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3M Taiwan: Product Innovation in the Subsidiary

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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,
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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
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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.
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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.
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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.