Question

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3M

Minneapolis, Minnesota

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 five percent of their time, roughly half a day per week, doing whatever they wanted as long as it was related to innovation and new product development.

3M’s growth lasted only 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 the company’s 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 hike each year), were now distributed based on past performance and growth potential. Poor performance would affect the funds negatively. 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 the 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 time, 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?

1. From inception, 3M has been an innovator, bringing a stream of new products and services to market, creating value for customers, having sustainable advantage over competitors, and delivering sizable returns for investors. Thanks to the predecessor, 3M had lower costs, was 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 of these will make 3M more competitive in the long run?

2. When people think of innovation, they tend to think of game-changing advances that render current products obsolete, for example, comparing the iPhone to text-based “smartphones.” Innovation, however, also occurs with lots of incremental changes over time. What are the advantages and disadvantages for 3M of each approach (experiential and compression), and when and where would each be more likely to work?

3. Finally, some companies innovate from within by successfully implementing creative ideas in their products or services. Sometimes, though, innovation is acquired by purchasing other companies that have made innovative advances. For example, although Google is generally rated as one of the most innovative companies in the world, most people have forgotten that Google bought YouTube to combine its search expertise with YouTube’s online video capabilities. Over time, how much should companies like 3M rely on acquisitions for innovation? Should 3M acquire half, one-third, ten percent, or five percent of its new products through acquisitions? What makes the most sense and why?

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

Answer 1

Ans 1. 3M which was once considered as one of the most innovative company has now stagnated significantly. To recover from their incurring losses, the management implemented the six sigma to eliminate the defects and improve the processes in the division such as production, marketing, financial, etc.

However, even after doing that, they still didn't win back their title of being the top innovative company. In this changing time, if a company is not able to cope up well enough they will be left behind and forgotten from the market even if they had once produced the world-changing innovations. The company has stopped focusing on the radical innovations that were once part of its motto.

Now that the condition of the 3M has stabilized they should try to focus on innovation. Although they should not completely withdraw from the six sigma. To be able to get into the top innovative companies list, they should think of creating a competitive advantage and that is only possible if they can create a dynamic and innovative product. They should give more attention to building their core competency which is innovation.

Ans 2. The compressed form which is the way of six sigma

• six sigma is implemented when there is a requirement of the efficiency in the cost and different processes of the organization. 3M was in urgent need of this strategy when it was losing too much. Because of this, they were able to survive and continue on.
• Although six sigma is a wonder medicine in the time of need, the high level of six sigma is not appropriate for the long run.
• It is also said that the six sigma is inversely related to innovation

The experimental form which is the way of innovation

• Innovation provides the company with a competency advantage in the market full of competitors.
• However, the high level of innovation can result in the emergence of inefficiency in the processes and costs of the organization.
• For innovation, the company will require a huge amount of financial resources as well as the new techniques, completely different from the existing ones.

Six sigma is suitable when innovation is widely spread and accepted. It is able to keep a stronghold against its competitors, thus it is best to use it after the company has become the market leader and great brand value. Or if the company has been suffering from inefficiency and its innovative spirit has dulled significantly, then six sigma should be urgently used.

Whereas, the innovation should be used when the company wants to have a competitive advantage over its competitors. They have a good financial position and a smart workforce. Innovation is very crucial in this fast-paced and dynamic environment. A company will just become obsolete if they are not able to innovate from time to time, both in incremental and radical innovation. In this case, 3M has survived its great peril and now should start working on innovation strategies. They need not be radical ones though. They can start with incremental ones and step up to gaining their core competence back.

Thus, the best strategy for 3M would be to implement both compressed and experimental forms but in adequate proportions.

Ans 3. Some companies focus on innovating with their own processes while some acquire other companies and merge into their innovative portfolio.

For the 3M, it should be suitable for them to mostly focus on their own innovative techniques as their core competency has been innovation for many years. Acquiring other companies might just create more burden for them in the form of the increased workforce, financial requirement, and risk in case the acquired company fails to live up the expectations.

Although if they do want to follow the acquisition, then one-third or less is suitable for it. However, it is better to acquire a company that is in line with its existing product range. This will help them in increasing their product portfolio without risking too much.

Ans 4. If I was the in-charge of 3M, I would be following the mix of both six sigma and innovation. I would focus on innovating through the company's own techniques and processes. And innovation will be given more importance. And a need arises for the acquisition scenario, as stated above, the companies that are in alignment with the 3M's existing product range will be chosen.