June 02, 2011

3M: A struggle between Efficiency and Creativity

In the late 1990s, 3M was facing a huge crisis of large costs. James McNerney was then made the CEO of 3M in such a time. It was the first time an outsider was made the CEO in the company’s 100 year long history. Right from the beginning of his stint as the CEO, McNerney initiated cost cutting measures in the organization. These included downsizing the company by removing 11% of its workforce. He also intensified the performance review process and tightened the purse strings.  He also imported the Six Sigma process which was just then embraced by GE. Thousands of the staff became black belts. The plan appeared to work: McNerney jolted 3M's moribund stock back to life and won accolades for bringing discipline to an organization that had become unwieldy, erratic, and sluggish.

 When McNerney left the company abruptly after four and a half years, the company was faced with the question whether the large cost cutting measures actually made the company a less creative one. George Buckley was roped in as the next CEO. He dialed back many of the initiatives taken by McNerney. The new CEO felt that invention by its very nature is a disorderly process.
The tension between innovation and efficiency is felt in every organization and by every CEO in the world. Once the organizations have become profitable global competitors, the onus shifts to growth and innovation. While process excellence demands precision, consistency, and repetition, innovation calls for variation, failure, and serendipity.
Buckley has loosened the reins a bit by removing 3M research scientists' obligation to hew to Six Sigma objectives. There was a one-size-fits-all approach to the application of Six Sigma as the initial implementation got under way. As a part of the cost cutting drive introduced by McNerney there were metrics established across the organization and some of them did not make as much sense for the lab as they did other parts of the organization. Metrics involved keeping track of how many black-belt and green-belt projects were completed.
To help get the creative juices flowing, Buckley has opened the treasury. There was an increased spending on R&D, acquisitions, and capital expenditures. The overall R&D budget grew by 20% that year to $1.5 billion. Even more significant than the increase in money was Buckley's reallocation of those funds. He funneled cash into the core areas of 3M technology from abrasives to nanotechnology to flexible electronics.
Quietly, the McNerney legacy was revised at 3M. While there is no doubt the former CEO brought some positive change to the company, many workers said that they were reinvigorated now that the corporate emphasis has shifted from profitability and process discipline to growth and innovation.

Karthik KVR has done his B.Tech. in Mechanical Engineering from National Institute of Technology, Surathkal and can be reached at kvrkarthik at gmail dot com

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