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MGMT 3900 Group Case

1. What is Danaher’s core competency? (5 points) Why? (5 points)

2. Does Danaher benefit from industry analysis? (5 points) How? (4 points)

9 – 7 0 8 – 4 4 5

R E V : N O V E M B E R 3 0 , 2 0 1 5

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Professors Bharat Anand and David J. Collis and Research Associate Sophie Hood prepared this case. HBS cases are developed solely as the basi

for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
management

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B H A R A T A N A N D

D A V I D J . C O L L I S

S O P H I E H O O D

Danaher Corporation

In early April 2010, Danaher Corporation’s Chief Executive Officer Larry Culp and his senio

executive team were getting ready for another round of performance reviews of the firm’s diverse
operating businesses. As usual at Danaher, this process was likely to involve not only conference
room presentations but visits to the factory floor and conversations with customers. Culp had joined
Washington, D.C.–based Danaher after graduating from Harvard Business School in 1990, and was
appointed CEO in 2001 at the age of 38. He had taken over a company that had generated compound
annual stock returns of over 25% since its founding in 1985. Under Culp’s leadership so far,
Danaher’s performance continued unabated. Between 2001 and 2006, Danaher’s revenues and ne

income more than doubled, the firm consummated over 50 acquisitions, and its stock price continued

to outperform its peers by impressive margins1 (see Exhibit 1). And, while the “great recession” of
2008–2009 affected Danaher’s businesses as it had other industrial conglomerates, the company
emerged relatively unscathed. Indeed, Culp was about to announce higher than expected earnings
for yet another quarter.

Culp was wary of the term “conglomerate,” instead referring to Danaher as a family of strategic
growth platforms. Management defined a strategic growth platform as “a multi-billion-dollar market
in which Danaher can generate $1 billion or more in revenue while being No. 1 or No. 2 in the

market.”2 In 2010, Danaher’s portfolio comprised five such platforms, representing over 80% of its
total revenue. In addition, the firm operated in seven focused niche businesses—a “business
operating in a fragmented or small market in which Danaher has sufficient market share and
acceptable margins and returns.”3

The company’s portfolio had evolved over the years. Once a cyclical industrial company, Danaher
had in recent years become a scientific and technical instrumentation company that competed in less

cyclical markets.4 This evolution was most apparent when considering the build-out of the

Denta

and Life Sciences & Diagnostics platforms.5 (The firm’s other platforms were Environmental, Test &
Measurement, and Industrial Technologies; see Exhibit 2 for the portfolio segmentation.) Danaher
boasted leading market positions in a number of its business areas (see Exhibit 3 for the leading
brands in its portfolio). Many of these companies were the result of successful acquisitions executed
in the past dozen years.

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708-445 Danaher Corporation

Culp had earned widespread praise for being a “hands-on” CEO. He believed that “the role of the
CEO is to ensure the company has a clear and well-articulated strategy coupled with the right people

to execute that strategy.”6 For Danaher, a central pillar of that strategy was the Danaher Business
System, or DBS (Exhibit 4 illustrates the system’s core tenets). As one analyst described, “[T]he DBS
process system is the soul of Danaher. The system guides planning, deployment and execution.”

Culp affirmed the significance of the company’s philosophy of kaizen, or continuous improvement, in
his first letter to shareholders in the 2001 Annual Report: “The bedrock of our company is the
Danaher Business System (DBS). DBS tools give all of our operating executives the means with which
to strive for world-class quality, delivery, and cost benchmarks and deliver superior customer
satisfaction and profitable growth.”

Danaher’s successful implementation of DBS across its acquisitions had resulted in rapid growth.
Indeed, Danaher’s management team had an impressive track record of expanding the operating
margins of acquired companies (see Exhibit 5 for margin expansion of the companies). One equity
research firm also noted that it was “pretty amazed at the number of new product introductions

across the portfolio.”8

However, despite its tremendous success, Danaher still faced a number of challenges. First, as the
company grew to over $13 billion in revenues with strong cash flow, could it continue to identify and
execute attractive, value-added acquisitions, as well as drive organic growth within its current
businesses? Second, what challenges might arise as it applied DBS to some of the higher-technology,
science-based industries that Danaher had expanded into in recent years? Last, some observers
wondered how long “continuous improvement” could continue.

During Culp’s 20-year tenure with Danaher, he had seen the company rise to numerous
challenges before. He was quietly confident that the firm would do so again.

Corporate History

Origins

Steven and Mitchell Rales were two of four brothers; they had grown up in Bethesda, Maryland.
In 1980, they formed their initial investment vehicle, Equity Group Holdings, with an objective to
acquire businesses with the following characteristics: (1) understandable operations in a reasonably
defined niche, (2) predictable earnings that generate cash profits, and (3) experienced management
with an entrepreneurial orientation. In 1981, they acquired Master Shield, Inc., a Texas-based vinyl
siding manufacturer. Then, they acquired Mohawk Rubber Company of Hudson, Ohio, using $2
million of their own money and borrowing $90 million.

Soon after, a real estate investment trust (REIT) called DMG, Inc., came to the attention of several
investor groups, including the Raleses. DMG had not posted a profit since 1975, but it had more than
$130 million in tax-loss carry forwards.9 In 1983, the brothers gained control of publicly traded DMG
and sold the company’s real estate holdings the following year. They then folded both Master Shield
and Mohawk Rubber Company into the REIT, sheltering the manufacturing earnings under the tax

credits.10 They also changed the company’s name to Danaher, after a favorite fly-fishing locale in
western Montana. The Danaher River traced its name to the Celtic root “Dana,” or “swift flowing.”

From then on, the brothers used the newly tailored Danaher as an acquisition vehicle. With a
considerable amount of debt, Danaher launched a series of both friendly and hostile takeovers. They
focused on low-profile industrial firms and purchased 12 additional companies within two years of

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Dec 2020.

Danaher Corporation 708-44

Danaher’s debut. Early acquisitions included various manufacturers of tools, controls, precision
components, and plastics. In such mergers, Danaher’s focus was on cutting costs and paying down
debt through the divestiture of underperforming assets. By 1986, Danaher was listed as a Fortune 500
company with revenues of $456 million. The 14 subsidiaries were at that time organized into four
business units: automotive/transportation, instrumentation, precision components, and extruded
products.

Despite its rate of growth, Danaher’s acquisition strategy was far from indiscriminate. As outlined
in the 1986 Annual Report: “As we pursue our objective of becoming the most-innovative and lowest-
cost manufacturer of the products we offer, we are seeking a market position with each product line

that is either first, second or within a very distinctive market niche.”12 At least 12 of its 14 subsidiaries
were market leaders. Danaher considered its strategy distinct among the numerous serial acquirers of
the mid-1980s: “If there’s one thing that distinguishes us from the other players in the M&A field, it’s
that we stay in touch with the companies,” commented Steven Rales in 1986. After all, he added,
“we’re reasonably young fellows with long time horizons.”

Continuous improvement Around 1988, the Rales brothers shifted tack in three noteworthy
areas. First, they turned an eye inward—both to the subsidiaries’ operations, and to the operations of
the overall corporate entity. The managers of Jacobs Vehicle Systems, one of Danaher’s divisions, had
studied Toyota Motor Corp.’s lean manufacturing, with great success. Before long, the brothers
implemented the system companywide. The move bespoke what certain Danaher managers later
described as their “near-instinctive affinity for lean manufacturing.”14 This penchant for lean
manufacturing was the first aspect of a broader philosophy of kaizen—an approach that would
ultimately become known as DBS, one of Danaher’s hallmarks.

Second, the Rales brothers noticed early warning signs in the junk-bond market, prompting them
to reduce their debt. As a result, they were able to successfully weather the recession of the early
1990s.15 Finally, Steven and Mitchell chose to retire from their positions as chief executive and
president. Although the brothers stayed on as chairman of the board and chairman of the executive
committee, they looked to someone else to take the day-to-day helm.

The Sherman Years

In February 1990, Danaher appointed George M. Sherman as president and chief executive officer.
Sherman was 48 at the time of his appointment, an engineer by training who also had an MBA. He
joined Danaher from the Black & Decker Corporation, where he had been a corporate executive vice
president and president of the Power Tools and Home Improvement group. Sherman was known as
a highly effective leader; one analyst commented that he was “the highest-energy CEO I’ve met. He is

exhausting to be around.”16 At Black & Decker, he was widely credited with the turnaround of the
Power Tools businesses, which grew twice as fast as the market during his tenure. Prior to that,
Sherman had been at General Electric and Emerson Electric.

Sherman commented upon joining Danaher that he hoped “to add strategic planning with a

market-driven emphasis to enhance the admirable position of Danaher’s companies.”17 In addition,
he looked to reposition the portfolio toward more attractive, less cyclical businesses. The company
began to “look at international opportunities for expansion both in terms of selling our products
overseas and selective acquisitions.”18 It also began divesting those companies making tires, tools,
and components for the auto industry, as Danaher had neither the brand identity nor the sufficient
scale to withstand pricing pressures affecting the industry. Beyond this, Danaher invested in new
“platforms,” refocusing the firm’s acquisition approach and generating economies of scale not only in

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Dec 2020.

708-445 Danaher Corporation

production but in distribution. Initial platforms included environmental controls, electronic test
instrumentation, and precision motors. Last, Sherman concentrated on “making fewer but larger
acquisitions, many of them family-owned firms with good products and respectable market shares

that were under-performing financially.”19

In 1986, Danaher had 16 operating companies. By 1995, it had 24 operating companies, and by

2000, 51 operating companies.20 As Danaher moved into electronic test instruments, water-quality
instruments, temperature and pressure sensors for food and pharmaceutical manufacturing, and

“hardware for utility companies and other businesses,”21 their management team “proved to be
adept at integrating these companies into their existing operations.”22 The acquisitions also solidified
the shift in the company’s business mix that Sherman had jumpstarted in 1990. In 1985, 86% of
revenue came from tires and rubber goods; in 1991, 78% of sales came instead from tools and
automotive equipment. By 2001, over half of all revenues came from the Environmental, Electronic

Test and Motion Control platforms23 (see Exhibit 6 for percentages of revenue and profit by segment
and geographic area from 2004–2010).

During Sherman’s tenure, Danaher’s sales increased from $750 million to $3.8 billion.24 The last
five years of Sherman’s leadership saw Danaher achieve a compound annual growth rate in earnings

of over 20% and revenue growth of about 15% per year.25 Danaher also worked to expand and
ingrain the continuous quality improvement techniques the founders had introduced. DBS came to
be understood as the keystone of the firm’s continual success. The investment community praised
Sherman’s leadership, opining that, between 1990 and 2001, Danaher had emerged “from midcap

company status to become the premier large-cap industrial company.”26

Danaher, 2001–Present

Portfolio

During its early years, Danaher pursued a financial orientation toward its choice of businesses,
making resource allocation decisions on the basis of return on invested capital (ROIC). Starting in the
mid-nineties, Culp noted, the company’s portfolio evolved toward “fewer, better businesses”27 by
creating “platforms” based on a lead company with a strong position in an attractive market around
which add-on acquisitions could be made. Danaher’s purchase of Fluke in 1998 was the first
substantial acquisition that demonstrated the value in this approach.

Business selection was driven by a belief that “the market comes first, the company second.” In
this, the firm adhered to Warren Buffet’s well-known comment that “when an industry with a
reputation for difficult economics meets a manager with a reputation for excellence, it is usually the
industry that keeps its reputation intact.” Rather than identify potential targets and then assess their
market potential, Danaher conducted a top-down analysis that progressed from market analysis to
company evaluation to diligence, valuation, negotiation, and finally, integration.28

Industries were screened according to certain desirable criteria. Culp explained:

First, the market size should exceed $1 billion. Second, core market growth should be at
least 5%–7% and without undue cyclicality or volatility. This excludes Rust Belt and Silicon
Valley businesses for us. Third, we look for fragmented industries with a long tail of
participants that have $25–$100 million in sales, and that can be acquired for their products
without necessarily needing their overheads. Fourth, we try to avoid outstanding competitors
such as Toyota or Microsoft. Fifth, the target arena should present a good opportunity for

Danaher Corporation 708-445

applying the DBS so that we can leverage our Danaher skill sets. Last, we look for tangible
product-centric businesses. This rules out, for example, financial services. Broadly, this set of
criteria is rooted in a simple premise: we look for markets of size and where we can win.”

Acquisitions that followed these criteria fell into three categories based upon the target’s relation
to existing businesses:

 New platforms As the classification suggested, a new platform acquisition represented a
significant expansion of Danaher’s portfolio into new markets and products. Such an entry
point could be a division of a larger corporation, a stand-alone public firm, or a private
company. “Platform-establishing acquisitions,” explained the 2001 Annual Report, “bring in

‘Danaher-like’ businesses where our skills and abilities can create value.”29 Summarizing
their importance, Culp remarked that “it was tough to build a string of pearls from later add-
on acquisitions without a center of gravity on which to build.” Targets tended to be large and
in sectors of strategic importance. Danaher’s recent expansion into the medical sector was one
instance of platform entry into an attractive market where, by 2006, the firm had “invested
over $2.6 billion in acquisitions with a focus on building our Medical Technologies
platform.”

 Bolt-ons Bolt-ons were smaller transactions that sought synergies between existing
Danaher businesses and new targets. Acquired companies were comprehensively integrated
into the core business in terms of management, organization, and distribution. In 2004, for
example, Danaher acquired various product lines from Harris Corporation for $50 million,
bolting them onto the Electronic Test platform.

 Adjacencies Unlike bolt-ons, adjacencies tended to function as predominantly stand-alone
businesses after acquisition, despite their connection to a particular platform. For instance,
Danaher acquired Trojan Technologies in 2004 for $191 million. While Trojan operated within
the Environmental platform, its water treatment products occupied a particular niche and the
business continued to function post-acquisition as a more or less distinct organization.

Although Danaher was on a pace of one acquisition per month by 2007, platform acquisitions
were rare. A list of target industries was maintained by a corporate group that included the CEO,
CFO, the head of Strategy Development, and the head of M&A; this list was reviewed regularly by
the board. Often, Danaher would already know something about a business that it became interested
in. For example, Culp noted that “American Sigma [acquired in 1995] was familiar to us as we had
used its waste water sampling products at Veeder-Root. Similarly, Gilbarco [acquired in 2002] had
been my first customer back in 1990.” But the firm also searched broadly to find the right business
opportunity. The idea of entering the dental market, for example, was identified as early as 2002.

In identifying appropriate targets, Danaher was “willing to accept that an entry-point firm might
not have a great leadership team, a key facility, or a terrific infrastructure in place. The only deal
killer is when we cannot identify management to fill any anticipated gaps.” If a suitable company
was not available, Danaher was prepared to wait. Yet, Culp believed that “because of our
preparation, we are tactically advantaged when it comes to entering a new platform business. For
example, we were decisive in the bid for KaVo in 2004 since the dental market had already been
investigated by us and approved as a target by our board in 2002–2003.”

Smaller bolt-on acquisitions to existing platform businesses were more common than entering
new business areas. Bolt-on acquisitions were the responsibility of the operating companies, with
legal, pricing, and deal expertise contributed by the corporate M&A group. Implementation of such

708-445 Danaher Corporation

acquisitions would typically involve folding the target’s structure and operations into the existing
platform. Such deal opportunities were reviewed monthly with each business, although the company
walked away from far more deals than it ultimately consummated.

Distinguishing between various types of acquisitions informed the merger process from start to
finish. Indeed, even post-acquisition benchmarks were determined by the type of add-on, as
explained in the 2001 Annual Report: “[W]e scrutinize return on invested capital (ROIC) on all
acquisitions. Our minimum hurdle rate is 10% after-tax ROIC within three years on average, with
bolt-ons frequently reaching this threshold more quickly and platform-establishing transactions
taking a little longer, but not exceeding five years.”

Reshaping the portfolio since the mid-nineties had occurred without any large divestitures.
Instead, trimming had mainly occurred around the edges.

Danaher’s acquisition strategy had not gone unnoticed. As one strategy consultant favorably

commented in BusinessWeek, “those guys have a very well-defined model of how to do M&A.”32 Over
the prior decade, Danaher had expanded into Western and Eastern Europe, Asia, Latin America, and
the Middle East. Initial expansion was fueled by adding small European companies to an existing
U.S. operation in order to access international markets. More recently, as the firm’s international
experience grew, it used certain European acquisitions (such as Radiometer in Denmark or Leica in
Germany) as its core entry points into desirable sectors. Indeed, Culp viewed the German
Mittelstand—medium-sized, often family-owned, German engineering companies—as ideal territory
in which Danaher might make acquisitions since they included companies that had a broad
geographic footprint but were typically “capable of more.” Culp believed that the Danaher operating
model had been shown to effectively transfer overseas: “It might take a bit longer to change things,
but if you accommodate the system to the new context and are always respectful of stakeholders’
needs and requirements, it can be done.” To date, Danaher had pursued fewer acquisitions in Asia,
seeing companies there as too small to be valuable additions, and instead emphasized building
businesses organically through their growth platforms. However, by the end of 2010, Danaher’s sales
in China exceeded $1 billion, which included four separate operating companies, all achieving more
than $100 million each.

By 2010, Danaher comprised five strategic business segments: Dental, Life Sciences & Diagnostics,
Environmental, Test & Measurement, and industrial technologies. (See Exhibit 7 for detailed
descriptions of the platforms, and see Exhibit 8 for acquisitions within various platforms over the
years.) Culp broadly sketched future possibilities: “We don’t believe that Danaher’s operating model
itself imposes any constraints on the size of the company. While our current platforms are primarily
in B2B industries, we believe that we can potentially compete in a wide range of industries.”

Organization

Danaher was headquartered in Washington, D.C., in an unassuming office building six blocks
north of the White House. The company’s name was not on the front of the building, nor was it even
listed inside. Offices for the 75 or so corporate employees featured plain decor. Corporate functions
represented in Washington included finance, accounting, legal, tax, treasury, human resources (HR),
and M&A deal making.

By 2010, Danaher was active in dozens of different businesses and had grown to over $13 billion
in sales. It operated with 45–55 separate business profit-and-loss statements (P&Ls), but only three
segment EVPs reported to the CEO. Danaher liked fewer reporting units and, unlike other

Danaher Corporation 708-445
7

conglomerates such as Dover and Illinois Tool Works that split units when they got large, Danaher
invariably looked to combine smaller units into one operating entity.

Culp himself spent about a half-day a week on external affairs (investor relations), between one-
and–a-half and two days a week on strategic or M&A issues, and the remaining time—more than half
the week—on operational and HR matters. Although he and other corporate executives had run a
number of Danaher businesses effectively in the past, he noted that “today, I don’t make many
operating decisions directly. Everything I do is really organization and people related. It’s all about
influencing people and helping frame the conversation in a developmental way.”

The other important corporate function at Danaher was the DBS Office (DBSO) that comprised
15–20 executives who were physically located in the businesses rather than at headquarters.
Individuals worked in the DBSO for a limited time, as it was seen as a developmental role, but the
basic requirement for the position was for the individual to have been a senior operating executive.
The current head of the DBSO, for example, was the former president of a Danaher company. The
DBSO’s role was to train managers, both in acquired companies and existing Danaher operations, in
the DBS. The DBSO was involved with the initial training and kaizen sessions for all new acquisitions.
For existing businesses, its services were, in most situations, invited by the business itself, although it
was occasionally told to assist a particular business. The DBSO was intentionally kept small because
it was not intended to supersede the authority of line managers, who were expected to ultimately
implement DBS themselves.

Corporate HR was run by a former company president. Individual businesses were responsible
for managing their own people, but there was also a talent funnel from which to fill senior positions.
Procedurally, however, corporate HR was intimately involved in executive careers. Any new job
opportunity was run through an approximately 2,000-person corporate talent funnel, and all
important moves were reviewed by the CEO and head of HR. A talent review was a key part of every
operating company review. While Danaher believed in developing expertise in a function within a
single business, the bias was to promote and retain executives within Danaher. As a result,
approximately three of every four senior promotions were filled internally, and roughly one-fifth of
the senior managers were promoted to a new position every year. Opportunities included both
promotions within a business as well as opportunities in another Danaher business. An assignment
did not have a predetermined length, and further promotions would be considered and planned as
part of the talent review process when an employee mastered required competencies within the
assignment and performed at or above expectations. Senior managers were expected to continuously
develop, manage performance, and upgrade their team members. However, no bottom-performer
reduction targets were set. Rather, individuals were assessed based on their performance and fit with
DBS values.

Hiring into the firm included a psychological assessment as well as more typical interview
procedures. Candidates were expected to “want to win with a team and demonstrate personal
humility, while having a passion and energy for creative change.” Executives hired from outside
were put through a rigorous 8- to 12-week immersion program to learn about and engage in DBS, the
tools, and the culture. During this period, new executives focused exclusively on immersion and did
not perform the job for which they were hired. A pipeline program for hiring engineering and
technical undergraduates focused primarily on schools like the University of Illinois and Virginia
Tech. At the MBA level, Danaher recruited at top-tier schools like Darden, Harvard Business School,
Kellogg, Stanford, IMD, and Insead, with a focus on long-term leadership potential. New hires were
given job rotations, but were expected to run parts of a Danaher operation at an early stage, whether
as a shift leader for a manufacturing cell or as a regional sales manager. It was essential in the first

708-445 Danaher Corporation

few years that new hires demonstrate an understanding of commercial leadership, an ability to put
wins on the board and deliver results, and the ability to lead within a DBS environment.

Corporate M&A consisted of a small team of deal makers. The team worked extensively with
Business Development in each of the platforms as well as with Strategy Development on all
transactions. The businesses were encouraged to identify and cultivate potential targets within their
industry as well as adjacencies, whereas Strategy Development focused most of its energy on
potential new platforms. During each of the last four years, Danaher had acquired 8–12 companies.

Compensation for senior managers included base salary, a bonus, and equity participation. Base
pay was set to be competitive within function and industry, and was not standardized across
Danaher, although at the very senior levels (presidents and their reports) base pay levels did
converge. The bonus was equal to one-quarter to one-half of base pay, with the mix shifting to the
bonus as seniority increased. Bonuses were paid according to performance of the business and the
individual’s own goals for the year. The latter were set to specific objectives, such as revenue growth
in China, or the number and success of new product launches, or how many potential president
candidates had been developed. Long-term equity compensation was intended for the long-term
wealth creation of executives. Given Danaher’s stock performance, wealth creation for executives at
Danaher had outpaced compensation for executives at peer companies.

Danaher Business System (DBS)

At the core of Danaher’s operating model and acquisition strategy was the DBS. The firm’s
investor presentations described DBS as “defining our high-performance culture. DBS is who we are
and how we do what we do.” Outsiders noted that DBS “is a set of management tools borrowed
liberally from the famed Toyota Production System. In essence it requires every employee, from the
janitor to the president, to find ways every day to improve the way works get done.”33 While such
programs were “de rigeur for manufacturers for years, the difference at Danaher [was] the company
started lean in 1987, one of the earliest U.S. companies to do so, and it has maintained a cultish
devotion to making it pay off.”34 The lean approach replaced a traditional “batch-and-queue”
manufacturing system with a “single-piece flow” that minimized in-process time and so reduced
inventory and other overhead costs. “In a typical Danaher factory, floors are covered with strips of
tape indicating where everything should be, from the biggest machine to the humblest trash can.
Managers determine the most efficient place for everything, so a worker won’t have to walk an extra

few yards to pick up a tool, for instance.”35

Over time, DBS came to represent a broader approach than simply lean manufacturing, and had
taken these same principles to transactional processes. More recently, Danaher had been expanding
DBS to focus on innovation and growth, with tools and processes around new product development,
marketing, and sales. New tools like Accelerated Product Development, Strategic Pricing, and
Intellectual Property Management were created to ensure the challenge of accelerating growth was
being met with the same continuous improvement mind-set that had been used for cost and
efficiency challenges historically.

The DBS approach embodied “four Ps—people, plan, process, and performance.” These four
elements were applied rigorously and unemotionally both to current businesses and to new
acquisitions, with an emphasis in three areas: Growth, Lean, and Leadership.

People Talent assessment was a major component of acquisition due diligence as well as of
ongoing reviews of existing businesses. Managerial retention rates differed across acquisitions, but
Danaher typically asked between zero and 50% of senior management to leave within a couple of

Danaher Corporation 708-445

years of ownership. For an acquisition like Videojet, replacing the management team might have
been seen as part of the value-creation opportunity. In other deals, like Radiometer, no one was asked
to leave. Personnel decisions were made not only on the basis of interviews during the due diligence
process but after observing managers in operation, and were made as quickly as possible to sort out
executives who were either unlikely to succeed or unlikely to fit in the Danaher culture. As Culp
noted, “you get a different view of someone when you spend a week or a month working with them
than in a three- or four-hour interview.” If, before completing the deal, it was known that certain key
personnel would leave, a plan to replace them, either with a pre-identified internal candidate or an
outsider (preferably a Danaher proven manager) would have been developed.

Plan The second element of DBS was creating a strategic plan for every business (existing or
acquired) that would address two questions: “What game are we playing?” and “How do we win?”
Although Danaher executives obtained some idea of a preferred strategy for an acquisition target
during the due diligence process, Culp noted that “it was only after the deal was completed, and the
bankers and lawyers are out of the room, that we can have an honest strategic conversation with
management. At that point, we throw out the 180-page strategy manuals and create a plan for the
new acquisition that is due within 100 days of purchase that is intended to produce a shared long-
term vision. No sacred cows are left unchallenged, and our due diligence findings are shared with the
company. This entire conversation is usually very important.” The Danaher team involved in this
process included the CEO, EVP of the segment, head of HR, CFO, and two members of the M&A deal
team. The intent was to encourage managers to realize that substantial improvement in performance
was possible, and to challenge them to identify the gaps that were preventing them from reaching
such a stretch target.

Process A key element of the integration process was introducing DBS to new managers. This
first occurred through “one week of a training session for executives followed by a one-week kaizen
event.” Danaher’s CEO himself taught a full day in the training program, with the DBSO teaching the
remainder. The weeklong kaizen event usually took place in one of the target’s manufacturing
facilities and was designed to improve the process flow of a single piece, as in the Toyota Production
System. The goal for such an exercise would be set high, such as halving the floor space required, but
managers found they typically exceeded even that aggressive goal. Culp noted that “we really don’t
care if it’s manufacturing focused or not; the goal is to get newcomers to appreciate elements like
single piece flow, visual maps, and so on. It is action learning. Furthermore, having the president of
the company put on jeans and work boots and get involved with a broom on the shop floor can be
powerful in setting expectations. It is an opportunity to touch a lot of people quickly.”

Since the Leica acquisition in 2005, Danaher had added another step in the training process that
took roughly 12 midlevel managers away from their jobs on a three-month Danaher world tour to
immerse them in DBS and drive cultural integration. This immersion exercise involved several kaizen
events, and managers were expected to “get the mind-set,” if not yet becoming experts in certain
Danaher tools like accelerated product development.

After the initial training period, the process shifted into a “maniacal focus on DBS which seeks to
drive sustainable improvement over an indefinite time period.” This involved both an operating
philosophy and ongoing management development. The intent was to create a culture where every
executive was continually looking for opportunities to improve any and every aspect of the business.
While specific tools (such as value-stream mapping and kaizen events, where a team dedicated a week
to developing and implementing a solution to an identified problem) were the most visible
manifestations of DBS, Danaher believed that building a managerial mind-set of continuous
improvement was ultimately the most important result of the process.

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Performance Once the strategy for a business was agreed upon, a policy deployment (PD) tool
was used to drive and monitor its implementation (see Exhibit 9 for a top-level policy deployment
chart). The core of this system was the PD Review, “a literal but perhaps awkward translation of the

Japanese term ‘Hoshin Kanri’ which really means guiding light.”36 PD reviews took place once a
month for every business, and PD objectives were directly linked to the strategic plan. First were a
series of three- to five-year objectives that would dramatically improve firm performance. Next were
annual objectives that had to be met in order to keep the strategy on path, particularly those
objectives that tracked the breakthrough initiatives essential to achieving a step change in
performance. In turn, these objectives triggered a series of process improvements that were needed
and whose performance was tracked against specific output measures. HR, for example, would end
up with targets for items such as “time to fill a vacant position” or “internal fill rate of positions,”
rather than input measures, such as completing the design of a talent development plan. Culp offered
additional detail on the nature of the monthly reviews:

First, there are the financial variables we focus on: profit/loss, balance sheet, and cash,
with particular emphasis placed on achieving a target ROIC in the case of a new acquisition. In
addition, there are key performance indicators for each business—on-time delivery, yield,
etc.—which number around 15 for each business and are derived from the plan. Then there are
the elements driving breakthroughs. Last, there are the intangibles we examine by walking
through the shop floor, or having skip-level lunches. These meetings are hands-on. They are
designed to ensure that the numbers are real, as well as to build process and organization for
the longer term.

PDs don’t just involve senior managers but are cascaded through the organization. For
example, if a business-level objective were the doubling of R&D productivity, one PD goal
might be to improve the product development process. In turn, that objective would trigger a
series of objectives for other parts of the R&D organization [see Exhibit 10 for an improvement
priorities cascade slide].

We capture the PD review objectives on a single piece of paper. Progress against goals is
color coded: red if off-track, green if on-track, yellow if questionable. Red numbers receive the
most attention naturally, but we don’t always start with these—we may talk through the
greens first . . . to ensure that they are really greens. For the red indicators, we do a root cause
analysis of the failure, asking the “five why’s” in order to understand what needs to be
corrected and to propose a series of countermeasures. The number of red metrics in a business
is not by itself important, but neither is it acceptable for a red metric to continue for long.

Analysts noted how DBS arose from a firm belief at Danaher that “everything is measurable.” At
the same time, Culp noted that:

PD reviews are not simply “managing by the numbers,” as some people think. We
iteratively start with the numbers, then talk through process, then cycle back to the numbers.
Performance is not just painting by numbers, it’s understanding how those numbers were
achieved that is important. We may be as focused on the numbers as any company but we
combine this with a Toyota-like drive around operational improvements. Indeed, what is
critical about PD reviews is that tools and processes are being deployed to address the metrics.
As a result, red metrics can be good since it is through these that we build processes for the
longer term. Conversely, there would be as much concern if all the metrics are green because it
would indicate that there was no further potential for improvement.

Danaher Corporation 708-445
11

Over time, Danaher had internally developed a series of over 50 tools (see Exhibit 11 for a sample
of DBS training modules) that covered processes including general management, personal
development, sales force management, product development, lean thinking, transactional process
improvements, and problem solving. This set of tools had evolved over time with a conscious effort
to develop processes that were applicable beyond manufacturing as well. Use of the particular tool
was left up to managers, who were expected to choose the tool that would help solve their problem,
rather than just to check the boxes (“I’ve done six sigma”).

Culp concluded by summarizing the role of PD reviews in DBS more broadly:

Our objective is a blameless culture: we try to attack the problem, not the person. At the
same time, these conversations can be intense. But that is how we build muscle and culture in
the organization. Indeed, if there were only one DBS tool to use, it would be PD. This is at the
root of sustained performance improvement since it does not accept a low bar as sufficient. We
set very high expectations and have a bias for action while maintaining a competitive sense of
winning. It demands that management have experience and commitment to DBS to lead from
the front, as well as the confidence and the thick skin required to truly stretch the organization.

DBS in Action: The Radiometer Acquisition

In January 2005, Danaher acquired Radiometer, a Danish firm that had been family controlled
since its founding in 1935 and publicly traded since 1984. Radiometer made instruments for testing
and measuring blood gases (oxygen and carbon dioxide) for acute-care patients, and was the world
leader in a $1 billion global niche market. During the previous five years, sales had grown at 6.5% per
year, and return on sales had grown to almost 20%. Peter Kurstein, CEO of Radiometer, recalled that
“the management team had an average tenure of 16 years in the company. We loved the company,
but also thought we were pretty good and were skeptical that anybody, without detailed knowledge
about our niche, could make us any better. There were many bidders for our company, including
private equity. They all worked through the ‘data room’ as did Danaher’s M&A team. The only real
difference between the buyers was that two Danaher executives asked for a three-hour walk through

one of our plants in order to understand its potential for ‘lean manufacturing.’”37 Kurstein continued:

The first key event, that took place four weeks after the acquisition, was the Executive
Champion Orientation (or ECO). That was a positive, team-building eye-opener. Having the
top 40 managers at Radiometer split into six groups to do a value-stream mapping and seeing
the absolutely obvious improvement opportunities from simple changes was very powerful. In
our group, we discovered that a little plastic part which took 18 days to move from raw
material to shipping actually took only 1,447 seconds of operating time to produce. We came
up with improvements that reduced that in-process time to less than two days by creating a
one-piece work flow and eliminating the planning department and IT infrastructure that had
previously managed work scheduling. Similarly, the head of R&D came to me a couple of days
after the ECO and said, “We can use the same way of thinking in R&D. I suggest that we set
the goal of reducing development time by 33%.” What more can you ask for—a commitment
from the person who is in charge, and the tools readily available to get started. The experience
has been the same since.

The next major event was the “strat plan”—two months after the acquisition. It was really
not a new strat plan; it was our existing information, analysis, and strategy. But what came
through for us was that Danaher really wanted to understand our market and why we have
succeeded. Danaher was not going to tell us what to do differently; rather they were going to
challenge us on whether we are getting enough out of our opportunities. For example, in some

708-445 Danaher Corporation

segments Radiometer has more than 40% market share, which we thought was pretty good.
But Danaher management challenged us and asked, “Why do 60% prefer other products?” We
gave them our standard answer, which is that the remaining 60% are really not attractive
customers. They buy at low prices, don’t care about quality, and are not really competent.
Well, they weren’t really happy with our answer and asked when was the last time we had
systematically asked these 60% why they buy something different. Well, the answer was pretty
weak; for certain segments we might have done something three–four years ago; for most we
were pretty blank. Through the strat plan discussions, it became clear to us that we probably
knew our own existing customers very well, but we did not know our competitors’ customers.
And once you realize this, you also see that you don’t have a growth strategy because
converting the competitors’ accounts is where the growth is. So rather than protecting the
leading segment share and profitability, the strat plan discussion got us thinking about how
we can further win in the market.

With the strategic plan in place, an organizational review allowed Danaher to identify necessary
organizational and personnel changes. At Radiometer, two executives were brought in from
Danaher—the head of U.S. sales and the vice president of marketing. Otherwise, it received the
equivalent of three to four full-time employees from Danaher personnel in the transition, including a
week when several senior team members worked with Kurstein to apply kaizen practices to the shop
floor of a Michigan plant. In return, Kurstein was obliged to spend one week a year involved in a
kaizen project at another Danaher company.

Kurstein believed that PD was perhaps the biggest and most important change at Radiometer
after the acquisition. Indeed, he had previously been looking “to employ some way to improve
execution of strategy through the application of a systematic process, like the Balanced Scorecard.”
He went on to note:

Radiometer used to make three-year strategic plans every year. Lots of work went into it
and they were always strictly confidential documents which ended up well protected in some
closets, secret also from our own employees. Frankly, those plans were not bad, but it is
awfully difficult to execute a secret plan. Policy deployment is pure logic, pushing consistent
execution of the breakthrough priorities from the overall strategic level to the factory floor. I
did not see it at first, and it took me a while to understand the finer mechanics of this tool.

We started by cascading the five to seven strategic priorities needed to radically move the
needle on the company’s performance (such as entering a new segment) into a series of one-
year goals. The next step was to identify the processes that needed change, such as accelerating
product development or introducing value selling into the sales force. For each process change
required, one or two metrics were defined that would effectively monitor progress towards
those goals and monthly targets identified for each. These targets were posted on a single piece
of paper outside the CEO’s office and other locations, such as the lunchroom, and tracked
monthly for all to see progress. Level-one goals for the organization as a whole were then
translated into level-two goals for each department, and then into individual action plans, each
of which had its own sheet attached to individuals’ doors.

Policy deployment does not happen automatically. It takes a lot of hard work in the
beginning to set it up; it takes several iterations and a lot of discipline to establish throughout
levels one, two, and three and, most importantly, to get the right action plans developed. If you
do it halfway, it does not work well. If sloppily done, it just becomes a paper game with no
improvement. For me, the monthly PD meetings became the key. If these monthly meetings
become inquisitions where we try to find somebody to blame for the misses, PD will start

Danaher Corporation 708-445
13

working against you. You have to be intent to use the meetings to direct the relevant resources
to where they matter the most. Catch the misses early and hit them hard. And when misses are
discussed, it is imperative that root causes and countermeasures are defined by those who
really know what is going on. . . . Today, I am not in doubt: PD is the most powerful execution
tool around and you get it for free—except for the initial investment in setting it up and
keeping the discipline.

Not every PD initiative succeeded: for example, dividing the manufacturing floor into 47 cells
had been undertaken too quickly and had disrupted purchasing to the extent that production had
been halted on several occasions. But three years after the acquisition, Kurstein noted the results:
“Danaher has been able to help us improve not by a little, but by a lot. You can look at almost any
aspect of the business, strategy, execution, growth, market share, working capital, inventory—
improvements have been accelerated in all areas. Most importantly, we have been able to improve
our growth from low single digits to high single digits and our operating margin by another 4%,
while at the same time increasing our R&D spending for further growth by 2%.” Despite these
successes, Kurstein felt that “only half the potential improvement has actually been achieved. We
have not used at least half of the tools available through the tool box since we only use them when
they are relevant.”

Building on the success of Radiometer, Danaher expanded into Dental and Life Sciences. In 2007,
revenues from Medical Technology were $3 billion or 25% of the total, growing at high single digits.

Performance

Between 1986 and 2010, Danaher’s revenues grew from $296 million to $13.2 billion, an annual
percentage growth rate of nearly 30% (see Exhibit 12 for an annual income statement). In 2010,
Danaher’s trailing 12-month gross margin was 45%, approximately 10% higher than the average for
its peer group (see Exhibit 13 for an annual ratio report). One business journalist dubbed Danaher
“probably the best-run conglomerate in America,” pointing out that over the previous 20 years, the
firm had returned a “remarkable 25% to shareholders annually, far better than GE (16%), Berkshire

Hathaway (21%), or the Standard & Poor’s 500-stock index.”38 Another analyst simply noted that
Danaher had “made process improvement an art.”39

During the last decade, Danaher had undergone various changes to its portfolio (see Exhibit

for the portfolio’s evolution). More of its revenues now came from markets outside the U.S. Danaher
had seen a significant expansion in its leadership positions in Water Treatment, Test & Measurement,
and Product Identification and was a recent entrant into Medical Technologies as well. (Indeed,
Forbes now grouped Danaher in its Instrumentation and Medical category.) And, the DBS continued
to evolve and extend from the manufacturing floor and the back office to innovation, marketing,
R&D, and sales. Cumulative returns on Danaher’s stock from 2001 to 2010 exceeded 150%, in
comparison with Standard & Poor’s 500 returns of about 25%. Indeed, when managers of other large
broadly diversified firms were asked, “‘Which company do you emulate?’ the consistent reply was,

‘Danaher.’”40

Challenges Going Forward

Despite this success, Danaher faced a number of challenges.

708-445 Danaher Corporation
14

Growth

Danaher’s historical revenue growth had been largely driven by acquisition (see Exhibit 15 for
core versus acquisition growth, 2003–2007). From 1992 to 2010, the compound annual organic growth
rate was approximately 5%, versus total growth of 18%. Maintaining its high growth rates required
that Danaher confront certain challenges. First, it would have to continue to put its strong cash flow
to work with attractive value-added acquisitions. Second, a slowing U.S. economy, together with
some signs of a weakening world economy, placed natural limits on organic revenue growth. Third,
while cyclicality had been reduced, parts of Danaher’s portfolio were still exposed to swings in end
markets.

Some of Danaher’s platforms were poised for organic expansion in 2010: for example, analysts
predicted that the environmental and medical platforms would benefit from expanding end-user
markets. However, other Danaher businesses served more mature markets with historically lower
growth rates.

Growth in acquisitions presented other challenges. As Danaher continued to be active in its search
for new targets, it faced the prospect of going head-to-head with a different type of competitor:
private equity firms. In October 2006, the Wall Street Journal characterized private equity firms as “on
a tear,” noting that 15 of the top 20 buyouts on record had been announced in the previous year and a
half by players such as Kohlberg, Kravis, and Roberts; Bain Capital; and the Blackstone Group.41 As
recently as 2005, the largest fund was worth $6 billion, but by 2007, Blackstone’s fund was worth
some $20 billion,42 and its initial public offering was widely covered even in nonfinancial media

outlets.43 Large buyout firms were increasingly being referred to as the “new conglomerates,” and
observers began to question the role of the old ones. The Financial Times summarized this view: “The
conglomerate business model, which looked so visionary in the deal fever of the 1980s, appears more
and more endangered. . . . Many [conglomerates] are either disappearing or struggling to justify their
existence. Their predicament is made all the more serious by the rise of nimbler predators—private-

equity groups.”44

In the second-quarter 2007 earnings-results conference call, Culp fielded a specific question
regarding private equity, replying,

[O]bviously there is a lot of private equity money out there with some smart people looking
to put it to work. They tend, I think, . . . to focus on properties that aren’t necessarily high on
our list. When we take the long view—because we’re building businesses and we’re not
buying to sell—when we look at our synergies and the other things that we would bring to a
transaction, we tend to see, frankly, other strategics as really the relevant competitive set, much
more so than private equity. Not that they won’t be there, but we find they, more often than
not, are going to set a floor in a process as opposed to be a finalist in a sale process with a
company like Danaher, particularly around properties that we covet.45

In addition to the challenges posed by a more heated market for acquisitions was the risk of
acquiring bigger targets. A recent BusinessWeek article cautioned that “as M&A gets more expensive,
Danaher must either increase the pace of its deals or swallow bigger fish. And it may be more
difficult to convert bigger companies with established traditions, entrenched cultures, and larger
workforces to its fervent brand of lean manufacturing.”46 Some analysts noted the potential to bolster
Danaher’s acquisition prospects through the infusion of cash that could come through divestment.
Yet Danaher’s divestments had been infrequent: between January 1984 and July 2007, Danaher
consummated 79 acquisitions, with only 12 divestitures (see Exhibit 16 for a chart of Danaher’s
acquisitions over time). Despite this, Danaher management maintained in 2007 that the conglomerate

Danaher Corporation 708-445

had plenty of free cash flow to sustain forthcoming deals, and that the acquisition pipeline
remained full.

Sustaining the Culture

The success of DBS, and Danaher, had been built on the mantra of “continuous improvement.”
More than two decades after the firm’s founding, it was natural to ask how long this platform could
sustain itself. Was it feasible for a firm like Danaher to continue to add value on an ongoing basis?
Indeed, could “continuous improvement” continue indefinitely?

In addition, despite all its success, Danaher had remained remarkably unfamiliar to the public
eye. Twenty years after its founding, Danaher did not have its own public relations staff, and senior
managers granted only the occasional interview.47 As one analyst put it, “[Danaher] is kind of a . . .

below-the-radar company. . . . They don’t look for publicity. They just do a great job.”48 But, as
Danaher’s market capitalization grew, so did its coverage. In 1992, 10 analysts had covered the firm

;

by 2007, 23 analysts followed it. Indeed, BusinessWeek noted that “a continued ascent into the rarefied
air of large conglomerates carries one big risk: It makes [Danaher] all the more conspicuous for their

success.”49 With coverage came attempts at emulation.

Danaher’s senior management team recognized that evolving and sustaining the culture of DBS
was necessary to ensure continued high value-added across all businesses. But, they remained quietly
confident that the core value of kaizen would continue to provide strong performance. Indeed, Culp
believed that the biggest threat to sustained performance at Danaher lay not in external factors, but in
the firm’s ability to create a large enough pool of managerial talent internally:

DBS is basically just applied common sense, but it will succeed only if we are staffed by leaders
who live and breathe it. DBS is a differentiator that those who have worked with it really grasp.
Bringing outsiders into the system is hard since they have to learn a new culture and approach.
Therefore, practice, making mistakes, and learning how to use DBS are critical to their success. For
this reason, we believe that the real value of Danaher lies in the accumulated experience of
operating with DBS that enables leaders to understand the interrelationships between the hard
and soft elements of our system. Time is hard to buy. . . . [N]o one else has had 20 years of
experience with our system.

Recent Events

In September 2008, the global financial markets experienced an unprecedented crisis, triggered
first by the burst of the housing bubble in the U.S., and subsequently by the bankruptcy, collapse, and
takeovers of major financial institutions like Lehman Brothers, Merrill Lynch, and AIG. From May
2008 through March 2009, the S&P 500 index dropped over 40%, and many companies faced severe
liquidity concerns as the banking industry fell into serious disarray. Danaher, like virtually every
other major U.S. corporation, had to confront both near-term decisions on how to best navigate the
recession, and longer-term decisions regarding growth and strategic objectives. A few weeks after the
news about the Lehman takeover broke, the Danaher senior executive team decided on three key
objectives: (1) a broad-based effort to reduce structural costs throughout the organization; (2) a strong
bias to preserve the investments in growth and innovation; and (3) taking advantage of the liquidity
crisis to accelerate acquisition activity and the portfolio evolution.

Over the next six quarters, Danaher eliminated over 5,000 positions and more than 30 facilities,
resulting in annual savings of over $300 million. However, on the investment side, Culp remembered

708-445 Danaher Corporation

the negative impact of reducing R&D (from 3.7% of revenues in 2000 to 3.1% in 2001) during the last
downturn. Both through increased investments and the types of new companies that were coming
into Danaher, R&D as a percentage of sales was now approaching 6%. Through the downturn,
Danaher maintained its R&D-to-sales ratio (see Exhibit 17 for more data, 2001–2007), in contrast to
other firms that cut more broadly at the same time across all functions. As a result, as one Business
Week article in August 2010 noted, “[I]n spite of the economy, Danaher introduced a large number of
key new products in 2009 and has recovered more quickly than it would have otherwise.”

In addition, the company worked to preserve its investments in sales and marketing, particularly
in emerging markets. Then, with private equity and many corporations on the sidelines due to the
banking crisis, Danaher acquired 18 new companies in 2009, deploying $2 billion of capital. Finally, in
early 2010, the company announced that it would contribute its slower-growth hand-tool business to
a new joint venture, allowing the business to pursue new cost and other synergies within a larger
entity while not affecting Danaher’s core growth rate.

In April 2010, Danaher announced better than expected first-quarter earnings and core growth
and raised its growth outlook for the year. During the earnings call, Culp noted a number of the
company’s businesses that were growing faster than their competitors, in part a result of the
investment strategy during the economic crisis. As Culp once again prepared for the internal
performance review cycle, he reflected on both the evolution of DBS and the current portfolio. Many
of the businesses had successfully adopted the growth culture; others were still works in progress.
Culp was pleased with the progress across Danaher and continued to advocate the multi-industry
model. However, Culp still wondered how the managers across Danaher’s diverse businesses would
respond to the opportunities and challenges going forward.

Danaher Corporation 708-445

Appendix

Strategic Platforms1

Life Sciences & Diagnostics

The life sciences and diagnostics segment was Danaher’s newest strategic platform comprising
businesses with leading positions in life sciences and acute-care diagnostics. It was also created with
a series of platform-establishing transactions, beginning in 2004 with the acquisition of Radiometer.
While two subsequent acquisitions expanded Danaher’s involvement in the market, most products
were still marketed under the Radiometer brand. The business primarily produced critical care
applications for blood gas analysis and related services in hospitals and point-of-care locations.

Entry into life sciences instrumentation came in 2005 with the addition of Leica Microsystems to
the platform’s portfolio, and was expanded the next year with the acquisition of Vision Systems
Limited (which was combined with a division of Leica Microsystems to create Leica Biosystems).
These businesses made high-precision, optimal instruments, solutions and related consumables for
life sciences and medical applications, pathology diagnostics products, laboratory and surgical
microscopes, and workflow solutions for clinical histopathology laboratories. Then, in 2010, Danaher
acquired AB Sciex, a leading provider of mass spectrometry equipment and consumables, as well as
Molecular Devices, a market leader in cellular plate readers and molecular diagnostic
instrumentation.

The investment community responded favorably to Danaher’s expansion into the medical
technologies industry, and to its concerted growth of the business. While rising health-care costs
became a much discussed issue throughout 2006 and 2007, most agreed that the health-care market
would continue to balloon as the United Stated underwent demographic shifts and saw an increase in
the application of innovative medical technology. 50

Dental

The foundation of Danaher’s dental platform was established in 2004 when it acquired the Gendex
business of Dentsply International Inc., and Kaltenbach & Voigt GmbH & Co KG (KaVo), a leader in
the manufacturing of dental equipment and cabinetry. Then, in 2006, Danaher acquired Sybron
Dental Specialties, a leading manufacturer of a broad range of consumables and small equipment for
the dental professional, including the specialty markets of orthodontics, endodontics, and
implantology. Danaher was a global leader in dental technologies and consumables, including
treatment units, hand pieces, dental imaging and diagnostic systems, dental materials, orthodontic
systems, and infection control products. These products were marketed primarily under the KaVo,
Gendex, Dexis, Pelton & Crane, Kerr, Ormco, and iCat brands.

Test & Measurement

In 2007, Danaher acquired Tektronix, a global leader in Test & Measurement (T&M), doubling the
size of one of its strongest platforms. They entered the T&M market with the acquisition of Fluke
Corporation in 1998. Additional acquisitions bolstered the business, which produced and serviced
compact professional test tools and calibration equipment for electrical, industrial, and electronic
applications. Test products measured voltage, current, resistance, power quality, frequency,

1 Source: Danaher, 2006 Annual Report; and “Danaher Company Profile,” Datamonitor Research Report, February 2007.

708-445 Danaher Corporation

temperature, pressure, and air quality. Additionally, the Fluke Networks business provided both
software and hardware for the testing, analysis, and monitoring of local and wide area networks.
This business area expanded in 2006 with the acquisition of Visual Networks.

Environmental

The environmental businesses operated primarily in water-quality analytical, disinfection, and
treatment systems/solutions and petroleum. Danaher entered the water-quality market via a series of
acquisitions, starting with American Sigma in 1996 and recently with ChemTreat in 2007. Operations
in these businesses provided a range of instruments, consumables, and services that detected,
measured, and treated various water characteristics. Users generally included municipal drinking
water and water treatment plants, industrial plants, environmental monitoring and regulatory
agencies, and third-party testing laboratories. The company had numerous established water-quality
brands, including Hach-Lange, Hach Ultra Analytics, Trojan UV, ChemTreat, Buhler Montec, and
McCrometer.

Danaher’s retail and commercial petroleum business, by contrast, had been in operation since the
mid-1980s, and consisted of a smaller collection of businesses and brands. The Gilbarco Veeder-Root
business products included monitoring and lead-detection systems, vapor recovery equipment, fuel
dispensers, point-of-sale and merchandising systems, and submersible turbine pumps. Service
offerings included outsourced fuel management, compliance, fuel system maintenance, and
inventory planning and supply chain support. Users of such products and services included
independent and company-owned retail petroleum stations, high-volume retailers, convenience
stores, supermarkets, and commercial vehicle fleets.

Industrial Technologies

Product identification Danaher acquired Videojet (previously Marconi Data Systems) in
2002, thus entering the product identification business. Subsequent acquisitions rapidly expanded the
platform, which produced a variety of equipment used to print and read bar, date, and lot codes, as
well as other information on primary and secondary packaging. Customers typically included food
and beverage manufacturers, pharmaceutical manufacturers, retailers, commercial printing and
mailing operations, and package and parcel delivery companies, including the United States Postal
Service. Danaher’s Videojet, Linx, Accu-Sort, and Alltec were all well-known brands within the
industry.

Motion Danaher entered the motion control industry in 1998 with the acquisition of Pacific
Scientific Company. Subsequent acquisitions further expanded the business’s footprint and product
lines, which grew to include controls, drives, motors, and mechanical components. Such products
were sold in various precision motion markets such as packaging, medical, or circuit board assembly
equipment; robotics; elevators; and electric vehicles (such as lift trucks). Key brands included
Kollmorgen, Thomson, Dover, Portescap, and Pacific Scientific.

Source: Casewriters.

Danaher Corporation 708-445

Exhibit 1 Danaher Share Price versus S&P and Competitors, 1984–2010 (indexed to 100)

Source: Created by casewriters using data from Thomson ONE Banker, accessed April 2011.

Exhibit 2 Portfolio Segmentation

Source: Company materials.

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Danahe

S&P 500

Ingersoll-Rand

Illinois Tool Works

General Electric

Honeywell
Internationa

708-445 Danaher Corporation

Exhibit 3 Leading Brands in the Danaher Portfolio

Platform Key Brands Position Global Share

Electronic Test Fluke, Fluke Networks #1 25%

Environmental

Water Quality Hach, Lange, Trojan #1 2%

Retail Petroleum Solutions Gilbarco Veeder-Root #1 30%

Medical Technology

Dental Equipment KaVo, Gendex, Pelton & Crane #1 20%

Critical Care Diagnostics Radiometer #1 35%

Life Sciences Leica Microsystems #2 35%

Motion Kollmorgen, Portescap, Dover #2 8%

Product Identification Videojet, Accusort #1 15%

Mechanics’ Hand Tools Craftsman, Matco #1 30%

Source: Adapted by casewriters from company investor presentation, December 2005.

Exhibit 4 The Danaher Business System Image

Source: Company materials.
For the exclusive use of x. wu, 2020.
This document is authorized for use only by xingru wu in CSUSB Fall 2020 MGMT 3900-03/04/05 taught by ZHONGHUI WANG, California State University – San Bernardino from Nov 2020 to
Dec 2020.

Danaher Corporation 708-445

Exhibit 5 Operating Margin Expansion of Acquired Companies

Source: Company investor presentation, December 2005.

Exhibit 6 Breakdown of Total Revenue and Operating Income/Loss by

Segment

2004 2005 2006 2007 2008 2009 2010

Revenue by Business Segment
Professional Instrumentation 33.2% 32.6% 30.7% 32.1% 38.3% 38.7% NA

Medical Technologies 9.8% 14.8% 23.5% 27.2% 25.8% 28.1% NA

Industrial Technologies 38.0% 36.4% 31.6% 28.6% 27.3% 25.0% 24.2%

Tools and Components 19.0% 16.2% 14.3% 12.1% 10.2% 9.4% NA

Revenue by Geographic Segment

United States 64.8% 57.5% 54.0% 53.8% 52.3% 52.9% 49.6%

Germany 11.2% 14.5% 15.4% 11.7% 14.2% 13.2% 12.7%

United Kingdom 3.6% 4.2% 3.8% 4.7% 3.8% 3.4% 3.5%

China NA NA 3.4% 3.6% 6.1% 6.3% 7.1%

All Other 16.6% 23.7% 23.4% 26.2% 23.6% 24.2% 27.1%

Operating Income/Loss by Business

Segment

Professional Instrumentation 43.3% 42.6% 41.7% 40.8% 48.5% 47.2% NA

Medical Technologies 6.9% 11.0% 17.4% 22.6% 19.8% 25.6% NA

Industrial Technologies 34.7% 33.7% 31.2% 30.6% 29.5% 25.9% 29.1%

Tools and Components 17.9% 15.8% 12.9% 10.1% 8.4% 8.1% NA

Other -2.8% -3.0% -3.3% -4.0% -4.7% -5.8% -3.4%

Source: Compiled by casewriters using data provided by OneSource, accessed April 2011.

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For the exclusive use of x. wu, 2020.
This document is authorized for use only by xingru wu in CSUSB Fall 2020 MGMT 3900-03/04/05 taught by ZHONGHUI WANG, California State University – San Bernardino from Nov 2020 to
Dec 2020.

Danaher Corporation 708-445

Exhibit 8 Historical Acquisitions and Divestitures by Platform

Source: Created by casewriters from Thomson data and company information.

Note: Rubber and Related Automotive Products and Vinyl/Plastic Consumer Goods and Real Estate were segments in
Danaher’s early years.

*Mechanics’ Hand Tools was the strategic platform designation as of summer 2007; it also includes subsidiaries once mapped
to the “Tools and Components” segment.

0
1
2
3
4

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Medical
Technologies

0
1
2
3
4
5
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Test and
Measurement

0
1
2
3
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Product
Identification

0
1
2
3
4
5
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Environmental

0
1
2
3
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Motion

-1

0
1
2
3
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Mechanical
Hand Tools*

0
1
2
3
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Aerospace
and Defense

-1
0
1
2
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Power Quality

-1
0
1
2
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Sensors
and

Controls

Strategic Platforms

Focused Niche Businesses

708-445 Danaher Corporation

Exhibit 9 Top-Level Policy Deployment Chart

Source: Recreated by casewriters from company materials.

Exhibit 10 Improvement Priorities Cascade Slide

Source: Recreated by casewriters from company materials, as cited by Janney Montgomery Scott.

Top Level Policy Deployment

Resources

Primary Responsibility

Secondary Responsibility

Improvement
Priorities

Target to

Improve

3-5 Year

Breakthrough

Objectives

Annual
Breakthrough
Objectives

Top Level Policy Deployment

Resources
Primary Responsibility
Secondary Responsibility

Annual Objectives

Target to
Improve
3-5 Year
Breakthrough
Objectives

Benefits

Top Level Policy Deployment
Resources
Primary Responsibility
Secondary Responsibility
Annual Objectives
Target to
Improve
3-5 Year
Breakthrough
Objectives
Benefits
Top Level Policy Deployment
Resources
Primary Responsibility
Secondary Responsibility
Annual Objectives
Target to
Improve
3-5 Year
Breakthrough
Objectives
Benefits
Top Level Policy Deployment
Resources
Primary Responsibility
Secondary Responsibility
Annual Objectives
Target to
Improve
3-5 Year
Breakthrough
Objectives
Benefits
Top Level Policy Deployment
Resources
Primary Responsibility
Secondary Responsibility
Annual Objectives
Target to
Improve
3-5 Year
Breakthrough
Objectives
Benefits
Top Level Policy Deployment
Resources
Primary Responsibility
Secondary Responsibility
Annual Objectives
Target to
Improve
3-5 Year
Breakthrough
Objectives
Benefits

TOP LEVEL –

Company

SECOND LEVEL –

Plant

ROOT CAUSE LEVEL –

Sub Plant

Point of Action Plan

John Smith

POINT OF IMPACT –

ACTION PLAN

Engineer

DBS ACTION

Cascade as many times

as necessary to the

Root Cause Level

Improvement Priorities Cascade to the Point Improvement Priorities Cascade to the Point

of Impactof Impact

Point of Impact

– Action Plan –

Many Action Plans

draw on DBS

resources to

implement

improvements

POINT

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This document is authorized for use only by xingru wu in CSUSB Fall 2020 MGMT 3900-03/04/05 taught by ZHONGHUI WANG, California State University – San Bernardino from Nov 2020 to
Dec 2020.

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This document is authorized for use only by xingru wu in CSUSB Fall 2020 MGMT 3900-03/04/05 taught by ZHONGHUI WANG, California State University – San Bernardino from Nov 2020 to
Dec 2020.

javascript:void(0);

708-445 Danaher Corporation

Exhibit 14 Portfolio Evolution

Source: Company materials.

Exhibit 15 Organic (core) versus Inorganic (acquisition) Growth, 2003–2007

Source: Created by casewriters from company materials.

10%

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2003 vs. 2004 2004 vs. 2005 2005 vs. 2006 2006 vs. 2007

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For the exclusive use of x. wu, 2020.
This document is authorized for use only by xingru wu in CSUSB Fall 2020 MGMT 3900-03/04/05 taught by ZHONGHUI WANG, California State University – San Bernardino from Nov 2020 to
Dec 2020.

708-445 Danaher Corporation
30

Exhibit 17 R&D/Sales Ratio, 2001–2009

Source: Compiled using data from Thomson One Banker, accessed April 2011.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

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2001 2002 2003 2004 2005 2006 2007 2008 2009

Danaher Corporation 708-445
31

Endnotes

1 George Anders, “The Best Acquisitions Start With a CEO Who Charms Sellers,” Wall Street Journal, August
21, 2006, p. B1.

2 Ned Armstrong and Ian Fleischer, “Danaher Corporation: Outperform,” Friedman, Billings, Ramsey & Co.,
Inc., Equity Research Report, September 14, 2006.

3 Ibid.

4 Nicole M. Parent, Andrew Noorigian, and Russell W. Lane, “Danaher Corporation: Company Update,”
Credit Suisse Equity Research, December 14, 2006.

5 Ibid.

6 James C. Lucas, “Danaher Corporation: Kaizen and the Art of Value Creation,” Janney Montgomery Scott
Equity Research Report, February 22, 2006.

7 Richard C. Eastman and Robert W. Mason, “Danaher Corporation: Analyst Meeting Update, CY-07
Outlook Favorable, Maintain Outperform Rating,” Baird Equity Research Report, December 14, 2006.

8 Parent et al., “Danaher Corporation.”

9 Wendy Cooper and Erik Ipsen, “The new generation of corporate raiders,” Institutional Investor, January
1986.

10 Ibid.

11 Danaher, Corporate website, accessed July 13, 2007.

12 Danaher, 1986 Annual Report.

13 Cooper and Ipsen, “The new generation of corporate raiders.”

14 Ibid.

15 Pearlstein.

16 Cliff Ransom, NatWest Securities, as quoted by Angela Paik, “Danaher master of takeover,” News &
Observer Raleigh, NC, August 3, 1997.

17 “Sherman Appointed President and CEO of Danaher,” PR Newswire, February 8, 1990.

18 “Danaher President Looks to Overseas Market,” Reuters News, February 8, 1990.

19 Ibid.

20 Danaher, 2006 10-K SEC filing; and Bob Drummond, “Rales Brothers Eclipse Buffet as Danaher Shares
Soar,” bloomberg.com, March 31, 2004.

21 Drummond, “Rales Brothers Eclipse Buffet as Danaher Shares Soar.”

22 Mead, as quoted by Paik.

23 Drummond, “Rales Brothers Eclipse Buffet as Danaher Shares Soar”; and Danaher, 2001 10-K SEC filing.

24 Tim Lemke, “Danaher seen ‘weathering’ economic slump; Analysts cite restructuring, strategy,”
Washington Times, June 24, 2002.

25 Moye.

26 Thomas D’Amore of First Union Securities, as quoted by Moye.

708-445 Danaher Corporation

27 Interview with Larry Culp, April 2007. Except where otherwise noted, quotes are likewise from this
interview.

28 Discussion of acquisition categorization and processes draws heavily from James C. Lucas, “Danaher
Corporation: Buy; Kaizen and the Art of Value Creation,” Janney Montgomery Scott, February 22, 2006.

29 Danaher, 2001 Annual Report, p. 4, http://www.danaher.com/investors/annualreports.htm, accessed
September 2007.

30 Danaher, 2006 Annual Report, p. 14, http://www.danaher.com/investors/annualreports.htm.

31 Danaher, 2001 Annual Report, p. 5, http://www.danaher.com/investors/annualreports.htm.

32 Jim McTaggart, founder of strategy consulting firm Marakon Associates, as quoted by Hindo.

33 Hindo, p. 58.

34 Ibid.

35 Ibid, p. 59.

36 Interview with Culp, April 2007.

37 Interview with Peter Kurstein, April 2007.

38 Hindo.

39 Wendy B. Caplan, Julie Russo, Allison Poliniak, and Kelly P. McClintock, “Danaher Corporation: DHR:
Anywhere, USA = Shanghai, China; Postcard from the Chinese Road,” Wachovia Equity Research Report,
August 27, 2007.

40 Ibid.

41 Jason Singer and Henny Sender, “Growing Funds Fuel Buyout Boom—Already Biggest, Blackstone Pool
Will Raise Additional $4.4 Billion As Firms Seek Larger Targets,” Wall Street Journal, October 26, 2006, accessed
via http://global.factiva.com, September 2007.

42 “The uneasy crown: Private Equity,” The Economist (London) 382, no. 8515 (February 10, 2007): 82.

43 Andrew Ross Sorkin, ed., “How Low Can Blackstone Go?” New York Times, Dealbook, September 7, 2007,
http://dealbook.blogs.nytimes.com/2007/09/07/how-low-can-blackstone-go/.

44 Francesco Guerrera, “Less than the sum of its parts? Decline sets in at the conglomerate industry: After
half a century in vogue, diversified business groups are increasingly seen as redundant but some may still have a
role,” Financial Times (London), February 5, 2007, p. 15.

45 “Q2 2007 Danaher Earnings Conference Call—Final,” Voxant FD Wire, July 19, 2007, via http://global.
factiva.com, accessed September 2007.

46 Hindo.

47 Drummond, “Rales Brothers Eclipse Buffet as Danaher Shares Soar.”

48 Robert Mitchell, Northern Trust, as quoted by Drummond, “Rales Brothers Eclipse Buffet as Danaher
Shares Soar.”

49 Hindo.

50 Jim Lucas, “Danaher Corporation (DHR-$78.61), Consistency is not a Fluke; NEUTRAL but Warming Up,”
Janney Montgomery Scott Research Report, July 20, 2007, p. 4.

MGMT 3900 Group Case Write-up Questions and Scoring Guide (

00 points)

Please register as a student with the Harvard Business Publishing website first and then use the following link to access the cases:

https://hbsp.harvard.edu/import/775577

Danaher Corporation (HBS case number: 9-708-445):

1. Does Danaher maintain sustainable competitive advantage? (5 points) What performance measure do you rely on to make your conclusion? (4 points)

2. What corporate level strategy that we have discussed in this class best describes Danaher’s corporate strategy in terms of growth (6 points)? What are the potential transaction costs that Danaher may encounter when the company implements its corporate strategy? (3 points)

3. What is Danaher’s core competency? (5 points) Why? (5 points)

4. Does Danaher benefit from industry analysis? (5 points) How? (4 points)

5. Danaher categorizes its acquisition targets into three types. Do you think those acquisitions result in diversifications? (5 points) If so, can you further identify them into unrelated/related diversifications? (3 points) What kind of related diversification? (3 points) Why? (3 points) Please explain with at least one example.

6. Please identify the key resources/capabilities that Danaher has which make Danaher successful (5 points). Utilize the VRIS framework to analyze and explain whether those key resources/capabilities contribute to Danaher’s sustainable competitive advantage (12 points).

7. Utilize SWOT analysis to identify and summarize the current status of Danaher (12 points).

8. Do you think Danaher should diversify into the driverless car industry (2 points)? Why (8 points, please support your conclusion with analyses using the theoretical tools that you have learned)?

9. No grammatical mistakes/typos (5 points).

10. Proper citations/references (5 points).

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