3M: Analysis of Value Chain Support Activities

Introduction

3M is differentiated from its competition by its skillful management of the technological innovation process. In 1995, 3M was recognized for over 90 years of innovation with the National Medal of Technology, awarded the President of the U.S. for technological achievement. This Fortune 500 diversified company’s strategy for achieving high growth and profitability is to rapidly introducing new products to market. One of its corporate objectives is the 30 Percent Challenge: to achieve 30% of worldwide sales from products introduced to market in the past four years. Thus, managing innovation defines 3M’s corporate culture and is also critical to 3M’s future success.

The company’s integration of value chain support activities in the new product development process is accomplished at the individual business unit level. At the corporate level, 3M places high value on providing a unified image to customers across 3M business units as well as leveraging its substantial distribution network. Coordination of support and main value chain activities is another major challenge for 3M.

3M’s corporate culture as well as corporate structures promote both technological innovation and intracompany coordination. The McKnight Principles (per 3M President William McKnight in the 1940-50’s) govern the culture of 3M. Basically, the principles highly encourage individual initiative. 3M’s managerial systems follow from the McKnight Principles.

Innovation Strategy

3M’s innovative products are built up from the company’s 30 technology platforms. The platforms provide the broad bases for 3M products. 3M focuses on those technologies that possess large growth potential as a platform for additional products. The technologies are then transformed into commercially viable products in individual business units. These units are responsible for product innovation, manufacturing, and marketing functions and are managed largely as independent businesses. These business units are then organized into product categories, such as office, healthcare, general industrial, electronic, and automotive.

For example, 3M’s microreplication technology platform replicates microscopic three dimensional patterns on plastic films and other surfaces. This platform is the basis for diverse products developed in individual business units--products include:

This 3M proprietary technology is expected to generate sales revenue of $1 billion by year 2000.

This strategy allows 3M to keep a strong corporate focus on the direction of the overall levels of technological innovation while maintaining agility in developing commercially viable products. Corporate resources are allocated to knowledge that is useful company-wide, but business units are charged with the responsibility of finding customers and markets that will use products based on that knowledge. Investment in corporate R&D is not, however, a centralized operation. 3M allocates R&D funds to its foreign offices as well in platform development.

Incentive Systems

To support employees in the 30 Percent Challenge, 3M has several programs to insure good ideas are developed.

The “Dual Ladder” is a mechanism that equates the career ladder of researchers, sales staff and other professionals to the traditional management career ladder. Both ladders have equivalent positions, compensation, and prestige. Thus, employees do not have to sacrifice their competency in their profession to reach higher levels in the company and the company benefits from having experienced professionals of different functions that can operate at high corporate levels as well.

The 15 Percent Rule allows all researchers to devote 15 percent of their time to “projects of their own choosing”. This built-in “slack” encourages researcher-entrepreneurs to develop products they believe will contribute to 3M’s portfolio of products--Post-It Notes were spawned from this program.

3M makes sure good ideas have adequate research resources. Alpha Grants are available as seed money for projects that lack funding through traditional channels. Genesis Grants also provide funding for projects that are not funded traditionally. These grants support innovative research projects to develop projects past the idea stage. The Pacing Plus Program is a priority system that allocates resources to projects with high potential. If these methods are not enough to gain managerial support or additional resources, employees are encouraged to take their ideas to top management for resources.

Organizational Structure and Product Development Process

3M is made up of several hundred individual business units. Each is managed largely as an independent business; it uses platform technologies to develop products, as well as manufactures and markets the product. Business units vary in size and as they grow from project, to department to a division.

In developing products, researchers in business units are highly encourage to leverage corporate wide resources (informal “bootlegging” of expertise is a widespread phenomenon). Researchers also have access to external resources through 3M’s Leading Edge Academic Program. This program provides funding (i.e., salary) to researchers to collaborate with other scientists at academic institutions or government labs.

Also in developing products, researchers collaborate with Sales and Marketing to identify customer needs and then often to work with customers in the development process. One of the company’s flagship products--masking tape--was the result of an engineer walking into a situation where a 3M sandpaper customer was experiencing severe difficulty with too sticky a tape. Other products are developed as customers request certain product attributes (such as waterproof tape) and sometimes the technology is licensed by 3M from the customer.

In addition to identifying customer needs, sales and marketing also cooperate across 3M to make ordering any 3M easy for customers, regardless of business unit. Also, 3M works to standardize customers’ credit terms and invoicing, makes sure that deliveries are complete, accurate, and on time. Thus, customers are able to easily and conveniently relate to a very diverse 3M. 3M hopes to build brand loyalty through excellent customer service which can be increasingly leveraged as 3M’s product life cycles compresses to shorter time periods.

Current Pace of Innovation and Financial Performance

From 1994 to 1995, 3M experienced double digit volume growth. In 1995, return on capital employed was 23.4% and return on shareholder equity was 19.2%. Net sales were $13.4 billion in 1995 and sales for the first three quarters of 1996 total $10.6 billion. 3M experienced a 37% increase in sales of first year in market products for sales revenues totaling $855 million. 3M is close to meeting its 30 Percent Challenge; 27% of sales were from products introduced within the past four years. Productivity is also consistently rising with sales per employee increasing 8% annually since 1983.

3M has recently divested its audio and video division, begun acquiring pharmaceutical companies, and joint-venturing with battery producers. The CEO characterizes 3M’s current portfolio as full of only winners. Also, 3M believes it is at an all time high rate of technological innovation. Areas targeted for high growth and profitability are hydrofluoroether technology, electronic display components, flexible circuitry, structured abrasives, and pharmaceuticals.

Recommendations for Future Growth

3M has a long history of commitment to actively promote and encourage innovation. As the company grows larger (nearly $14 billion in sales last year), the management must continually emphasize this commitment through its current programs and create new programs as well. The current system provides a safety net so few good ideas and opportunities could slip through. More safety nets may be necessary as more ideas are generated.

3M should also leverage its capabilities in coordinating activities across business units at functional levels in addition to tapping scientific expertise. Ideas generated at manufacturing, as well as at logistics, sales and marketing, and customer service should be developed and communicated across 3M. In addition, as individual business units apply platform technologies in different ways, 3M needs to manage the feedback process to the platform developers to help their overall development process. Feedback will help gage the relative potential of platforms as well.

As 3M moves to develop its presence globally, coordinating these activities will also become more difficult. Also in the future, 3M’s 30 Percent Challenge may be to products introduced in two rather than four years ago. Coordinating all these activities will stretch management’s current level of expertise. One way to develop this coordination is to transfer the human interactions and expertise to an electronic medium. Creating a 3M knowledge network using IT systems would be one way of building and disseminating human capital throughout the firm. By using IT to maintain corporate cohesion, 3M can focus on developing the highest potential platforms and maintain the entrepreneurial corporate culture while getting products to markets rapidly.