This document analyzes 3M Taiwan's innovation performance and issues impeding progress on a new acne treatment project. It finds that while 3M is known for innovation, its decentralized structure has isolated subsidiaries, limiting collaboration and technology/knowledge sharing. This has reduced innovation potential. For the acne project, the Taiwanese team lacks market information, the manager lacks experience, and there is no clear leadership or commercialization strategy. Addressing these issues will require greater collaboration between subsidiaries and headquarters, improved communication of best practices, incentives for risk-taking, and faster product evaluation.
Original Description:
Solve the case that 3M was facing with its innovation system in subsidiaries.
This document analyzes 3M Taiwan's innovation performance and issues impeding progress on a new acne treatment project. It finds that while 3M is known for innovation, its decentralized structure has isolated subsidiaries, limiting collaboration and technology/knowledge sharing. This has reduced innovation potential. For the acne project, the Taiwanese team lacks market information, the manager lacks experience, and there is no clear leadership or commercialization strategy. Addressing these issues will require greater collaboration between subsidiaries and headquarters, improved communication of best practices, incentives for risk-taking, and faster product evaluation.
This document analyzes 3M Taiwan's innovation performance and issues impeding progress on a new acne treatment project. It finds that while 3M is known for innovation, its decentralized structure has isolated subsidiaries, limiting collaboration and technology/knowledge sharing. This has reduced innovation potential. For the acne project, the Taiwanese team lacks market information, the manager lacks experience, and there is no clear leadership or commercialization strategy. Addressing these issues will require greater collaboration between subsidiaries and headquarters, improved communication of best practices, incentives for risk-taking, and faster product evaluation.
Introduction: 3M is recognized as one of the most innovative companies in the world. Product and geographic diversification, as well as technology development, have been its main drivers of growth and source of competitive advantage. In 2004, 3M was present in more than 60 countries.
3Ms success have been the result of its strategy supported by a culture of innovation, initiated by their funders and boosted by William McKnigth, who in 1948 defined supportive management principles that encouraged employee initiative and innovation. McKnight philosophy pursued entrepreneurship, technology sharing, decentralization each international subsidiary was managed independently, customer as innovation driver, and R&D through rewarding success. In 3Ms strategy, the culture of failing and risk taking was central.
In order to determine if the organization was aligned to this strategy, in the following section the organization structure, culture, people, incentives, process and leadership will be analyzed. The analysis also will reveal the issues that have been impeding to Chung reach the project in Taiwan and the innovation performance to 3M Corporation as well.
Organization Structure: In 2004, 3Ms subsidiaries were structured in a decentralized manner and managed as an individual entity. Each subsidiary managed seven business segments, farther segmented into several divisions (product line). Each division processed their own sales, marketing and technical support. In addition, each subsidiary was structured as a matrix management reporting to the international operating authority as well as their respective business segment. Additionally divisions had their own reporting line. This kind of structure minimizes bureaucracy, provides more agility and flexibility to respond to fast and changing environment, 3
encourages decision-making skills, cooperation and learning. However, it is also noted that this structure isolated subsidiaries from their peers and central headquarter, which could work well in the operation area, but not as a promoter of an innovation system. As a result, the potential of innovation of the whole corporation has been reduced to the capacity of each unit or worst to each business segment.
Culture: The Company culture was based in McKnight management principles, first dictated in 1948. The McKnights philosophy encouraged failure (that was seen as a learning experience), long term project, employee initiative entrepreneurship by rule of 15 percent, customer and technology drive innovation.
All of these principles promoted a culture that emphasizes risk taking, teamwork, and innovation. Although, all this principles were the heart of the company, was also clear that some of them, such as the culture of failing, needed to be enhanced within the subsidiaries and between headquarter and subsidiaries if 3M wants to keep innovation as competitive advantage, or simply if they want to be competitive in highly changing environment.
People: 3M invested approximately 5-6 percent of total sales per annum in R&D, and had 1,000 scientist and engineers dedicated to developing new ideas. However, most of them were based in the corporate research lab at headquarter.
To ensure technology and practices transfer, and learning; communication and exchange of information were essential parts of the 3Ms innovation strategy. The first one was encouraged between headquarter and subsidiaries through the expatriation of directors and staff. To ensure 4
communication between technical, marketing, sales, manufacturing and customer people, 3M encouraged networking activities such as technical forums, lectures, and problem-solving discussions.
Even though this was well developed, it is notorious that the main beneficiated people were the technical one. Non-technical such as salesmen or marketing, were not well integrated within these activities. In my own point of view, and according to the culture of 3M, non-technical people are essential in the innovation system because they are the main source of information (environment changes and customer needs).
Incentives: 3M had normal and informal channels of financing innovation projects. However, each project team must compete for these funds. Moreover, the incentives were given in the way of celebration of successes. There were also several programs and awards to recognize the most valuable employees such as Carlton Society, which is a peer recognition; Golden Step Award for teams that introduced products with sales over 5MM in the first 3 years, and Alpha Grants that recognized innovations in other non-technical areas.
Despite the fact that 3M motivated their employees, technically all the incentives were focused on success. If only success is important, then failure and learning from mistakes will be looked, which were important principles mentioned in the 3Ms culture. If they reward failure, more projects could be tested, generating more and better projects passing the funnel, and more experience from where to learn. 5
Process: An analysis of the innovation chain demonstrates that 3M was a strong firm in creating good ideas. 3M used its headquarter and research centers in Minnesota, Japan and Shanghai to develop technologies, whereas applications based on those technologies, were expected to be developed within subsidiaries.
Collaboration across units was a big issue. It was notorious that there was no inter- subsidiaries/headquarter technology transfer (headquarter sent an expert in reaction), and also intra-subsidiary there were no opportunities to share information and projects (it was the reason why the Technology Transfer was not ensured through technical forums).
Collaboration outside the firm, such it was visioned by McKnigh, was far to be well managed. For example, in the case of the acne treatment was Chung who realized that the hydrocolloid dressing had high potential. The natural path should have been sales people, who were in contact with the market needs. Then collaboration outside the firm was another issue.
A deeper analysis of the 3Ms innovation chain shows that it was based on the new product implementation system (NPIS) which included seven stages: Idea, concept, feasibility, development, scale up, launch and post-launch. NPIS enabled the company to achieve better control about selecting, developing and funding only those ideas with high-market potential. However, it is noted that NPIS took a lot of time, which is an issue that should be enhanced.
Finally, there was no doubt that one of the highest issues to 3M in the innovation process was the diffusion across the organization. Usually it was isolated in the subsidiary or business segment. In summary, NPIS could be a good controller but a very bad promoter of innovation. 6
Leadership: The leadership to innovate was encouraged to each subsidiary and more deep to each business segment manager. In this case, the responsibility was in hand of Tao-Chih Chung. It is possible to realize that although the project team had the Chungs support, there was not a strong leadership because he had no previous experience in product development.
Problem definition: Problem Statement: Should Chung proceed with the Acne dressing project, in what way, and what resources are needed from headquarter or other subsidiary if any.
Central problem: Despite being 3M recognized as one of the most innovative companies in the world, with an outstanding and constant investment in R&D, it was losing momentum and agility to consistently achieve innovation and commercial potential of its portfolio.
Summary of Issues: Project/Organization level Subsidiary/Headquarter level Limit information from the local market. Lack of information from other geographies. Local market didnt know a similar product to treat acne. Chungs lack of experience in product development. Cost of material could be inconsistent with the market segment, according with headquarter. There was not a strong leadership entrepreneur to take the project seriously. Weak unit strategy and mechanisms to position and commercialize new products. Basic support from headquarters. Lack of collaboration amongst subsidiaries. Other products of 3M were currently being used in the treatment of acne (trade off). Lack of technology transfer mechanism has been impeding the exploitation of the technology portfolio (Pull instead of Push). Organization structure is not well oriented to innovate systematically (isolated). Lack of communication/diffusion and collaboration inter and intra subsidiary/headquarter. Incentives were locking risk taking and failing principle. NPIS evaluation-system was taking too much time and didnt allow risk taking and failing. Despite culture was strong in headquarter, subsidiaries were not following the principles effectively (customer orientation, failure, and entrepreneurship). Non-technical employees were not well incorporated in the innovation system (technical orientation).
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Alternative Strategies&Recommendations: First, to deal with the problem statement at the project level, I propose the following alternatives: Alternative Pros Cons
Do it in-house with the collaboration from headquarter and other subsidiaries
Keeping the initiator team motivated. Good signal for other subsidiaries. This option will help the entire organization to start thinking in all the changes they need to do to be competitive again in innovation (communication, collaboration in and out-side, incentives, process). More fresh ideas about application and market segment to feed the business plan. Broader geographic spectrum to validate the new product. Deal with Chungs lack of experience in product development. This process will require more effort and time consuming for Chung, the team and 3M in general. Deal with the lack of leadership in the Taiwan business segment to commercialize new products. Deal with headquarter and subsidiaries in a way they are not using to do. If Taiwan is not the best market it will be more difficult for the team to deal with other market.
Pass it along to 3M central.
Headquarter has more experience in product development and more control over the subsidiaries if needed. More access to resources (people, knowledge, and money). Central has a broader spectrum of leaders to put in the project. Headquarter has more experience in introduction of new products (at least in the US). Headquarter will not have the same motivation because it is an application that they are not using to deal with. Central will need to deal with its own market information and the one that can be obtained from the subsidiaries. If central follows current practices, the diffusion of the new product across the units will be slow. The option will not contribute the company to enhance the central problem.
To deal with the central problem, the following alternatives are discussed: Alternative Pros Cons
Status quo
Not require any effort. Not time is needed. Focus on production.
Increasing the risk of losing the main competitive advantage. Deteriorating the innovation culture. Losing profitability because the investment in R&D is not being recovered by the commercialization of technologies. Frustration of employees because misalignments between strategy and reality.
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Develop a Technology Transfer unit to pursue commercial goals of the portfolio and deal with the lack of collaboration and communications among subsidiaries. Facilitate a new organization structure specialized in innovation and technology transfer. Improve communication and collaboration across units and units/central. Encourage the subsidiaries to use the technologies (Push innovation) Technologies that are not attractive internally could be licensing (more revenues) Recovering the spirit of innovation and entrepreneurship by employees. Encourage outside collaboration, which will give new and fresh source of ideas. Keep the competitors outside.
Need an important change in the organization structure, especially collaboration and communication among units. Time consuming. Need to install some new process and practices. Mayor challenges in coordination.
Central recommendation: Keeping the project in Taiwan with the help of headquarter and subsidiaries, while headquarter take advantages and learn from the challenges that this effort will demand in order to start developing a new model of innovation that reinforce its culture, allowing technology transfer (push), collaboration across units, and commercialization of its portfolio.
Implementation: The following table shows the implementation plan, which deal with the problem statement and the central problem. Term Project/Organization implementation plan Central implementation plan
Short (1-3 months) Central will provide training to the project team in product development and commercialization. Headquarter will assign an expert in product developing to support Chungs right decision. Headquarter will spread information all over the corporation, assign responsibilities and encourage collaboration. Central will enhance technical and costs analysis, value added v/s current solutions. Prototype and test the market segment (customers in Taiwan and other countries such as the US) Built and validate business model. Write business and marketing plan. Headquarter will assign a team to develop the new innovation model and technology transfer unit. Team will recover information capacities and weaknesses- from all the subsidiaries (innovation teams, research lab, new products, prototyping teams, manufacturing and marketing capacities).
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Medium (4-6) months)
Initiate plan of introduction (manufacturing, marketing). Adjust the capacity and investment in infrastructure to produce the new product. Launch marketing campaign.
Create a new corporate unit responsible for technology transfer and commercialization of technologies and applications. Align new unit with subsidiaries (marketing, labs, product development teams, prototyping teams, distribution network). Implement a new mechanism to collaborate in different levels (using IT or other). Each subsidiary will enhance (customer driver innovation practice-provide to them resources and training). Enhance employee incentives to ensure that people is not worry about failing. Long (7- 12 months) Launch new product. Initiate globalization program to introduce the product in other countries. Initiate implementation plan of the new technology transfer unit.
Finally, the following table presents new measurements that 3M can use to control the achievements of the implementation plan. Project/Measurements Central Measurements Learning: Information to decide, how, where and who will be in charge to manufacture the new product (business plan). Satisfaction of the team.
Process: Value chain capacity, suppliers, and others stakeholders perception.
Customer: Response of the market (sales volume) Market share, new market growth. Customer satisfaction (survey) Perception of potential customers.
Financial: Investment. Revenues. ROE.
Learning: % Employees paid incentives per failure. % employees who feels motivated by the new innovation environment. % of employees that create relationship with customers and get ideas from them. Number of contacts and communications within/outside de subsidiary that each employee has (survey) and have made the last 6 months.
Process: New projects that involve two or more business units. New projects that involve two or more subsidiaries. Number of new ideas generated by customer relationship. Number of patents and technologies transferred within the subsidiaries.
Customer: % customers who rate 3M as outstanding in innovation. Market share new and old products. Satisfaction and loyalty (survey)
Financial: Licensing to outsider and royalties. New products launched per subsidiary. R&D expenses v/s new products input generation. New v/s existing market growth. Margin growth.