DEHRADUN

Name: Gopal KrishanEnrollment No. 09BS0002792IUD No. 0901202792Section: DSemester: IIICourse Title: Business Strategy - ICourse Code: SLGM611Name of the Faculty: Prof. Surjya BratSubmitted on: 15th July, 2010 Assignment topic: Strategic Innovation at 3M through different levels of strategies

Strategy towards innovation and growth at 3M

Introduction: 3M is well known for its innovation. But how is it sustaining its innovation momentum and complying with the changing world and needs of the consumers? This write-up aims at combining the 3M story with the business strategy and explaining the strategic decisions taken by the company with their impacts on the functioning and expansion of the organization. The focus is on the levels of strategies wherein the strategic decisions taken by the company are classified into different levels, namely corporate level, business level and operational level strategies.

Strategic vision of 3M: A mission statement is something which drives the organization and creates the values of the organization. 3M grew into such a big organization only because of their innovation. Thus, innovation becomes an essential part of its business strategy.

3M initially was set up as a company which would be supplying raw material to the producers. They purchased mines near Lake Superior thinking they will extract corundum out of them but what they actually find was Anorthosite which was of no use to make grinding wheels. Later they thought to make the grinding wheels themselves but by the time they could settle down on the plan to manufacture it, the opportunity was lost due to innovation by some other company and finding an artificial material used for abrasive purpose which replaced the grinding wheels. Then they finally started their production and sales through manufacturing sand paper after a long time of perseverance and struggle. But the first profitable product of 3M was the 3-mite cloth which was an innovative idea at that time.

Having observed that innovation is the key to success, the company has framed its strategic mission statement “To solve unsolved innovatively” (Source: http://www.how-to.com/Operations/mission-statement.htm). The mission statement of 3M clearly states that the company is not just making and selling innovative products, but it is solving the customer needs in the most innovative way. It is this mission statement of 3M which helps in bringing the strategic objectives and specific target performance.

Strategic objectives: The mission statement helps us to set the objectives and target performances which the organization should get to achieve the mission. The mission statement of 3M leads to a vital need of continuous innovation failing which the existence of the company could be in jeopardy. At times, Mr. McKnight, the CEO of 3M in 1930s, found that the pace of innovation was not constant and there was huge time gap sometimes when there were no innovations in the organization. This alarmed his foresightedness that lack of novelty in the company can lead to drastic consequences in the coming years. Thus there were a lot of strategic decisions taken in 3M in order to maintain the rapidity of innovation.

Crafting the strategy

Strategies can be formed at different levels of the organization. As the company 3M was growing in terms of its products, brands and innovation, there was a need for division of business. Thus, the company was divided into 6 business units;

Figure 1: 3M businesses (Source: A Century of Innovation, the 3M story)

I. Corporate level strategy: “Corporate level strategy concerns how a diversified company intends to establish business position in different industries and the actions and approaches employed to improve the performance of the group of businesses of the company.” The major decisions taken in the corporate level can be demonstrated by the diagram below:

Figure 2: Corporate level strategies (Source Strategic management, concepts and cases by Thompson and Stickland, 13e, published by Tata McGraw Hills)

3M

Consumer and Office

BusinessDisplay and

Graphics Business

Electro and Communicatio

n Business

Health Care Business

Industrial and Transportation

Business

Safety, Security and Protection

Services Business

Corporate Level Strategy

Capture cross business fits

Size of diversification

Related or unrelated diversification

Geographic expansionStrengthen position

in existing businessPosition in new industry through

acquisitionDivestation in weak or unattractive

business

1. Capture cross business fits: 3M was initially only into abrasive and tape business. Slowly they started to make products from altogether different sector but the only common thing was all products needed innovation. The common thing innovation acted as the fit for their business. Thus, 3M kept on increasing products into their product portfolio which required innovation. And to do this effectively they converted 3M into a diversified organization with 6 different divisions.

2. Size of diversification: 3M didn’t diversify their business beyond certain limits. When they found that there were products which were not profitable, were not taken for research in their lab center. Thus they limited their diversification into 6 major business classes.

3. Related or unrelated diversification: The businesses in which 3M diversified were not related to each other in many ways but were common in certain aspects, i.e. all products made were made based on the needs of customers which were unmet and meeting those needs required innovation. But 3M has 6 major businesses which are not related to each other. They have different departments to take care of each unit. The 6 businesses are further divided into more than 35 units which take care of different brands and product lines.

4. Geographic expansion: 3M has vast a geographical expansion. It operates in more than 65 countries having 75,000 employees worldwide and 6,700 researchers contributing to the R&D of the company with their innovations.

5. Strengthen position in existing business: 3M strengthens its existing businesses by continuous innovation under the same product line which either adds some new feature to the product or changing the product to an extent that it meets some other specific need. This decision is taken care of at the business level but the corporate policy is clear that there has been strengthening of the existing business.

6. Positioning in new industry through acquisition: In 3M the decision of acquisition to enter a new industry is taken care at the business level and not at the corporate level. This is because of the reason that 3M believes that no one can understand their business better than the division itself. And thus they know what acquisition they should go for. The decision is strictly taken on the basis of whether 3M already owns the technology that the company they are going to acquire has. If the answer is no, they will go for the acquisition or else no.

7. Diversification in weak and unattractive business: This decision, at 3M, is again taken at the division level. If the technology in certain business is outdated and is of no use to 3M they will divest in that business and go for a new one. This strategy helps them to think only about the new things to bring in and not to ponder over a business not looking good in future.

II. Business and functional level strategy:1. Strategic management for creativity in 3M: The top executives had to find

ways to motivate its employees to increase the speed at which they were bringing innovative products to the company. To do this effectively, there were strategic decisions taken which were converted to strategic objectives achieving which the goal of the organization will be achieved. Thus business level decisions were taken so as to implement the decisions taken to achieve goals in form of objectives.

a. The rule of 15%: At 3M, innovation is a compulsory strategy. But sometimes there was a clash seen in the basic strategy of innovation and

profits motive which is necessary for the organization to grow and sustain. Many a times the scientists and engineers who work in the research department of the company liked to work on a product which is not much profitable to the company. If they are not allowed to work on something of their interest, it demotivates them and may result in a reason to quit also.

Thus, there was a rule made in the research department which says that 15% of the time spent in lab can be used for a work or research of your own choice using the resources of the lab for the work. This rule led to increase in the speed of innovation at 3M. Because people not only started working on new ideas but also helped each other during that time to solve other’s problems. And now the scientists say, “At 3M we live by our wits”.

b. 25/5 rule: To take care of the profit part from innovation and to make sure that there are innovative products introduced at regular intervals, there was another rule made which was a financial strategic decision leading to constant innovation. The rule of 25/5 said that 25% of the profitable sales in any year should come from products which were not in existence 5 years back. This strategic decision was very well designed and took care of innovation and commercializing the innovation in order to make profits out of it.

c. 30/4 rule: The rule of 25/5 was revised and changed to the 30% of profitable sales coming from products not been into existence 4 years back.

d. The 7 cent rule: Since 3M is focusing a lot on novelty and new ideas, there is a great need of investment to bring out the same idea. The first and foremost investment is money apart from choosing the right people for the job. To meet this need, there was another decision made which says that from every 1 dollar sales, 7 cents will be invested in R&D. This in turn was found that every dollar invested in R&D gives a return of 28 dollars. Thus, continuous and huge investments in R&D become another financial decision which is implemented in 3M to take care of the swift innovation and growth of the organization.

Business level strategy

Functional Strategy

Competitive advantage

ProactivenessRespond to changing

environmentCollaboration

Figure 3: Business Level strategy (Source: Strategic Management, Concepts and cases)

e. Motivational awards and forums: Apart from these, to meet the human requirements of esteem needs, there were awards which were given to the scientists based on their work. Some of them are discussed below.

i. Golden step award: This award is given to a person whose product has brought $5 million of profitable sales.

ii. Carlton Society award: Any extra ordinary contribution to the product lines of the 3M would fetch this award. Products like post-it notes, VHB tape got this award which changes the way things were done in the world.

iii. Genesis grant: This award is given to a person if he brings in a new idea for a business division he doesn’t belong to.

iv. Alpha grants: Apart from the innovation in products, innovative ideas in the operations and administration field of the company will get this award.

2. Competitive advantage: Competitive advantage of a company is defined by three dimensions majorly, a product which has chances of winning competitive advantage, development of expertise which sets us apart from our competitors and having an insulation on the business so that other are not able to copy it easily. 3M has its innovation in terms of its competitive advantage and the patent power acts as its insulator. Whatever innovation is done at 3M is being patented and thus 3M becomes one of the companies with highest umber of patents in the world and has even won more than 500 patent awards. Innovation thus becomes the competitive advantage of the company. To develop expertise in innovation, the company has developed methods which are taken care at the operational levels.

3. Proactiveness: 3M is a proactive company. It feels the need of a customer by identifying its problem and then it solves it. Also in terms of market expansion and diversification, it keeps looking for opportunities to acquire companies which have a technology which 3M doesn’t have. Thus being proactive in the market makes them have an edge over their competitors and eliminates the possibilities of market share being eaten up by some other organization.

4. Respond to changing environment: 3M has gone through a lot of environment changes as it has a long story of more than 110 years. Have it not changed the kind of products it offers, it would have not sustained for such a long time. They respond to the changing environments and needs of the consumers and act accordingly.

III. Operational level strategies at 3M for innovation: Operational level strategies are made to manage organizational units within a business. As we saw in the competitive advantage, one of the dimensions is developing the expertise in ways things are done. 3M has exactly done the same in terms of the process it follows for innovation and research for new products. The two strategic processes in which 3M teams lead for innovation are discussed below which are the base for making 3M such an innovative company. 1. Lead user process: The lead user process at 3M says that every product is

first made by the lead users first and companies just commercialize the product. There are lead users of a product and the teams of 3M try to get information from these lead users in order to know the innovations already made by them. They conduct meetings with them and discuss about the

Figure 4: Pyramid of Expertise (Source: Creating Breakthroughs at 3M by Eric von Hippel, Stefan Thomke and Mary Sonnack, Published by Harvard Business Review, Sep-Oct 1999)

Braking system in automobiles

Braking system in formula-one races

Braking system in aerospace

problem that people are facing and try to find out the best possible solution for the same. The process then goes to the pyramid of expertise.

2. Pyramid of expertise: Pyramid of expertise goes one step ahead of the process of innovation many people use in this world. For example, if someone is looking for extra power in the braking system in automobile, they can go for the best technology which is used in that sector and reach the top of the pyramid of technology used in that sector. But 3M would not stop there.

At 3M, in the pyramid of expertise approach, they will find out about the technology which is used by the next lead user and reach the top of their pyramid. Here in this example, after automobiles the next level of braking system is used in high speed cars like formula-one racing cars. Then, the next high level is the airplanes where the technology of braking system is further advanced. The ultimate level will be the brakes used in space ships. Thus by reaching the top of the pyramid of every area where advanced technology is used for the similar purpose, the research team gets a fair idea of what is already used by lead users in this world. Then they will find out a technology which is compatible to different needs keeping into considerations the requirements of consumers. This approach was first used by the medical research division of 3M when they were trying to find out a technique to help doctors to locate small tumors in human body.

Conclusion: At 3M it can be seen that a very well diversification and division of businesses, which is a corporate level strategy combined with the business strategies which aims at achieving the objectives and the operational level strategies for one of the finest innovation processes work hand in hand to make 3M an organization which every person think highly of. They definitively solve the unsolved problems of people in the most innovative way and are honest in what they do. The processes and strategies used at 3M are leading the company to edges where no one could even think of being, not even 3M would have imagined of reaching when they were almost into bankruptcy 100 years back.

References:

1. A Century of Innovation, the 3M Story by 3M2. Creating Breakthroughs at 3M by Eric von Hippel, Stefan Thomke and Mary

Sonnack, Published by Harvard Business Review, Sep-Oct 19993. Strategic management, concepts and cases by Thompson and Stickland, 13e,

published by Tata McGraw Hills4. Exploring Corporate Strategy text and cases, 7e by Gerry Johnson, Kevan Scholes and

Richard Whittington, published by Pearson Publication