP in comparison overperforms, i.e. in which the LSP puts too
much effort into implementation, are indicated by a dark black circle. Here are initiating
points for reduction of activities.

Layer Micro Macro

Open Communication and Collaboration
Simple and Fast Decision Making

Courage and Self-Confidence

Gradual Service Extension

Strategic Self-Sufficiency

Customer Favor Striving

Business

Role Complementarity

Continuous Innovation
Customer Granularity
Customer Proximity

Principle

Defense and Attack

Reliable Execution
Niche Sovereignty

Gradual Conquest
Entrepreneurship

Incrementalism

Mutual Trust
Scope

Performance Performance
Potential Score Score
Hidden 6 -100% 6

Champion 4 + 2*Standard Deviation 4 + 2*Standard Deviation

2 2
Business 0
Business
0
LSP B -2 Principle -2
Principle
./. 2*Standard Deviation ./. 2*Standard Deviation

Performance Performance
Potential Score Score
Hidden 6 6
Champion 4 + 2*Standard Deviation 4 + 2*Standard Deviation
2 2
0
Business 0
Business
LSP C -2
Principle -2 Principle
./. 2*Standard Deviation ./. 2*Standard Deviation
Performance Performance
Potential Score Score
Hidden 6 6

Champion 4 + 2* Standard Deviation 4 + 2*Standard Deviation

2 2
0
Business 0
Business
LSP G -2
Principle -2
Principle
./. 2*Standard Deviation ./. 2*Standard Deviation

Performance Performance
Potential Score Score
Hidden 6 6

Champion 4 + 2*Standard Deviation 4 + 2*Standard Deviation

2 2
0
Business 0
Business
LSP H -2
Principle -2 Principle
./. 2*Standard Deviation ./. 2*Standard Deviation

Legend: Average of Hidden Champions LSP in comparison Underperformance in business principle Overperformance in business principle

Figure 109: Comparison of performance of Hidden Champions with Potential Hidden Champions’
7 Š In search of Hidden Champions: BMPS 315

Layer Micro Macro

Open Communication and Collaboration

Simple and Fast Decision Making

Courage and Self-Confidence

Gradual Service Extension

Strategic Self-Sufficiency

Customer Favor Striving

Business

Role Complementarity

Continuous Innovation
Customer Granularity
Customer Proximity
Principle

Defense and Attack

Reliable Execution
Niche Sovereignty

Gradual Conquest
Entrepreneurship

Incrementalism

Mutual Trust
Scope
Hidden Performance Performance
Score Score
Champion- 6 6
ship 4 4 + 2*Standard Deviation
+ 2*Standard Deviation
Failure 2 2
0
Business 0
Business
LSP F -2 Principle -2 Principle
./. 2*Standard Deviation ./. 2*Standard Deviation

Hidden Performance Performance

Score Score
Champion- 6 6
ship 4 4 + 2*Standard Deviation
Failure 2
+ 2*Standard Deviation
2
0
Business 0
Business
LSP I -2
Principle -2 Principle
./. 2*Standard Deviation ./. 2*Standard Deviation
Performance Performance
Hidden Score
Champion- Score
6 6
ship 4 4
+ 2*Standard Deviation + 2*Standard Deviation
Failure 2
0
Business 2
Business
0
Principle Principle
LSP J -2
./. 2*Standard Deviation
-2
./. 2*Standard Deviation

Performance Performance
Hidden
Score Score
Champion- 6 6
ship 4
+ 2*Standard Deviation 4
Failure 2 2
+ 2*Standard Deviation

0
Business Business
0
LSP K -2 Principle -2 Principle
./. 2*Standard Deviation ./. 2*Standard Deviation
Performance Performance
Hidden Score
Champion- Score
6 6
ship 4 4
+ 2*Standard Deviation + 2*Standard Deviation
Failure 2 2
0
Business 0
Business
LSP L -2
Principle -2
Principle
./. 2*Standard Deviation ./. 2*Standard Deviation
Legend: Average of Hidden Champions LSP in comparison Underperformance in business principle Overperformance in business principle

Figure 110: Comparison of performance of Hidden Champions with Hidden Championship Failures’

The above two figures show in which business principles Potential Hidden Champions
and Hidden Championship Failures underperform and in which they outperform in
comparison to Hidden Champions. For example, the first graph about the micro
perspective of the Hidden Championship Failure LSP J (third LSP in Figure 110)
reveals that LSP J’s performance is better than Hidden Champions’ in terms of Simple
and Fast Decision Making, Scope, Strategic Self-Sufficiency and Customer Favor
Striving. However, in comparison LSP J’s performance is weak in all other micro
dimensions. In the macro perspective LSP J performs more poorly than Hidden
Champions in each dimension.

Alternatively, starting points for improvements towards Hidden Championship are

illustrated in Table 90 to Table 98. In Table 90 to Table 93 grey lines indicate
dimensions in which the Potential Hidden Champions (LSPs B, C, G and H) outperform
Hidden Champions and black lines indicate dimensions in which they perform more
316 7 Š In search of Hidden Champions: BMPS

poorly (indicated with average values differing more than 1.0). Similarly, the black lines
in Table 94 to Table 98 show Hidden Championship Failures’ (LSPs F, I, J, K and L)
weakest dimensions and their over-emphasized dimensions are marked in grey (also
indicated with average values differing more than 1.0).

Comparison for LSP B

Business Principle Mean B (Mean - B)
A, D, E, M U
Customer Proximity 3.5 1 2.5
Customer Granularity 2.8 1 1.8
Simple and Fast Decision M aking 2.5 3 -0.5
Entrepreneurship 2.5 3 -0.5
Scope 2.5 2 0.5
Micro
Strategic Self-Sufficiency 2.3 3 -0.7
Perspec-
Customer Favor Striving 2.3 3 -0.7
tive
Incrementalism 2.3 4 -1.7
Open Communication and Collaboration 2.0 3 -1.0
Niche Sovereignty 1.3 1 0.3
M utual Trust 1.3 2 -0.7
Gradual Conquest 1.3 3 -1.7
Courage and Self-Confidence 2.0 2 0.0
Role Complementarity 1.8 2 -0.2
Macro Gradual Service Extension 1.8 3 -1.2
Perspec- 3
Defense and Attack 1.5 -1.5
tive
Reliable Execution 1.5 4 -2.5
Continuous Innovation 1.0 2 -1.0

Table 90: Comparison of LSP B’s performance with Hidden Champions’

7 Š In search of Hidden Champions: BMPS 317

Comparison for LSP C

Business Principle Mean C (Mean - C)
A, D, E, M U
Customer Proximity 3.5 4 -0.5
Customer Granularity 2.8 2 0.8
Simple and Fast Decision M aking 2.5 2 0.5
Entrepreneurship 2.5 4 -1.5
Scope 2.5 3 -0.5
Micro
Strategic Self-Sufficiency 2.3 3 -0.7
Perspec-
Customer Favor Striving 2.3 2 0.3
tive
Incrementalism 2.3 2 0.3
Open Communication and Collaboration 2.0 1 1.0
Niche Sovereignty 1.3 1 0.3
M utual Trust 1.3 2 -0.7
Gradual Conquest 1.3 2 -0.7
Courage and Self-Confidence 2.0 2 0.0
Role Complementarity 1.8 1 0.8
Macro Gradual Service Extension 1.8 3 -1.2
Perspec- 3
Defense and Attack 1.5 -1.5
tive
Reliable Execution 1.5 2 -0.5
Continuous Innovation 1.0 4 -3.0

Table 91: Comparison of LSP C’s performance with Hidden Champions’

Comparison for LSP G

Business Principle Mean G (Mean - G)
A, D, E, M U
Customer Proximity 3.5 3 0.5
Customer Granularity 2.8 1 1.8
Simple and Fast Decision M aking 2.5 2 0.5
Entrepreneurship 2.5 2 0.5
Scope 2.5 1 1.5
Micro Strategic Self-Sufficiency 2.3 3 -0.7
Perspec- Customer Favor Striving 2.3 3 -0.7
tive
Incrementalism 2.3 3 -0.7
Open Communication and Collaboration 2.0 1 1.0
Niche Sovereignty 1.3 1 0.3
M utual Trust 1.3 4 -2.7
Gradual Conquest 1.3 4 -2.7
Courage and Self-Confidence 2.0 4 -2.0
Role Complementarity 1.8 3 -1.2
Macro 3
Gradual Service Extension 1.8 -1.2
Perspec-
Defense and Attack 1.5 4 -2.5
tive
Reliable Execution 1.5 4 -2.5
Continuous Innovation 1.0 4 -3.0

Table 92: Comparison of LSP G’s performance with Hidden Champions’

318 7 Š In search of Hidden Champions: BMPS

Comparison for LSP H

Business Principle Mean H (Mean - H)
A, D, E, M U
Customer Proximity 3.5 2 1.5
Customer Granularity 2.8 3 -0.2
Simple and Fast Decision M aking 2.5 4 -1.5
Entrepreneurship 2.5 2 0.5
Scope 2.5 2 0.5
Micro Strategic Self-Sufficiency 2.3 3 -0.7
Perspec- 2.3 4
Customer Favor Striving -1.7
tive
Incrementalism 2.3 3 -0.7
Open Communication and Collaboration 2.0 1 1.0
Niche Sovereignty 1.3 1 0.3
M utual Trust 1.3 3 -1.7
Gradual Conquest 1.3 2 -0.7
Courage and Self-Confidence 2.0 1 1.0
Role Complementarity 1.8 3 -1.2
Macro Gradual Service Extension 2
1.8 -0.2
Perspec-
Defense and Attack 1.5 4 -2.5
tive
Reliable Execution 1.5 1 0.5
Continuous Innovation 1.0 1 0.0
Table 93: Comparison of LSP H’s performance with Hidden Champions’

Comparison for LSP F

Business Principle Mean F (Mean - F)
A, D, E, M U
Customer Proximity 3.5 2 1.5
Customer Granularity 2.8 3 -0.2
Simple and Fast Decision M aking 2.5 3 -0.5
Entrepreneurship 2.5 2 0.5
Scope 2.5 3 -0.5
Micro Strategic Self-Sufficiency 2.3 2 0.3
Perspec- Customer Favor Striving 2.3 4 -1.7
tive Incrementalism 2.3 2 0.3
Open Communication and Collaboration 2.0 3 -1.0
Niche Sovereignty 1.3 2 -0.7
M utual Trust 1.3 4 -2.7
Gradual Conquest 1.3 2 -0.7
Courage and Self-Confidence 2.0 2 0.0
Role Complementarity 1.8 3 -1.2
Macro Gradual Service Extension 2
1.8 -0.2
Perspec-
Defense and Attack 1.5 4 -2.5
tive
Reliable Execution 1.5 2 -0.5
Continuous Innovation 1.0 3 -2.0
Table 94: Comparison of LSP F’s performance with Hidden Champions’
7 Š In search of Hidden Champions: BMPS 319

Comparison for LSP I

Business Principle Mean I (Mean - I)
A, D, E, M U
Customer Proximity 3.5 2 1.5
Customer Granularity 2.8 2 0.8
Simple and Fast Decision M aking 2.5 4 -1.5
Entrepreneurship 2.5 3 -0.5
Scope 2.5 3 -0.5
Micro Strategic Self-Sufficiency 2.3 2 0.3
Perspec- Customer Favor Striving 2.3 1 1.3
tive 2.3 4
Incrementalism -1.7
Open Communication and Collaboration 2.0 1 1.0
Niche Sovereignty 1.3 4 -2.7
M utual Trust 1.3 2 -0.7
Gradual Conquest 1.3 4 -2.7
Courage and Self-Confidence 2.0 3 -1.0
Role Complementarity 1.8 2 -0.2
Macro 4
Gradual Service Extension 1.8 -2.2
Perspec-
Defense and Attack 1.5 3 -1.5
tive
Reliable Execution 1.5 3 -1.5
Continuous Innovation 1.0 1 0.0
Table 95: Comparison of LSP I’s performance with Hidden Champions’

Comparison for LSP J

Business Principle Mean J (Mean - J)
A, D, E, M U
Customer Proximity 3.5 4 -0.5
Customer Granularity 2.8 3 -0.2
Simple and Fast Decision M aking 2.5 1 1.5
Entrepreneurship 2.5 4 -1.5
Scope 2.5 1 1.5
Micro Strategic Self-Sufficiency 2.3 2 0.3
Perspec- Customer Favor Striving 2.3 1 1.3
tive 2.3 4
Incrementalism -1.7
Open Communication and Collaboration 2.0 2 0.0
Niche Sovereignty 1.3 3 -1.7
M utual Trust 1.3 4 -2.7
Gradual Conquest 1.3 4 -2.7
Courage and Self-Confidence 2.0 4 -2.0
Role Complementarity 1.8 4 -2.2
Macro 4
Gradual Service Extension 1.8 -2.2
Perspec-
Defense and Attack 1.5 2 -0.5
tive
Reliable Execution 1.5 3 -1.5
Continuous Innovation 1.0 4 -3.0

Table 96: Comparison of LSP J’s performance with Hidden Champions’

320 7 Š In search of Hidden Champions: BMPS

Comparison for LSP K

Business Principle Mean K (Mean - K)
A, D, E, M U
Customer Proximity 3.5 4 -0.5
Customer Granularity 2.8 2 0.8
Simple and Fast Decision M aking 2.5 1 1.5
Entrepreneurship 2.5 3 -0.5
Scope 2.5 4 -1.5
Micro Strategic Self-Sufficiency 2.3 4 -1.7
Perspec- Customer Favor Striving 2.3 1 1.3
tive Incrementalism 2.3 2 0.3
Open Communication and Collaboration 2.0 4 -2.0
Niche Sovereignty 1.3 3 -1.7
M utual Trust 1.3 2 -0.7
Gradual Conquest 1.3 2 -0.7
Courage and Self-Confidence 2.0 1 1.0
Role Complementarity 1.8 4 -2.2
Macro Gradual Service Extension 1
1.8 0.8
Perspec-
Defense and Attack 1.5 4 -2.5
tive
Reliable Execution 1.5 4 -2.5
Continuous Innovation 1.0 3 -2.0

Table 97: Comparison of LSP K’s performance with Hidden Champions’

Comparison for LSP L

Business Principle Mean L (Mean - L)
A, D, E, M U
Customer Proximity 3.5 4 -0.5
Customer Granularity 2.8 1 1.8
Simple and Fast Decision M aking 2.5 1 1.5
Entrepreneurship 2.5 4 -1.5
Scope 2.5 4 -1.5
Micro Strategic Self-Sufficiency 2.3 2 0.3
Perspec- Customer Favor Striving 2.3 2 0.3
tive Incrementalism 2.3 2 0.3
Open Communication and Collaboration 2.0 3 -1.0
Niche Sovereignty 1.3 3 -1.7
M utual Trust 1.3 4 -2.7
Gradual Conquest 1.3 4 -2.7
Courage and Self-Confidence 2.0 4 -2.0
Role Complementarity 1.8 3 -1.2
Macro
Gradual Service Extension 1.8 3 -1.2
Perspec-
Defense and Attack 1.5 2 -0.5
tive
Reliable Execution 1.5 2 -0.5
Continuous Innovation 1.0 2 -1.0

Table 98: Comparison of LSP L’s performance with Hidden Champions’

7 Š In search of Hidden Champions: BMPS 321

These findings from above comparisons can also be summarized showing Potential
Hidden Champions’ and Hidden Championship Failures’ overall emphasized
dimensions and weaknesses (Table 99 and Table 100). Dimensions with an average
interval to Hidden Champions’ moldings of at least +/-1 indicate the most interesting
findings. They are marked in grey if the LSP outperforms Hidden Champions and in
black if performance is weak in the respective dimension. For each of the business
principles the sum of the means was calculated in Table 99 for Potential Hidden
Champions and in Table 100 for Hidden Championship Failures. This leads to the
following results:

In the micro perspective Potential Hidden Champions are relatively stronger in the
dimensions Customer Granularity and Customer Proximity. They are relatively weaker
in Mutual Trust and Gradual Conquest. Obviously Potential Hidden Champions
emphasize too strongly on Customer Proximity as it is a third priority business principle
of Hidden Champions (Figure 108).

In the macro perspective Potential Hidden Champions are relatively weaker in the
business principles of Defense and Attack, Continuous Innovation as well as Reliable
Execution. Here, the interesting point is that Continuous Innovation is a first priority
business principle at Hidden Champions (Figure 108).

Hidden Championship Failures overall do not outperform Hidden Champions in any

dimension, neither in the micro nor in the macro perspective. In the micro perspective
Hidden Championship Failures are relatively weaker in Gradual Conquest, Mutual Trust
and Niche Sovereignty. The critical dimension here is Niche Sovereignty which is a
first priority business principle at Hidden Champions (Figure 108).

Hidden Championship Failures are relatively weaker in every macro dimension except
relating to Courage and Self-Confidence.

Overall, the above comparison within the BMPS Framework also helps to identify
starting points at Non-Hidden Champions for improvements towards becoming a
Hidden Champion. These starting points, however, are not further developed here.
322 7 Š In search of Hidden Champions: BMPS

(Mean - B) (Mean - C) (Mean - G) (Mean - H) 䌥

Business Principle
U U U U
Customer Proximity 2.5 -0.5 0.5 1.5 4.0
Customer Granularity 1.8 0.8 1.8 -0.2 4.2
Simple and Fast Decision M aking -0.5 0.5 0.5 -1.5 -1.0
Entrepreneurship -0.5 -1.5 0.5 0.5 -1.0
Scope 0.5 -0.5 1.5 0.5 2.0
Micro
Strategic Self-Sufficiency -0.7 -0.7 -0.7 -0.7 -2.8
Perspec-
Customer Favor Striving -0.7 0.3 -0.7 -1.7 -2.8
tive
Incrementalism -1.7 0.3 -0.7 -0.7 -2.8
Open Communication and Collaboration -1.0 1.0 1.0 1.0 2.0
Niche Sovereignty 0.3 0.3 0.3 0.3 1.2
M utual Trust -0.7 -0.7 -2.7 -1.7 -5.8
Gradual Conquest -1.7 -0.7 -2.7 -0.7 -5.8
Courage and Self-Confidence 0.0 0.0 -2.0 1.0 -1.0
Role Complementarity -0.2 0.8 -1.2 -1.2 -1.8
Macro
Gradual Service Extension -1.2 1.2 -1.2 -0.2 -1.4
Perspec-
Defense and Attack -1.5 -1.5 -2.5 -2.5 -8.0
tive
Reliable Execution -2.5 -0.5 -2.5 0.5 -5.0
Continuous Innovation -1.0 -3.0 -3.0 0.0 -7.0

䌥㻌㼛 㼒㻌U 䌥㻌㻛 㻌㻠

Business Principle
B, C, G, H
Customer Granularity 4.2 1.1
Customer Proximity 4.0 1.0
Scope 2.0 0.5
Open Communication and Collaboration 2.0 0.5
Niche Sovereignty 1.2 0.3
Micro
Simple and Fast Decision M aking -1.0 -0.3
Perspec-
Entrepreneurship -1.0 -0.3
tive
Strategic Self-Sufficiency -2.8 -0.7
Customer Favor Striving -2.8 -0.7
Incrementalism -2.8 -0.7
M utual Trust -5.8 -1.5
Gradual Conquest -5.8 -1.5
Courage and Self-Confidence -1.0 -0.3
Gradual Service Extension -1.4 -0.4
Macro
Role Complementarity -1.8 -0.5
Perspec-
Reliable Execution -5.0 -1.3
tive
Continuous Innovation -7.0 -1.8
Defense and Attack -8.0 -2.0

Table 99: Potential Hidden Champions’ strongest and weakest dimensions

(Values from columns ‘Means - X’ are taken from Table 90 to Table 93)
7 Š In search of Hidden Champions: BMPS 323

(Mean - F) (Mean - I) (Mean - J) (Mean - K) (Mean - L) 䌥

Business Principle
U U U U U
Customer Proximity 1.5 1.5 -0.5 -0.5 -0.5 1.5
Customer Granularity -0.2 0.8 -0.2 0.8 1.8 3.0
Simple and Fast Decision M aking -0.5 -1.5 1.5 1.5 1.5 2.5
Entrepreneurship 0.5 -0.5 -1.5 -0.5 -1.5 -3.5
Scope -0.5 -0.5 1.5 -1.5 -1.5 -2.5
Micro
Strategic Self-Sufficiency 0.3 0.3 0.3 -1.7 0.3 -0.5
Perspec-
Customer Favor Striving -1.7 1.3 1.3 1.3 0.3 2.5
tive
Incrementalism 0.3 -1.7 -1.7 0.3 0.3 -2.5
Open Communication and Collaboration -1.0 1.0 0.0 -2.0 -1.0 -3.0
Niche Sovereignty -0.7 -2.7 -1.7 -1.7 -1.7 -8.5
M utual Trust -2.7 -0.7 -2.7 -0.7 -2.7 -9.5
Gradual Conquest -0.7 -2.7 -2.7 -0.7 -2.7 -9.5
Courage and Self-Confidence 0.0 -1.0 -2.0 1.0 -2.0 -4.0
Role Complementarity -1.2 -0.2 -2.2 -2.2 -1.2 -7.0
Macro
Gradual Service Extension -0.2 -2.2 -2.2 0.8 -1.2 -5.0
Perspec-
Defense and Attack -2.5 -1.5 -0.5 -2.5 -0.5 -7.5
tive
Reliable Execution -0.5 -1.5 -1.5 -2.5 -0.5 -6.5
Continuous Innovation -2.0 0.0 -3.0 -2.0 -1.0 -8.0

䌥㻌㼛 㼒㻌U  䌥㻌㻛 㻌㻡

Business Principle
F, I, J, K, L
Customer Granularity 3.0 0.6
Simple and Fast Decision M aking 2.5 0.5
Customer Favor Striving 2.5 0.5
Customer Proximity 1.5 0.3
Strategic Self-Sufficiency -0.5 -0.1
Micro
Scope -2.5 -0.5
Perspec-
Incrementalism -2.5 -0.5
tive
Open Communication and Collaboration -3.0 -0.6
Entrepreneurship -3.5 -0.7
Niche Sovereignty -8.5 -1.7
M utual Trust -9.5 -1.9
Gradual Conquest -9.5 -1.9
Courage and Self-Confidence -4.0 -0.8
Gradual Service Extension -5.0 -1.0
Macro
Reliable Execution -6.5 -1.3
Perspec-
Role Complementarity -7.0 -1.4
tive
Defense and Attack -7.5 -1.5
Continuous Innovation -8.0 -1.6

Table 100: Hidden Championship Failures strongest and weakest dimensions

(Values from columns ‘Means - X’ are taken from Table 94 to Table 98)

7.5 Comment on business principles

In Section 7.4 all my previous research and empirical analysis is consolidated in my

BMPS Framework. The dimensions of my framework are aligned to the business
principles identified in Chapter 6 (Figure 97). From scoring the micro perspective
across all potential Hidden Champions the business principle of Niche Sovereignty
contributes to competitive advantage while the business principles of Customer
Proximity and Entrepreneurship indicate competitive failure. From scoring the macro
perspective across all potential Hidden Champions the business principle Continuous
Innovation contributes to competitive advantage while the business principle of Defense
and Attack indicates competitive failure. After identification of the Hidden Champions
(LSPs A, D, E and M) by applying descriptive statistics, I analyzed Hidden Champions’
324 7 Š In search of Hidden Champions: BMPS

priority on business principles. Accordingly, Hidden Champions outstandingly target

Gradual Conquest, Mutual Trust and Niche Sovereignty in the micro perspective and
Continuous Innovation, Reliable Execution as well as Defense and Attack in the macro
perspective. I use these findings to compare the average score values from Hidden
Champions with those from Potential Hidden Champions and Hidden Championship
Failures (Section 7.4.3). The comparisons result in a clear outcome. Accordingly,
Hidden Championship Failures are relatively weaker in all micro and macro layers’
business principles which are the key focus of Hidden Champions. The result is similar
for Potential Hidden Champions, except for the micro layer’s business principle of
Niche Sovereignty which is also in focus at Potential Hidden Champions.

A final comment on Hidden Champions’ behavior in managing the tensions identified

for the area of logistics in Section 7.2.13 summarizes the starting points for Potential
Hidden Champions and Hidden Championship Failures for managing the turnaround
towards Hidden Championship. I assigned Hidden Champions’ key business principles
to the three tensions identified for the area of logistics. First, Hidden Champions
manage the tension Scope Versus Focus with Gradual Conquest and Niche Sovereignty.
Hidden Champions conquer the service offering scope gradually while aiming for
segment leadership. Second, they manage the tension Independence Versus Networking
with Continuous Innovation as well as Defense and Attack. Hidden Champions are
innovators rather than commodity providers or generalists who strongly depend on
networking with partners. Hidden Champions defend a specific company size that is
small enough to remain independent but that also allows attacking a growth position to
be large enough to conduct international business. Third, Hidden Champions manage
the tension Performance Versus Sustainability with Mutual Trust and Reliable
Execution. They stick to rules and norms aiming for a common social atmosphere and
put strong efforts into collaboration to create customer value and performance (Figure
111). While managing these tensions, Hidden Champions survive in competition by
successfully dealing with the challenges in today’s industry despite not being total
integrators.
7 Š In search of Hidden Champions: BMPS 325

Gradual Continuous Mutual

Conquest Innovation Trust

Scope Independence Performance

Versus Versus Versus
Focus Networking Sustainability

Niche Defense Reliable

Sovereignty and Attack Execution

Figure 111: Hidden Champions’ business principles for managing tensions in today’s area of logistics
(Based on Dodd and Favaro 2006, p. 65)
326 8 Š Conclusions

8 Conclusions

This final chapter offers a closing remark on the Total Integration promise which has
been both discussed by the academic literature for years and is also presented as the
next stage of practice by my LSP research cases as well as by the industry. My first
main result underlines the failure of this aim. My second contribution concerns the
development of a framework for LSPs which allows me to identify superior
performance amongst them. In particular, I show that the definition of a Hidden
Champion by its creator is too broad. The addition of the precise BMPS Framework
then allows the identification of the high performers amongst this class of SMEs.
Finally, my third contribution consists in a comment on the outlook on the future of
logistics. My point is that current champions are not total integrators. Thus there is a
gap in the current market offer, which also identifies an opportunity for a new type of
logistics actors to fill this gap.

8.1 My main point: fallacy of Total Integration

The Total Integration discussion has been often related to the emergence of new market
entrants (Section 4.3). At the beginning of this study my intention was to start research
from a comprehensive typology of LSPs. As a typology covering both traditional
companies as well as new market entrants was not available, though the latter types
have featured strongly in discussions in the context of Total Integration, I worked on a
segmentation of LSPs. From this comprehensive typology I eliminated those types not
relevant to Total Integration and continued my research with the remaining types of
LSPs.

By applying the BMPS Framework an answer was expected to the question whether the
type of LSP matters, i.e. whether Hidden Championship is restricted to long-term
operating LSPs which are still more old-established in type (traditional companies,
Figure 37) or to those with a less traditional type today (new market entrants, Figure
37). The answer is that, as the summary from the results in Chapter 7 (Table 101)
shows, the type does not matter. Although all Hidden Champions are traditional
companies, the situation is indifferent for Potential Hidden Champions and Hidden
Championship Failures with a mixture of traditional companies and new market
entrants.

R. M. Neubauer, Business Models in the Area of Logistics, DOI 10.1007/978-3-8349-6533-2_8,

© Gabler Verlag | Springer Fachmedien Wiesbaden GmbH 2011
8 Š Conclusions 327

LSP Type of LSP Category of type of LSP

A Medium-sized sector specialist Traditional company (transportation company)
D Asset-intensive contract logistics provider Traditional company (haulage contractor)
E Asset-intensive contract logistics provider Traditional company (haulage contractor)
M Land carrier Traditional company (haulage contractor)
B In-house provider New market entrant
C Specialist logistics subsidiary New market entrant
G Medium-sized haulage carrier Traditional company (haulage contractor)
H Asset-intensive contract logistics provider Traditional company (haulage contractor)
F Medium-sized sector specialist Traditional company (transportation company)
I Non-asset-intensive contract logistics provider Traditional company (haulage contractor)
J Provider-provider entity New market entrant
K Provider-customer entity New market entrant
L Air & ocean carrier Traditional company (haulage contractor)
Legend: Dark grey (LSP/line) = Hidden Champion
Light grey (LSP/line) = Potential Hidden Champion
Black (LSP/line) = Hidden Championship Failure

Table 101: Assignment of Hidden Championship status to category of type of LSP

While my research results do not confirm the arguments from discussions in literature
and practice that new market entrants have good prerequisites for offering Total
Integration solutions and thus will shape the future in the area of logistics, success or
failure obviously depends on business principles’ focus. My research shows that SMEs
are sustainable. The identified Hidden Champions concentrate on Gradual Conquest,
Mutual Trust as well as Niche Sovereignty in the micro perspective at first priority. In
the macro perspective first priority is on Continuous Innovation, Reliable Execution as
well as Defense and Attack. The micro perspective’s business principles of Customer
Granularity and Customer Proximity are third priority business principles while all other
are of second priority (Figure 108). Although there is a tendency to aim towards at an
increasingly broader scope at Hidden Champions, which is particularly obvious in
Gradual Conquest as a first priority business principle, Total Integration is not a key
focus point. Even more, trust and excellence in service execution characterize these
LSPs which are also sovereign and operate independently in their strongly defended
niche. Hidden Champions go this way and find value by operating according to these
business principles though a first way to summarize my previous chapters is the
statement that the Total Integration concept proves to be more myth and dream than
reality. Extensive observations and analysis in the course of this study provided
evidence for the fallacy of Total Integration. For justification of this result some
explanatory statements by LSPs and customers studied, on causes pertaining to the
relationship between these two parties as well as originating in environmental
conditions are given in Figure 112.
 328

LSPs
• Lacking trust (e.g. fear of high losses due to sudden cancellation of
contract as large investments are necessary even though contract
duration is relatively short)
• Fear of dependency from dominant client
• Large financial resources are required to reduce conflicts of aims which
emerge when working for more than one client
• Costs for possible takeover of staff as well as partly high transaction
costs
• Overburdening of the financial strength in case of wrong calculations in
the concept phase
• Winning and keeping highly qualified staff
• Fear of failure if moving into new and unknown business terrain
• Simultaneously offering forwarding and consulting is a challenge as the
LSP is exposed to different cultures, different people and
a different management within a single company LSP
Customers
• Fear of dependency from dominant LSP (increased power of LSP,
pressure on client, loss of know-how, etc.)
• Fear of losing control (over orders, processes, functions, decisions, etc.)
• Fear of losing proximity to market and clients
• Fear of transparency
• Fear of misuse of sensitive data to competition (related to future contract
negotiations and collaboration of LSP with competitors)
• Fear of misuse of financial issues (e.g. costs, valuation)
• Lacking trust in partner (in terms of misuse, competencies, approaching
permanently new improvements, etc.)
• Initial prejudice in terms of ability for providing optimal services in all
areas and all regions, in terms of new business model of LSP, in terms
of complexity and size of changes as well as in terms of evaluation and
pricing of individualized services
Customer y Lacking possibility for reintegration/change of LSP or
difficulties in doing so

Relationship

Relationship Environment
Environment
• Failure in managing complexity of process integration • Text
adequately including standardization of IT systems • Demand for competitive markets
• Disagreements in terms of longer-term contract duration and contract
arrangements • Demanding performance in niches
• Misconceptions about allocation of roles as well as about sharing
risks, cost savings and profits
• Lacking willingness for agreement and cooperation, including willingness
to share information

Figure 112: Explanatory statements justifying the fallacy of Total Integration

• Different company structures
• Legal hurdles
• High uncertainty
8 Š Conclusions
8 Š Conclusions 329

In logistics, it would be desirable to think of LSPs as the single point of contact (‘one-
stop-shop’) for a customer’s total supply chain. However, according to final additional
interview comments, manufacturers have their own departments with responsibility for
logistics strategy, management and Total Integration while LSPs are assigned to
particular and well defined areas of the supply chain only. Manufacturers prefer to hand
over logistics activities to several LSPs. They define sub-processes which are treated
and outsourced separately in order to reduce risks. Thus, if at all, LSPs are the single
point of contact for a part of the supply chain only with an extensive network of
partners fulfilling total supply chain activities. Such a network may become a complex
healthy business ecosystem of excellent partners.

Let me recall the findings from Figure 5169 in Chapter 6 relating to the criteria for the
selection of LSPs. Interview partners at customer companies replied that service
execution is the primary decision trigger, i.e. a basic precondition, while convenience
aspects and capabilities are decisive for the final decision. Both convenience and
capabilities can be secured through ecosystems. In their final remarks supplementing the
answers to all given questions, customer companies’ interview partners emphasized that
it is high performance in the sense of high quality service execution that customers
value most (applicable to eight customer companies). Next comes LSPs’ sticking to
promises as well as flexibility (applicable to four customer companies each). Two
interview partners pointed to an insignificance of the service spectrum in particular and
another two mentioned experience. One representative of a customer company
mentioned the importance of specialization and another emphasized outperforming
rivals (Figure 113). These supplementing statements confirm that at present Hidden
Champions force performance in service execution. Total Integration as service is still a
dream.

69
The figure’s findings are based on the answers from the interview partners at the customer
companies on question 2.3 (‘Please indicate the importance of criteria for the selection of a logistics
service provider’) in the ‘Questionnaire/Interview Manual – Customer’ (Appendix 4).
330 8 Š Conclusions

8 [Number of customers;
customers’ names in Roman numbers;
no statements from customer III]

I
II
IV 4 4
VII
IX IV VI 2 2
X V IX
XI VII X I VI 1 1
XII VIII XIII II XIII II X
Performance Sticking to Flexibility Insignificance Experience Specialization Outperforming
promises of service rivals
spectrum

Figure 113: Research cases customers’ most valued attributes of LSPs according to final remarks of
interview partners

8.2 Market and competitive implications: SMEs can not be neglected in any
serious study of the LSP industry

This study is an answer to the strong dominance of research and investigation of LSEs
in the area of logistics, which particularly applies to research institutions like Analytica
(2005), eyefortransport (2004) or Transport Intelligence (2004). My research does not
include looking at LSEs but is a very detailed analysis of the neglected group of SMEs
in the area of logistics. Research findings are derived and presented based on very
special data from selected research cases, overcoming very strong information restrains
prevailing at LSPs small- or medium in size. As a result, I identified four Hidden
Champions among my research cases. I also present Potential Hidden Champions’ and
Hidden Championship Failures’ positions and specialties and show starting points for
managing the turnaround towards Hidden Championship. Hidden Championship status
does not guarantee long-term survival, particularly in cases of unforeseen external
influences like ecological disasters or financial crisis. However, it is a strong basis for
future defense and attack of a strong position in the industry. SMEs in logistics,
particularly Hidden Champions, manage to defend a very strong position in competition
with LSEs in the industry. Figure 114 shows the opposing positions of the two groups.
Both are characterized by specific characteristics:

LSEs are increasingly getting larger. This is an important implication and pertains to
industry structure. LSEs’ strength is in system and network businesses, e.g. for CEP,
8 Š Conclusions 331

packaged goods or container navigation. LSEs are dominant in such businesses with
high importance of full-coverage presence and exploitation of high fix capacities. In
other words, LSEs offer commodity services. Thereby, large takeovers like the
acquisition of Exel by Deutsche Post DHL in December 2005 that led to market
leadership in contract logistics (Deutsche Post AG (ed.) 2006, cover page, p. 22) might
be considered as ‘extrusion competition’ or ‘extrusion fight’ for SMEs in logistics.

SMEs’ service offerings, however, are characterized by customization. In particular

Hidden Champions focus very strong on individualization and customer orientation in
niche markets. They provide highly individualized contract logistics offerings out of a
standardized service portfolio which is often location-bound. Unlike LSEs, SMEs
develop customer-specific solutions while often renouncing synergies in favor of
customer uniqueness, entering into potentially considerable risks or accumulation of
capital. This is only possible due to SMEs’ flat hierarchies which also provide them
with the ability to adjust quickly to customer demands like unforeseen orders and
incidents.

In logistics one threat to SMEs originates in logistical LSEs’ market penetration

approach (see also Figure 83). Since LSPs increasingly adapt a more various contract
logistics business for customers independent of size, the degree of standardization of
know-how increases. Contract logistics develops towards a commodity business which
leads to higher price sensitivity. Thus integration is becoming a commodity business,
i.e. a large-scale business with cost focus. Squeezing of the integration position by
LSEs and SMEs as one might initially think, rather probably does not work for the
reason that LSEs’ core is commodity business, while for SMEs it is customization.
Consequently, there is no room for an integration service offering by Hidden
Champions which strongly focuses on individualization, i.e. which offers customized
but not industrialized solutions. In Figure 114 this threat is numbered one.

My research leads to a further conclusion about an implication to the industry. In future,

other parties like internal departments of the customer company or network
organizations claim their position in the integration business in replacement of the
convergence to full integration (threat number two in Figure 114). When managing
logistics through internal departments control remains inside the company while
332 8 Š Conclusions

physical parts that are not the company’s core competence are outsourced to third
parties. It is the search for an optimal balance of keeping management skills with some
logistics activities inside and outsourcing the other activities. I refer to this as keeping at
least a Managing Control Tower that is responsible for the key coordination
mechanism. Management is an issue of soft factors causing inefficiencies. As it is hard
to manage soft factors, management has to be kept inside the company. LSPs and
customers have to operate complementarily. Otherwise LSPs will struggle as customers
have the logistics, i.e. strategic, knowledge, while logistics provides the activities. Key
competition for Total Integration is expected not to be between LSEs and SMEs in
logistics but between a group which I call New Breed and SMEs. The reason is that
LSEs do not offer customized solutions to the same extent as SMEs.

Inte-
gration
New
Breed
Customization

1 2
Commodity

LSEs SMEs

Figure 114: Threats for SMEs in future logistics

In my research I could not identify the link for the principal possibility of SMEs taking
over the integration function as stated at the beginning of this study. The market does
not supply this need while the gap for this service offering still exists. Possibly, there is
an option to close this gap by a ‘bridge’ which is the function of this New Breed of
emerging market players (see dark grey triangle in Figure 115). This breed of players
can be virtual players, virtual supply chain managers, supply chain architects, logistics
brokers, logistics intermediaries, logistics consultants, investors or contract negotiators.
They are responsible for ‘enterprise diagnostics’ and their roles are selecting,
controlling, monitoring and coordinating. For example, they select and control
suppliers, negotiate supply chain contracts and design supply chains. This New Breed of
players might also play a major role in shaping the future of logistics in addition to the
traditional other groups of LSEs, SMEs and customers as reflected in Figure 115.
8 Š Conclusions 333

While the New Breed of players is responsible for enterprise diagnostics, LSEs are one-
stop-operators that provide basic operative services as well as integration support.
SMEs offer solutions for niches and buy network services where required. As they are
not dependent on a network they have a free choice of services and thus are able to offer
their customers the most appropriate solution each time. This helps them offer
transformed solutions which they innovate after having thought of customers’ needs
beyond origin needs. They manage to serve more customers with more individualized
solutions. These solutions will allow them to reach out to markets that they have not
been able to reach out to before. Surviving and long-term successful SMEs, that is
Hidden Champions, stick to performance. Their function is that of a performance
barrier. In addition, some customers do high-level in-house management. A large share
of integration and one-stop-concepts remains in the responsibility of customers, i.e. of
their logistics departments. Customers’ function is that of a control barrier.

LSEs SMEs
New
Breed

Customers

Logistics orchestration

Figure 115: The future of logistics and its competitive groups

In conclusion, the future of the area of logistics might be shaped by a collaborative

striving for perfecting of the supply chain by in-house customizers (customers), niche
experts (SMEs), operational integrators (LSEs) as well as complex skilled organizers
(New Breed). The development of my BMPS Framework is a methodological
contribution which has been instrumental in obtaining the above conclusions.
334 8 Š Conclusions

8.3 Future research

In future, Total Integration will also be a focus of interest. However, the concept as
discussed does not work as it is not keeping up with most recent industry developments
and needs. Also, academics’ discussions about the concept as company comprehensive
SCM concept were misleading. In practice this view is reduced to logistics chains in the
narrower sense of each single customer. Thus Total Integration as company
comprehensive SCM is replaced by modularization of supply chain areas. Service
offerings are delivered industrialized, i.e. standardized core services for a specific
supply chain area are supplemented by specialized extension modules. Future research
will have to focus on this.70

Due to this expectation on the future of logistics, the industry will be shaped by
intelligent combined concepts of LSEs with their standardized networks, of SMEs with
their individual contract logistics solutions, of customers with logistics assembly tasks
as well as of the New Breed of actors. SMEs are sustainable in the area of logistics. The
logistics business will become increasingly a collaborative business with logistical
SMEs and other single players achieving success by operating no longer only
independently but by becoming an active part of this collaborative construct.
Consequently, a new joint business model in the sense of a Network Enterprise Model
of the four groups of market participants, i.e. customers, LSEs, SMEs as well as New
Breed, has to be subject of future research. In future, not only single companies but
whole supply chains compete with each other.

A further research process should also be to review developments in the industry. The
dynamic in the industry has not yet been well explored. For this reason timeframes need
to be discovered by comparing the status in the industry, e.g. for the periods from 1990
to 2000, from 2000 to 2005 and a five year period following this study.
Although SMEs have to deal with structural disadvantages in competition they are
highly important for the national economy today and in future. While examples from

70
In academic literature, for example, the concept of mass customization with related economies of
customer integration has come into focus of interest (see for example Lampel and Mintzberg 1996; Piller
2006; Piller 2003; Piller and Moeslein/Reichwald 2002; Pine 1993; Schenk et al. 2001; Zipkin 2001).
With mass customization differentiation possibilities of customization are combined with efficiency of
mass production (Tseng and Piller 2003, p. 6). In the context of the developments in today’s logistics
industry the concept of mass customization should be applied to future research.
8 Š Conclusions 335

global giants in other industries have already proven vulnerable (e.g. in the automotive
industry the failed acquisition of Chrysler by Daimler) in logistics giants stumble too
(e.g. the withdrawal of Deutsche Post DHL from DHL in the US). The importance of
SMEs in logistics will increase and future research progress in the industry can not
afford to neglect this area any longer. This includes reviewing the applicability and
suitability of the BMPS Framework I developed in this study. Market players must
perform for survival in competiton. The Business Model Scorecard and the BMPS
Framework help to identify the winners who can develop micro and macro dimensions.
A comparison of the position of the LSPs, e.g. in 1990 and currently is necessary and
conclusions have to be made for the future. For example, an open issue is whether
identified Failed Hidden Championships will also remain so. Further, an answer to the
question about how long Hidden Champions remain in niches is required. Another area
of interest is the life-cycle of Hidden Champions, which would involve answering
questions about how Hidden Champions grow, mature or die, including whether Hidden
Champions can collapse from one day to another. My empirical research, for which I
use the approach of hypotheses generation and also analysis by research cases, should
be further extended by including a broad scope of number of LSPs in the analysis to
achieve statistical significance.

While being a Hidden Champion is a blessing, potential Hidden Championship is a

Winner’s Curse (Thaler 1992) for others. For example, LSP K became ‘too successful’.
Its key customer feared losing direct control over its logistics functions, creating
dependency as well as benefits for competitors. LSP K was also too strongly connected
to its key customer and thus limited in external market success due to this tight
connection. For these reasons the joint venture LSP K has been cancelled. This is just
one example of the highly sensitive and critical area of Hidden Championship in
logistics which leaves great scope for future research.
Appendices 337

Appendices

Appendix 1: Overview of approaches to business models

Appendix 2: Overview of approaches to strategy
Appendix 3: Questionnaire/Interview Manual Logistics Service Provider
Appendix 4: Questionnaire/Interview Manual Customer

R. M. Neubauer, Business Models in the Area of Logistics, DOI 10.1007/978-3-8349-6533-2,

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340 Appendix 1: Overview of approaches to business models
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342 Appendix 1: Overview of approaches to business models
Appendix 1: Overview of approaches to business models 343
344 Appendix 1: Overview of approaches to business models
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346 Appendix 1: Overview of approaches to business models
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348 Appendix 1: Overview of approaches to business models
Appendix 1: Overview of approaches to business models 349
350 Appendix 1: Overview of approaches to business models
Appendix 2: Overview of approaches to strategy 351

Appendix 2: Overview of approaches to strategy

352 Appendix 2: Overview of approaches to strategy
Appendix 2: Overview of approaches to strategy 353
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