Matt R. McGrew - Vice President of Investor Relations
H. Lawrence Culp - Chief Executive Officer, President, Director, Member of Finance Committee and Member of Executive Committee
William K. Daniel - Executive Vice President
Barbara B. Hulit - Vice President and Group Executive
James A. Lico - Executive Vice President
Angela S. Lalor - Senior Vice President of Human Resources
Thomas P. Joyce - Executive Vice President
Mark Dickman - Senior Vice-President of Sales
Damien McDonald - President
Peter Kürstein - Former Director and Chairman of Audit Committee
Allison F. Blackwell - Senior Vice President of Human Resources
Jeffrey T. Sprague - Vertical Research Partners, LLC
Nigel Coe - Morgan Stanley, Research Division
Scott R. Davis - Barclays Capital, Research Division
Deane M. Dray - Citigroup Inc, Research Division
Danaher Corporation (DHR) 2013 Investor and Analyst Meeting December 12, 2013 1:15 PM ET
Matt R. McGrew
Okay, everybody, if we could grab our seats. We'll try to get started here on time. Okay, I'm Matt McGrew, the Vice President of Investor Relations. Welcome to the 2013 Danaher
Matt R. McGrew
Okay. Could we get that to show off, I've got on the screen here, I've got the agenda that -- there we go. Okay, so off to a flying start here in New York. And evidently, there's folks -- we've got a bunch of people who've joined on us on the webcast as well, and I understand that there is some potential issues with clarity. If you guys are experiencing that on the webcast, I've been told if you just go ahead and refresh your screen, that should go ahead and make those clarity issues for you go away. So hopefully, that takes care of it.
So here's the agenda for the day. I just wanted to kind of make a couple of different remarks. So we'll have Larry come up here after I'm done and he'll kind of give his traditional opening remarks for everybody, talk a little bit about the quarter as well. And then we're going to transition after that into kind of 1 of the 2 main pieces of the day here. And the first piece is going to be what we're referring to as the DBS overview, and we're going to kind of spend some time, 45 minutes or 1 hour or so here, kind of going through all pieces of -- as we kind of think about DBS today and some of the evolution you've seen. We'll go through that with some presenters.
And then when we're done with that -- there's going to be 5 presenters. We're going to have them come back up together on stage and take 10, 15 minutes of questions. But we're going to ask just if we could keep those questions, if you will, to the content that they just discussed, i.e. the DBS portion of the day. And we'll have another Q&A here with Larry at the end where we can talk about the guide and kind of anything else.
So they'll come back up and talk about DBS, take your questions there. We'll go to break and then come back, and we'll kind of introduce some other folks here to go through kind of DBS in action, if you will. And then Larry will wrap up with closing remarks, and we'll have him up here again and do some Q&A. So that's the agenda.
You see at the bottom there, there is a -- there's no dinner this year but we're going to do a that cocktail reception downstairs for those who are not running off to something else at 5:00. That will be in the Oak Room so right in the main lobby off of on the right-hand side.
With that, I will bring up Larry.
H. Lawrence Culp
Well, good afternoon. Thanks for joining us today here at The Plaza. Thanks as well to those of you dialing in on the webcast. As Matt indicated, we put together, I think, one of the best windows on the Danaher Business System we've ever shared with the investment community.
But before we get to that, what I'd like you to do is really expand on the press release that we put out this morning and really put 2013 in context, give you a little bit of a sense as to how we think we're prepared for 2014. I'll come back up at the end of the day and talk to the guidance in more detail.
So without further delay, let me get into this. I think as we look at 2013, we're very pleased with our relative top line performance. The year's not out. Clearly, we've got some important weeks ahead here in December. I mean, I think we're really quite pleased with the way we've been able to take advantage of the quality of the markets that we serve, certainly using DBS to out-execute competition, deliver value for customers, and in doing so, grab share and do so nicely profitably.
And at the same time, as you'll see through the course of the day, really taking tangible steps forward in evolving some of our business models, which set us up, I think, very well for long-term success.
You'll hear a good bit about the investments that we've made this year. I think you see some of that reading out in that relative top line performance. You see some of that playing out frankly in our operating margin expansion.
But at the same time, both organically and inorganically, we're playing for the long haul and in making investments this year, we're prepared to do the same thing next year to make sure that over a long period of time, we're winning with customers and in turn creating value for you.
And finally again, in this slow macro environment that we're in, it's been a challenging slog the last several years, we're really pleased that we've been able to make those investments and drive expanded operating margins. And we think that has created value and it's a framework and a formula that we're committed to going forward. We think that's the way -- then in 2013, we've built a science and technology company on a global basis with the Danaher Business System and very much is the plan as we go forward.
Let me give you a little bit of a shot as to where we sit here in early December. The first couple of months have played out by and large in the way we had anticipated. On the third quarter earnings call, we were very pleased with the way November played out, particularly in the U.S. We'll take the strength in the U.S. economy, with Europe being up ever so slightly, given what we've been dealing with the last couple of years.
The high-growth markets though continue to lead the way. And while they're not ripping at the way that they were just a few years ago, we like the increased exposure we have there and the growth we're getting as a result.
Again with respect to investing in the future, for us, that's both in innovation, new technology, research and development, as well in sales and marketing. And by going through the cost structure improvements that we've seen, we've been able to do that while protecting both the gross margin, which as you see, is up 50 basis points this year, but also driving that OMX, that operating margin expansion, up 75 basis points here in 2013.
We also think that by the end of the year, we're going to be very much on pace to put another $100 million into the business in productivity enhancements, which should yield next year about $75 million of our return, giving us again the opportunity to invest and drive margins. The projects and the programs there very much on schedule.
So in some respects, not a lot of new news since the call, but I think that maybe well the news that Danaher very much on pace here in mid-December.
With respect to the guidance, we reaffirmed the $0.91 and $0.96 range for the quarter. And as you know, we also initiated 2014 at a $3.60 and $3.75 range. The primary lever there, as you would well imagine, is the 2% to 4% core number, very much I think in line with maybe a steady, somewhat conservative posture going into next year. Clearly, some of the headlines here the last several weeks have been encouraging. But we think that's the way to be prepared for next year. We don't want to get too far ahead of ourselves, but by the same token, if the economy improves a little bit more, then we currently anticipate particularly in the west, we'll be well prepared to take advantage of that.
As you know as well, those of you who follow the story, as we look into the quarter, as we look into next year, we do not include any positive effects from capital deployments. And we think we have at least $8 billion over the next year or so to deploy and continue to build the science and technology company. I know some of you use a higher number in projecting what we could do. We're going to stick with $8 billion for today, and again, let me share with you, I think, a high level of confidence so that we can put the capital to work in a strategic yet disciplined way to build our businesses and create value for shareholders. That's what we've been doing for a long time, and we see a great deal of runway ahead in that regard.
As we ramp up this year and get ready for next year, while we won't take you through a deep troll in all of the businesses as we have in other year-end meetings, we love where the Danaher portfolio is today, knocking on the door of $20 million in revenue.
And if you look at our platforms across our 5 segments, each and every one of these are outstanding businesses in their own right. In the context of the markets that they serve and the leadership positions they enjoy. So we're very bullish about this portfolio. We think it's an important part of how we've been able to power through the sluggish macro seen the last several years.
And clearly, as many of you know, as we've shed some businesses, we have our strategic platforms now representing over 90% of our total revenue. And really, all but one of these platforms are wonderful target zones for us in deploying that $8 billion of capital.
One reason we love the portfolio so much and one of the drivers behind its evolution is we wanted to make sure we were serving good markets. And one of the clear indicators of good market are the underlying macro trends, macro drivers that are there. And whether we're talking about health, environmental, safety, energy efficiency, regulatory compliance, just those trends that we see across the globe, this portfolio very well exposed to those growth opportunities.
Now you see the checkmarks in the grid, clearly, different drivers affect different segments in different ways. But the 2 important common denominators here are the digital world and all the opportunities the digitization of our end markets create. In addition to the fact that what we do for our customers is hyper-relevant in the high-growth markets. And not only China but as you'll see in a few slides, really around the world. So as we look forward, we really like where we're positioned for the world in which we operate.
Talking about the digital frame for a moment here. For us, we're very excited, maybe this is the old software program in me. But as we look across the business, whether it's how we generate demand, our sales and marketing activity, whether it's the way in which we work in the channel partners, where we go to market through distribution as opposed to direct, let alone the evolution that the computing and communication trends suggest we ought to see in our product architecture, and in turn our business models, there's just a whole host of opportunity here, certainly some challenges as well but we think this is a net-net opportunity for Danaher in a whole host of ways in terms of how we go to market with our existing products and how we'll evolve our products and our business models going forward.
So this is a focal point for us, really throughout the company, had a better part of the day yesterday, in fact, with the extended leadership team working on these issues, having our operating companies learn from each other, share different resources and experiences to make sure we take full advantage here.
You see that on the top of the slide, in terms of the investment that we're making in some of our digital activity. Now nearly 1/3 of our software or our overall engineering headcount is in the software area. That is a marked change from where we were just a few years ago. And even in marketing, we have about 10% now of our headcount in what we would designate as specific digital activities. That number probably ought to be 3x that in a few years as we continue to use the web to make sure we're out in front of every possible customer that we can be of service to, and in turn differentiating our offering and simplifying our transactions.
I mentioned high-growth markets. It wasn't that long ago and I know a number of you have visited our businesses in China, where we fundamentally and deliberately had a China-centric strategy. So as the slide suggests, you go back to 2005, about 10% of our revenues were in China. We weren't as active elsewhere around the world because we knew China was the most important high-growth market.
We wanted to make sure we got China right, and we thought in term, we'd have time to radiate those lessons around the world.
Going in with Western brands often at high price points, the game was often feet on the street, making sure we were present not only along the coast but as far west as we could.
And in turn, once those market positions were established, those distribution partners engaged, more product localization allowed us to come down the price point continuum to mid, in many cases, opening price point offerings.
And along the way, we got a lot smarter about how to play and often win in China. We did that all organically. And once that flywheel was in motion, we were able to add to that by way of acquisitions. So in turn, those are the lessons that we are actively taking around the world today. So we're quite proud of the fact that 26% of our revenues now come from high-growth markets.
And as you see on the right-hand slide -- right-hand part of the slide, about 1/3 of our high-growth markets revenues come now from China, very good diversification here. We're really exposed to all the major economies where I think companies like ours want to play over the next 10 years. And this will continue, particularly from a business model perspective where we want to be as local as we can as we move forward.
Let's talk about share gains for a moment. You'll see throughout the course of the afternoon how we've complemented that high single-digit growth that we've seen in high-growth markets, winning in those higher growth economies with good old-fashioned share gains by way of the Danaher Business System and a host of our different businesses.
I won't take the thunder from the presenters later on this afternoon, but you can see on the slide is the whole host of wins from a commercial and from a technical perspective that the businesses have delivered. And in turn, seeing good top line and good bottom line performance.
I do want to note though that there's a very high correlation here between how these businesses are winning and the lessons that we're going to draw and extrapolate for the broader Danaher portfolio in terms of evolving the business model.
What I mean by that evolution of the business model, the differentiation of the business model, really it takes us back in time because it wasn't that long ago, and I know some of you in the room remember the story well, that we were transitioning away from a component OEM-heavy portfolio more toward end users, instruments and related consumables.
And that very much has been a pivot that has yielded a lot of benefits for us. You'll see in the upper right-hand slide, just even in this so slow macro scene what that's meant, to have 40% of our revenues in the aftermarket, largely consumables, where we seen 3% to 5% growth over the last 4 quarters has been a real blessing.
Because as you see on the lower part of that table, equipment sales have been up but ever so slightly. As capital has been tight, business owners, leaders have been hesitant to invest. It's been a really good opportunity for us to take advantage of the underlying strength of that book of business.
But as you see in the graphic, on the bottom right of this slide, that really just sets the stage for us to continue to gain more intimacy with our customers and reduce the volatility or the cyclicality of the portfolio.
So what led us from an OEM orientation to end users, from components to instruments, and in turn, the attending consumables really sets the stage for us to wrap more service and ultimately more software around those products. Not to have a Christmas tree, if you will, of different offerings but really to get embedded into the workflows of our customers, do so uniquely, so that we can be of greater service and in turn, be a part of their growth
That's not new, we've been at that. But certainly from a service and a software perspective, our efforts there are gaining speed and unfortunately because that's going to be a more important of what our customers are looking for us to do as we move forward.
That's all great. But you really have to make sure that job one is building that installed base in order to get that exposure to the aftermarket. We highlight 3 businesses here, our Water Quality, our Product Identification, Life Sciences & Diagnostics platforms, where we really have done, I think, an above-average job. You can see in the bar chart that at least 1/2 of the revenues in these businesses now are in the aftermarket, largely consumables.
And by driving that increased R&D investment in the development of new instruments where we've accelerated replacements, we've grabbed new placement market share. We've gotten good sales there but in turn, we've broadened that installed base and in some of the examples along the right side, be it at Beckman, be it at like a Biosystems, AB SCIEX. That set us up to have those 4-, 5-, 6-, 7-year contracts with our customers in the aftermarket where we end up getting sometimes 2x, 3x the revenue that we do on that initial sale through the course of those contracts.
That's good business. It's steady, it's good margin business, but at the same time, we like it because, we again, we get closer, we get embedded into those customer workflows. And it sets up some of the other opportunities around service and software.
So as we look forward, we don't want to forget the importance of driving outstanding developments and innovation with our instruments and our machines.
And what we've done at Hach is a really good example of how we've been able to take advantage of a market gap that a number of our customers' are experiences, from water quality, to industry to healthcare. And that's frankly the aging demographic of some of their service and technical support populations.
Many of those trades are seeing a broad aging, creates a window for us to go in and do some things for our customers that frankly they may no longer be staffed to do themselves or at least have the skills in order to do them and do them well.
We've added a tremendous amount, as you see on the slide, we've added over 200 people to our service organization in Hach and in turn seeing 15% compounded growth in our service business. This is separate from the chemistries at Hach as a function only at staffing but the smart deployment of the 3 resources into our customers to help them operate the instrumentation and the systems that we sell them.
On the right-hand side is a quick shot of how far we still have to go. We're pleased with this double-digit growth, but we still have a relatively modest share of that pie. We have customers doing a lot of this work still for themselves, small local competitors as well filling that gap. The Hach team, very excited about their ability to continue to grow at an outsized rate in the service realm.
Instruments, consumables, service and then software, really all part of an integrated approach. SaaS, Software-as-a-Service, clearly one of the more overused acronyms perhaps in 2013. But we see genuine opportunity to deliver more value through SaaS models going forward. We've talked with you a little bit about 2 acquisitions we've made at Gilbarco Veeder-Root, Navman and Teletrac, 2 high-growth players in a rapidly growing fleet management mobile asset tracking and deployment space.
It's a market we've had our eye on for a long time. If you will, some of these folks are existing Gilbarco Veeder-Root customers. We're just on the other side of the nozzle. Now with Navman and Teletrac, we get to help them manage the trucks, the cars, the fleets that utilize the fuel that we help distribute.
And what's neat about this is, it's not only a hot market where we've got a really nice position and will enjoy that growth. The lessons we're going to learn, the lessons that we'll radiate around the organization not only technically as to how to best set up these sorts of infrastructures and deliver these solutions, but how to craft the business models in ways that are compelling and market-leading as we've done really in the history as a company, with a lot of different aspects of DBS. That has us pretty excited.
And in 2014, I think you're going to see a whole raft of different SaaS-based solutions really in every one of our segments. As you look at digital dentistry, some of the things that we're going to do on this side of the nozzle at Gilbarco Veeder-Root, very exciting. It's really that confluence of today's communications and computing technologies to give us the opportunity to go after some of these visions that heretofore have been a bit elusive.
Continuing to invest in growth. You've heard us talk about this a good bit. I think this slide was one of the -- my favorites as we were getting ready for today. It really captures what we've done the last 3 years in investing.
You see the step up, 40 basis points in R&D, 70 basis points in terms of sales and marketing. Now the numbers alone don't tell the story and money's got to be put to good use and the execution of those programs has to be flawless.
But to be able to fund that through the gross margin expansion and in turn drive operating margins again in this slow growth environment, I think, speaks volumes about the impact and the power of the Danaher Business System.
It does start with product though, and as many of you know, we've had just a wonderful year in terms of the impact our new products have had, particularly in the 4 businesses highlighted on the right. We've seen a high correlation between their improved vitality. In this case, we're looking at vitality based not on 3 years of new product sales but really in the first 18 months of those new releases. And the market share that they grabbed. And not one of these 4 businesses has acceded margins in driving these new launches and in turn capturing that market share.
And we continue to invest in things even when it doesn't look a payoff is immediate in a slow-growing economy. You've heard us talk about Ballast Water, the molecular diagnostics effort of Beckman Coulter. Some of the cloud initiatives that we have across the communications platform, all sizable investments for us in '13. We could have dialed those back, but again, in the spirit of playing the long game, we've protected them, we nurtured them and I think as we look to '14 and '15, you're going to see the early fruits of those investments.
That's organic. As you know, when we look at our inorganic investments, we've deployed a tremendous amount of capital over time. That discipline really pivots around our return on invested capital. And I know sometimes, it's hard to get at that exact number because we have so much inbound volume.
What we do on the left-hand side of this slide is frame up for you what we've seen since 2008 excluding the big deals that have created some of the more recent noise, Beckman Coulter, AB SCIEX, Esko and X-Rite.
And whether it's on a pure accounting basis or on a cash ROIC, as you can see, we're up 250, 300 basis points over that time. So steady-state, very strong improvements in ROIC, largely a function of the Danaher Business System.
On the right-hand side of the slide, you see those 4 investments. Again, very much works in process, still a lot to do, but on balance, 2.5 years in on average, we have a high single-digit returns already. So they are on or ahead of schedule. And as you think about how and where we're going to deploy that $8 billion of capital going forward, this is the discipline, this is the mindset that we're going to bring. We're going to spend it in the right places, we're going to do it in the right way to continue to build a company and create value.
Speaking of Beckman. We probably could spend all day giving you a Beckman update. 2.5 years in, I think the short story is Tom Joyce and his team -- Allison Blackwell is here today from Beckman, have done a phenomenal job. A lot still to do, but if you look at some of the early customer impacts, on-time delivery now over 90%, we've reduced past due maintenance calls dramatically. Customers are seeing that impact.
Quality both in the eyes of our customers and importantly our regulators, very much an area where we've seen real progress. We've talked about the warning letters, 3 warning letters that the key U.S. facilities have received in the past. They have been reinspected, no new 483s were filed, very proud of that. We're going to work with the agency to put those warning letters behind us.
Troponin, a key assay that was removed from the market, many of you know we got that back on both of the key machines here in the U.S., with a whole host of other regulatory gains. And perhaps as importantly, clearly, we're putting our capital to better use there, as we've seen that improvement in the top line, the cost structure has been righted. We've taken that operating margin from just over 10% to right now into the mid-teens. A lot to do still at Beckman, make no mistake, but I think, so far, so good. We're really pleased and proud of the work the team has done there.
And then just to cap off with a little bit of a commentary on the margin performance. It's tough, as many of you know, in an environment like this where the U.S. is sluggish, Europe is up been on its back, to invest in the high-growth markets, invest in innovation and still drive operating margin expansion. We think that approach really starts at the gross margin level.
And you can see, and as we go way back to 2001, we've taken that gross margin from a high-30s to 50% really through a combination of mixing the portfolio, acquiring higher-growth, higher gross margin businesses and making sure that we're just smart about costs through the application of DBS, to drive material productivity, labor productivity, reduced overhead as our friends at Toyota say, to simply rip out the muda, the waste in an operation.
Now some of the improvements have been more muted here of late from a portfolio perspective. But even the last couple of years, DBS continues to give us an opportunity to expand the gross margin, really probably the best metric of the value that we create for our customers to give us the air cover to invest to accelerate growth.
And you see here the operating margin play in effect. Last year, we had 100 basis points of operating margin expansion, thrilled with that, downtick a little bit this year but I think 75% is more than respectable in the environment that we're working in.
Many people often ask, "where do you top out?" I think in the spirit of Kaizen, you never stop, and we want to continue to drive margin expansion here. As you see, we have in the 2 Med Tech segments, Dental and Life Sciences & Diagnostics, ample opportunity to continue to drive improvement.
And they know what they're doing, they know how to do this. We've seen -- in the case of LS&D, they're up 260 basis points the last couple of years, Dental up 330. So still work to do, no doubt about it. But there's no reason those businesses, particularly given the strong market positions that they enjoy, can't be at or above the corporate average.
So again, there are going to be acquisitions that come in, and at times, temporarily dilute certain ratios, but we have very high confidence that the Danaher you see today, nearly $20 billion book of business, can and should be at 20% operating margin business. We just hope we never see that because of the opportunity to create value with the inbound acquisitions.
So to put a bow on 2013, again, we've got some important weeks ahead of us before we can call it a year, but really pleased with the relative top line performance. And we're quite content with the investments that we've been able to make to get us ready for '14 and for '15 and the way that we've been able to do that while still creating value for you through expanding margins in this low single-digit growth environment.
That's the way that we want to build a leadership position in these science and technology markets in which we operate, in a way we do that global basis with DBS going forward.
So with that stage set, let me transition into kicking off the DBS section of the day. I use the word kaizen earlier. Kaizen, Japanese for continuous improvement. That even applies to our investor relations effort, believe it or not.
I'm sure, Matt, they're laughing with me, not at you. But the thrust of the day is very deliberate. And I hope we've set this up in a way that is meaningful and valuable for you. DBS can be a bit of our Rorschach test. We can all spell it, but we all might define it somewhat differently.
What we wanted to try to do albeit in a ballroom here at The Plaza, is give you, as in-depth, a view as to what is distinctive about the Danaher Business System and why we think it is our true competitive advantage. We've had a lot of opportunities through the course of the year. Many of you know our businesses as well as we do. We thought we would save the deep dive into the platforms for another day, and rather than take that vertical look at the portfolio, really give you that horizontal window. Because that, I think, should give you the best perspective on whether this is a unique company, whether this is a company built and building for the long haul. You'll obviously hear our conviction and passion on our part through the course of the afternoon, and I just hope that we can impart that in a way that gives you the confidence that we do that DBS is real, DBS is meaningful and DBS is different.
We'll talk about DBS in a host of ways, but I want you to think of it, really, in 2 dimensions. It's who we are, it's our value set, it's our culture, it's what's in our DNA. Some people think of that as a soft side. I understand that, but it's probably the most important part. The hard side, if you will, are the tools, the techniques, the processes, what's hardcoded in the business and every business in terms of how we run the operating companies on a day-to-day basis. Many of you who have followed the company for a long time and have a pretty good command of DBS probably got your first exposure in a manufacturing facility. I think what we want to try to do today is build on those fun memories of walking those plants to give you a current view and a current definition of what the Danaher Business System is. It's not just about lean. What we do in growth and how we nurture and develop leaders is as important as our lean skill set. And most importantly is the combination of all 3 of those efforts, neatly and naturally woven together, which create, I think, the distinction in DBS.
And then finally, well, get away from a little bit of the theory, away from a little bit of the PowerPoint and really give you tangible examples of DBS in action. You'll hear that from our operating leaders, you will hear a really nice cross-section from the organization, and you judge yourselves as to whether DBS is driving impact -- positive impact in these businesses. You've seen the DBS image before. I want to just deconstruct this for a moment, particularly for those of you who may be new to the story, to understand how we define DBS at Danaher, really 4 elements, and the first is our values. Again, we're talking about the soft side, the culture. These 5 core values define for us what's important, what we expect of our leaders and what we expect of all of our leadership teams.
The best team wins. There's a tremendous premium not only on talent, but talent that plays well together. And we will forgo the individual contributor of the things that they alone can carry today, to make sure that we have, in our businesses, teams that love to play and know how to win together. So a big distinction for us. It's a high bar, not everybody clears it. It's an intense environment, it's not for everyone. But that maniacal bias, as Jim -- our friend, Jim Collins, says, to make sure we've got the right people on the bus and we've got them on the right seats is an important part of our value set.
Customers talk, we listen, very straightforward. Kaizen is a way of life and there's a mindset at Danaher that no matter how well we do, and as many of you know, we've had our successes, we can always do better. That fuels an intensity, a level of expectation, a pace that, again, isn't for everybody. But we know that even if we won yesterday, there's no guarantee that we're even going to be invited to play tomorrow. We need to be compete, we need to be prepared to win. My old basketball coach used to tell me, "You either get better or you get worse. You don't stay the same." It's that Toyota mindset, that's what kaizen means to us.
Innovation defines the future. Kaizen's great, but you just can't keep improving what you've always done. There are times when you need to leapfrog. And sometimes that's in products, sometimes, that's in process. Sometimes, I think people don't realize how innovative Danaher is, not only from a new product perspective, but in terms of the process. And I think as you go through the afternoon, think about the evolution of DBS, and think about the innovation involved and inherent in taking what we learned from Toyota in Bloomfield, Connecticut in a manufacturing operation to how we do research and development today in business that's serving Verizon, AT&T, the leading laboratories around the world.
And finally, we compete for shareholders. We're a public company, it's a real world. We know you have other places to invest. We're going to create value, we're going to be a leadership business, we need to be stay mindful to those responsibilities. And that's why that idea has a place in our top 5 core values. Not something we just talk about. These are values we live. It's a value-based approach.
Customer-centric. Customers talk, we listen. We've reinforced that here in the graphic by putting customers right smack in the middle with us. That's the most important relationship that we have. We can't help ourselves, we can't serve you if we're not taking very good care of customers.
And sometimes, that customer maybe an internal customer. It may be that next manufacturing cell on the production line or maybe that service tech, somewhere at 2 a.m. who needs to park, needs an answer, needs some technical support. Making sure that we are maniacally focused on customers, first and foremost, is a key tenet of the Danaher Business System.
Process-oriented. Because we're building the business for the long haul, we want to deliver great results, but we don't want to have to muzzle those every quarter. A lot of companies operate that way, MDO, a couple of different descriptions. What we want to do is make sure all of our businesses have the tools and the capabilities so they can deliver outstanding results as a matter of course, if you will. We want to build that aerobic capacity in our leadership teams and in our businesses so we can do great things without breaking a sweat. Now we don't always get that right, there are plenty of days that we're sweating bullets. But it's that mindset towards doing things in a sustainable way, first by making sure we've got the right people on the bus, people, that they've got a winning game plan for their businesses, the plan, and in turn, the process, the tools that they use to make those plans a reality are robust and sustainable.
And that's what delivers the performance. It allows us to recruit more people, to invest in new businesses and makes us very much, not only a process-oriented, but a self-sustaining approach to running the business.
And then finally, it's results-oriented. A lot of folks come talking about values, a lot of folks come talking about process, and I'm sure your eyes just roll in the back of your head and you may nod off. We get that. We love to acquire those types of companies because they're really close to being right where we are, but they may not have the edge to make sure at the end of the day, people are calling to question as to whether results are the true focus of all that activity. And for us, we try to define these results in a very straightforward way, and we really, again, start with the customers: quality, delivery, service, cost or value and innovation. Pretty simple, 4 points. It's the way customers tend to think about their vendors, their partners, their suppliers. If we're doing well in their eyes along those 4 dimensions, we have a high likelihood of winning.
Any one of those approaches doesn't really cut it. What we try to do is weave all of this together, that values-based approach, that maniacal focus on customers, that process orientation, with that drive for results. And by putting that together in a whole plot, really, in a top-down way, makes DBS something that's very real and tangible to us. So I get a little excited, forgive the energy, forgive the passion. We don't know other way to run these businesses. We're often asked, "What would you do if you didn't have DBS?" We have no idea. It's not a question we can even conceive. It's, again, who we are, it's how we do what we do.
It came by at being something that we all fervently believe in, and I hope you'll see equal passion from the presenters here today, because it comes from top-down as opposed to something that might come in by way of a consultant. There's no flavor of the day at Danaher. This is the only way. And again, we don't get it right every time. We like to win, we're not undefeated, but we think this in an approach that applies to our entire portfolio, and we will never let a business in to the portfolio, unless we think the Danaher Business System is applicable and can create value.
As its history would suggest, as we've gone from $1 billion to nearly $20 billion, there are a number of businesses that fit and a number of situations where the Danaher Business System has been more than applicable. And we're thrilled with the fact that we're knocking on the door of $20 billion in revenue. But as you've heard me say for a long time, we never wanted to get big if we weren't strong, and the Danaher Business System gives these businesses that strength. Lots of different ways in which the portfolio has evolved and where DBS has shown its relevance, right? As we left the U.S., crossed the greatest ocean, went into Western Europe, people wondered whether DBS will work in Germany, let alone, when we went to China. It did. We began to move up that gross margin scheme, and in doing so, we got in these more technical businesses. Some people thought that DBS, DBS that need seeing at Jacobs Brake or Jacobs Chuck didn't apply in higher growth, higher technology businesses. It does. And I think that's, in turn, how you've seen the sort of impact that we've been able to have on the businesses that we've acquired, the businesses that we've built.
And I think along the way, we not only got bigger, but the bottom right of the slide suggests we've added a whole host of people, too, to the team, nearly 70,000. And again, I'm not sure everyone would pass a litmus test relative to passion around DBS, but a great majority of them would, and that is what keeps us going and I think gives us the enthusiasm we have about moving forward.
We go back just one last time and talk about the origins of the Danaher Business System. Some of you may know that in the late 1980s, a small business, an important business for us Jake Brake -- Jacobs Vehicle systems was really on its back. Up in Bloomfield, Connecticut, very difficult industry, lots of challenges, the path forward wasn't clear. We were very fortunate at that point to be one of the first, if not the first, U.S. companies to have some of the Toyota masters join us on the shop floor and began to teach us the art of kaizen and the science of continuous improvement. And what we learned in Bloomfield, and then in Clemson, and really throughout that sub-$1 billion Danaher, is there really was something to this Japanese miracle that was being lauded in a whole host of ways back in late 1980s. But I think over time, as a lot of us went to Japan and we've studied these techniques and had success, one of the things we realized, this was not only an approach and a toolkit that was wildly impactful on the shop floor, but there were fundamentalists that didn't apply strictly to manufacturing, but they were DBS fundamentals that could be applied more broadly. And we first applied these fundamentals, and Dan Daniel will come up in a moment and walk through these in more detail with you.
In other areas of the business where we could root out waste, reduce cycle times, reduce inventory, get rid of that root-out [ph], I mentioned earlier. And as we were able to do that out of manufacturing into the back office, those same ideas very quickly took root in our R&D and our sales and marketing organizations, and really was the foundation for a whole set of growth-oriented tools that help us execute in the marketplace more effectively than we had previously. It's really easy for us to show you these tools in a manufacturing situation. And frankly, it's the best way we teach it to new people. It's harder to take it to salesforce, right? It's hard taking on a sales call and show you how these in fundamentals alone, some functional specific tools are deployed. But we really want you to walk away today understanding that DBS is not just about lean anymore. And that's not something that just happened today, this has been, again, part of the evolution. But we think whether you're going into one of our labs, you go out with our sales, our marketing, our service organizations, you'd see these fundamentals and then some as part of DBS in full display.
But I think most importantly is the leadership element that brings all these various pieces of the puzzle together. There are a number of companies out there, a number of which you invest in, that deploy what I refer to as a paint by numbers approach. A lot of central control, a lot of financial belts and suspenders, and that's the way the businesses are run. We have our controls, we have a very good finance team, but we are hyper-focused on making sure we have outstanding leaders in our businesses, complemented by leadership teams who know which aspects of the Danaher Business System to deploy at the right time in pursuit of those operating company-specific strategies.
So we'll take these fundamentals into our leadership development programs. Angie Lalor will come up here in bit and walk you through some of this in detail. But again, it all comes together in this way, lean, growth and leadership, to make that current definition of Danaher and the Danaher Business System so impactful.
The way we've set the day up in turn is very much along these lines. Again, Dan will come up and talk through the fundamentals. As you know, Dan is one of our 3 executive vice presidents with operating responsibilities across the organization. Jim Lico will come up and talk about lean. Jim used around the Danaher Business System office, one of the great lean minds in the organization.
And then later on, Peter Kürstein, President of Radiometer, will share with you what the lean tools mean at his highly successful business, Radiometer. We'll talk about growth. Barbara Hulit, who used to run Fluke now runs the Danaher Business System office, will come up and talk about the evolution of the growth toolkits. And then we've got 3 operating leaders: Joakim Weidemanis from Videojet; Mark Dickman from ChemTreat; and Damien McDonald from Kerr. They'll come up and show you how this is all coming to life with real impact in their businesses. And then finally, Tom Joyce and Allison Blackwell. Tom, one of our Executive Vice Presidents; Allison from Beckman Coulter, they'll complement the framework that Angie gives you with, again, real-life examples of how our leadership tools and approaches are delivering value.
So it's a very full afternoon. That's the overall construct. We'll give you the conceptual framework. It's the start and then we'll double back and take you through a whole host of very specific details.
So with that, Dan Daniel. Thank you.
William K. Daniel
Well, thank you, Larry, and thanks to all of you for coming to join us this afternoon in this very busy time of year. Before I talk about DBS, I want to take a minute and talk about color. Last Thursday, the top of the front page of the Wall Street Journal, all over the front page of the Personal Journal section. That was not pink, that was not purple. It was radiant orchid, the 2014 Pantone Color of the Year.
So I know with this fashion-conscious group, you're going out and changing your wardrobes from last year's emerald green to this year's radiant orchid, and I'd encourage you to continue to do so. And I'd add that X-Rite and Pantone continue to be outstanding examples of how DBS can really transform a business. You'll hear a handful of examples today from our X-Rite and Pantone team about how DBS has really changed those businesses, and we're just as excited about them as we were 18 months ago when we acquired those 2 businesses.
So DBS. As Larry said today, it's really about growth, leadership and lean. Those are the 3 things that all of our operating leaders use to help us build businesses successfully for the long term. They're all equally important. And our growth processes, our leadership processes on top of our very rich heritage around lean improvements, are what make our Danaher Business System what they are today. It's how we work, it's who we are, it's really our culture.
There are some fundamental tools that are part of the DBS toolkit. They apply equally across every business we have in each of our segments all around the world and even across the major functions within a business. We've listed those DBS fundamental tools here, and at the top of the list is voice of the customer. We expect our leaders not just to make a significant amount of customer visits each month, each quarter, which we do, but it's a structured approach to problem-solving and helping find the unmet needs for customers.
Standard work is a term that you hear a lot, often thought about on the factory floor. But it applies equally within administrative processes as well. It's about defining consistent work processes, but also having those be the baseline for continuous improvement across our businesses.
5S. Many of you have had the opportunity to visit our facilities. Those are about clean, safe, orderly work environments, again, that provide the foundation for continuous improvement across the business. And you'll hear, over the next few hours, a number of examples where visual management, value stream mapping and daily management really help drive results across the businesses. So we look for consistent execution across businesses. They're not executed exactly the same, but very similar and in a consistent way regardless of the business, regardless of the region. And those are the fundamental tools that really help drive results across Danaher.
But as I said, it's not just about growth and operations. We'll share a lot of examples this afternoon with you in those areas. I want to take a couple of minutes and just share with you what it means in the administrative area, particularly in R&D and around product development, where an example of our Kollmorgen team, as part of their strategic plan to target the food and beverage industry, goes out with a structured voice of customer process, where the development team, the marketing team, the sales team are out making 100 customer visits, with a structured approach to problem solving, to help find an unmet need around hygienic motors and drives; and 60 days ago, launch a product, serving customer's unmet needs and now have a $25 million funnel of opportunities.
It's how the Tektronix teams, through our structured tollgate process, with standard work and value stream mapping is able to take the development time for the printed circuit boards down by 35%. So the standard work and the value stream mapping and the improvements apply across the functions as well. In finance, for example, what we often find when we acquire companies as financial closing cycle that is 1 to 2 weeks long. And at Danaher, we close the books in 2 weeks -- or 2 days, excuse me. So we implement a value stream map, some standard work, often and includes prework before the end of the close that helps us close the books and companies in 2 days.
Just a couple of months ago, we took a group of senior operating leaders and senior financial leaders in the business, value stream mapped our financial forecasting process. What we found was we could eliminate roughly 30% of the people hours involved in our financial forecasting, improve the results and be able to take those hours and spend them on driving business improvements and especially around the areas of growth. Certainly, the financial area is an area that these tools apply, just as much and do in the factory floors and with our growth processes as well.
I know many of you had a chance to visit our facilities. What you see, not just on the factory floor, but in our office environments, visual management around purchasing project improvements, supply chain management and things like daily cash collection. So certainly, these tools and techniques fundamentally apply across the entire organization, and we have a number of wonderful examples that we'll share with you later on this afternoon.
Now any business, there's lots of things that you can measure. And certainly, in a data-driven organization like Danaher, we do measure a lot. But we have 8 key metrics that we measure exactly the same across all of our companies in the same way, the same business each and every month. We call those the 8 core value drivers. This was really a result of a kaizen that the senior leadership team had 5 years ago at about this time. We brought together all the reports and all the metrics and posted them on the wall and they filled up probably 1/2 of this room. But we took that and said, what really matters, and we settled on these 8 core value drivers. They remain in place exactly the same way today.
So there's 4 financial metrics and 4 nonfinancial metrics. We start again with the customer and quality and delivery, and making sure we're exceeding expectation for our customers. Next is around associates where our internal fill rate, where we target a very high percentage of our open rules to be filled with Danaher associates as part of their development plan. And then with retention, making sure we have a low level of turnover across the businesses.
And then for our shareholders, we have 4 financial metrics. Clearly, at the top of the list is core growth, where the single most important financial metric for every operating company, every leader within Danaher, is core growth. Obviously, we have margin expansion. And then as part of our very strong cash flow generation in Danaher, we use working capital turnover as the key metric and the proxy for cash flow within an operating company.
And last and certainly not least, where we make an acquisition, we're measuring our return on invested capital each month compared to our plan for 3 years after we make the acquisition. So these 8 metrics are in place exactly the same across all of our businesses, they're measured the same way. We start every operating review, every budget discussion, every strategic plan review with a conversation about where we are in these 8 core value drivers, how -- where we're doing well, where can we improve so we can focus our conversations about how we get better.
You'll see examples this afternoon of visual and daily management. What you see here is a very common, consistent chart that you've seen all of our assembly cells. I know many of you were with us in Chicago in July for our Product Identification Investor Day, and we shared with you what that looks like in marketing with demand generation. And Joakim Weidemanis will spend some time updating you on that. But we, first and foremost, look for a quick visual view of where we are. We call it the 3-second rule. You want to be able to lock up, see where you're on plan, where you're off plan, so you can focus the conversation around how you can get better.
It's a team-based approach. It often happens in a stand-up manner, in front of the board, in front of the cell, in front of the marketing area and it's a team-based conversation around where are we off plan, how do we develop a problem-solving process that first starts with defining the problem, goes through a root cause analysis and finally, development of an action plan that helps lead to improvement. It's really about taking urgent action. This typically happens in a daily manner. So tomorrow, we'll be back in the same place at exactly the same time to have conversation about what did we say we were going to do yesterday, what did we do and what was the impact that we saw from that.
So we talk about Daily Management everywhere. We know you measure us on how we do each quarter, how we do each year. We know that our teams help deliver those results day by day, week by week. So Daily Management everywhere, across the business and across all function is how we deliver those results.
We'll talk to you about some growth examples across our businesses. Esko has certainly been one of those within Product Identification, a business we acquired 2 years ago, a solid team, a business that had been growing at low single or mid-single-digit growth rates. Without processes around demand generation. So before we could focus on demand generation with Esko, we had to lay out a lead management process. So when we receive leads, we're able to process them quickly and deliver results. We've put that in place in the last 12 months. It's been all about demand generation. We've been able to improve our search engine optimization, our visibility on the Internet and now, are generating over 200 leads a month. And Esko has been a high single-digit growth business.
So this is how standard work, value stream maps and consistent daily management can help take a business that is a low- to mid-single-digit grower and they get a high single-digit growth business, and we're now doing that across many of our companies inside Danaher. So today's DBS is very much about growth, leadership and the development of our associates on the team and our historical legacy of lean. And we've got some examples we'd like to share with you. And to spend more time on the growth side of DBS, I'd like to introduce Barbara Hulit, who's the Senior Vice President in charge of our DBS office. Barbara?
Barbara B. Hulit
Good afternoon. It's great to be here today and talk to you about growth, which is obviously a topic that we're all very, very passionate about.
When we think about how DBS and growth come together, our objectives here are very, very simple. We want to accelerate growth, we want to outgrow the markets that we compete in so that we can gain share. And so as we go through the examples today, and I'm going to give you a little bit of an overview of what's in that growth toolbox, if you will, and then as Larry mentioned, we have some colleagues that will come up and show you in action.
But I think one of the things you'll see as we go through these examples, for those of you who have been sitting in these seats for a while, is a lot of the core principles that you have traditionally seen on the lean side of DBS are alive and well in action, and have been for some time on the growth agenda as well.
So we usually start and think about the scope of DBS growth using a 3D framework for growth, and the Ds for dream, develop and deliver. So on the dream side, what we're basically trying to do is derive better insights about our markets so that we can create winning ideas.
The develop part of the framework is all about creating those ideas, turning them into something. It could be a product, it could be a service. It might be something that we develop within our own 4 walls, it might be something that we develop in partnership with somebody externally.
And then the deliver part of the equation is all about commercializing those great ideas and insights that come from the earlier Ds in the process.
And so the framework that we use is pretty holistic around the growth agenda, and one that applies equally to all of our businesses, be they some of the more traditional businesses or even some of the newer businesses like you see in software.
If you look underneath that framework, there are a lot of tools. And you're going to see a lot of tools today. We've put up a sampling of many of them. And the thing to know about the tools and processes, they are generally developed within an operating company, not within an ivory tower someplace.
And so one of the great benefits we have is that operating companies are doing different things and experimenting everyday. We have a chance to see what works around that and put some of the standard work that Dan mentioned around those things that are working and share it more broadly. And that's really where most of these tools originated.
If you then look at this list in particular, it's a combination of both innovations that our operating companies have driven, as well as demand that our operating companies might have when they think about their own growth agenda and how they're going to accelerate growth and outperform those markets.
So to draw out some of the pieces here, on the dream side, things like market segmentation will help us find those insights and figure out where there are pockets of disproportionate growth in the marketplace. Brand and tools will help us figure out where our brands currently sit with regards to awareness and different characteristics and how we want to build on that.
If you think about some of the tools that are in the develop side of the equation, some of them around product and project management. So how do we make sure that all the pieces are coming together in the right way? Tools that today help us go faster, have fewer quality issues, lower cost and better meet customer needs, all sit within the develop part of the framework.
And then lastly on the deliver, where we're trying to commercialize those ideas, you'll find tools that help us figure out positioning messages. So how do we get messages that the market is likely to respond to? Web marketing is used quite broadly, as Larry mentioned, as a tool to be able to get our ideas across and in front of as many customers as we possibly can.
Marketing that does lead generation for us or funnel management which helps us increase those conversion rates of things that are in the funnel. One of the things that I think is interesting about these toolsets is they themselves go through a Kaizen process or continuous improvement process. So if we backed up and we're sitting here some years ago, you likely wouldn't see as much on the software side. You likely wouldn't see as much on the website. So as we go through the day and look at the various toolkits within the entire agenda here, growth, lean and leadership, you'll see an evolution that we go through within those as well.
So I wanted to give you an example of one tool, and you'll certainly see some more as my colleagues come up later. Setting pricing is pretty critical around the growth agenda, knowing where to price a product, how to make sure that you've got features and benefits at a point that makes sense.
Managing price leakage can also be an important growth driver as well. And so the tool that I have here in front of you helps us understand what price leakage might look like. And in this case, on the blue bar, it goes from a list price down to a pocket margin.
And our operating companies will typically use this in a Kaizen fashion to figure out things like discount levels. They might use it to figure out things like warranty policies, maybe return policies, maybe freight policies. Typically, what will happen is the operating company will use these tools to go through a series of analytics and have discussions around where do we seek leakage and is it consistent with the value that's being created in the marketplace.
More importantly though is at the end of these Kaizens, in many cases, during the Kaizens, we figured out a way to try-storm or try-test this, but we always leave with a very specific plan of what we're going to go do to make sure that we're driving the results home.
And let me give you one example of what that looks like in practice. So this example comes to us from Tektronix, which is one of the companies in our Test & Measurement segment. And in the case of Tektronix, they looked at the market for basic scopes and said, "I've got an objective here, which is I want to expand margins in those basic businesses, so that I can redeploy back into growth. So I'm going to look at price leakage here in the Kaizen in China and Europe to sort through what that looks like."
So going through the tool in the process in the Kaizen, they identified a lot of levers that they had that would help them expand margins without compromising growth. And in the end, both identified and delivered $1 million, freed up $1 million that was then reinvested back into growth against that core scope segment in those markets.
And so that's one example of how using a Kaizen and a tool in operating company that can create value that further drives the growth agenda. And certainly, you're going to see more of that when we get into some of the examples here in a minute.
I want to take us here into an introduction of Jim Lico, who's an EVP for Danaher, so you can get a sense of what the lean agenda looks like as well. Jim?
James A. Lico
Yes, thanks. Good afternoon. I think, hopefully, by now with Larry's introduction and a view from Barb, you can really see how DBS is really unique. You're starting to see the aspects of growth. Dan, obviously, shows you a lot of the fundamentals and how those fundamentals are really interrelated.
What I would try to do is give you a little bit of a picture of how lean is unique and then -- in our approach to lean is unique as well. A lot of companies have -- will have embraced lean over the years, and we'll talk about lean, and so I think sometimes maybe that only looks the same and really sort of seems the same. So I think what you'll really see from us, hopefully, is a few things that are very different.
As Larry pointed out in his pitch, one of the things that is unique is our culture. And I think as you really think about 25 years from our start in Connecticut to really embracing lean throughout the world, one of the things you really understand is that our culture really makes a difference. In fact, the continuous improvement has been a value of ours -- core value of ours, is unique as well and the fact that it really never -- it doesn't change.
The action and relentlessness that we have and the passion that we have from -- in putting lean into our organizations is very unique. And it's not -- a lot of places, you'll hear about lean advocacy. I think what you'll see today is not lean advocacy, but a passion in practitioners in our leadership positions here in Danaher. We're not just people who think lean is a good thing to do. We're leaders who want to help our teams and our organizations implement lean on a regular basis. And lean really means more than just what is traditional in the way you think about it.
I think as historically, we thought about it in the operations, and lean conversion and Kaizen and kanban and some of those kinds of tools are things that we often think about lean, but we don't normally think about how it gets applied everywhere.
And I think what you really see from us is as our portfolio has changed and as our portfolios grown, lean has really taken on a new definition, a definition that allows business leaders to really apply lean to all of their business principles, all of their business operations for improvement. Dan gave you some examples of how we do it in the forecasting process from a value stream mapping standpoint to take out lead time.
One of the things -- one of the best ways to think about lean is really you're really trying to streamline, right? And value stream mapping is a really great tool and it can be applied in any transactional process, and a lot of people might do that. As our portfolios change though, as our technologies become more broad and more global, global supply chains become more important.
So how do you not only put lean into your own organizations, but how you do it with your extended supply base as well. And we've been on the forefront of doing that kind of thing with our suppliers over the years, no matter where they are in the world.
And really, and as our portfolios changed more in the medical side, applying lean into regulatory processes as well. So that we make sure we can make improvement, but also be consistent with those markets as well. And so a real growth innovation. Larry talked about putting innovation into our continuous improvement process, and I think what you see here is the constant evolution, the constant continuous improvement of our process in and of itself.
And then finally, on the quality side. We've always had a big focus on quality. You saw it's one of our core value drivers. Quality has always been a focus. Customer satisfaction has always been a focus for us. But as we've really taken a broader approach to that to try to extend it through our entire organization.
And let me give you an example of that, what we call the Danaher Reliability System. This is really a comprehensive approach to improve reliability. And what does that really mean? Well, we really think about the Danaher Reliability System, which has come to us as really accumulation of great best practices, of great companies that have become part of Danaher over the years.
As I said, we've always focused on quality but by bringing in new organizations, we've really been able to bring in more tools and really take everything from the design side and design it for reliability, the best thing you can ever do is to design in quality. Then to really make sure that it extends into our supply base and our manufacturing operation but it really extends theirselves into customer service and support.
You saw one of the charts is where we continue to expand the business into different business models, whether it's SaaS business models or service business models. And really, quality really means something different in those processes. And so the evolution of us is to apply lean into those processes to not only be -- improve productivity and improve quality, but also to accelerate growth.
It's a comprehensive approach, as I mentioned, and I think one of the things that makes us most proud about this is that our teams are implementing this, maybe a company that's been around 10 or 15 years. Some of our best practitioners are the companies that have been around a long time. And I think that, for us, is the best test of a new -- of something new.
This is a few years old and -- bringing this all together, and I think what's a great testament to the success is the fact that our -- a lot of our companies that have been around and successful companies that have been around for a long time are some of our best practitioners and some of our companies that we really continue to benchmark throughout the corporation.
So where is that in action? And again, we come back to lean and we think about it in the factory floor. Many of you have been on our shop floors and you've seen lean in the real world and on the shop floor. But here's a great example of lean in the software world.
In some respects, the development of software is very much a factory process. And traditional processes of implementing a designing software can very often be -- have batches to them. There's even some names and things like lean software and that kind of thing.
But DRS is really focused on improving quality in the software development process. Here, you've got an example in our Industrial Technologies segment at Kollmorgen, where they applied it in one of their new software versions.
You can see the number of defects, a 95% reduction in defects from their first version 2.1 to their current version 2.7. So dramatic impact in the business by applying these tools aggressively, relentlessly. And I can tell you that the leaders of that business understand DRS at the same level as the engineers who implemented it on a daily basis.
This not only gives you a great reduction in quality or a great improvement in quality and a reduction in defects, and not only is it better cost, but now being through that, it's a better improved time-to-market, bring solutions to customers faster and bringing solutions, particularly in this business, bringing solutions to customers faster means taking market share and better growth.
So with that, hopefully, you get a good picture of what lean really means today for us. I hope you got a sense that it's unique. It's not just on the shop floor, it's applied in every aspect of our business. It's applied with vigor by all of our business leaders and it really drives success in the business.
We can't do that without real -- making sure that our leaders understand it, understand it at a practitioner level and that we develop and all of that is in our recruiting and interviewing and development processes that are critical to developing our talent and developing leaders in Danaher over the next few years.
Angie Lalor, our Head of HR, is going to come up and give you a sense of that. Angie is relatively new to Danaher and I think she's a great example of our ability to recruit people who really get it and then very quickly not only get it but then practice DBS and then drive DBS processes into every part of our organization, including how we develop leaders. Angie?
Angela S. Lalor
Well, thanks, Jim. Well, I'm going to talk about the third leg of DBS, which is leadership. And leadership in this context is really more than just about the leaders that we put in place to drive DBS throughout the organization, which as Larry mentioned, is critically important.
But it's also about the leadership that we expect every one of our associates to take in integrating DBS into their day-to-day activities, and I think Jim gave some great examples of how that happens.
So how do we do that? Well, like with lean and growth, we really have a broad array of resources that our business leaders pull on to help define how they're going to run their business and also really give our associates and our leaders the capabilities that they need to successfully thrive in a Danaher and a DBS culture.
So on the left-hand side of this, you see a number of really critical tools that our business leaders use to set the strategic direction for their businesses and then to bridge that to execution through policy deployment, which Tom Joyce is going to talk more about in a little bit.
On the right to side there -- the right side of the page, you do see 2 columns that really show you array of processes and tools and programs that we utilize to fundamentally assess talent in the organization, develop that talent, not only for their current jobs, but jobs that they can move into in the future and then really engage them in the work of the business, the vision of the business and make sure that we are -- have good strong retention plans in place to keep them within the company.
One of the most critical tools on this page is talent and organization review. And in this talent planning process, it's really a set of standard work and a cadence of dialogue and discussions that every one of our presidents has with his leadership team, whereby they are assessing, not only the performance of the associates in the organization, but also the potential of those people to move into more senior levels of leadership within the organization.
And in doing so, they're really identifying the population of people that are in our leadership talent funnel. And once we know who that group is, we can take really specific actions to develop them against a set of succession plans that we have in every one of our businesses for every one of our critical roles.
And it's really important that every one of our presidents do this because, not only do they have responsibility for building the leadership pipeline for their business, but we expect them to export talent elsewhere into the company so they can feed the organic growth of Danaher generally and also help make sure that we have leaders to put in place into the acquisitions that we're bringing in to the company.
So our method of developing leaders, we have a number of ways we do it. We use the 70-20-10 model where the vast majority of what they're doing to get ready for bigger jobs is through stretch assignments. And here again, this is where our talent planning process is really important because we can architect those experiences, those jobs, the succession of those jobs, so that they're getting the experiences that they need to be ready to run our businesses.
And it's really critical as well that along the way, they're getting the development that they need through coaching, formal and informal coaching, and then also a smaller amount of it, but an important amount of it through the leadership programs that we have in place.
So we have a lot of examples of this happening across the organization. I think one, just to give you peek at one, if you look at Ron Voigt, he's running our X-Rite business today. Ron came into Danaher maybe 5 or 6 years ago. He had a lot of automotive background. He came into on operations role within our Kollmorgen business, did really a fantastic job.
We wanted to develop his commercial skills, so we moved him cross-platform into the instruments platform in tech as a sales and service leader to give him that commercial experience. And then earlier this year, he was ready for us to put him into X-Rite, where he's doing a phenomenal job integrating that business into Danaher and driving a DBS culture throughout.
Talk about the leadership programs. We really have an array of these, and they're really designed to meet the leaders where they are within their career, starting with front-line supervisor skills for those people that are new to supervision or new to Danaher, all the way up through programs that we have targeted at very specific populations, such as our platform and group business leaders, where we're trying to keep -- teach them what's unique and different about running a platform business beyond what they did as a leader running a single P&L.
And throughout all these programs, we had DBS woven into the fabric of the content. And the faculty for these programs, by and large, are the folks sitting in the back of the room, our leaders, our presidents across the company, because those are the folks that have the experience of running businesses and the DBS culture, and they can teach based upon their experience at success. And sometimes what's even better is through their experiences with mistakes.
Before I turn it over to Tom, I just want to spend just minute talking about immersion. And an immersion is an approach that we take to on-boarding new leaders into the company. It's very unique. I think it differentiates us incredibly from our peers, and it's a really significant investment that Danaher makes.
Any new leader into the company, before they spend day one on their job, they spend 3 months in immersion. And their only responsibility during that 3 months is to learn the company, to learn the culture, to understand DBS and to build that network of resources that they're going to pull on when they go into their role, to help them thrive in a DBS environment.
We do that through a number of tactics. Some of it is in the classroom, but the vast majority of it is very active learning, where we're putting people into our operating companies, having them do the work of DBS through things like Kaizens on the factory floor and having them go through and watch businesses conduct their business using DBS so they can pick up best practice examples that they can carry back into their role.
In 1.5 years, I was the fortunate recipient of this process, and I can tell you it was an incredibly powerful experience. And I went from thinking early on that it was quite a luxury, and it didn't take me very long to realize that it was really an absolute necessity for me to truly understand the DBS culture in Danaher so that I could be effective and really hit the ground running once I did go into my role.
And we see it as one of the key ways that we can sustain the DBS culture as we grow. So that leaders that have been in the organization for 2 or 3 years can be just as strong at championing DBS and the culture as somebody who's been in the business for much longer.
So hopefully that gives you a bit of an overview around leadership. You'll hear some more examples later, but I'm going to turn it over to Tom Joyce, who's going to spend a little bit more time talking about one of those tools, a very important tool, which is policy deployment. Tom?
Thomas P. Joyce
Thanks very much, Angie, and good afternoon. Angie has just given you a pretty comprehensive, albeit a brief overview of our leadership processes. And what I'm going to spend the next few minutes doing is talking to you about one of the most powerful tools in leadership at Danaher today and how that tool helps us to drive DBS throughout the organization.
That tool is policy deployment. And what I'll take you through is a bit of what policy deployment is, why we use it and then a quick snapshot of an example of how we put it into action. You'll see more of how policy deployment impacts our businesses later this afternoon as additional presenters share with you some of their experiences in driving great performance across each of our operating companies.
The term policy deployment, probably unfamiliar to most, and a term that is not intuitively obvious from its connotation, the words themselves, really actually comes from a literal translation of the Japanese term hoshin kanri. Hoshin kanri was a management tool developed in the 1950s that became an integral part of how the Toyota management system ultimately drove the kind of performance that you saw from that terrific benchmark.
What we'll go through now and looking at what policy deployment is, is how that tool really embodies the culture of Danaher that Larry talked about earlier, that customer-centric, process-oriented, results-driven culture.
It starts with our strategic plan. Policy deployment builds off of and essentially is the bridge through which we take strategy and drive towards execution. So we take a 3- to 5-year strategic plan at an operating company level and we identify where in that strategic plan do we have true breakthrough opportunities, opportunities to create real differentiation in how that business performs in its marketplace and where there are opportunities for tremendous competitive advantage.
We then look at those breakthroughs and we break them down into a manageable portion of process improvements that can be achieved in the first year of executing that plan. Then we look at what processes need to be built in order to be able to make the kind of progress that will lead to that 3- to 5-year breakthrough down the road.
This is a key step in understanding where do we apply the tools of the Danaher Business System in a thoughtful way? Not every tool is applied in the same way in every operating company. But policy deployment helps us determine where can those tools be applied most effectively in the interest of creating real breakthroughs.
Finally, what policy deployment sets up is a way of measuring our progress against those very ambitious goals. And ultimately at the end of a first year of the cycle, really do a self-assessment, determine where we've made some great progress, where perhaps we've got shortcomings, how do we course-correct, so that as we go into the second year of pursuing that ambitious objective, we're resetting our processes and again, making those adjustments that will ensure that ultimately we'll be successful.
Policy deployment at its heart is the way we drive world-class sustainable performance, and it is that bridge from strategy to execution.
So why do we use it? Well, we use it, first and foremost, because it's a very powerful tool, but it comes from a recognition that Daily Management, a lot of the fundamentals that you heard about earlier today, and Kaizen, those processes that we drive against point solutions and issues, ultimately won't drive the kind of breakthrough performance that we sometimes need to drive true differentiation.
And so what policy deployment allows us to do, think of it almost as a turbocharger, when we go after a really ambitious initiative. So this graphical example could be used against any particular initiative in any particular operating company, where Daily Management is going to move us up the curve at a somewhat of an incremental rate.
And Kaizen is going to give us perhaps the boost we need from time to time. But when we layer on the power of policy deployment, that chance to really develop a truly ambitious agenda and apply DBS tools in a process-oriented way, we can really take performance to a very, very different place.
Second reason that we use policy deployment is because it helps us align our resources and focus our resources on those breakthroughs. And it allows us to differentiate across our organization structure about who's doing what. So if we look at this graphic representation of time allocation against our leadership structure, our front-line associates are those associates who are driving Daily Management and who are participating in Kaizens.
Our middle management team is increasingly involved in driving continuous improvement over and above Daily Management. But our leaders, their primary objective is to ensure that strategy moves to execution. So our leadership teams are the ones who spend more of their time essentially ensuring that the policy deployment initiatives are the ones that get the lion's share of their resource allocation. So aligning resources and focusing those resources is a key reason why we use policy deployment.
I used the term breakthrough. Looking at our strategic plan and identifying where those true opportunities for differentiation come from through truly ambitious initiatives. We define a breakthrough, while certainly not trying to put a man on the moon, as an initiative that requires a true stretch, that represents a real game changer, a game changer that customers value, where multifunctional efforts will be required, where it's not likely to take simply one function, the sales function or the R&D function or the administrative function to get it done, but where we'll need to pull together a cross-functional team, where we'll need to align the entire organization in order to get there.
And finally, the odds are when we set out towards a policy deployment breakthrough, we probably won't actually know how to get there. And as uncomfortable as that feels for our organization, what's really powerful is when you see the teams embrace that opportunity. That willingness to say, we don't know how to get there, but we're going to define new processes, we're going to set aggressive goals, we'll be willing to fall short from time to time and course correct, but ultimately, if we stay at the course, if we deploy the resources the way we should, we know we'll get there.
So what does it look like in action? Here's just one example, and there are literally hundreds of examples across Danaher today, and we could spend the entire afternoon taking you through policy deployment breakthroughs across each one of our operating companies. This one, many of you maybe familiar with, you've heard us talk about one of our terrific water quality businesses, Trojan Ultraviolet Technologies. Marv DeVries and his team, 3 or 4 years ago, identified that there was an opportunity outside of the normal boundaries that they had defined at Trojan. Those boundaries being generally the municipal drinking water, wastewater and industrial markets for disinfection. They found an opportunity through the voice of a unique customer set, namely shipbuilders and regulators, that there was an opportunity for treatment of the ballast water used on ships, the water that's used essentially to adjust for the tonnage that is being carried on those ships when crossing the oceans. This opportunity, they scaled at somewhere between $25 billion and $30 billion over the next decade. But no daily management process, no Kaizen, no incremental work at Trojan would ever put us in a position to really achieve the breakthrough of penetrating this market and establishing a leadership position. So it was only by establishing a policy deployment objective, by aligning a new set of resources, by really focusing on a whole new set of processes, processes that involve a whole new approach to product development, a whole new approach to how we went to market. And how do we address opportunities around regulations? Things that Trojan had never done before, in fact, didn't know how to do. But we knew the opportunity was worth it. And so policy deployment proved to be the right tool to get after something as extraordinary as this opportunity, was when it was first developed and still remains today and one that we're quite optimistic about seeing the benefits of in the years to come.
So in summary, policy deployment is a leadership process. It's one of the most powerful management processes that we have at Danaher. Policy deployment is the way we bridge from strategy into execution. It does add by focusing us in on what the true differentiating breakthroughs are for an operating company. It helps us align resources appropriately to achieve those objectives, and it helps us rigorously measure our progress along the way and make adjustments as we need to so that we ultimately achieve what will be a differentiator, superior performance and truly ultimately competitive advantage. And that is policy deployment.
So with that, that brings us to the end of sort of the first section of the day. And I'm going to ask Angie and Barb and Jim and Dan to join me up on stage for a few minutes. We're going to take a few questions that you may have. We're going to stick to the sort of morning subject matter, if you will. And I think Megan is in the audience and probably a few others that have microphones available. And if you have questions, we'll be happy to take those for the next few minutes.
It's always great to get that kind of insight into DBS and always -- I'm always learning, myself, every time you do it. But let's go back to the ballast water treatment example you mentioned. I know I raised my numbers back in 2012, looking out to 2015, '16, '17 on it. It's been a big opportunity. I've seen rising competition in deferral of implementation. So can you maybe give us a little more comfort that this is actually going to happen in any kind of accelerated way and that Danaher is going to have a leading market share in there?
Thomas P. Joyce
Absolutely. We're extremely confident that this is going to happen. Your point about deferral is right on. We've seen the approval process of the regulation, which, frankly, is an extensive and, as you probably know, a global one, where the various countries involved in approving the IML regulations that involve a certain level of deadweight tonnage being approved over time has taken longer than any of us expected. There've been some changes in the proposed regulations along the way that have also thrown all of us a curveball. But we're absolutely confident it's going to happen. The regulators remain confident. We feel that we have, without any questions, superior product that will be delivered to the market. And I think it -- time will tell, certainly, that we're right, but our confidence remains very high.
My question is in the spirit of continuous improvement, how does -- how's DBS changed over the years? I mean, if you think about where you were at with DBS 10 years ago versus where we are now, what are the primary adjustments or improvements or things that you may have gotten rid of over time or tools you've changed? I mean, help us understand how this living, breathing thing of DBS is different.
James A. Lico
I think the first is maybe how it's changed and then the what. The how it changed is -- as much as anything, is taking from the new companies become part of Danaher. And so I think when you look at the way the portfolios evolved, you could see DBS changing at almost the same pace, maybe faster. When a technology business, like a Tektronix or an AB SCIEX, comes in, you really got some really great processes around technology development that are going to apply to DBS. When great commercial businesses like some of our dental businesses, as an example, great sales processes, and so what you're really seeing is -- and what we continue to try to really push is to make sure that it changes along with the portfolio. And so, on the one hand, I think Barb pointed out a little bit in a couple of places where we purposefully said because we've added some things or improved some things in advance or proactively and in another times, we've changed as the portfolio -- as companies come in, and I think the biggest -- just what has changed the most -- I think what has changed the most is the growth aspect of DBS. I think what has made it successful is the leadership part of DBS. And I think as you see all of those 3 together, you really can't now, I think, where it sits today, really understand. You can't really pick any one of the 3, lean, growth or leadership, and really say that any one of them is more important than another because they're so certainly linked.
With the -- here in the back. With all these tools that you have, how do you keep the business from being a function of the tools? How do you keep it from just being a series of checklists that for each situation, you haul out a certain group of tools and you go down the lis and then you're kind of done?
Barbara B. Hulit
So one of the things that we do with all the tools is make sure that there's a good prioritization process at front. And that takes a couple of different formats. It's an existing operating company. The strategic plan would usually dictate or guide to some degree what those priorities are, and then that falls into the policy deployment process that Tom touched on. If it's a new acquisition, we've got a process around 100-day strat plan that will also highlight what those priorities are. We're also really specific with the operating leaders to make sure that they understand that this is not one where we expect them to use some play across the portfolio. In fact, we very much would think that, that's a mistake. And so if you come back to the core value drivers that Dan touched on before, ultimately, we know that the tools are working, the process is working because the results are there. And there's no really great place to hide if you're going to the motions and using the tools but not driving the results because at the end of the day, where we spend most of our energy and effort is around making sure that we're getting those results. We will help, especially those that may be newer to the portfolio, we'll help them navigate through those tools to figure out, "Hey, here's my need and here's my priority. How might I deploy some of this against that?" And make sure that the list stays reasonably short because we would much, much rather see a shorter list of initiatives with great traction than a check- the-box kind of mentality.
Thomas P. Joyce
I would just add to that as an operating leader. There's not a single business in Danaher that tries to do all of these tools. It's impossible. And all of us do an extensive amount of leadership development training for the organization. And one of the things we always preach when we have the operating leaders, especially around policy deployment, is one of your most important functions as a leader is to figure out which of the tools in the Danaher toolbox are going to create the most value in your business and in your organization. And then it's about being very disciplined and very focused in execution of those tools. So that's a critical function of an operating leader is to figure out which aspects of DBS are appropriate, necessary and going to create the most value in your specific business.
James A. Lico
It's also -- maybe the last thing it might be is there's an expectation about making sure that our leaders understand the tools, not to understand them from an advocacy perspective, as I said before, relative to lean, but from a practitioner perspective. And if you're a practitioner -- I think what's unique about Danaher is that our leaders are practitioners and that means they can tell the difference between a check box or a checklist and real implementation.
Barbara B. Hulit
I'll add one other thing. I sort of had the same question when I came in. What I was surprised to find is exactly what's been articulated. But even the tools themselves are -- over time, are changing as new ideas and new applications of them get utilize then they get approved. So the tool itself is morphing all the time as well.
Thomas P. Joyce
Yes. I'd be interested in having you all address the tolerance for failure within DBS. And the ideas in R&D, you're going to run down some dead ends, and innovation isn't always a linear process, and you will be off plan and sometimes you -- that's not a bad thing. So maybe address how DBS addresses some of that softer side on innovation, the tolerance for failure and how do you adapt to it.
Thomas P. Joyce
Sure, sure. One of the essential elements and characteristics of a Danaher leader is humility because you're going to fail. And I would put that propensity for failure, particularly within the context of policy deployment and the use of that leadership tool, that leadership process. I mentioned that when we established a focus on a breakthrough objective that it tends to be a stretch goal and it tends to be something we don't necessarily know how to do or how to get there. Almost by definition, it means we're going to fall short. We may get there eventually, but on the way, we'll fall short. And I think what we've done in developing the tool and becoming better and better at it is understanding that we'll fall short and we'll figure out how to countermeasure that shortfall, how to change course or adjust our process and ultimately, we'll have a pretty good shot at getting there. We won't always get there. But one of the things we know is if we focus on an objective that no competitor will ever contemplate setting, even if we fell a little bit short, it's probably 2x what anybody else would sign up to try to do. And so setting that ambitious set of objectives is something that our leaders get comfortable with, and they recognize that they wouldn't always get there, but the odds are we're miles ahead of the competition.
Barbara B. Hulit
If I could maybe add around development in that agenda, that middle D in the 3D framework, when you look at some of the tools that the operating companies have helped developed, there are places within those that allow for rapid iterations, rapid prototype, rapid failures, and you'll see an example of that later today because the failure process is part of the learning process. And we figured out over time that if we can get more swings at the plate, we're ultimately going to have a higher likelihood of getting the run end. And so part of it is making sure that we're able to learn very quickly because those mistakes in many cases are as valuable, maybe even more valuable than the stuff that works out of the gates. And you'll see an example of that in a bit.
A lot of industrial companies have business systems, right? You can -- spectrum and they have all these operating systems. Have you guys been able to take any practice for many of these companies and adapt it into the Danaher Business System? If so, what have those been? You would think that there are so many companies with this stuff, someone somewhere must have come up with a pretty good idea that you could have adopted for yourselves.
James A. Lico
Well, a long time ago, I came out of the auto industry, and in those days, the Japanese were sharing everything with every American company and bringing -- most of the tools that any company today is using are not -- there's no brilliance or -- and the creation of those tools have been around for a long time. So I think in general, most of what we have today in the toolkit has been out there in a number of places. We -- most of us came from somewhere and probably had a tool. I think -- so the answer would be, at a broad level, is occasionally, we will see some things that have come up that will apply, but I think the more relevant part of that would be the cultural aspects of this. And you can -- the tools are all accessible to everybody. These are common knowledge. They're out there in books and have been out there for 20-plus years. The real differentiator here is the 25 years of passion in our culture and that you can't replicate and that you can't teach, that you can only create.
Thomas P. Joyce
I would just add to Jim's point that there have been times where acquiring the business into Danaher has delivered a unique capability, maybe something that we were attempting to do, but weren't doing it at nearly the level that, that acquired business had figured out how to do. And this afternoon, you're going to hear from Mark Dickman from ChemTreat. And I think ChemTreat represents one of those companies that when acquired into Danaher brought us a whole new perspective on how to deliver sales force performance. And I think those kind of acquisitions are great examples of where the Danaher Business System evolves over time based on new businesses that come in to the portfolio.
So one of the themes that I can tell from the presentation this morning is DBS really impacts every element of Danaher. Can you talk about how DBS has impacted or impacting the M&A process at Danaher?
James A. Lico
Well, certainly, from an M&A standpoint, we really start with that fundamental assessment of the market, and some of the tools that we talked about that apply to the functional area certainly are appropriate here. Looking at standard work around our market analysis, standard work around some of the company cultivation that we do and really looking at it from a broad strategic approach. So it's really no different than any other function that we have within Danaher. It's about standard work, it's about consistent process and continuing to learn and build upon that in terms of capabilities. Certainly, on the people side, that has been an important element to where we're looking for folks who are externally focused, who are really good at doing that market analysis because that's really where the foundation of our M&A work really resides.
Thomas P. Joyce
DBS really puts a lens on our diligence work that allows us to look at a business in terms of what are those opportunities where DBS is likely to help us take that business to a very different place. And I think that unique capability of how we look for and identify those opportunities lay out a roadmap for achieving them is part of the value creation that ultimately you see in the returns on our investments.
Barbara B. Hulit
We have time for one more question.
Thomas P. Joyce
Perhaps from an EVP level, you could just speak to maybe the 2 or 3 factors that would influence your decisions on where capital is allocated to the specific businesses within the silos that you manage. And, for instance, in Jim Lico's situation, comms is growing certainly faster, there seems to be a big opportunity there than perhaps Tektronix. So is there 2 or 3 things that suggest, "Hey, we're going to allocate more capital to comms?" Is it the TAM, is it the growth rate, is it the profit opportunity? Maybe just from an EVP level.
James A. Lico
I think we'll stick -- we'll stay away from maybe some specific business questions, but maybe the broader question of capital allocation and maybe bringing the DBS theme to it. One thing for sure we're always trying to do when we look at capital allocation and how we bring businesses in Danaher is to look at the ability of how DBS applies. We really believe it applies everywhere, but it applies a little bit more to certain places more than others. And I think in both the situations you articulated, specific tools within DBS have been really applicable in both businesses. One being a more instrument-related business where we can apply pretty much every tool pretty well, and the comms business is more software. We've been a little bit more specific, but probably even more impactful because of the fact that those businesses have not seen the kinds of improvement tools that we can bring to bear in DBS. So I think in both cases, we're going to make sure that we can -- that our tools apply together to make sure that they can have impact. And I think as we look across the portfolio, when we think about capital deployment, we just want to make sure that DBS applies in those businesses. And I think that Larry made mention of that as well in his earlier remarks that we want to make sure we can add value. But we're pretty confident that the portfolio we have today for sure has got great opportunity, not only to apply DBS recently, but going forward.
Thomas P. Joyce
So thanks for those questions. With that, we are going to go to break. We have some refreshments outside. The door is here. We're going to take 15.
Matt R. McGrew
Yes, no. So we're running a little bit ahead, but we still want to stick to a 15-minute break, so I think it's 3:05 right now. So let's do 3:20 back in here, and we'll get started again. Okay?
Thomas P. Joyce
James A. Lico
Matt R. McGrew
Okay. Everybody, can we grab our seats here. Let's get started back again. Okay. Next up, we've got some of the DBS in action, if you will, so I'll turn it over to Joakim, and we'll get started.
Thanks. Thanks, Matt. All right. Hi, how are you? Good to see so many faces from our event in July in Wood Dale at Videojet. So some of you will have heard a little bit of what I'm going to talk about today already. A few words about Videojet. What do we do? Well, we started quite a while ago, and we put basically best before dates on products like this. Our customers are the people who make all the products that you buy in the retail store, at Home Depot, as well as some industrial goods that for some reason need an individual mark. And we make printers. And these printers are used for up to 10 years and in manufacturing environments, so they need consumables, spare parts and services. So when we go to the next slide and you see that the mix of what we do, obviously, the consumables side of things is quite heavy in Videojet.
We're also a global business, as you will see here. And we're one of the world market leaders in what we do. And there's some healthy growth drivers underlying in our markets. And we've been fortunate to, with strong execution here over the recent years, to outperform many of our proxies for quite a while, as you saw in one of Larry's slides earlier this morning. You'll see that high-growth markets is a very large part of our business, and we've enjoyed good growth there. About a decade ago, that was about 18% of our sales, so quite an increase, as you can see. In the early days, that was a lot about -- that growth was a lot about adding feet on the street, building capability in the sales team. It then -- in more recent years, that growth was more driven by new products and localized products. So in China, for example, more than 25% of our sales actually comes from products that are defined and developed in China. And then more recently, that growth may not just in emerging markets, but the growth that we're enjoying right now and driving right now has been coming from our transformative marketing approach, which is what I'm going to tell you a little bit more about today.
Before I do that though, I think it's important you understand a little bit the dynamics in our market so that you can understand why the kind of marketing approach that we have is so important for us. So I'll take -- I'll give you a couple of data points here from the U.S. market. So first of all, we serve about 20 or so different verticals. A vertical could be the dairy industry or it could be the pharmaceutical industry. And about 8 of these verticals are food verticals. Within those verticals in the United States, there are about 10,000 individual plants that could use our type of equipment. 10,000. They buy our type of equipment about every 6, 7 years, and we are not a strategic investment for most of these people. And of course, we don't know exactly when they're going to buy. So when it comes to acquiring new customers, finding out where they are -- as you can imagine, 10,000 plants, and there's usually not just one decision-maker, right? Finding out where they are and being able to educate them, make them aware of who you are in a way that you appear so interesting, that in the day that they would consider buying, possibly switching a supplier, they would think about going with you because since we're not a major strategic investment, a lot of people end up buying the same brand that they had in the past. So -- and even though we have the industry's largest sales force here in the U.S., it's not enough. 10,000 food plants, they buy every 7 years, we're not a strategic investment, a lot of people just buy the same brands.
So how do we then drive growth in that situation? Obviously, marketing has got to play there to help us drive growth. And that's what my presentation is about today. And we have put together a system that we call a transformative marketing approach. And within that system, there are a number of tools, processes that I'll go into in a little bit more detail on the following slides. But the way we put it together and the way we deploy it out in the 26 countries that we do business around the world is very DBS like. And what does that mean? Well, we productize processes, we document them, we define standard work so that we -- it's really know-how that we're documenting so that we can cascade it out. With that know-how, we define specific performance benchmarks. You should -- if you're deploying this kind of approach or process, you should be performing at this level, which means that our countries around the world will know what does good look like, what does winning look like for this particular part of the approach.
With those benchmarks comes visual management and daily management, which is really about helping our teams be able to track on a daily basis where they are versus these benchmarks so that they can drive performance improvements with the know-how that we teach versus the benchmarks that we've given. And some people -- I heard people ask in the break, "Well, what's DBS -- other people have these systems as well, what's really different?" I can tell you -- I joined Danaher a little bit more than 2 years ago, and I can tell you, one thing that's very different here compared to other businesses is our teams around the world's openness to change, willingness to try new things, willingness to be challenged, to perform to benchmarks that we, as teams, define. So when we come with these tools, these benchmarks, the visual management tools, the daily management tools, and we deploy this globally to our 26 countries, we don't -- we're not in a situation that some companies are, that you have to convince every country team over and over again. With our DBS culture, most of our teams have it in them to embrace and try new things and take on challenges. And that's why in this transformative marketing approach, we've been able to make the kind of progress that we've made in the last 18 months probably at a rate of 2x to 3x faster than perhaps other companies would have been able to do.
So what is this transformative marketing approach about then? And I'm going to simplify it and I'm going to talk about 3 things today. The first thing topic I'm going to talk about is building visibility.
Let's go back to the example I gave you about the 10,000 food plants in the United States. You may think that most business-to-business companies would know exactly where all their potential customers are and in those 10,000 plants, there are 3 decision-makers and that we would know who all those people are. Well, most companies in the best case probably know about half of those 3 people in the 10,000 plants. Videojet was no different at 18 months, 2 years ago. And this visibility approach that we define is about going and finding every single plant, every single decision-maker around the world that would be involved and buying our type of equipment.
And of course, we need to know where they are, how can we market to them otherwise? And you may say, "Well, you just go buy some database from some database company." There are some databases you can buy, but in general, they really don't help you very much.
So our first visibility approach, which is the first part of this transformative marketing approach, is all about teaching our countries how to go find these 10,000 plants and the 3 decision-makers. And we do that. We have some playbooks that we deploy out in the countries and teach them how to do it themselves. And then we have some global approaches where we use low-cost resources in low-cost countries to mass map individual country markets.
We have an example here from Poland from earlier this year. And the bottom photograph that you see there is our daily visual management marketing approach. That is what some of you saw in Wood Dale a couple of months ago. That was deployed in Poland. Column #3 is about visual management. When they implemented that, as part of that, they made a self-assessment so they knew where they were versus the benchmarks that we had set and rolled out using the playbook that we taught them on how to use, deployed that locally by using Kaizens. They then started to do the mapping work.
And as you can see here, the results are really quite, quite good. We're still in the middle of that. So nice progress in terms of how many plants and people they've added and key target verticals and very nice progress in terms of how many email addresses they've added. Because, of course, if we don't have the email addresses, we can't market to our customers or potential customers.
This is not just the high-growth market approach. We're doing this in North America as well. We've grown our database in North America by about 50% this year and globally, we've increased the number of email addresses that we can now market to by about 3x. So some nice progress here on visuals -- on visibility.
So now that we've increased our visibility, now we want to start to market to these potential customers. And we need to market to them at a more -- higher frequency than we've done in the past because we need to make sure that we are able to communicate with them when they start thinking about potentially buying a new piece of equipment. And we don't necessarily know exactly when that is, so we -- and we can't just send them in an email a year. It needs to be something much more frequent than that.
And of course, when we market to them, we need to be able to communicate with them in a language that's interesting and relevant for them in their language. How you market to and how you explain to an egg producer or to a dairy producer are, of course, 2 completely different things. They have different kinds of packaging. How printing is done on their lines is very different. And if they're using somebody else's equipment and you're going to try to convince them to go with you, you of course need to make sure that you speak their language and you can explain to them that you can do something better than the other people can do.
So -- and that's what the left-hand side of this slide talks about. So all of our marketing campaigns materials have been moved away from being more generic product oriented to being vertically oriented. And so great, but now we need -- we've got the visibility. We've tweaked how we talk to these customers, but now we need to start executing these campaigns. We've got more than 20 verticals that we want to market to. We're active in 26 countries around the world, which means 19 languages, and we want to communicate with all these people in these databases many times a year.
How do you go orchestrate that within 18 months? Well, this transformative marketing approach is how we're doing it. So what we do is we divide up tasks and we built a sort of a business system here on how we do this. So we say we have a global marketing team that provides, let's say, certain base coverage, so that's the top box there. So we have an email back office, global back office, that basically takes care of defining campaigns content, translates them and markets directly into 26 countries around the world. That kind of marketing tends to be more awareness oriented and a little bit more general, but still vertical specific.
Then in the countries, the middle section here, they then focus on marketing that's more demand oriented, meaning it triggers -- if there's some specific offer, something specific that generates an action from the customer. That type of marketing is also very closely coordinated with sales efforts. And you can see an example from Brazil there, and we have a specific approach of how we go and do that. And by having the marketing -- number of marketing campaigns and the sales team focusing on specific verticals on the same time, you can see sort of the multiplicative effect there of the type of sales improvements that we can achieve.
Now so we've created awareness, we're driving demand, but now we want to keep sort of a base load of marketing going that educates the market about us as the thought leader in our type of industry. This involves, typically, writing articles, placing them in technical journals online or industry journals online or in paper medium. Typically, the smaller marketing teams in our countries are more short-term oriented, so they are more suited to do what's in the middle on the slide here. So then we have another global team that focuses on mass creating articles and placing them in different journals, online and on paper. All these 3 things work together and there's sort of a multiplicative effect here, and I'll talk about some of the results here in a minute.
But first, I'll say within the demand-generating piece of our approach, the middle section, there are 3 main vehicles for lead generation. Obviously, digital marketing, search engine marketing, email is one part of that. But tele lead generation, so we have basically large groups of people over the phone who reach out and call all these databases that we built to generate leads, is a very significant part of our lead generating activity. That's also something where we have standard work, and you see a little image there of workflows, processes that we've deployed across the world and of course, we have the relevant benchmarks there as well.
And then the third piece there is really -- gives you a flavor of how we leverage our 1,000 or so service technicians around the world who, of course, walk in and out of plants where they're using both our equipment and perhaps other people's equipment as well. So we're using them as well in our lead gen activity.
Top chart here, you can see some of the results so far. So you can see that in terms of leads, we have grown significantly. We're up more than 50% of where we were last year, this time of year. Most companies will stop at measuring their marketing efforts at that point, the leads. The beauty with our approach here is really that we measure it in terms of sales growth. So how many sales dollars did we add as a result of the marketing efforts that we're driving? And as you can see there, we have some really nice progress as well, and we've driven about 1 point of growth so far this year in Videojet as a result of these efforts that I'm talking about here.
Of course, Videojet is not unique in deploying this approach or similar approaches in Danaher, and that's the benefit of being part of a company like Danaher. You have 3 examples here of sister companies that we benchmark with. They benchmark with us. We learn from each other, and you can see that they've made some really nice progress in different elements of what we're doing as well. And of course, with Barb leading the DBS office overall in Danaher, she helps us evolve what we're doing here as well through external benchmarks. So that essentially summarizes what we're doing on transformative marketing in Videojet. Larry?
H. Lawrence Culp
Thanks, Joakim. Yes, I hope what you see there in Videojet is that culture and those cultural attributes in terms of a high level of expectation, a sense of urgency, combining with those fundamentals in terms of the visual management, the trackers and the like, to really set up then the growth specific tools around transformative marketing that Joakim and his team are deploying at Videojet. As Barbara highlighted, this is something that's really critical to the growth toolbox, but we don't nearly [ph] the impact that we would without that DBS foundation, again, those fundamentals that we share across the toolkit. So Joakim, thank you for sharing that story.
I think our next presenter off to the side here, my good friend Mark Dickman, a fellow Virginian. Mark is the Senior Vice President for Sales at ChemTreat. As Tom indicated, we've learned a lot about selling from Mark and his colleagues at ChemTreat, and he can share a little bit of that for you this afternoon. Mark?
Thanks, Larry. Good afternoon. I look forward to sharing ChemTreat -- introducing ChemTreat to you today. ChemTreat is an interesting story. Industrial water treatment business, been in the business over 40 years. Never a down year, not 1 down year. I'd take credit for that, but I've only been here since '97.
ChemTreat, despite pretty strong growth record, embraced the Danaher business tools, growth tools about 5 years ago and took a very strong growth business and added a whole another dimension to it. Made it better, better defined as 11 consecutive quarters of double-digit growth. I think that streak ended in March, but they'll finish this year in high-single-digit growth. I'm going to share a couple of stories of how DBS growth tools help us both on -- there was actually 2, 3 points of growth.
But before I do, what is an industrial water treatment business? What we do is we help ops managers, production managers sleep better. Our products, and more importantly our services, our expertise, on-site expertise, prevents water from damaging our customer's assets, causing downtime or basically minimizing efficiency. Water left that's on devices is corrosive, scale forming, causes microbial balance, mineral deposits, all things that don't go well when you're trying to make steel or power or produce oil.
ChemTreat overview. 95% of our business is in North America. We're very excited about the growth that we're seeing in Latin America. Most of the 95%, consumables service. There's no denying the growth drivers in our business. You read about it every day. Water scarcity is a big deal. Last time I checked, they're not creating any new water.
Water quality, regulatory drivers. Water quality awareness will continue to be a big part of our business for many years. The interdependency between energy and water is growing. The EPA says this year we will use 700 -- 100 to 140 billion gallons of water to extract gas in the shale play.
So, exciting business, a business that we're very prepared to serve. You can read the financials, $5 billion market. Our customers are in the industrial light and heavy market, oil and gas, food and beverage, commercial and institutional business.
For us, DBS growth started approximately 2008, went to DBS boot camp. The invite came with a plain date [ph]. Excellent 2 days. We were exposed to a lot of interesting growth. And I'll be honest with you, some of you asked some questions about the people side of the business versus tools, and we had a little bit of a reservation. But that was soon gone because you can get lost in these tools if you allow yourself. There's a lot of quality tools, but the key is to pick those that makes sense for you.
It's a commonsense approach. One of the best definitions I've heard was commonsense vigorously applied, and that's how we approached a lot of excellent opportunities. And for us, DBS was SFI, sales force initiative, conference where we had a lot of things at our disposal, and we picked market segmentation and value selling as 2 items that we thought would improve our go-to-market strategy.
We had grown into a business that had established the best technical service in the industry. We had a very stable sales force, strong corporate accounts team. We were winning by solving problems. We're winning making cold calls. We're winning through corporate accounts activity, driving, again, quality growth. But what we were not doing is we're not looking at where we can apply our skill sets more offensively, more strategically.
So that's what we did. We profiled our business. We looked at it a little bit differently and said, "Hey, you know what? We do have some pretty interesting capabilities. Where would we apply those? What would be the smartest avenue for ChemTreat to take 5%, 6% growth and turn it into 10%, 11% growth?"
Hello, Gulf Coast. Pretty interesting growth market, very interesting to us for a lot of reasons: low energy prices due to the shale play; cranes everywhere; new businesses, 2 new steel mills went up down there; ethylene production going skyward. So this is a market that was very exciting to us. What we found, though, through our segmentation strategy is while we play there, we weren't playing big enough.
They didn't want corporate sales or tech people that flew in. They wanted someone there that had the same area code, someone who basically wakes up in that market, in that environment. So we got after that. We started seeking talent. We use dynamic resource allocation through sales engineers with unique skill sets. The game was changing. We needed to know more about pretreatment. We need to know more about filtration. We broadened our product portfolio, and we built advanced treatment programs to address the water scarcity issues that are and can be pertinent to the Gulf Coast.
Result? 15% growth in a strategic market for us in 2013, picked up multisite locations in oil and gas. We picked up 2 of the largest steel mills ever built in the United States, and we picked up our share of chemical plants, specifically in the fertilizer applications. So for us, this targeted strategy drove a couple of points of growth for us that I don't think we would have realized prior to utilizing the DBS growth tools.
Same thing for Latin America. We've been in Latin America for a while. We leverage some of our corporate accounts. We had worked with our customers. We had added feet on the street. But what we didn't do is we didn't really understand what the value proposition in Latin America looks like. We didn't match the skill sets of the people we hired to the customers very effective.
So new thing, VOC, voice of the customer. We're a chemical group. We are -- VOC, we think volatile organic compound. So we use VOC, actually started to understand what the value proposition look like. We were able to shape and develop a hiring strategy. And you can see the results. Steve Lavelle [ph] and his team, Raul Morales, Nelson Delgado, they put together a best-in-class team that has provided over 25% growth in Latin America and will double that by 2015.
Recruiting will always be vital to our growth. I know Tom mentioned earlier about some things that companies have learned from ChemTreat. We hire very aggressively. This year, we will have hired 20 customer -- I mean, 80 customer-facing adds to our business. Our attrition rate is less than 3%. It's not linear, but a strong correlation to our retention of our customers. It is really a very customer-intimate business.
It's not just ChemTreat. We've been part of the immersion plans. I think Angie mentioned immersion earlier, about how key it is in the development of our team. We've been involved with Gilbarco Veeder-Root, Radiometer, Videojet. Their leaders have come to our business. We've learned a lot from them. I think they've learned from us. I think one of the things that's missed on DBS is the collaboration that takes place during that process. Things we're doing today are different, and they're better.
So I will tell you that from our standpoint, from our commissioned salesman standpoint, DBS is a strong growth sales tool. It has value, and we're very proud to be part of these growth tools that's made our business very strong performing for Danaher. So thank you.
H. Lawrence Culp
Thanks, Mark. I think Mark's point on SFI is one that's easy to miss. Again, it ties back to the fundamentals. You go back to our earliest work with the Toyota experts. What they taught us in manufacturing with an eye toward labor productivity was to make sure that those operators, the people actually touching products and adding value, value the customers are willing to pay for, needed to be the focus of all that improvement. And if you are out on the floor, you're either helping those folks or you need to get the hell out of the way.
What SFI does is take that same approach to our sellers to make sure that every minute of their day is as productive as it can be. And we're not talking necessarily about route efficiency and the like. It's making sure that when they're with customers, they are prepared to have the organization at their disposal to be as impactful as they can. And when you're doing that and then coupling, as Mark described, dynamic resource allocation, make sure we're funding as much of that winning activity as we can, we set ourselves up very nicely to drive that outsized growth.
I know there was a question in the back earlier before we went to break around how DBS plays in new acquisitions. Hopefully you just saw the best answer you could ever ask for. We didn't go in and give Mark and his team the playbook. We expose them to what works for us. We try to be sensitive around what was working for them and in turn, made 1 plus 1 equal 3.
It wasn't a jam [ph] job and corporate. It wasn't Mark and company saying it doesn't work here. We were working together trying to figure out how to build a better, bigger ChemTreat and obviously, that's what Mark and company are doing.
And that's exactly what Damien McDonald and the team at Kerr and the professional consumables group in Dental are doing. So Damien is going to come on up and give you another cut here in the health care world with respect to how DBS is helping turbocharge their growth.
Thanks, Larry. And on behalf of the Dental team around the world, it's an honor to be here today to present a little bit about DBS in action and particularly around new product introductions and how we're driving growth.
A lot of you have seen this data. I think what's really interesting -- so our Dental groups have dentists, specialists and hygienists around the world, and we think we're executing pretty well. We're taking share, taking share in a number of categories. Pick a category, I think we're doing very well. But a lot of that is driven by our new product introduction. We're going to launch 30 new products this year. A bunch of you were at the Greater New York show last week and saw this first hand, the i-CAT FLX, the fastest-growing i-CAT 3D cone beam that we've ever launched, a new TF Adaptive for endo work. We've got a new intraoral scanner that is booming in terms of placements. And something we haven't really expected, the link to other parts of the procedure has been really key here, and so we're selling loads of Insignia. And across the group, this new product introduction cadence has been really important to us.
You'll see also here the data is roughly 50% consumables, roughly 50% equipment and that growth has really been in all of the markets, especially the high-growth markets. We're seeing high double-digit growth in those high-growth markets, and all this while this growth has been balanced with good operating margin expansion that you saw earlier from Larry.
Bob talked to you about the tools and the toolkit, dream, develop deliver. What I want to do is talk to you a little bit about going from the dream to develop, develop to deliver and then a little bit about deliver. So 3 applications of these tools and why they're transforming how we do business in the Dental industry.
So first thing, let's talk about dreaming and developing. Curing lights are not something that a lot of people talk about. It's not a topic that's sort of dinner table, but curing lights are essential to the dental procedure. After you've prepared the tooth to put a filling in, you have to set or cure the filling. And so the important thing about this too, if you're a company, is that this is a high merchandise item -- it's a high-value merchandise item.
So there's a lot of opportunity both in revenue generation and market share by getting something right here. But not a lot of innovation had occurred in the space. Lots of the new ones was really around beam width and beam strength, and that wasn't particularly exciting when we talk to customers.
What we did with our ideation and voice of customer process here, though, was doing ethnographic research, going to gemba, going to where the customer is and watching how they do business. And when you think about how they do business, what was different for them was not the cone beam width. What was important to them is, did the battery recharge fast enough to do the next procedure? And the job that they were trying to get done was hampered by whether this battery was recharged, whether the sink [ph] would work when you need it to.
And so our ideation process and voice of customer led us to look at this part of the market differently. We did some open innovation work. We found new suppliers. We did some IP mapping, that's one of the other tools, and found that there's an opportunity here to apply ultracapacitor technology to the space. Now ultracapacitor is used in lots of other places, but they've never been used here. And what this does is instead of taking 2.5 hours to recharge the battery, from absolutely dead, we can recharge the battery -- no battery, we can recharge these plates in 40 seconds. So there's no battery, fully recharged in 40 seconds.
This changed the way that the dentists and their tech really did the treatment. And what was important for us is the way we did this process, finding these partners, finding the supply chain, finding this new technology helped us achieved tremendous financial results. We've gone to market share leadership in 2 quarters. But importantly too, we got time to market down by 50%. So the front end, the dream and develop aspect of our business is really being impacted by using standard work using these tools.
Next, let me talk a little bit about product development, but specifically about speed design review. Our imaging businesses operate in a couple of worlds. One is the digital world, but not everyone is there. We're trying hard to get everyone to the digital but not everyone is using it. People are still taking film x-rays and then using that, and that's not always the best use of technology. So what people need is a plate reader that takes that image, that film and turn it into a digital image. So that's what a plate reader is. We need to do innovate in that space.
One of you talked about earlier the idea of failure and how do you tolerate failure. Speed design review is really intriguing in this respect. It's really about failing early and failing fast. And it front loads the product development cycle and prototyping. So typically, if you're doing a prototype for something, you'd spend 6 months, you'd get a prototype. And at the end of that 6 months, you have a theme that you'd spend the next year or 2 trying to make work exactly like you thought it should.
The idea of speed design review is that you take all of that prototyping that needs to occur and put it into a very front-loaded period: a couple of weeks, a couple of months and you go through a lot of iterations. So instead of 1 iteration or 2 iterations in a 6-month period, you might do 5 to 12 iterations in a week or 2 weeks. And the way that happens is by putting everyone in a room. It's called an Obeya room, which literally in Japanese means big. And that room is where the team lives. They don't live in their functional desks. They all live in that room, and it's literally applying the principles of lean to product development.
So they live in that room, there's one piece flow. It's visual management. All the product plan and the launch plan and the development plan is all up on the wall. There's no Microsoft project. They work on a macro project plan, which is all mapped out, and then 1 month views of the macro plan. And then while they're doing all of this prototyping and testing, they're also building the manufacturing processes. So they map those processes. So that by the time you get to manufacturing, you've already figured out how to build it.
And you see here the pictures here, the 5 images. That's actually 1 week's worth where they -- there was a subsystem they were trying to develop. They put together these 5 subsystems in 1 week, and that's how you fail fast. And it's extraordinary what this team was able to do, not just because of the results you see here, lower production costs, 85% reduction in out-of-box failure. This was the first time anyone had done this in our organization, and the application of this in 1 iteration was so powerful. We were able to replicate that very rapidly across the rest of the organization. I'm going to show you a few examples of that in a minute.
So you come up with some ideas, ideation and dream. You develop them. Unless you close the loop with commercialization, it's not particularly doing much to create value for customers. So let me talk a little bit about how we've done that with the consumables group and driving value at the customer level.
Matt talked a little bit about feet on the street SFI. This is a non-feet on the street application of SFI. How do you make the sales force more productive? Before you start adding people, let's make them more productive. And what we did with the team was really try to get after the culture of the sales organization and apply DBS to the way they work, standard work, visual management.
Some things here were important. We hired people, but we didn't have a process for doing that. So we put a place -- a process in place where we look at a particular candidate with a profile. We do a mapping of that person's profile that generate a series of questions that we then ask in the interview process. And if that person is successful through the interview process, they then join the company, but that profiling that we did is now their development plan. So standard work, every regional manager now applies that when they hire a sales rep. The assessment of these people then becomes a quarterly part of the discussion, not just their sales results but how they are doing against this profile and this needs assessment.
Then we put the people out on the street. Let's make them more successful out there. We gave everyone iPads. That's cute. Everyone's got iPads. What was important here is what we did with that, firstly, all the sales material was put on there. Then we created [indiscernible] university with our product training and put all of the content onto their iPads. We then also -- with our selling process, remapped all of the product literature, so that as they go through the sales process, all the product literature maps to that selling process, all on the iPad. Then we linked it to the CRM system. Again, everyone's got a CRM system. What was important here is to start thinking about things in terms of a procedure, not just, "let's sell another product." What we wanted to say is, if I'm between open the mouth and close the mouth in a dentist, how do I own as many of those steps as possible, and we started mapping the CRM to that process. And then lastly, giving them territory-mapping software that said, who are the most high-value customers in a particular geography? How should I wrap my day? How should I think about where I'm going to meet them? How do I bring them together? So the iPad made all of that much more fluid. And then we layered on these tools over the top of it, and this has been extremely powerful as a way to change the mentality of the sales organization and then the sales leaders use visual management to track this weekly and monthly. And I have a discussion with our head of North America sales every month. We use visual management. We don't create any more work. It's all the tools he has, and we go literally through a customer and rep level data on a monthly basis.
And this has completely changed the way the sales organization think about executing on a daily basis. Sales app, our focus group, our products is 2x the market rate. And we've had a 100% voluntary retention in the U.S. sales force, which from a double-digit number a couple of years ago, down to 0 voluntary exits, has been really important for us, much more productive.
So to wrap it up, just to come back to speed design review, again, we've talked a lot about how do you template and replicate. A lot of companies has made the pilgrimage to the imaging group to see how this works and to see about how is DBS sustainable. Here's the earliest company in our group, JVS, going to learn new competencies, new skills, new DBS techniques, and you can see the results parked [ph] early into the company and Radiometer, who'll you'll hear from Peter in a minute. All these companies are being able to template and replicate this process, and we've convinced this is going to make a difference to any new product introductions. Thank you.
H. Lawrence Culp
Thanks, Damien. You ought to applaud because I applaud what Damien and his team has done. I mean it's a wonderful story whether on the growth side or the commercialization side or the new product side of things because when we bought the business, a lot of people said, "Where's the cash cow in consumables?" That's not -- it's a business you cannot grow, I think Damien and the team are showing that DBS is properly deployed, you can drive that business. Just in terms of speed design review, again, you can see some common linkages in terms of from whom we're learning and then the Obeya he was talking about is in Helsinki. So think about that, again, Barb leaves Dan her business system office, to central resource, that trains and facilitates, but we'll learn from anybody. A new company like ChemTreat, a long standing business is trying something and speed design has really caught wild like wildfire across the organization, which is a wonderful segue to Scandinavia and Peter Kurstein who's based in Copenhagen. Peter runs Radiometer, one of our best-performing businesses for a very long time. We could have Peter talk to growth. We could have Peter talk to leadership, but we thought it would be particularly helpful for you to see -- lean through his eyes in one of our high-growth diagnostics businesses. Peter?
Thank you, Larry. I think many of you have heard about Radiometer before, but we are a company who is providing diagnostic information about critically ill patients. We've been able to grow the business high single digits for a number of years. The high-growth markets have been a terrific growth driver for us and we've also been able to add more tests to our instruments as to provide more information about the critically ill patients. In the so-called blood counts business we're in, we are definitely the market leader and we also have a good position in the so-called immunoassay business. Over the years, we have developed a large installed base, which is providing us with a very solid consumables business. But it's also providing us with a relationship with our customers, so that we can continue to have a high -- our retention rate is actually higher than 90%. And it's also providing us an opportunity to gain in sort of the share of wallet we get from these customers.
So being the market leader, our customers really expect us to have the highest quality and the highest reliability in the market and as a leader, they also expect us to be the leader in innovation.
We've been part of Danaher now for 10 years, and we've been working with DBS fundamentals, and I think we can say that we have many of those in control now. And that has really served us well in terms of both helping us accelerate the growth and also the marketing expansion that we have seen over those years. But the fact that we have now these fundamentals under control has also permitted us to take it at one step further to raise the bar, particularly on reliability. You saw this, I think it was Jim showing this slide before, and we've really been focusing on using reliability tools to take things to the next level.
And in those, some of those, the key tool here is to design quality into the products, so they are born reliable. It's working with our vendors, to make sure that the parts we get are high-quality from the beginning. And it's working with the manufacturing processes to make sure that they are producing high-quality parts from day 1. And then finally, also looking at the installation with the customers and the service products we provide to make sure that those are defined with high-quality from the beginning.
So I'm going to share with you an example of we use Danaher reliability system to really create a breakthrough. The example I'll share with you is a new instrument we designed -- we introduced in 2010, a new generation of instruments in the blood gas area, which is really a tremendous breakthrough with a lot of benefits to our customers. However, we realized that we had -- when the product was hitting the customers, we didn't see the reliability that we had hoped for. Most easily measured by the number of unplanned service visits at -- our customers we're seeing, which was at 2x or twice as many service visits as our previous generation.
When we looked at the situation, it turned out that actually, the instrument itself was okay, with a high level of reliability. The issue was really with the consumable with the little sensor cassette that you see on the picture here where the blood is being measured. When we looked further into that, it turned out that the root cause of the quality issue was that it had not -- the processes were not really robust. So when you look at the -- when we looked at the components we were getting, they were not of satisfactory quality. The manufacturing processes were being impacted by changes in humidity, in the environment. And again, the quality and the tolerances of some of the components. And you can imagine that this was really a critical situation, both in terms of this new product was supposed to enable us to accelerate our growth. We had higher warranty costs. We had higher scrap, and consequently, low yield in the manufacturing process. So it was definitely a high priority issue.
So what we did was we looked at this and it was clear that because this was a complex technological issue we were facing, we needed to look at this in -- with a broad range of tools and that's where the Danaher reliability system was just the right concept to apply here. And what we did was, really, in the 4 areas that we're able -- where we were able to really create the breakthrough that we needed for this.
The first one was to ensure there was the leadership attention to this that it required. So this is really was defining this issue as a policy deployment issue, which means that we get it on our matrix. It means that we do very thorough problem-solving to make sure that we don't go out fix things before we know what the real problem is. And not least, it means that we allocate enough resources to make sure we can fix this, both qualitatively and also quantitatively.
The second thing was to create a war room, which is a physical room where we put all the issues that we are facing with this product on the walls. And the team is meeting in the room every single morning, where they look at any new information that we get from the field about this and also, they look at all the activities that had been put in motion and to make sure that there is daily follow-up to make sure that things are moving.
The next step was to look at the quality of the components that we get from our vendors. This is not really rocket science and actually, we were able to piggyback on some of the best practice from the automotive industry, which is well known for having a very strong control over their purchased parts. So 4 simple steps that we went through was to look on each of these parts that we buy from our vendors. What is critical for the quality of that part? Second thing is, how does the supplier actually manufacture this. The third was to look where and how can failures occur and the fourth one, how do we control that the supplied parts are okay. So now this is not, as I said really rocket science, what was the breakthrough was that we actually did this. And we did a disciplined and we did it documented and bringing all these components under control. The fourth component of the reliability effort here was really on the manufacturing. As I mentioned, we had -- we saw quality issues on the manufacturing process that we didn't really understand. So we identified 48 critical factors that determines whether a particular process is in control or not. And all of these of 48 parameters are being monitored every 15 minutes. They are being displayed on a screen where the operators in the room can see whether what they're doing is really of the right quality or not. So simply put, we're just identifying what makes the difference between good and bad, and we make that visible to the operators real-time.
So the result of this effort was really that we were able to drive a breakthrough. The lifetime of the sensors inside the instrument was increased by 800%. The failure rate of this part, once in the instrument, was reduced by 75%. The manufacturing cost reduced by 70% and the first pass yield increased by 300%. So all these percentages together was really a huge difference for our business. It's saved $25 million, but more importantly, enabled us to go -- come back and use a product to drive Radiometer's growth. It meant that we could have a better profitability and lastly, but maybe most importantly, our brand as being the highest quality and the highest reliability was maintained and continued with our customers.
And Radiometer is not the only place where this has been -- where the Danaher reliability system has been used to drive a breakthrough. You see some examples here, and as in the previous example is really evident that we share. We have been visiting each other to see how this is done real-time and you see here 3 examples, where Tektronix, Beckman Coulter and Dexis/Gendex has really been driving breakthroughs in the order of 20% to 40% on quality measures. Thank you.
H. Lawrence Culp
Thank you, Peter. I hope what comes out here is that lean isn't all about cost. Certainly, we get cost benefits from the sort of improvements that Peter is talking about here. But you can see that first and most important metric, quality, is front and center for Peter's team here. We've evolved some of those, again, the fundamentals within the lean toolkit to really elevate our capability, primarily around what we call the Danaher Reliability System. You see the impact at Radiometer. You see that sort of impact across the organization. So we've hit on growth. We've hit on lean. What comes next? Leadership. The way we tie all this together and make sure this is not just a checklist exercise. Allison Blackwell, who's the Senior Vice President for HR at Beckman Coulter, was there prior to the acquisition, has been a great partner of ours ever since, she's going to come up and share a little bit about perspective from Beckman. Allison?
Allison F. Blackwell
Hello. As Larry mentioned, I was with Beckman Coulter prior to the acquisition by Danaher. I've been there about 6 years and it's been an interesting time during that 6 years. And so today, it is fun to talk to you about the progress we're making with respect to applying DBS' leadership to talent at Beckman Coulter.
But first a little bit about Beckman Coulter. As you know, we're the leading provider of in vitro diagnostic systems and instrumentation. We sell our products globally, primarily to hospital labs and reference labs. Our revenues are in the range of $4 billion, with operating margin in the mid-teens. Our growth drivers currently are coming from 2 ways: one, expanding our base, so selling to new customers, primarily in the high-growth markets; and then secondly, going into areas we haven't been before and expanding in preventive and predictive medicine, as well as molecular diagnostics.
Angie Lalor took you through the DBS leadership framework and today, I'm going to focus on what's bracketed there, which is talent and organization review, more specifically talent review and how we applied it at Beckman Coulter. But to tell that story, we have to go back in time, so I'm going to go back prior to the acquisition and give you the backdrop. That backdrop was prior to 2010, Beckman Coulter was a publicly-held company and we did have talent review in place. We had -- we reviewed that with the board regularly, our CEO and the senior leadership team were committed to it. They were good at -- pretty good at identifying talent and developing talent internally and we also had a system in place that gave us not only a tool for the process but also visibility to the talent when we needed it. Then came 2010, quality issues at the company emerged, priorities were reshuffled and talent processes were put on hold. Now at the time, that was probably the right thing to do, but it had that unintended consequence of neglecting the talent we had. So then fast forward to 2011, Beckman Coulter becomes part of Danaher. We also undergo a company reorganization that focused us more along customer lines, as well as functional lines. The good news there is we were able to take some of our internal talent and promote them up to fill new and existing leadership positions. But we taxed the bench even more. So during that time, talent management had not really been a priority. And we had it into 2012 with a depleted bench.
So now let's talk about what we did in 2012. It was all about getting back to the fundamentals. We took Danaher talent review process and standard work and we applied that. We refreshed our view in our talent, went back and looked at who is a high performer, who is a high potential, where we're going to make some investments. We also developed staffing actions, which -- staffing actions really is short-hand for specific actions where you're going to develop somebody, so maybe it's a rotation or some specific assignment they'll have or it's a hiring action that you're going to do to fill the gap and increase the funnel. And then we began to measure progress. We hadn't been very good at that before. We got better at doing that in 2012 with this process. Yet we didn't see the progress we had hoped. In fact, we found ourselves still hiring for the here and now, for the current need versus the future, and in fact, only 25% of our new talent was ending up in our talent funnel.
So although we focused again on leadership and talent development, we weren't exactly prepared for the long journey ahead. We -- I guess we thought we might be faster at it than we really were. It is a journey. So let's fast-forward 18 months to the current time. The journey has been a successful one so far. We keep building our muscle in this regard. We've taken talent review and organization review, and closely aligned them with the business strategy. We have leadership commitment that's deeper, not only for developing our talent but also hiring for potential, hiring for the future. And we're measuring it in a much better way.
What that is, is all about that discipline and building muscle with those successive review cycles. And that's resulting in the bubbles you see there on the right. We are filling faster than external hires with internal talent, so 61% at the time in our senior leadership positions were putting in an internal person. And we also have increased our staffing actions and it's not just about more, we're actually delivering on them at a better rate. And then finally, of the new talent coming in, about 9 out of 10 times, we see them going into the talent funnel. We've hired right, and we've hired for the longer term.
So for us, at Beckman Coulter, the DBS leadership tools and process have really made the difference. And we are enjoying that great progress as a result and we'll keep going. Like I said, it's a journey. And there are some examples here about where talent review being is put into action across Danaher and their stories were telling, so I'll take you through them.
The finance function, for example. Finance is a position that really is transferable among segments, among operating companies, so the finance function got together and said, we need to make sure we have the best talent in place. They calibrated on what that meant, what is great talent. They also identified the top 50 critical finance positions throughout all of Danaher and made sure there was a really good succession plan in place. And then they worked on individual development plans for their high potentials. As a result, they're filling positions internally at a faster or above average rate than the rest of the company.
X-Rite is another really good example. A recent acquisition where we had leadership needs and there we did both -- we did 2 things. We promoted some people internally and we brought in some talent from within Danaher. As Angie made mention Ron Voigt before, he was one of those. That led to 3 things. First, it helped us integrate X-Rite faster into Danaher. Second, it helped us implement DBS really well. And third, it helped develop those high potential leaders. So it gave them the right experiences and set them up for yet future assignments.
And then finally, in China, a hot, hot talent market. We've been able to look across the operating companies at talent, specifically the key leadership roles, especially GM positions. And there we're identifying the high potentials. We're identifying our gaps and putting the right actions in place and most importantly, we're engaging the high potential talent differently than we did before. We're showing them a career path within Danaher, and we're showing them a deep commitment to their development and that is paying off for retention.
So through DBS leadership and this regular cadence and discipline on talent management, we are not only producing talent to support our growth, we're also -- it's also becoming a key differentiator for us. And that's what I want you to hear at the end of this presentation, at the end of all the presentation. So Larry, I'll turn it back to you.
H. Lawrence Culp
Thanks, Allison. Thanks. And I think fundamental to that story that Allison just shared, is we're not just talking about any type of leader, we're talking about Danaher leaders. Leaders that understand how growth, lean, leadership, whether it be policy deployment as Tom talked about, some of the other talent and leadership management approach is that Angie and Allison have talked about, how they -- how it all comes together to build a team and build a great business.
I hope you take away from the afternoon, anybody listening? For those on the webcast, we're passing out some of the slides and I suspect a few bright souls are trying to jump ahead here. But I want to underscore the importance of DBS, and why it's such a competitive advantage for us. Again, it is our culture. It's who we are, and that is extremely distinctive, but as you saw, it's a very rich toolset as well in terms of approaches, techniques, best practices and the like, that really help us drive these results and do so on a sustainable basis.
DBS has come a long way. It's not just about lean, though we're not shy about our lean roots. And DBS has certainly been part and parcel of how we've been able to scale the organization, knowing in terms of being bigger but being more global, more technical and a higher performing organization. And to do that in a way that I think has stayed true to those values, very much rooted in our history bodes very well for the next $20 billion of the journey.
Before we transition, I just want come back to -- before we transition to the additional color around the year end guidance, I just want come back to one of the items on Allison's slide. You saw Allison talk about the finance organization, the talent process there. One of the highlights of that effort is the appointment that we've made some months ago, really a dual appointment to Matt McGrew. You know Matt, primarily is our Head of IR. Matt also wears another hat. He's the CFO for our Life Sciences business. Matt has had a phenomenal Danaher career, hopefully one that is far from over. Matt had a terrific time in the M&A group, really was one of the drivers over the last 6 or 7 years of a number of the key transactions that we did. Really that rare skill of combining a strategic view of what the business is all about with a detailed command of the numbers. Matt, I think in my estimate and from what we can tell, yours as well, has done a phenomenal job as Head of IR. This section probably marks as his last session as the primary lead for Investor Relations. I think this day and many others have really been a result of his hard and good work for which we're appreciative. Obviously, a new challenge for Matt, going in full time in the Life Sciences. I know he's looking forward to that. We're looking forward to that as well. I suspect his handicap will suffer, and he will miss the dinner and drinks with many of you. But he's always around and as we say, life is long. I suspect you'll see Matt not too far down the road. But if our new leader, Matt Eugeno [ph], ends up having to cough up a bad quarter in Life Sciences, you'll know which Matt to hold accountable.
Let's talk a little bit about 2014. You saw earlier the headline, talked a bit more detail with respect to the core growth. We're looking at 2% to 4%. Again, really on the back of -- by and large, a consistent outlook in terms of the macro. We like what we're seeing in the U.S. We're cautiously optimistic about Europe, but those improvements are a bit of a trade in terms of -- with the high growth markets coming off a little bit, still leading the way, still very encouraged by that, but again, when you mix that out, we're looking at 2% to 4%. In a moment, I'll speak to a little bit more detail around the segments. We think that falls through in roughly 35% level, with some tax headwind to get us to a 6% to 10% EPS increase. Again, I know a number of you will model the tremendous cash flowback in the business in some fashion primarily by way of acquisitions. That's fine. You can do that; we do not. So there's no M&A impact in here whatsoever.
We are getting about $105 million of benefit from our productivity work. And here, we get the $75 million that we mentioned earlier in terms of the payback on the work that is underway, and additional $30 million year-on-year comes from the fact that we'll probably spend about $30 million less as we currently framed up the year on similar work.
The tax rate does go up about 100 basis points, we referenced this earlier. This is about $0.05 worth of headwind. Again, given the uncertainty around the U.S. R&D credits, we thought it would be wise to budget that conservatively.
Things aren't fluid in Washington, as we all know. Hopefully, that will be resolved. But given where things stand today, we got back the best way to deploy it.
In terms of seasonality, we'll talk more about this in detail in January on our fourth quarter earnings call. But by and large, the last couple of years are a pretty good guide in terms of how the EPS for the year will play out quarter by quarter next year.
To talk to the segments a bit, we probably have more consistency next year as we look out across the 5 reporting segments. Life Sciences & Diagnostics is well positioned to continue to lead the way for us. Probably we'll see a little bit of a shift in terms of the mix within LS&D. Beckman continues to strengthen. We're optimistic about 2014, so with that help, in addition to what Peter's Radiometer business has been doing and where we are in pathology with Leica Biosystems, Diagnostics will probably run a little bit faster, ahead of Life Sciences next year. As you know, we've had a great run in the last 2 years. Some tougher comps in Life Sciences. But the news this week, certainly out of Europe with Horizon 2020 program and some of the chatter in Washington in the wake of Ryan-Murray, gives us some optimism that government funding maybe a little bit better than we're currently anticipating. But I think right now, 3 to 5 feels about right for us in LS&D.
On the other hand, Industrial Tech will probably come in the 5-fold there, primarily a result of the continued improvement in the book business in Motion. As you know, through the course of this year, we've been walking away from some lower margin lumpier business. That will continue, so at least in the first half, we'll be challenged. The underlying strength of that platform is good, and in turn, I think in the second half, you'll see Industrial Tech right in line with the rest of the group. If not, with a little bit of macro tailwind perhaps moving forward. So you mix that up again. It's a pretty straightforward frame for 2 to 4 on the top next year.
If the environment improves, and so often we think it will, in November and December, at least of late, we're, I mean, incredibly well poised to take advantage of that given the investments that we've made, given the market positions that we enjoy. But right now, again, I think consistent with our prior approaches, we thought this was the right way to get ready for 2014.
Here's the bridge, which really puts this all together graphically. Again, about a $0.05 of headwind off the 3 40 midpoint going into next year. We've got another $0.05 relative to our growth investments that we're going to continue to protect. And then on the positives, 2 big ones there, the $105 million benefit, $0.11 from the productivity work, and then the 2% to 4% core falling through about 35%. That gets you to the 3 60, 3 75 range.
So with that, I think we're done with the formal remarks. And if you have any further questions in terms of DBS or the current frame of business, the outlook for '14, we'll be happy to take a few of those questions at this point.
H. Lawrence Culp
Jeffrey T. Sprague - Vertical Research Partners, LLC
Two questions really, first, just on organic growth. You have, in fact, outperformed a little bit here over the last year or so. But when you listen to this presentation, you kind of think faster growth would probably be falling out, and it's hard to connect those dots for us. But is there a way to think about how much of what we heard about DBS as it relates to growth and other growth initiatives is truly touching the revenue base of the company? How nascent is the effort? Is there a way to think about how deeply inculcated in the organization it is? And then just as a second question, it is interesting. I can't recall ever having an HR, a senior HR executive at one of these meetings. Perhaps I'm incorrect, but certainly, we haven't had 2. And I'm just wondering, is there something going on in the needs, the talent needs of the organization that changed dramatically, or perhaps you're being poached a little more actively, given the success you've built? Is this about protecting the flank? Just a little color on how to read between the lines there maybe.
H. Lawrence Culp
Those are 2 questions? Okay. Let me try. This is also a test, I think, in my ability to remember all that. In terms of what you saw today, yes, it is true. And no, it is not nascent. We've been at this for a while, and I think it's deeply inculcated. Go back to one of the original slides, right. Segment by segment, platform by platform, opco by opco, we would argue, and hopefully we did so successfully, that where you see us winning, that's not just dumb luck. That's a result of DBS being deployed into these businesses quarter in, quarter out for a while. And it's really that simple. Again, I think that there are very few instances where we are outperforming our served markets, where we're beating competition, where we would say that is unrelated to DBS. That said though, Jeff, I think we would not want to leave with the impression that is kind of fully baked and done, right. In the spirit of Kaizen, we continue to get better. We want to add tools to the toolbox. We want to make sure that those tools are properly used. It's not going to be -- we're not going to feed it, but I think we have a real impact. I wanted to get that across today. In terms of having Angie and Allison up. I think that is really nothing more than the fact that as we've talked for a long time internally, and we've tried to share with you publicly, DBS is not just about Lean. And, frankly, it's not just about tools, be they Lean tools, be they growth tools. You really need outstanding leaders. And by and large, if you look at the team that we have built as we have built this business, we have done so with tremendous retention. We have doubled the rate at which we fill our senior jobs internally. And we've done a lot of that without outstanding HR leaders, with due respect, which is why we got Angie to come on board, which is why we feel to have Allison at Beckman. But this is, again, very much part of the process for a long time. In my first board meeting in this job, I told the board, culture is most important and the most important metric relative to engaging our culture is the rate in which we fill our own jobs. Jeff, you're right. A lot of people want some Danaher folks. A lot of people want a little bit of that DBS magic. Maybe they just want the multiple and not the hard work. Our folks get a lot of calls. We don't take that for granted. But I think if you look at the track record, we're not losing people. We're building this team, and that's why we're so optimistic about smartly putting that $8 billion to work going forward. Steve?
It's actually a good segue to this question. I mean, a lot of great talent, obviously, as usual up on the stage.
H. Lawrence Culp
Thank you. How about currently?
I was talking about before -- before Q&A, of course. And you talked about the multiple. I mean you look at a small company like Colfax, that people are giving up relatively rich multiple 2 [ph]. Do you ever think that the complexity of the company in the way it's formed today maybe overshadows some of that talent that is there in the businesses? Do you ever think about -- obviously, it gets to the law of large numbers issue that it's a lot easier to go from $6 billion in revenues to $20 billion than it is to go from $20 billion to whatever. So is this a constant conversation you guys have in the boardroom about the size and complexity of the company? Or is that something that is more of a 3- to 5-year type of discussion?
H. Lawrence Culp
I think you cover a lot of other companies, where the law of large numbers is relevant, right? I mean there's not many days that Dan and I wake up thinking, wow, we're running a $20 billion company. If I go back to one of the earlier slides, where you break down 5 segments across 9 platforms, that's how we think about the business because that's really how the businesses interact with customers. So in that decentralized way, we've got, if you will, a family of outstanding mid-cap companies that share a common culture. They work and collaborate with each other. They get the full benefit of some of the talent in Washington and some of the other things that make Danaher unique. I think it's a long way down the road before the law of large numbers is relevant. But we've got to keep proving that. I would also argue, and I've argued this frankly this week, that in many respects, at $20 billion, we're more coherent than we were when we were far smaller, right? If you think about the -- where we were when we were $1 billion, when we were $4 billion. We were doing lots of different things for a lot of different people. This arch of being a science and technology company and really pivoting off of those work flow critical machines and wrapping consumables and service and our software around that, doing that on a global basis, doing that in a way consistent with DBS and doing that with this team, frankly, makes what we do eminently manageable.
And then one other quick question on seasonality. The business mix has changed quite a bit. I guess it wasn't normal historically for the third quarter to be below the second quarter. And then the first quarter looks a little bit like relative to where the Street is. Are there any moving parts that we should be aware of in modeling the quarters?
H. Lawrence Culp
No, I just think the third quarter year-on-year will have a little bit of a difference, right, because we'll have a more normal third quarter this year in the '14 particularly in Life Science, where we've got to be mindful that we have the backlog a year ago and a couple of instances which we like in SCIEX that reversed itself. So when we look at core in LS, we really like the second half this year as opposed to the third quarter or the fourth quarter as an indication of how well the business is. Other than that, it's pretty straight up the middle. Gentlemen in the back. I can't see a thing, by the way?
Larry, you opened the discussion talking about you're going to stick with the $8 billion of capital allocation available for capital allocation today. So the inference is, obviously, there's more coming, which just makes sense as you [indiscernible]
H. Lawrence Culp
I hope so.
So my question is, you guys have gotten to a point, it's almost the dovetailing of the critical mass question of $20 billion to be able not only grow aggressively through acquisition but raise that skimpy dividend. And you haven't announced a more robust dividend policy here, so presumably you're not going to do it midway through the year. So what are your thoughts toward being able to continue to grow right through acquisition and DBS, all this stuff, and pay a more healthy dividend?
H. Lawrence Culp
Well, I don't know...
And when is it coming?
H. Lawrence Culp
I can see you now, John, very clearly. John, I would say this: we're simple people. We built this business on the back of our free cash flow for a long time back in, right, strengthening our existing positions, getting into adjacent new places where we think DBS is relevant. And so far, that's worked pretty well. I think our bias as a management team, our bias as a board, is we have plenty of opportunities still in front of us. And with that in mind, I think you can continue to see that bias in play. It doesn't mean that the mix of capital allocation options doesn't get a full vetting at virtually every board meeting. We had another robust discussion along those lines Tuesday of this week, in fact. When you look at the opportunities that we have in front of us to do more what we've been, by and large, pretty successful at doing over time, that's the first option. But I wouldn't assume that anything that we didn't announce today isn't going to be announced later. Anything we didn't say today is simply wasn't said today. Again, we're simple folks. I wouldn't read too much into what we said or didn't say. By and large, it's meant to be a consistent message.
So a couple of questions. One, ChemTreat has been sort of a growth star, but also just in terms of DBS driving growth. It's a bit of a star. Is that because growth was good there to begin with? So the more growth there is, is that creating more opportunity for DBS, whereas in such a slow-growth environment, maybe it's tougher to drive outgrowth with DBS?
H. Lawrence Culp
Well, I think, if you go back to what Mark said, they've been growing for a long time, right? First time we saw the book on the business, we saw the chart. I could see that it was a business I could drive to. It was easy, right? This was a wonderful a business. Let's bring it on. It's not a high-growth marketplace. So what they've been doing for a long time, and fortunately, have been doing a bit more with us, is taking share. Right, largely on the domestic field. I think it's really that straightforward. And DBS, fortunately, has been additive to what Mark and his team have been doing for a while. And certainly from a resource perspective, Danaher has been able to make some bets, turbocharged some of that activity. Anyway, probably it's an independent company. They may not have been able to do or at least had chosen not to.
So you think that all the other businesses have similar opportunities to drive out growth with DBS and ChemTreat has been better earlier?
H. Lawrence Culp
Very much so. And again, that's part of the evolution of the toolkit is to make sure we're not just running the factories well, right, we're not just driving cost, that we're driving integrated outstanding business performance. And we don't see those opportunities. Frankly, those are going to be businesses that aren't with us for very long.
And then just on November, you mentioned a couple of positive headlines. In terms of your own business, I mean, have you seen some things better or some things worse? Maybe just a little color there.
H. Lawrence Culp
Yes, I think on balance, what we would point to positively, and that's really the only news quite honestly, is the U.S. was a little bit better than what we would've thought in November. So we'll take that, but again December, as it is every year, is pretty key. Nigel?
Nigel Coe - Morgan Stanley, Research Division
Yes, Larry, in your first presentation, the thing that [indiscernible] me was the $40 million of investments in molecular diagnostics at Beckman Coulter. I'm just wondering, can you just remind us where Beckman currently plays in MDx? And it seems like a pretty big swing. It's $40 million of investment. What do you see as the opportunity in that market?
H. Lawrence Culp
Yes. Well, in terms of molecular -- he's not giving up that microphone. In terms of molecular, that's $40 million this year, right, and we've been at that run rate for several years and they were pre-acquisition. We do not play today in molecular at Beckman. So this will be a new market space, akin to AQT, being new market space for Radiometer. And what we really want to do is get in there, lever that brand, lever that distribution network into that category of molecular. We'll do that first in '14, in Europe, just given the approval cycle being shorter there. And we'll be working to bring that product to the U.S. in time.
Nigel Coe - Morgan Stanley, Research Division
And do you think that's pretty organic or there's a scope for some bolt-ons in that space as well?
H. Lawrence Culp
There are certainly bolt-on or inorganic options within the molecular space. But right now, the bulk of our energy is focused on getting that product out in a high-class way.
Nigel Coe - Morgan Stanley, Research Division
And then a quick one on the bridge. $0.11 for productivity [ph]. How do we think about that paying back through the 5 segments? Is it in splits or should we think about maybe industrial and Test & Measurement getting the bulk of that productivity.
H. Lawrence Culp
Not necessarily. Clearly, as you saw on one of the other slides, given where the Med Tech segments are, both Dental and LS&D, we need to move those -- we need to continue to move those margins up. But everybody is participating in the productivity effort here at year's end. And that $75 million of benefit is pretty well distributed. But again, we like those 2 up closer to 20 than where it is today.
Scott R. Davis - Barclays Capital, Research Division
I've got the microphone, so I guess I'll talk. Larry, I know this comes up in a lot of the quarterly conference call and it's come up at this meeting in most years. But you spend about double the sector average on R&D. And I know that you're a hybrid company between med tech and industrial, so maybe that's not a fair way to look at it. And you have a margin structure that really supports that spend. But the growth is, the core growth hasn't come through yet. And when you think about your guidance today, I think most of us in this room are probably going to walk away and say you're being ultraconservative. It's hard to really do a buildup to a, let's say midpoint of the range, of the 3% core growth, which would just barely match global GDP forecast. At what point do you need to re-incentivize the team around core growth to outgrow global GDP? And are there changes needed to be made in how you think about R&D spend that it's less to defend your current installed base and more to expand into potential adjacencies and other markets and drive core growth rates? I mean, there's a couple of questions there, but I guess it's all the same context.
H. Lawrence Culp
Yes, Scott, I would disagree, I think, with the underlying premise, quite frankly. We can only perform in context. And that context is the markets in which we serve, at least in the short term, right? Over time, we're going to reshape the portfolio, which I think we've done, and we've gotten out of some lower growth, lower margin businesses quite effectively. But I think if you go across the portfolio, again, in this slow macro environment that we're in, we're winning, we're taking share in a lot of places. And that's what we focus our teams on. That's what we get paid to do and that's what we're doing. Now would we like those absolute numbers to be higher? Of course. But at the end of the day, if a market's up 1, a market's up 2, and you're up 4, you're winning and winning by a meaningful margin. So I don't think it's an issue of incentives and frankly, I don't think it's an issue of R&D spend being focused simply on recycling the installed base. As you saw throughout all the slides today, just a whole host of different examples, we're redefining how we play. We're entering into adjacencies organically that help us.
Scott R. Davis - Barclays Capital, Research Division
Sorry. I guess just as a quick follow-on, I mean, when I think about through the cycle growth for your type of businesses, I think in ranges of closer to kind of 4%, maybe even potentially 5%. I mean, it's a pretty attractive markets. Would you expect on a consistent basis then that we should think in terms of you outgrowing through the cycle by 100 basis points or 200 basis points because of your efforts? Getting back to your context question because I understand that this is a slow-growth environment.
H. Lawrence Culp
Yes. No, I think that's very fair. Is it 100? Is it 150? Is it 75? We ought to be outperforming, right. In a slow macro, or in a better macro, we want to be taking share in the markets that we're in. It's really that simple, and everything that you hear us talk about in terms of how we run the business is done with that in mind.
Larry, just a question in terms of, as you see organic growth resume next year, there's a fear that a lot of corporates have under-invested 2011, 2012, 2013. So OpEx creeps up, incrementals get squeeze. It doesn't look based on your guidance that you're seeing that within Danaher itself, can you talk little bit about the leverage next year on the gross margin and SG&A? Do you think the margin growth will be split between the 2?
H. Lawrence Culp
Well, I think a little bit of additional volume will go a long way. Right, and particularly in T&M where we have a very tough go at it. If we can get Instruments back to flat being slightly up, and the revenue that we'd miss if Tech [indiscernible] Fluke, would come back and contribute in a meaningful way. In Industrial Tech, particularly in Motion, we're getting out of some of those lower-margin. But again, given their OEM orientation, they're not likely to come back in as pronounced a way if we get a little bit more volume. The rest of it falling through at 35 is a reflection of those better gross margins, but also, again, a desire to continue to put some money back into the business. I think we're fairly confident that we have not underinvested, which is why we say, you want to call us conservative or ultraconservative, so be it. But I think we've done the things to position us if things come back a little bit to play and when they come back a lot more for that same outcome to occur just with bigger headline numbers.
Got it. And then the software discussion at the beginning was quite interesting. I just wondered beyond the 1 or 2 examples in the prepared slides, if there were any segments in particular you thought were very ripe in terms of extra kind of software penetration or software investment?
H. Lawrence Culp
Well, clearly, in Test & Measurement, as you all know, particularly in communications, it's largely a software game, right? What we do with the big mobile carriers and comps, what we do on the enterprise side, is largely a function of what we do in the code as opposed to the hardware per se. You get past that. It's relevant everywhere, both from an embedded and from application and SaaS perspective. I think we're excited about what we're seeing in Dental, particularly in terms of some of this digital dentistry, Ormco, for example. And Damien mentioned Insignia product line, we're really taking that whole orthodontic practice state-of-the-art, digital. That's a big advance for the trade. Good growth opportunity for us. GVR, we talked a little bit about what we're doing at [indiscernible] and Teletrac. Another good example, where we're taking a lot of fuel management and inventory management along with the environmental reporting that we've done at [indiscernible] for a long time. Getting out of some antiquated technical architectures and really putting that through a SaaS application, so you can download that fuel management app from the iStore, and if you're a fuel operator, you can call those inventory reports, so the stack outs, out of compliance reports, right on your iPhone or your iPad. Pretty cool stuff, good business, host of other examples. Last question. You've got to give Deane a little time here.
So listen, a couple of questions then on my part. One is in terms of consumables, which you talked about before aftermarket it's now 40% of the company. Most of that's consumables. And the range of growth that you showed us was 3% to 4%, 4% to 5%, within that 3% to 5% per year. In your line, what differentiates the years where you're going to get 3% versus 5%? Are there specific processes and other things in place that can help give us confidence that you can grow that 3% to 4% to 5% on a more consistent basis and deliver that year after year? Is it pricing? I mean, what's sort of driving that?
H. Lawrence Culp
I think more than anything, Steve, it's really a combination of being embedded in those customer workflows in a meaningful way. And underlying economic growth, right? Because if for whatever reason, we're not as relevant, we may have a contractual link into that business. We may a tail on an installed base. But we're not going to grow the value captured by price or through new and additional consumables, say at Beckman, in the way that we would like. Now there will be a utilization effect there, whether we're talking Water Quality, whether we're talking Diagnostics labs, that will factor into that. But I think that 3% to 5% number that you saw in the last 4 quarters is certainly one that in this environment is no, pardon the pun, no fluke. It's something we think we can continue going forward. Little bit of macro lift probably plays in, in a more pronounced way in the equipment side but shouldn't go without impacting the consumables.
Okay. And then secondly, you talked a lot today about return on invested capital. It came up in a number of parts in the presentation. And clearly, that's an ongoing focus here, particularly core ROIC. But to what extent is that really being built into the incentives? Or do you think that is a disincentive to growth? Is that one of the reasons it's not a bigger part of maybe compensation? Or how do you think about it and how it plays into the organization in how you're trying to drive people aside from the M&A part of the story?
H. Lawrence Culp
Aside from M&A?
Yes, so on the core -- your core growth?
H. Lawrence Culp
Yes, I think -- again, with the operating leaders, many of whom you've met this afternoon, their focus from an annual comp perspective is fundamentally around driving growth, driving profitable growth at the OP line and cash flow. Dan and I have been around long enough to remember when other companies you all used to cover have the incentives in place, for their operating leaders to do deals. And guess what? They did deals, deals that they later regretted. So I think we like the fact that we're biased that way, our business leaders want to grow organically and inorganically. There's plenty of reasons to do that. Some financial, some not. I think we've got a good sense of checks and balances, ROIC amongst them, to make sure that we're motivated and disciplined. Deane, you get to the last question.
Deane M. Dray - Citigroup Inc, Research Division
I was surprised that we didn't get a lot of the M&A questions asked, so I'll conclude it with an M&A question. Just broadly, your degree of confidence in deploying the $8 billion plus, your bias on deal sizes and maybe the organization's capacity to do some concurrent deals and then lastly, the 60-40 mix that you've talked about between industrial and medical, Med Tech, Dental, how much might that influence the timing, which deals you're looking at?
H. Lawrence Culp
That was a long question. Okay.
All under M&A.
H. Lawrence Culp
Yes, thank you. One subject, 5 questions. Yes, I would say that if we have our [indiscernible], Deane, we take that $8 billion and divide it across the 8 [ph] strategic platforms and let everybody go do something. Never going to happen. I keep wishing for it, that day isn't likely to come. I think we feel very good about our the capacity to take on much of what is in our funnel today, right? So that's really I think why you hear the confidence being expressed. The funnel is there. We think we have got the bandwidth to tackle it, just bringing in some of these, if you will, this fish into the boat. I think in terms of that Med Tech dynamic, there's just a lot out there right now that is, if you will, Med Tech and orientation and industrial, we're looking at all of it, and we're going to do the deals that make sense for the platforms, for the businesses. And that divide will probably shift and move over time. But we're not going to try to program that so tightly that we don't do a good deal that strategically long-term, financially, we should do.
Okay. Thank you very much for your time and attention today. I hope you found this useful. We look forward to your feedback. Have a great day and a great holiday season. Thank you.
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