The Bottom Line of Commitment

It's that time of the year again and those of us that own stocks are beginning to receive the annual reports.  In most cases I just skim through the reports to ensure key investment criteria are still in line.  But I also have a few favorite companies that warrant a closer read, because the text and discussion are as inspiring as the financial results are spectacular. 

Take Danaher for example.  On the top of the very first page of text, directly across from a series of graphs showing phenomenal growth in sales and operating income, is the following in large bold print:

The Danaher Business System drives exceptional levels of performance in each of our businesses by focusing on improving quality, delivery, cost, and innovation. DBS is a customer-centric approach enabling continuous improvement and is further enhanced by an increasing number of growth breakthrough initiatives.

That demonstrates how important DBS is to the company, and the pervasive effect it has on the culture and decision-making.  And it gets reinforced and repeated, over and over, in the annual report.

For more than 20 years, DBS has defined Danaher’s culture and operating model. This distinctive approach to continuous improvement has been instrumental to building high performance businesses over time – and it is what makes Danaher unique. The central focus of DBS is the customer, and we aim to anticipate and address their needs for quality, delivery, cost, and innovation.

And when discussing acquisitions,

DBS is how we build market leadership positions in the businesses we acquire. DBS also provides the means to strengthen existing businesses and help them to satisfy customers, and to compete and grow.

And when discussing goals and objectives,

To accomplish these goals the Company uses a set of tools and processes, known as the Danaher Business System (DBS), which are designed to continuously improve business performance in critical areas of quality, delivery, cost, and innovation.

And when discussing people,

Danaher continues to invest in our people to build good businesses. Through DBS training, tools and processes, our associates are key to the achievement of our business objectives.

Those are just a few examples.  It is repeated time and time again.  DBS. Quality, delivery, cost, innovation.  Simple, repeated, embedded, pervasive.  The CEO talks about it, the business managers talk about it, their associates talk about it.  And it works, which can also be seen via some of the other commentary in their annual report.  One example:

Backlog is generally not considered a significant factor in our businesses as relatively short delivery periods and rapid inventory turnover are characteristic of most of our products.

That can be pretty gutsy in a traditional Wall Street world where backlog and inventory can be viewed as positives.  But those of us in the lean world understand.

At the risk of turning this into a long post, I'll give you one more example just because their annual report also came today.  Wabtec, the old Westinghouse Air Brake, and another star of lean enterprise.  In the Message from the CEO at the very front, once again right across from some spectacular performance graphs:

As with everything we do, it all starts with our Wabtec Performance System, a model of lean manufacturing and continuous improvement principles.  Using these principles, we improve product quality and bring new products to market faster.  We gain manufacturing efficiencies while reducing operating and capital costs.  We improve safety and work processes.  We strive for incremental and lasting benefits, and we work this cycle over and over again.

Each year our general managers participate in a week-long Kaizen event in one of our factories.  We suspend organizational boundaries, roll up our sleeves and pick up a wrench.  [examples of kaizens here] From these efforts, we generate cash to invest in our four growth strategies, and we have made significant progress on each initiative.

Can you hear the typical investor going "what the heck?!"  But we understand.  These companies understand real lean, they demonstrate it year after year, and they aren't afraid to promote their sometimes counterintuitive programs.

Quality, delivery, cost, innovation.  Simple.  Pervasive.  Embedded.