WHEB Commentary

Ted Franks

Monthly Commentary: January 2018

For over five years now we have been invested in a US company called Danaher. Danaher is a conglomerate and has had interests in a wide variety of businesses. It is now focused on high-tech businesses in the healthcare and environmental industries. Danaher is the ultimate parent of many important companies in several of our themes.

One of the things that holds these businesses together is the Danaher Business System, or ‘DBS’. This is the operating manual for the management teams of all Danaher companies. It is applied to all the businesses in the portfolio and guides planning and execution. A former CEO once described it as “…the soul of Danaher.”[1]

Danaher created DBS in the 1980s. It borrowed from some of the innovative management techniques of the time. These included so-called ‘Lean’ systems and the ‘Kaizen’ approach made famous by the Toyota car company. These approaches focus on cost reduction and efficiency, and originated in manufacturing industries.

But over time this has changed. On the company’s reporting call this month, CEO Tom Joyce said: “We’ve seen an evolution in the Danaher Business System. As the tools of DBS have evolved beyond Lean into leadership and most importantly, into growth, then we see…incremental growth tools that are having an impact on each of our businesses”.

This is a familiar message for us. We’ve long realised that managing for growth is a specific skill. We look for it in our companies. It applies to every industry and every business model. The connection between a sophisticated approach to sales and business development, and the ability to outgrow a market, is often plain to see.

But this change in management approach also reflects a deeper truth about the global economy. When DBS was first introduced, growth was easy to come by.  GDP growth in advanced economies in the 1980s was around 3.1% on average each year. This fell to 2.8% in the 1990s but then to 1.8% in the first decade of this century[2]. In the last ten years it is down to 1.2%. Good companies have responded by being better at growth.

The recent optimism around growth in 2017 has many people thinking that this may now have changed.   They propose that a rising tide will lift all boats. Growth will become as easy as it used to be, and delivering growth will no longer be a badge of quality.

We don’t think so. As the World Bank pointed out this month[3], the structural reasons for low growth have a long horizon. They include an aging population, excessive leverage, and low investment and productivity. And in the medium term there is a tightening monetary environment to deal with too.

A focus on sustainability trends provides a different path. The sustainability challenges we all face remain daunting. Providing solutions to such challenges will be a growth market for many years to come.


[1] Larry Culp https://rctom.hbs.org/submission/danaher-and-its-business-system-a-model-of-excellence/

[2] Data from IMF World Economic Outlook Database. http://www.imf.org/external/pubs/ft/weo/2017/02/weodata/weoselagr.aspx

[3] https://www.ft.com/content/4b9e6190-f55e-11e7-88f7-5465a6ce1a00  http://www.worldbank.org/en/publication/global-economic-prospects