Danaher Corporation Case Analysis

Ashley Valdez

Amanda Lanier

Reshma Patel
Corporate History

Danaher was first formed in 1980 as a company, called Equity Group Holdings, by two

brothers, Steven and Mitchell Rales. The company’s objective was to acquire businesses that had

three characteristics: understandable operations in a reasonably defined niche, predictable

earnings that generate cash profits and experienced management with an entrepreneurial

orientation. (Hesterly) The brothers changed the name to Danaher after they went on a fly-

fishing trip to the Danaher River in Montana.

Corporate Level Strategy

After the name change, Danaher began a strategy of creating lean manufacturing

through the Danaher Business Strategy (DBS), which mimicked the Toyota Production System,

while maintaining a core of “kaizen”, continuous improvement. Moving forward, Danaher

started acquiring companies that focused on manufacturing tools, controls, precision components

and plastics. Danaher was a fast growing company that had 14 subsidiaries. In 1986, Steven

Rales was quoted saying,” If there’s one things that distinguishes us from the other players in the

M&A field, it’s that we stay in touch with the companies.” (Hesterly) The company truly cared

about the companies it was acquiring and wanted them to succeed.

Since 2001, Danaher has started focusing on businesses that had three certain criteria.

“First, the market size should exceed $1 billion. Second, core market growth should be at least

5%-7% and without undue cyclicality or volatility. Third, [they] look for fragmented industries

with a long tail for participants that have $25-$100 million in sales, and can be acquired for their

products without necessarily needing their overheads. Fourth, [they] try to avoid outstanding

competitors such as Toyota or Microsoft. Fifth, the target arena should present a good
opportunity for applying DBS so that [they] can leverage [their] Danaher skill set. Last, [they]

look for tangible product-centric businesses.” (Hesterly)

After the business they are looking at falls into these criteria, they were placed into a

category. The category they were placed in was based on how the company being acquired

related to existing businesses. The three categories included New Platforms, Bolt-Ons and

Adjacencies. A new platform is characterized by bringing Danaher into a new market or product.

A bolt-on is where the company had to cause “synergies between existing Danaher businesses

and new targets.” (Hesterly). Adjacencies were businesses that once acquired were still solely a

stand-alone business.

Danaher has been recognized for its acquisition strategy through the years. A business

consultant commented in Business Week saying, “those guys have a very well-defined model of

how to do M&A.” (Hesterly)

Diversification Philosophy

Danaher Corporation’s diversification philosophy is solely economies of scope. They

utilize their core competencies of the DBS system to create lean manufacturing and spread their

knowledge to multiple firms they acquire of which are at a smaller level and easier to integrate.

They participate in product market diversification because, not only are their products

diversified, they also acquire businesses in several countries. Several of their niche businesses

fall into four categories: professional instrumentation, industrial technologies, tools and

components, and medical technologies. These categories are clearly a variety of distinct

industries making Danaher’s diversification unrelated. Danaher expanded their strategy into

“Western and Eastern Europe, Asia, Latin America, and the Middle East” (Hesterly) allowing

them to be geographically diversified.

 Based on the precision and success of the DBS, Danaher is trying to create synergy. DBS

“requires every employee, from the janitor to the president, to find ways every day to improve

the way works get done” (Hesterly). The system mandates every employee top-down to know

every aspect of the business and allows them to input their suggestions on improvement.

Management, including businesses that have been acquired, must go through training to learn the

system. Top management even participate in “kaizen events” (Hesterly) where they have to take

a stroll through the manufacturing facility to see how the business is working, is it working

properly, what needs to be changed, and create a strategic plan to resolve any issues. They,

basically, do a root cause analysis at every acquisition to make sure every aspect of the business

runs properly and in sync with all other parts. In conclusion, Danaher is trying to create synergy

and do so by following the Danaher Business System.

Danaher has a competitive advantage at accomplishing synergy and diversification

because there are extremely few firms doing the same thing. Danaher is similar to GE in that

their economies of scope are to create products that unrelated to one another. GE has products in

aviation, health imaging, railroad engines, nuclear power plants and a broadcast station. Danaher

has products medical technology, tools and components, environmental products, aerospace and

defense, and industrial. They are all different industries which are hard and somewhat rare to

find in businesses. Unrelated diversification is very expensive and a firm must have the capital to

maintain the status. Danaher’s core competency and advantage is their knowledge of the DBS

system and how to effectively integrate it into every acquisition they obtain. They have leverage

compared to their competitors who have fallen behind.

At Danaher, the business strategy drives the acquisition and “kaizen” strategy with

management effectively executing the system. DBS sustained the culture of Danaher Corporation
throughout all their many business acquisitions. DBS, as discussed in the book, is the backbone

of the company. Plan, people, process, and performance are the four P’s of the DBS covering

the four main elements of the internal part of the business. The people category represents the

talent and experience that Danaher bring into the company, plan stands for the ‘what’ and the

‘how’ of the business, process is where you put the plan in action, and after the plan has taken

place you get the results of the performance. To calculate the results of the performance

Danaher Corporation uses the Policy Deployment tool. The use of DBS was explained through

an example of the acquisition of Radiometer. Danaher created a plan and had two executives

come in to Radiometer which helped them realize the necessary changes needed to be made.

What makes Danaher different from any other company is they don’t like to be the

popular company but the more successful one. Before an acquisition, instead of having a few

hours of long meeting/interview, they go behind the scene. Danaher believes in order to make a

decision you must not sit in a chair for a few hours; you have to see hands on what goes on in the

company in order to compare it to the best. It’s easier to see how far they can take the company

and to see if it can afford to acquire a certain business. It allows you to see how the daily routine

operations take place in the company and create ways to better perform those routine tasks in a

more efficient time and increase productivity.

Danaher Business System is working well for Danaher Corporation. They have faced

minor problems, which are why the credibility of DBS is being questioned, but it seems as if the

problems aren’t arising entirely because of malfunctions of the DBS. DBS has been proven a

success in the past and it should continue to be helpful in future Danaher operations. The DBS is

not only the technical part of Danaher but it also sets out a unique company culture that they

continue to build with every new Merger and Acquisition. Danaher Corporations continuous
improvement was also due to the DBS. (Add a little more detail and state opinion but do not use

“I”. Let me know what you think)