3M Company - Early 21st Century: Outsider at the Helm for the First Time
Early 21st Century: Outsider at the Helm for the First Time
DeSimone's stewardship of 3M ended at the end of 2000 with his retirement. At the beginning of 2001, W. James Mc-Nerney, Jr., took over as chairman and CEO, becoming the first outsider at the helm in the company's nearly 100 years of existence. McNerney was a 19-year veteran of General Electric Company (GE)—like 3M a diversified, manufacturing-oriented corporation—having most recently served as head of GE Aircraft Engines. McNerney had lost out in a three-way battle to succeed legendary GE leader John F. (Jack) Welch, Jr. One of McNerney's first initiatives was to launch Six Sigma, a quality control and improvement initiative that had been pioneered by Motorola, Inc. and AlliedSignal Inc. and then adopted by GE in the late 1990s. The aim of the statistics-driven program was to cut costs by reducing errors or defects.
McNerney's cost-cutting focus was shown in other early initiatives, and 3M during his first year saved more than half a billion dollars through various efforts, including the layoff of 6,500 of the company's 75,000 workers and a major streamlining of purchasing functions. Another initiative, dubbed 3M Acceleration, involved expending more product development funds on the most promising ideas, dropping weaker ideas earlier in the process, and in this way getting the best products to market much faster. In implementing this and other initiatives, most of which focused on making the company more efficient, McNerney had to be careful not to drive out 3M's culture of innovation on which both the company's fame and its long history of success rested. Nevertheless, one apparent victim of McNerney's efficiency drive was 3M's revered "15 Percent Rule," which had allowed its employees to spend up to 15 percent of company time on independent projects, a process called "bootlegging" or "scrounging." Although the rule still existed in theory, it was increasingly difficult to act upon it within the evolving culture at 3M, which was seemingly becoming more short-term oriented.
Early in 2002 the company finally adopted its nickname as its formal moniker, officially becoming 3M Company. Acquisitions were coming more to the fore under McNerney, and the most significant deal of the early 2000s—in fact, the most expensive acquisition in 3M history—was the December 2002 purchase of Corning Precision Lens, Inc. for $850 million. The acquired unit, which was renamed 3M Precision Optics, Inc., was the world's leading supplier of optical lenses used in projection televisions. Overall, financial results for 2002 were encouraging, particularly given the difficult economic environment. While revenues increased only marginally, net income increased by about 20 percent after excluding nonrecurring items. That year, 3M paid a dividend for the 87th straight year and increased its dividend for the 45th consecutive year.
At the beginning of 2003, 3M reorganized yet again, this time attempting to gain improved access to larger, highergrowth markets. The company's largest division—Transportation, Graphics, and Safety—was divided into three units: Display and Graphics; Safety, Security and Protection Services; and Transportation. In addition, the Specialty Material segment was split up, with the unit's consumer-related products shifted into the Consumer and Office unit and its industrial products shifted into the Industrial unit. Overall, this increased the number of business units from six to seven; it also made the Health Care unit the company's largest in terms of both revenues (22 percent of the total) and earnings (27 percent).
In October 2003, 3M implemented a major realignment of its research and development operations. Fourteen separate technology centers were closed, with the scientists at these centers shifted either to a newly formed Corporate Research Laboratory or to the company's 40 divisions, where they would be able to work closely on products within those divisions. The main goal of this R&D shakeup was to move more of 3M's R&D resources to the divisions where the products were actually developed and thereby bring the scientists closer to customers. This was the latest initiative in McNerney's attempt to, in the words of Jennifer Bjorhus, writing in the Saint Paul Pioneer Press, "[turn] a slightly ossified manufacturing giant into a nimbler growth machine." It was clear that 3M was changing—and in some very dramatic ways—but only the passage of time would be able to show whether the company's longstanding penchant for innovation would survive in the new environment.
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