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3M Takes Aim with Reinvigorated R&D

Rifle, not shotgun approach, may allow 3M to hit commercial targets more often

January 12, 2004 | A version of this story appeared in Volume 82, Issue 2

Ihlenfeld reorganized and flattened 3M's R&D.
Ihlenfeld reorganized and flattened 3M's R&D.

Late in september, 3M reorganized its research organization to put scientists in closer contact with the firm's 40 business units. Jay Ihlenfeld, 52, a senior vice president who took charge of R&D more than a year ago, tells C&EN that the shift recognizes the realities of how the 6,500 scientists at 3M work with its businesses.

The change didn't happen overnight. It was back in March 2003 that Ihlenfeld had a chat with W. James McNerney Jr., 54, 3M's chairman and chief executive officer. Ihlenfeld says McNerney asked him to look at the firm's technology center organization and see whether "we are connected the way we need to be and whether we are developing the technologies that we need." After a number of internal meetings with R&D managers and employees, Ihlenfeld had a plan.

The plan he put into place last fall was to disband 12 corporate technology centers that were built over the past 10 years and concentrated at the firm's 425-acre corporate campus in St. Paul, Minn. About 400 scientists with expertise in technologies such as adhesives, precision coatings, and microreplication moved into research units connected to 3M's businesses. The remaining 500 of the 900 technology center scientists moved into corporate research, where their focus is on advanced materials, processes, and systems.

As Ihlenfeld, a chemical engineer with a Ph.D. from the University of Wisconsin, Madison, puts it, 3M's reliance on the technology centers led to a shotgun approach to new product development. "We had a tendency to develop products, put them on the market, and then see how they would do," he says.

That tendency had led to many innovations, not to mention $16.3 billion in sales in 2002 and $2.1 billion in net income. But McNerney and Ihlenfeld believed 3M could do better with a targeted strategy. Ihlenfeld says the firm will now take more of a rifle shot approach to new technology development. Along with better market research tools, 3M managers want to have "a pretty good idea of what a new product can do before we commit a lot of resources to developing it," Ihlenfeld says.

Aligning technology experts more closely with the business units will also put them in closer touch with customer needs. And knowing what those needs are gives 3M scientists a sort of "hunting license," he says, to get them focused on specific targets. It's what scientists want and need to know so they can succeed in satisfying customers more often, he says.

THE MOVES flatten the R&D organization--leaving two levels of R&D where there were three levels before. Remaining now are the business-linked R&D groups with 5,900 scientists focused primarily on product developments connected to the 40 businesses, and the corporate research organization with 600 scientists who develop new technology that can be leveraged across all of 3M's businesses. The intermediate technology center level--originally intended as a repository of expertise--is gone.

"Our technology centers had become somewhat disconnected from the realities of the marketplace and had a hard time transferring technology," Ihlenfeld explains. The technology centers were intended to be places "where we were building new technologies. But we found that we had a number of people in those technology labs on loan to one or another of the 40 business product development labs.

"We thought, 'It's not efficient for people to have two homes.' So we put people where they can best contribute and focus their energy," Ihlenfeld says. "If a certain business needs technology that is unique to itself, we want to develop the technology with that business," he adds.

The new R&D organization achieves "a better balance between technology push and technology pull," Ihlenfeld says. Where R&D in the business units responds to the "technology pull" from customers, the enlarged central R&D organization will "push" into new technologies that could in the future enhance 3M.

In one sense, 3M's new central R&D organization is like the central R&D that existed 20 years ago, Ihlenfeld explains. Expect brand new opportunities to come out of it, he says. But unlike the old central R&D organization, the new one is in close contact with 3M's business units.

Scientists who used to head the technology centers now act as chief technology officers to one or another of 3M's seven broad business organizations such as health care, industrial, and transportation. But they also report to Ihlenfeld and participate with him in a corporate technical operations committee that decides on technology capabilities the company should pursue and sets corporate research policy, Ihlenfeld says.

Lou Cristan, director of 3M's performance materials business, says that for him, the firm's transition to a new technical organization has been seamless. He can't think of any adverse impact on his unit, which sells products such as fluorochemical surfactants, ceramic fibers, and glass microspheres. He has a laboratory peer within the unit who is a member of the leadership team that "makes sure we are listening to customers," he says.

3M's strength now, as before the R&D reorganization, Cristan says, is its "networked organization," which allows business units to pluck expertise from wherever it's needed. "Our commercialization teams have several scientists who are not hardline members of the division," he says. "They are part of corporate resources."


Headquarters: St. Paul, Minn.
Sales: $16.3 billion 
Net income: $2.1 billiona 
R&D spending: $1.1 billion 
Capital spending: $763 million 
Employees: 68,774
BUSINESS SEGMENTS (% of total sales)--major products:

◾ Health Care (22%)--pharmaceuticals, drug delivery systems, dental products, health information systems
◾ Industrial (19%)--abrasives, adhesives, industrial tape, packaging systems, fluoropolymers, fluorosurfactants, glass and ceramic microspheres
◾ Consumer & Office (15%)--stationery products, construction and home improvement products, visual system products
◾ Display & Graphics (14%)--traffic control materials, optical systems, commercial graphics, specialty film and media products
◾ Electro & Communications (11%)--microinterconnect circuits, flexible and rigid circuits, telecommunication and electrical products
◾ Safety, Security & Protection Services (10%)--corrosion protection products, window films, light piping systems
◾ Transportation (9%)--graphic and protective films, tapes, adhesives, catalytic converter mounts for automotive use

NOTE: Figures are for 2002. a Excluding unusual charges. SOURCE: Company data

LEADING UP to the R&D reorganization was a corporate self-examination exercise undertaken shortly after CEO McNerney joined 3M from General Electric in 2001. "We started taking a look at the effectiveness of our technical organization and the barriers to growth." Ihlenfeld says. "We asked ourselves what we needed to do to improve what we thought was a core strength. Could we increase the number of effective new products?"

"Actually," Ihlenfeld says, "we did a lot of Six Sigma work to understand what things were not allowing us to be as successful as we wanted to be." Six Sigma is a measurement and performance tool championed by Jack Welch, GE's former CEO and McNerney's boss when he was there. 3M started by taking an accounting of R&D personnel assignments, projects, and budgets. "We had been so decentralized, we never had the ability to roll all that up to the corporate level," Ihlenfeld remarks.

The firm then looked to what it considered the best among its 35 laboratories worldwide, Ihlenfeld says. It learned that the best labs and the businesses associated with them did "a lot of good solid market analysis and customer needs analysis even before designing a product to reduce design defects." Those labs, he says, also appeared to select their projects better by asking fundamental questions such as: Do we know what an effective solution is? Will the customer really buy it? Does it make sense for us to make it?

The cream of the crop, it turned out, was the firm's Japanese lab--the largest outside of the U.S. with 500 scientists--operated as part of 3M's joint venture with Sumitomo Electric Industries. Ihlenfeld was executive vice president of Sumitomo 3M, and McNerney tapped him in October 2002 to head 3M's worldwide technical organization.

Ihlenfeld brought both a technical and business perspective to his new job, just like another contemporary, Thomas M. Connelly Jr., 51, who was named DuPont senior vice president and chief technology officer in 2000. Although Ihlenfeld started in 3M's research organization in 1978, he moved to the business side in 1993. Like Connelly, Ihlenfeld had a burgeoning business career but was recruited back into R&D to bring a better awareness of the bottom line to the firm's technical organization.

When asked how he was enticed back to R&D, Ihlenfeld admits, "It was not that I had a lot of choice. My boss decided that I had a lot of experience in managing and leading change in organizations." In Japan, Ihlenfeld had made a number of changes in staffing, human resources, and business practices. "Jim felt that's the type of person he needed to come in and lead the R&D organization and make the changes and improvement he wanted," Ihlenfeld says.

"Right now, we look at Japan as the benchmark, the gold standard inside the company, for the effectiveness of the technical organization and good practices for new product commercialization," Ihlenfeld says with some pride. He theorizes that the Japanese unit does so well in part because of the strong relationships it has built with customers such as automakers Honda and Toyota.

"Japan is a relationship society," Ihlenfeld says. "Our business model has always been based on building strong customer relationships--particularly with companies that we feel are leading the industry or will lead the industry tomorrow." And customer intimacy is the key, he believes. Discussions that center on customer needs and problems--rather than sales--ultimately lead to the most fruitful relationships, Ihlenfeld says.


Miller had six months to convince business leaders at 3M that research on imiquimod (model shown) should go on.
Miller had six months to convince business leaders at 3M that research on imiquimod (model shown) should go on.

TO REPLICATE its Japanese success at other 3M locations, the firm has organized lab operations to meet customer needs on their home turfs. In Europe, for instance, Ihlenfeld says 3M had a pan-European approach to new product development. The firm has now appointed lab heads in Germany, France, and the U.K. to better interpret and deal with local firms' needs. The lab heads can easily draw on expertise anywhere else within 3M's technical organization to help their customers.

Ihlenfeld's approach is a cultural one that puts into practice the dictum: Think locally, act globally. Working with a multinational client company's central labs leads to product developments "that become a global standard and create product opportunities for us worldwide," he says.

Even as he has been mindful of his customers' business cultures, Ihlenfeld says he has also tried "to be respectful" of 3M's technology culture, and he has worked to "accentuate more of the positives that have always worked successfully for us." Among those positives are collaborative teams, technology sharing among businesses, networking technology labs worldwide, and allowing scientists to devote 15% of their time to creative, independent thinking.

That 15% "isn't so much a time allocation but really a recognition that it's important for people to follow their own ideas," Ihlenfeld says. "If we kill that, we'd kill a really rich source of new ideas."

No one knows this better than Richard L. Miller, a 3M corporate scientist attached to the firm's pharmaceuticals unit. In the early 1980s, Miller and his colleagues were developing imiquimod, an immune response modifier drug, when they were told to stop. 3M, which has a small drug development program, wanted to put more effort behind the development of Tambocor, a drug that was approved in 1985 to control irregular heartbeat.

"I was told to stop working on imiquimod and find another job in the company," says Miller, who received his Ph.D. in microbiology from the University of Minnesota in 1974. "But I had already seen something in this compound that I hadn't seen elsewhere." He kept his group working for six months unofficially on what is today sold as Aldara, a prescription cream approved in 1997 to treat genital warts.


Back in the 1980s, 3M managers winked at the transgression out of respect for Miller's personal initiative. He ultimately convinced them to allow the research to move forward. Today imiquimod is awaiting Food & Drug Administration approval for the treatment of superficial basal cell carcinoma and for the treatment of actinic keratosis. And, Miller adds, "we are looking for partners" to help develop imiquimod and other molecules with similar action for the treatment of asthma or as an adjuvant in vaccine formulations to boost an immune response.

Business leaders at 3M have long understood the benefits of indulging its top scientists. Performance materials business head Cristan puts it best: "R&D is part of the business process--it's part of the decision-making process. That is the way it was years ago at 3M, and that is the way it is today."


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