A Case Study - 3m and Norton

3M and Norton

Evolutionary vs. Classical Strategic Management

A Case Study from Jim Collins & Jerry Porras, Built to Last, 1997

Questions for Discussion

(1) 3M’s strategy contradicts nearly everything that an MBA program is supposed to teach you about planning and control. Explain:

a. How would marketing studies and product planning benefit 3M in producing more successful products?

b. How 3M can expect to survive in the long run if it is unable to compute the return on investment and cash flow of each project in which it invests?

c. Whether or not 3M actually has a �stealth’ planning system?

d. What is the risk associated with 3M’s strategy?

e. What alternatives can produce the same return without the risk associated with 3M’s strategy?

(2) 3M seems to be quite lenient with managers whose projects fail to meet ROI targets. Can you think of a way to prevent 3M’s product failures and keep generating profitable products? What would such a strategy look like?

(3) Many of 3M’s products seem trivial (such as Post-it Notes), and accidental. Has 3M just been lucky in the past? Would it be able to improve its performance if instead it targeted particular markets and products, and directed its engineers to develop products specifically that would sell? What would such a strategy look like?

(4) 3M’s relaxed environment is likely to attract freeloaders and deadwood to their staff. How should 3M manage these problem employees? Is there a Human Resources strategy that can prevent the accumulation of non-performing employees in a relaxed, self-motivating work environment like 3M’s?

(5) Classical strategy involves detailed formulations of mission statements and strategic plans, and the organization of employees to implement these plans. Why do Classical strategies fail to work in companies like 3M and Norton?

(6) How could Norton have modified its strategy to compete successfully with 3M?

Evolution at 3M

We like to describe the evolutionary process as "branching and pruning." The idea is simple: If you add enough branches to a tree (variation) and intelligently prune the deadwood (selection), then you'll likely evolve into a collection of healthy branches well positioned to prosper in an ever-changing environment. Jim Collins & Jerry Porras “Built to Last” 1997

The central concept of evolutionary theory—and Charles Darwin's great insight—is that species evolve by a process of undirected variation ("random genetic mutation") and natural selection. Through genetic variation, a species attains "good chances" that some of its members will be well suited to the demands of the environment. As the environment shifts, the genetic variations that best fit the environment tend to get "selected" (that is, the well-suited variations tend to survive and the poorly suited tend to perish—that's what Darwin meant by "survival of the fittest"). The selected (surviving) variations then have greater representation in the gene pool and the species will evolve in that direction. In Darwin's own words: "Multiply, vary, let the strongest live, and the weakest die."

Now consider a company—say, American Express—as analogous to a species. By the early twentieth century, American Express found its traditional freight business under siege. Government regulators eroded the company's monopolistic rate structure and in 1913 the U.S. Post Office began a competing parcel-post system. Profits fell 50 percent. Then in 1918 the U.S. government nationalized all freight express businesses, creating a cataclysmic industry change.20 Most freight companies disappeared as the government snatched away their core business. But for American Express, its experiments in financial and travel services (described earlier) proved to be favorable—albeit unplanned—variations that were better suited to the changed environment than its traditional freight business. These variations were then selected as the path to evolve beyond its traditional—and now obsolete—line of business and on which to base its future prosperity.

To this day, Johnson & Johnson consciously encourages branching and pruning. It tries lots of new things, keeps those that work, and quickly discards those that don't. It stimulates variation by fostering