Process Innovation : Danaher Business System
Context : About the Book
Lessons from the Titans by Scott Davis has actual lessons of industrial economy businesses that could be applied for our new economy businesses(startups). I started reading this book due to a recommendation from Cedric Chin.
The one particular chapter that stuck me and rallied my focus on process was on Danaher. In early 2020, Danaher was nearing a $20 Billion in revenues with a market valuation of $115 Billion. This is business that would have faltered when the founders decided to leave the executive leadership. Yet, it succeeded and thrived by adopting principle of lean manufacturing and being process focused. You could allude its success to how they operate.
Today, Danaher is a conglomerate with companies in life science, environment and applied solutions and diagnostics. All the quotes in this post are from Scott’s book.
The story of Danaher is first and foremost one of constant reinvention.
I will walk you through some of the excerpts with relevant commentary on what it is to be process process driven business and why is it hard.
DBS : Danaher Business System
In simple terms, DBS is a set of constantly updated best practices that functions as a playbook for all employees.
Documenting and advocating best practices is often sacrificed at the early days of a growing startup. The effort to document is just focus at this stage but once a company grows, it becomes much more costly. Bureaucracy, culture and incentives come in the way if you think to build playbooks at a later stage.
The motivations of DBS are derived from Lean manufacturing that the Japanese mastered in 1980s. But, they took it a notch further.
At its core DBS comes from Lean manufacturing, and it extends from the factory into all other critical functions, including sales/marketing, procurement, and engineering, up into the corporate office and R&D labs.
Its excellence is best illustrated through the company’s ability to maximize cash flow, profit margins, and the customer experience
Danaher teaches them how to be more productive, more focused, and more customer-centric.
The primary goal of the business is to generate profits for its sustenance. But to fulfil this goal, the objective of the employees should be focused on developing excellence, individualistic and their teams. This comes from continuous development of processes but you need a system that helps you measure the progress. DBS is that system.
DBS pushes the organization out of its comfort zone. Employees are empowered to achieve autonomously, equipped with mandatory tools. Lean manufacturing becomes a religion to follow. Wasteful processes are tossed aside. Expectations rise. Those who embrace this rigorous culture thrive; others are filtered out. The metrics are clear, with no place to hide.
What is the core of DBS?
The concepts are simple but require constant tweaking and experimenting. Everything depends on the organizational push for small improvements every day—not big goals with giant leaps, but small changes that all employees can rally around, with a commitment to measurement and tracking
Most excellence processes are driven internally. They are a combination of discipline and hard work. Incremental changes lead to the overarching change. The process of striving for excellence has to be a core belief similar to service customer well. It cannot be left to the individuals in the organisation. The systems should incentive the people to become better every single day.
Leadership of DBS
Culp took over as CEO in late 1990’s. During the stiff competition from growth of private equity funds for acquisitions. Culp focused on setting the DBS more entrenched into the organisation.
(1) He worked with the board on a portfolio of businesses that exploited all the powers of DBS. (2) Unlike leaders who prefer to hire those who aren’t a threat, he increased the organization’s focus on talent and surrounded himself with people who would keep up with his fast pace. (3) He pushed DBS deeper into the organization. He and his colleagues developed an expanded toolkit touching every facet of the company.
Talent density is an another facet that is not covered enough. Good organisation hire better people. This is similar to Bar Raiser from Amazon. Staff your teams with people better than you.
He rationalised the focus on lean manufacturing principles because it generated free capacity without adding new people
At its best, Lean and other productivity tools allow a company to add 2 to 3 percent of manufacturing capacity without adding equipment, people, or footprint—it’s “free” capacity.
He further added to the business systems. So he invested in building process in everything.
He realized early on that to succeed in a more competitive world, he needed more than a business system. These included funnel management in sales, value engineering, voice of the customer, value pricing, and procurement and logistics tools, which were adopted for nearly every Danaher function.
The commonality of those tools was not just in focusing staff and setting benchmarks to best in class, but in standardizing processes and adding predictability in a world that was becoming less predictable overall.
There was a benchmarking system and then there was a process to track the betterment. Throughout the timeline of Culp’s tenure as CEO, Danaher tracked only four financial metrics and rest being about the process improvement.
DBS Counterintuitive Practices
Scott(author) spends some time documenting the unique and counterintuitive approaches of Danaher.
Danaher’s productivity tools are a collection of best practices, a collection that keeps growing and is divided by function
They are unapologetic about ripping off other’s best practices. If you are a new age startup this is the best thing you could do. While you innovate in your core functionality, copy team building. This is where the frameworks, mental models and templates of others come into play.
Danaher believes that project management requires some form of visual aid, and that regular (but short) meetings should be held in front of the visual aid.
I am alluding this part because all project management tools are better with visual. Even to this day, Kanban is a better project planning view than most other when it comes to timelines and progress discussion.
Lean is based on identifying standard work and maximizing workflow. Repeatable functions are easily measured, and what’s measured can usually be improved. All non–factory floor functions have some element of standard work, and DBS requires that each step be written down and that some level of value mapping needs to occur.
The process of documenting work is the core of scaling work. If you work in a startup, this is the highest leverage work you could do. If you are expecting the work to be done a certain way. Write it down. Now, you can refer to it and help the team know when there is a gap.
The focus on character traits helps HR increase its hit rate of recruiting excellent prospects, filter talent successfully, and compensate high achievers to remain motivated and drive up retention
Character trait can sound as bringing a certain type of people. There is no hard and fast rule on evaluating for character. In your interviews, you spend equal amount of time talking about how the candidate works and why along with their skill sets. This is often missed in most interviews.
Talent development is mandatory, and a manager who scores poorly on employee engagement is on the way out.
It’s baffling to me why is it easier to hire new people than pay your current people more. Organisation who invest in talent development can do this because they are able to witness the progress. Whereas in most other organisations this is not possible.
Takeaway
It all seems a bit too unorthodox. But perhaps that’s one of the key lessons of this chapter: success often requires a wild ride, full of bold decisions and pivots, but transformational change anchored in a solid system.
Danaher started as a company in 1980s and continues to succeed in 2020s due to the solid system of DBS and aligning the people in the organisation to this system.
If you are to takeaway one point from this entire post. Let it be this one.
Create process in everything—literally, everything.
Signing off till next time,
Vivek , building processes again and again