Written by Martin Wilderer
Introduction
German SMEs are often world market leaders in their niches – highly efficient, technologically advanced, solidly managed. But when it comes to strategic decisions, we are currently observing that many are struggling. With increasing complexity and dynamics, this doesn’t seem to be improving. What is the reason – and what can entrepreneurs do about it?
The German Approach to Decision-Making
How does this approach hold up against the current challenges of a dynamic and complex business environment? We examined the following dimensions:
- Risk avoidance and perfectionism vs. opportunism and agility
- Operational excellence vs. strategic renewal
- Homogeneity vs. diversity in decision-making bodies
- Integration of external perspectives
- Short-term vs. long-term focus
- Agility of the decision architecture
These traits are, of course, generalized. Not everything is negative – many aspects also have strengths.
1. Risk Avoidance and Perfectionism vs. Opportunism and Agility
German entrepreneurs and managers are known for their thoroughness and planning reliability. This ensures quality – but also leads to slow decisions.
Advantage: High standards, reliable processes, few rash actions.
Disadvantage: Missed opportunities in dynamic markets where speed matters.
Findings: The GLOBE Project and Hofstede’s cultural dimensions classify Germany as highly rule-oriented and uncertainty-avoiding – risk is systematically avoided.
Alternative: Break down challenges into small steps, decide quickly, test approaches, adjust accordingly. “Fail Fast” is the motto – with “Fail” meaning learning, not failure.
2. Operational Excellence vs. Strategic Renewal
Many German SMEs optimize their processes with extreme precision. But true transformation is difficult.
Organizational psychologist Chris Argyris (1991) calls this Single-Loop Learning: one perfects what already exists instead of questioning fundamental assumptions.
Result: Late reactions to major market disruptions – from digitalization to decarbonization.
3. Homogeneity vs. Diversity in Decision-Making Bodies
German supervisory boards and management teams are often very similar – same education, same career paths, same ways of thinking.
According to the OECD (2022): Homogeneous boards tend toward groupthink. Risks are underestimated, disruptive opportunities recognized too late.
Diversity within a leadership group can be challenging, as different opinions need to be coordinated. However, it is proven to reduce blind spots – and thus risk.
4. Integration of External Perspectives
Many entrepreneurs rely on internal expertise – often even solely on their own. External voices such as customers, startups, or advisory boards are rarely integrated systematically.
Consequence: Blind spots go unnoticed. Opportunities are overlooked, risks are identified too late.
Studies on the Wisdom of Crowds (Herzog & Hertwig, 2020) show: Just a few independent perspectives significantly improve decision quality.
5. Short-Term vs. Long-Term Focus
Many family-owned companies think in terms of generations – a strength. However:
Due to market turbulence and uncertainty, short-term priorities such as liquidity or efficiency often crowd out investments in future fields (innovation, digitalization, new business models).
The rapidly changing environment challenges daily operations and makes future orientation more difficult. What can one rely on? It’s easy to fall into a state of shock paralysis.
6. Agility of the Decision Architecture
German companies are shaped by hierarchy and consensus. However, dynamic markets require more decentralized and faster decisions.
In the inspiring book Team of Teams, Stanley McChrystal (2015) describes the difference between centralized and decentralized decision structures in dynamic environments based on his experience in the Iraq war. While he waited for decisions from Washington, the entire situation on the ground changed.
A BCG study (2020) shows: Only around 20% of German SMEs have agile decision-making processes.
Consequence: While competitors are already taking action, Germany is still discussing.
Overall Picture: Strengths and Weaknesses in an International Comparison
How does this approach compare internationally? What strengths and weaknesses characterize the “German way”?
| Strengths of German entrepreneurs | Weaknesses in dynamic markets |
|---|---|
| Long-term thinking & generational orientation (“future-proofing”) | Hesitation & risk aversion |
| High quality & fact orientation | Perfectionism instead of pragmatism |
| Social responsibility & loyalty | Homogeneity in leadership → groupthink |
| Stability through equity financing | Focus on operational excellence instead of strategic transformation |
| Technical excellence & incremental innovation | Hierarchy & pressure for consensus → slow decisions |
| Skepticism toward external capital and disruptive business models |
Using Perspectives at the Table to Balance Weaknesses and Leverage Strengths
It is certainly not advisable to abandon our entire approach. The real question is: How can we play to our strengths when the environment changes faster than we can produce solutions?
With that said, is the key issue really speed? Or is it more about the structured inclusion of different viewpoints in strategic processes to avoid blind spots?
Research is clear: Decisions improve and become easier to make when diversity is included.
- The OECD (2022) demonstrates that board diversity prevents groupthink.
- Herzog & Hertwig (2020) show that aggregating just a few independent judgments increases decision accuracy.
- Argyris (1991) warns that without Double-Loop Learning, organizations stay stuck in optimization loops and miss transformation. Here, external perspectives can help.
An advisory board is one structured way to incorporate perspectives. But simpler alternatives exist too – such as expert panels or consciously seeking external opinions.
Conclusion
The decisive question may not be: How quickly do we decide? or How much imperfection can we tolerate?
But rather:
Which perspectives have we considered – and which have we overlooked?
How to structure this effectively, without falling into endless discussions, will be explored in a future blog.
Literature & Sources
- Argyris, C. & Schön, D. (1991): Organizational Learning II: Theory, Method, and Practice. Addison-Wesley – WorldCat Eintrag
- Hackman, J. R. & Wageman, R. (2005): A Theory of Team Coaching. Academy of Management Review, Vol. 30, No. 2, pp. 269–287. DOI
- Herzog, S. M. & Hertwig, R. (2020): The crowd within: Applying collective intelligence to individual judgment. Cognitive Research
- McChrystal, S (2015): Team of Teams
- OECD (2022): Enhancing gender diversity on boards and in senior management of listed companies