“The DBS process system is the soul of Danaher; the system guides planning and execution.” – Larry Culp, Former CEO at Danaher 

Danaher is a rare breed of company that has compounded shareholder return over 1,000x since it was listed. For the last 35 years, the company has earned shareholders ~20% per year. What’s even more impressive is that Danaher has earned such returns as it has evolved from reversing Mastershield, a vinyl siding manufacturer, into a REIT, before growing to become an industrial conglomerate, and now a life-sciences company today. 

But throughout its evolution, one concept has been constant: the Danaher Business System (DBS). DBS is the company’s operating system. It’s the fabric that holds the organisation together. It’s a core set of principles that underpin employee behaviour across all functions; sales, R&D, manufacturing, and even leadership. 

We’ve spent the last five years studying the various ways Danaher deploys its business system across the organisation. This research roundup curates some of our work on the topic, explains why we’ve covered certain angles, and shares a few insights from each interview: 

  1. Danaher: DBS Office Structure & Policy Deployment: how the DBS office is structured to deploy DBS tools in Danaher operating companies 
  2. Danaher: DBS Office Operational Strategy: how the DBS deploys policies around the org, incentives for subsidiaries to listen and deploy DBS policies, and barriers deploying such a strategy in other companies  
  3. Danaher Business System: Batch to One Piece Flow Manufacturing: how DHR changes a manufacturing process from batch to one-piece flow post-acquisition 
  4. Danaher Business System: Kaizen Case Study at Pall: a case study of how Danaher runs a Kaizen event at Pall
  5. Danaher Business System: PSP, Kaizen, & Six Sigma: we walk through how DHR deploys various tools include PSP, different kaizen events, and Six Sigma vs lean tools
  6. Danaher: Implementing DBS in the Sales Process: how Danaher deploys DBS policies to drive revenue, retention, and improve gross margin 
  7. Danaher Business System: Hach Sales Team Case Study: how Hach deployed daily management, action planning, and cascading targets in sales to drive growth 
  8. The Danaher Business System Mindset: how and why the DBS fosters a unique culture that is hard to replicate elsewhere
  9. Danaher, Beckman Coulter, & The DBS Machine: how Danaher deployed DBS at Beckman Coulter post-acquisition 
  10. Danaher's Culture, Pall Industrial, & Deploying DBS: why PSP tool is so important and how Pentair and Crane's ‘DBS-light’ system compares to Danaher. 

Why is the DBS important?

As Danaher has shifted to a full life sciences company, implementing DBS is increasingly important to drive outperformance. In its early days, Danaher acquired industrial companies for ~8-12x EBITDA with operational improvements reducing the price to ~5-6x pro-forma EBITDA. 

Over the last decade, Danaher’s M&A strategy has evolved. Its recent acquisitions include Abcam ($5.7bn at ~30x LTM EBITDA), Aldevron ($9.6bn at ~64x NTM EBITDA), Pall ($13.8bn at 18x NTM EBITDA), GE Healthcare ($21.4bn at 18x NTM EBITDA, and IDT ($2.1bn at ~50x NTM EBITDA). 

Unlike Constellation Software or Lifco, Danaher benefits less from multiple arbitrage. When paying up for assets, post-acquisition EBITDA growth is even more important. Danaher has also evolved to integrate assets to drive ‘synergies’, such as recently merging Pall and GE's downstream bioprocessing teams. Danaher has become more of a bet on the end-market organic growth and technology. With more onus on post-acquisition operational improvements, the DBS is increasingly critical for DHR to outperform. 

IP Research, M&A Value Add
IP Research, M&A Value Add

Another interesting perspective that highlights Danaher’s evolution is its recent logo change. In 2023, Danaher launched a new logo that represents ‘innovation at the speed of light’. The curved logo represents dynamism and continuous improvement. Not only do DBS principles remain at the heart of Danaher’s brand, but now innovation within science and technology is at the core of Danaher’s identity. 

DHR 2023 Logo change
DHR 2023 Logo change

DBS Fundamental Tools

The DBS is a set of over 100 simple tools that can be used to solve problems across all areas of the business.  

At Danaher, we use zero complex tools, meaning the methods are common sense, and it works well because everyone can do it. - Former Director at Danaher DBS Office

DBS originated as a lean-focused model, built from the principles of the Toyota Production System. Over time, Danaher deployed similar lean principles and tools to commercial sales (Growth) and management (Leadership) functions. 

DBS Fundamental Tools
DBS Fundamental Tools

While there are over 100 DBS tools, there are eight fundamental tools that underpin the philosophy:

  1. Problem Solving Process: structured methodology to identify, analyse, and resolve issues. 
  2. Voice of the customer: process of capturing customers’ expectations, preferences, and aversions to inform product development and service improvements. 
  3. Standard work: documentation of best practices for any operational process to drive efficiency. 
  4. Value stream mapping: a lean visual tool to analyse and design the flow of materials and information throughout an entire production process. 
  5. Transactional Process Improvement: a lean technique applied to non-manufacturing, ‘transactional’ processes to eliminate waste. 
  6. Visual and Daily Management: visual tools to monitor performance metrics and daily activities. 
  7. Kaizen: continuous improvement technique to eliminate waste and drive efficiency 
  8. 5S: a methodology for organizing, cleaning, improving, and sustaining a productive work environment.  

Each tool is simple to understand, but hard to consistently deploy.  

We have voice of the customer, value stream mapping, standard work, TPI, - transactional process improvement - Kaizen event basics, 5S problem-solving process, and visual and daily management. These apply to all areas of growth, lean and leadership. That's why they are called fundamentals, as you build your lean system, your DBS system, on these. Some are complex, while others are more straightforward. For instance, value stream mapping involves a one or two-hour training. The problem-solving process, however, requires a two-day training for certification. Visual and daily management tools are not very complex, but the problem-solving process is the most complex. The Kaizen event is not lengthy; it describes organizing a Kaizen event, the typical agenda, and sequence planning. The rest of the training is relatively quick. - Former Director at Danaher DBS Office

DBS Office

The DBS office is a centralized team of over 30+ experienced operational executives that help Danaher operating groups deploy DBS tools to solve problems. Each DBS office member is a specialist in a given field such as sales, manufacturing, or R&D. 

The DBS Office is an entity of industrial consultants. Each company has a transformation journey because performance may not be at the desired level in various areas. This could be in R&D, manufacturing, sales, marketing, or any other area. The consultant helps the operating company to address these issues. They don't drive the transformation, as this is the responsibility of the operating company, but they act as a catalyst by bringing knowledge on transformation. - Former Director at Danaher DBS Office

The leader of the Danaher Business System Office (DBSO) sits on the leadership team and reports to Danaher’s CEO. 

There's a VP of the DBSO who sits on the Danaher corporate leadership team. Underneath that person, there are vice presidents or senior vice presidents for different segments, like growth, innovation, and lean. Each Danaher tool has a single owner in the corporate office responsible for governance and content updates. - Former Global DBS Director at Danaher

Just as AWS and other companies create certifications to use its products, Danaher has a certification process for DBS. All members of the DBSO are ‘certified’ in multiple DBS tools. 

DBS Tool Certifications
DBS Tool Certifications

When an operating group needs help, it can call on expertise at the DBS office to help implement DBS tools. John Sekowski, the leader of the DBS office, will deploy the centralized DBS experts to the operating company to design and lead kaizens to solve the problem. 

I think it's very effective because it's a pull model, not a push model. The opcos ask for help. When there's an objective in an opco, they request help because it's super-efficient. You don't have to reinvent solutions. You have a problem, and there's a toolbox to solve it. When you want to deliver results, you avoid reinventing things because reinventing means you don't have everything right. You miss out on the benchmarking included in the tool. Reinventing leads to falling into traps, losing time, and efficiency. This model allows you to ask for help and receive it from very skilled people, which accelerates progress. That's why, for me, the DBS Office is the secret sauce of Danaher. It's a culture that's difficult to copy, almost impossible. You have concentrated knowledge, and with 25 to 30 opcos in the portfolio, you build tools with extensive benchmarking. These tools are bulletproof and have been tested in many organizations, improving over time. There's a lot of knowledge captured in them, and there are people whose job is to help you run Kaizens efficiently. The system's watchdogs make it very efficient.  - Former Director at Danaher DBS Office

PE firms try to offer a similar type of DBS-office consultative service through its operating partner model. But most firms seem to lack the commitment, intensity, and critical mass of experience across each DBS tool. Danaher has every possible opco problem covered by the experience at the DBS office. This is due to its scale and decades of experience following a continuous improvement philosophy. 

you need a long-term commitment to the DBS Office, retain people, feed them, and create benchmarks. There's a notion of critical mass. Danaher could afford 25 to 30 people, so for each area, you had several experts. This triggered good knowledge sharing, tool building, and progress on knowledge and the latest methodology. What I see, even for my current situation, which is bigger, is they have one expert per area, and I think it's difficult to capitalize.  - Former Director at Danaher DBS Office

Problem Solving Process

The PSP is a structured, data-driven approach to identify, analyse, and solve problems. It’s based on the following broad steps:

  1. Define the problem 
  2. Verify problem with with facts and data
  3. Perform a root cause analysis via the 5 Whys
  4. Implement countermeasures 
  5. Validate the solution and effectiveness 
  6. Standardise the solution 
The PSP is a process you deploy whenever there's a problem. It's not just about training with the tool and leaving people alone. There's also a Kaizen event. You train the PSP, and the trainees must apply it to their daily problems. They receive support from the DBS tool owner or DBS trainer. We had a quality problem, so we started a PSP. It's data-driven. First, you measure your actual situation and compare it with the standard. You identify the gap and the root causes for it. You deploy this process with the team. Initially, there's a two-day training based on examples. The crucial step is to apply it to your personal problem. - Former Director at Danaher

A Former DBS Office member believes the PSP is the most important and difficult tool to implement:

In many companies, there's a doer culture. When there's a problem, the first instinct is to fix it without much reflection. This leads to temporary fixes rather than addressing root causes, which can be difficult to identify. You might have heard of the five whys; you need to ask why five times to get to the root of the problem. In a doer culture, by the second why, people think they've solved it and start acting, but it doesn't pay off because they're not addressing the real issue. Companies that want to move fast need to spend more time on analysis than on execution to ensure they're solving the real problem. In a doer culture, it's crucial to spend 70% of the time understanding the real problem and 30% on designing the solution, rather than 10% on thinking and 90% on execution. - Former Director at Danaher DBS Office

Rigorous discipline is required to get to the root cause: 

You need discipline to get to the root of the issue. There was another example involving a defect in a mass spectrometer. The root cause was a change in the material of a screw. The equipment vibrated slightly, causing metal pieces to come off the screw and affect the detector's accuracy. A purchaser had changed the screw supplier to save one or two cents, but the impact was significant. Identifying the screw as the cause took two months of analysis. It wasn't straightforward, but without such diligence, you never find the root cause. - Former Director at Danaher DBS Office

Every problem at Danaher has a PSP form to complete and work from:

Whenever there was an issue, such as a customer complaint or a returned product, we would use the form. Every problem had that form. We were using more data than ever before, and it was consistently applied. You could pull up that problem-solving form, or PSP, for every problem we had. If you had a red month for one of your metrics, that was acceptable. If you had two, you were expected to have a PSP, and that PSP had to show that you understood why you were in the red. If you continued being in the red for six months, that was acceptable, as long as you forecasted it on the PSP and showed where it was going to turn around. This became part of our daily language. - Former VP of Engineering at Pall, Danaher

Go to Gemba 

A key principle of lean philosophy is “going to Gemba”, which translates to “going to the real place”, and refers to management visiting the shop floor or the location where the problem lies. After you’ve located a problem and used the PSP process to identify a root cause, Danaher requires teams to show Gemba evidence with data to prove the result. Intuition seems to play little role without data to back it up: 

The main issue is that people are often guided by their experience, which is critical. This is why Gemba evidence is so important; you need to provide evidence through data, pictures, or whatever is available. I can tell you, I've managed around 100 Kaizen events or more in my business life. What I've seen is that during discussions with engineers, they explain how the system works and why we have a problem. I always stop the discussion and say, "Let's go to the place and observe the process." For example, if there are process issues, in 95% of cases, it's different from what the engineers think. That's my personal experience. - Former Director at Danaher

‘Go to Gemba’ is also applied in customer facing roles including sales and observing customers or internal employees using software. 

Kaizen Events

A kaizen event is a three to five day workshop using lean principles to identify and reduce waste in a process. 

There are two types of Kaizen There's a President's Kaizen, and then there's the normal Kaizens that are running. So the President's one sets the tone. So the president gives a target, a sensei comes in. A proper Japanese sensei comes in. During the President's Kaizen, five to 10 Kaizens are run in a week. It's a significant event aimed at achieving a major improvement in performance. It's quite theatrical. The Japanese sensei comes in and energetically encourages everyone, even shouting "Banzai" at people. - Former VP of Engineering at Pall, Danaher

Kaizen events are conducted without hierarchy, over three to five days, and everyone is encouraged to voice an opinion: 

Danaher strongly discourages conducting meetings in conference rooms. The pre-work you asked about is pretty standard. This is something you would have prepared weeks in advance, with small teams of process experts defining the problem and gathering all the relevant data. The targets are set by the Kaizen or process owner, which in many cases would have been myself or the president. Then a cross-functional team is assembled. Typically, you have two process experts and up to seven or eight people on the Kaizen team, from all levels and functions. The Danaher Kaizens are conducted without hierarchy, as they should be. Many of the operators are unaware of the seniority of some of the people in the Kaizens, which is ideal because it puts them at ease. Everyone is encouraged to voice their opinion. There are no egos. This is standard for a good Kaizen, and Danaher really emphasizes this. The approach is consistently applied. - Former VP of Engineering at Pall, Danaher

DBS for Sales 

One common mistake Danaher sees in sales and marketing organisations across the group is the lack of conversion at the top of the funnel from poor funnel management techniques. 

People usually err in the conversion process. They fill up the top of the funnel with many wishful opportunities that may not materialize. Secondly, they don't follow through to make them happen and they don't abandon opportunities that are just smoke. Funnel discipline will force you to challenge your salesperson. For instance, if an opportunity has been in your funnel for three months, it's likely not going to happen. - Former President at Danaher

This interview explores how a Danaher operating company manages the sales funnel to drive conversion:

We created training material and brought together companies with long, multimillion-dollar, multi-year sales cycles, down to consumables and everything in between. Our goal was to design a process that would be 80% correct for all businesses, with the remaining 20% adjustable to the specifics of each business. We designed a funnel process that mirrors the customer buying process, with five stages and set probabilities. Each stage had defined customer actions, seller actions, and exit criteria. This way, it's not based on the seller's optimism or pessimism, but on standard processes that apply to any sale. Opportunity, qualification, needs analysis, demonstration proposal, negotiation, commitment and close. - Former VP at Danaher

Daily management is also deployed in Danaher sales teams:

Are you making the calls? There's the activity portion, and it should result in new opportunities or advancing opportunities. Are you hitting your bookings goal? We're not going to discuss it at the end of the month as if it's a surprise. There's a conversation with the Regional Sales Managers every week, and with the inside sales, it's every day. - Former VP at Danaher

Another simple tool used is called ‘cascading targets’:

It's crucial to set core value driver targets such as quality, on-time delivery, bookings, revenue, turnover, and so on. These targets are communicated to every senior leader, their direct reports, and down to the individual level. This ensures that everyone's performance metrics align with the overall targets. It's about setting the targets and understanding what they will look like throughout the year. For instance, what will be achieved in the first month of Q1, the second month, and so on. It's about setting monthly targets to avoid end-of-year surprises. In some cases, on the shop floor, this could be hourly, daily, weekly, or monthly. However, if you're not reviewing something every month, it's likely not a high priority. The idea is to cascade these objectives down so that everyone is clear about their metrics and sees them every day. There's visual management of the things they're being measured on. If they're off track, it's acceptable, but they must acknowledge it and work with their leader to get back on track. - Former VP at Danaher

DBS for R&D

R&D projects are notorious for not being delivered on-time. Even at some Danaher companies, only 20% of new product development projects were delivered on-time. This is for a multitude of reasons:

The biggest causes, if I break it down, include not selecting the right project and not having a clear understanding of the requirements. Execution errors are also significant, such as resource constraints and supply chain constraints. Launch issues are another big problem, like not having the right understanding of how to go to market with the product. On-time delivery issues often stem from cross-functional planning and coordination. This is why they started involving operations earlier in project teams, as one of the biggest root causes was their lack of early involvement in defining the product or its manufacturability, as well as risk management. - Former Global DBS Director at Danaher

Danaher deploys a ‘single piece flow’ philosophy to R&D to drive higher on-time delivery of new product development projects: 

When the business has a roadmap of development projects or a portfolio of all the projects they want to execute, the PPG process, which was a standard rolled out from the Danaher office, serves as a playbook for prioritizing projects and resources. Through a Kaizen event, where a corporate resource visits the site, the PPG process is installed in the business. The discussion focuses on the active engineering projects or NPD projects. We examine everything the engineers are doing, whether supporting manufacturing or new product development, and assess capacity. We determine how many projects can be run simultaneously with the available personnel to maximize speed. This involves modeling who is working on what and identifying the necessary skill sets for specific projects. If progress slows due to multitasking, it indicates reaching capacity or needing to hire more in a specific discipline. - Former Global DBS Director at Danaher

This interview goes on to explore a more detailed case study of how to deploy DBS tools to drive more effective R&D teams. 

DBS Culture 

While the Danaher DBS culture has driven outsized returns for decades, the rigour and rigidness of the operating philosophy is not for everyone. This interview provides a glimpse into the pressure operating at a DHR company:

The issue is, either you embrace it, or you exit. A lot of people like it and really like to become part of DBS because it is really cool to go for improvements. But the downside is, in the same situation, you need to grow. If you are not able to grow, you have a problem with all the process improvements because then you have a lot of people left over. Then you will need to go for lay-offs. Certainly, one part of the DBS culture is also to make things transparent and to make things ugly. For example, we always said that red is the new green. We put some targets out and if you have reached the targets and you become green in all of them, we skip the targets, go to the next level so that, more or less, everything is red again. This brings a lot of pressure to the people and a lot of folks can’t really deal with this. - Former Director at Danaher Corporation

While it’s hard to question Danaher’s long-term results with DBS, some could argue that is very rigid and can contribute to higher turnover in management:

A trade-off could be that, all of a sudden, you become fundamentalistic. If it’s too rigid, maybe you lose creativity. I think you need to balance it out a little bit. Try to take the benefits, try to really go for that approach, but not over-exaggerate it. I think this is why I think that they have such a high turnover rate in management . - Former Director at Danaher Corporation