If the U.S.A. needed a poster-child for kaizen and Lean manufacturing success, $20 billion industrial holding company Danaher Corporation would be a good candidate. As this Investor’s Business Daily article details, they have been growing steadily over the last decade through a combination of acquisitions and organic growth, and they have done it through what they call the Danaher Business System, or DBS.
DBS is one of the best examples of kaizen principles made part of the culture of a U.S. company. A decade or so ago when Danaher was a much smaller company with fewer holdings they recognized the power of kaizen and spent the big bucks and took the hard knocks from Japanese consultants to make their operations Lean.
I have fond memories of Danaher. My favorite experience with Danaher is interpreting for a Japanese consultant Mr. N at a drop forge facility in Arkansas in January. It was an unbelievable scene. Character-building, you might say. There was inventory everywhere in metal baskets. More of it being plunked in every so many seconds. They had open gas flames to preheat the dies. They had the shutters open to keep the shop from getting too hot. There was a freak snow storm that week, so the cold blew in through the shutters. One side of me was freezing while the other side was burning up.
We had to wear helmets and hearing protection to keep from going deaf from the drop forge. Sparks flew. The Japanese consultant was yelling. I couldn’t hear a word he was saying. This made him madder. It was hot, it was freezing. It was loud, the Japanese consultant was louder. All I remember about the kaizen event is that they were having some quality problems, which they fixed by the end of the week.
The people of Arkansas were all very nice. One evening at dinner the waitress at the restaurant put her hand on her hip and stared at me in disbelief when I said “well done” in response to how I wanted my steak cooked. But I digress.
The article cites Rashid Dahod of Argus Research that Danaher’s free cash flow — cash from operations minus capital expenditures — was 119% of net income in 2005. This year was the 14th straight year in which free cash flow exceeded net income. Not only does Danaher throw off a lot of cash, they know what to do with it.
According to the IBD article Danaher acquired 13 companies in 2005 and are on a similar pace in 2006. The leaders at Danaher Corporation were smart enough to see kaizen as more than a set of tools, but a way of thinking that supports a winning business strategy. Danaher has acquired, kaizened their acquisitions, improved profit margins and cash flow, acquired again to repeat the cycle to grow steadily and profitably.
Morningstar analyst Eric Landry describes DBS: “It’s basically a set of tools that allows Danaher to make whatever widget they are manufacturing at a cost less than most of their competitors” and “Over the past decade they have (also been moving) DBS into the back office and into sales. It produces a culture where you are never satisfied.”