Leadership and Business Strategy at 3M Company

In the modern corporate environment, innovation is still the key to success for many multinational corporations, and 3M Company is not an exception. The company’s innovative goods, active market leadership, and an unrivaled global network of multinational resources all contribute to the success of the company. The 3M Company is a technology company with headquarters in Minnesota, the United States, with operations in more than 65 nations worldwide. 3M has seen a tremendous amount of change from its founding in 1929 to become one of the most respected and acclaimed technological businesses in the world. Through a thorough and analytical procedure, this paper investigates the strategic factors that contributed to its success. It emphasizes on the leadership initiatives adopted by 3M to achieve success. Lastly, the author recommends measures for sustainable success.

The Success of 3M Company

Stakeholders from different sectors often present different meanings to the concept of success. For instance, Brooksbank, Kirby, Tompson and Taylor (2003) attribute business success to high performance while Perren (2000) cites profitability and growth as the key factors that determine the success of a business enterprise. Companies may evaluate success based on tangible assets and non-financial indicators, as well benchmarking criterion (Frigo, 2002; Safko, 2010). For instance, the economic indicators may include such aspects like profit per employee, total income per employee, or the period to return investment (Brooksbank, Kirby, Tompson & Taylor, 2003).

According to the company financials, 3M is a highly profitable global business venture (Roepke, Agarwal & Ferratt, 2000). The management of the company attributes its success to a variety of measures driven by innovation and customer satisfaction among other features. The company reported steady growth in net sales from $29,611million in 2011 to $30,274million in 2015 (3M Annual Report, 2015).

Figure1. 3M Annual Net Sales between 2011 and 2015.

3M Company reported steady growth in the earnings per share between 2012 and 2016, an issue that reflects the excellent performance by the corporation. 3M Company had an increase of earnings per share-diluted from $6.32 in 2012 to $8.16 in 2016 as shown in the diagram below. According to Machuga, Pfeiffer, and Verma, (2002), earnings per share is a valuable figure that helps the managers and investors in making wise business decisions.

Figure 2. 3M Earnings per Share.

The 2016 3M Company annual report also stipulates an increase in dividends paid per share from $2.36 in 2012 to $4.44 in 2016. According to Nichols and Wahlen (2004), dividend per share depicts the figure given to the shareholders as a return on their investment at the company. Higher dividend per share shows that the corporation is reporting excellent performance and that the returns on investment are high. Nichols and Wahlen (2004) assert that the increase in the figure mentioned above is attributable to an increase in the net profit posted by 3M Company in the recent times.

Figure 3. Cash dividend per share.

According to the firm’s 2016 annual report, the company had a dividend payout of approximately 50%, an issue that portrays the positive and excellent performance by the corporation. Typical examples of non-financial performance indicators include market share, customer or employee satisfaction, as well as innovation among other indicators (Roepke, Agarwal & Ferratt, 2000; HBSP, 2003; Johanson and Hansson, 2006).

3M has had a strong innovation culture since its incorporation way back in 1929 (Handrigan, 2013). The company has prioritized research and development by investing between 5% and 6% of its sales in the sector. According to the company CEO, Inge Thulin, between 30% and 32% of the company’s annual income emanate from products introduced in the market within the last five years (3M Performance, 2017).

Reasons for 3M’s Success

Innovation

3M Company put much emphasis in R&D through annual investment in the sector to steer the production and delivery of differentiated products in the marketplace. More importantly, 3M Company prioritized the incremental approach of product development and innovation by investing heavily on the department, more so after Buckley assumed office in 2005 as the company CEO (Hindo, 2007).

International Expansion and Acquisition

Since the hiring of outsiders, McNerney and Buckley to assume the position the company CEO, 3M Company has put much emphasis on the filling of the strategic openings in various markets across the globe. While the previous company CEOs acquired close to 70 businesses at the cost of $69million, Inge has so far spent an average amount of $644 to acquire nine companies since assuming office as the company CEO in 2012. The diversification initiative has steered growth and revenue generation at 3M Company (Stackebrandt, 2010). 3M Company reported net sales of close to $18.0billion from its international businesses, constituting about 60% of the company’s total net sales in the 2015-16 financial year (3M Performance, 2017).

Effective HR Management

While 3M Company strives to accelerate growth through various strategies, including diversification, it acknowledges the significance of human capital as the backbone of its business operations both in the US and oversees (Keller & Richey, 2006). Employees have an opportunity to contribute effectively towards the success of the firm as the management values every worker. The company leadership, starting with McNerney, to Buckley, through to Inge have often given priority to the importance of growing employees (Sternberg, Kaufman & Pretz, 2003).

Strategic Leadership Approach

Since its inception, 3M Company has maneuvered through challenging moments in the business market (Sternberg, Kaufman & Pretz, 2003). For instance, it has encountered enormous difficulties, including tough economic times, coupled with global recessions and political stability. Nonetheless, the practical leadership has enabled the firm to stay productive and profitable in the long-run (Alldredge, Johnson, Stoltzfus & Vicere, 2003). Jim McNerney encouraged autonomy among employees and helped them to master whatever they opted to pursue. His successor, George Buckley also continued with McNerney’s legacy albeit with certain corrections and improvements (Roepke, Agarwal, Ferratt, 2000).

Strong Organizational Culture

The changes in leadership have reinforced the strong culture that has existed for several years (Székely & Knirsch, 2005). 3M also focuses on the individual initiative, teamwork, as well as tolerance of each other’s mistakes as the central corporate cultural traits (Urde, Greyser & Balmer, 2007).

Effective Management Strategies

McNerney first introduced the Six Sigma approach, a workplace management methodology that has reported success in several corporations, including 3M Company. According to Canato, Ravasi, and Phillips, (2013), Six Sigma is an approach aimed at enhancing efficiency through the enforcement of regulation and standardization (Schroeder, Linderman, Liedtke & Choo, 2008). Six Sigma approach improved the performance of 3M Company through increased productivity, and subsequent success (Chakravorty, 2009).

Customer Satisfaction

3M Company puts much emphasis on customer satisfaction as a means of achieving its business goals. Keller and Richey (2006) cited a case where 3M Company carried out a customer satisfaction research to ascertain the degree of their satisfaction with the company products and services as well as provide a comparable data with the firm’s competitors on the customer satisfaction.

Corporate Responsibility

3M Company has prioritized corporate responsibility as one of the major initiatives in its national and international agendas. The reputation and subsequent success of a company hinge not solely on the favorable financial performance but also on the non-financial indicators (3M Annual Report, 2015). 3M Company also acknowledges the importance of achieving such goals in an atmosphere that values the social, economic, as well as environmental sustainability.

3M Company’s Strategic Capabilities

The skillful management of technological process by 3M Company has elevated it above competitors in the global business. Since its incorporation, the company has mainstreamed innovation among other strategies, thereby ensuring the delivery of a broad range of products to the marketplace.

Value Chain

Hart and Milstein (2003) define value chain as the internal activities that a company engages in while pursuing its operations, mainly changing the input to finished products. Businesses in the contemporary society utilize value chain as an integral part of their planning strategies (Roper, Du & Love, 2006). The primary goal of value chain analysis is to ascertain the most valuable activities in a company, whether they form the source of differentiation or cost advantage. Besides, it seeks to identify which of the activities require improvements. In the case of 3M Company, R&D remains one of the primary activities that the company has prioritized not to foster growth and development but also gain a strategic competitive advantage against peers in the global market. Through massive investments in R&D, 3M Company has managed to produce a variety of products to the marketplace, thereby improving its competitiveness (Starr, 2012).

Product Differentiation and Risk Taking

The broad range of products at 3M as well as the risk-taking culture accords the firm a unique advantage over its rivals in the market (Verma, 2006). The international expansion initiative and acquisitions also increase its global market presence, thereby increasing its competitive advantage (Evans & Mendenhall, 2004). According to Early (2004), the value of diversification efforts can only be meaningful under certain conditions.

Marketing and Sales

In addition to the aggressive innovation at 3M Company, the firm also engages in the customer segmentation and needs, and innovative methods of promotion and advertising. 3M Company often involves in funding customer-based market research to ascertain the changing needs of its clients. The feedback provided by the clients is key in addressing the customer needs and ensuring their retention (Peng, 2009).

Environmental Sustainability

Managing the impacts of sustainability of the value chain at 3M Company is one of the support activities that the company has a solid background in pursuing. In 2011, for instance, 3M Company sought to improve the environmental sustainability characteristics of the new products (3M Performance, 2017). In this respect, the company put much emphasis on the products that exhibited environmental sustainability traits within its value chain.

Supporting Activity 2

(Environmental Sustainability)

Supporting Activity 1

(Marketing & Sales)

3M Company

Primary Activity 1

(Innovative R&D)

Primary Activity 3

(Product Differentiation & Risk Taking)

3M Company

Primary Activity 2

(Product Design & Development)

Figure 4. The environmental sustainability characteristics of the new products.

VRIN

3M Company takes advantage of innovativeness in product development and production as well as delivery of services. According to Verma (2006), the core competency of diversity and innovation in 3M Company’s R&D departments accords the firm a unique characteristic to outcompete its rivals in the marketplace. The R&D, diversification as well as risk-taking the model of 3M Company are valuable, rare and costly to imitate, thereby giving the company a sustainable advantage over its peers in the global marketplace. 3M Company has put emphasis in innovative R&D through incremental funding to the department on an annual basis.

The company currently invests between 5% and 6% of its sales in research and development (Verma, 2006). The R&D as well as diversification and risk taking initiatives at 3M Company are not only valuable but also rare, hence the reason why they are represented by “yes” in the VRIN framework below. For instance, it is notable that the innovative R&D is valuable given the uniqueness and the excellent results as shown in the broad range of differentiated products developed by the firm. Besides, 3M Company is known for its risk taking culture, an issue that is not only valuable to the firm but also rare, thus a temporary competitive advantage.

The diversification and risk taking culture of 3M Company accords it a temporary competitive advantage over its rivals in the business market given the dynamism in the market. For instance, diversification presents enormous risks to the firm given the changes and differences in the target markets, an issue that may be challenging to the company as it aspires to venture into the new markets. Both value chain and VRIN frameworks provide reliable and relevant data that can be useful in making sound decisions on the company’s strategic capabilities (Horvath, 2001; Talaja, 2012).

Table 1

SCA

Capability, Competence or Resource

V?

R?

I?

N?

SCA conclusion

R&D

Yes

Yes

No

No

No

Diversification and Risk taking

Yes

Yes

No

No

No

Sales and Marketing

Yes

No

Yes

No

No

3M Company has focused on effective sales and marketing of its products not only in the US but also across its markets in the world. (Horvath, 2001; Talaja, 2012).

Contribution of 3M Company Leadership

The leadership of 3M Company has made excellent contribution towards the improved performance and subsequent success of the firm. Since its incorporation in the early 1920s, 3M Company has undergone remarkable transformation to become a reputable company in the global arena. 3M Company had previous CEOs from internal management before resorting to hiring external mangers due to its failure to achieve the desired goals (Alldredge & Nilan, 2000). The first 13 men the company engaged as leaders in its first 100 years of operation had similar characteristics, including being hard workers, middle-class individuals, as well as primarily Midwestern. Most of the managers mentioned above had technical training when they joined 3M Company and did a lot to build their careers at the firm. However, the management approaches at the company as well as its performance changed tremendously after the McNerney assumed the chairman position in 2001 as the first outsider to lead the company. The leader mentioned above prioritized investing in the people as the most important factor in achieving success.

The transformational leadership adopted by McNerney at 3M Company often prioritizes the contribution and participation of all people in the management process (Judge & Piccolo, 2004). It entails building the vision of a company in a collective belief and values as well as empowering the people to achieve the stated vision (Alldredge & Nilan, 2000). McNerney noted that 3M Company would only grow when its employees grew. The manager brought a new leadership model that was contrary to the laissez-faire approach of experimentation adopted by the firm previously.

George Buckley continued with the leadership of the company in 2015, assuming the role of company CEO after the exit of Jim McNerney. Buckley continued with McNerney’s legacy albeit with minimal improvements (Roepke, Agarwal, Ferratt, 2000). Just like McNerney, Buckley appreciated the participatory and democratic form of leadership where the contribution of employees remained critical to the company’s success. However, Buckley raised issues with the way leaders moved from one job to the other. (Verma, 2006).

The effective leadership also manifests in Inge Thulin, the current company CEO who took over the leadership from Buckley in 2012. Under his reign, 3M Company has reported commendable and excellent business results, regarding revenue generation, international diversification, and overall profitability.

Innovation Strategy

According to Garud, Gehman, and Kumaraswamy (2011), 3M Company currently has about 50,000 products in the market, including waterproof sandpaper, post-it picture paper, and mask tape among other innovative products. 3M Company has had an incremental budget set aside for innovative R&D to provide products and services not only of high quality but also meet the customer needs. 3M Company invested between 5% and 6% of its sales in the innovative R&D in 2016. According to the company CEO, Inge Thulin, between 30% and 32% of the business’s annual revenues come from products introduced in the market within the last five years (3M Performance, 2017).

3M Company management attributes its reputation and success in the global business market to the outstanding and excellent innovative strategies. Since its inception in 1902 as Minnesota Mining and Manufacturing Company, 3M Company has prioritized innovation as a key pillar in driving its businesses (Handrigan, 2013). As noted earlier, 3M Company put much emphasis in R&D through annual investment in the sector to steer the production and delivery of differentiated products in the marketplace. The company also accords its employees sufficient time to explore new ideas, an initiative that has often contributed towards steering innovation at the firm. 3M Company takes pride in the introduction of such items like waterproof sandpaper, post-it picture paper, and mask tape as some of the products of innovation at the company (Keller & Richey, 2006).

According to Keller and Richey (2006), the corporation introduced a new innovative approach known as lead user research to uncover the customer and market needs. The lead user approach put much emphasis on innovation management and understanding market needs. Garud, Gehman, and Kumaraswamy (2011) highlight various important aspects of pursuing innovative R&D by 3M Company. These benefits include availing quality information to the company, particularly on the needs of the customers, improvement of quality of service delivery or products at the company, as well as improving the process of service or product development. The approach also ensures that the company taps the expertise and experience of ”lead user” to carry out accurate forecasting of opportunities in the global business market. However, lead user research also presents fair share of challenges.

The management of 3M Company has played a central role in encouraging innovation at the company. First, the managers have been instrumental in allocating considerable amount of budget allocation to the R&D initiatives. Besides, the company has a policy of allowing employees to spend 15% of their time involving in exploring new ideas to steer the company forward (3M Performance, 2017).

Strategic Recommendation

The aggressive international diversification program currently pursued by 3M Company may present risks and challenges alike. For instance, maintaining innovation in the development of new products and services to conform to the prevailing local culture is one such factor that may pose a challenge to the firm. In this respect, there is a need for 3M Company to contemplate adopting geographically diverse R&D initiatives to enable the firm adapt to the local business conditions. Notably, the R&D departments in all the business units should be separate, and can benefit all the other departments. The department will provide a basis from which the employees and salespeople from the business units will ascertain the customer needs as well as contribute positively towards providing knowledge on product development and efficient service delivery. The company must take into account the prevailing local cultural aspect while designing the aforementioned initiative to achieve the desired outcomes. The above-stated recommendation is key to the company given the fact that 60% of 3M Company’s sales revenues come from business units outside the US. The shareholders are likely to embrace the idea because it would contribute to enhanced production and service delivery, and subsequent profitability in the long-run. The return on investments is likely to increase, an issue that would raise earnings per share.

Also, there is need for 3M Company to engage product developers to visit current and potential customers in a view to ascertaining their needs. Previous studies show that product developers often exhibit commendable expertise and experience, particularly when addressing technical aspects and limitations of a product or service. Besides, they are likely to have more knowledge on the boundaries of a given technology, business priority, as well as trends in the market, an issue that is fundamental to the company success. Moreover, 3M Company is likely to incur less cost in engaging the product developers compared to exorbitant expenses incurred in hiring external market researchers.

3M Company has demonstrated excellent progress in diversification into the global markets by the steady increase in the revenues generated from oversees businesses. For instance, the company reported sales of about $18.23billion from business units outside the US, constituting approximately 60% of the company’s total sales. While the initiative above is commendable and healthy for the well-being of 3M Company, there are a lot of business risks involved in international expansion. As a result, the management should carry out extensive research to establish the most viable and sustainable diversification strategy, including examination of acquisitions, alliances, and joint ventures.

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