Germany The Culture of German Management
Sources: The Library of Congress Country Studies; CIA World Factbook
All participants in the German national economy organize themselves into various associations. They do so either voluntarily or, in some associations, as a legal requirement. The associations are commonly known in German as the Verbände . Over 1,200 are represented in Bonn. Each plays a chosen or assigned role, and together they help contribute to a broad framework of cooperation mingled with competition.
All the Verbände operate as lobbies in Germany itself, working with the parliament, the Bundestag, and the bureaucracy, and they also lobby appropriate EU offices in Brussels. But they are far more than lobbies. They act as sector and regional coordinators. Some not only exercise a voice toward the government but also represent a forum where industrialists or others can meet and talk about business affairs. Some serve as planning institutions, collecting and disseminating information on anticipated sales, production capacities, and investment goals. Others negotiate and settle conflicts between different firms or industries. They help to administer the German economic mechanism as a whole.
Among the main associations are the Federation of German Industry (Bundesverband der Deutschen Industrie--BDI) and the German Chambers of Industry and Commerce (Deutscher Industrie- und Handelstag--DIHT). The BDI is the central organization representing the interests and policies of German industry. Because of its role in organizing and representing German industry, the BDI has immense influence. Any German government, even one with an SPD majority, will consult with it before making any policy or introducing any legislation that could affect German industry or the German economy as a whole. So will key members of the Bundestag. The BDI has no individual members, but only other associations of one or another industry, so that it is in effect an association of associations.
The DIHT is the umbrella organization of the German Chambers of Commerce. It represents all business interests, but especially small business, on a regional as well as a sectoral basis. Membership is obligatory for German firms, and membership is on an individual or a company basis rather than on an association basis as in the BDI.
Some of the powers of the chambers of commerce in Germany would be exercised by government authorities in almost any other country. The chambers participate in vocational training programs, issue licenses and work permits, set store hours, solve disputes between members, issue certificates of origin, run stock exchanges, and so on. They are legally entitled to make their views known in a variety of governmental forums from the local to the national level, and they thus have direct as well as indirect influence over many elements of the economy. Their functions are central to the operation of the German system, as they have been throughout much of German history.
The chambers constitute an important link not only in the formal but also in the informal coordinating mechanisms that operate throughout the economy. Whereas the BDI might be more visible in national policy matters and might influence national government decisions more directly, the chambers and the DIHT have a more pervasive presence at the local and regional level than at the national level. They shape and often author most of the regulations that determine how commerce and industry can act, helping to establish the day-to-day rules under which production and trade take place.
Another important interest organization is the Federation of German Employers' Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände--BDA). It coordinates the collective bargaining strategy of German employers, administers the strike fund, gives legal advice, and deals with matters relating to social policy. Eight member federations organize enterprises in industry, handicrafts, commerce, banking, agriculture, transportation, insurance, and publishing.
A broad division of labor exists among the separate German employers' associations. The BDI, for which the closest United States parallel is the National Association of Manufacturers, mainly addresses matters of broad economic policy. It is, however, much more influential than any parallel United States organization. It helps shape Germany's policies in the EU and is a voice for an open trading system. The DIHT might be compared to the United States Chamber of Commerce. It represents regional interests as well as the interests of small- and medium-sized enterprises. It exercises a great deal more influence and even authority locally. The BDA concentrates on labor and social legislation and also acts as the representative of employers with the trade unions.
German farmers are organized into the German Farmers' Association (Deutscher Bauernverband--DBV). This organization has over 1 million members. It has exercised a powerful influence on German and European agricultural policies, helping to keep production and consumption prices above world levels. The proportional influence of the DBV has grown since German unification because agriculture represented a more important share of eastern German than western German production (see Agriculture, this ch.).
The Culture of German Management
German management, as it has evolved over the centuries and has established itself since World War II, has a distinct style and culture. Like so many things German, it goes back to the medieval guild and merchant tradition, but it also has a sense of the future and of the long term.
The German style of competition is rigorous but not ruinous. Although companies might compete for the same general market, as Daimler-Benz and BMW do, they generally seek market share rather than market domination. Many compete for a specific niche. German companies despise price competition. Instead, they engage in what German managers describe as Leistungswettbewerb , competition on the basis of excellence in their products and services. They compete on a price basis only when it is necessary, as in the sale of bulk materials like chemicals or steel.
The German manager concentrates intensely on two objectives: product quality and product service. He wants his company to be the best, and he wants it to have the best products. The manager and his entire team are strongly product oriented, confident that a good product will sell itself. But the manager also places a high premium on customer satisfaction, and Germans are ready to style a product to suit a customer's wishes. The watchwords for most German managers and companies are quality, responsiveness, dedication, and follow-up.
Product orientation usually also means production orientation. Most German managers, even at senior levels, know their production lines. They follow production methods closely and know their shop floors intimately. They cannot understand managers in the United States who want only to see financial statements and "the bottom line" rather than inspect a plant's production processes. A German manager believes deeply that a good-quality production line and a good-quality product will do more for the bottom line than anything else. Relations between German managers and workers are often close, because they believe that they are working together to create a good product.
If there is a third objective beyond quality and service, it is cooperation--or at least coordination--with government. German industry works closely with government. German management is sensitive to government standards, government policies, and government regulations. Virtually all German products are subject to norms--the German Industrial Norms (Deutsche Industrie Normen--DIN)--established through consultation between industry and government but with strong inputs from the management associations, chambers of commerce, and trade unions. As a result of these practices, the concept of private initiative operating within a public framework lies firmly imbedded in the consciousness of German managers.
The German management style is not litigious. Neither the government, the trade unions, nor the business community encourages litigation if there is no clear sign of genuine and deliberate injury. Firms do not maintain large legal staffs. Disagreements are often talked out, sometimes over a conference table, sometimes over a beer, and sometimes in a gathering called by a chamber of commerce or an industrial association. Differences are usually settled quietly, often privately. Frequent litigation is regarded as reflecting more on the accuser than on the accused. Because of these attitudes, Germany has comparatively few lawyers. With one-third the population and one-third the GDP of the United States, Germany has about one-twentieth the number of lawyers.
German managers are drawn largely from the ranks of engineers and technicians, from those who manufacture, design, or service, although more nonengineers have risen to the top in recent years. They are better paid than other Europeans (except the Swiss), but on average receive about two-thirds of the income that their American counterparts expect.
Because managers usually remain in one firm throughout their careers, rising slowly through the ranks, they do not need a visible bottom-line result quickly. Managers do not need to be concerned about how their careers might be affected by a company's or a division's progress, or lack of progress, for each year and certainly not for each quarter.
German taxation also induces management toward long-term planning. German tax legislation and accounting practices permit German firms to allocate considerable sums to reserves. German capital gains tax rules exempt capital gains income if the assets are held for more than six months or, in the case of real estate, for more than two years.
Because management has not been regarded in Germany as a separate science, it was rare until the 1980s to find courses in management techniques such as those taught at schools of management in the United States. Germans believed that management as a separate discipline bred selfishness, disloyalty, bureaucratic maneuvering, short-term thinking, and a dangerous tendency to neglect quality production. Instead, courses at German universities concentrated more on business administration, or Betriebswirtschaft , producing a Betriebswirt degree. Despite this, two West German schools for business administration, the Hochschule für Unternehmensführung and the European Business School, were established during the 1980s, but they teach in ways that reinforce rather than overturn traditional German ways of management.
Out of this compendium of business practices arises what might be termed a German management style, with the following characteristics: collegial, consensual, product- and quality-oriented, export-conscious, and loyal to one company and committed to its long-term prospects. One could legitimately conclude from this that the German system could stifle change because it is not as innovative, aggressive, or results-oriented as the United States management style. That, however, would not be correct, for change can and does take place. It occurs gradually, not always obviously, under the mottoes of stability and permanence, with the least dislocation possible, and often under competitive pressures from abroad. German managers themselves occasionally speculate that change might come too slowly, but they are not certain whether or how to alter the system and its incentive structures.
Data as of August 1995
NOTE: The information regarding Germany on this page is re-published from The Library of Congress Country Studies and the CIA World Factbook. No claims are made regarding the accuracy of Germany The Culture of German Management information contained here. All suggestions for corrections of any errors about Germany The Culture of German Management should be addressed to the Library of Congress and the CIA.