Case study: Analyzing 3M, the innovative company
Introduction: The literature on new product development and innovation management frequently mentions 3M. It is widely recognized for its innovation and has been described as ‘a smoothly functioning innovation machine’ (Mitchell, 1989). Year after year, 3M consistently ranks in the Fortune 500 as both the ‘most respected company’ and the ‘most innovative company’. Esteemed management experts like Peter Drucker and Tom Peters often use this company as a prime example of innovation.
This case study examines the company’s background and how it has become a leader in the marketplace. It focuses on 3M, the company behind well-known brands like Post-it® Notes, and explores its history and unique qualities. Formerly known as the Minnesota Mining and Manufacturing Company, 3M was founded in 1902 in St Paul, Minnesota. Initially, it mined abrasive minerals to produce sandpaper.
From its humble beginnings, the company has experienced organic growth and focused on developing new products across various industries. According to the latest review, 3M now manufactures over 60,000 products, operates in 61 countries, employs 75,000 people, and has achieved an average annual sales growth of 10 percent. Some of its notable products include Scotch adhesive tapes, fiber-optic connectors, abrasives, adhesives, floppy disks, aerosol inhalers, medical diagnostic products, and Post-it Notes. It is worth mentioning that 3M introduced groundbreaking inventions such as “wet or dry” abrasives that significantly reduced respiratory diseases in the 1920s. Moreover,the company created self-adhesive tape in 1925 , light-reflective materials in the1940s ,and played a pioneering role in magnetic recording and photocopying. This rich heritage forms the basis for many of its current product offerings.Furthermore ,3M consistently ranks amongthe top10 most admired companies in Fortune’s annual reviewofthetop500companiesintheUnitedStates.Givenits sizeanddiverseportfolio ,3M stands out as alargeandversatile organization .Thecompany’s approachtoinnovationishighlyregarded
Figure 16. 10 3M sales over the past five years Source: Compiled from data from 3M Corp (2007). Financial results from 3M international web page: www. 3m. com. Many writers, academics and business leaders have argued that successful innovation relies on effective management (Henderson, 1994). However, 3M has demonstrated that their success stems from a combination of management techniques, including strong communication and clear goal-setting, as well as a company culture that emphasizes nurturing ideas and fostering creativity, which has been cultivated over more than 90 years.
The company utilizes a blend of structured research and individual autonomy to encourage the exploration of ideas. Research scientists are given the opportunity to dedicate 15 percent of their time to personal projects. This approach is distinctive and challenging to duplicate by definition. The case study outlines these activities under the following categories:
1. Company heritage and culture
2. Innovation demand
3. Creativity freedom
4. Failure acceptance
5. Autonomy for small businesses
6. Science and technology prominence
7. Communication and technology transfer
Company heritage and culture are shaped by a combination of formal and informal processes at 3M. The company has a strong emphasis on creating new products and building new businesses. One key aspect of their culture is the belief in hiring talented individuals and giving them trust and autonomy. This principle is outlined in 3M’s formal principles of management, which prioritize promoting entrepreneurship and allowing freedom in the workplace for pursuing innovative ideas (Osborn, 1988: 18).
Although the impressive sales performance shown in Figure 16.0, it hides an important fact: 30 percent of the company’s sales come from products that are less than 4 years old. This creates a significant demand for innovation within 3M. Every business manager at the company is expected to work towards the objective of having new products account for 30 percent of their sales. This goal has been effectively communicated throughout the organization and has become deeply ingrained in the company’s management style and culture.
Therefore, the pursuit of fresh concepts is an integral aspect of our daily operations. Senior executives from other major manufacturing firms may contend that a comparable portion of their sales stems from products less than 4 years old. However, what distinguishes 3M from other organizations is our long-standing commitment to this approach and the substantial efforts we have made to ensure that the development of new products takes precedence in management meetings, surpassing that of other companies.
The success of this approach relies heavily on continuously reinforcing the objective. The ability of individual business managers to achieve the objective partially determines their performance evaluation. Initially, in the 1980s, a 30% objective was implemented, which required that 25% of sales come from products less than 4 years old. In 1992, this requirement was increased to 30%. Recently, 3M added another goal aiming for 10% of sales to come from products that have been in the market for only one year. This approach also encourages creativity and freedom.
Scientists and engineers in 3M, as well as other large R&D laboratories, are given the opportunity to work on their own projects and ideas that they find interesting. They can dedicate up to 15% of their work week time to these activities. This is a successful way for the company to foster creativity and demonstrate its support for innovation. It also serves as a resource for entrepreneurs within the organization, who can develop their ideas without needing approval from higher-ups.
One alternative method of allocating resources is through grants, also referred to as ‘genesis grants’. These grants provide researchers with a maximum of $75,000 to transform their concepts into potential product possibilities. The renowned Post-it Note, one of 3M’s most notable recent innovations, emerged from the utilization of this approach. The collaboration between Spencer Silver and Arthur Fry, both embracing the 15 percent rule, culminated in the creation of this groundbreaking product. Spencer Silver, an adhesive technology researcher at 3M, was tasked with developing the most powerful adhesive available.
By some strange coincidence, he accidentally invented an adhesive that had none of the qualities he intended, but did possess two intriguing properties that were previously unknown: it could be reused and it did not leave any residue on the surface to which it was applied. However, despite these interesting properties, nobody could find a practical application for it and the concept was set aside. One of Spencer Silver’s coworkers named Art Fry, who happened to be a member of a choir, dealt with a recurrent issue every Sunday. He would diligently mark his hymnbook with small pieces of paper, only for them to inevitably fall out. Then, he recalled the useless adhesive created by Spencer Silver.
Art Fry made the discovery that paper strips could be utilized as effective bookmarks that would remain in place when a book was opened. This realization occurred ten years after the creation of Post-It brand technology. In a recent lecture on innovation, Coyne (1996), 3M’s vice-president for research and development, stressed that the commonly referenced “15 percent rule” lacks significance. He clarified that certain members of their technical staff dedicate more than 15 percent of their time to self-selected projects, while others spend less or none at all. The precise percentage is not as crucial as the underlying message, which highlights the system’s allowance for flexibility and autonomy.
If you possess an excellent idea and have the dedication to allocate time towards its execution, as well as the courage to defy your manager’s desires, then everything is favorable. 3M adopts a mindset that embraces failure, encapsulated in the phrase ‘It’s easier to be critical than creative’, which draws inspiration from a famous quote by Benjamin Disraeli. This perspective embodies 3M’s acceptance of failure. Most large companies with extensive research and development departments typically undertake numerous ongoing projects for new product research. These endeavors often demand significant resources but may not ultimately yield a new product. This reality is simply an inherent aspect of the process involved in developing new products.
Those in the know are aware that at 3M, it is widely acknowledged that trying new ideas is essential. W. L. Knight, the founder and former CEO, stated more than 60 years ago that a management that criticizes mistakes in a destructive manner stifles innovation, and it is crucial to have people with initiative in order to sustain growth. According to Vasilash (1995), many of the top managers at 3M have made at least one mistake in their careers while striving for innovation, which suggests that W. L. Knight’s philosophy still persists. 3M has experienced its fair share of significant failures.
During the 1920s, an innovative concept emerged at the company: using sandpaper instead of razor blades for shaving. This concept had the potential to revolutionize the market and generate high sales since it would be needed by every man and woman. However, this idea never became a reality. Nonetheless, the inventor faced no consequences for pursuing it. Out of 1,000 ideas, only 100 are formally proposed and just a small portion of these proposals actually turn into new product ventures. Furthermore, over half of the company’s new product ventures ultimately fail (Coyne, 1996).
3M recognizes that the structures and systems of large organizations can sometimes hinder creative dynamism necessary for fostering innovation. To address this, the company allows individuals and groups to create small internal venture groups. Managers in these groups have the autonomy to make their own decisions, develop product lines, and take responsibility for their outcomes. There is no need for constant coordination across the company (Stewart, 1996).
Under a corporate umbrella, this approach aims to provide an entrepreneurial environment. Start-up venture groups follow a defined path, as long as certain financial criteria are met. Initially, a new business operation begins as a project and transitions into a fully fledged product once sales reach $1 million. When sales reach $20 million, it becomes a separate product department independent from its parent department. If the growth continues, it eventually becomes a separate autonomous division. Presently, divisions typically have $200 million in sales.
When a business starts out, decisions are typically made through informal conversations due to limited resources. However, as businesses expand and progress, there is an increase in the use of extensive and detailed analysis. 3M, a company that originally focused on sandpaper technology, now integrates more than 100 different technologies including membranes, biotechnology, artificial intelligence, high-vacuum thin films, and superconductivity.
Technology is essential for the company’s products and plays a crucial role in its growth and production. The company allocates 6.5% of its annual sales turnover to research and development, which surpasses the spending of the top 50 industrial companies in the United States. This investment enables employing over 7,500 scientists and technologists who are primarily responsible for pioneering technology. It is this focus on technology that gives the company an edge over its rivals.
While the company heavily relies on technology, it does not solely focus on technological innovation. The participation of the marketplace and users is crucial in their product development. A notable example of this is 3M’s Scotch tape, initially designed for industrial applications until a salesman suggested packaging it in transparent plastic dispensers for home and office use. In order to fully utilize its significant technology investments, effective communication and technology transfer are essential.
The combination of diverse technologies through technology transfer often leads to major product innovations. An example of this is microreplication technology, which involves creating precise microscopic, three-dimensional patterns on different surfaces, including plastic film. This technology was initially developed for overhead projectors, where a thin piece of plastic with thousands of tiny grooves on its surface served as a lens. Micro-replication improved the performance of the plastic lens compared to the traditional glass lens, making it a superior choice. As a result, 3M became the leading producer of overhead projectors. Traceable back to the 1960s, this technology has since been utilized by 3M to develop various products such as better reflective material for traffic signs, ‘floptical’ disks for data storage, laptop computer screens, and films.
The appointment of James McNerney as 3M’s CEO in December 2000 brought about the challenge of balancing efficiency and creativity in innovation. McNerney, who had previously worked at General Electric, implemented operational efficiency strategies in line with the GE playbook.
3M introduced the Six Sigma programme for total quality management to improve efficiency. While successful in operations, such as manufacturing and logistics, its implementation had less positive outcomes for Research and Development personnel. The innovation process requires a different approach than operational processes.
The new structure at 3M made employees feel constrained and pressured to develop new products faster. This led to an increase in incremental product-line extensions rather than true innovations. Sales from products released within five years decreased from one-third to one-quarter of total sales in 2006.
In 2004, 3M was ranked first on the Business Week/BCG list of Most Innovative Companies. However, by 2007, it fell to seventh place on that list. After spending four and a half years at 3M, McNerney decided to leave and become CEO of Boeing.
Now George Buckley, the successor to the previous CEO, seems to acknowledge the negative impact the company’s focus on processes had on its creativity. Many employees feel revitalized now that the company’s emphasis has shifted back to growth and innovation, rather than McNerney’s concentration on processes and short-term profits (refer to Chapter 3 for more on the Innovation dilemma). While there may be a few individuals who argue that 3M has not achieved growth as astonishing as companies like Microsoft, IBM, and GlaxoSmithKline, few would dispute its successful track record in innovation.
3M is not the most successful or innovative company, but it has a long history of developing new products. This case study explores the activities and principles that contribute to 3M’s performance. While these are not unique to 3M and are utilized by other companies, they can be summarized as an effective company culture that fosters innovation and a variety of management techniques and strategies that have led to long-term success.
Many companies claim to adhere to the management principles and practice described in this case study, but 3M is one company that actually backs up its words with actions. The challenge of balancing efficiency and creativity is a common one for public companies. The value of a company’s stocks is often influenced by short-term results rather than long-term potential, and executives are motivated to achieve those results. Finding the optimal solution lies somewhere between strict process control and unrestricted innovation.
The text inquiries about the extent to which 3M is properly recognized as an innovative company and discusses the significance of the message compared to figures in the 3M case study. It also examines the advantages and challenges of the “15 per cent rule” in terms of costs and a busy environment with deadlines. The effectiveness and practicality of encouraging product and brand managers to achieve 25 per cent of sales from newly introduced products are also explored, considering the potential scenario of a successful business generating profits without meeting this expectation.5 Some individuals may contend that the primary reason for 3M’s accomplishment can be attributed to their emphasis on science and technology, serving as a crucial lesson for other companies. Assess the validity of this perspective and the extent to which it applies.
6 Elucidate the impact of the innovation predicament on 3M.
