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 theoryвЂ"and Charles Darwin's great insightвЂ"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 perishвЂ"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 companyвЂ"say, American ExpressвЂ"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 favorableвЂ"albeit unplannedвЂ"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 traditionalвЂ"and now obsoleteвЂ"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 a highly decentralized environment that encourages individual initiative and allows people to experiment with new ideas. At the same time, J&J imposes rigorous selection criteria. Only those experiments that prove to be profitable and that fit with J&J's core ideology get to remain in the company's portfolio of businesses.

With his oft-repeated statement "Failure is our most important product," R. W. Johnson Jr., understood that companies must accept failed experiments as part of evolutionary progress. And, in fact, J&J has had a number of prominent failures to "prune away" in its history, including a foray into kola stimulants (made from sherry and kola nut extract) and colored casts for children that "met an early demise when the pure food dyes turned bed linens into a symphony of colors and hospital laundries into bedlam." It has also had more recent failed ventures in heart valves, kidney dialysis equipment, and ibuprofen pain relievers. Failures at J&J have been an essential price to pay in creating a healthy branching tree within the context of its core ideology. In spite of these setbacks, the company has never posted a loss in its 107-year history. J&J's financial success makes the company look to outsiders like it was all mapped out by a strategic genius. In reality, J&J's history is filled with favorable accidents, trial and error, and periodic failures. Summed up chief executive Ralph Larsen in 1992: "Growth is a gambler's game.”

Similarly, Wal-Mart's phenomenal success in the 1970s and 1980s can better be understood by an evolutionary perspective than a creationist perspective. In fact, the folks at Wal-Mart have always been somewhat amused by the primary explanation of Wal-Mart's success frequently