How SMEs Achieve Peak Performance through Strategic Focus

The Mittelstand is considered the backbone of the economy – both in Switzerland and in Germany. Over 99% of all companies count among the small and medium-sized enterprises (SMEs), employing roughly two thirds of the workforce. The contribution of these companies to overall economic output is substantial – even if it cannot be quantified precisely.

Yet despite their economic importance, many mid-sized companies are coming under pressure. The reason: structural weaknesses, a lack of strategic direction, and insufficient modernization prevent their full potential from being realized.

Where the Mittelstand stands today

Many mid-sized companies established themselves in the past through clear positioning in niche markets. They were often "first movers" – with superior products and close customer relationships.

Today, however, these companies face growing challenges:

• New competitors, including from abroad, are pushing into the market
• Price pressure is rising, as are purchasing costs
• Internal processes are outdated or undocumented
• Decisions are based on gut feeling instead of data
• The steering of operational workflows is inefficient

The consequence: nine out of ten SMEs do not realize their earnings potential.

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Why peak performance, anyway?

It is quite remarkable that these very companies are largely responsible for the steadily increasing prosperity of our society. Part of the reality, however, is that corporate insolvencies have recently risen to record levels (+19% in Switzerland, +11% in Germany compared to 2024).

The list of reasons is varied and long: new technologies, intensified competition in the home market, competitors from abroad, economic weakness, high levels of debt, and so on. Unfortunately, many of these mid-sized companies have missed the opportunity to hold their own in global hypercompetition through clear strategic positioning and the consistent alignment of all operational performance processes toward peak performance. Instead, the death zone of mediocrity became their undoing.

By "death zone of mediocrity" we mean the comparatively weaker earnings situation that results when companies do not focus consistently on their core business. The costs of complexity are too great when a broader spectrum of markets is served. Starting with product management and the associated effort of gaining an understanding of customer requirements in peripheral markets, this erodes earnings compared to the effects in the core business. At the same time, the costs of development work often rise, since additional competencies and resources have to be built up for the peripheral markets. In addition, synergies in production are reduced due to potentially unrelated manufacturing processes, supplementary investments in production, and the complexity costs in production planning – with regard to value creation, employee training, and the adaptation of inspection processes.

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We regard serving peripheral markets as a luxury for the Mittelstand – one that does not pay off for all mid-sized companies and at times becomes an existential threat when company leaders spread themselves too thin.

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Peak performance begins with positioning

In short: companies that deliver peak performance understand their customers' problem and are able to offer sustainably better or cheaper solutions than their market peers. With a clear focus on the core business, these companies have aligned their positioning unmistakably toward a few customer segments, tailored their product or service portfolio razor-sharp to the needs of these customers, and geared all core value-creation processes toward delivering market offerings that are as homogeneous as possible at maximum efficiency.

With clear positioning and a consistent alignment of the other strategic building blocks (see the 10-P model), the course is set for delivering peak performance in the Mittelstand. Not least, this positioning manifests itself in how the company is perceived in the market and largely determines the field of direct market peers.

Accordingly, it is of decisive importance to align the external presence – starting with the company's logo and corporate design and extending to communication on social media channels – clearly with the core business. This can be observed vividly in the consumer goods market: if your external presence is luxurious, you will tend to deter buyer groups with medium incomes, since the presentation of the goods and services creates the impression that the price point lies above the level acceptable for this buyer segment.

Conversely, with a plain presentation you will not reach affluent buyers, since the perceived level of quality does not meet the expectations of such a clientele.

Companies must bear in mind that performance always consists of three components: (1) product performance, (2) service performance, and (3) brand performance.

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(1) Product performance: The sum of all attributes and characteristics by which your customers judge the capability of your product. These include objective performance indicators such as rotational speed, working speed, ergonomics, and build quality – but also subjective factors such as the impression made by the packaging, which influence the customer experience and the perception of product quality.

(2) Service performance: This comprises the bundle of all services through which the buyer experiences additional value. Alongside competent advice, the availability of contact persons, and the delivery terms, this also includes warranty periods, return rights, and customer or bonus programs that strengthen customer loyalty and increase customer satisfaction.

(3) Brand performance: Depending on the industry and positioning, this third performance area is largely responsible for customers' willingness to pay. The effect of a strong brand can be a central performance feature, particularly in the B2C sector – it creates trust and differentiation and significantly influences the purchase decision.

Recommendations for the Mittelstand

Especially for the Mittelstand, with its finite quantity and variety of resources, it is of decisive importance to segment the business clearly. On this basis, a core business must be defined that is to be pursued with full consistency going forward. What is decisive here is not so much the total potential market volume or possible (meta) trends, but the best possible match between the needs of your target customers and the company's core competence.

Typically, the Mittelstand – due to often small market shares – can grow through sharp positioning in the market by displacing market peers, rather than betting on a diffuse expansion of the total market potential. Focusing on this target market must inevitably lead to the company's positioning, its external presentation, and its own core processes being consistently aligned with the core business.

This encompasses the selection of sales channels, the definition of strategic partners, and the selection and qualification of key performers – from product development along the value chain through to sales.

Against this background, holistic strategy models offer a proven guide for the strategic alignment of the entire organization.

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Further articles:

-         Dynamization through Institutional Learning (Link)

-         Restructuring: Turning a Problem into Opportunities (Link)