Danaher

"•   Most companies grasp the importance of innovation and growth, but many underestimate risk. •   Success often drives arrogance and/or complacency. Stay focused. •   The severity of most crises is underestimated; crisis management is best done in advance. •   Innovative companies run the risk of favoring engineering over financial viability, but being too financially focused is an easy way to lose sight of other important variables. •   Both the number and the importance of key stakeholder groups always grow over time. •   Overemphasis of one business objective runs the risk of underemphasis of others. •   Some leaders are better equipped to manage certain risks and stakeholders than others. Boards need to act decisively when executives are not equipped to handle a crisis before it spirals further out of control. CHAPTER 4 DANAHER Process-Driven Reinvention BY SCOTT DAVIS Once a company achieves initial success, no matter which path taken, it faces a new challenge. People relax and allow bad habits to creep in. They erect bureaucracy, lose focus, and leak talent. Performance suffers and culture degrades, but by the time leaders or investors notice, it’s often too late. Danaher may be the best example of a company fighting to resist this complacency creep. Cofounders"

"Under those conditions, with two otherwise identical businesses, buying the highly cyclical company is going to generate less value for Danaher than the steadier, less cyclical one. Nothing was more frustrating to Culp than getting a company fully ramped up on Lean, only to see a recession unwind so much of the hard work, so he pushed for a change in the type of assets that he wanted to acquire. Culp’s best solution was to focus on businesses with high aftermarket content—selling the installed base equipment that pulled through a steady stream of consumables required to keep the equipment running. For Danaher, the up-front hardware could be a tad cyclical as long as the aftermarket consumables were steady. The deals under Culp’s tenure included Videojet (industrial printers that needed ink), Radiometer (imaging equipment), Vision Systems (medical instruments), ChemTreat (water treatment), AB Sciex (measurement equipment), and Beckman Coulter (testing equipment)."

"A manager who gets results but fails to develop a successor, for example, will be passed up for promotion. Talent development is mandatory, and a manager who scores poorly on employee engagement is on the way out. Danaher believes that people normally quit because of bad managers, not because of pay. If it sees unusually high turnover or some degradation in employee engagement, the manager is usually the root cause. In fact, Danaher sees high employee turnover as a lagging indicator, so the pressure to catch bad actors early is high. Performance reviews go beyond the core Danaher metrics to cover hard-to-measure aspects such as team building, leadership through DBS, and one’s success in “charting the course.”"

"Danaher’s mantra of “We compete for shareholders” came from both Sherman’s and Allender’s view that without a strong stock price and shareholder support, the entire growth model was at risk, particularly in a recession. (Danaher today remains one of the most focused investor communications companies on the planet.) Sherman didn’t believe in just delivering the numbers and hoping that shareholders would show up. He left little to chance. He believed in actively courting and supporting shareholders and analysts. Over time Danaher built one of the most loyal shareholder bases ever compiled, allowing it to grow even more aggressively and to utilize equity capital (i.e., selling more shares) when needed."

"“Now that the deal is closed, please tell us everything that you failed to tell us during diligence.” He believed that things always go wrong in a deal; what distinguishes the good from the bad deals are the speed and permanence of the fixes. He put the people and processes in place to make sure the bad news traveled more quickly. Danaher also tracks the ROIC and other seven key metrics for the transaction each month for three years, and longer for the biggest deals."

"Danaher believes that project management requires some form of visual aid, and that regular (but short) meetings should be held in front of the visual aid."

"We highlight the importance Danaher placed on its talent in the top finance job because it is a key differentiator in the outsized success of the company. In fact, most of our successful case studies had notable talent in the CFO seat."

"Danaher’s productivity tools are a collection of best practices, a collection that keeps growing and is divided by function. Some practices focus on costs, and others drive growth. And in any acquisition, there may be only one or two tools introduced to the new entity in the first year. The tools themselves are largely a function of aptitude, how far along the business has progressed with DBS. There are notable commonalities in the tools, however, that make them easier to add once the basics are taught. Almost all incorporate some form of visual management. Danaher offices are plastered with Post-it notes, large worksheet paper is marked with different-color pens, and timelines typically resemble more of an eighth grade history project than a sophisticated company."

"For example, every Danaher acquisition has a war room with timelines, maps, and checklists. Responsibilities are clearly noted, and if someone is falling behind, the red ink denotes that as an area of focus. Bad news travels fast, accountability is maximized, and the successful completion of tasks is noted. The feedback loop is nothing that email or Excel could accomplish. Visual management is a simple yet powerful tool."

"HR at Danaher works on developing managers and pays just as much attention to the “how and why” as to outward performance."

"Lessons from Danaher •   Lean manufacturing works. It’s the basis for every successful business system we know. •   Small improvements every day add up to massive change over time. •   Create process in everything—literally, everything. •   Business tools are focusing tools, and today focusing employees matters more than ever. •   Humility, transparency, and high expectations are three great cultural traits to develop. •   The CFO job matters more than most appreciate. Financial complexity is the new normal for global companies. •   Compounding is a financial theme, but the best make it an operating theme, too. •   Risk controls matter. A bad deal can unwind a lot of good work and goodwill."

"Danaher’s new hires (above a certain organizational level) go through a two to three-month immersion program during which they are not yet allowed to do their jobs. Instead they visit factories and facilities, sit in meetings unrelated to their role, and learn DBS and its tools. The company fully integrates them into the system without distraction. This time investment is unique and tells recruits from day one that Danaher is interested in them for the long term. Furthermore, the immersion process itself has a filtering impact. Its intensity leads some to discover that “this company just isn’t for me.” For HR, exiting someone quickly who doesn’t embrace DBS is a victory."

"Instead it is those with the most productive systems, those who practice continuous improvement and build culture through actions and incentives, that sustain success. Those are the ones we characterize as having factory floor excellence at a differentiated level. These companies are almost always far along the Lean manufacturing journey, and they benchmark internally and externally to best-in-class organizations. The best of the best go beyond the factory floor. They apply systematic tools to all their functions, including R&D, sales, purchasing, distribution, and back office. Danaher, for example, customized the Toyota Production System and created (or borrowed) more than a dozen tools to focus its employees. Each function has its own toolkit and is empowered to lever that toolkit to its fullest. Increasingly, we see these best-in-class organizations also utilize metrics around employee engagement and turnover. They focus as much on filtering out bad managers as they do on elevating good ones. The same principle holds true for those providing services rather than physical goods, or even software, healthcare, and other high-margin-type offerings. The companies with continuous improvement cultures win out almost every single time. In the short term, “new economy” firms might neglect operations to maximize innovation or the customer base, but we see this as a mistake. The earlier a company can adopt Lean and embed a continuous improvement culture, the greater that company’s odds of long-term success."