Generation of Wealth in Organizations
by Antonio Costa, Senior Partner, Kaizen Institute Western Europe
The typical interpretation of Continuous Improvement methods is closely associated with cost-cutting themes, concealed under buzzwords like “Lean Management.” However, if we delve into its origin and essence, we can see that the true goal of KAIZEN™ is to grow organizations. This has always been the challenge and goal of the Danaher company, a strong proponent of KAIZEN™ for decades.
It was in the distant year of 1987 when Mr. Masaaki Imai traveled to the United States, along with his Japanese ex-Toyota associates, for a set of lectures and workshops on KAIZEN™ Fundamentals, Just-in-Time, and TPS (Toyota Production System). Back then, the audience consisted of some unknown attendees such as George Koenigsaecker and Art Byrne, now bestselling authors on this subject. Both represented Danaher Corporation, which at that time began the development of an improvement program known as Danaher Business System (DBS). But why is Danaher relevant to this theme? Starting at the end of their story, Danaher is a North American conglomerate of companies with more than 70,000 employees (two-thirds of them outside the United States) which ranked 160th in the Fortune 500 in 2019 and whose shares have outperformed the S&P 500 over the past 20 years by almost 1,900%! How did Danaher achieve these extraordinary results?
Growth is a top priority for most astute leaders, but it is constantly threatened by other priorities like investor expectations, talent attraction, or competitiveness. According to studies, only 9% of companies have consistently outperformed the average stock market value for a decade or more. Only one in eight companies have achieved sustainable and profitable growth for more than a decade, which makes the results of Danaher even more remarkable.
Through the Danaher Business System (DBS) they have created a world-class management system based on people development and Continuous Improvement, fostering a winning ambition. Through this system of excellence the business has been creating value (or benefits) for customers and/or consumers, therefore, the system itself became a sales generator. Simultaneously the system turned into a results generator, enabling long-term success whilst being a motivation generator for employees. The combination of these three equations resulted in profitable growth for more than 37 years.
Excellence in innovation, sales and operations, underpinned by a sustainable KAIZEN™ culture and workshops, and combined with outstanding performance management, defines the disruptive ambition to achieve business growth. This is the secret of distributing more than 10% annual return to shareholders through an effective merger and acquisition process, followed by ruthless management of process efficiency that allows about 7% of annual cash flow to be released. These excellent financial results are enabled through a deep-rooted understanding of KAIZEN™ based on three foundational principles: (i) the release of cash flow as a driver for growth; (ii) an effective method of putting strategy into practice; and (iii) an obsession with KAIZEN™.
First published in Forbes