(International Studies of Management & Organization White Plains Fall 1996 -- Volume: 26,  Issue: 3, 93-108, ISSN: 00208825)

by Ursula Glunk, Celeste Wilderom, and Robert Ogilvie

A paper identifies the key to German-style management. In Germany, there is a consistent pattern of business-related practices built around a competence first principle. Building sufficient competence into the primary production processes is a major preoccupation of German firms. To this end, they continuously invest in human resources, with an emphasis on technical and professional competence. This, together with a strong quality and innovation orientation, seems to be the pillar of German-style management.

In 1990, West Germany produced 40 percent of the European Community's manufactured output

This paper aims to identify the key to German-style management...

...culturally embedded management practices...

American business practices and views on Japanese management tend to dominate the management literature worldwide. This domination is at odds with the relatively meager attention given to the management practices of other successful countries in the world. This paper focuses on Germany, Europe's "economic giant." In 1990, West Germany produced 40 percent of the European Community's manufactured output (Warner and Campbell, 1993). Its export power is unparalleled; Germany's volume of world trade nearly equals that of the much larger United States. Its exports are, and have been since the 1960s, twice as high, per capita, as Japan's (e.g., Heiduk and Yamamura, 1990; The Economist, 1993).

This paper aims to identify the key to German-style management, by which we mean the unique, culturally embedded management practices within Germany. In order to provide a realistic picture of a national management style, one has to consider behavioral as well as institutional aspects of the business system (see Whitley, 1992, 1994)...

In order to identify the key to German-style management, we analyzed a representative set of empirical research studies that focused on management styles and systems in different countries, including Germany. To enrich our analysis, we also considered essays and noncomparative literature on German management. These essays provide information on the background conditions of the German business system which cannot be neglected in order to achieve an understanding of German-style management.1

After characterizing the empirical literature, this paper offers an overview of the unique features of German-style management. Attention is then focused on the current economic situation in Germany and the future potential of Germanstyle management. The epilogue points out knowledge gaps and formulates needs for further research.

In all of the studies, data collection was based on interviews or questionnaires, mostly with managers and/or chief executives...  It also included objective firm records and even country-level data. The sample size of respondents per firm ranged from one (Taylor et al., 1990) to twenty (Maurice et al., 1980)...

In terms of countries included in the comparative studies, Great Britain was most often compared with Germany (Budde et al., 1982; Eberwein and Tholen, 1993; Horovitz, 1980; Laurent, 1983; Maurice et al., 1980; Stewart et al., 1994; Taylor et al., 1990), while France was represented in three studies (Horovitz, 1980; Laurent, 1983; Maurice et al., 1980). Comparisons with other European or non-European countries are rare. From these studies were extracted those features of German management that differed from those in other countries and surfaced to various degrees in the broader literature.

...nearly 400 vocational qualifications...

..."on-the-job learning" (four days per week) and partly theoretical (one day per week)...

...the contents of the teaching...  is decided upon... by... the government, the employers' association, and the trade unions...

...leads to an exceptionally well-trained work force...

...promotes technical "workmanship"

In 1919, the obligation to learn on the job and obtain diplomas became law.

About two-thirds of German supervisors hold a Meister certificate

Meisters... have received instruction on how to teach their subordinates on the job.

...the Meister qualification is one of the foundations of the efficiency and productivity of German industry...

Technical knowledge and engineering skills are especially highly valued in Germany...

Germany's state-regulated apprentice system is known as the best vocational training system in Europe (Warner and Campbell, 1993). It provides standard curricula for nearly 400 vocational qualifications (Hollinshead and Leat, 1995; Reuling, 1996). People in the 15-21 age bracket learn (in three years) a well-defined skill, for which they get a state diploma. Such learning is partly "on-the-job learning" (four days per week) and partly theoretical (one day per week). In order to ensure a viable relationship between the training system and the employment system, the contents of the teaching in the vocational schools is decided upon (annually) by three institutions the government, the employers' association, and the trade unions. Supervision is in the hands of the local chambers of commerce...

Ogilvie ( 1992), in an analysis of forty annual reports of a group of representative German firms, showed that, on average per year, at least 5 percent of a company's labor force consisted of apprentices. The German apprentice system leads to an exceptionally well-trained work force. Currently, approximately 70 percent of industrial workers have been through this system and passed carefully designed (and constantly redesigned) sector- and job-specific qualifying exams. In the Netherlands, only about 40 percent of the workers on the shop floor meet such qualifications, while the corresponding figure for both Great Britain and the United States is 30 percent (Ogilvie, 1992).

This public-private system, which promotes technical "workmanship," dates back to 1919 and is rooted in the German Medieval Guilds. In 1919, the obligation to learn on the job and obtain diplomas became law. An intensive and relatively complex form of cooperation among governmental, educational, union, and business sectors emerged. Any person leaving school at the age of sixteen would work as an apprentice, provided the employing organizations also had a certified foreman (Meister). This law is still in place. About two-thirds of German supervisors hold a Meister certificate (The Economist, 1992). The Meister training covers a wide range of topics in areas such as production automatization and logistics, organizational methodology, and leadership. Meisters, moreover, have received instruction on how to teach their subordinates on the job. American, British, and French firms do not really have anything equivalent to this. According to the British National Institute of Economic and Social Research, the Meister qualification is one of the foundations of the efficiency and productivity of German industry (The Economist, 1992).

Technical knowledge and engineering skills are especially highly valued in Germany (Lawrence, 1980, 1994). Encouragement of employees' technical development plays a particularly important role in German firms (Hollinshead and Leat, 1995; Taylor et al., 1990). The promotion of continuous competence enhancement is not restricted to the lowest-level or key personnel. All employees are continuously challenged with new procedures, tools, and techniques. The results are, among other things, that retooling-adapting to new technologies, products, and services-happens relatively swiftly and successfully (Lane, 1989). The costs of employee training in order to meet new client demands or to react to new competitor tactics are, therefore, relatively low.

...there is little belief in the added value of a generally oriented management education...

A technical background... is more typical for German managers...

Professional criteria... quality of skill and amount of experience... are the most important promotion considerations in German firms...

...German middle managers considered their technical expertise the most important basis of their authority...

German managers are known to be specialists (Lawrence, 1994; Warner and Campbell, 1993). In Germany, there is little belief in the added value of a generally oriented management education; hence, M.B.A. degrees are relatively scarce. A technical background (which often starts with an apprenticeship) is more typical for German managers (Eberwein and Tholen, 1993; Warner and Campbell, 1993). Compared with Great Britain and France, there are few people at the management level in German companies without formal qualification (Maurice et al., 1980): Foremen, supervisors, and managers all have professional degrees. Quite often, they have been through an apprenticeship as their basic vocational training (Eberwein and Tholen, 1993; Stewart et al., 1994; Warner and Campbell, 1993). Professional criteria (i.e., quality of skill and amount of experience) are the most important promotion considerations in German firms (Maurice et al., 1980; Warner and Campbell, 1993). German managers are thus chosen for their positions on the basis of their expert knowledge (see also Barsoux, 1992).

Because of the highly technical background of the average German manager, management in Germany is less divorced from production than in Anglo-Saxon countries (Warner and Campbell, 1993). Stewart et al. (1994) also found that German middle managers considered their technical expertise the most important basis of their authority. While their British counterparts focus almost exclusively on managerial responsibilities, German middle managers focus more on technical responsibilities. Furthermore, in Germany it is common to any manager's task to explicitly transfer or teach their know-how to subordinates.

German managers are known for respecting high-quality workmanship and tend to be close to the shop floor (Warner and Campbell, 1993). More generally, Stewart et al. (1994) found a great deal of respect for proficiency on the part of others within German organizations. This respect enhances the potential for mutually satisfying intraorganizational relationships or resolutions. Maurice et al. (1980) found the cooperation between different production jobs greater in Germany than in France and Great Britain. German machine maintenance workers (staff), for example, typically communicate successfully with the people working the machines (line) (Lane, 1989). Better solutions to problems can, therefore, be worked out. In conclusion, the basic attitude toward people in a different group within one's own firm is relatively favorable, or is at least quite respectful of expert knowledge.

...where German firms have one layer of supervision, British and French firms have at least two...

...employees in German organizations are relatively autonomous...

...German workers exercise greater job discretion than their European counterparts...

If line personnel are highly qualified, there is little need for staff personnel to assist or guide them. Maurice et al. (1980) corroborated this hypothesis and concluded that the average proportion of staff personnel in German firms is less than 30 percent; the figures are 37 and 42 percent for England and France, respectively. They also found that, where German firms have one layer of supervision, British and French firms have at least two. In executing the work, employees in German organizations are relatively autonomous (Maurice et al., 1980; Warner and Campbell, 1993). Lane (1989) also noted that German workers exercise greater job discretion than their European counterparts. In Germany, a Vorarbeiter (foreman) executes the day-to-day supervisory tasks. He or she is part of the work unit and has little disciplinary but extensive professional authority. In France and Great Britain, these professional tasks are more typically done by staff personnel (Maurice et al., 1980), in other words, by those further removed from day-to-day line operations.

[In] many German organizations...  managers select and train their own replacements... reducing promotion ploys and insecurity around "who is succeeding whom."

Vacations, illness, and other periods of absence are covered by the designated substitute.

Compared with Anglo-Saxon managers, there is less job hopping and more firm loyalty among German managers (Eberwein and Tholen, 1993; Stewart et al., 1994). The average tenure in one firm in Germany is eight years, while it is only three in American firms (Glouchevitch, 1992). Compared with their French counterparts, managing directors in Germany were more likely to have begun their careers in the firms they are now heading (see Hill, 1994).

For decades many German organizations have implemented the Stellvertreter ("shadow-worker") principle (e.g., Taylor et al., 1990). In such organizations, managers select and train their own replacements. This enhances the continuity of decision making while reducing promotion ploys and insecurity around "who is succeeding whom." Vacations, illness, and other periods of absence are covered by the designated substitute. A potential successor can, thus, temporarily experience his or her future position. This adds to the continuity of the work otherwise done by one's boss. When a replacement policy is seriously implemented, which it usually is in Germany, it can safeguard smooth organizational functioning.

...[d]elivering a good product (or service) on time and keeping the client happy through aftersales service...

Quality, prompt delivery, and service can be guaranteed as a result of the presence of highly qualified personnel...

...R&D activities...  most common in German firms... German firms spend a significantly higher proportion of all revenue on R&D...

German companies cooperate fairly actively with universities and other research institutes... the German government actively encourages these... cooperative ventures.

German firms are known to be product oriented and to compete on quality rather than on price (Warner and Campbell, 1993). Delivering a good product (or service) on time and keeping the client happy through aftersales service is a primary goal. Special marketing efforts are quite readily seen in Germany as gimmicks, distracting from what should be the primary goal, while sales, as something more concrete, is a highly respected field.

Given the relatively high wages paid in Germany, consumers can afford to pay for high quality. Quality, prompt delivery, and service can be guaranteed as a result of the presence of highly qualified personnel. This German emphasis on quality applies not only to the traditional stronghold of the German economy, machinery, but also to culturally sensitive products such as fashion and women's magazines, which have recently become successful export products (Wirtschaftswoche, 1992).

An important strategy in securing a place in the market is to emphasize technological improvements or innovations. However, there are different approaches to this objective. It can be achieved, for example, through acquisitions, joint ventures, or patent purchasing, or investments can be made in R&D activities. The latter approach is most common in German firms (Financial Times, 1991). Compared with firms in Great Britain, France, the Netherlands, and Japan, German firms spend a significantly higher proportion of all revenue on R&D (PA Consulting, 1989). In their empirical study of British and West German firms, Budde et al. (1982) found that German managers agreed to a significantly higher degree with the statement that the company should increase its R&D expenditure on product innovation in crisis periods. Germany's ten biggest industrial firms invested almost 7 percent of their total sales in R&D (for England, the figure is only 2.0 percent; for Japan, 5.5 percent and for the United States; 5.1 percent) (Financial Times, 1991).

German companies cooperate fairly actively with universities and other research institutes (Max Planck, Fraunhofer, etc.). Unlike in the United Kingdom, for instance, the German government actively encourages these institutes and cooperative ventures. Toward the end of the 1980s, West Germany's annual R&D spending was between 2.8 and 2.9 percent of the GNP, compared with 2.3 percent in the United Kingdom (Financial Times, 1991). Germany even has a Federal Ministry for Research and Development, founded in 1972. Another uniquely German phenomenon is the Machine Construction Employers Association (Verband Deutscher Maschinen- und Anlagebau, VDMA), in which each member organization pays 0.5 percent of its annual gross sales into a research fund. An equal amount of public money is added and spent on sector-specific research.

...ensuring good labor relations (which also includes industry-wide wage bargaining with trade unions) are economically important to German companies...

...Germany has lost fewer days to strikes than any of the major other industrial economies...

...German law has given employees the right to elect a number of nonexecutive directors to a firm's management board...

According to Eberwein and Tholen (1993), German managers have a positive attitude toward trade unions and work councils; they see them as stabilizing factors for the German economy. Maurice et al. (1980) found that, compared with their British and French colleagues, German managers are less preoccupied with labor disputes. Labor interests and ensuring good labor relations (which also includes industry-wide wage bargaining with trade unions) are economically important to German companies. During the 1970s and 1980s, German firms suffered an annual average of only forty-one days of shutdowns, compared with 453 for Britain, 234 for the United States, and 67 for Japan (Fortune, 1991). Recent OECD statistics indicate that Germany has lost fewer days to strikes than any of the major other industrial economies (The Economist, 1994).

Since 1920, German law has given employees the right to elect a number of nonexecutive directors to a firm's management board. Moreover, the legally backed power of the democratically elected workers' council (Betriebsrat) surpasses any of the powers such councils may have in any other country. When a German firm wants to contract out its restaurant facility, for example, their workers' council has to approve the proposed contractor. The interests of labor are thus safeguarded in German firms. Whereas in the Netherlands, adherence to the decisions of workers' councils is not always strict, the Germans are more "law abiding" (Koopman-Iwema, 1982).

The degree of formalization (with regard to instructions, tasks, duties, and rights) is relatively high in German firms...

Hofstede's findings... Germany scored rather high on "uncertainty avoidance."

...faithful (formal) adherence to deadlines promised to customers is an important German advantage....

...German firms put more emphasis on the gathering and use of detailed performance data...

...important within German firms... are detailed one-year operational plans, developed by the people involved in executing them... an integration of budget and tasks...

German managers consider job descriptions and clear-cut procedures of great importance (Barsoux and Lawrence, 1992; Laurent, 1983; Stewart et al., 1994). The degree of formalization (with regard to instructions, tasks, duties, and rights) is relatively high in German firms (Kayser, 1992; Olie, 1994). Warner and Campbell (1993) report that German managers are not very inclined to improvise, but work according to rules and instructions. Thus, German managers tend to strive to reduce uncertainties on the shop floor, much more so than managers in many other Western countries. This corresponds with Hofstede's findings (1980) that Germany scored rather high on "uncertainty avoidance."

This German trait and its accompanying organizational behaviors are often denigrated by foreigners. Newsweek (1990) pointed out the drawbacks of excessive perfectionism and overregimentation in an article entitled "The Myth of German Efficiency." Some authors argue that German firms and especially German managers may lack flexibility in adjusting to new conditions (Glouchevitch, 1992; Henzler and Spath, 1995; Salz-Trautman, 1994). Hill (1994), for example, signals a lack of adaptability in the German camera and car industries. He concludes that formalization in large German organizations has led to excessive bureaucracy, poor communication, and, ultimately, inefficiency. Yet, Lane (1989, p. 51) notes that the "relatively flat structure of business enterprises means that bureaucratization and formalization are least developed. Contrary to a stereotype of highly bureaucratized and formal organizational style, the study by Maurice et al. (1980: 72) finds it most personal." In our view, a relatively highly skilled hands-on manager with a wide span of control can prevent a high degree of bureaucracy. Moreover, German firms are known the world over for their impeccable punctuality in delivery (Termintreue). This faithful (formal) adherence to deadlines promised to customers is an important German advantage.

Compared with British firms, German firms put more emphasis on the gathering and use of detailed performance data from and at all levels of the business organization. Production control is also more formal in Germany. In general, the control system is much more stringent and is more oriented toward corrective action (Horovitz, 1980). Lane (1989, p. 48) noted, moreover, that production departments in German firms are more central in their organizational functioning than in French and British firms (see also Economist, 1996; Simon, 1996).

Given Germany's penchant for formalization and long-term investments in its own human and technical resources, one would expect German firms to have a rigid long-term planning horizon. More important within German firms, however, are detailed one-year operational plans, developed by the people involved in executing them (Horovitz, 1980). The goal of these short-term plans is an integration of budget and tasks. Such business planning is not steered by shortterm financial requirements (as it is, for instance, in the United States and the United Kingdom) but, rather, by firms' technical capabilities (i.e., what an organization can produce instead of what it minimally should produce).

...continuously invest in human resources, with an emphasis on technical and professional competence...

...unemployment rates have reached the highest level since World War II...

Germany has lost 30 percent of its share in export markets since 1985...

...productivity of German firms is lagging behind other European countries while labor costs in German firms are high and investments in Germany are decreasing...

Many German firms are trying to become even flatter and leaner and to decrease unit labor costs...

Most foreign business commentators are concluding that the outlook for Germany's economic development is good...

Much criticism is being voiced, especially within Germany. In Konrad Seitz's popular book (1992) on Germany's global position, he describes a U.S.-Japanese alliance that will threaten the economic progress of Europe...  Henzler and Spath (1995) criticize German firms for being too oriented toward the European market...

In numerous media debates, potential solutions to the current economic slowdown are discussed, often rather heatedly. German industry, supported by the government and labor unions, is developing plans and programs to remedy the situation. Five leading German research institutes are working together on a plan to improve the competitive position of Germany. Many German firms are trying to become even flatter and leaner and to decrease unit labor costs (The Economist, 1994; Glouchevitch, 1992). Most foreign business commentators are concluding that the outlook for Germany's economic development is good and that the recent crisis will stimulate new efforts; Germans are, after all, known for their perseverance and self-renewal efforts.

...the basis for flexibility and adaptability...

...the deep skill base of German workers is the key to Germany's innovative economic power...

Apparently, German-style management has not been considered easily transferable to other countries...

...reason could lie in the German style's dependence on institutional features... effective labor relations and apprentice system... the product of Germany's specific history and national culture...

...thoroughness and consistency of its training... is typical of German-style management...

...leads to relatively highly motivated, loyal, lean, and learning-type organizational cultures...

Workmanship is highly rewarded and respected...

...technical and professional excellence is valued and encouraged...

...high-competence norm pervades German organizations...

...high standards and high demands for discipline in order to deliver high-quality work...

...successful mid-size German firms have an interesting strategy in common: They tend to have big shares of narrow markets... they can compete on quality...

...you do not need a complicated organization to make complicated products...

Management practices and principles from other successful economies such as Japan and the United States have been exported extensively to other countries. This is not so much the case with German-style management. Apparently, German-style management has not been considered easily transferable to other countries. Cultural distance might be one reason for this reluctance. Another reason could lie in the German style's dependence on institutional features. Many of these unique features (i.e., effective labor relations and apprentice system) are inherent in its business system and are, therefore, not easily transferable; they are the product of Germany's specific history and national culture (see, e.g., Financial Times, 1991) and cannot easily be duplicated elsewhere.

Could German-style management be put into practice in work or national cultures where "uncertainty avoidance" through professional excellence is also a major driving force? According to Hofstede (1980), Germany scored relatively high not only on "uncertainty avoidance" but also on "individualism" and "masculinity," and low on "power distance." He found only two (largely German-speaking) countries with a similar cultural profile: Austria and Switzerland. Hence, it would be interesting to find out how much of German-style management is present in these other two Germanic countries...

Traditionally, German companies train their work force thoroughly. This "thoroughness and consistency of its training and co-determination arrangements, which allow flexibility to be built into the system" (Warner and Campbell, 1993, p. 106) is typical of German-style management. It leads to relatively highly motivated, loyal, lean, and learning-type organizational cultures. German companies are also quality conscious and production oriented; their well-trained personnel are considered an important factor in business success. Workmanship is highly rewarded and respected throughout Germany. In particular, technical and professional excellence is valued and encouraged. This high-competence norm pervades German organizations. Investing in "empowered" personnel and R&D, taking the input of labor representatives seriously, engaging in detailed operational planning, and demanding even higher-quality products/services are typical features of German firms. The corporate cultures in Germany, as well as society at large, are thus known for their "competence first" principle (Newsweek,1990, p. 37). This ingrained cultural principle translates into a "no-nonsense production culture" with high standards and high demands for discipline in order to deliver high-quality work in all types of organization (see also Kruger, 1989). The recurrent phases of public self-criticism create a climate for continuous learning and self-renewal.

Two recent noncomparative studies on German mid-size companies corroborate the national style as described above; they also emphasize the strong focus on primary production skills (Rommel et al., 1995; Simon, 1996). In addition, these successful mid-size German firms have an interesting strategy in common: They tend to have big shares of narrow markets. In those markets, they can compete on quality. The Economist (1996, p. 61) correctly concludes: "The German lesson is that you do not need a complicated organization to make complicated products." In the future, more rigorous empirical research should be undertaken to test the validity of the allegedly unique characteristics more systematically. In order to gain more valuable knowledge, larger samples of matched firms in various (European and non-European) countries should be compared. This includes the need for a solid database, with objective data as well as perceptual data obtained from personnel operating at different hierarchical levels. It would be most useful to include valid organizational performance indicators in these studies. Features of German-style management success could then be more firmly established and the resulting insights used as a source of inspiration for managers around the world.

Note

1 All empirical studies on Germany focused on West Germany.

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Ursula Glunk is a doctoral student and Celeste Wilderom is a Professor at Tilburg University, Faculty of Economics and Business Administration