document3m

Do

Not

Cop

y

ICMR Case Collection ICFAI Center for Management Research

This case was written by K. Subhadra, under the direction of Sanjib Dutta, ICFAI Center for Management Research (ICMR). It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.

3M's Organizational Culture H R 0 B 0 2 2

2003 ICFAI Center for Management Research. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means - electronic or mechanical, without permission.

For enquiries regarding bulk purchases and reprint permissions, please call 91-40-23430462/63 or write to ICFAI Center for Management Research, 49, Nagarjuna Hills, Panjagutta, Hyderabad 500082, India or email [email protected]. Copies of this case can also be purchased online from the ICMR website, www.icmrindia.org.

Do

Not

Cop

y

This case was written by Subhadra. K under the direction of Sanjib Dutta, ICFAI Center for Management Research (ICMR).

2003, ICFAI Center for Management Research. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means electronic or mechanical, without permission. To order copies, call 0091-40-2343-0462/63 or write to ICFAI Center for Management Research, Plot # 49, Nagarjuna Hills, Hyderabad 500 082, India or email [email protected]. Website: www.icmrindia.org

HROB/022

3Ms ORGANIZATIONAL CULTURE 3M! No doubt about it. You never know what theyre going to come up with next. The beauty of it is that they probably dont know what theyre going to come up with next, either. But even though you never predict what exactly the company will do, you know that it will continue to be successful.

- Bill Hewlett, Founder of HP, commenting on the company he admired most.1

My job is to add scale in a fast-moving, entrepreneurial environment. If I end up killing that entrepreneurial spirit. I will have failed.

- James McNerney, CEO, 3M in January 2002.2

There is a change in culture, and it is cause for concern.

- Arthur Fry, inventor Post-it Notes, in June 2002 commenting on culture overhaul at 3M.3

In a company that's really driven by creative thinkers - how do you do Six Sigma and creativity? You can't. And if you force that model on an organization, you're just bound to make it moribund.

- Ryan Mathews, business consultant and critic of Six Sigma management, in June 2002.4

ONE HUNDRED YEARS OF SUCCESSFUL INNOVATION

It was celebration time at 3M! The company completed 100 years in business in 2002. For many, 3M represented the house of innovation (Refer Exhibit I). For 100 years, 3M formula for growth recruit the right people, provide them with the right environment to work and let them do their things resulted in around 55,000 products and over thousands of patents for the company

Analysts attributed 3Ms success to its commitment to innovation. They pointed out that 3M gave its employees the freedom to conduct research in areas of their choice even if that research was not related to their official projects. By thus nurturing the talents of its employees and fostering a climate of innovation, 3M became one of the most innovative companies in the world. 1 James C. Collins and Jerry I. Porras, Built to Last, (Harper Business, 1997, First edition) 2 3M: A Lab For Growth?, BusinessWeek, January 21, 2002. 3 3M at 100 - On the Right Path for Growth? www.news.mpr.org, June 10, 2002. 4 3M at 100 - On the Right Path for Growth? www.news.mpr.org, June 10, 2002

Do

Not

Cop

y

3Ms Organizational Culture

3

In 2001, James McNerney Jr. (McNerney) took over as Chairman and CEO of 3M and announced several initiatives to revive the stagnating growth rate of the company. He initiated cost cutting measures, rationalized purchases, and implemented process improvement programs in the company. He gave a centralized direction to the company from its earlier laissez-faire working style. Analysts cautioned that the changes brought about by McNerney might harm the 100-year old culture at 3M that fostered innovation and sustained its growth over the years. However, McNerney pointed out that the changes brought about in 3M would provide the company a strategic direction in a volatile business environment without harming its organizational culture. INVENTING 3M In 1902, five businessmen founded Minnesota Mining and Manufacturing (popularly referred to as 3M) in Two Harbors, US. The new company was in the business of mining corundum, a mineral best suited for making sandpaper and grinding wheels. In 1904, when an artificial abrasive replaced corundum, 3M decided to manufacture sandpaper. Edgar Ober (Ober), one of the founding members of 3M, approached his friend Lucius Ordway (Ordway), a successful businessman for funds for the new venture. Ordway agreed to invest $25,000 in the company, on condition that he wont be involved in the day-to-day affairs of the company. However, by 1906, Ordway had invested around $200,000 in 3M and had become involved in the day-to-day affairs of the company. In the same year he became the President of the company. When 3M realized that the corundum owned by it was a low-grade anorthosite, it decided to shut down the mine and shift to Duluth in 1905. In the same year, 3M decided to import garnet5 from Spain. 3M received its first shipment of garnet in 1907 and started producing sandpaper. By 1911, 3M reported sales of $212, 898 and in the same year Ober appointed William L. McKnight (McKnight), who joined the company in 1907 as assistant bookkeeper as sales manager. In 1911, 3M brought out its first breakthrough product, Three-M-ite cloth. Three-M-ite became the companys first profitable product. The Carborundum Company, which had developed artificial abrasive coated emery cloth before 3M, filed a patent infringement suit against the company. 3M hired Paul Carpenter, a Chicago based lawyer and expert in patent law, and won the case against Carborundum. Due to Three-M-ites success, 3M became debt free and announced its first dividend of 6 cents per share in 1916. In the same year, McKnight became vice-president. In the 1920s, 3M recruited people with diverse backgrounds and expanded its product portfolio. It also introduced two breakthrough products, waterproof sandpaper and Scotch masking tape, invented by Francis Okie (Okie) and Dick Drew (Drew) respectively. In 1922, 3M entered the English market and reported sales of $68,000 in the first year of its operations. In order to consolidate its presence in global markets, 3M established research laboratories, and a sales and marketing network across Europe. In the 1930s, the global economy was in a state of recession. In spite of the recession, 3M continued to expand its operations, and by 1936, its sales reached $10 million. The decade also saw the launch of some more breakthrough products. 3M launched Scotch Cellophane tape in 1930, reflective tape coated with glass beads in 1937, and Scotchlite reflective sheeting in 1938.

5 Abrasive mineral used for making sand paper.

Do

Not

Cop

y


4

In 1937, 3M established a central research laboratory with the twin objectives of working on product refinements and exploring new product ideas. In 1940, McKnight established the Product Department to speed up product launches. In the same year, 3M decided to invest 5% of its sales in R&D every year to encourage the development of new products. In 1946, 3M got listed on the New York Stock Exchange. And in 1947, it launched Scotch magnetic audiotape. In the same year, it opened new plants in Hutchinson, Los Angeles, and Little Rock. In 1951, 3M established its international division to oversee its international operations. In the same year, international sales touched $20 million. In the 1960s, 3M established manufacturing plants in Austria, Columbia, Denmark, Hong Kong and Norway. Its international sales reached $136 million in 1961. In 1965, 3Ms total sales exceeded $1 billion. In the 1970s and 1980s, 3M diversified into various areas such as medical products, pharmaceuticals, radiology, energy control, the office market etc. In 1980, 3M introduced one of its most successful products, Post it Notes. Throughout the 1990s 3M focused on exploring new technologies and maintaining its pace of growth. In 1994 3M implemented the Pacing Plus program to speed up product development. Under this program, the companys top executives selected some products in the research stage that had the potential to become commercially successful. The selected products were given additional financial and technical support to speed up their commercialization. In 1995, 3M introduced the first metered dose asthma inhaler. In 1999, 3M was organized into six business segments Industrial, Transportation, Graphics and Safety, Health Care, Consumer and Office, Electro and Communications, and Specialty Material to increase the pace of growth. By 2002, 3M had a presence in 60 countries and its products were sold in around 200 countries (Refer Table I). Its total sales amounted to $16.332 billion (Refer Exhibit II), of which international sales represented around 55% ($8.906 billion). It had more than 55,000 products in its product portfolio and, according to reports, it applied for over 500 patents every year.

TABLE I 3Ms INTERNATIONAL PRESENCE*

CONTINENT COUNTRIES

ASIA China, Hong Kong, India, Indonesia, Israel, Japan, Korea, Malaysia, Pakistan, Philippines, Singapore, Sri Lanka, Taiwan, Thailand, Vietnam, United Arab Emirates, Turkey

AFRICA Egypt, Kenya, Morocco, South Africa, Zimbabwe

EUROPE Austria, Belgium, Denmark, Finland, France, Greece, Germany, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Romania, Russia, Spain, Sweden, Switzerland, United Kingdom

NORTH AMERICA Canada, Mexico

SOUTH AMERICA Chile, Colombia, Argentina, Brazil, Ecuador, El Salvador, Panama, Peru, Puerto Rico, Uruguay, Venezuela

* This list is not exhaustive

Source: www.3m.com

Do

Not

Cop

y


5

FOSTERING INNOVATION From its early days, 3M fostered a culture of innovation in its organization. McKnight tried to create an organization that would encourage its employees to take the initiative and come up with new ideas. He even laid down principles for fostering such a culture at 3M (Refer Table II). 3Ms culture of innovation got a new direction when three young men Carlton, Okie and Drew joined the company in the early 1920s. The trio changed the working environment at 3M. Many analysts agree that these three set the tone of innovation at 3M. In the early 1920s, Drew took Okies waterproof sandpaper to garages for product testing. During his visits to garages, he noticed that painters faced a problem when painting cars: either the paint came off when the tape protecting a portion of the car was removed or the tapes adhesive remained on the cars surface. Drew started experimenting to produce an adhesive that would not stick on the cars and would not peel off the paint. However, even after months of experimentation, his efforts were not successful and McKnight asked Drew to abandon his research and resume his official duties. In spite of McKnights orders, Drew continued his research and eventually developed Scotch masking tape in 1925. This incident resulted in the famous 15% rule at 3M. According to the 15% rule, 3M employees were allowed to spend 15% of their working hours on independent projects. Most analysts agree that the key factors that fostered innovation at 3M were its ability to recruit and retain talent, create a challenging environment, encourage knowledge sharing and develop suitable reward systems. (Refer Exhibit III for mechanisms stimulating innovation at 3M).

TABLE II PRINCIPLES OF McKNIGHT

Listen to anyone with an original idea, no matter how absurd it might sound at first. Encourage; dont nitpick. Let people run with an idea. Hire good people, and leave them alone. If you put fences around people, you get sheep. Give people the room they need. Encourage experimental doodling. Give it a try and quick.

Source: James C. Collins and Jerry I. Porras, Built to Last, (Harper Business, 1997, First edition)

RECRUITING AND RETAINING TALENT 3M recruited people who were creative and had a broad range of interests. According to company sources people who had a broad range of interests were willing to learn and explore new ideas. In addition, they brought a multi-disciplinary approach to their work. To make it easy for recruiters, 3M codified the six traits of innovative people in its recruiting brochure: Creativity Broad interests Self motivated Resourceful Hard working Problem solvers

Do

Not

Cop

y


6

The company felt that people with the above traits would be able to take the initiative and lead and encourage others to accomplish their goals. 3M not only recruited people with the above traits, it also tried to retain them. The company realized that to retain innovative people, it must provide them a challenging work environment. CREATING A CHALLENGING ENVIRONMENT Initially 3M was organized into various product divisions. As these divisions increased in size, McKnight noticed that there was a slowdown in innovation; not much time was devoted to new product development. To increase the pace of new product launches, McKnight introduced the philosophy of divide and grow. In line with this philosophy, new businesses were spun off and new management teams were devoted to the spun off units. As a result, these new units were able to grow quickly. When these new businesses were spun off, the established divisions had to develop new products and find new markets to achieve their growth objectives to make up for contributions from the businesses that had become independent. This mechanism, which analysts called Renewal, resulted in increased diversification at 3M. The divide and grow policy pressured product divisions to come up with new products to sustain themselves. 3M also encouraged employees to work on problems that challenged their intellect. For instance, in the late 1950s, when McKnight saw one of his horses get injured on a defective running track, he asked 3M employees to develop a better, safer track surface. When Drew asked for volunteers to work on the project, Ted Buchholtz (Buchholtz) volunteered himself. Buchholtz was given the responsibility of inventing soft, elastic, stable and shock absorbent material, which could be used for racetracks and athletic fields. After a series of experiments, a new track surface (Tartan Track) was tested in New Yorks Belmont Park in 1961. The track surface was tested successfully in all climatic conditions. The Tartan track performed successfully in the market. However, in the 1970s, the Tartan Track market got saturated and there was little or no replacement business for the product. But according to Buchholtz, such challenges motivated 3M employees: It was big let down, but then you grab yourself by your bootstraps and start a new project. And you get excited all over again. I was excited a lot in my career at 3M.6 In the late 1970s, Lewis Lehr (Lehr) then chairman of the Board, realized that with increasing competition in the global business environment, 3M had to accelerate its rate of innovation to sustain its competitive advantage. In 1977, 3M launched Challenge 81 a program that aimed at achieving 25% of the companys annual sales from products that had been in the market for less than 5 years. This 25% was stretched to 30% in the 1990s and the total years in the market were reduced from five to four. In the early 1980s, 3M formed a 16-member innovation task force to examine the innovative spirit in the organization. Gary Pint, head of the task force, said, We wanted people in 3M to understand that management, starting with Lehr, was sure that the environment for innovation at 3M hasnt deteriorated. Or if it had, that the commitment and means were available to get it back to where it was. Weve been successful because of innovators in the past and we wanted to continue to make sure that innovators, the people who have that flair for making things happen, feel like theyre working in a supportive environment. The main objective of the task force was to encourage a spirit of innovation in technical as well as non-technical employees at all levels. To better understand the innovative environment at 3M, the task force hired Gifford Pinchot III (Pinchot), a management consultant. Pinchot conducted an

6 A Century of Innovation The 3M Story, www.3m.com, 2002

Do

Not

Cop

y


7

innovation audit at 3M to understand the nature of the organizational environment. The task forces study reaffirmed 3M belief that Freedom, Support and Encouragement were the factors that motivated innovative people. In 1984, 3M launched a new program to support innovation at 3M The Genesis Program. The Program was initiated by Joe Abere (Abere), 3Ms corporate scientist. Commenting on the objective of the program, Abere said, Genesis is all about optimizing the innovative spirit at 3M. Under the Genesis Program, 3M provided financial support to employees to encourage entrepreneurship for projects in the research stage. According to reports, around 60 people submitted proposals for Genesis support when it was launched. Genesis grants were only for technical people; in 1986 3M came up with Alpha grants for non-technical employees who wanted to bring in some innovative processes in administrative, marketing and other non-technical areas. KNOWLEDGE SHARING In addition to providing an environment that stimulated innovation, 3M also took steps to encourage knowledge sharing among its employees. According to analysts, innovation could flourish in 3M because the management encouraged its employees to talk. 3M employees never experienced any communication barriers. Employees were free to communicate across departments and share ideas. In 3M, the tradition of story telling was encouraged. It was believed that success stories would fire the imagination of employees and result in the generation of innovative ideas. 3M also encouraged openness and cooperation among various divisions to foster innovation. In addition, 3M established forums to encourage employees to share ideas and knowledge. In 1951, the Technical Forum was set up to encourage 3Ms technical staff to share ideas. 3M wanted employees to develop the habit of discussing and inquiring about new ideas and technologies. In order to introduce its employees to new technologies, 3M invited Nobel Prize winners to forum meetings to discuss their research findings. The Technical Forum also conducted problem solving sessions, at which business divisions brought their unsolved technical problems in search of solutions. In addition, the Technical Forum held annual exhibitions at which all 3M divisions could set up their stalls to showcase their latest technologies. It also brought together scientists from different disciplines and formed them into groups so that they could share their knowledge. REWARDING INNOVATION In addition to recruiting innovative people, creating a challenging environment for employees, and encouraging a culture of knowledge sharing, 3M also focused on rewarding employees. To encourage the spirit of innovation among employees 3M realized it was necessary to reward them appropriately. The dual ladder career path adopted by 3M, created two career ladders technical and management. This approach allowed even a technical person to get promoted to the vice-president level without taking on managerial and administrative responsibilities. In the early 1930s, 3M set up a pension plan for its employees and in 1949 it offered its employees stock options (it was one of the first companies to do so). In addition to monetary rewards, 3M instituted awards to recognize and encourage employee contributions. In 1963, 3M formed the Carlton Society to honor technical employees for their achievements. In addition to the Carlton Society it also formed The Technical Circle of Excellence and Innovation to honour employees whose innovations had considerable influence on the companys products, processes or programs. 3M also constituted awards for recognizing the achievements of non-technical personnel. Its Pathfinder Program honored sales, marketing, logistics, finance and production teams for developing innovative methods for launching new products in the market (Refer Exhibit IV for rewards and recognition at 3M).

Do

Not

Cop

y


8

CULTURE OVERHAUL By the late 1990s, 3Ms growth rate started slowing down. According to reports, the stock price of 3M dropped from $83.00 in 1996 to $71.13 in 1998 and the price-earning ratio (P/E ratio)7 of the company also declined considerably (Refer Table III). It was reported that during 1995-2000, earnings per share grew at an average of only 8.8% and shareholder returns fell far behind Dow and the S&P 500. Analysts felt that 3M was unable to respond to market conditions. Commenting on 3Ms performance during the decade, Bob Burgstahler (Burgstahler), chief of Business development, said, We have not produced elite results that correspond to the view that this is an elite organization. In December 2000, 3M announced the appointment of James McNerney Jr. (McNerney) of General Electric as its CEO. For the first time, an outsider was appointed as CEO of 3M. The stock markets responded positively to the appointment of McNerney and 3Ms stock price closed at $120.50, the highest in the decade.

TABLE III 3MS STOCK PRICE & P/E RATIO

STOCK PRICE (in $) YEAR HIGH LOW CLOSE

P/E RATIO

1992 53.50 42.75 50.31 18 1993 58.50 48.63 54.38 19 1994 57.13 46.38 53.38 17 1995 69.88 50.75 66.38 29 1996 85.88 61.25 83.00 23 1997 105.50 80.00 82.06 21 1998 97.88 65.63 71.13 19 1999 103.38 69.31 97.88 23 2000 122.94 78.19 120.50 26

Source: Comparative Financial Data, 3M Investor Relations.

McNerney introduced cost cutting measures at 3M. Under the 3M Acceleration program, he cut down research projects from 1500 to 700 (Refer Exhibit V for initiatives launched by McNerney). In addition, McNerney also announced that he would lay off around 6500 employees, thus sending negative signals to employees. However, his assurance that he would continue to invest 7% of annual sales in R&D, and his emphasis on preserving the culture of innovation at 3M generated confidence among employees. Althea Rupert, the outgoing chair of Technical Forum, said, Hes delivered a very consistent message. Theres a sense of speed and a sense of urgency. McNerney also set up the leadership development institute, to foster leadership qualities among employees. The institute offered a three-week development program, which provided participants real-life experience. Participants had to work on 3M business issues and make their recommendations to senior managers. 3M management identified six leadership traits (Refer Table IV) that the companys employees should possess. The leadership attributes were also incorporated in the performance appraisal process to assess the performance of employees on these attributes. 7 P/E ratio equals common stock closing market price divided by the last 12 months diluted net income

per share.

Do

Not

Cop

y


9

TABLE IV LEADERSHIP ATTRIBUTES RECOGNISED BY 3M MANAGEMENT

Charting the course of business Raising the targets Energizing subordinates and colleagues Innovating resourcefully Following 3M values Delivering results

Source: www.3m.com McNerney also made changes in 3Ms pay structure. Earlier 3M had a seniority-based pay structure, under which employees who had put in more years of service were paid better. McNerney introduced a performance-based pay structure. Under the new system, employees were graded on their performance and good performers were promoted irrespective of seniority. In addition, all employees had to come up with individual development plans, stating steps they would take to improve their performance. Analysts were apprehensive about the outcome of such changes. They felt that McNerneys 3M Acceleration program and Six Sigma initiative8 might dampen the spirit of innovation at 3M. Some of 3Ms employees also had misgivings about the impact of such changes on the companys culture. According to Art Fry, a former employee, while earlier 3M gave its employees the freedom to determine which ideas could be commercialized, post McNerney, management took control and decided which ideas had the potential for commercialization. According to Art Fry, The main change is from an egalitarian type of culture - where anyone can assume leadership if they have an idea - to one where it's more of an elite culture, where only the people at the top control what gets done.9 Expressing similar concerns, Lewis Lehr (CEO from 1979 1986) said, If you build a bureaucracy, you will ultimately stymie the program. That is one point that must be taken into serious consideration. Because bureaucracy can ruin anything. However, McNerney argued that though innovation was and would remain the core competency of the company, certain aspects of 3M had to change to enable the company to deal with increasing competition and business volatility. McNerneys management style as well as his Six Sigma initiative received wide criticism from analysts. Analysts expressed doubts about the co-existence of Six Sigma and innovation in an organization. Ryan Mathews, Business Consultant, pointed out, The whole notion of Six Sigma is to remove the deviation; clinically and surgically remove any possibility of error in the name of quality, so you get very, very, good at what you used to do, and generally always at the expense of what you might possibly be doing.10 Analysts felt that the spirit of innovation would be suffocated by an atmosphere, which did not allow a person to make mistakes. Analysts pointed out that 3M was able to nurture a culture of innovation through its tolerance of mistakes. During the initial years of 3M, McKnight had said, 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 8 Six Sigma is a sophisticated quality program that is designed to reduce defects to 3.4 per million

opportunities. McNerney introduced Six Sigma at 3M after taking over as the CEO. 9 3M at 100 - On the Right Path for Growth?, www.news.mpr.org, June 10, 2002 10 3M at 100 - On the Right Path for Growth?, www.news.mpr.org, June 10, 2002

Do

Not

Cop

y


10

mistakes 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 it's essential that we have many people with initiative if we are to continue to grow.11

TABLE V

3Ms SEGMENT WISE REVENUES (in $ millions)

UNIT 2002 2001 2000 PRODUCTS Health care 3560 3301 3007 Asthma inhalers, surgical masks, Aldara cream for

genital warts Transportation, graphics, and safety

3840 3526 3518 Reflective traffic signs, auto components, optical filters for computer screens

Consumer & office 2792 2817 2951 Post-it Notes, Scotch tape, O-Celo-O sponges Industrial 3225 3199 3525 Sandpaper, masking tape, other adhesives and

abrasives Electro & communications

1914 2171 2467 Fiber-optic cabling, inkjet printer components, electrical tape

Specialty materials 953 1022 1197 Scotchgard repellents, firefighting fluids, fluorothermoplastics

Source: 3M + GE =?, Fortune, July 21, 2002, Annual Report, 2002.

However, McNerneys initiatives received the support of top ranking employees of 3M who were willing to make changes to accelerate the growth of the organization. McNerney announced that 3M would be concentrating on high growth sectors such as healthcare. Analysts felt that his initiatives brought in results in some units, though a lot more needed to be achieved (Refer Table V).

However, many analysts pointed out that McNerneys main challenge would be to balance drive for efficiency and innovation. Said Burgstahler, It will mean getting stronger business and marketing involvement earlier, without killing off all the harebrained ideas. Many 3M employees felt that McNerney has found the right balance between efficiency and innovation. It remains to be seen whether 3M will continue to be regarded as one of the most innovative companies in the world.

QUESTIONS FOR DISCUSSION: 1. Since its early years, what strategies did 3M adopt to foster a culture of innovation in the

organization? How far do you attribute the success of the company to its culture? 2. The top management of 3M launched many initiatives to foster a culture of innovation in the

company. Which of these initiatives proved to be critical to the companys uninterrupted success for over a hundred years?

3. Many analysts pointed out that the new initiatives implemented by 3Ms new CEO James

McNerney would have a negative affect on 3Ms culture. Do you think the new initiatives would negatively affect 3Ms culture? Justify your stand.

11 James C. Collins and Jerry I. Porras, Built to Last, (Harper Business, 1997, First edition),

Do

Not

Cop

y


11

EXHIBIT I

BREAKTHROUGH INNOVATIONS AT 3M YEAR INNOVATION

1921 Wetordry Waterproof sandpaper

1925 Scotch Masking Tape

1930 Scotch Cellophane Tape

1931 Adhesive and Coating products

1932 Colored Roofing Granules

1935 Automotive Underseal Coating products

1939 Scotchlite Reflective Sheeting, which is used in traffic signals

1945 Electrical Tape with Vinyl Plastic Backing

1947 Scotch Magnetic Tape

1948 Nonwoven fabric, Thinsulate Insulating Materials, Surgical Masks, Absorbent Materials for oil, Scotch Filament Tape

1950 Scotch Surgical Drape

1951 Flurochemicals, Photo-offset printing plates

1952 Scotchlok Electrical Spring Connectors

1954 Scotch Magnetic Video Tape

1956 Scotchgard - Fabric and Upholstery Protector

1958 ScotchBrite Floor Cleaning Pads

1959 ScotchBrite Consumer Cleaning Pads

1960 Steri-Strip - medical wound closure tape

1962 Tartan Track, Scotch Magic Transparent Tape

1964 Dry Silver Technology

1967 Disposable Face Masks for Respiratory Protection

1969 Light Water Fire Fighting Foam

1970 Scotchban Paper Treatment developed, Box Sealing Tapes

1972 Data Cartridge

1973 Trimax Medical X-ray Film

1975 Buf-Puf Skin Care products

1978 Fire Barrier Sealant

1979 Thinsulate Thermal Insulation

1980 Scotchcast Casting Tape, Scotch VHB (Very High Bond) Tapes, Post-it Notes, Cubitron Ceramic Abrasive Materials

1984 Medical Laser Imager

1985 MS2 Modular Splicing System, Refastenable Diaper Tapes, Optical Disks

1988 Fibrlok Fiber Optic Splices

1989 Maxair Autohaler Asthmatic Inhaler

1990 Hot Melt Fiber Optic Connectors

Do

Not

Cop

y


12

1991 Scotchprint Electronic Graphic System, HELP Patient Care Computer System

1992 APC Adhesive-Coated Orthodontic Brackets

1993 Scotch-Brite Never Rust Wool Soap Pads, 3M SelfCheck Automated Library System.

1994 Nexcare Active Strips Flexible Foam Bandages, DryView Laser Imaging Systems, O-Cel-O StayFresh Sponges.

1995 Airomir Metered-dose Inhaler, Precise Mousing Surface, Trizact Abrasive Products

1996 3M Scotchprint Printer 2000, Dual Brightness Enhancement film, Novec Engineered Fluids

1997 Scotch Pop-Up Tape Strips and Dispensers, Volition Fiber Optic Cabling System, Aldara (imiquimod) cream

1998 Microflex Circuits, Scotch-Brite High Performance Cloth

1999 Light Management Technology, Scotch Photo and Document Tape

2000 SandBlaster Sponge Products

2001 Inflata-Pak Air Cushion Packaging, Halon-Replacement

Source: www.3m.com

EXHIBIT II INCOME STATEMENTS OF 3M

(All amounts in millions of US Dollars except per share amounts.) Income Statement Dec 02 Dec 01 Dec 00

Revenue 16,332.00 16,079.00 16,724.00 Cost of Goods Sold 7,542.00 7,660.00 7,762.00 Gross Profit 8,790.00 8,419.00 8,962.00 Gross Profit Margin (%) 53.80 52.40 53.60 SG&A Expense 4,790.00 5,145.00 5,064.00 Depreciation & Amortization 954.00 1,089.00 1,025.00 Operating Income 3,046.00 2,185.00 2,873.00 Operating Margin (%) 18.70 13.60 17.20 Total Net Income 1,974.00 1,430.00 1,782.00 Net Profit Margin (%) 12.10 8.90 10.70 Diluted EPS ($) 4.99 3.58 4.45 Balance Sheet Dec 02 Dec 01 Dec 00 Cash 618.0 616.0 302.0 Net Receivables 2,527.0 2,482.0 2,891.0 Inventories 1,931.0 2,091.0 2,312.0 Total Current Assets 6,059.0 6,296.0 6,379.0 Total Assets 15,329.0 14,606.0 14,522.0 Short-Term Debt 1,237.0 1,373.0 1,866.0 Total Current Liabilities 4,457.0 4,509.0 4,754.0 Long-Term Debt 2,140.0 1,520.0 971.0 Total Liabilities 9,336.0 8,520.0 7,991.0 Total Equity 5,993.0 6,086.0 6,531.0 Shares Outstanding (mil.) 390.2 391.3 396.1

Source: www.hoovers.com

Do

Not

Cop

y


13

EXHIBIT III

MECHANISMS STIMULATING INNOVATION AT 3M MECHANISM EFFECT

15% Rule Employees are allowed to allocate around 15% of their official time to pursue independent research, irrespective of their official project. This rule resulted in the development of many innovative products at 3M.

Genesis Grants Under Genesis grants employees were provided around $50,000 financial support for their research for developing prototypes and conducting market tests. This stimulated entrepreneurship at 3M.

Own Business Opportunities

3M gave employees the opportunity to run their projects depending on the sales. This stimulated internal entrepreneurship at 3M.

Dual Ladder This approach at 3M enabled technical employees to move up the career path without compromising their research/professional interests.

Technical Forums Technical forums were established to give 3M employees the opportunity to present their technical papers and exchange ideas with others. This stimulated the cross fertilization of ideas and technology.

New Product Forums These forums were established to enable all divisions to discuss new ideas, thus encouraging the generation of ideas across all divisions.


EXHIBIT IV

REWARDS & RECOGNITIONS AT 3M REWARDS & RECOGNITIONS PARAMETERS FOR AWARD

Golden Step Award This award was conferred on employees whose ideas turned into successful products.

Technology Sharing Awards This award was conferred on employees who successfully developed new technology and shared it with other divisions. This award encouraged the internal dissemination of technology and ideas.

Carlton Society a techno honor society

Membership in the Carlton Society was considered the highest honor for technical people at 3M. 3M employees who made outstanding and original technological contributions were chosen as members of the Carlton Society. This membership stimulated the development of new technologies.

Profit Sharing Along with the above-mentioned awards, 3M offered employees a share in the companys profits. In 1916, it was one of the first companies to offer employee stock options to its employees. Profit sharing gave employees a sense of belonging.


Do

Not

Cop

y


14

EXHIBIT V

INITIATIVES LAUNCHED BY McNERNEY Global Sourcing: Under this initiative 3M centralized its purchasing system and reduced the number of suppliers. Indirect Cost Reduction: Under this initiative prices were monitored and indirect costs (such as travel, and use of contract workers and outside services) were reduced. E-productivity: Under this initiative, a suite of applications was launched to provide product support to the customers and allow them to make online transactions. 3M Acceleration: Under this initiative new product development programs with good market potential were identified and given support to speed up commercialization. Six Sigma Initiative: The Six Sigma initiative was introduced to reduce errors and weed out inefficiencies in the system.

Adapted from: Jim McNerney, Passed Over for GEs Top Job, Sets 3M on a Growth Course, Industry Week, December 11, 2001.

Do

Not

Cop

y


15

ADDITIONAL READINGS & REFERENCES: 1. I'm Not Taking a Cultural Tool Kit To 3M, Fortune, January 18, 2001. 2. Mullin Rick, Analysts Rate 3M's New Culture, Chemical Week, September 26, 2001. 3. Jim McNerney, Passed Over for GEs Top Job, Sets 3M on a Growth Course,

IndustryWeek, December 12, 2001. 4. 3M: A Lab for Growth?, BusinessWeek, January 21, 2002. 5. 3M Celebrates ``A Century of Innovation'' at Annual Meeting of Shareholders, Business

News Wire, May 14, 2002. 6. Innovation Has Been 3M's Passion for 100 Years, DSR Retailing Today, May 20, 2002. 7. 3M Discusses Plans to Drive Growth; Reiterates Q2 and 2002 Earnings Outlook, Business

Wire, May 22, 2002. 8. Haeg Andrew, 3M at 100 - On the Right Path for Growth? www.news.mpr.org, June 10,

2002. 9. 3M: An Incubator for Fresh Ideas, www.corpstory.com, June 2002. 10. Useem Jerry, 3M + GE = ?, Fortune, July 21, 2002. 11. The Biggest M in 3M: McNerney, BusinessWeek, November 13, 2002. 12. A Century of Innovation: 3M Story, www.3m.com, 2002. 13. 3M A Century of Innovation, www.gurusonline.tv, 2002. 14. Lukas Paul, 3M: The Magic of Mistakes, Fortune, March 19, 2003. 15. www.3m.com

document3m

Documents