understanding strategy in innovation and technology oriented business

ESSENTIALS OF STRATEGIC MANAGEMENT 1

Understanding Strategy in Innovation and technology oriented business

Team members - MUPPANI PRUDHVI 2011C6PS665HSAKSHI KHANDELWAL 2012A1PS428HVALLEM VEENASRI 2012A1PS840HSURE SAI ABHISHEK 2012A3PS242hDURGA RAO GUNDU 2012A3PS255H


What is innovation ???Innovation is the process through which economic and social value is extracted from knowledge through the

generation, development, and implementation of ideas to produce new or improved strategies, capabilities,

products, services, or processes.


Key topics of focus Developing and implementing innovation and technology strategies Increasing organizations' capacity for innovation Organizing innovation , research and development (R&D) effectively and efficiently using lean processes

Identifying, evaluating and exploiting new technologies Setting up supporting technology and innovation networks Intellectual property: IP for innovation IT support for R&D, technology and innovation management


3M is a diversified technology company serving customers and communities with innovative products and services. Each of their businesses are committed to make customers lives easier and better.


Mission Statement“To solve unsolved innovatively”

The mission statement clearly states that the company is not just making and selling innovative products, but it is solving the customer needs in the most innovative way. It is this mission statement of 3M which helps in bringing the strategic objectives and specific target performance


Vision Statement

3M Technology Advancing Every Company3M Products Enhancing Every Home3M Innovation Improving Every Life


Values Act with uncompromising honesty and integrity in everything we do. Satisfy our customers with innovative technology and superior quality, value and service.

Provide our investors an attractive return through sustainable, global growth.

Respect our social and physical environment around the world. Value and develop our employee’s diverse talents, initiative and leadership.

Earn the admiration of all those associated with 3M worldwide.


Segmentation Health CareIndustrial and TransportationDisplay and GraphicsConsumer and OfficeElectro and CommunicationsSafety, Security, and Protection services


Target Group Customers using industrial packaging Industrial users of polymer and adhesives Users of interior designing components Pharmaceuticals orthodontic practitioners users of stationeries and homecare products computers and TV manufacturers; enterprise, military, aerospace markets

PositioningCreativity and process Innovation in various fields


SWOT ANALYSIS Strengths Strong research and development capability with over 80,000 employees worldwide

Diversified business with over 55000 products in its portfolio It has operations in over 65 countries and commands a strong brand name

Robust cash position and financially improving performance over the years

Its product reach through retailers and distributors is in nearly 200 countries

CSR activities for environmental benefits


Weakness Environmental issues and litigations have sometime affected the image

Being a market leader, any mistake hurts the brand image world over

Lot of data or virtual warehousing of data is not being well integrated.


Opportunity Acquisitions to strengthen existing businesses More global presence through tie-ups and diversification in businesses can lead to more growth


Threats Unfriendly environmental regulations and strict government policies can affect position

Intense competition can lead to loss of market share Risks associated with conducting business outside the US


Sales of 3M


Porter’s Five forces Model

Industry

Rivalry

Threat of New

Entrants

Power of buyers

Power of supplier

s

Threat of

Substitutes


Business Description MAIN INDUSTRY

New Technology Development

6 SUB INDUSTRIES: Health Care Industrial and Transportation Display and Graphics Consumer and Office Electro and Communications Safety, Security, and Protection services


Threat of New Entrants Main Industry LOW As the Capital investment is very high most of the new entrants can’t afford such large amounts.

Sub Industries HIGH As these industries are segmented industries other industries which are focused as well as well equipped firms will have a significant probability of entering the market which makes the intensity at high level for example a retailer may sell the product at relatively low price than 3M


Power of Buyers Main Industry LOW

Sub Industries LOW

As 3M produces innovative products the customers are ready to pay premium prices which makes the power of buyers low in both industrial cases.


Power of Suppliers Main Industry LOW As 3M provides a huge investment on R&D and also has a large possibility of buying raw materials from various suppliers the power of the suppliers here is low

Sub Industries LOW As these industries are segmented industries it has various inlets from the suppliers which makes the power of suppliers here low


Threat of Substitutes Main Industry LOW Competition based on new product development As 3M has the best innovation and provides expenses in R&D and there are few who do that at large scale the threat is low Sub Industries HIGH Competition based on Commercialization As sub industries are segmented industries the local level retailers have a edge over the 3M as they can provide more focused products that satisfy customer needs so the threat of substitutes is high at the low level.


Intensity of Rivalry Main Industry LOW

Sub Industries MODERATE Competitors Honeywell General Electric DuPont Johnson & Johnson


Open Innovation at 3MIdea Generation Selection Execution Commercialization

Ideas and innovations

from inside the organisation

patents and innovations

from outside the organisation

SelectSuccessful

Ideas

Prototypes and

Production

IP

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Product brought

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Internal Analysis – Resource Based View 3M’s core competency and capabilities are due to its valuable tangible and intangible resources

3M has an excellent intangible resources which lead the company to scale greater height today

3M has a wonderful organizational culture which develops the innovative skills of an employee as well as entrepreneurship capabilities

The effective functional strategies help the firm to create best and innovative products As there is a saying” innovation is distinguished from invention by the fact that innovation is usually applied successfully in practice.”

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Intangible Resources of 3MHUMAN CAPITAL Professional Development New skills and Knowledge Commitment Collaborativeness

ORGANIZATIONAL CAPITAL Business Philosophy - ” Never kill a new idea, even if it looks like a foolish one”

Decision making and working style

Institutionalized knowledge

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Intangible Resources of 3MRELATIONAL CAPITAL Company – Stakeholders Relationship & Trust

SYMBOLIC CAPITAL Reliability Trustworthiness Image and reputation

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Capabilities and Products

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Core-Competency

We can consider that 3M’s entrepreneurial culture is its core competency, since 3M has been consistently heralded within both

the scholarly and practitioner communities as a model for entrepreneurial development.

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Firms with entrepreneurial cultures out-perform their competitors which has five dimensions: Autonomy – Employees are encouraged to make a business case to their proposal and compete for their share of organizational resources. 3M’s is often viewed in the academic literature as a good example of how autonomous employees can add value to a company.

Innovativeness – Management embraces the development of new products. Proactiveness – Research and Development is a driving value within the organization

Competitive aggressiveness – The company is willing and sometimes eager to engage the competition.

Risk taking – There is a systematic internal process in place to delineate ideas from opportunities

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3M’s ApproachENTREPRENEURIAL APPROACH 15 Percent Option

30 Percent Rule Seed Capital

Tolerance for Failure Rewards for Success R&D Spending

DESCRIPTION Certain employee encouraged to spend up to 15% of their work week initiating and developing projects of their choice.

30% of business unit revenue should come from products introduced within the last four years

Revenue provided for promising ideas

Failed projects will not negatively affect an employee’s job

Employees and departments receive financial rewards if their products reach sales goals.

3M spends 6-7% of sales on R&D investments

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Value chain analysis Of 3M

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Value chain analysis

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Strategic decisions in the value chain

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Resources

Vertical integration

Economics of scale

Economics of scope

Location Linkages

Product design and development

↑(R&D)

_ _ ↑(R&D management)

_ Marketingafter sales

Supply ↑(employees and patents)

outsourced _ ↑(ideas)

_ Product design development

Operation _ outsourced _ _ ↑(as it is outsourced)

Product designafter sales

Marketing and sales

↑ (promotional activities)

both _ ↑(same website)

_ product design development

After sales service ↔ _ _ _ _ product design development

Human resources _ _ _ _ _ Operation

Infrastructure ↑(R&D enhances IT)

_ _ _ _ Strong with all

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Open Innovation at 3MIdea Generation Selection Execution Commercialization

Ideas and innovations

from inside the organisation

patents and innovations

from outside the organisation

SelectSuccessful

Ideas

Prototypes and

Production

IP

Lice

nsin

gIN

IPLi

cens

ing

OU

T

Product brought

to market

Tech

nolo

gySp

in-o

ffs

DevelopNew ideas

Tech

nolo

gy

Lice

nsin

gIN

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PRODUCTS & SERVICESOur inspiration comes from listening to customers and creating new products and solutions for the challenges and opportunities you face.

Displays & GraphicsWe’re a world leader in films that brighten the displays on electronic products, such as flat-panel computer monitors, cellular phones, PDAs, and LCD televisions.

Manufacturing & IndustryOur innovative products and services help manufacturers improve their businesses. With a global network, we meet needs of both multinational and local customers.

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Electronics, Electrical & Communications3M is a leading supplier of innovative solutions to the electrical, electronics, and telecommunications industries.

OfficeWe continue to rejuvenate products for the office. An example of this is the Post-it® brand -- notes, flags, easel pads … today more than 1,000 Post-it® products are sold in more than 100 countries.

Safety, Security, and ProtectionWe produce products that increase the safety, security, and productivity of workers, facilities, and systems around the world.

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Health Care3M Health Care is committed to providing the health care community with innovative solutions, based on 3M's diversified technologies, that help improve the quality of life.

Transportation IndustryWe provide high-quality abrasives, tapes, films, adhesives, and specialty materials for the manufacture, repair, and maintenance of autos, aircraft, boats, and other vehicles.

Home & LeisureSome of the world’s best-known consumer brands, Scotch®, Post-it®, Scotch-Brite®, and Scotchgard™, are household names. 3M people find ways to make life better and easier.

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Operation From that factory, the work-in-process was shipped 600 more miles to Minneapolis, where a contractor applied the 3M logo and the WIP was sliced into the right sizes. From there, another 200 mile trip to a contractor that added the hooks and did the final packaging. 1300 miles of supply chain travel in total for a product that just sells for a few bucks

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Linkages Also in developing products, researchers collaborate with Sales and Marketing to identify customer needs and then often to work with customers in the development process

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Shop3M.com

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usefulness of the features provided convenience of the features on this site number of clicks to get where you want on this site how quickly pages load on this site If you heard about this website from a social network, please specify the site (i.e. Facebook, Twitter)

Which best describes your role in visiting this site today?

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Business level strategies

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Market SegmentationMarket Segments

Transportation

Display and Graphics

Health Care

Office Govt. Safety and security

Electrical Manufacturing and industry

Work and leisure

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Cost leadership strategy Another common business level strategy that the 3M Company is using is relative cost leadership not an absolute one.

It could be asked as a controversial question why 3M has no absolute cost leadership with this big size and global presence.

The answer is because the Company has a diversified business in at least six different areas and to be a cost leader in all of those markets is a big deal therefore, 3M has relatively low cost in any of the businesses .

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Differentiation Strategy Being the top most innovators in the world.. They follow some of the innovative strategies :

Rule of 15% : “At 3M we live by our wits”. Rule in R&D , to spend 15% of lab time in research of your choice. Increases innovation speed. 25/5 rule : financial strategic decision. 25% of the company profits should come from products that are 5 years old.

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30/4 rule : 25/5 rule revised. Now 30% of the profits should come from products 4 years old. Done to increase innovation at faster speed.

7 percent rule : from every 1 dollar sales, 7% will be spent on R&D . Which gives 28% more sales due to large spending on R&D.

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Awards and Recognitions The work of outstanding technical employees is recognised by the 3M Carlton Society, this is voted on by peers.

Employees that create products which sell $4 million or more are awarded the prestigious Golden Step Award

Employees have a choice to work on a management or laboratory career ladder, no employee is forced to take a management role if they don’t wish it

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Focused DifferentiationAmerica Europe Middle

East & Africa

Asia & pacific

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Strategic Groups 3M being the leader in almost every industry, has some of the major competitors :

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Mature Industry

•3M is definitely in the Mature phase of industry life cycle. It launches products in various areas every year and also simultaneously remove the unwanted products in the market.

•Innovative Products : able to persuade consumers to pay for benefits. The ability to do so usually depends on the products they sell.•Brand loyalty : they have been working and giving innovative products back to back . Which has imbibed them as brand in minds of costumers.•Using IT and Internet : shop3M. com

Fragmented Industry turned to consolidated

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Deter entry to rivals Product proliferation : being in almost every sector of the world like automation, electronics, healthcare, finance etc. It has filled all the niches available to it by launching diverse products in every area.

Maintain Excess capacity : To survive in industry, they need to produce in bulk. So they produce their products in bulk so as to prevent rivals to get a place in the industry.

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Non- Price Strategies Product Development: involves creation of new products to existing markets. For eg: taking adhesives in manufacturing industry it started with masking tapes, spray adhesives, sealants and many other products.

Market Development : as an example focusing on adhesives in manufacturing industry, they diversified their products to sticky notes, glues which could be used by students and general public

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Corporate Level Strategies

Corporate level strategy concerns how a diversified company intends to establish business position in different industries and the actions and approaches employed to improve the performance of

the group of businesses of the company

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Decisions at Corporate level

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Cross Business Fit of 3M 3M was Initially only into abrasive and tape business. Slowly they started to make products from altogether different sector but the only common thing was all products needed innovation.

The common thing innovation acted as the fit for their business. Thus, 3M kept on increasing products into their product portfolio which required innovation.

To do this effectively they converted 3M into a diversified organization with 6 different divisions.

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Size of diversification

3M didn’t diversify their business beyond certain limits. When they found that there were products which were not profitable, were not

taken for research in their lab center. Thus they limited their diversification into 6 major business classes.

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Unrelated Diversification of 3M The businesses in which 3M diversified were not related to each other in many ways but were common in certain aspects , i.e. all products made were made based on the needs of customers which were unmet and meeting those needs required innovation.

3M has 6 major businesses which are not related to each other. They have different departments to take care of each unit. The 6 businesses are further divided into more than 35 units which take care of different brands and product lines.

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Geographic expansion

3M has vast a geographical expansion. It operates in more than 65 countries having 80,000 employees worldwide and 6,700researchers contributing to the R&D of the company with their innovations.

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Strengthen Position in Existing Business By 3M

3M strengthens its existing businesses by continuous innovation under the same product line which either adds some new feature to the product or changing the product to an extent that it meets some other specific need.

This decision is taken care of at the business level but the corporate policy is clear that there has been strengthening of the existing business.

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Positioning in New Industry In 3M the decision of acquisition to enter a new industry is taken care at the business level and not at the corporate level.

This is because of the reason that 3M believes that no one can understand their business better than the division itself. And thus they know what acquisition they should go for.

The decision is strictly taken on the basis of whether 3M already owns the technology that the company they are going to acquire has. If the answer is no, they will go for the acquisition or else no

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Diversification in weak and unattractive business This decision, at 3M, is again taken at the division level. If the technology in certain business is out dated and is of no use to 3M they will divest in that business and go for a new one. This strategy helps them to think only about the new things to bring in and not to ponder over a business not looking good in future

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Global Level Strategies Of 3M

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Localization Localization is The Key Strategy To Penetrate And Grow In International Markets

3M enters new international markets by exporting its products to that market.

it focuses on localization of the supply chain by using locally sourced raw materials, to manufacture products in local plants and selling through local distribution channels.

Identifying and developing products to cater to local requirements has also helped 3M increase its presence in global markets.

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Efficiency By 3M Consolidated Supply Chains Help Increase Efficiency And Bring Down Costs

3M has deployed 'Supply Chain Centers of Excellence' globally to help consolidate and manage its supply chain with a regional focus rather than country by country.

promote better management of manufacturing & engineering activities and the distribution channels in a more effective way.

As a result, there are improvements in working capital requirements, overhead costs and tax rates.

Switzerland, Singapore and Panama that cater to EMEA, Asia-Pacific and the Americas respectively.

These centers have integrated and dedicated Enterprise Resource Planning solutions like SAP to maximize productivity and efficiency within the region.

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3M in developing and developed Markets 3M's Wide Range Enables It To Establish Presence In Developing And Developed Markets

3M has a wide range of products that can cater to every phase of a markets' economic growth.

Developing countries are more focused on infrastructural growth and manufacturing operations, whereas developed countries purchase more consumer and healthcare goods.

In 2012, developing markets contributed 39% to revenues in 3M's Industrial, Safety & Graphics, and Electronics & Energy Businesses, and 20% in the Consumer and Healthcare Businesses.

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The bottom line Statement of 3M

“ Research is the transformation

of money into knowledge. “ “Innovation is the transformation

of knowledge into money.“

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