RESTORING AMERICA’S COMPETITIVE EDGE : THE DRIVE TO INNOVATE : Creative Freedom Sustained at 3M
Large companies--caught off-guard by smaller, quicker and more creative competitors--hope to make themselves more entrepreneuerial and innovative. Three corparate giants are case studies in the range of efforts under way.
Like so many Ponce de Leons, the titans of American industry were beating a path to Scotch tape maker 3M’s door in quest of big business’ version of the Fountain of Youth: The secret to rejuvenating American industry’s aging, unwieldy and sleepy giants.
More than any other big U.S. company, 3M (more formally called Minnesota Mining & Manufacturing) had demonstrated how to be as agile as any company a fraction of its $7.7-billion size and 83 years while preserving one of the most consistent records of growth and profitability.
But in the midst of all this hero worship, 3M’s chief entrepreneur, Chairman Lewis W. Lehr, received some disappointing news: The fountain was sputtering.
Despite its deep commitment to innovation and entrepreneurship, Lehr was told by a management consultant who had talked with hundreds of 3M employees that the company had erected some troublesome barriers to creative freedom.
The company’s highly regarded laboratories remained bastions of innovation. But elsewhere in the organization, people felt inadequately rewarded for the high personal risk of trying something new, hampered by formalities and stymied by timid bosses.
Even 3M’s famed “bootleg slack” policy was held up to some ridicule. Because 3M believes that people work hardest at projects dearest to them, it guarantees employees up to 15% of their work time to chase their dreams. But Lehr was hearing that this was only an empty promise to some employees outside the lab.
True to another 3M hallmark, the failures of lab workers were regularly forgiven. But 3M marketers and manufacturers complained about having far less latitude for mistakes and much less time in which to operate.
Lehr discovered the problems--and has ordered them straightened out--because he dared to ask whether 3M was as good as everyone else thought.
His conclusion: “We aren’t that good. So let’s be darned sure that we correct these things that we believe in.”
3M’s beliefs are written down as a corporate philosophy: “The first principle is the promotion of entrepreneurship and insistence upon freedom in the workplace to pursue innovative ideas.”
The great lengths to which 3M and its workers will go to keep that commitment are well preserved in the 3M lore.
Failure Turned Successful
Two researchers were allowed to keep working on applications for an adhesive for six years, despite the fact that it flunked all of the conventional 3M stickiness tests. The inventor who finally came up with an application for that “adhesive that fails” was allowed to use the 3M-patented adhesive and company time to develop what started out as a sticky notepaper to mark his place in hymnals at church--but evolved into the Post-It Note, 3M’s most successful new product ever.
Another lab worker, experimenting with tiny glass beads that the company considered a mere novelty, was instructed to get back to his regular work. He did, but sneaked some time here and there and went on to win an Oscar for a projection system for movie makers. Today, those tiny beads also are found on reflective road and bridge safety signs the world over.
(Part of 3M’s formula for nurturing entrepreneurship is fostering an atmosphere where people think they are getting away with something. 3M executives believe that legitimizing certain things they know entrepreneurs need to do their jobs would dash their resourcefulness and actually deter entrepreneurial spirit.)
Lehr himself was the most notorious master of end-running the system. The congenial 64-year-old Nebraska native with a homespun demeanor and propensity for reducing complex technical concepts to a school kid’s level of comprehension is at once the consummate dreamer and spunky maverick.
Thinks Far Ahead
“Lew thinks 20 years out while everyone else is thinking ahead six months,” says 3M scientist Arthur Fry, inventor of the Post-It Note, for which Lehr put his career on the line.
But it was in the role of scrappy con artist that Lehr won his spurs at 3M. He bucked the system and built a fledgling medical-products venture into one of the company’s biggest divisions.
When Lehr couldn’t get permission to take more money from company coffers, he bootlegged funds from his buddies’ budgets. When word leaked out that the ax was about to fall on his venture, he built up six months’ of inventory, buying more time to overcome the internal opposition. And when the company’s interest wavered again, he got the then-chairman’s ear by offering to buy the business.
The company that started out just after the turn of the century with one product, sandpaper, and now makes and sells about 40,000 products, has long recognized some of the deterrents to innovation and entrepreneurship and has worked hard to eradicate them.
Too many rules and too little freedom, for instance.
“If you put people in a pasture and you put a fence around them,” says Lehr, “they become sheep. And how many patents have you seen assigned to sheep?” Recognizing that these deceptively simple things are as difficult to root out of an organization as crabgrass on a front lawn, 3M executives regularly force themselves into a critical review.
Asked for Criticism
So it was that when Gifford Pinchot III, a management consultant who bluntly admits to making his living helping companies emulate 3M, visited the company “to see us about what we were doing right,” Lehr recalled recently, “we turned the tables on him and asked him to tell us what we were doing wrong.”
Pinchot’s four-month audit elicited comments from hundreds of 3M employees and these recommendations: Reduce bureaucracy. Improve opportunities for nontechnical employees to cross divisional boundaries, a hallmark of 3M technical personnel. Increase incentives and rewards. Enforce the 15% slack time commitment. Train more managers to be “innovation sponsors” who champion new products (Pinchot found there are fewer sponsors at 3M than 10 years ago, largely because of increased formality). Reduce the pressure to make a profit quickly and the high personal risk of trying something that might fail.
“Some people at 3M have forgotten this basic premise of forgiving mistakes that is so critical to 3M’s heritage,” Pinchot says.
The innovation audit had its roots in a much more intensive self-examination that propelled Lehr to a wrenching decision in 1981: Tamper with the very foundation of 3M’s success as an innovator, its organizational structure.
The changes were an outgrowth of competition and the chairman’s fears.
“I’m constantly concerned,” Lehr says, “about running out of ideas. What’s our next new product? Why can’t I see it? Who’s going to develop it?” One day about five years ago, “I began to wonder whether we were having effectiveness within our research program,” something that is “very, very difficult to measure.”
Task Force Organized
A task force was organized to ascertain whether “we are moving the way the world is moving, the way business is moving, where we will have to be 10, 20, 30 years from now. I wanted to know, do we have our scientific heads in the sand or were we really out looking for the things the world needed to know?”
Out of that study grew the recognition that 3M’s scientific efforts weren’t as effective as they could be, in part because of a problem with the company’s vaunted organizational structure.
That structure was forged years before decentralization and big-company entrepreneurship became fashionable. 3M, declaring big is bad for responding to customers’ needs, broke itself up into small divisions--each with enough people and sales potential to benefit from economies of scale but small enough that a manager could keep his arms around it.
Each division--a product development lab, really--works autonomously. To get the most from the organization’s creative juices, each division--there are now about 40, three to four times more than most companies its size--does its own research and development, manufacturing and marketing.
In many organizations, that’s as far as decentralization goes. But somebody at 3M had a brainstorm:
To really foster a sense of pride and ownership, why not let the divisions create what amounts to an even smaller company for developing new products? Give them some room to maneuver, let them break a few company rules and see what happens.
Development Unit
The 3M business development unit was born. Its members are responsible for seeing a product through from development to introduction.
The whole team is judged one way: Did the business succeed? If the engineer designs a standout gadget but the marketing people slip up, the whole team fails; not just the marketer. The engineer’s problem becomes the marketer’s problem becomes the manufacturer’s problem.
With this approach, 3M thinks that products more closely resemble what the consumer can use instead of what the inventor fancied the world needed. Products hit the market quicker.
“The importance here is not just the organizational concept of breaking up into different units,” says 3M’s president for U.S. operations, Allen F. Jacobson. “It’s the concept of building businesses based on solving customers’ needs.”
Partly because every division manager is judged as much on his new products as on the division’s financial performance, 3M in each of the last 10 years has derived at least 25% of its sales from products that are no more than five years old. This year alone, Lehr says, 3M has developed 40% more products than last year.
Nor does 3M lose many people. Its employee turnover is among the lowest in U.S. industry and most 3M executives have never worked anywhere else. Even successful entrepreneurs stay, even though their pay is paltry compared to their counterparts at successful start-ups.
Judging from those measures, the 3M system works. So, why tamper with it? Too much duplication of research. No formal mechanism for communication among the product groups. And despite Lehr’s reputation as a visionary, virtually no companywide strategic planning.
Organization Blamed
The fractured organization also got 3M in trouble in the market for communications products generically known as the office of the future. Many thought 3M would be a big player in the business of tying together copiers, word processors, facsimile machines and the like. When it tripped up, critics blamed the company’s inattention to strategic planning and its organization, which inhibited communication across product lines.
Without tinkering with the new business venture format that gives 3M its entrepreneurial flair, the company formalized its strategic planning process, reorganized into four major sectors and parceled out ongoing research projects accordingly. Now, the divisions are responsible for product research extending five years out and central research has responsibility for esoteric testing and long-range research. For research looking out five to 20 years, 3M assigned each of the four sectors a new level of research.
Lehr says he is satisfied with the decision. “We put the fractures back together and wound up with four eggs instead of Humpty Dumpty.”
But recognizing that he had added a layer of bureaucracy to the organization, something that makes entrepreneurship purists cringe, Lehr got a bad case of the jitters.
So in 1984, he commissioned another 3M task force and consultant Pinchot to “let the people who are now operating under this new system tell us whether they have or haven’t lost the freedom to innovate.”
Learned of Barriers
That’s how he learned of the barriers to innovation inside a company where innovation and entrepreneurship is gospel.
Lehr was troubled enough that he sent the task force back to work and mounted a two-year, companywide innovation-awareness campaign.
Giant signs bearing the word “innovation” and its dictionary definition are mounted on easels in the halls and libraries at 3M’s headquarters, a campus-like sprawl of buildings joined by above-ground walkways. There are now black-tie awards dinners for sales and marketing people, never before recognized for their innovative efforts.
Managers at all levels have been reminded that employees in all disciplines at 3M must have the freedom to innovate. And in a company already highly regarded for its proliferation of creative awards for outstanding performance and sources of financial support for new ventures, 3M has established yet another known as Genesis.
When the latest 3M task force surveyed employees, it found that one perceived barrier to innovation was inadequate funding of new ideas. To rekindle in its technical community a spark of innovation and creativity, the company has set aside $500,000 a year for people--in the tradition of 3M, usually a team rather than an individual--with good ideas who can’t find budget support through regular channels.
Grappling with other barriers to innovation identified by 3M employees is proving harder.
Compensation, for example. “How do you adequately reward a typical intrapreneur (an entrepreneur inside a corporation, a word Pinchot takes credit for having coined) so he will go back and invent something else but not bankrupt the company in the process?” asks William E. Coyne, a group vice president in charge of 3M’s health-care products and services.
Built Career Ladder
A better motivator than money, 3M believes, is career advancement and peer recognition. So, this summer, it established what is believed to be the nation’s first career ladder for big company entrepreneurs.
To climb the ladder at most companies, entrepreneurs have to give up their love for inventing things or building a business from scratch and focus on managing people and running large operations. For those who remain entrepreneurs, there is no formal system for promotion. They lose out on the extra compensation and status afforded managers even though their contributions to the company’s fortunes often are demonstrably greater.
3M created the new jobs of venture manager and venture director which combine responsibilities for both innovation and management. Entrepreneurs who demonstrate a gift for innovation and building new businesses are in line for promotion to one of those higher paying and more prestigious jobs--a job level their experience wouldn’t normally justify. The better they perform, the riskier their next assignment and the higher up the ladder they climb.
3M also is concentrating more resources than ever in research and development. It has doubled its research and development investment over the past five years and plowed more dollars into R&D; last year than it paid out in dividends to shareholders.”
“For many companies, that’s an easy place to cut when times get tough,” says President Jacobson. “But we know that when you cut research you’re selling your birthright.”
