"Our company has, indeed, stumbled onto some of its new products. But never forget that you can only stumble if you're moving."
- Richard P. Carlton, Former CEO, 3M Corporation, 1950
"To the outside world, what we do looks a little like magic. We create entirely new product categories and breathe new life into markets crying for reinvention. It’s been called 'the 3M effect.' Harnessing innovation for your benefit- that’s the practical magic behind 3M’s success."
- George W. Buckley, Chairman, President and CEO of 3M
With over 76,000 employees, 3M produces over 55,000 products, including: adhesives, abrasives, laminates, passive fire protection, dental products, electrical materials, electronic circuits and optical films.[1] 3M has operations in more than 60 countries – 29 international companies with manufacturing operations, and 35 with laboratories. 3M products are available for purchase through distributors and retailers in more than 200 countries, and many 3M products are available online directly from the company. - Source: WikipediaWho is 3M?
3M is fundamentally a science-based company. We produce thousands of imaginative products, and we're a leader in scores of markets – from health care and highway safety to office products and optical films for LCD displays. Our success begins with our ability to apply our technologies – often in combination – to an endless array of real-world customer needs. Of course, all of this is made possible by the people of 3M and their singular commitment to make life easier and better for people around the world. - Source: 3M Investor Relations
Since 2007, 3M stock performance is relatively flat (down about 9%), whereas S&P 500 is down more than 25%. 3M quarterly earnings have been climbing, despite the great recession, and positively surprising the analysts:
| Earnings History | Dec-08 | Mar-09 | Jun-09 | Sep-09 |
| EPS Est | 0.93 | 0.86 | 0.94 | 1.17 |
| EPS Actual | 0.97 | 0.81 | 1.20 | 1.37 |
| Difference | 0.04 | -0.05 | 0.26 | 0.20 |
| Surprise % | 4.3% | -5.8% | 27.7% | 17.1% |
On the other hand, 3M topline revenue has been relatively flat since 2007, and profits are also leveling off:
| PERIOD ENDING | 31-Dec-08 | 31-Dec-07 | 31-Dec-06 | |
| Total Revenue | 25,269,000 | 24,462,000 | 22,923,000 | |
| Cost of Revenue | 13,379,000 | 12,735,000 | 11,713,000 | |
| Gross Profit | 11,890,000 | 11,727,000 | 11,210,000 | |
However, 3M is bullish about the future - 2010 and beyond:
* Innovation is alive and well at 3M, and our growth capability is improving
* 3M sees huge opportunities for value creation –health care and emerging markets only scratch the surface
* 3M’s business model is unique and produces sustainable premium margins and ROIC
* 3M can fund growth, address fiduciary needs and return significant cash to shareholders –due to a strong balance sheet and outstanding free cash flow.
Essentials of 3M’s Growth Plan in 2010 and beyond:
Rebuilding & extending the core; lowest risk and fastest results
- Protect and defend the core; inventing a new future
- Broaden the product portfolio to become more important to customers
- R&D spending increases, protecting our flanks and engaging the labs
- Fixing chronic capacity issues
- Adjacencies, Emerging Business Opportunities and
Improving supply chain speed and efficiency
- Shortening supply chains
- Driving growth by with regional brands and manufacturing
- Releasing working capital and lowering entropy costs and the effective tax rate
- Emerging Business Opportunities (EBOs) and other adjacencies
Source: 3M Investor Relations
After 100 years, 3M follows a business model based on “the ability to not only develop unique products, but also to manufacture them efficiently and consistently around the world (3M).”[6]
Incentives - Innovations' Starting Point
In a news story in the Boston Globe titled "In some cases, nothing succeeds like failure", Gustave Manso, a Brazilian-born finance professor at MIT Sloan School of Management claims: "To induce employees to explore new ideas, you have to tolerate early failure and reward long-term success." Manso believes that "the challenge is to craft incentives that will make creative people comfortable with thinking big and taking risks."
Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world
The Globe story cites Manso's favorite on experimentation and intra-entrepreneurship, a story that has become both a model and a fable among the innovators: "Spencer Silver, a researcher at the St. Paul technology company 3M, discovered a new kind of light adhesive in 1968 that initially was shelved because it couldn't compete with more robust glues and had no obvious commercial application. A decade later, his colleague Art Fry recognized that the adhesive, which stuck lightly to surfaces and was readily repositioned, would be perfect for the best-selling product 3M eventually launched as the Post-it Note."
3M - Failures to Innovation Machine
3M is quite possibly the most innovative company of our times that even CEOs of other visionary companies admire. 3M is best known for its household brands such as Post-it Note, Scotchgard, Scotch tape, and many more. 3M initially failed in its mining business, and eventually stumbled onto most of the successful innovations that we know 3M for, including Post-It, Masking and Scotch tape. "Although the invention of the Post-it note might have been somewhat accidental, the creation of the 3M environment that allowed it was anything but an accident," according to Collins and Porras, authors of Built to Last.
3M institutionalized such mechanisms to drive Innovation as the "15 percent rule" - technical people spend up to 15 percent of their time on projects of their own choosing or initiative, "25 percent rule" - each division should produce 25 percent of annual sales from new products and services introduced in the previous five years (which later increased to 30 percent), "Golden Step" award - given to those creating successful new business ventures originated within 3M.
More growth mechanisms were created to stimulate internal entrepreneurship, test new ideas, create unplanned experimentation, share new ideas, develop new innovation, cross-fertilize technology, ideas and innovation, stimulate innovation via customer problems, speed product development and market introduction cycles, provide profit sharing, and promote "a small company within a big company feel" by creating small autonomous business units and product divisions -- over a dozen business processes to stimulate creativity, innovation and growth -- in early 1990 3M had over sixty thousand products and over forty separate product divisions.
Incentives for Innovation
Manso wants to create incentives such as "slow-vesting stock options, golden parachutes, debtor-friendly bankruptcy laws, and, in academia, tenure" to motivate the employees to innovate without worries about failure and job insecurity.
"Incentive schemes that motivate exploration are fundamentally different from standard pay-for-performance incentive schemes used to motivate effort," Manso wrote in an abstract this fall. "The optimal compensation scheme that motivates exploration exhibits substantial tolerance (or even reward) for early failure."
In Blocking Creativity and Innovation on this blog, we talked about creating a system that unblocks innovation and creativity by building new processes, creating an innovation culture and rewarding and recognizing the innovators.
Five takeaways stimulating Innovation
Authors Collins and Porras summarize their findings from 3M and provide five takeaways to drive Innovation at any business:
1. "Give it a try--and quick!" - Essentially echoing on having a process to try out a lot of stuff, and keeping what really works. The key here is to do something. Keep on trying something new.
2. "Accept that mistakes will be made." - Learn from the mistakes quickly, and move on. Failures are part and parcel of what creates new innovation. Don't repeat the same mistakes.
3. "Take small steps." - Experiment, but on a small scale. When something looks promising, go all out and seize the opportunity. This way one can do plenty of inexpensive experiments that create a funnel of would-be innovations.
4. "Give people the room they need." - Without entrepreneurship, there is no experiment. Without experiment there is no success or failure. People need some time, incentives, job security and room to experiment.
5. "Mechanisms - build that ticking clock!" - How do you harness creativity and build innovation? It cannot happen simply by chance. Companies need to create practices and tangible mechanisms to experiment, try out new ideas and innovate.
Bottomline
3M has launched many new innovations in the marketplace thereby solidifying its position as a top innovator of technology governed by systematic processes and excellent manufacturing.
For instance, in November, 3M introduced a new connector for microSD cards which has the smallest form factor available, and yet provides excellent connection and locking mechanisms. 3M opens up the removable flash memory card market for phones, digital cameras, gaming and more.
Earlier, in an effort to broaden the market share in the auto industry beyond the professionals, 3M went direct to consumers, the do-it-yourselfer and car enthusiasts, with a new line of consumer care car products. 3M introduced three ready-to-use product solutions that range from better appearance and shine, to increased performance and repair.
3M is also driving Hydrogen Fuel research along with the Department of Energy, and is innovating MicroTouch capacitive TouchSense System.
China and India represent the most important growth opportunities for 3M
•China –potential to reach > $3B by 2014
•India –potential to reach > $1B
•China + India =~40% of US Economy in size with 1/8thGDP/capita
These are just a few examples of the new innovations at 3M that are both practical and ingenious, solving the innate customer need and creating new markets and growth. As with all innovations, at times it addresses a ready market that creates immediate revenue growth, at times it creates a new market entry in an emerging market that is about to happen.
3M is one of the top 20 innovators in The Innovation Index. Although the stories of the planned failures stimulating growth at 3M are passed along by various authors who study the innovations at 3M from inside, or by company employees who go on to become innovators themselves, it would be great if 3M were also to publish an annual list of the top initiatives that failed and lessons learned from these. The rest of the industry can greatly benefit from such wisdom.
Download my Creativity and Innovation eBook. 212-page collection of over 55 best practices, case studies, and insights on the current state of Creativity and Innovation in Business at Top Innovators including Apple, Google, Netflix, 3M, Frito Lay, Johnson & Johnson, Proctor & Gamble, Toyota, GE, BMW, Deloitte, Southwest, Nike, IBM, Dell and more. "Your report from the eBook and definitive guide was the primary reference that we used." Used by over 500 leading organizations including HP, Pepsi, EDS, J&J, Nokia...Learn more
Download Now
3M - Failures to Innovation Machine
3M is quite possibly the most innovative company of our times that even CEOs of other visionary companies admire. 3M is best known for its household brands such as Post-it Note, Scotchgard, Scotch tape, and many more. 3M initially failed in its mining business, and eventually stumbled onto most of the successful innovations that we know 3M for, including Post-It, Masking and Scotch tape. "Although the invention of the Post-it note might have been somewhat accidental, the creation of the 3M environment that allowed it was anything but an accident," according to Collins and Porras, authors of Built to Last.
3M institutionalized such mechanisms to drive Innovation as the "15 percent rule" - technical people spend up to 15 percent of their time on projects of their own choosing or initiative, "25 percent rule" - each division should produce 25 percent of annual sales from new products and services introduced in the previous five years (which later increased to 30 percent), "Golden Step" award - given to those creating successful new business ventures originated within 3M.
More growth mechanisms were created to stimulate internal entrepreneurship, test new ideas, create unplanned experimentation, share new ideas, develop new innovation, cross-fertilize technology, ideas and innovation, stimulate innovation via customer problems, speed product development and market introduction cycles, provide profit sharing, and promote "a small company within a big company feel" by creating small autonomous business units and product divisions -- over a dozen business processes to stimulate creativity, innovation and growth -- in early 1990 3M had over sixty thousand products and over forty separate product divisions.
Incentives for Innovation
Manso wants to create incentives such as "slow-vesting stock options, golden parachutes, debtor-friendly bankruptcy laws, and, in academia, tenure" to motivate the employees to innovate without worries about failure and job insecurity.
"Incentive schemes that motivate exploration are fundamentally different from standard pay-for-performance incentive schemes used to motivate effort," Manso wrote in an abstract this fall. "The optimal compensation scheme that motivates exploration exhibits substantial tolerance (or even reward) for early failure."
In Blocking Creativity and Innovation on this blog, we talked about creating a system that unblocks innovation and creativity by building new processes, creating an innovation culture and rewarding and recognizing the innovators.
Five takeaways stimulating Innovation
Authors Collins and Porras summarize their findings from 3M and provide five takeaways to drive Innovation at any business:
1. "Give it a try--and quick!" - Essentially echoing on having a process to try out a lot of stuff, and keeping what really works. The key here is to do something. Keep on trying something new.
2. "Accept that mistakes will be made." - Learn from the mistakes quickly, and move on. Failures are part and parcel of what creates new innovation. Don't repeat the same mistakes.
3. "Take small steps." - Experiment, but on a small scale. When something looks promising, go all out and seize the opportunity. This way one can do plenty of inexpensive experiments that create a funnel of would-be innovations.
4. "Give people the room they need." - Without entrepreneurship, there is no experiment. Without experiment there is no success or failure. People need some time, incentives, job security and room to experiment.
5. "Mechanisms - build that ticking clock!" - How do you harness creativity and build innovation? It cannot happen simply by chance. Companies need to create practices and tangible mechanisms to experiment, try out new ideas and innovate.
Bottomline
3M has launched many new innovations in the marketplace thereby solidifying its position as a top innovator of technology governed by systematic processes and excellent manufacturing.
For instance, in November, 3M introduced a new connector for microSD cards which has the smallest form factor available, and yet provides excellent connection and locking mechanisms. 3M opens up the removable flash memory card market for phones, digital cameras, gaming and more.
Earlier, in an effort to broaden the market share in the auto industry beyond the professionals, 3M went direct to consumers, the do-it-yourselfer and car enthusiasts, with a new line of consumer care car products. 3M introduced three ready-to-use product solutions that range from better appearance and shine, to increased performance and repair.
3M is also driving Hydrogen Fuel research along with the Department of Energy, and is innovating MicroTouch capacitive TouchSense System.
China and India represent the most important growth opportunities for 3M
•China –potential to reach > $3B by 2014
•India –potential to reach > $1B
•China + India =~40% of US Economy in size with 1/8thGDP/capita
Source: 3M Investor Relations
These are just a few examples of the new innovations at 3M that are both practical and ingenious, solving the innate customer need and creating new markets and growth. As with all innovations, at times it addresses a ready market that creates immediate revenue growth, at times it creates a new market entry in an emerging market that is about to happen.
3M is one of the top 20 innovators in The Innovation Index. Although the stories of the planned failures stimulating growth at 3M are passed along by various authors who study the innovations at 3M from inside, or by company employees who go on to become innovators themselves, it would be great if 3M were also to publish an annual list of the top initiatives that failed and lessons learned from these. The rest of the industry can greatly benefit from such wisdom.
Download my Creativity and Innovation eBook. 212-page collection of over 55 best practices, case studies, and insights on the current state of Creativity and Innovation in Business at Top Innovators including Apple, Google, Netflix, 3M, Frito Lay, Johnson & Johnson, Proctor & Gamble, Toyota, GE, BMW, Deloitte, Southwest, Nike, IBM, Dell and more. "Your report from the eBook and definitive guide was the primary reference that we used." Used by over 500 leading organizations including HP, Pepsi, EDS, J&J, Nokia...Learn moreDownload Now
Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world
References:
In some cases, nothing succeeds like failure
The Innovation Index
Failures and Stumbles driving Innovation
Blocking Creativity and Innovation
www.3m.com
Originally published in 2006; republished in 2009.
