An analysis of 3M, the innovation company
Lecturer: Sergio Pinzon

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.

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.

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.

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.

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

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).

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

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.

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.

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!

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.

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.

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).

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.

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.

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.

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.

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.

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.

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).

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

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.

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.)

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).

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.

Discussion

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.

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.