At the end of the case, what is the condition of the firm? How well is it doing
3M is doing pretty well, but Optical System (OS) unit within it is in doubt. 3M transformed itself from mining at the start up 25 years into fabulous micro-interconnection, digital image, and transferal drug delivery. The corporation became a highly diversified global company with an esteemed reputation of innovation. By 1992, it had evolved into 3900 profit centers located within 47 divisions in 57 countries worldwide.
Its well-known innovation reputation results from a mantra that 25% of its sales are to be generated by products introduced in the last five years. The management commits to building the company’s core technologies and to create an environment where people can innovate. The management believes that an environment can “stimulate ordinary people to produce extraordinary performances”. By the early 1990s, it has more than 100 laboratories world wide to keep it technology leadership. It also funded these R&D efforts at a rate between 6% and 7% of sales, twice more than other US industrial companies did.
Especially, the new CEO, DeSimone, is looking forward to great efforts in innovation by raising the expectations to 30% of sales from products introduced in the past four years.
OS group has trouble to get funding and under time pressure to have result. In 1988, Ron Mitch , R&D vice president for the Life Science Sector demoted OS unit to group-level project development, due to its long incubation stage and declining sales. Andy Wong believes the micro protection filter could be the new OS hope. However, Wong is having a trouble getting the funding for the microfilm filter project since OS has a record of product market failure and the other ongoing projects are also risky.
Examine the behavior of the firm. What aspects of firm behavior explain the performance of the firm
The corporation develops into many offices and many product lines through accepting new ideas, encouraging innovations, assessing projects methodologically within time frame, valuing employees and performing well-structured delegations. 3M encourages its staff to think and innovate; 15% of working time can be used to self -development. The company funds the R&D efforts at a rate 6% and 7% of sales, which is twice as high versus the average of other US industrial companies.
Each project has gone through rigid assessments before getting funding. That says project funding only available upon the market’s feasibility. The substantial sale volume must be generated by the sampler. The team has to prepare their products by working through a four-phase process that Guehler instituted:
- Phase I: Developing the product concept.
- Phase II: Undertaking the Feasibility Assessment.
- Phase III: Developing the Business Plan.
- Phase IV: Selling on the market.
3M’s strategy is to support and reward self-motivated employees who had strong business ideas and successfully marketing products through leader delegations. Through Guehler’s well defined the four phase market test processes, “divide and grow”. 3M department structure and granted employees’ self-improvement and research working time, employees are self-motivated. Employees are held responsible through department delegation. The entire corporation thrives because of gathering good employees, business policy and delegations.
The 3M offices are decentralized and had to manage their own sales. All subdivisions and department are held to demanding performance standards. Each division was expected to contribute to the corporate objectives of inflation-adjusted sales growth of 10%, pretax profit margin of 20%, and Return on Capital employed of 27%. The departments are self-perpetuating, because small office can transform into big divisions, as long as they could present the cooperation that their products did reach the sales requirement, the small department can “grow and divide” as rewards for successful projects and better managements. The OS units could not reach this, so it got demoted to a group level project.
Under the influence of Jacobson’s Pacing program, to “do more, faster with less” is challenging OS group’s “make a little a, sell a little” traditional philosophy. Like Jacoboson, Desimone emphasized that when a project has no substantial performance, “we start to starve it “. OS group is on the rim of starving stage. OS needs to perform fast, but in order to perform, it needs investment authorization for $750,000 to start production.
Is the firm behavior appropriate
Andy Wong was the manager of OS in 1992 looking for the best course of action in receiving funding for his group’s privacy screen product. Knowing that the company’s new goal was to have 30% of sales coming from new products introduced in the last four years, Wong needed to get his point across displaying the potential for his privacy screen venture.
Wong needed to realize that in order for his OS group to survive in 3M’s corporate umbrella, he would need one or two break through products since the other products in his division were at mature levels. OS had a high potential product in its “promising electronic display brightness enhancement project” which would require $5 million in funding in the next year, which could result in a $200 million business. Wong, realizing that his track record for his division had been less than stellar, needed to prove that his division was not only worth keeping, but he had a few products that could help 3M reach its goal for new products encompassing 30% of its total sales.
With 3M funding $914 million in research and development in 1991, the $750,000 that Wong was requesting for expenditure appropriation was not very unrealistic since it was only 0.08% of the funding given in 1991. Also, with the 12 year old division in jeopardy, and with 27 management people and 33 plant personnel (exhibit 2) on the payroll, $750,000 expenditure is a fraction to what the 3M Corporation had already invested in the division just in terms of overhead and salary.
After all of the downfalls that the OS group had in the past 12 years, they finally had incubated 2 new products that could reap substantial profits, and follow the corporate mantra of “grow and divide”. The sales forecast of $1 million for the privacy screen in the first 6 months, and $10 million in sales the following year, would substantially meet and exceed the corporate goals of 10% sales growth, and return on capital employed of 27%.
The OS group was appropriate in the fact that it kept up with the privacy screen project since it would have advantages over other competitors’ products since it had features not available anywhere else. The OS product had only two sizes which could adjust to varying computer screens, an antiglare feature, contrast enhancement, no dust build up due to elimination of static electricity, and a protective coating eliminating 99.9% of the potentially harmful low frequency radiation, all while maintaining the retail price comparable to its competitors.
All of these enhancements to the privacy screen would enable it to “create a defensible product-market position”, a philosophy implemented by 3M CEO Alan Jacobson. Under this philosophy, the Pacing Program was developed which identified products which could “change the basis of competition”, and to ensure they received the proper funding and attention they deserved. Clearly, the OS group developed a product in the privacy screen which Jacobson hoped would help propel the corporation for many years to come.
The OS group could use their enhanced privacy screen to prove to management that they could develop, market, and execute a new product, so that when they needed the funding for their electronic display brightness enhancement project for $5 million, management would have their trust. Everyone at the OS group had faith in both of their projects, all they needed was the trust in the corporation that they could succeed. Having the less expensive privacy screen project as their test was a more appropriate way of gaining the confidence and support of upper management.
Going forward, where would you like to take this firm
The 3M corporation has built its success through innovation, cultured by the process of allowing 15% of employees to spend on unrelated projects and new products. The company has not overlooked performance however, which has begun to be demanded from top management in order to continue to develop specific products. The corporation needs to continue to hire highly innovative workers, and allow them to prosper in allowing them to develop new products.
As one ex CEO said, “We recognize some of our businesses as established but none as mature, and exempt none of them from striving to meet our standards for growth and profitability.” 3M needs to continue to listen to its product development managers and continue to listen to the managers that feel they have a potential product that could develop into a winner. As DeSimone, their CEO in 1991 said, “At the center of 3M’s values are a respect for the individual and a commitment to creating an entrepreneurial environment where innovation flourishes. That requires managers to have respect for ideas coming up from below.”
What changes would you like to initiate
3M is well-suited for the industries it has chosen to align itself within. Its decision to morph away from a US-based mining company and become a diversified global company specializing in innovative technologies has prepared it well for its next 100 years of operations. They do an excellent job of identifying profit pools and reaching its aggressive goal of 30% of sales from products introduced within the past 4 years. That ideology is what keeps it at the cutting edge of the myriad of businesses within which they operate. Their strategy and structure are very solid.
The culture fosters the type of innovation for which they strive and they clearly possess the talent and innovation needed to be successful. Still, as good an organization as they are, Phase IV execution, particularly in regards to the privacy screens, appears to be an area that can be improved upon. Because products are expected to contribute so significantly almost immediately after being introduced, some aspects of the execution of the product launch may be hastily completed. This could lead to inefficiencies in many areas and multiple launches of a product. If SBU’s can clearly demonstrate the market opportunity and are given a slightly larger window to produce, it may eliminate early miscues during initial launches.
Cite this essay
3M Corporation’s Optical System Case. (2020, Jun 01). Retrieved from https://studymoose.com/3m-corporations-optical-system-case-essay