It was celebration time at 3M! The company completed 100 years in business in 2002. For many, 3M represented the house of innovation. For 100 years, 3M’s formula for growth – recruit the right people, provide them with the right environment to work and let them do their things – resulted in around 55,000 products and over thousands of patents for the company. Analysts attributed 3M’s success to its commitment to innovation. They pointed out that 3M gave its employees the freedom to conduct research in areas of their choice even if that research was not related to their official projects. By thus nurturing the talents of its employees and fostering a climate of innovation, 3M became one of the most innovative companies in the world. By the late 1990s, 3M’s growth rate started slowing down. According to reports, the stock price of 3M dropped from $83.00 in 1996 to $71.13 in 1998 and the price- earning ratio (P/E ratio)1 of the company also declined considerably. It was reported that during 1995-2000, earnings per share grew at an average of only 8.8% and shareholder returns fell far behind Dow and the S&P 500. In December 2000, 3M announced the appointment of James McNerney Jr. (McNerney) of General Electric as its CEO. For the first time, an outsider was appointed as CEO of 3M. The stock markets responded positively to the appointment of McNerney and 3M’s stock price closed at $120.50, the highest in the decade. McNerney introduced cost cutting measures at 3M. Under the 3M Acceleration program, he cut down research projects from 1500 to 700. In addition, McNerney also announced that he would lay off around 6500 employees, thus sending negative signals to employees. However, his assurance that he would continue to invest 7% of annual sales in R&D, and his emphasis on preserving the culture of innovation at 3M generated confidence among employees. McNerney also set up the leadership development institute, to foster leadership qualities among employees. The institute offered a three-week development program, which provided participants real-life experience. McNerney also made changes in 3M’s pay structure. Earlier 3M had a seniority-based pay structure, under which employees who had put in more years of service were paid better. McNerney introduced a performance-based pay structure. In addition, all employees had to come up with individual development plans, stating steps they would take to improve their performance. Analysts were apprehensive about the outcome of such changes. They felt that McNerney’s 3M Acceleration program and Six Sigma initiative2 might dampen the spirit of innovation at 3M. Some of 3M’s employees also had misgivings about the impact of such changes on the company’s culture. However, McNerney’s initiatives received the support of top ranking employees of 3M who were willing to make changes to accelerate the growth of the organization. Analysts felt that his initiatives brought in results in some units, though a lot more needed to be achieved. However, many analysts pointed out that McNerney’s main challenge would be to balance drive for efficiency and innovation. Said one, “It will mean getting stronger business and marketing involvement earlier, without killing off all the harebrained ideas.”

1. Since its early years, what strategies did 3M adopt to foster a culture of innovation in the organization? How far do you attribute the success of the company to its culture? 2. In December 2000, 3M announced the appointment of James McNerney Jr. (McNerney) of General Electric as its CEO. Describe briefly, the steps taken by Mc Nerney to stimulate growth at 3M?