With 40,000 global patents and patent applications, 3M, maker of Post-it notes,

Question

With 40,000 global patents and patent applications, 3M, maker of Post-it notes, reflective materials (Scotch lite), and 55,000 products in numerous industries (displays and graphics, electronics and communications, health care, safety and security, transportation, manufacturing, office products, and home and leisure), has long been one of the most innovative companies in the world. 3M codified its focus on innovation into a specific goal, “30/5,” which meant that 30 percent of its sales each year must come from products no more than five years old. The logic was simple but powerful. Each year, five-year-old products become six years old and would not be counted toward the 30 percent of sales. Thus, the 30/5 goal encouraged everyone at 3M to be on the lookout for and open to new ideas and products. Furthermore, 3M allowed its engineers and scientists to spend 5 percent of their time, roughly a half-day per week, doing whatever they wanted as long as it was related to innovation and new product development. And it worked, for a while. A decade ago, the Boston Consulting Group, one of the premier consulting companies in the world, ranked 3M as the most innovative company in the world. In subsequent years, it dropped to second, third, and then seventh. Today, 3M doesn’t even crack the top 50. Dev Patnaik, of Jump Associates, an innovation consulting firm, says, “People have kind of forgotten about those guys [3M]. When was the last time you saw something innovative or experimental coming out of there?” So, what happened? When your predecessor became CEO ten years ago, he found a struggling, inefficient, oversized company in need of change. He cut costs by laying off 8,000 people. Marketing, and research and development funds, which had been allocated to divisions independent of performance (all divisions got the same increase each year), were now distributed based on past performance and growth potential. Perform poorly, and your funds would shrink the next year. Likewise, with U.S. sales stagnating and Asia sales rising, management decreased headcount, hiring, and capital expenditures in the United States, while significantly increasing all three in fast-growing Asian markets. Six Sigma processes, popularized at Motorola and GE, were introduced to analyze how things got done, to remove unnecessary steps, and to change procedures which caused defects. Thousands of 3M managers and employees became trained as Six Sigma “black belts” and returned to their divisions and departments to root out inefficiencies, reduce production times, and decrease waste and product errors. And it worked incredibly well, in part. Costs and capital spending dropped, while profits surged 35 percent to record levels. But, product innovation, as compared to the 30/5 goal sank dramatically, as only 21 percent of profits were generated by products that were no more than five years old. So, what should 3M do? From inception, 3M has been an innovator, bringing a stream of new products and services to market, creating value for customers, sustainable advantage over competitors, and sizable returns for investors. Thanks to your predecessor, 3M has lower costs, is highly efficient, and much more profitable. But it no longer ranks among the most innovative firms in the world. In fact, the use of Six Sigma procedures appears to be inversely related to product innovation. If that’s the case, should 3M continue to focus on using Six Sigma procedures to reduce costs and increase efficiencies, or should it strive again to encourage its scientists and managers to focus on innovation? Which will make 3M more competitive in the long run? When people think of innovation, they tend to think of game-changing advances that render current products obsolete. Innovation however, also occurs with lots of incremental changes over time. Some companies innovate from within by successfully implementing creative ideas in products or services. Some times though innovation is acquired by purchasing other companies that have made innovative advances. QUESTIONS:

1)If you were in charge at 3M, what would you do?

2)Which innovation approach would you take – experiential or compression, and why?

3)Should 3M rely on acquisitions for innovation? What percent of their new products should come from acquisitions and why?

Explanation / Answer

1.      If you were in charge at 3M, what would you do?

Innovation was part of the 3M culture. The organization has seen a slowdown in innovation and its ranking in the top 10 most innovative company was almost 10 years ago. The reasons are the organization changed its focus from being an innovative company to a cost-efficient, process efficient company to maximize profits. Their “30/5 “ goal which meant 30% of companies profits have to come from products no more than 5 years old, was no longer achievable as they have shifted gears towards promoting and selling an existing range of products across the world. The US sales were stagnating so the excess staff and spend on marketing research and development were reduced to increase the efficiencies and focus on profits.

As In charge of 3M I would do as follows:

·         First I would make project teams which includes few designers, engineers, and six sigma individuals. To create balanced teams, reward innovation and also ensure budgets are streamlined.

·         Reinstate the culture of innovation and research by allowing 5% of the employees to use for creative thinking and new product development.

·         Encourage and motivate teams by giving deadlines and targets for each team coming up with an innovative product at regular intervals.

·         The innovators would be rewarded and can share their idea in a common forum/ group immediately. The team will come with the idea directly to the CEO and will be allotted resources to test run the product and get the market feasibility.

·         The current rigid control and bureaucracy imposed by six sigma would be reduced to focus on operations only and give space to research and design teams to continue their creative activity.

·         10% failure or time spent on innovation without productive results would be ignored and people would be encouraged to fail. The good innovations would be assigned resources and would be assigned resources for its patenting and launching immediately. The team would be publically applauded and recognized.

·         The projects, which have become lethargic and static will be eliminated and team members would be put in other teams which are more creative and continuously deliver innovative products.

To sum it up I would encourage a balanced culture encouraging innovation, creativity and also maximize profits from the existing product range.

2)Which innovation approach would you take – experiential or compression, and why?

The CEO of 3M should take an experiential approach, which encourages more design iterations, longer product testing, reduced time between project milestones, and has a faster development time. As currently, 3M needs more innovations and many new product developments.

The compression approach would slow down the process of innovation as it is more certain, predictable and rational.

Currently, 3M has to be driven by a powerful leader who can push people into reclaiming their glory by building many new options and remain focused and motivated. This is more probable with the experiential approach, which though creates more uncertainty going through different markets and technologies. Currently, the market scenario is very dynamic with many new disruptive technologies taking over the world. 3M will have to make extra efforts and have multiple iterations to develop new innovative products.

3)Should 3M rely on acquisitions for innovation? What percent of their new products should come from acquisitions and why?

3M cannot rely 100% on acquisitions for innovations. They can take a percentage of 60% through acquisitions and balance through internally focusing their energies on innovations and new products. It can help 3M by pushing in newer ideas and encouraging creativity and act as a growth catalyst while complementing internal organic innovation. Acquisitions of right product lines will embrace innovation and encourage the organizations to synergize their energies and initiate more innovations without reducing the overall profitability. Further the 40:60 approach will ensure existing setup is also motivated to continue their innovative efforts while taking on new organizations to accelerate the pace of innovation.

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