For this assignment, you will write a case analysis. You have a choice of using Case 27 in your textbook, 3M - The First 110 Years, or choosing a case from the list below. Then, write a comprehensive case analysis. Your case analysis should cover the following:

1. The context of the decision making processes, including for example: the goals, activities, history or culture of the organization; the complexity and special features of the task or problem; the major stakeholders of the decisions.

2. The main phases or activities of the decision making process, including for example: the background leading up to the problem situation; problem recognition; development and evaluation of alternatives; selection of alternative; and outcome of the decision. Where possible, analyze the information seeking and information use behaviors in the decision making process.

3. Analyze your case using one or more of the models introduced this week. You may also introduce other theoretical perspectives/cases to enrich your analysis. Show how these models/perspectives provide insight into your case.

4. Assess the overall quality of the decision making process. Identify its strengths and limitations. Suggest ways of improving the process.

3MThe FirsT 110 Years

Established in 1902, by 2012, 3M was one of the largest technology-driven enterprises in the United States, with annual sales of almost $30 billion, two- thirds of which were outside the United States. The company was solidly profitable, earning $6.5 billion in net income in 2012 and generating a return on invested capital of 19.5%. Throughout its history, 3M researchers had driven much of the companys growth. In 2012, the company sold over 50,000 products, including Post-it Notes, Flex Circuits, various kinds of Scotch tape, abrasives, specialty chemicals, Thinsulate insulation products, Nexcare bandages, optical films, fiber optic connectors, drug delivery systems, and much more. Approximately 7,350 of the companys 80,000 employees were tech- nical employees. 3Ms annual R&D budget exceeded $1.6 billion. The company had garnered over 8,000 patents since 1990. 3M was organized into 35 dif- ferent business units grouped together into six main areas: consumer and office products; displays and graphics; electronics and telecommunications; health care; industrial and transportation; and safe- ty, security, and protection services (see Figure 1 for details). The companys 100th anniversary in 2002 was a time for celebration, but also one for strategic reflection. During the prior decade, 3M had grown profits and sales by between 6 and 7% per annum a respectable figure, but one that lagged behind the growth rates achieved by other technology-based enterprises and diversified industrial enterprises like General Electric. In 2001, 3M took a step away from C-220 its past when the company hired the first outsider to become CEO, James McNerney, Jr. McNerney, who joined 3M after heading up GEs fast-growing medi- cal equipment business (and losing out in the race to replace legendary GE CEO, Jack Welch) was quick to signal that he wanted 3M to accelerate its growth rate. McNerney set an ambitious target for 3Mto grow sales by 11% per annum and profits by 12% per annum. Many wondered if McNerney could achieve this without damaging the innovation engine that had propelled 3M to its current stature. In the event, the question remained unanswered, as McNerney left to run the Boeing Company in 2005. His successor, George Buckley, another outsider, seemed commit- ted to continuing on the course McNerney had set for the company. The hisTory of 3M: Building innovaTive CapaBiliTies The 3M story dates back to 1902, when five Minnesota businessmen established the Minnesota Mining and Manufacturing Company to mine a mineral that they thought was corundum, which is ideal for making sandpaper. The mineral, however, turned out to be low-grade anorthosite, which is nowhere near as suit- able for making sandpaper, and the company nearly failed. Trying to salvage the business, 3M turned to making the sandpaper using materials purchased from another source. In 1907, 3M hired a 20-year-old business student, William McKnight, as assistant bookkeeper. This turned out to be a pivotal move in the history of the company. The hardworking McKnight soon made his mark. By 1929, he was CEO; in 1949, he became chairman of 3Ms board of directors, a position that he held through until 1966. From sandpaper to Post-it Notes It was McKnight, then 3Ms president, who hired the companys first scientist, Richard Carlton, in 1921. Around the same time, McKnights interest had been peaked by an odd request from a Philadelphian printer by the name of Francis Okie for samples of every sandpaper grit size that 3M made. McKnight dispatched 3Ms East Coast sales manager to find out what Okie was up to. The sales manager discov- ered that Okie had invented a new kind of sandpaper that he had patented. It was waterproof sandpaper that could be used with water or oil to reduce dust and decrease the friction that marred auto finishes. In addition, it reduced the poisoning associated with inhaling paint dust with a high lead content. Okie had a problem, though; he had no financial back- ers to commercialize the sandpaper. 3M quickly stepped into the breach, purchasing the rights to Okies Wetordry waterproof sandpaper, and hiring the young printer to join Richard Carlton in 3Ms lab. Wetordry sandpaper went on to revolutionize the sandpaper industry, and was the driver of significant growth at 3M. Another key player in the companys history, Richard Drew, also joined 3M in 1921. Hired straight out of the University of Minnesota, Drew would round out the trio of scientists, Carlton, Okie, and Drew, who under McKnights leadership would do much to shape 3Ms innovative organization. McKnight charged the newly hired Drew with developing a stronger adhesive to better bind the grit paper to the sandpaper backing. While experiment- ing with adhesives, Drew accidentally developed a weak adhesive that had an interesting qualityif placed on the back of a strip of paper and stuck to a surface, the strip of paper could be pealed off the surface without leaving any adhesive residue on that surface. This discovery gave Drew an epiphany. He had been visiting auto-body paint shops to see how 3Ms wet and dry sandpaper was used, and he noticed that there was a problem with paint running. His epiphany was to cover the back of a strip of paper with his weak adhesive, and use it as mask- ing tape to cover parts of the auto body that were not to be painted. An excited Drew took his idea to McKnight, and explained how masking tape might create an entirely new business for 3M. McKnight reminded Drew that he had been hired to fix a spe- cific problem, and pointedly suggested that he con- centrate on doing just that. Chastised, Dew went back to his lab, but he could not get the idea out of his mind, so he continued to work on it at night, long after everyone else had gone home. Drew succeeded in perfecting the mask- ing tape product, and then went to visit several auto- body shops to show them his innovation. He quickly received several commitments for orders. Drew then went to see McKnight again. He told him that he had continued to work on the masking tape idea on his own time, had perfected the product, and got several customers interested in purchasing it. This time it was McKnights turn to be chastised. Realizing that he had almost killed a good business idea, McKnight reversed his original position and gave Drew the go ahead to pursue the idea.1 Introduced into the market in 1925, Drews inven- tion of masking tape represented the first significant product diversification at 3M. Company legend has it that this incident was also the genesis for 3Ms famous 15% rule. Reflecting on Drews work, both McKnight and Carlton both agreed that technical people could disagree with management, and should be allowed to do some experimentation on their own. The company then established a norm that technical people could spend up to 15% of their own workweek on projects that might benefit the consumer, without having to justify the project to their manager. Drew himself was not finished. In the late 1920s, he was working with cellophane, a product that had been invented by Du Pont, when lightning struck a second time. Why, Drew wondered, couldnt cel- lophane be coated with an adhesive and used as a sealing tape? The result was Scotch Cellophane Tape. The first batch was delivered to a customer in September 1930, and Scotch Tape went on to become one of 3Ms bestselling prodor cellophane tape if it hadnt been for earlier 3M research on adhesive binders for 3M Wetordry Abrasive Paper? Probably not!2 Over the years, other scientists followed Drews footsteps at 3M, creating a wide range of innovative products by leveraging existing technology and apply- ing it to new areas. Two famous examples illustrate how many of these innovations occurredthe inven- tion of Scotch Guard, and the development of the ubiquitous Post-it Notes. The genesis of Scotch Guard was in 1953, when a 3M scientist named Patsy Sherman was working on a new kind of rubber for jet aircraft fuel lines. Some of the latex mixture splashed onto a pair of canvas ten- nis shoes. Over time, the spot stayed clean while the rest of the canvas soiled. Sherman enlisted the help of fellow chemist Sam Smith. Together they began to investigate polymers, and it didnt take long for them to realize that they were on to something. They had discovered an oil- and water-repellant substance, based on the fluorocarbon fluid used in air condition- ers, with enormous potential for protecting fabrics from stains. It took several years before the team per- fected a means to apply the treatment using water as the carrier, thereby making it economically feasible for use as a finish in textile plants. Three years after the accidental spill, the first rain- and stain-repellent for use on wool was announced. Experience and time revealed that one product could not, however, effectively protect all fabrics, so 3M continued working, producing a wide range of Scotch Guard products that could be used to protect all kinds of fabrics.3 The story of Post-it Notes began with Spen- cer Silver, a senior scientist studying adhesives.4 In 1968, Silver had developed an adhesive with proper- ties like no other: a pressure-sensitive adhesive that would adhere to a surface but was weak enough to easily peel off the surface and leave no residue. Silver spent several years shopping his adhesive around 3M, to no avail. It was a classic case of a technol- ogy in search of a product. Then one day in 1973, Art Fry, a new-product development researcher who had attended one of Silvers seminars, was singing in his church choir. He was frustrated that his book- marks kept falling out of his hymn book, when he had a Eureka moment. Fry realized that Silvers adhesive could be used to make a wonderfully reli- able bookmark. Fry went to work next day, and using 15% time, started to develop the bookmark. When he started using sample bookmarks to write notes to his boss, Fry suddenly realized that he had stumbled on a much bigger potential use for the product. Before it could be commercialized, however, Fry had to solve a host of technical and manufacturing problems. With the support of his boss, Fry persisted and, after 18 months, the product development effort moved from 15% time to a formal development effort funded by 3Ms seed capital. The first Post-it Notes were test marketed in 1977 in four major cities, but customers were lukewarm at best. This did not gel with the experience within 3M, where people in Frys division were using samples all the time to write messages to each other. Further research revealed that the test marketing effort, which focused on ads and brochures, didnt resonate well with consumers, who didnt seem to value Post-it Notes until they had the actual product in their hands. In 1978, 3M tried again, this time descending on Boise Idaho, and handing out samples. Follow-up research revealed that 90% of consumers who tried the product said they would buy it. Armed with this knowledge, 3M rolled out the national launch of Post-it Notes in 1980. The product subsequently went on to become a bestseller. institutionalizing innovation Early on, McKnight set an ambitious target for 3Ma 10% annual increase in sales and a 25% profit target. He thought that should be achieved with a commitment to plow 5% of sales back into R&D every year. The question though, was how to ensure that 3M would continue to develop new products? The answer was not apparent all at once, but rather evolved over the years from experience. A prime exam- ple was the 15% rule, which emerged from McKnights experience with Drew. In addition to the 15% rule and the continued commitment to push money back into R&D, a number of other mechanisms evolved at 3M to spur innovation. Initially, research took place in the business units that made and sold products, but by the 1930s, 3M had already diversified into several different fields thanks in large part to the efforts of Drew and others. McKnight and Carlton realized that there was a need for a central research function. In 1937, they ucts. Years later, Drew noted that Would there have been any masking established a central research laboratory charged with supplementing the work of product divisions and undertaking long-run, basic research. From the outset, the researchers at the lab were multidis- ciplinary, with people from different scientific disci- plines often working next to each other on research benches. As the company grew, it became clear that there was a need for some mechanism to knit together its increasingly diverse business operations. This led to the establishment of the 3M Technical Forum in 1951. The goal of the Technical Forum was to foster idea sharing, discussion, and problem solving between technical employees located in different divisions and the central research laboratory. The Technical Forum sponsored problem-solving sessions at which busi- nesses would present their most recent technical nightmares in the hope that somebody might be able to suggest a solutionand that often was the case. The forum also established an annual event in which each division put up a booth to show off its latest technologies. Chapters were also created to focus on specific disciplines such as polymer chemistry or coat- ing processes. During the 1970s, the Technical Forum cloned itself, establishing forums in Australia and England. By 2001, the forum had grown to 9,500 members in 8 U.S. locations and 19 other countries, becoming an international network of researchers who could share ideas, solve problems, and leverage technology. According to Marlyee Paulson, who coordinated the Technical Forum from 1979 to 1992, the great vir- tue of the Technical Forum is to cross pollinate ideas: 3M has lots of polymer chemists. They may be in tape; they may be medical or several other divisions. The forum pulls them across 3M to share what they know. Its a simple but amaz- ingly effective way to bring like minds together.5 In 1999, 3M created another unit within the com- pany, 3M Innovative Properties (3M, IPC) to leverage technical knowhow. 3M IPC is explicitly charged with protecting and leveraging 3Ms intellectual property around the world. At 3M there has been a long tradi- tion that, while divisions own their products, the com- pany has a whole owns the underlying technology, or intellectual property. One task of 3M IPC is to find ways in which 3M technology can be applied across business units to produce unique, marketable products. Historically, the company has been remarkably suc- cessful at leveraging company technology to produce new product ideas (see Figure 1 for examples). Another key to institutionalizing innovation at 3M has been the principle of patient money. The basic idea is that producing revolutionary new prod- ucts requires substantial, long-term investments and often repeated failurebefore a major payoff occurs. The principle can be traced back to 3Ms early days. It took the company 12 years before its initial sandpaper business started to show a profit, a fact that drove home the importance of taking the long view. Throughout the companys history, simi- lar examples can be found. Scotchlite reflective sheet- ing, now widely used on road signs, didnt show much profit for 10 years. The same was true of flurochemi- cals and duplicating products. Patient money doesnt mean substantial funding for long periods of time, however. Rather, it might imply that a small group of five researchers is supported for 10 years while they work on a technology. More generally, if researchers create a new tech- nology or idea, they can work on it using 15% time. If the idea shows promise, they may request seed capital from their business unit managers to develop it fur- ther. If that funding is denied, which can occur, they are free to take the idea to any other 3M business unit. Unlike the case in many other companies, requests for seed capital do not require that researchers draft detailed business plans that are reviewed by top man- agement. That comes later in the process. As one for- mer senior technology manager noted, In the early stages of a new product or technology, it shouldnt be overly managed. If we start asking for business plans too early and insist on tight financial evaluations, well kill an idea or surely slow it down.6 Explaining the patient money philosophy, Ron Baukol, a former executive vice president of 3Ms in- ternational operations, and a manager who started as a researcher, has noted: You just know that some things are going to be worth working on, and that requires tech- nological patience. . . . you dont put too much money into the investigation, but you keep one to five people working on it for twenty years if you have to. You do that because you know that, once you have cracked the code, its going to be big.7 e 1 examples of leveraging Technology at 3M8 Richard Miller, a corporate scientist in 3M Pharmaceuticals, began experimental development of an antiherpes medicinal cream in 1982. After several years of development, his research team found that the interferon-based materials they were working with could be applied to any skin-based virus. The innovative chemistry they were working with was applied topically and was more effective than other compounds on the market. They found that the cream was particularly effective in interfering with the growth mechanism of genital warts. Competitive products on the market at the time were caustic and tended to be painful. Millers team obtained Food and Drug Administration (FDA) approval for its Aldara (imiquimod) line of topical, patient-applied creams in 1997. Miller then applied the same Aldara-based chemical mechanism to basal cell carcinomas, and found that here too it was particularly effective in restricting the growth of the skin cancer. The patient benefit is quite remarkable, says Miller. New results in efficacy have been presented for treating skin cancers. His team recently completed phase III clin- ical testing and expects to apply later this year for FDA approval for this disease preventative. This material is already FDA-approved for use in the treatment of genital warts. Doctors are free to use it to treat patients with skin cancers. Andrew Ouderkirk is a corporate scientist in 3Ms Film & Light Management Technology Center. 3M has been working in light management materials applied to polymer-based films since the 1930s, according to Ouderkirk. Every decade since then, 3M has introduced a unique, thin-film structure for specific customer applications ranging from high-perfor- mance safety reflectors for street signs to polarized lighting products. And every decade, 3Ms technology base has be- come more specialized and more sophisticated. Their technology has now reached the point where they can produce multiple-layer interference films to 100-nm thicknesses each and hold the tolerances on each layer to within +/ 3 nm. Our laminated films are now starting to compete with vacuum-coated films in some applications, says Ouderkirk. Rick Weiss is technical director of 3Ms Microreplication Technology Center, one of 3Ms 12 core technology cen- ters. The basic microreplication technology was discovered in the early-1960s, when 3M researchers were develop- ing fresnel lenses for overhead projectors. 3M scientists have expanded this technology to a wide variety of applica- tions including optical reflectors for solar collectors, and adhesive coatings with air-bleed ribs that allow large area films to be applied without having the characteristic bubbles appear. Weiss is currently working on development of dimensionally precise barrier ribs that can be applied to separate the individual gas cells on new, high-resolution, large-screen commercial plasma displays. Other applications include fluid management where capillary action can be used in biological testing systems to split a drop of blood into multiple parts. An internal review of 3Ms innovation process in the early 1980s concluded that, despite the liberal pro- cess for funding new product ideas, some promising ideas did not receive funding from business units or the central research budget. This led to the establish- ment in 1985 of Genesis Grants, which provides up to $100,000 in seed capital to fund projects that do not get funded through 3Ms regular channels. About a dozen of these grants are awarded every year. One recipient of the grant, a project that focused on cre- ating a multilayered, reflective film, has produced a breakthrough reflective technology that may have applications in a wide range of businesses, from bet- ter reflective strips on road signs to computer displays and the reflective linings in light fixtures. Company estimates in 2002 suggest that the commercialization of this technology might ultimately generate $1 billion in sales for 3M. Underlying the patient money philosophy is the recognition that innovation is a very risky business. 3M has long acknowledged that failure is an accepted and essential part of the new-product development process. As former 3M CEO Lew Lehr once noted, We estimate that 60% of our formal new-product development programs never make it. When this hap- pens, the important thing is to not punish the people involved.9 In the 1960s, in an effort to reduce the probabil- ity of failure, 3M started to establish a process for auditing the product development efforts ongoing in the companys business units. The idea has been to provide a peer review, or technical audit, of major development projects taking place in the company. A typical technical audit team is composed of 10 to 15 business and technical people, including technical directors and senior scientists from other divisions The audit team looks at the strengths and weaknesses of a development program, and its probability of success, both from a technical standpoint and a busi- ness standpoint. The team then makes nonbinding recommendations, but these are normally taken very seriously by the project managers. For example, if an audit team concludes that a project has enormous potential but is terribly underfunded, managers of the unit would often increase the funding level. Of course, the converse can also happen; in many instances the audit team can provide useful feedback and techni- cal ideas that help a development team improve their projects chance of success. By the 1990s, 3Ms continued growth produced a company that was simultaneously pursuing a vast ar- ray of new product ideas. This was a natural outcome of 3Ms decentralized, bottom-up approach to inno- vation, but it was problematic in one crucial respect: The companys R&D resources were being spread too thinly over a wide range of opportunities, resulting in potentially major projects being underfunded. In 1994, to channel R&D resources into projects that had blockbuster potential, 3M introduced what was known as the Pacing Plus Program. The program asked businesses to select a small number of programs that would receive priority fund- ing, but 3Ms senior executives made the final selec- tions for the Pacing Plus Program. An earlier attempt to do this in 1990 had met with limited success, because each sector in 3M submitted as many as 200 programs. The Pacing Plus Program narrowed the list down to 25 key programs that, by 1996, were receiv- ing some 20% of 3Ms entire R&D funds (by the early 2000s, the number of projects funded under the Pac- ing Plus Program had grown to 60). The focus was on leapfrog technologies, revolutionary ideas that might change the basis of competition and lead to en- tirely new technology platforms that might, in typical 3M fashion, spawn an entire range of new products. To further foster a culture of entrepreneurial innovation and risk taking, over the years 3M estab- lished a number of reward and recognition programs to honor employees who make significant contri- butions to the company. These include the Carton Society award, which honors employees for outstand- ing career scientific achievements, and the Circle of Technical Excellence and Innovation Award, which recognizes people who have made exceptional contri- butions to 3Ms technical capabilities. Another key component of 3Ms innovative cul- ture has been an emphasis on duel career tracks. From its early days, many key players in 3Ms history, like Richard Drew, chose to stay in research, turning down opportunities to go into the management side of the business. Over the years, this became formal- ized in a dual career path. Today, technical employees can choose to follow a technical career path or a man- agement career path, with equal advancement oppor- tunities. The idea is to let researchers develop their technical professional interests without being penal- ized financially for not going into management. Although 3Ms innovative culture emphasizes the role of technical employees in producing innovations, the company also has a strong tradition of emphasiz- ing that new product ideas often come from watch- ing customers at work. Richard Drews original idea for masking tape, for example, came from watching workers use 3M wet and dry sandpaper in auto-body shops. As with much else at 3M, the tone was set by McKnight, who insisted that salespeople needed to get behind the smokestacks of 3M customers, go to the factory floor, and talk to workers about problems. Over the years, this theme became ingrained in 3Ms culture, with salespeople often requesting time to watch customer work, and then bringing their insights about customer problems back into the organization. By the mid 1990s, McKnights notion of getting behind the smokestacks had evolved into the idea that 3M could learn a tremendous amount from what were termed lead users, who were customers working in very demanding conditions. Over the years, 3M had observed that, in many cases, these customers were innovators, developing new products to solve prob- lems that they faced in their work setting. This was most likely to occur when customers were working in very demanding conditions. To take advantage of this process, 3M has instituted a lead-user process in the company in which cross-functional teams from a busi- ness unit observe how customers work in demanding situations. For example, 3M has a $100-million business sell- ing surgical drapes, which are drapes backed with ad- hesive used to cover parts of a body during surgery and help prevent infection. As an aid to new product development, 3Ms surgical drapes business formed a cross-functional team that observed surgeons at work in very demanding situationsincluding on the battlefield, in hospitals in developing nations, and in veterinarians offices. The result was a new set of product ideas, including low-cost surgical drapes that were affordable in developing nations, and devices for coating a patients skin and surgical instruments with antimicrobial substances that would reduce the chance of infection during surgery.10 Driving the entire innovation machine at 3M has been a series of stretch goals set by top managers. The goals date back to 3Ms early days and McKnights ambitious growth targets. In 1977, the company established Challenge 81, which called for 25% of sales to come from products that had been on the market for less than 5 years by 1981. By the 1990s, the goal had been raised to the requirement that 30% of sales should come from products that had been on the market less than four years. The flip side of these goals was that, over the years, many products and businesses that had been 3M sta- ples were phased out. More than 20 of the businesses that were 3M mainstays in 1980, for example, had been phased out by 2000. Analysts estimate that sales from mature products at 3M generally fall by 3 to 4% per annum. The company has a long history of invent- ing businesses, leading the market for long periods of time, and then shutting those businesses down or sell- ing them off when they can no longer meet 3Ms own demanding growth targets. Notable examples include the duplicating business, a business 3M invented with Thermo Fax copiers (which were ultimately made obsolete my Xeroxs patented technology), and the video and audio magnetic tape business. The former division was sold off in 1985, and the later in 1995. In both cases the company exited these areas because they had become low-growth, commodity businesses that could not generate the top-line growth that 3M was looking for. Still, 3M was by no means invulnerable in the realm of innovation and on occasion squandered huge op- portunities. A case in point was the document copy- ing business. 3M invented this business in 1951 when it introduced the worlds first commercially success- ful Thermo Fax copier (which used specially coated 3M paper to copy original typed documents). 3M dominated the world copier business until 1970, when Xerox overtook the company with its revolutionary xerographic technology, which used plain paper to make copies. 3M saw Xerox coming, but rather than develop its own plain-paper copier, the company invested funds in trying to improve its (increasingly obsolete) copying technology. In 1975, 3M finally in- troduced its own plain-paper copier, but by then it was too late. Ironically, 3M had turned down the chance to acquire Xeroxs technology 20 years earlier, when the companys founders had approached 3M. Building the Organization McKnight, a strong believer in decentralization, organized the company into product divisions in 1948, making 3M one of the early adopters of this organizational form. Each division was set up as an individual profit center that had the power, autonomy, and resources to run independently. At the same time, certain significant functions remained centralized, including R&D, human resources, and finance. McKnight wanted to keep the divisions small enough that people had a chance to be entrepreneur- ial and focus on the customer. A key philosophy of McKnights was divide and grow. Put simply, when a division became too big, some of its embryonic busi- nesses were spun of into a new division. Not only did this new division then typically attain higher growth rates, but the original division had to find new drivers of growth to make up for the contribution of the busi- nesses that had gained independence. This drove the search for further innovations. At 3M the process of organic diversification by splitting divisions became known as renewal. Examples of renewal within 3M are legion. A copy- ing machine project for Thermo Fax copiers grew to become the Office Products Division. When Magnetic Recording Materials was spun off from the Electrical Products division, it grew to become its own division and in turn spawned a spate of divisions. However, this organic process was not without its downside. By the early 1990s, some of 3Ms key customers were frustrated that they had to do busi- ness with a large number of different 3M divisions. In some cases, there could be representatives from 10 to 20 3M divisions calling on the same customer. To cope with this problem, starting in 1992, 3M assigned key account representatives to sell 3M products directly to major customers. These representatives typically worked across divisional lines. Implementing the strategy required many of 3Ms general managers to give up some autonomy and power, but the solution seemed to work well, particularly for 3Ms consumer and office divisions. Underpinning the organization that McKnight put in place was his own management philosophy. As explained in a 1948 document, his basic management philosophy consisted of the following values:11 As our business grows, it becomes increas- ingly necessary to delegate responsibility and to encourage men and women to exercise their initiative. This requires considerable tolerance. Those men and women to whom we delegate authority and responsibility, if they are good people, are going to want to do their jobs in their own way. Mistakes will be made. But if a person is essentially right, the mistakes he or she makes are not as serious in the long run as the mis- takes management will make if it undertakes to tell those in authority exactly how they must do their jobs. Management that is destructively critical when mistakes are made kills initiative. And its essential that we have many people with initiative if we are to continue to grow. At just 3% per annum, employee turnover rate at 3M has long been among the lowest in corpo- rate Americaa fact that is often attributed to the tolerant, empowering, familylike corporate culture that McKnight helped to establish. Reinforcing this culture has been a progressive approach toward employee compensation and retention. In the depths of the Great Depression, 3M avoided laying off em- ployees while many others did because the companys innovation engine was able to keep building new busi- nesses even through the worst of times. In many ways, 3M was ahead of its time in man- agement philosophy and human resource practices. The company introduced its first profit-sharing plan in 1916, and McKnight instituted a pension plan in 1930 and an employee stock purchase plan in 1950. McKnight himself was convinced that people would be much more likely to be loyal to a company if they had a stake in it. 3M also developed a policy of promoting from within and giving its employees a plethora of career opportunities within the company. Going international The first steps abroad occurred in the 1920s. There were limited sales of Wet and Dry sandpaper in Europe during the early 1920s. These increased after 1929 when 3M joined the Durex Corporation, a joint venture for international abrasive-product sales in which 3M was involved along with eight other U. S. companies. In 1950, however, the Department of Justice alleged that the Durex Corporation was a mechanism for achieving collusion among U.S. abrasive-product manufacturers, and a judge ordered that the corporation be broken up. After the Durex Corporation was dissolved in 1951, 3M was left with a sandpaper factory in Britain, a small plant in France, a sales office in Germany, and a tape factory in Brazil. International sales at this point amounted to no more than 5% of 3Ms total revenues. Although 3M opposed the dissolution of the Durex Corporation, in retrospect it turned out to be one of the most important events in the companys history, for it forced the corporation to build its own international operations. By 2010, international sales amounted to 63% of total revenues. In 1952, Clarence Sampair was put in charge of 3Ms international operations and charged with get- ting them off the ground. He was given considerable strategic and operational independence. Sampair and his successor, Maynard Patterson, worked hard to protect the international operations from getting caught up in the red tape of a major corporation. As Patterson recounts: I asked Em Monteiro to start a small compa- ny in Columbia. I told him to pick a key per- son he wanted to take with him. Go start a company, I said, and no one from St Paul is going to visit you unless you ask for them. Well stay out of your way, and if someone sticks his nose in your business you call me.12 The international businesses were grouped into an International Division that Sampair headed. From the get-go the company insisted that foreign ventures pay their own way. In addition, 3Ms international companies were expected to pay a 5 to 10% royalty to the corporate head office. Starved of working capital, 3Ms International Division relied heavily on local borrowing to fund local operationsa fact that forced those operations to quickly pay their own way. The international growth at 3M typically occurred in stages. The company would start by exporting to a country and working through sales subsidiaries. In that way, it began to understand the country, the local marketplace, and the local business environment. Next, 3M established warehouses in each nation, and stocked those with goods paid for in local cur- rency. The next phase involved converting products to the sizes and packaging forms that the local market conditions, customs, and culture dictated. 3M would ship jumbo rolls of products from the United States, which were then broken up and repackaged for each country. The next stage was designing and building plants, buying machinery, and getting operations up and running. Over the years, R&D functions were often added, and by the 1980s considerable R&D was being done outside of the United States. Sampair and Patterson set an innovative, entre- preneurial framework that, according to the company, still guides 3Ms International Division today. The philosophy can be reduced to several simple, key com- mitments: (1) get in early (within the company, the strat- egy is known as FIDOFirst in Defeats Others); (2) hire talented, motivated local people; (3) become a good corporate citizen of the country; (4) grow with the local economy; (5) tailor products to fit local needs; and (6) enforce patents in foreign countries. As 3M stepped into the international market vacuum, foreign sales surged from less than 5% in 1951 to 42% by 1979. By the end of the 1970s, 3M was beginning to understand how important it was to integrate its international operations more closely with U.S. operations, and to build innovative capabili- ties overseas. It expanded the companys international R&D presence (there are now more than 2,200 techni- cal employees outside the United States), built closer ties between the United States and foreign research organizations, and started to transfer more manage- rial and technical employees between businesses in different countries. In 1978, the company started the Pathfinder Program to encourage new product and new business initiatives born outside the United States. By 1983, products developed under the initiative were generating sales of over $150 million a year. 3M Brazil invented a low-cost, hot-melt adhesive from local raw materi- als, 3M Germany teamed up with Sumitomo 3M of Japan (a joint venture with Sumitomo) to develop electronic connectors with new features for the world- wide electronics industry, 3M Philippines developed a Scotch-Brite cleaning pad shaped like a foot after learning that Filipinos polished floors with their feet, and so on. On the back of such developments, in 1992 international operations exceeded 50% for the first time in the companys history. By the 1990s, 3M started to shift away from a country-by-country management structure to more regional management. Drivers behind this development included the fall of trade barriers, the rise of trading blocks such as the European Union and NAFTA, and the need to bring down costs in the face of intense global competition. The first European Business Center (EBC) was created in 1991 to manage 3Ms chemical business across Europe. The EBC was charged with product development, manufacturing, sales, and marketing for Europe, but also with paying attention to local country requirements. Other EBCs soon followed, such as one for disposable products and pharmaceuticals. As the millennium ended, 3M was transforming into a transnational organization characterized by an integrated network of businesses that spanned the globe. The goal was to achieve the global scale necessary to deal with competitive pressures, while at the same time maintaining 3Ms traditional focus on local market differences and decentralized R&D capabilities. The new era The Desimone Years In 1991, Desi DeSimone became CEO of 3M. A long- time 3M employee, the Canadian-born DeSimone was the epitome of a 21st-century manager. He had made his name by building 3Ms Brazilian business and spoke five languages fluently. Unlike most prior 3M CEOs, DeSimone came from the manufacturing side of the business rather than the technical aide. He soon received praise for managing 3M through the recession of the early 1990s. By the late 1990s, how- ever, his leadership had come under fire both inside and outside the company. In 1998 and 1999, the company missed its earn- ings targets, and the stock price fell as disappointed investors sold. Sales were flat, profit margins fell, and earnings slumped by 50%. The stock had underper- formed the widely tracked S&P 500 stock index for most of the 1980s and 1990s. One cause of the earnings slump in the late 1990s was 3Ms sluggish response to the 1997 Asian crisis. During the Asian crisis, the value of several Asian currencies fell by as much as 80% against the U.S. dollar in a matter of months. 3M generated a quarter of its sales from Asia, but it was slow to cut costs there in the face of slumping demand following the collapse of currency values. At the same time, a flood of cheap Asian products cut into 3Ms market share in the United States and Europe as lower currency values made Asian products much cheaper. Another problem was that, for all of its vaunted innovative capabilities, 3M had not produced a block- buster product since Post-it Notes. Most products released during the 1990s were improvements over existing products, not truly new products. DeSimone was also blamed for not pushing 3M hard enough earlier in the decade to reduce costs. An example was the companys supply-chain excellence program. In 1995, 3Ms inventory was turning over just 3.5 times a yearsubpar for manufacturing. An internal study suggested that every half-point increase in inventory turnover could reduce 3Ms working capital needs by $700 million and boost its return on invested capital. But by 1998, 3M had made no prog- ress on this front.13 By 1998, there was also evidence of internal con- cerns. Anonymous letters from 3M employees were sent to the board of directors, claiming that DeSimone was not committed to research as he should have been. Some letters complained that DeSimone was not fund- ing important projects for future growth, others that he had not moved boldly enough to cut costs, and still others that the companys duel career track was not being implemented well, and that technical peo- ple were underpaid. Critics argued that he was a slow and cautious decision maker in a time that required decisive strategic decisions. For example, in August 1998, DeSimone announced a restructuring plan that included a commitment to cut 4,500 jobs, but reports suggest that other senior managers wanted 10,000 job cuts, and DeSimone had watered down the proposals.14 Despite the criticism, 3Ms board, which included four previous 3M CEOs among its members, stood behind DeSimone until he retired in 2001. However, the board began a search for a new top executive in February 2000 and signaled that it was looking for an outsider. In December 2000, the company announced that it had found the person it wanted: Jim McNerney, a 51-year-old General Electric veteran who ran GEs medical equipment businesses, and before that GEs Asian operations. McNerney was one of the front- runners in the race to succeed Jack Welsh as CEO of General Electric, but lost out to Jeffrey Immelt. One week after that announcement, 3M hired him. McNerneys Plan for 3M In his first public statement days after being appointed, McNerney said that his focus would be on getting to know 3Ms people and culture and its diverse lines of business: I think getting to know some of those businesses and bringing some of GE here to overlay on top of 3Ms strong culture of innovation will be particularly important.15 It soon became apparent that McNerneys game plan was exactly that: to bring the GE playbook to 3M and use it to try to boost 3Ms results, while simultaneously not destroying the innovative culture that had produced the companys portfolio of 50,000 products. The first move came in April 2001, when 3M announced that the company would cut 5,000 jobs, or about 7% of the workforce, in a restructuring effort that would zero in on struggling businesses. To cover severance and other costs of restructuring, 3M announced that it would take a $600-million charge against earnings. The job cuts were expected to save $500 million a year. In another effort to save costs, the company streamlined its purchasing processes, for example, by reducing the number of packaging sup- pliers on a global basis from 50 to 5, saving another $100 million a year in the process. Next, McNerney introduced the Six Sigma pro- cess, a rigorous, statistically based quality-control pro- cess that was one driver of process improvement and cost savings at General Electric. At heart, Six Sigma is a management philosophy, accompanied by a set of tools, that is rooted in identifying and prioritizing cus- tomers and their needs, reducing variation in all busi- ness processes, and selecting and grading all projects based on their impact on financial results. Six Sigma breaks every task (process) in an organization down into increments to be measured against a perfect model. McNerney called for Six Sigma to be rolled out across 3Ms global operations. He also introduced a Six Sigma-like performance evaluation system at 3M under which managers were asked to rank every single employee who reported to them In addition to boosting performance from existing business, McNerney quickly signaled that he wanted to play a more active role in allocating resources between new business opportunities. At any given time, 3M has some 1,500 products in the develop- ment pipeline. McNerney stated that was too many; he wanted to funnel more cash to the most promising ideas, those with a potential market of $100 million a year or more, while cutting funding to weaker-looking development projects. In the same vein, he signaled that he wanted to play a more active role in resource allocation than had traditionally been the case for a 3M CEO, using cash from mature businesses to fund growth oppor- tunities elsewhere. He scrapped the requirement that each division get 30% of its sales from products intro- duced in the past four years, noting that To make that number, some managers were resorting to some rather dubious innovations, such as pink Post- it Notes. It be- came a game, what could you do to get a new SKU?16 Some longtime 3M watchers, however, worried that by changing resource-allocation practices McNerney might harm 3Ms innovative culture. If the companys history proves anything, they say, its that it is hard to tell which of todays unheralded products will become tomorrows home runs. No one predicted that Scotch Guard or Post-it Notes would earn millions. They began as minor experiments that evolved with- out planning into big hits. McNerneys innovations all sound fine in theory, they say, but there is a risk that he will lose what is valuable in the process. In general though, securities analysts greet- ed McNerneys moves favorably. One noted that McNerney is all about speed, and that there will be no more Tower of Babel, everyone speaks one language. This one company vision was meant to replace the program under which 3M systematically spun off successful new products into new business centers. The problem with this approach, according to the analyst, was that there was no leveraging of best practices across businesses.17 McNerney also signaled that he would reform 3Ms regional management structure, replacing it with a global business-unit structure that would be defined by either products or markets. At a meeting for investment analysts held on September 30, 2003, McNerney summarized a num- ber of achievements.18 At the time, the indications seemed to suggest that McNerney was helping to revitalize 3M. Profitability, measured by return on invested capital, had risen from 19.4% in 2001 and was projected to hit 25.5% in 2003. 3Ms stock price had risen from $42 just before McNerney was hired to $73 in October 2003 (see Figure 5 for details). Like his former boss, Jack Welsh at GE, McNerney seemed to place significant value on internal execu- tive education programs as a way of shifting to a performance-oriented culture. McNerney noted that some 20,000 employees had been through Six Sigma training by the third quarter of 2003. Almost 400 higher-level managers had been through an advanced leadership development program set up by McNerney and offered by 3Ms own internal executive education institute. Some 40% of participants had been promot- ed on graduating. All of the companys top managers had graduated from an executive leadership program offered by 3M. McNerney also emphasized the value of the five initiatives he had put in place at 3M: indirect cost control, global sourcing, e-productivity, Six Sigma, and the 3M Acceleration program. With regard to indirect cost control, some $800 million had been taken out of 3Ms cost structure since 2001, primar- ily by reducing employee numbers, introducing more efficient processes that boost productivity, benchmark- ing operations internally, and leveraging best practic- es. According to McNerney, internal benchmarking highlighted another $200 to $400 million in potential cost savings over the next few years. On global sourcing, McNerney noted that more than $500 million had been saved since 2000 by con- solidating purchasing, reducing the number of sup- pliers, switching to lower-cost suppliers in developing nations, and introducing duel sourcing policies to keep price increases under control. The e-productivity program at 3M embraced the entire organization and all functions. It involves the digitalization of a wide range of processes, from cus- tomer ordering and payment, through supply-chain management and inventory control, to managing employee process. The central goal is to boost pro- ductivity by using information technology to more effectively manage information within the company, and between the company and its customers and suppliers. McNerney cited some $100 million in annual cost savings from this process. The Six Sigma program, which overlays the entire organization, focuses on improving processes to boost cash flow, lower costs (through productivity enhance- ments), and boost growth rates. By late 2003, there were some 7,000 Six Sigma projects in process at 3M. By using working capital more efficiently, Six Sigma programs had helped to generate some $800 million in cash, with the total expected to rise to $1.5 billion in by the end of 2004. 3M has applied the process to the companys R&D process, enabling researcher to engage customer information in the initial stages of a design discussion. According to Jay Inlenfeld, VP of R&D, Six Sigma tools . . . allow us to be more closely connected to the market and give us a much higher probability of success in our new product designs.19 Finally, the 3M Acceleration program is aimed at boosting the growth rate from new products through better resource allocation, particularly by shifting resources from slower-growing to faster-growing mar- kets. As McNerney noted: 3M has always had extremely strong com- petitive positions, but not in markets that are growing fast enough. The issue has been to shift emphasize into markets that are growing faster.20 Part of this program is a tool termed 2X/3X. 2X is an objective for two times the number of new products that were introduced Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. in the past, and 3X is a business objective for three times as many winning products as there were in the past (see Figure 2). 2X focuses on generating major product initiatives, and 3X on improving the commercialization of those initiatives. The process illustrated in Figure 3 is 3Ms stage gate process, where each gate rep- resents a major decision point in the develop- ment of a new product, from idea generation to postlaunch. Other initiatives aimed at boosting 3Ms organiza- tion growth rate through innovation include Six Sigma process, leadership development programs, and tech- nology leadership (see Figure 3). The purpose of these initiatives was to help implement the 2X/3X strategy. As a further step in the Acceleration Program, 3M decided to centralize its corporate R&D effort. Prior to the arrival of McNerney, there were 12 technology cen- ters staffed by 900 scientists that focused on core tech- nology development. The company is replacing these with one central research lab, staffed by 500 scientists, some 120 of whom will be located outside the United States. The remaining 400 scientists will be relocated to R&D centers in the business units. The goal of this new corporate research lab is to focus on developing new technology that might fill high growth white spaces, which are areas where the company currently has no presence, but where the long term market potential is great. An example is research on fuel cells, which is currently a big research project within 3M. Responding to critics charges that such changes might alter 3Ms innovative culture, VP of R&D Inlenfeld noted that: We are not going to change the basic culture of innovation at 3M. There is a lot of culture in 3M, but we are going to introduce more systematic, more productive tools that allow our researchers to be more successful.23 For example, he repeatedly emphasized that the company remains committed to basic 3M principles such as the 15% rule and leveraging technology across businesses. By late 2003, McNerney noted that some 600 new product ideas were underdevelopment and that col- lectively, they were expected to reach the market and generate some $5 billion in new revenues between 2003 and 2006, up from $3.5 billion 18 months earlier. Approximately $1 billion of these gains were expected in 2003. George Buckley Takes Over In mid-2005, McNerney announced that he would leave 3M to become CEO and chairman of Boeing, a company on whose board he had served for some time. He was replaced in late 2005 by another out- sider, George Buckley, the highly regarded CEO of Brunswick Industries. Buckley, British, holds a Ph.D. in electrical engineering and describes himself as a scientist at heart. Over the next year, in several presentations, Buckley outlined his strategy for 3M, and it soon became apparent that he was sticking to the general course laid out by McNerney, albeit with important corrections.24 Buckley did not see 3M as an enterprise that needed radical change. He saw 3M as a company with impressive internal strengths, but one that had been too cautious about pursuing growth opportunities.25 Buckleys overall strategic vision for 3M was that the company must solve its customers needs through the provision of innovative, differentiated products that in- crease those customers efficiency and competitiveness.

Consistent with long-term 3M strategy, he saw this being achieved by applying 3Ms multiple technology platforms to different market opportunities. Controlling costs and boosting productivity through Six Sigma continued to be a major thrust under Buckley. This was hardly a surprise; Buckley had pushed Six Sigma at Brunswick. By late 2006, some 55,000 3M employees had been trained in Six Sigma methodology, 20,000 projects had been com- pleted, and some 15,000 were underway. 3M was also adding techniques gleaned from Toyotas lean pro- duction methodology to its Six Sigma tool kit. As a result of Six Sigma and other cost control methods, between 2001 and 2005 productivity measured by sales per employee increased from $234 to $311, and some $750 million were taken out of overhead costs. However, Buckley departed from McNerneys playbook in one significant way: He removed Six Sigma from the labs. The feeling of many at 3M was that Six Sigma rules choked those working on innovation. As one 3M researcher noted, Its really tough to schedule innovation.26 When McNerney left 3M in 2005, the percentage of sales from new products introduced in the last 5 years had fallen to 21%, down from the companys long-term goal of 30%. By 2010, after 5 years of Buckleys leadership, the percentage was back up to 30%. According to many in the company, Buckley has been a champion of researchers at 3M, devoting much of his personal time to empowering researchers and urging them to restore the luster of 3M. Buckley stressed the need for 3M to more aggres- sively pursue growth opportunities. He wanted the company to use its differentiated brands and technol- ogy to continue to develop core businesses and extend those core business into adjacent areas. In addition, like McNerney, Buckley wanted the company to focus R&D resources on emerging business opportunities, and he too seemed prepared to play a proactive role in this process. Areas of focus include filtration systems, track and trace information technology, energy and mineral extraction, and food safety. 3M made a num- ber of acquisitions since 2005 to achieve scale and ac- quire technology and other assets in these areas. In addition, it increased its investment in technologies related to these growth opportunities, particularly nanotechnology. Buckley made selective divestures of businesses not seen as core. Most notably, in November 2006, 3M reached an agreement to sell its pharmaceutical business for $2.1 billion. 3M took this step after deciding that a combination of slow growth and high regulatory and technological risk made the sector an unattractive one that would dampen the companys growth rate. Finally, Buckley was committed to continuing internationalization at 3M. 3M doubled its capital investment in the fast-growing markets of China, India, Brazil, Russia, and Poland between 2005 and 2010. All of these markets were seen as expanding two to three times as fast as the United States. Judged by the companys financial results, the McNerney and Buckley eras did seem improve 3Ms financial performance. The first decade of the 21st century was a difficult one, marked by sluggish growth in the United States and, in 20082009, a steep recession triggered by a global financial crisis. 3M weathered this storm better than most, bouncing out of the recession in 2010 with strong revenue and income growth, helped in large part by its new prod- ucts and exposure to expanding international markets. For the decade, revenues expanded from $16 billion in 2001 to $26.66 billion in 2010, earnings per share expanded from $1.79 to $5.63, while ROIC increased from the mid-teens in the 1990s to the mid-20s. inge Thulin: Back to the Future In early 2012, Georg Buckley retired after a successful tenure during which he had skillfully navigated 3M through the great financial crisis of 20082009. The companys COO, Inge Thulin replaced him. Thulin, born in Sweden, first joined 3M in 1979. Fluent in five languages, Thulin has worked for 3M in Europe, the Middle East, Canada, and Hong Kong. Within the company he is seen as one of the chief architects of 3Ms successful international business, which he oversaw as executive vice president for international operations. He is also seen as an insider who knows 3Ms culture intimately and places a high value on innovation. In his first shareholder meeting, he reaf- firmed this, stating that innovation is the center of our plan and committing the company to increasing R&D spending to 6% of company sales by 2017, up from 5.4% of sales in 2012. More generally, Thulin has stated that he would be continuing to follow the roadmap laid out by George Buckley, with whom he worked closely.