3M is one of the most consistent companies on wall street, paying out a dividend for nearly a century. It has a diverse stable of 55,000 products from electronics to health care to renewable energy. 3M has long been recognized as one of the most innovative companies in the world.
It grows and expands its business with organic growth and acquisitions. Organic growth is driven by R&D spending, which has developed products like Scotch Tape, Post-It Notes, and Multi-layer Optical Film. It has a long history of invention and innovation and this has been at the core of 3M’s growth since its inception.
But in the past decade the company has focused more money on acquisitions. Recently, the company has purchased security company Cogent and ceramics maker Ceradyne. These acquisitions, along with dozens of “bolt-ons”, have accounted for a large percentage of the company’s growth since 2000.
But the strategy is shifting to more organic growth, which has been stuck at 3% for the past decade, by increasing R&D spending to 6% of sales by 2017 from 5.3% in 2011.
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Dan Caplinger, a writer for The Motley Fool, says 3M’s slowing growth has caused some to question whether the company is still innovative. With a new chief executive onboard, Fool contributor Travis Hoium recently suggested that new CEO, Inge Thulin, could be the one to get 3M’s research and development engines firing again.
Jacob Andersson, a writer with Seeking Alpha, notes in his post “3M is poised to go nowhere fast” that it has experienced slowing revenue growth and in fact has had a decline in revenues over the past three quarters when compared to one year ago. From taking a look at its past few income statements he believes that 3M is headed for a continued slowdown over the next one to two years.
But what will drive 3M into the future is the ability to reinvent itself by creating new products and innovating current products. The biggest question now is whether invention and innovation are still alive and well at 3M and does it have the 3 cultural traits needed to drive successful innovation and revenue growth.
There is only one way to know if 3M businesses have the relevant culture traits across its diverse product and service categories needed to mobilize organic growth.
Based on our research there are three future-oriented traits that really count.
1. Customer Foresight: Does the company gather information on potential customers? Does it target them based on its opportunity for competitive advantage? Does it understand and invest in meeting future needs of prospective customers? Does it understand and act on unarticulated needs?
Link to Strategy: Strength in this behavioral trait is particularly relevant to a strategy designed to obtain new customers in order to increase the customer base and grow the size of the business.
Driver of Business Performance: This trait measures a business’s ability to acquire new customers and meet future customer needs and specifically impacts innovation, revenue growth and new product and service success.
2. Competitor Foresight: Does the company consider potential competitors when making decisions? Does it identify market shifts in order to identify potential competitors? Does staff feed in competitive intelligence relating to potential new competitors and how they might affect future customer needs?
Link to Strategy: Strength in this trait is particularly relevant to two types of competitive strategies:
a) a strategy designed to defend competitive position against new competitors in the medium to longer term in industries experiencing market shifts or
b) a strategy to increase market share by creating a new competitive advantage in an new emerging market.
Driver of Business Performance: This measures a business’s ability to account for future competitors and their strategies and create relevant new products and value propositions. This behavioral trait impacts innovation and new product success.
3. Peripheral Vision: Does the company monitor, understand, and respond to the political, economic, social, and technological trends emerging on the periphery which could affect its customers and its business? Is all staff encouraged to scan their respective fields of expertise for new ideas relevant to the changing external environment? Does the company act on this flow of new ideas?
Link to Strategy: Strength in this trait is particularly relevant to an innovation strategy reflected in two types of strategies
c) a strategy based on new products and services as the means for growth and profitability
d) a strategy requiring a new business model to cope with disruptive technological changes
Driver of Business Performance: This measures a business’s ability to scan, sense and act on threats and opportunities emerging in its external environment and impacts innovation. Those companies that have it show capabilities of effective innovation that drive sales and profit growth from new market opportunities.
Where should 3M start? It should measure and benchmark these 3 traits in those businesses that really require innovation for substantial revenue growth. It can then act to strengthen those traits needed to fuel successful product innovation.