MTI 3M Optical Systems: Managing Corporate Entrepreneurship

Anto Abraham Arpit Rastogi Ritesh Jain Sandeep Tripathy Shalina Bhatia Arun Ravindran

073 077 112 114 119 138

Suman Saha Shikha Gupta Suja Barua Suseendran Vishal Gagrai

245 300 306 308 316

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Founded in year 1902 Business was highly diversified Sales of $14 billion 3900 profit centers, 47 divisions and operations across 57 countries Andy Wong – manager of Optical Systems Target:25% sales from last 5 years product

30% sales from last 5 years product

Wong faced the problem of getting the expenditure sanctioned from the senior management

Optical Systems has been losing money since 1979 as a business unit

Various layers in the approval process

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Started as a mining company and then shifted to sandpapers Two basic products – Waterproof Sandpaper

Adhesive Tape

Large R&D infrastructure was developed and 6-7% of sales were incurred on R&D  Implementation of the “15% Rule”  Company had the objective of a 10% sales growth and each business unit was expected to contribute to that 

Operations became more globalized As a result the management was more centralized and disciplined After 1986 Alan Jacobson took over as the CEO The traditional approach changed into a more technology driven approach and more of financial commitments were made In 1991 DeSimone took over as the CEO Focus was on the new innovations which was 3M’s legacy

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Optical system business unit developed in 1979 Main objective was to exploit the light control film The optical microlouver technology was expected not to meet the targets Hence this was collated with other optical technologies In spite of that the unit was losing money at a rate of $3-$5 million every year Downsizing in terms of financial commitments were made

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Focus shifted more towards developing a core technology and unique competencies Presently more focus was on new inventions rather on operation realities Hence a three year manufacturing strategy was developed Process Streamlining

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Process Streamlining

Extrusion Process

Manufacturing costs b/w 1987-90 were expected to come down by 50% The OS unit was merged with SSSD

Main challenge was to address the declining sales volume  No new applications were developed to replace the od ones Three Initiatives taken by Wong – 

From Ammunition to Aiming Device

Tightening the Standards

Testing the Business

Need to capture more external opportunities by using the internal assets As a result Wong needed a marketing manager Rob Noirjean joined as marketing manager in 1990

Major potential markets were identified – for e.g. Museum lighting, ATM, Government computing etc Each segment had some problems – as a result Rob identified a new segment as the “corporate computing”

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Corporate computing opportunity  Computer privacy filter for general office applications  An entirely new market segment  Sell through computer supply distributers

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Pricing strategy  Retail price to be $140  100% mark up for distributers

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Sales reached $10,000 in the first month

Hurdles Growth stalled due to two basic problems: - Requirement of different sizes of screens - Perceived value of the screen costing over $100 Screen created an uncomfortable glare

Way forward The new multiprotection filter : -Reposition to Antiglare filter -Total market potential of $32.7 million -CAGR of 20.3%

Development of the product concept Feasibility Assessment Development of Business Plan

Implementation of the plan

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Antiglare filter market estimated to become $70 million by 1991, growing at 20 % annually Four major players in antiglare filter market  Acco ▪ Strong supplier to office supply market, have good channel access ▪ Market share of 14%

 Polaroid ▪ Sell low cost plastic filters to both computer and office supply distributers ▪ Market share of 10%

 Fellowes ▪ Strong supplier to office supply channel, don’t have privacy feature ▪ Market share of 13%

 Optical Coating Laboratories ▪ Market leader with 37% market share ▪ Doesn’t have a privacy filter and distribution position

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3M’s Advantage over its competitors  Unique privacy filter feature  Distribution channel to office supplies through COSD

& DSMD 

Additional features  Electrically conductive coating which would prevent dust

buildup on the screen

 Block E field electromagnetic radiation

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Two development subteams were formed  One to explore the feasibility of glass specification  Other to explore the feasibility of screen frame

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Developed a proprietary process for laminating coated glass with microlouver film Designed an inexpensive frame with all the competitor’s features

Derive the cost estimates and sales forecasts to the product concepts and design parameters  Development of risk assessments – categorizing the various elements into various risk zones and building mitigation plans  Forecasted a sale of $1 million in first six months – faced a good deal of skepticism 

Postpone or reject the proposal Try to fund it within the unit

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Outsource a standard frame Cut inventory Take incremental approach

Try to get divisional funding Take the proposal to one of the mentors

Arguments (For)

Comment

2 previous market failures

Counter-argument •Product has been transformed, after analyzing the market and identifying an unmet need •Exploratory nature of R&D – high risk, high return – 3M has been allowing several years of research (e.g. post-it notes)

Financial viability questionable , overoptimistic forecasts

Support-argument Price Distributor prices of similar products •Anti-glare screen: $40.77; Anti-glare + anti radiation + glass: $54 ( Average over all such products available in the market) •Distributor price for multi-purpose filter = $79 Sales (quantity) – There is no basis given in the case for such optimistic sales (apart from the project team’s belief) More realistic estimates of price and sales need to be figured out.

Argument Strength

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Incremental approach + operational measures Arguments

Comment (Support-argument)

Argument Strength

(Against) Slow process Sumitomo Chemical may launch -> fear of losing market a similar product (though not as share to competitors good as the one from 3M) (Against) More costly to acquire resource on its own

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Arguments (For)

Comment (Counter-argument)

Less costly to access existing resources rather than trying to acquiring them on its own

Hard to convince and get support from top management as well as managers of other divisions, given the history

Argument Strength

Arguments

Comment (Counter-argument)

(For) Personal contacts can be leveraged to get top management support

•It is essential to get support from other divisions like COSD and DSMD, so top management support will not suffice •Mentor will be conscious in approving the project due to profitability concerns

Argument Strength

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Better forecasts  Conduct market research to find out the

appropriate price premium and expected sales  

Build a stronger business case, backed by realistic data Stronger case will help the unit to get support from other divisional managers and topmanagement

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OS had low credibility

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Situation in OS contrasted sharply with other divisions nominated to the Pacing Program

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Wong championing two risky proposals  Privacy screen  Brightness enhancement product

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Wong’s personal evaluations

Encourage and nurture innovativeness

Empower to identify opportunities

Set standards for performance

Paul Guehler

Balance between performance and support

Approve

More disciplined approach (3-phase review passed) Highly Committed team Funding relatively low ($750K) Future of OS Unit at stake (promising project in pipeline)

Reject

Two previously unsuccessful launches Ideal time for a harvest strategy Other managers in div. highly skeptical 2 of 4 BU’s in SSSD nominated for the Pacing Program OS losing $3 mn on sales of $10 mn

How does Wong's effort fit within the 3M culture in 1992?

Scenario

• Andy Wong joined the OS division in 1984 • The unit was losing $3 to $5 million per year & morale was low due to downsizing Actions

• Identified micro replication as the core technology of the unit • Used formal & informal channels to recruit specialists • Streamlined processes and emphasized operating realities • Developed a manufacturing strategy that reduced costs by 50% and increased quality

Scenario

• Wong took over as the business manager in 1989 • Current products were deemphasized since they were not profitable Wong’s Actions

• Recognized that they had “the ammunition” but not “an aiming device” • Sought a professional marketing manager to address the situation and was asked to give up a technical position in exchange • Hired Rob Noirjean through internal recruitment to focus the technology on the right products

Scenario

• Paul Guehler replaced Rob Mitsch as divisional vice president • Threatening & disciplined environment • ‘Give and Take strategy’ • Reduced resource allocation • Focus on 3 opportunities • Computer filters • Electronic display enhancement • Automotive optics • Wong’s personal evaluations had been low for the past 3 years

Wong’s Actions • Four main responsibilities • Attract & retain good people • Build motivation & commitment • Ensure progress towards objective • Earn support of top management • Adopted a 4 phased development approach • Drew in experts from various divisions and did more with less • Continued to support the privacy screen proposal & another risky project for electronic display enhancement

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Changing management style – more efficiency and profit driven (short-term) against traditional growth-driven style

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Difficult targets for all business units, irrespective of their state in maturity cycle

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Paradox of exploitative and explorative efforts (efficiency vs. innovation)

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Solution – ambidextrous organization

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Different set of rules for difference business units depending upon their position in maturity cycle

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Technology Drivers

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High Focus on Innovation  Portfolio of large number of products  25% of sales from last 5 years’ products  R&D 6-7% of sales

 “Pacing Program”

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Organizational Culture  Employees devote 15% time on non-program

activities  Products belong to divisions but technology to the company  Extensive informal networks  Cross-divisional transfers

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The 3M growth process Creative Developments

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Project Teams

Departments

Divisions

Extensive Management Support  Commitment not to damage careers of project

champions  Balance between discipline and flexibility  Committed to create an entrepreneurial environment

Feature

Comment

Transferable

High Focus on Innovation

-A strong Innovation focus can be developed - Increased R&D spending

Yes

Organizational Culture

-Difficult to replicate the strong informal, crossdivisional network - Huge amount of time needed to develop a strong organizational culture

No

3M Growth Process

- Unique process

Difficult

Extensive Management Support

-Leaders with an uncanny ability to identify creative projects that can add value

Yes