Strategic Management of 3M in the New Millennium - Essay Example

Strategic Management 3M in the New Millennium: A Case Study YOUR FULL YOUR INSTITUION OR SCHOOL Executive Summary 3M is a company with a long and rich tradition of providing innovative, successful products to a diverse market. Built upon the foundation of creativity, research and development, as well as fostering an entrepreneurial spirit in its workers, the 100 year old organization must still maintain competitiveness in the modern marketplace. Relying heavily upon international sales and needing to continue bringing innovative, useful products to market, 3M has suffered from operational inefficiencies and poor cost control. Accordingly, there are three critical strategic issues facing the company; how to maintain its innovative product pipeline, preserved its uniquely creative culture, while streamlining processes and enhancing profitability. The company needs to carefully manage its new product development process, preserve the culture that has fostered creativity successfully, and reorganize its operational processes to achieve efficiency without harming innovation. 3M in the New Millennium: A Case Study As a company with over 100 years' tenure in both national and international business,1 3M has exhibited the ability to survive through good times and bad. The keys to its success are no-doubt found in its commitment to innovation as well as its unique corporate culture. While these components have served the company well in years past, they are not an insurance policy against the future and the organization must take steps to position itself properly in the modern marketplace. This will require a delicate balancing of two challenging and competing principles; how to increase efficiency and operational cost controls while preserving the very unique corporate culture that has made such a large contribution to the company's success. From its founding in 1902, the organization has been unique in terms of its products and in its approach to the people working there. Early growth can be attributed to the researchers and scientists who developed in excess of 50,000 products over the course of a century. Supplying everything from sandpaper to drug delivery systems, 3M demonstrated that high product diversity could prove to be very profitable, especially given the innovation of those products. Beyond the establishment of a very unique culture and diverse product line, two other key events in the company's history were the management style of Desi DeSimone as well as the hiring of Jim McNerney. In fact, McNerney's management practices could be the most important strategic element of all as the implementation of his changes will impact the company's future dramatically. CRITICAL STRATEGIC ISSUES External. From an external analysis perspective, 3M has both significant opportunities and some notable threats. In terms of the overall industry trends toward globalization, the company has momentous supplier power given its long-standing focus on developing international market relationships. Given the vast number of innovative products developed by the company, and the fact that the organization enforces its patents in foreign countries, the likelihood of substitute products successfully penetrating the market is small. Additionally, the fact that 55% of the company's sales are derived from international markets means that 3M will need to ensure that entry barriers stay in place; maintaining brand identity and access to distribution will give them a sizable advantage over the competition. That is not to say, however, that there is no competitive threat. Given the wide variety of products offered, 3M is vulnerable to smaller companies with similar technologies that might be in a position to effectively target one section of its product line without competing against 3M as a whole. While the threat of substitutes across its entire product line is unlikely, a more efficient manufacturer of certain segments could successfully enter the market and gain market share. The company's approach to its customers has assisted in providing innovative products. Because 3M has chosen to see its customers as innovators and "get behind the smokestacks," it has positioned itself as a solutions provider; thus increasing customer brand loyalty not only through its research and development efforts, but also with its after-sales service. One good example of the organization's innovation and focus on particular market needs is the Scotch-Brite cleaning pad shaped like a foot which was sold in the Philippines. This is a classic example of leveraging existing technology and applying it to a different culture while increasing its competitive advantage. Additional external strategic factors impacting the company include international political developments as well as the globalization of markets. As management realized by the late 1990s, trade barriers were falling and the world was organizing into trading blocs. Because barriers to market entry were beginning to fall, and powerful new competitors such as the European Union were emerging, the organization faced a serious threat; one which has not entirely gone away as of today. Such extra pressures will continue to be a threat to the company until cost efficiencies and economies of scale are able to be maximized. One needs look no further than the 1997 Asian crisis to realize the threat presented by failure to manage the issues related to the globalization of world markets. 3M's failure to recognize and manage its currency positions caused its earnings to fall significantly; this is surprising considering the amount of sales being generated from Asia at the time, and illustrative of how the international markets can present both opportunities and threats. Internal. The most significant weakness in the company at the point of McNerney's succession was its growth and profitability rates; organizational efficiencies which must be maintained in order for a company to flourish during good economic times and survive during bad ones. While his reforms and cost-cutting initiatives have turned that around for the moment, there will have to be systemic efficiency at the company in order to maintain its viability. The failure of prior management notwithstanding, 3M must focus on implementing the initiatives that will increase productivity and reduce costs. Fortunately for the company, that is exactly what management is doing and the focus on executive training, technological efficiency, process efficiency, and supply chain management is beginning to strengthen the organization's infrastructure. The most significant strength within the company at this point is the power of its corporate culture. The manner in which management has empowered employees to pursue ground-breaking ideas and advance within the company has created an environment in which creativity can flourish and innovative products emerge. The entrepreneurial spirit fostered by management has enhanced the organization's core competencies and is primarily responsible for the company's success. This innovative environment comes with a price, however. Along with the freedom to fail comes failure; and that is not something any organization can tolerate on an ongoing basis. Another noteworthy strength of this organization is the way it manages its mature products. Any organization with such a major commitment to research and development is going to continually produce new products. As these products go through their standard lifecycle, their profitability falls and unless management can maintain the margins, they become liabilities. 3M's process of selling or spinning off those products as they reach a higher stage of maturity minimizes the effects of not closely managing costs and allows the organization to focus on its newest and best products; but this cannot be sustained for the long term. Appropriate management of the flow of products among their natural life cycle has allowed the organization to remain viable, but process efficiencies are needed. Yet another strength of the company, given its new management structure, is the implementation of Six-Sigma. By focusing on process efficiency and the reduction of costs, management has been able to cut the fat while still allowing its innovative culture to function. Innovation and product diversity are important strengths, but an organization that fails to streamline its processes and lessen its bureaucracy is in peril regardless of uniqueness of its products. Critical Issues. Considering the external and internal issues faced by the company, there are three primary critical issues facing the management of 3M. The proper management of product diversity, preservation of the unique corporate culture, and the balance of environments will allow this organization to proceed into a profitable future. Innovative products are the cornerstone of 3M. The organization cannot afford to stop investing in research and development, and rest on the innovations of the past. History has demonstrated that mature products do not perform well for this company. While facing the need to increase efficiencies across the board, management cannot neglect the very thing that has made it such a huge success. It is absolutely necessary that management continue to provide for the development of new, innovative products. If innovation is the cornerstone of the company, its unique corporate culture is the foundation upon which that rests. This strategic concern is of particular import given the fact that early management strongly believed in managerial decentralization. Arguably, it was the decentralization of management and encouragement of entrepreneurial philosophy that created the environment for innovation to flourish. Equally true is that centralized management promotes efficiency. As 3M moves into the future, it cannot forget its past. A corporate culture wherein creativity thrives is absolutely necessary for this company to do what it does. The final primary critical issue is that of organizational efficiency and the balance of environments. As previously noted, an efficient company is a profitable company. Unfortunately, the very policies and procedures that ensure strict cost controls and efficient operational processes can also inhibit the creative environment. Here, management is going to be required to keep a close eye on both its product line and its bottom line. The key concept is striking a balance that results in efficient innovation. RECOMMENDATIONS My recommendations for this company follow the guidelines set forth in the critical issues section. Innovative new products must have a direct pipeline from the idea stage through the launch stage so that the company can continue to provide the diverse product offering its customers have come to expect. The corporate culture must be preserved because that is the innovative engine that drives the company and creates the environment where new ideas flourish. Cost control and process efficiency must be maximized so that those products and ideas result in profitability, while preserving the integrity of the innovation and culture components. The application of these recommendations is best found in light of the five initiatives which McNerney has put in place. For example, implementation of indirect cost control has made a significant impact on cost savings. It is imperative, however, that employee reduction be managed in such a way as to preserve innovation and not alienate the remaining workers. Benchmarking operations and leveraging the best practices will only help the company if the implementation of these policies does not harm the creative process. The approach to global sourcing is an example of pure efficiency. Given the company's core competencies, i.e., innovative products and a culture of creativity, as well as the fact that the majority of the organization's sales come from international clients, streamlining supply chain and distribution processes is the right idea at the right time. Costs in these areas can be rigorously controlled without threatening the most important part of the company; its ability to turn new ideas into innovative, successful products. Similarly, the e-productivity program address is an area that is ripe for restructuring without endangering any creative processes. By focusing on the effective use of information technology both within the company and externally with customers and suppliers, management has the opportunity to save a lot of money while being culturally neutral. The Six-Sigma program, however, should be implemented very carefully because it has the ability to change the chemistry within one of the company's most important areas; research and development. While this program has the positive effect of allowing the organization to be more closely connected to the market, management must ensure that its efforts to increase the probability of success do not filter out ideas that, at first blush, seem improbable. Historically, management has viewed investment in this area as "patient money" and stringent efficiency goals tend to be impatient. From the company's founding, many of what were initially deemed to be impractical ideas ultimately resulted in successful products. Those managers tasked with implementing Six-Sigma, particularly in the area of research and development, should keep that in mind. The initiative with the highest likelihood of harming the creative process is the 3M acceleration program. The reason for this is simple; it impacts new products with an eye toward making them winning products. To the degree that it facilitates a successful new product development process, the acceleration program is a good thing. If resource allocation is based solely on probability, however, the culture of creativity and risk-taking could be severely damaged. With regard to the last two elements of the five initiatives, my recommendation to management is to proceed very slowly. In the short-term, costs can be reduced and new products in the pipeline can be brought to market. If management does not take a careful and respectful approach to the long-term, however, it may discover that it has only succeeded in making 3M's final years a little more profitable. Metaphorically speaking, it would be a tragedy for management to save on the cost of feed while starving the goose that lays the golden egg. References Hill, Charles W.L. & Jones, Gareth L. (2007). Strategic Management: An Integrated Approach, Seventh Edition. Boston: Houghton Mifflin Company. Read More