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3M industry

  1. An analysis of 3M, the innovation company Lecturer: Sergio Pinzon
  2. Introduction Any review of the literature on new product development and innovation management will uncover numerous references to 3M. The organisation is syn- onymous with innovation and has been described as ‘a smooth-running innovation machine’ (Mitchell, 1989). Year after year, 3M is celebrated in the Fortune 500 rankings as the ‘most respected company’ and the ‘most innovative company’. Management gurus from Peter Drucker to Tom Peters continually refer to the company as a shining example of an innovative company. This case study takes a look at the company behind some of the most famous brands in the marketplace, including Post-it® Notes. It examines the company’s heritage and shows how it has arrived at this enviable position. Furthermore, the case study attempts to clarify what it is that makes 3M stand out from other organisations.
  3. Background Originally known as the Minnesota Mining and Manufacturing Company, with its headquarters in St Paul, Minnesota, 3M was established in 1902 to mine abrasive minerals for the production of a sin- gle product, sandpaper. From these inauspicious beginnings, the company has grown organically, concentrating on the internal development of new products in a variety of different industries. The latest review of the company’s position reveals that it manufactures over 60,000 products, has operations in 61 countries, employs 75,000 people and has achieved an average year-on-year growth in sales of 10 per cent (see Figure 17.10). Its products include Scotch adhesive tapes, fibre-optic connec- tors, abrasives, adhesives, floppy disks, aerosol inhalers, medical diagnostic products and Post-it Notes. Figure 17.10 shows the firm’s continual investment in R&D, despite the economic crisis of 2009/10/11.
  4. Background • 3M gave the world ‘wet or dry’ abrasives, which did so much to reduce the incidence of respiratory disease in the 1920s. It invented self-adhesive tape in 1925, light-reflective materials in the 1940s and pioneered magnetic recording and photocopying • This heritage established the technology from which many of its products are still derived. To reinforce this impressive performance, 3M is consistently ranked amongst the top 10 of the USA’s most admired companies in the US journal Fortune, in its annual review of the top 500 companies in the United States. 3M is a large and unusually diverse company.
  5. The 3M approach to innovation Many writers, academics and business leaders have argued that the key to successful innovation is good management (Henderson, 1994). Arguably, this is precisely what 3M has mastered. A closer inspection, however, will reveal that the company has combined a variety of management techniques, such as good communications and the setting of clear objectives with a company culture built on more than 90 years of nurturing ideas and fostering creativity. It uses a combination of structured research and individual freedom to explore ideas by allowing research scientists to spend 15 per cent of their time conducting projects of their own choosing. It is a unique combination of activities that is, by definition, difficult to replicate.
  6. They are described in this case study under the following headings: 1. Company heritage and culture 2. The demand for innovation 3. Freedom for creativity 4. Tolerating failure 5. Autonomy and small businesses 6. High profile for science and technology 7. Communication and technology transfer The 3M approach to innovation
  7. Company heritage and culture Through a combination of formal and informal pro- cesses, the company has developed a culture devoted to creating new products and building new businesses. This is based partly on the simple idea of hiring good people and trusting them. Indeed, this is the first goal that is stated in 3M’s formal principles of management: ‘the promotion of entrepreneurship and the insistence upon freedom in the workplace to pursue innovative ideas’ (Osborn, 1988: 18).
  8. The demand for innovation Whilst the sales performance is impressive, it conceals an important statistic; that is, 30 per cent of the company’s sales come from products that are less than four years old. Indeed, this is a business objective that every 3M business manager has to try to achieve. What this means is that these business managers are under pressure to ensure that not only do they develop new products but that these new products will, eventually, represent 30 per cent of the business’s sales. This objective has been communicated effectively throughout the organisation and is now ingrained within the management style and part of the culture of the company. Hence, the search for new ideas is part of daily activities. This Photo by Unknown Author is licensed under CC BY-NC-ND
  9. The demand for innovation Senior managers from other large manufacturing companies would, rightly, argue that a similar per- centage of sales within their own companies comes from products less than four years old. However, the difference between 3M and other organisations is that 3M has developed this approach over many years and has worked hard to ensure that developing new products is much higher on the agenda in management meetings than at other companies. Moreover, the success of the approach is due to the continual reinforcement of the objective. Indeed, the performance of individual business managers is judged partly on whether they are able to achieve the objective. The 30 per cent objective was introduced first in the 1980s when 25 per cent of sales had to come from products less than four years old. This was altered in 1992 to 30 per cent. 3M has since added another goal, which is to ensure that 10 per cent of sales come from products that have been in the market for only one year.
  10. Freedom for creativity Scientists and engineers are given time to work on projects and ideas that they consider to be of potential interest to the company and 15 per cent of an individual’s work week time may be dedicated to such activities. This is not exclusive to 3M and is common practice in most large R&D laboratories. Nonetheless, it is an effective method of providing room for creativity and another way of showing that the organisation encourages innovative effort. Indeed, it is a method of providing resources to entrepreneurs, allowing them to work on ideas without having to seek out approval from the organisation. Another way of allocating resources is the use of grants. Known as ‘genesis grants’, these give researchers up to $75,000 to develop their ideas into potential product opportunities.
  11. Freedom for creativity • One of 3M’s most famous new products was the result of this practice, the Post-it Note. Spencer Silver and Arthur Fry both invoked the 15 per cent rule to allow them to work on the project that eventually led to its development. • Spencer Silver was a 3M research chemist working on adhesive technology. His brief was to produce the strongest adhesive on the market. By some extraordinary mischance he developed an adhesive that had none of the properties he was looking for, but that did have two interesting properties that he had never previously encountered: it could be reused and it left no residue on the material to which it was applied. Yet, no one could find a use for it and the idea was shelved. • Art Fry, one of Spencer Silver’s colleagues, sang in a choir. Every Sunday he would mark his hymn- book carefully with slips of paper and every Sunday the slips fell out. Then he remembered Spencer Silver’s useless adhesive. Applied to paper strips, Art Fry found that they made fine book markers that did not fall out when he opened the book. Post-it brand technology had been developed 10 years before Art Fry discovered what to do with it!
  12. Freedom for creativity • In a lecture on the subject of innovation, the 3M vice-president for research and development (Coyne, 1996) reported that: • The 15 per cent rule is meaningless. Some of our technical people use more than 15 per cent of their time on projects of their own choosing. Some use less than that; some none at all. The figure is not so important as the message, which is this: the system has some slack in it. If you have a good idea, and the commitment to squirrel away time to work on it, and the raw nerve to skirt your manager’s expressed desires, then fine.
  13. Tolerating failure ‘It’s easier to be critical than creative’ is an adaptation of a famous quote from Benjamin Disraeli. It captures the essence of 3M’s approach to tolerating failure. Most large companies with large R&D departments will have many ongoing new product research projects. Many will consume large amounts of resources and will not result in a new product. This fact is part of the new product game. Those close to the game are aware of this; at 3M it is argued that everyone is aware of the need to try new ideas. Its founder and early chief executive, W.L. Knight, stated over 60 years ago that: A management that is destructively critical when mistakes are made, kills initiative, and it is essential that we have people with initiative if we are to con- tinue to grow.
  14. Tolerating failure • Vasilash (1995) suggests that many of the senior managers within 3M are known to have made at least one mistake in their career whilst they tried to be innovative, thereby suggesting that W.L. Knight’s philosophy continues. • 3M has had its share of colossal failures. In the 1920s, one of the company’s top inventors had an incredible flash of brilliance: maybe people could use sandpaper as a replacement for razor blades. Instead of shaving your face or legs, you could just sand off the whiskers. Every man and woman would need it. The company would sell the product by the ton! Not surprisingly, the idea was not realised in practice – but the inventor was not punished for following his idea. For every 1,000 ideas only 100 are written up as formal proposals. Only a fraction of these become new product ventures and over half of the company’s new product ventures fail (Coyne, 1996).
  15. Autonomy and small businesses Like many companies, 3M realises that large organisations, with their inevitable corresponding structures and systems, can sometimes inhibit the creative dynamism often required to foster innovative effort. Hence, it has adopted an approach that enables individuals and groups within the organisation to establish small internal venture groups, with managers free to make their own decisions, develop their own product lines and take responsibility for the results, without continuous coordination across the company (Stewart, 1996). This approach attempts to offer an entrepreneurial environment under a corporate umbrella.
  16. Autonomy and small businesses Provided that certain financial measures are met, such start-up venture groups follow a well-trodden path: a new business operation starts out as a project, if sales reach $1 million it becomes a fully-fledged product. At $20 million, it becomes an independent product department separate from its parent department. If it continues to grow, it will be spun off as a separate autonomous division. Currently, divisions characteristically have $200 million in sales. Experience has taught the company that, in the early days of a business’s life, many decisions are taken through informal discussions amongst the individuals involved. Usually, there are insufficient resources to allow for lengthy and detailed analysis, which is more common in more established businesses.
  17. High profile for science and technology Although the company was formed around a single technology, sandpaper, today 3M makes use of more than 100 technologies, such as membranes, biotechnology, artificial intelligence, high-vacuum thin films and superconductivity. These technologies underpin the products that the company develops and manufactures. To support these activities, the company invests 6.5 per cent of its annual sales turnover in research and development. This is about twice that of the top 50 industrial companies in the United States. The money is used to employ over 7,500 scientists and technologists in developing new and interesting technology. It is this technological intensity that provides the company with the com- petitive advantage to compete with its rivals.
  18. High profile for science and technology It is important to note that, whilst the company is technology-intensive, this does not imply a single- minded, technology-push approach to innovation. The role of the marketplace and users plays an important part in product development. For example, 3M’s famous Scotch tape once was manufactured strictly as an industrial product, until a salesman got the idea of packaging it in clear plastic dispensers for home and office use.
  19. Communication and technology transfer The communication of ideas helps to ensure that a company can maximise the return on its substantial investments in the technology. Very often, it is the com- bination of apparently diverse technologies through technology transfer that has led to major product innovations. For example, microreplication technology is the creation of precise microscopic, three-dimensional patterns on a variety of surfaces, including plastic film. When the surface is changed, numerous product possibilities emerge. It was first developed for overhead projectors, its innovative feature being a lens made of a thin piece of plastic with thousands of tiny grooves on its surface. Micro-replication helped the plastic lens to perform better than the conventional lens made of heavy glass. 3M became the world’s leading producer of overhead projectors. It is this technology, which can be traced back to the 1960s, that has spread through- out 3M and led to a wide range of products, including better and brighter reflective material for traffic signs; ‘floptical’ disks for data storage; laptop computer screens; and films.
  20. Struggling with the innovation dilemma: efficiency vs creativity In December 2000, James McNerney, a former General Electric executive, was selected as 3M’s next CEO. McNerney was the first 3M CEO to come from outside the company and brought with him the GE playbook for achieving operational efficiency. One of his key initiatives was introducing the total quality management Six Sigma programme, a series of management techniques designed to increase efficiency. For the most part, the implementation of the Six Sigma programme was successful, as it focused on the operations (manufacturing/logistics) side of the business. However, when 3M’s R&D personnel were asked to adopt Six Sigma processes, the results were less favourable. Whilst established operational processes like manufacturing require strict monitoring, measuring and a regimented set of procedures, the innovation process requires a differ- ent approach.
  21. Struggling with the innovation dilemma: efficiency vs creativity After four and a half years at 3M, McNerney left to take the CEO position at Boeing. In 2005, his successor was George Buckley, who seemed to recognise the negative impact the process-focused programme had on the company’s creativity. Many of the workers say they feel reinvigorated now that the corporate emphasis has shifted back to growth and innovation from McNerney’s focus on process and short-term profits (see Chapter 4 for more on the innovation dilemma).
  22. 2010 • ‘3M is everywhere,’ says George Buckley, who became chairman and CEO of 3M in 2005. (He is British, with a PhD in electrical engineering.) In 2009, he said, ‘even in the worst economic times in memory, we released over 1,000 new products’. Apple and many others could not do what they do without 3M. Most people do not realise that 3M products are embedded in other products and places: cars, factories, hospitals, homes and offices (Feldman and Feldman, 2010). Since 2012, Inge Thulin has been the CEO and president of 3M. He has a long history with
  23. 2010 • 3M and has been a senior manager at the company since 1979. • 3M continues to inspire and encourage innovation and creativity to accelerate growth and deliver excel- lent financial results. Buckley told stockholders at the company’s annual meeting in St. Paul: • The people of 3M are once again driving innovation through their energy and imagination . . . At its core, 3M remains an idea company that prospers best when we commit ourselves to invest in ideas, technology development and new products. • Buckley cited increased investments in research and development – up more than 11 per cent – and the steady increase in the introduction of new products – up by about 4 per cent in 2009 and 2010 – as examples of 3M’s commitment to innovation.
  24. 2010 Why is that important? Because, as 3M’s older products grow outmoded or become commodities, it must replace them. ‘Our business model is literally new-product innovation’, says Larry Wendling, who oversees 3M’s corporate research. The company, as a result, had in place a goal to generate 30 per cent of revenue from new products introduced in the past five years. By 2005, when McNerney left to run Boeing, the percentage was down to 21 per cent, and much of the new-product revenue had come from a single category, optical films. (3M also has a history of acquisitions and has announced deals recently.)
  25. 2010 It is safe to say that no 3M product will generate the buzz of, say, the next iPhone. But 3M has never been about inventing the Next Big Thing. It’s about inventing hundreds and hundreds of Next Small Things, year after year. Things like Cubitron II. Buckley explains that Cubitron II is an industrial abrasive that cuts faster, lasts longer, sharpens itself, and requires less elbow grease than any other abrasive on the market. Introduced in 2009, it is selling like crazy, to the CEO’s delight. ‘How the heck do [you] innovate in abrasives?’ he asks. ‘A 106-year-old business for us! For goodness’ sake – it’s sandpaper!’ Catching himself a moment later, he jokes, ‘I probably need to get out more.’ Maybe so, but you can understand what he is excited about: little things like grains of sand that add up to the big business that is 3M (Feldman and Feldman, 2010).
  26. Discussion • Whilst few would argue with 3M’s successful record on innovation, there may be some who would argue that, compared to companies such as Microsoft, IBM and GlaxoSmithKline, its achievements in terms of growth have not been as spectacular. However, the point here is not that 3M is the most successful company or even that it is the most innovative, although one could, surely, construct a strong case, merely that the company has a long and impressive performance when it comes to developing new products.
  27. Discussion
  28. Discussion The struggle between efficiency and creativity is one many public companies face. The market values of company stocks are impacted more by short-term results rather than long-term prospects; and executives have an incentive to drive those results. There are no easy answers and the best solution most likely lies somewhere between the two extremes of either process control or open-ended innovation.
  29. Tutorial 7 – Questions 1. There are many examples of successful companies. To what extent is 3M justifiably highlighted as the ‘innovating machine’? 2. In the 3M case study, what is meant by the statement: ‘the message is more important than the figures’? 3. Discuss the merits and problems with the so-called ‘15 per cent rule’. Consider cost implications and a busy environment with deadlines to meet. To what extent is this realistic or mere rhetoric? 4. Encouraging product and brand managers to achieve 25 per cent of sales from recently introduced products would be welcomed by shareholders, but what happens if a successful business delivers profits without 25 per cent of sales from recently introduced products? 5. Some people may argue that 3M’s success is due largely to the significance given to science and technology and this is the main lesson for other firms. Discuss the merits of such a view and the extent to which this is the case. 6. Explain how the innovation dilemma affected 3M.