Crtitical Review of the Strategies Behind 3M's Success

Authors: Iloka Benneth Chiemelie, Olajide Ifeanyi
Published: 28 november 2013



INTRODUCTION

In modern day business, product and service innovation has been highlighted as the key to organisation differentiation and success. This is because, through product and service innovations, companies are able to find new solutions to customer problems and companies that can constantly find solutions to customer's problems will have a competitive advantage over their competitors as they tend to gain high market shares through market pioneering and leadership, and also increased sales through customer loyalty.

The case study presented a clear example of this claims with 3M an organisation widely recognized for its contribution towards corporate entrepreneurship. Thus, this case study analysis is meant to shade more lights and the strategic approaches that has made 3M successful over the years. This case study analysis is based on secondary research and is divided into three sections.

The first section is an analysis of 3M's organisational structure and culture, and the business strategies that has made them successful over the years. The second section presents a critical review of problems face by 3M, while the third and final section highlights the limitations to this case study analysis followed by conclusion and bibliography in the preceding pages.

CASE STUDY ANALYSIS

3M'S ORGANISATIONAL STRUCTURES AND DEVICES USED TO ENCOURAGE ENTREPRENEURSHIP ACTIVITIES AND WHY THEY WORK

3M's organisational structure is built around cultures that encourage innovation. Being a company primary based on production of adhesive, 3M searched for new ways to increase their profit and market share, and they found that one of the best ways is through organisational innovation. From this angle, the company was able to develop 6 business strategies to promote entrepreneurship and increase customer satisfaction

First strategies – get close to customers and understand their needs

3M started life by selling inferior form of sandpaper and the only way they could generate sales was by getting close to the customers and demonstrating their products for them. This helped them to understand customer's needs better based on the feedbacks they get from demonstrating their products to this selected group of customers.

In modern day businesses, customer relationship management has been viewed as a strategy to attract, maintain and enhance customer services which will in return ensure customer loyalty (Christopher et al., 1991; Gummesson, 1991; Lindgreen et al., 2004). This concept is achieved by mutual symbiosis and meeting set promises (Ndubuisi 2003a, b). From these theoretical definitions, it can be seen that 3M's first business strategy is a successful path towards ensuring that the company improves their sales. Thus will be possibly through increased customer loyalty and repeat purchase which are hugely influenced by both the products and services received.

Second strategy – seek out niche markets no matter how small

From the success of the first strategy, 3M found that if they offered customers what they wanted, these customers will be loyal to their company. Thus they developed the second strategy to seek niche markets no matter how small, as this will allow them for charge premium prices for their products. The company realized that numerous small niche markets will be more profitable that few large ones and this lead to the development of Three-M-Ite™ - an abrasive clothe using aluminium oxide in place of the original abrasive, thus offering more durability.

Niche marketing has been used synonymously with market segmentation, micromarketing, regional marketing, target marketing, focused marketing and concentrated marketing (Dalgic and Leeuw, 1994; Linneman and Stanton, 1992). Nevertheless, all of these tend to point to a general agreement of identifying customers according to their respective needs and finding solutions to all their needs respectively. Therefore, it can be argued that niche marketing is none of the synonymous concepts and also the entire synonymous concept.

Dalgic and Leeuw (1994) suggested that strong long-tern relationship through niche marketing can build a barrier to deter potential competitors and sustain long-term profitability and customer retention. Based on this suggestion, it can be argued that 3M's second strategy just like the first is a strategic approach that is destined to bring back nothing less than success to the organisation because through niche marketing, they can identify all needs of their customers and tailor their products and services to meet these needs.

Third strategy – product diversification

By being close to the customers, 3M identified problems that they can solve for their customers through technical expertise. This is exceptionally great as it ensure that they continued to diversify their product offerings by developing new products to solve new or unattended customer needs. Once 3M found a new product to offer in their niche market they will move on to develop related products and thus occupy leadership positions in these markets.

This strategy exceptionally works as it can be seen from the statement above that through product diversification 3M where able to gain market leaderships in the markets where these products are sold. This argument is also supported by numerous studies that argue that the synergies of related product diversification creates superior value, indicating that firm-specific  a major driving force for diversification activities (Bettis, 1981; Christensen and Montgomery, 1981; Hill and Hoskisson, 1987; Palepu, 1985; Rumelt, 1974, 1982; Teece, 1982; Wernerfelt and Montgomery, 1988). This is because, when companies diversify they have a great opportunity of finding solutions to existing unattended customers' needs and thus making their pioneers of these products and giving them high competitive advantage in case of new market entries.

Fourth strategy – product development and innovation through research

The fourth business strategy as developed by 3M is to encourage product development and innovation in all sectors of the organisation through research. This strategy was developed in line with the third strategy which encourages diversification. If 3M where to constantly diversify their product and service offering, the company understood that it will need to support its system with improved innovation and new product development to ensure that they continue in line with their business model.

This strategy is destined to work as product development is the bloodline for organisational growth. Product development and innovation offer company competitive advantage, new customer and market penetration, customer retention, and strengthened ties with distribution network (Kotler and Keller, 2006; Cooper and Kleinschmidt, 1990). When companies successfully introduce new products through a well-developed process, they tend to satisfy specific customer needs and thus ensuring customer loyalty. This system worked because 3M was able to gain customer loyalty through new product development and innovations to offer their customer more value for their money.

Fifth strategy – knowledge sharing

In other to perfect their fourth strategy of encouraging innovation and development in all sectors of the organisation, 3M developed their fifth organisational strategy which is to encourage knowledge sharing in the organisation. This became official with the establishment of the technical forum in 1950s, with the aim of sharing knowledge within the company. This forum comprised of technical council and directors that held annual shows to encourage knowledge sharing in 3M.

Knowledge sharing has been thought to be able to enhance effectiveness (Gupta and Govindarajan, 2000) because, unlike other organisational assets, knowledge tends to increase when shared: ideas bring new ideas and shared knowledge remains with the giver, while it reaches the receiver (Davenport and Prusak, 1998, pp. 16, 17). This true as two heirs are better than one and knowledge sharing offers confidence and reliability on ideas if they are approved by those whom it is shared. Therefore, it can be argued that through knowledge sharing, 3M was able to increase their knowledge stream and find new years to tackle their business problems effectively and efficiently.

 Sixth strategy – encourage achievement through reward

The last strategy is an employee appraisal scheme that encourages achievement by rewarding employees who generated successful business ideas. Employees that successful innovate new products are made managers of that product division, this ensured that other staff members are motivated to work harder and discover new product innovation as they seek to one day become managers of their developed product lines.

Accurate employee performance appraisal is regarded as key to organisation success (Judge and Ferris, 1993). Due to the variance in organisational members' contribution, individual performance appraisal is essential for recognizing and motivating individuals, and reducing social malingering and free-riding that obstruct group moral (Murphy and Cleveland, 1995; Scott and Einstein, 2001). Looking from the researchers' point of view, it can easily be concluded that this business strategy works because it has numerous potentials of motivating bot the individual and other members of the organisation. As agued above, employee appraisal is essential for motivating individuals in 3M as they tend to work hard, increase their innovative abilities and seek new ways to make the company better because they know that if they develop new products they would be made manager of that product line.

HOW 3M DISTINGUISHES BETWEEN INCREMENTAL AND FUNDAMENTAL INNOVATIONS

In other to distinguish between fundamental and incremental innovation, 3M established a new product development central research laboratory in 1940. This was used to explore the feasibility of new products or technologies that where not related to existing ones. Incremental innovation means innovation made based on existing products and technologies while fundamental innovations are those that are not related to existing products or technologies. In the 1980s, two separate laboratories where developed to over-see short-term and long-term researches. Short-term researches are more of incremental innovation that are designed to respond to  industrial and consumer needs, life science, electronics and information technologies and graphic technologies with a life span of 1-5 years, while the corporate lab was designed for fundamental innovations with researches of over 10 years.

3M's ORGANISATION CULTURE AND WHAT IT DEPENDS ON

For decades, 3M has been known as an entrepreneurial organisation that pursues growth through innovation. Innovation was encouraged originally in an informal way by the founders, but was later formalized over a century into an organisational culture. The organisational culture is one which encourages innovation, and it has helped them to realize success over the years as it perpetuates itself. This culture evolved from 3M's place of origin which is called 'Minnesota Nice'. It is described as a non-political, low ego, egalitarian and non-hierarchical, hardworking and self-critical.

WHY 3M HAS BEEN A SUCCESSFUL INNOVATOR FOR SO LONG

3M's success in innovation can be traced back to their employee appraisal. This is because; the organisation has found the missing link which numerous organisations tend to overlook when it comes to showing appreciation towards employee's efforts. 3M is achievement oriented and achievement particularly through research was rewarded through promotion. For instance, successful new product teams were spun off to form a new division in the organisation. The leader of the team is often the general manager of the new division and this w as seen as a great motivator. Lesser achievements were also rewarded and failure is not punishable. This increase in 3M employees' motivation level has been the key to their long-tern success as their staffs continually give out their best for the organisational success.

CAN OTHER COMPANIES BE SUCCESSFUL INNOVATORS IF THEY JUST COPY 3M'S CULTURE AND STRUCTURE?

Copying ideas and practices of other organisation is a mechanism widely used by firms across the globe to improve their performance. Indeed, imitation had been seen as a key means or organisational learning (Argote 1999) and has found in academic and practitioner-oriented literature. For manager, imitation is a crucial fact of organisational life – a colourful illustration of this was given by president of Rexhall, a manufacturer of premium motorhomes, who openly revealead, "in this industry we call it R&C: research and copy" (Schnaars 1994, p. 3).

If properly copied, organisations that copy 3M's strategies and culture can be successful innovators. This is because, 3M's culture general revolves around employee appraisal and in business psychology; appraisal has been rated high as increasing employee's motivation level and enhancing organisational success. There it can be argued that organisations can become successful innovators if they directly copy 3M's business model and culture. Nevertheless, it must be understood that since external environment affect the success of any organisation; fully copying their model and culture could be disastrous as it could lead to negative effects such as legal prosecution from 3M in-cases where they copy patented rights etc.

 PROBLEM IDENTIFICATION

Although 3M has been associated with numerous success stories over the years, they organisation is prove that all businesses no matter how successful is filled with ups and downs. Today 3M faces numerous challenges as it seeks to maintain their reputation for innovation. As 3M becomes larger and more complex, involving with different markets and product life cycles, the organisation has been face with numerous problems and issues that it will need to handle if they are to continue their market leadership. These problems are:

1. Proper management issues.
2. High expense on research with the adoption of Maverick high risk approach.
3. Increasing competition and new entries.

CRITICAL REVIEW OF HIGHLIGHTED PROBLEMS

Management issue

3M initiative of making product innovating teams the management of the product division is a strategic way of ensuring that staffs continue to purse innovation and new product development but also questionable. It is questionable because being a great innovator does not necessary means being able to manage and coordinate the markets where these products are sold. Thus, this decision can deter their success potentials when compared with employee qualified managers to manage these product lines.

Schoemaker (1997) described scenario planning as a logical process of imagining possible futures. It tries to executive thinking away from "what has been in the past" and "what is happening in the present" to consider alternative for "what will happen in the future". In doing so, scenario planning engages with confusion, uncertainty and complexity (Wilson, 2002). From this point of view, it can easily be seen that 3M faces critical management issues is they continue to adapt their old format of making product innovators the management team of these product line.

 It can be argued that proper training and development will offer them the needed skills, but it must be understood that training does not necessary guarantee transfer of acquired skills and development takes time to perfect. Some of these innovators might be staffs from the technical team who have no business background and it can scupper the success of the company if they compete with organisations that have a better management team.

High expenditure on research and development

Over the years, academic and managerial literatures have drawn their attention to problems of measuring the performance of organisational investment on research and development activities (Lebas, 1995; Merchant, 1998; Amadio, 2005), because research and development has been recognized as a critical issue for motivating personnel, supporting decision making, and enhancing organisation learning and continuous improvement (Simons, 1990; Eccles, 1991; Sink, 1991; Lebas, 1995).

Although they are many positive attributes to research and development in an organisation, it must be argued that 3M high risk approach towards research and development is an issue the organisation must seek to resolve. In 3M all staffs are encouraged to pursue innovation and the company constantly spend million in research and development on these new products; many of which fail. Thus, this leads to loss of both organisational and human resource capitals. This is a critical issue the company must address if they are to continue their market leadership as continued loss could lead to loss of company market shares and low returns on investments.

Increased competition and new entries

The drift in recent years towards globalization and internationalization of companies has affected the competitive landscape of business across the globe (Harvey and Novicevic, 2001) and created a state of change as businesses struggle to adopt innovative leadership approaches to meet the challenges of new market environment (Robinson and Harvey, 2008). As 3M continue to expand their market research in search of new ways to generate profit, the company faces stiff competition from all their product lines.

Global competition is a tough encounter for any organisation both in global and national market as the unpredictability of external environment, coupled with new market entries and product imitations can put companies on the blink of collapse if they don't adapt strategic management system that offer organisations competitive advantage. Therefore, it can be seen that competition and new market entries is a serious issue that  3M must find ways to combat if they are to continue to be market leaders in their product lines.

LIMITATIONS

This case study analysis has been perfect in examining the contents of the case study; there is no doubt to the quality and credibility of the contents contained in this analysis due to its ability to apply supportive ideas from secondary researches on relevant topics. But, there are still limitations to the contents of this research paper as:

The case study was not analytical enough in areas related to the problems faced by 3M. The problems highlighted above are as linked with the case study in the concluding paragraphs and secondary research. Thus, this is a limitation as the inability of the case study to pinpoint the problems faced by 3M in a detailed format could result in assumption that are rather irrelevant or unconnected to the current situation face my 3M in their markets at present.

Another limitation is the fact that all contents of this case study analysis are based on secondary research. This is a limitation as primary research would have offered a much detailed understanding of the actual happening in the organisation in real-time approach. Thus, although it can be argued that this research paper has gone a long way in ensuring that all aspects of the company as highlighted in the case study were taken into consideration, it should be noted that these limitation could offer certain level of unreliability to this research paper.

CONCLUSION

In essence, 3M must be appreciated for their contribution in pioneering corporate entrepreneurship through numerous investments of both monetary and human resource capitals. The case study pointed out 6 strategic approaches which 3M adapted to make themselves successful entrepreneurs. These strategies where built under the canopy of 3M's organisational structure which is encouraging innovation at all level of the organisation in other to gain competitive advantage.

This research analysis was able to analyse all these six business strategies and what made them work for 3M. It also answered all other questioned contained in the case study and pointed out that other companies have a high chance of being as successful as 3M if they are to adapt these organisational structure and culture. Nevertheless, companies that wish to adapt this culture and structure of 3M's organisational system must as well understand the consequences of such activities. The case study analysis concluded by present critical review of all problems faced by 3M and limitation to the overall rating of this research paper.

BIBLIOGRAPHY

Amadio, A. (2005), Performance Analysis Management: Sistemi di analisi, misurazione e gestione delle prestazioni aziendali, Franco Angeli, Milano.

Argote, L., P. Ingram. 2000. Knowledge transfer: A basis for competitive advantage in firms. Organ. Behav. Human Decision Processes 82 150–169.

Bettis, R.A. (1981), "Performance differences in related and unrelated diversified firms", Strategic Management Journal, Vol. 2 No. 4, pp. 379-93.

Christensen, H. and Montgomery, C. (1981), "Corporate economic performance: diversification strategy versus market structure", Strategic Management Journal, Vol. 2 No. 4, pp. 327-43.

Christopher, M., Payne, A. and Ballantyne, D. (1991), Relationship Marketing: Bringing Quality, Customer Service and Marketing Together, Butterworth-Heinemann, London.

Cooper, R.G. and Kleinschmidt, E.J. (1990), New Products: The Key Factors in Success, American Marketing Association, Chicago, IL.

Dalgic, T. and Leeuw, M. (1994), "Niche marketing revisited: concepts, applications, and some European cases", European Journal of Marketing, Vol. 28 No. 4, pp. 39-55.

Davenport, T.H. and Prusak, L. (1998), Working Knowledge, Harvard Business School Press, Boston, MA.

Eccles, R.G. (1991), "Performance measurement manifesto", Harvard Business Review, Vol. 69, pp. 131-7.

Gummesson, E. (1991), "Marketing revisited: the crucial role of the part-time marketers", European Journal of Marketing, Vol. 25 No. 2, pp. 60-7.

Gupta, A.K. and Govindarajan, V. (2000), "Knowledge management's social dimension: lessons from Nucor Steel", Sloan Management Review, Vol. 42 No. 1, pp. 71-80.

Harvey, M. and Novicevic, M.M. (2001), "The impact of hypercompetitive timescapes on the development of a global mindset", Management Decision, Vol. 39 No. 6, pp. 448-60.

Hill, C.W. and Hoskisson, R.E. (1987), "Strategy and structure in the multiproduct firm", Academy of Management Review, Vol. 12 No. 2, pp. 331-41.

Judge, T.A. and Ferris, G.R. (1993), "Social context of performance evaluation decisions", Academy of Management Journal, Vol. 36 No. 1, pp. 80-150.

Kotler, P. and Keller, K.L. (2006), Marketing Management, 12th ed., Prentice-Hall, Upper Saddle River, NJ, p. 237.

Lebas, M.J. (1995), "Performance measurement and performance management", International Journal of Production Economics, Vol. 41, pp. 23-35.

Lindgreen, A., Palmer, R. and Vanhamme, J. (2004), "Contemporary marketing practice: theoretical propositions and practical implications", Marketing Intelligence & Planning, Vol. 22 No. 6, pp. 673-92.

Linneman, R.E. and Stanton, J.L. (1992), "Mining for niches", Business Horizons, Vol. 35 No. 3, pp. 43-52.

Merchant, K.A. (1998), Modern Management Control Systems: Text and Cases, Prentice-Hall, Englewood Cliffs, NJ.

Murphy, K.R. and Cleveland, J.N. (1995), Performance Appraisal: Social, Organizational, and Goal-Based Perspectives, Sage, Thousand Oaks, CA.

Ndubisi, N.O. (2003a), "Markets-marketers symbiosis under globalization: the aftermath of poor customer value", Academy of Marketing Studies, Vol. 8 No. 1, pp. 45-52.

Ndubisi, N.O. (2003b), "Service quality: understanding customer perceptions and reaction, and its impact on business", International Journal of Business, Vol. 5 No. 2, pp. 207-19.

Palepu, K.G. (1985), "Diversification strategy, profit performance, and the entropy measure", Strategic Management Journal, Vol. 6 No. 3, pp. 239-55.

Robinson, D.A. and Harvey, M. (2008), "Global leadership in a culturally diverse world", Management Decision, Vol. 46 No. 3, pp. 466-80.

Rumelt, R.P. (1974), Strategy, Structure, and Economic Performance, Harvard University Press, Cambridge, MA.

Schnaars, S. P. 1994. Managing Imitation Strategies: How Later Entrants Seize Markets from Pioneers. Free Press, New York.

Schoemaker, P. (1997), "Disciplined imagination", Interantional Studies of Management and Organization, Vol. 27 No. 2, pp. 43-70.

Scott, S.G. and Einstein, W.O. (2001), "Strategic performance appraisal in team-based organizations: one size does not fit all", Academy of Management Executive, Vol. 15 No. 2, pp. 107-16.

Simons, R. (1990), "The role of management control systems in creating competitive advantage: new perspectives", Accounting, Organizations and Society, Vol. 15, pp. 127-43.

Sink, D.S. (1991), The Role of Measurement in Achieving World-Class Quality and Productivity Management, Wiley & Sons, New York, NY.

Teece, D.J. (1982), "Towards an economic theory of the multiproduct firm", Journal of Economic Behavior & Organization, Vol. 2, pp. 39-63.

Wernerfelt, B. and Montgomery, C. (1988), "Tobin's q and the importance of focus in firm performance", The American Economic Review, Vol. 78 No. 1, pp. 246-50.

Wilson, I. (2000), "From scenario thinking to strategic action", Technological Forecasting and Social Change, Vol. 65, pp. 23-9.