Monday, September 27, 2010

How 3M Got Its (Innovation) Groove Back (MMM)

Do it or die.
This is a subject we take seriously, links below.
From Fortune:
3M's innovation revival
3M is everywhere. That's the point George Buckley, the chairman and CEO of 3M, is trying to make as he talks about his favorite subject, inventing things. Last year, he says, "even in the worst economic times in memory, we released over 1,000 new products."

As if on cue, Buckley's new iPhone rings, showing a photo of his daughter. "Daddy's in a meeting," he says, and hangs up.

"I'm told there's some 3M inside that phone," I say. Buckley replies, "There's lots of 3M inside." He can't say exactly what 3M (MMM, Fortune 500) gadget is in the iPhone; Apple's (AAPL, Fortune 500) skittish about such things. But point well made: 3M is everywhere.

Apple and many others couldn't do what they do without 3M. The St. Paul company produces a mind-bending 55,000 products. Some of them you know -- Post-it notes, Scotch tape, Dobie scouring pads, Ace bandages, Thinsulate insulation. But most you don't, because they're embedded in other products and places: autos, factories, hospitals, homes, and offices. Scientific Anglers fly-fishing rods and Nutri-Dog chews? Yup. They also come from 3M.

Somehow they all add up to a business with $23.1 billion in revenue and $3.2 billion in net income in 2009, placing 3M at No. 106 on the Fortune 500. It has also recovered nicely from the recession. Sales grew 21% and net income 43% in the first half of 2010. The stock? Up about 20% in the past 12 months. The company's shares have consistently outperformed the S&P 500 and other conglomerates, including GE (GE, Fortune 500). Says Buckley: "The magic is back. It is an absolute joy to behold."

3M has long been synonymous with innovation. Founded in 1902 as the Minnesota Mining & Manufacturing Co., it has deployed a range of practices to promote out-of-the-box thinking.

Long before Google (GOOG, Fortune 500) gave its engineers one day a week to pursue their own ideas, 3M let its researchers do the same with up to 15% of their time. Several years ago folks in the company's infection-prevention division decided on their own to see whether 3M's Littmann electronic stethoscopes could be wirelessly connected. Last year 3M introduced the first electronic stethoscope with Bluetooth technology. It allows doctors and med students to listen to patients' heart and lung sounds as they go on rounds and then transfer those sounds to software programs for deeper analysis.

In another unusual practice, 3M awards annual Genesis Grants, worth as much as $100,000, to company scientists for research. The money is allocated by their peers and is spent on projects for which "no sensible, conventional person in the company would give money," says Chris Holmes, vice president of 3M's abrasives division.

Management efficiency came at a cost to creativity
Despite such practices, many inside and outside 3M, including Buckley, think 3M lost some of its creative juice under James McNerney, the acclaimed GE alum who led the company from 2001 to 2005 and is now CEO of Boeing (BA, Fortune 500). It's not that McNerney, the first outsider to run 3M, did a poor job. The company had become sluggish, and McNerney whipped it into shape. He streamlined operations, laid off 8,000 people, and imported Six Sigma management techniques, popularized by GE, to analyze processes, curb waste, and reduce defects. "He brought the discipline and the focus on execution we needed," says Mark Colin, who oversees a 3M business that makes products for mobile devices. Earnings grew, margins improved, and shareholders cheered.

But the efficiency gains came at a price. Scientists and engineers griped that McNerney, an MBA, didn't understand the creative process. Six Sigma rules choked those working in the labs. "It's really tough to schedule invention," says Craig Oster, a mechanical engineer who has been with 3M for 30 years. (Boeing said McNerney would not be available for comment.)

Why is that important? Because as 3M's older products grow outmoded or become commodities, it must replace them. "Our business model is literally new-product innovation," says Larry Wendling, who oversees 3M's corporate research. The company, as a result, had in place a goal to generate 30% of revenue from new products introduced in the past five years. By 2005, when McNerney left to run Boeing, the percentage was down to 21%, and much of the new-product revenue had come from a single category, optical films. (3M also has a history of acquisitions and has announced deals recently.)...MORE
On this topic:
Fail Often, Fail Fast: "Are We Behind On Innovation That Matters?" 

"Wanted: A First National Bank of Innovation"
"Fundamentally VCs are risk adverse – they want no risk in the deal,
if we could handle risk we'd be entrepreneurs."

 – Victor Westerlind, General Partner at Cleantech VC firm Rockport Capital
"Innovation, Schminnovation – Welcome to the Boring Age" 

What It Takes: Building a Materials Science Company for the 21st Century  

A Major Piece: "Why the tech revolution isn’t a template for an energy revolution"

"10 Companies Reinventing Our Energy Infrastructure"   

"Can R&D Save General Electric?" and "GE's Risky Energy Research" (GE)  

Q&A: Mark Little, Head of GE Global Research- "GE is pushing the smart grid and thin-film solar, but don't expect new kinds of nuclear reactors. "