Where Innovation Is a Way of Life In recent years, companies topping the world's "most innova- tive" lists are typically high-tech leaders such as...

3M: Where Innovation Is a Way of Life

In recent years, companies topping the world's "most innova- tive" lists are typically high-tech leaders such as Google, Apple, Samsung, and Amazon. When thinking of companies that set the world on fire with one revolutionary product after another, the image of a stodgy company that originated in the mining industry more than 100 years ago is hardly the icon. But while 3M may not be as flashy as today's high-tech headliners, it's anything but stodgy.

3M—the Minnesota Mining and Manufacturing Company— is a multinational powerhouse with more than $31 billion in annual sales. Year after year, with machine-like precision, 20 percent of 3M's sales filter down as operating profits, allowing the company to increase its dividend to shareholders—something it has done every year for the past 57 years.

3M sells more than 50,000 products in nearly 200 countries across dozens of industries, including office products, construc- tion, telecommunications, electronics, health care, aerospace, and automotive. Among its products are some of the world's most recognizable consumer brands, such as Scotch Tape, Nex- care first aid products, Filtrete home filtration products, Com- mand mounting products, and Post-it Notes. But 3M's portfolio is also packed with hundreds of brands that most people have never heard of—like Peltor hearing protection equipment or Pruven waste bags for picking up dog poop.

The unusual breadth of 3M's product portfolio is both a blessing and a curse for the company. Having a hand in so many industries shields the company from overreliance on any given market. Even when multiple industries are down, many more are doing just fine. That explains 3M's financial strength. But it also explains why 3M has a hard time thrilling Wall Street. Even a hit new product doesn't make much of a difference in 3M's steady but unspectacular growth rate—one that is consis- tently in the low single digits.

Like 3M, the company's current CEO, Inge Thulin, is methodical and understated. He keeps a long-term focus and places strong emphasis on maintaining 3M's reliable profitabil- ity. But Thulin is also interested in stoking the fire just a bit, to put a little more heat under sales growth. One of the first things Thulin did when he took over as CEO a few years ago was to trim 3M's annual sales growth goal from 7 or 8 percent—a goal the company consistently missed—to between 4 and 6 percent. Then, as the world watched, 3M's organic sales growth grew to 5.8 percent. And under Thulin's leadership, 3M is now on track to maintain that stronger growth rate.

How did Thulin do it? By doing the same thing 3M has been doing it for decades. At the core of 3M's success is its busi- ness model—organic growth comes from innovation and the creation of market-changing products. Such market-changing

Appendix 1: Company Cases 533

products have at times created entirely new industries. 3M has sustained this type of innovation decade after decade by fos- tering a deep culture of innovation, encouraging collaboration, and maintaining a dedication to research and development.

Culture of Innovation

From its earliest days, 3M created a culture of innovation by allowing team members to take risks in a protected environ- ment. 3M knows that it must try thousands of product ideas to hit the new product jackpot. One well-worn slogan at 3M is "You have to kiss a lot of frogs to find a prince." "Kissing frogs" often means making mistakes, but 3M accepts blunders and dead ends as a normal part of creativity and innovation. In fact, its philosophy seems to be "If you aren't making mistakes, you probably aren't doing anything."

As it turns out, "blunders" have turned into some of 3M's most successful products. Old-timers at 3M love to tell the story about the chemist who accidentally spilled a new chemical on her sneakers. Some days later, she noticed that the spots hit by the chemical had not gotten dirty—an attractive benefit. It was that discovery that eventually led to the creation of Scotchgard fabric protector. They tell about the early 3M scientist who had a deathly fear of shaving with a straight razor. So he invented a very fine, waterproof sandpaper, which he used to sand the stubble from his face each morning. Although this invention never caught on as a shaving solution, it became one of 3M's best-selling products—wet-dry sandpaper, now used for a wide variety of commercial and industrial applications.

And then there's the one about 3M scientist Spencer Silver. Silver started out to develop a super-strong adhesive; instead he came up with one that didn't stick very well at all. He sent the apparently useless substance on to other 3M researchers to see whether they could find something to do with it. Nothing hap- pened for several years. Then 3M scientist Arthur Fry had an idea. As a choir member in a local church, Mr. Fry was having trouble marking places in his hymnal—the little scraps of paper he used kept falling out. He tried dabbing some of Mr. Silver's weak glue on one of the scraps. It stuck nicely and later peeled off without damaging the book. Thus were born 3M's Post-it Notes, a product that is now one of the top-selling office supply products in the world.

One of the ways 3M fosters a culture of innovation is by encouraging everyone to look for new products. The company's renowned "15 percent rule" allows all employees to spend up to 15 percent of their time "bootlegging"—working on projects of personal interest whether those projects directly benefit the company or not. And yet there is a vibe throughout the com- pany regarding these precious six hours a week. Who knows where the next Post-it Note will come from? "It's one of the things that sets 3M apart as an innovative company . . . giving every one of our employees the ability to follow their instincts to take advantage of opportunities for the company," says Kurt Beinlich, a technical director who oversees a 70-person lab team. "It's really shaped what and who 3M is."

534 Appendix 1: Company Cases Encouraging Collaboration

Although 3M's 15 percent program has inspired other compa- nies to follow suit (both Google and HP apply their own ver- sions), it's a rare perk in the corporate world. Not only is it an expense, but to be successful it takes a lot more than simply giving employees the time. Experts suggest that this kind of program works best at companies where there is a high level of collaboration across employees and departments.

3M has created that collaboration in spades. One example is an annual event that is simple but has a huge impact. The event resembles a middle school science fair, as employees from dozens of 3M divisions make cardboard posters describing their 15-percent-time project. Employees hang out next to their post- ers, await feedback, and look for potential collaborators. Wayne Maurer, an R&D manager in 3M's abrasives division, refers to it as a chance for people to unhinge their "inner geek." "For technical people, it's the most passionate and engaged event we have at 3M."

The event is more than just an opportunity to show off; it has actually moved projects through the development phase to commercialization. Past projects that have made it to mar- ket include clear bandages, optical films that reflect light, and painter's tape that prevents bleeding. The event has even put new life in projects that have sat on a back burner for years.

One employee had an idea for creating a sandpaper with reshaped grit particles that wouldn't dull so quickly. But after playing around with the idea for a while, he shelved it and moved on to other things. Fifteen years later, the employee resurrected the project during his 15 percent time and made a poster in hopes of getting some ideas that would move the proj- ect along. With the help of new employees and new technol- ogy, 3M discovered that a particle's sharp, pyramid-like shape became more durable with a change in the mixing order of the ingredients. That discovery led to the launch of Cubitron II, sandpaper that acts more like a cutting tool. On the market since 2009, it still stumps other companies trying to create copycat products.

Emphasis on R&D

Few companies provide more support for research and develop- ment than 3M. For years, 3M invested 6 percent of sales every year in R&D. But in recent years, that spending had been cut to just 5.5 percent—a small difference on paper, but one that Thulin believes is significant. "Those long-term investments are needed to get the growth engine up and going." If such investments are reduced, Thulin believes, "you will kill the business." That's why 3M's R&D expenditures are once again up to 6 percent. Thulin believes R&D "is the heartbeat of this company and it's a com- petitive advantage for us." By comparison, the average of R&D expenses across corporations is about 3 percent. For the most recent year, Apple spent $4.5 billion on R&D, a company record that still amounted to only 2.6 percent of sales.

But it isn't just the amount of money invested that is impor- tant for a successful R&D program. It's how the money is used. In addition to increasing 3M's R&D allotment, Thulin is putting

more priority on the 3M technologies that have the most poten- tial for growth. Among these technologies are films designed to protect everything from smartphones to kitchen appliances and a construction wrap that will outperform DuPont's Tyvek as a weather-resistant barrier for homes and buildings.

But Thulin's plan for allocating R&D funds also includes eliminating 3M units with poor financial performance or those that aren't a good fit with the company's core strengths. For Thulin, it's nothing personal; it's strictly business. Over the past two years, 3M sold Scientific Anglers—which makes fishing line and other related products—and its Static Control business. Thulin believed there was little symbiosis between develop- ments in the product lines of these two divisions and other 3M technologies.

Although Thulin's plan focuses on high-tech areas, it also recognizes the importance of a broad portfolio that includes low-tech items—such as doggie doo bags. In fact, 3M is com- mitted to a broad range of pet care supplies. "You cannot have only high-tech in every category because then you will not get space in the shops," says Thulin, recognizing that mass retail- ers want to purchase full lines of products within and across categories from manufacturers.

This is all reflected in 3M's first promotional campaign in more than 25 years, "3M Science. Applied to Life." This global campaign is a fully digital promotional effort designed to showcase 3M's technologies and the ways that they improve everyday life. The company hopes that the campaign will bring greater exposure to many of its products that have become ubiq- uitous. "Like any great company, we're looking at how we can improve and continue to invest in our strengths," says Jesse Singh, 3M's senior VP of marketing and sales. "We are con- tinuing to invest in R&D, and likewise we felt it important that we continue to take steps to emphasize the brand."

3M will likely never have growth rates matching those of Apple, Facebook, or even Microsoft in its heyday. But it will also likely never experience the potential downturns that even the biggest companies eventually face. That's why 3M's net profits hum along at about 15 percent of sales year after year. It's also why 3M's stock price has doubled over the past four years. 3M's long-term dedication to innovative new products and technologies has sustained the company for decades, and there's no reason to expect that this will change. Who knows— the next "big thing" may just have "3M" stamped on it instead of "Apple."

Questions for Discussion

1. Based on concepts discussed in Chapter 8, describe the factors that have contributed to 3M's new product success.

2. Is 3M's product development process customer centered? Why or why not?

3. Considering the product life cycle, what challenges does 3M face in managing its product portfolio?

4. Are there limits to how broad 3M's product portfolio can grow? Explain.

5. Is it possible for 3M to maintain steady growth and profitability and raise that growth to much higher levels?