BUSI 690 Group_Case_Study_1___Danaher.docx ASSIGNMENTS 2018.pdf

Running head: DANAHER CORPORATION

1

DANAHER CORPORATION

2

Danaher Corporation

Initially founded as a real estate investment trust, Danaher Corporation (hereinafter

referred to as Danaher) literally transformed itself in 1984 by significantly changing its focus and

business strategy. The new corporate strategy was to seek out and acquire companies that had

extreme potential in terms of branding, performance, innovation, and/or distribution. Although

initially cutting its teeth on the automotive and industrial tool supply industries, the firm quickly

branched out into other areas of innovation related to precision instrumentation and components.

This emphasis eventually led to its current presence in the life sciences, dental products, and the

environmental services industries as well. Today Danaher is number 144 on the prestigious

Fortune 500 list and operates in the United States as well as Europe and Asia employing over

groundwork for now life sciences division- an area in which Danaher has been a major player

ever since. By 2006, the organization’s four major areas of focus were Industrial Technology,

Professional Instrumentation, Medical Technologies, and Tools and Components. However, with

the significant advancement of technologies in these markets, these divisions have since been

transformed into the more distinct areas better defined as the Diagnostics, Life Sciences,

Environmental and Applied Solutions, and the Dental division. Due to the vast and diverse range

of these platforms, the firm very quickly realized the need to come up with a consistent and

DANAHER CORPORATION

3

universal business strategy that would accurately reflect its core competencies and unique value

propositions. Thus, the Danaher Business System (DBS) was born. The system, based upon the

Toyota Production model of lean manufacturing, has served the company well with a common

language that transcends all business segments within the firm despite different operating

models, customer emphasis, and its diverse employee base. It has become the basis for the

culture and the organization’s shared purpose- “helping realize life’s potential”.

To date, Danaher still bases the majority of its growth strategy around mergers and

acquisitions seeking out innovative science and technology firms to transform into high value

propositions in terms of profits and customer satisfaction. Unlike many companies of its size,

Danaher is not a household name but its role in the markets it serves is unprecedented.

A long-time employee of the firm, CEO, Thomas P. Joyce, Jr. grew up in the company

divisions. These divisions are Life Sciences, Diagnostics, Dental, and Environmental and

Applied Solutions.

The Life Sciences component centers on a broad range of research tools like mass

spectrometry, cellular analysis and centrifugation, microscopy and filtration. Its customers are

mainly researchers and scientists. The products provided to these consumers tend to be high

quality and reliable, enhance productivity, and offer an intense level of service and support.

DANAHER CORPORATION

4

The Diagnostics division works with hospitals, labs, physicians, and critical care facilities

by providing equipment, software, services, and consumables that concentrate on the unique

needs of the clinical, pathology, and critical care settings. Due to the intense nature of these

situations, customers in this arena expect products of quality, reliability, speed, and accuracy

along with enhanced product support that is included in cost of product purchase.

The third aspect of Danaher’s business component is Dental. This area serves the industry

that centers on diagnosing, treating, and dealing with disease and general make-up of the mouth

with a specific emphasis on teeth. The customers tend to be oral health professionals like

dentists, dental hygienists, and dental labs. The main areas of product interest and concern for

these consumers is product performance and effectiveness as well as innovation and efficiency.

coding, identification, and product design of various pharmaceutical, industrial, and consumer

packaging. Among the users of this technology are manufacturers, graphic designers, and

packagers. These producers are especially concerned about ease of use, technology required for

use, and maintenance issues associated with use.

The Danaher Business System

growth, leadership, and lean manufacturing techniques to ensure a common language and

DANAHER CORPORATION

5

business platform within the organization that is uniquely unmatched by most organizations of its

size and magnitude. According to Danaher, it is “who we are and how we do what we do”

(Danaher, 2016). The system permeates through the culture of the organization and is the basis

for the effective performance the firm enjoys. Like the Toyota Production System, the DBS

encourages developing plans and sustainable processes that stress superior performance through

change and on-going improvement stressing four simple concepts- Quality, Delivery, Cost, and

Innovation (Danaher, 2016). DBS creates the institution’s shared purpose of “Helping realize

life’s potential”. Danaher encourages its people to be constantly adapting and reinventing itself

Mission and Objectives

Danaher Corporation will concentrate its efforts on its 3) existing global customer base in

the United States, Europe and Asia as well as emerging market opportunities in the Middle East

and Africa. With a focus driven by 2) devising new innovations, providing excellent customer

service, and ongoing support for its existing product base in its four areas of emphasis, the firm

will engage a particular focus on 5) growth in the Environmental and Life Sciences marketplace

(markets with the promise of being very sustainable with high growth potential for the future) .

The firm will alleviate any products that have substantial substitutes available and turn its

DANAHER CORPORATION

6

attention to 4) first-to-market offerings with cloud-based technology. It will continue to maintain

a 6) high level of integrity and quality while locating innovative and cutting-edge manufacturers

to partner with in the future- those who have high value propositions but lack the necessary

growth capital. Since its market base is mostly made up of 1) professionals that are either very

educated or come from very technical backgrounds, the firm will continue to function with a

significant standard of excellence in its particular segments and niches- no longer putting any of

resources towards mass production or cost-cutting models. The institution will also take extreme

care to ensure that all of its manufacturing processes are 8) environmentally sound, responsible,

and ethical so the impact left on this generation and beyond will be minimal. The company will

continue to invest 9) in its talented employee base and maintain a culture driven by high

& COMPOUNDING RETURNS” (danaher.com). It intends to do this through strategic market

penetration by obtaining brands with untapped potential in markets with high barriers to entry.

Because it continues to focus and strengthen its core competencies with the use of DBS and its

unmatched professional and talented teams, this Danaher specific “playbook” will provide for

sustainable core growth and continual improvement to cost structure allowing the firm to

reinvest in new ventures and ideas that are leading edge.

SWOT Analysis

DANAHER CORPORATION

7

One of Danaher’s biggest strengths is their strong returns on starting new projects and

expanding their revenue streams. In 2013 alone, the firm acquired the vehicle-tracking company

Navaman Wireless and systems maker HemoCue. Sales grew 4.7% but operating margins

remained the same. Another strength of Danaher is its ability to promote senior leaders from

within. As of 2017, Danaher had placed 80% of senior leadership positions from within.

However, one of Danaher’s most glaring weaknesses is its inability to keep up with

competitors in its markets. The company has simply not invested the amount of money in

technology that many of its direct rivals have. This area needs addressing if the firm wants to

firm is its reactionary approach to opposition. Historically, when competitors introduce new

Threat of New Entrants

New entrants into this innovative market can create pressure on Danaher to reduce costs

and prices. Danaher can alleviate this threat of new entrants by innovating new products that

tend to bring in new customers. Since new entrants are less likely to enter an industry with well-

established companies, Danaher should invest significant resources to research and development

to expand its customer base.

Bargaining Power of Suppliers

Given the complexity of the products Danaher sells, it naturally has many different

suppliers for its materials. Danaher can build a strong supply chain with a more limited number

of suppliers by attempting to use similar types of materials to make their products. This would

allow Danaher to have additional manufacturing choices in the event of a price increase with one

customer. If the firm continues to introduce new products and enhancements, more and more

buyers will be less likely to leave for a competitor offering.

Threat of Substitute Products or Services

Upon introduction of a new product or service in an industry, the overall profit margins

will tend to decrease for the remaining firms. An example of this is what Uber did to the taxicab

industry. Danaher will need to make a point to understand what its customer needs are and not

DANAHER CORPORATION

8

base it on what they tend to buy. By using customer surveys, Danaher can stay ahead of any

potential substitutes or missed opportunities by not providing enhancing features.

Rivalry Among Existing Competitors

Realization of lower profits have occurred with increased competition in the industry

over recent years because increased competition brings prices down. Therefore, Danaher should

focus resources on showing customers why their product stands out. If customers cannot

differentiate Danaher’s products over its competitors, they will lose more and more market share.

CPM Matrix Analysis

After conducting the CPM Matrix, Danaher has several strengths they should protect.

offer promotions and product specials to grab customers. In addition, the firm should continue to

maintain its high-quality reputation.

On the flipside, an area of weakness for Danaher is the amount of resources it puts

towards research and development compared to its competitors. In a highly complex industry

such as this, it is imperative to stay innovative and focus on not just maintaining but improving.

A competitor ratio analysis is a good tool to benchmark a firm’s financials and. Using a

current ratio will assess a company’s ability to pay short-term liabilities with its short-term

assets. As one can see, Siemen’s has a current ratio of less than 1 which would be considered a

debt-to-equity ratio should not be about 2. Abbott and Danaher are both well under that number.

The full Competitor Key Ratios breakdown is in Appendix 5.

A complete breakdown of historical as well as recent financial information is included in

Appendix 6. For further clarification, an analysis of change from prior periods is also included.

DANAHER CORPORATION

9

In the years 2015 through 2017, Danaher’s working capital ratio declined (2015-2016)

and then increased (2017). Danaher’s favorable working capital ratio allows it the ability to cover

its short-term debt. On the other hand, Danaher’s quick ratio is lower than some peers and could

create concerns. In fact, at times it is lower than 1.0 creating challenges if the firm were to seek

outside financing. Since Danaher’s gross margin has increased from 2015 to 2017, one would

have a plausible argument that additional income is available to pay-off debt or acquire new

firms (see appendix 7).

Potential Strategies

implements changes to make them more profitable. Over the past three years, Danaher’s revenue

has increased operating income but capital expenditures continue to grow. Danaher’s net income

has yet to reach 2015 levels as it continues to invest heavily into research and development. A

strategy that could possibly benefit Danaher would be to incorporate a 10% reduction in

profit. However, at least initially, efficiency may decrease due to cost-cutting measures. An

alternative to this could be to continue investing in new businesses while aggressively paying

down liabilities. A concept Danaher has not focused on in the past (see appendix 8).

Proposed Strategies and Net Present Analysis

Danaher Corp.’s current net income is 557M USD as of September 2018- with projected

three years. At the end of those years, the technology will generate net cash flows of $500,000 at