danahar case

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Danaher’s history, operating segments and performance:
Danaher is a Washington-based, multi industry conglomerate founded in 1980 as Equity Group
Holdings. It grew by acquiring companies that had the three basic characteristics of
"understandable operations in a reasonably defined niche, predictable earnings that generate cash
profits and experienced management with an entrepreneurial orientation."
The Rales brothers, founders of Danaher maximized on their profitability by various business
techniques, the most widely known was the acquisition of DMG, Inc. a real estate investment trust
that despite not being significantly profitable (it had not posted revenues since 1975), had more
than $130 million in tax-loss carry forwards. The brothers folded their existing businesses of the
Mohawk Rubber Company and Master Shield, Inc. into DMG taking advantage of the tax credits
to shelter their manufacturing earnings while selling the company's real estate holdings.
This vision of profitability has enabled Danaher to grow into one of the most successful
conglomerates in the world. Through the new leadership of Larry Culp, Danaher has doubled its
net income and revenues and acquired over 50 companies.
In the past Danaher has diversified itself to maximize its profitability. The latest iteration of
Danaher is a scientific and technical instrumentation company. They operate based on 5 major
segments namely, environmental, life sciences & diagnostics, dental, test & measurement, and
industrial technologies.
Performance is almost guaranteed with the use of the Danaher Business System (DBS). It
embodies the principles of "four P's - people, plan, process, and performance". After the strategy
for a business was decided, a policy deployment tool was used to drive and monitor its
implementation. Every month a policy deployment review takes place in the business where the
policy deployment objectives were directly linked to the company's strategic plan.
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This strategic plan consisted of three to five year objectives to drastically improve the firm's
performance. In order to keep the strategy on path, annual objectives need to be fulfilled. These
annual objectives led to an agile improvement strategy that ensured continuous performance by
the company.
Danaher's Competitive Advantage:
Danaher has been able to maintain sustainable competitive advantage due to the efficiency of the
DBS. The DBS is a Kaizen method which is based on continuous improvements, couples
efficiency with performance based business processes. This causes a competitive advantage based
on increasing quality while reducing delivery time and overhead cost .
The main competitive advantage of the DBS is adaptability. This adaptability based platform
guarantees that Danaher would be able to adapt to variables like market growth rate, change, and
saturation more efficiently when compared to its competitors, ensuring that Danaher always has
the upper hand in their market segment.
Danaher’s Corporate Growth Strategy:
Danaher’s corporate strategy in terms of growth focuses on mergers and acquisitions. Based on
the three principles discussed in their history, Danaher focuses on attractive reasonably defined
niche market segments to acquire strong performers that would be compatible with their business
system and would benefit from the increased performance that it brings while maintaining each
company's unique identity as a performer in that segment.
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As Danaher is a conglomerate, it uses four essential transaction costs namely, Research costs,
Insider costs, Acquisition costs, and Appropriation or Merger costs. To facilitate research for
potential candidate businesses, significant costs are incurred
to acquire relevant data and
information pertaining to the market status.
Along with research, Insider cost is incurred to obtain experts in the field to gain primary sources
of information on market trends and projections. Acquisition cost would be experienced through
the buyout agreement and legal fees incurred when Danaher purchases a business. The
Appropriation or Merger costs would be incurred when concluding the merger, this would include
bonuses paid to shareholders and fees incurred when appointing management and share payouts.
Danaher’s core competency:
Danaher’s core competency is their business system. This Kaizen based system is used to create a
sustainable advantage in terms of adaptability, strategic planning and swift implementation. The
basis of this system were the principles created by the Rales brothers and grew into the
continuously improving system. This has impacted the organizational culture of Danaher to the
point where the company expects performance as a core value in its employees.
Danaher and Industry Analysis:
Industry analysis plays a vital role in the functioning of any conglomerate. It focuses on
understanding the profitability of a market before entry and continues to be a valuable tool after
initial exposure. Danaher understands the importance of Industry analysis.
It helps them evaluate the profit and market saturation of their targeted business or market during
research. They also benefit from analyzing competitors to stay above the competition and secure
their position as a leader in their market segment through effective pricing and innovation.
Danaher's Acquisition and Portfolio Diversification:
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Danaher's categorization of acquisitions leads into three basic types based on the target's relation
to the existing businesses. These can be further classified into related and unrelated diversification.
A prime example of related diversification in Danaher's acquisitions is seen in the category of
Bolt-ons. Danaher acquired product lines from the Harris Corporation that attached on to the
Electric Test platform. Through this acquisition Danaher enhanced its existing product. This
showcases an important aspect of the way Danaher innovates through collaboration.
Along with these Bolt-on acquisitions, some of Danaher’s acquisitions expands their portfolio into
newer avenues. These adjacencies tend to function as predominantly stand-alone despite their
connection to a particular platform.
A prime example of this is Danaher's acquisition of Trojan Technologies in 2004. Trojan
Technologies operated within the Danaher's Environmental platform but their water treatment
products occupied a significant market niche and continued to remain a distinct organization even
after their acquisition.
VIRS Framework of Danaher:
Through the VIRS Framework we can analyze the reasons Danaher has a sustainable advantage
when compared to its peers. The DBS is valuable due to its versatile nature. It increases company
performance and sets new standards in corporate value.
Danaher’s corporate growth strategy may seem simple at first but it is exceedingly rare due to the
sheer depth of the integration within the culture of the company. Through the years it has
evolved with the company and remains an inseparable part of it.
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The DBS and Growth Strategy would be costly to imitate due to the fact that they are both
closely tied to the company's evolution. For most companies, this strategy has a high barrier for
entry and cannot be imitated due to the cost of restructuring the entire company based on this
framework.
Danaher revolves around their Business System. This system is company’s culture and structure,
it unifies the business and cultural aspects of Danaher and increases their performance
significantly. Without this strong tie to the organization, the DBS would be impractical as well as
impossible to implement and control, and the company would lose their competitive edge.
SWOT Analysis:
Danaher's most prominent strength is its size, consisting of more than 50 companies which gives
them the advantage of product innovation and diversification. Through competent management
and a performance oriented business structure Danaher has a strong competitive advantage.
Through acquisitions Danaher takes advantage of opportunities to enhance their existing
products with more innovative technologies. This along with their diverse portfolio helps them
grow and take advantage of future opportunities.
Weaknesses and threats include high barriers for entry into the international markets and market
saturation in the United States. As larger entities threaten to enter the market with lower cost
products, Danaher is threatened in terms of lower price point and substandard quality.
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