EuropeanManagementJournal Vol. I4, No. 1, pp.

21-36, 1996
~) Pergamon Copyrisht © I996 INSEAD. Published by Elsevier Science Ltd.
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0263-2373(95)00044-5 0263-2373/96 $15.00 + 0.00

Restrucitu'ing 3M for an
Integrated Europe. Part One:
Initiating the Change
MARY ACKENHUSEN, ResearchAssociate, INSEAD; DANIEL MUZYKA, Associate Dean
~k4BA Program and IAF Professor of Entrepreneurship, INSEAD; NElL CHURCHILL, Director of
Entrepreneurial Programs and Professor of Entrepreneurship, INSEAD

This two-part article describes the restructuring of
the European operations of the 3M company in
1992. The restructuring was undertaken to more
effectively deal with its Pan-European customers by
changing from country-orientated organizations to
one based on product lines. This first article,
Initiating the Change, begins by describing the
nature of this innovative and decentralized $14
billion company and the history of its European
activities. It then examines the way in which 3M's
European management, from the mid-1980s to the
early 1990s, came to the realization that it was
imperative to rapidly make this fundamental and
major change. In typical 3M fashion, once the
decision was made as to the general nature of what
was needed, the details of exactly what was to be
done and how it should be accomplished were left to
the people who were nearest the problem, most
knowledgeable about it, and most effected - the
European managers.
orchestrated by the management team in Europe. While
3M, a $14 billion American diversified multinational, had
operated with relatively independent country
subsidiaries in Europe for the past 40 years, the
increasing integration of the European market, in
addition to perceived customer and competitive
pressures, had led the company to launch a major
organizational change in 1991. This new structure
created European product line organizations with profit
and loss responsibility which were matrixed with
regional organizations. The ease with which the
reorganization had been accomplished in a short 18
months surprised him:
I expected there to be concern, turmoil and unease - which
there was. I also expected there to be more resistance to
change. In fact, I found there was a great deal of buy-in to the

The second part, Implementing the Change, EM], vol.

14, no. 2, explains how the European managers, in
1993, designed the organization, determined how
the process should proceed, and who should fill the
different positions created. It then describes how
they managed the transformation - including a
detailing of the problems, triumphs and surprises
entailed. While the articles collectively provide
insight as to how apparently successful transforma-
tion took place, a key benefit of studying the
transition is to generate an understanding of how
this entrepreneurial organization functions. We
hope the readers may glean new insights on how
to make their own organizations more entre-
preneurial and more innovative.

Doug Hanson, vice president of 3M Europe, was very

pleased with the recent reorganization which had been

EuropeanManagementJournalVol 14 No 1 February 1996 21

RESTRUCTURING 3M FOR AN INTEGRATED EUROPE. PART ONE: INITIATING THE CHANGE

change. Everyone believed, as we did, that it was correcL This
was not somebody's brainstorm - we got a lot of input before
we decided to make the change. The process we used to
facilitate the organizational development and implementation
was a major factor in helping people get through the period.'
The structural change of the reorganization having been
completed, the new European management teams were
moving forward and enthusiastically seizing oppor-
tunities to improve their operations in ways which were
never possible under the old structure. However, Hanson
reflected that perhaps the most difficult part was still to
come.
1970s of other organizations that were building up staff
and we explicitly decided not to follow their lead.'
Corporate planning activities relied heavily upon the
resources of line management as did many other staff-
type activities. Nevertheless financial reporting was
tightly controlled at all levels of 3M through stan-
dardized reporting required on a regular basis. Divisional
controllers were physically located with the Divisions
with whom they were expected to be 'business partners,'
yet they officially reported to the corporate financial
function.
The Spirit of Innovation

The 3M Company The 3M Company was considered by many companies

The Minnesota Mining and Manufacturing Company,
better known as the 3M Company, is headquartered in
St. Paul, Minnesota. Its first successful product, flexible
sandpaper, was launched from there in 1914. Eighty
years later, in 1994, one of its most important product
lines was still abrasives, but it had diversified into a
leadership position in such seemingly unrelated fields as
adhesive tapes, medical supplies and equipment, office
supplies, traffic and safety signs and electrical equipment,
to name only a few of its market successes. In 1993, 3M
yielded a net income of $1.2 billion on its $14 billion in
sales through the efforts of its 87,000 employees. Table 1
shows the growth in 3M since 1985.
to be the benchmark for innovation in product
development,x The company rule until 1992 had been
that it required its divisions to derive 25 per cent of their
revenue from products introduced within the previous
five year period, though some flexibility was shown for
divisions with older product lines which had less
potential for innovation. The corporation had been able
to consistently meet this standard and in 1993, the stakes
were raised to 30 per cent in 4 years. Internally, the
importance of this goal was widely respected because
historically, 3M's growth had been highly correlated
with its rate of product innovation. The assumption that
3M would grow and thus spawn opportunities for
individuals was at the core of 3M's culture.

3M's a r r a y of 60,000 products were organized into four One of the most visible drivers of innovation was a rule
Sectors: Industrial and Consumer; Information, Imaging that was laid down in the company's early days known
and Electronic; Life Sciences; and International. Each as 'the 15 per cent rule' which gave every technical
Sector (see Exhibit 2 for summary descriptions), except employee 15 per cent of their working week to pursue
International, contained several product groups. Each whatever project he or she desired. This was seen as the
group was divided into divisions for a total of around 50 employee's chance to develop an idea which had not
divisions for all of 3M. The number changed frequently been sanctioned by, or often even discussed with, his or
as new businesses were spawned and evolved, and older her boss and was not any part of a formal new product
businesses were folded into other divisions. Divisions planning process. In reality, some took advantage of this
were further broken down into business units. freedom religiously and others never strayed from their
formal workload either by choice or due to the pressures
Line management within the divisions were given ample of the business. As one manager explained, 'This rule
leeway to pursue their own initiatives as the 3M staff provides a buffer from management because it makes it
organization was intentionally very small. As one senior hard for supervisors to say 'Don't work on that.' In
staff member noted, °We did a study in the 1960s and reality, it is usually done between the 40th and 60th
hour of the week.'
Table 5 8M Consolidated Statement of Income
(UliSm) The best known product to spring from someone taking
advantage of the 15 per cent rule was the Post-It® note
1993 1989 1985 product, invented by Art Frye out of a laboratory he
constructed in his basement in the early 1980s. This was
Net Sales 14,020 11,990 7,846 a note-sized paper which had one edge lined with a light
Cost of Goods Sold 7,499 6,162 4,226 adhesive allowing it to be stuck and restuck several
Gross Margin 6,521 5,828 3,620
times. After the product was introduced, office workers
Selling, General & Admin. 3,535 2,894 1,350
became addicted to using the little Post-It® pads to the
R&D 1,030 784 520
Operating Income 1,956 2,150 1,150
point that, a few years after introduction, it was difficult
Other Expense (46) 51 53 to find any office in the industrialized world which did
Income Before Tax 2,002 2,099 1.097 not use Post-Its®. By the early 1990s, Post-Its® enjoyed
Net Income 1,263 1,244 644 the status of the most profitable product ever, after
Number of Employees 86,168 87,584 88,093 Scotch® tape,z within the 3M Commercial Tape
Division.

22 EuropeanManagementJournalVo114No 1 February 1996

 RESTRUCTURING 3M FOR AN INTEGRATED EUROPE. PART ONE: INITIATING THE CHANGE
In the spirit of innovation, 3M's top management
allowed a 'healthy disrespect for rules' believing that this
attitude encouraged individuals to pursue opportunities
without being overly burdened by administrative
processes. While many products were supposedly killed
in the formal new product development review cycle for
seemingly logical reasons, such as the market was too
small or the technology could not be made to work after
a substantial effort, this order to stop development by
upper management often motivated researchers to work
even harder. Many stories were told in the lore of 3M of
employees who believed so strongly in their ideas that
they ignored their boss' directives and continued
working on a product, either in their 15 per cent time,
at home, or on the side until the effort finally resulted in
a successful product. The CEO of 3M in 1994, Livio
DeSimone (known as Desi), admitted that he tried to
terminate the development of the Thinsulate® product
line several times before it proved itself worthy of
pursuit. Yet, in the 1990s, the lightweight insulating
material was widely used by the outerwear clothing
industry because it provided warmth without bulk. In
further support of employees who had ideas that were
not funded through normal channels in the corporation,
up to 90 Genesis grants of as much as $50,000 were
awarded every year to individuals through a central
organization to allow them to pursue projects which
their departments had been unable or unwilling to
support. A similar program for non-technical employees
who wanted to develop new projects or processes
existed as well.
This tolerance of individuals 'going around the system,'
when necessary, was balanced by detailed policies and
procedures which were normally adhered to during the
new product development process to ensure that
management understood and could control the efforts
being expended in the laboratories. Likewise, in the
other functions of 3M, operating norms were docu-
mented and followed. In the financial function, budgets
were closely monitored with the clear expectation that
managers would meet their agreed upon targets, barring
any unforeseen circumstances. At every level of the
corporation, there was a strong sense of self-discipline
which ensured the frugal expenditure of company assets,
encouraged a respect for the individual and, in general,
kept the 'healthy disrespect for the rules' from resulting
in unpredictability.
Failure was not only accepted at 3M, it was an expected
part of innovation. As one manager said, ~erhaps 40 per
cent of the products we work on ever go to market...the
other 60 per cent are failures.' The management
consciously tried to develop a risk-taking mentality in
its employees and realized that this could only happen if
failures did not result in repercussions to the individual.
This philosophy stemmed from the early days of 3M
under William McKnight, the President and later CEO in
the 1950s and 1960s, who laid down many of the beliefs
which served as the foundation of the corporate culture.
In the 1990s, McKnight was still revered by 3M
employees with most of the management being able to
European ManagementJournal Vo114 No 1 February 1996
quote from memory his philosophy of empowering the
individual.
'As our business grows, it becomes increasingly necessary to
delegate responsibility and to encourage men and women to
exercise their initiative. This requires considerable tolerance.
Those men and women to whom we delegate authority and
responsibility, if they are good people, are going to want to do
their jobs in their own way. These are characteristics we want,
and people should be encouraged as long as their way
conforms to our general pattern of operations.
Mistakes will be made, but if a person is essentially right, the
mistakes he or she makes are not as serious, in the long run, as
the mistakes management will make if it's dictatorial and
undertakes to tell those under its authority exactly how they
must do their job.
Management that is destructively critical when mistakes are
made kills initiative, and it is essential that we have many
people with initiative if we are to continue to grow.'
The Challenge of Management, William McKnight (1948)
Rewards and recognition at 3M were showered on those
individuals who delivered growth, profits, and
innovation. In a general sense, it was the individuals
who were associated with successful products who
advanced upward through the management ranks or on
the equally prestigious technical ladder designed to
reward individual contributors who chose not to go into
management. In keeping with this philosophy, when a
product idea spawned a new business, the business
might be spun off as a separate entity and be allowed to
prosper under the leadership of its founder, the
entrepreneur who had championed its development.
Yet, even when this did not happen, the acclaim that the
company gave to those individuals who created new
businesses was a coveted form of recognition. Addi-
tionally, recognition was ongoing for successful new
product or technology developments through various
award and peer recognition schemes honoring both
teams and individuals.
Research and M a n u f a c t u r i n g
3M valued its research capability very highly but with a
practical twist: its culture glorified the economical
application of research into marketable products.
Researchers within the labs were encouraged to consider
issues when developing new products which in other
companies would have been the responsibility of the
marketing function such as: How will it add value to the
consumer? Is it cost effective? Is the market large enough
to support the development of the product/3M's desire
for researchers who, in the words of one manager, 'got a
thrill out of seeing their product go to market' led the
company to most often hire solid 'just below the top of
the class' scientists and engineers from state universities
in favor of the very bright, but narrowly focused experts
from America's top engineering schools.
23
RESTRUCTURING 3M FOR AN INTEGRATED EUROPE. PART ONE: INITIATING THE CHANGE

New products were most often developed in response to
an identified need in the marketplace, but it could work
in the opposite direction as well, with the research labs
holding brainstorming sessions to try to find a way to
commercialize an interesting development in tech-
nology. Applied research to develop products for
introduction in the next 5 year period absorbed over
85 per cent of the R&D resources at 3M with the balance
being allocated to the basic research function to develop
longer term technology platforms that would be useful
in 5-20 years. 3 Research and development spending
averaged 6.5 per cent of sales while the average for most
industrial companies hovered at about half that level.
The key to 3M's wide assortment of products was the
creative combination of approximately two dozen core
technologies. The bulk of its products stemmed from its
long-time expertise in coating technology. Other key
technologies included adhesives, ceramics, films, fluoro-
chemicals, nonwoven fibers and optics. Long before such
technologies and their application began to be referred
to as 'core competencies', 3M's management was highly
sensitive to whether new opportunities utilized or built
upon existing technologies. New opportunities which
did not were given careful consideration to determine if
they were worth pursuing.
any new developments?'
Contributing to the ease of sharing was the physical
proximity of the labs to each other. Until the mid-80s,
nearly all of the new research done by 3M, with the
exception of a joint venture in Japan which employed
500 researchers, was done in the company complex in St.
Paul. Thus, when a second US nucleus was created of 6
divisions in Austin, Texas in 1986, there was a very real
concern that the 2000 mile separation would create
dangerous barriers to the highly interpersonal process of
sharing ideas which was deemed to be so important to
the innovation process. These fears, for the most part,
did not come true primarily due to a conscious effort by
the management to avoid it by providing a corporate
plane to shuttle people to and from the two locations on
a regular schedule, video conferencing facilities, and
many phone calls.
Informal networking, in the technical and non-technical
arenas, was further leveraged by the longevity of 3M
employees. Due to policies of promotion from within
and the loyalty of employees to the company, the
number of lifetime employees was much higher than in
most companies. In 1990, the employee turnover was
reported to be less than 4 per cent.

There was a clear understanding among the research labs By all accounts, this intensive networking by the scien-
that all technology belonged to the company, not to the tific community at 3M, as well as other functions to a
division or business unit. Thus, everyone had free use of lesser extent, was a key asset of the company. The
the formulas, processes and company relied upon individuals
patents to develop products for to utilize their personal contacts
their own business unit. It was
The culture at 3M and to establish new contacts in
commonplace for an individual to glorified the economical order to address problems. It was
receive a request for information the familiarity of '3Mers' with
or to be asked to render an application of research each other, either through actual
opinion on a new product idea into marketable products acquaintance or the strong feeling
by someone from a different Busi- of family, combined with a trust of
ness Unit. As one manager noted, each other and the company, that
'You can call anyone in the organization, even Desi (the allowed an informal borrowing of resources to support
CEO) and get an hour or two of his or her time.' the innovation process. As the company grew to almost
Similarly, the borrowing of equipment between labs to 90,000 employees in the 1990s, it worked hard to
run experiments was ongoing. Opportunities were also, promote, protect and leverage this delicate corporate-
to an extent, public property. There were many stories wide, people-based network.
within the company of individuals developing or
recognising opportunities and 'shopping around' the Manufacturing was an important discipline at 3M with
organization trying to sell their ideas to a division. many of the company's successes being attributed to
innovations in the manufacturing process. Similar to the
To allow for the free flow of new product ideas and sharing of information in the technical function,
technical information across the company, 3M's manufacturing management networked on a formal and
scientists spent substantial amounts of time developing informal basis to share best practices. Helping to
and maintaining informal communication networks optimize the manufacturing function, 3M's plants were
among themselves. These networks took many forms: not associated with any particular division - placement
technology fairs and poster sessions where the various of products for manufacture was decided primarily on
labs showed off their latest products and technologies, capacity and technical capability. Thus, one plant in
meetings between interest groups, rotations of people Minnesota served 15 different Divisions, which was not
between labs and countries, technical audits 4 and sharing atypical. Furthermore, 3M freely subcontracted the
of monthly reports between labs. Managers encouraged manufacture of products which did not fit the company's
their teams to communicate regularly. For example, in competencies. For example, overhead transparency
the 3M-Sumitomo joint-venture lab in Japan, a lab projectors, in which 3M had a major market share, were
sdentist might call his or her counterpart in St. Paul made for the company by outside suppliers because it
every few weeks just to say 'How is your work going, was more cost effective.

24 European ManagementJournalVo114 No 1 February 1996

 RESTRUCTURING 3M FOR AN INTEGRATED EUROPE. PART ONE: INITIATING THE CHANGE
Due to the corporate objective of continual innovation
which drove a steady flow of new products and product
variations into the plants, the 3M manufacturing
function was widely acclaimed for its strong competency
in flexibility. As one manager explained, 'Sometimes, we
feel we are just one big pilot plant.' However, at the
same time, 3M gave constant attention to minimising
the unit cost of its products. Beginning in 1986, there
were two 5-year-long, corporate-wide programs to
reduce costs in the manufacturing function with specific
objectives in areas such as inventory, cycle time, energy
consumption and waste.
Sales and Marketing
3M's sales philosophy had always been to 'sell at the
bottom of the smokestack,' meaning, sell to the people
who actually used the products. In the early days, when
3M was trying to establish itself in the sandpaper
business in automobile body repair shops, salespeople
often first demonstrated their products to the workers
performing the car repairs. After convincing the workers
of the value of the product, usually by showing
significant labor savings or superior quality, the
salesperson would then proceed to the purchasing
department to ask for the order. The purchasing agent
would be encouraged to call the body shop workers to
get direct testimonials and would often find that the
workers were no longer willing to accept any substitutes
for the 3M product.
Though the laboratories were the most common source
of innovation, the close customer contact that 3M had
maintained since their first ventures in 'selling at the
bottom of the smokestack' had also been a strong source
of ideas and product improvements. For example, the
first Scotch® tape dispenser was invented by a regional
sales manager who was not satisfied with the dispenser
developed by the lab after he saw how frustrated his
customers became when they used it. Normally
however, the key players in soliciting customer input
were the technical service representatives. This group
reported organizationally to the research laboratories but
maintained a real world perspective by spending most of
their days providing advice to customers and servicing
products in the field.
Lab scientists and marketing people were also frequent
visitors to the customer sites. A lab scientist might be
called out to the field by a technical service repre-
sentative to witness a problem or to help formulate a
Table 2 Selected Flnan©lel Data by Oeographio Area ( U $ $ m )
Year US Europe
Sales Operating Sales Operating
Income Income
1993 7026 1341 3646 205
1989 6601 1222 3023 452
1985 5252 818 1669 177
European ManagementJournalVo114 No 1 February 1996
product opportunity. Likewise, it would be very typical
to see a marketing manager or a scientist from the
medical business accompanying doctors and nurses on
their hospital rounds for several days, analyzing how
they performed one narrow task, such as setting up
intravenous systems on patients or using a stethoscope.
Since nearly all of 3M's products were sold through
distributors, the customer contact the company
maintained was critical to the product improvement
and innovation process.
3M normally avoided real commodity businesses; rather
they tried to produce high margin, high value-added
products. Even for items which on the surface appeared
to be commodity products, such as Scotch® tape, the
companys focused on developing a superior quality
offering, thus allowing the company to charge a price
premium even in a commodity-like market. Furthermore,
the company was intentionally conservative when it
marketed new products. It would develop a new product
to sell in a known market segment or introduce an older,
tried product into a new market segment, but generally
not attempt to sell a new product into a new market
segment. This conservatism extended to its financial
management as well. 3M intentionally kept a very low
debt level so that its management could keep its focus
on the long term health of the business and maintain a
stable level of R&D funding.
3M in Europe
In 1994, 3M was an expansive multinational which sold
its products in nearly every country in the world. It had
research labs in 22 different countries and had sited
manufacturing plants all over the globe. In 1992, the
company had achieved, for the first time, its long-time
goal of deriving 50 per cent of its revenues from markets
outside the US, with 30 per cent of its revenues coming
from Europe, 13 per cent from the Asia Padfic region
and 7 per cent coming from other areas, primarily Latin
America. See Table 2 for the historical trend in the
European region's contribution to sales.
T h e Early D a y s in International
In 1929, 3M joined with eight other American abrasive
manufacturers to form a company which manufactured
and sold sandpaper in England. Over the next 20 years,
this company expanded its operations across Europe and
into parts of the rest of the world. Supplementing this
Asia/Pacific Rest of World
Sales Operating Sales Operating
Income Income
2154 277 1094 133
1834 347 532 129
(partof RestofWorld) 925 155
25
RESTRUCTURING 3 M FOR A N INTEGRATED EUROPE. PART ONE: INITIATING THE C H A N G E
direct investment in Europe, 3M exported a number of
its other products from the US to be sold by local
distributors throughout the world. 3M formed an US-
based International Division to exploit these overseas
opportunities. The sandpaper co-operative flourished
until 1950 when an American court ordered that it be
disbanded for antitrust reasons. 3M took advantage of
the breakup to acquire the key assets in Britain and
France, as well as Brazil and Mexico.
In furthering the 3M commitment abroad, two 3M top
executives, responsible for the Intemational Division,
made a series of marathon 'expeditions' in the early
1950s, setting up marketing and wholly-owned sales and
manufacturing subsidiaries in many different countries
across Europe, Latin America and Asia. Additionally, a
number of 'young, up and comers' were identified to
dedicate their careers to furthering 3M's intemational
presence, including Em Monteiro who later became the
executive VP of Intemational.
As 3M planted its seeds in fertile ground across the
world, the philosophy for these many new ventures was
one of minimal investment. Monteiro remembered how
he helped to build the Latin American presence:
7 had made a study of Colombia. I presented it to the top
management of International and basically recommended that
we start a plant there. I was asked, 'q/Vell, who is going to
run it?" I said, 'q/Veil, I would like to." Then another executive
said, "OK, you run it, but we are not going to give you any
help at all You are going Iv have to do everything on your
own." After that, I went down to Colombia with $I0,000 in
working capital and some old equipment and started the
business.'
Harry Hammefly, who spent much of his career in
International before succeeding Monteiro as the
executive VP of International in 1991 explained the
effect that this had:
'The idea was that these companies would grow from what
they generated themselves. The people had a sense of
ownership of the company. It was not like there was some
rich uncle out there that had a lot of money - having a
positive cash flow was key.'
In spite of the low investment strategy in the Inter-
1st Task
force report
!l I, =,
190196019,019909, // 1,91
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Entrance I EMATs
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Europe force report
3M Europe
Office
IExhlbit 11 8 M h r o p e l n Organization 'rimellne
26
national Division in the early days, there was always a
substantial amount of top management attention and
time devoted to the cause. Hammerly explained:
'Our management, since the beginning, has traveled around
quite a bit getting into these overseas 3 M companies so that
we can work with, talk with and know the local people. Since
the 1960s, we have had an annual review tn'p where the
executives of 3 M split up and visit the different areas of the
world. It is kind of "management by walking around" like
you see in lots of companies, but we have always kept it active
in International too.'
Expansion in Europe
As 3M expanded its international presence, Europe
naturally attracted a great deal of attention as a high
potential opportunity. To lead the charge into an
European market, 3M would appoint an American as
the managing director (MD) of a 3M European country
subsidiary organization (CSO) with the directive to
'simply get out there and sell.' The MD would 'cherry
pick' the 3M products from the US offerings that fit the
local European market and then build a 3M company to
market and sell them. Thus, the 3M product offerings
between countries varied widely based on the product
trade-offs made by the MD. With the exception of the
MD, the CSO's employees were nearly always nationals,
often hired from the local distributor, which was a 'win-
win' solution from both the distributor's viewpoint (the
distributor got a free salesman) and from 3M's
standpoint (it got a locally knowledgeable salesman
who knew the 3M product line). The local language and
culture prevailed within the CSOs, though each
organization discovered its own ways to merge the
company customs and culture with their national
counterparts. According to Monteiro, this gave 3M a
very local image:
'For instance, if someone talks about 3 M France, they do not
talk about it as an American company. Even when they put
up these laws against foreign companies, 3 M is never included
as a foreigner. It is a local company with foreign
shareholders.'
Despite the fact that the CSOs maintained a great deal of
autonomy, 3M encouraged strong links to headquarters
Announcement Completion of
Regionalization of new structural
implemented organization reorganization
I
10/91 1/92
I
6•92 2•93
I
Hammerly Decision to
appointed expedite
Exec. VP
International
European ManagementJournalVo114No 1 February 1996
 RESTRUCTURING 3M FOR AN INTEGRATED EUROPE. PART ONE: INITIATING THE CHANGE

by never appointing a country national to head the began to provide products to its overseas markets of
operations in a given country. Bill Monahan, past MD equivalent or superior quality to its domestic products.
for Italy, explained: To assure that the proper level of talent was available to
support the international thrust, a new rule went into
'One of the advantages of not having a national as the head of place on overseas assignments. Before managers could
the country is that you reduce the departure from the 3 M be sent abroad, they had to have a sponsor who would
culture that you might get otherwise. The American or third monitor their careers during their overseas stay and
country national is the representative of St. Paul and provides work to guarantee them a position equivalent to their
the glue that connects the country subsidiaries to 3 M in the previous one upon their return. Furthermore, the
US.' position of MD of a CSO became a developmental
post for promising managers. Intemational experience
Within each CSO, the product lines sold in that country began to be an important criterion for advancement to
were managed by a handful of division directors who the company's top positions.
reported to the MD. Each division director had
responsibility for the products of several of the US- As a part of this international vision, a 3M Europe office
based product divisions. These divisions had an informal was formed in Brussels to coordinate the efforts of the
link to the division structure in the US with, for the most fast growing CSOs across Europe. This new manage-
part, each division within the CSO having its own sales ment structure had no direct authority and could only
and marketing function. advise the CSOs on how they might strengthen 3M's
presence in Europe. Hammerly, who was part of this
Much of the product sold in Europe was imported from office, described the reaction of the CSOs to this first
the US, but when the volume justified the investment, attempt at integration: 'There was a certain amount of
European manufacturing capacity was added to supply push and pull between the country MDs and the
product needs on an European-wide basis. Manufac- European office. Sometimes it was quite influential and
turing plants were owned by the CSO in which they other times not at all'.
were located and products were sold to the other CSOs
in Europe through a transfer pricing scheme. As in the By the late 1970s, it had become evident that to increase
US, the manufacturing culture in Europe demanded an 3M's competitiveness in Europe, it would need to begin
ongoing pursuit to lower unit costs. Often, decisions to developing products specifically for the European
add or expand capacity in Europe were clone on a 'space market, instead of selling American designs as it had
available' basis, independent of done up to this point. To
marketing and technical strategic By the late I970s, 3M's support this new strategy, the
decisions. There was only a mission of the existing European
limited technical capability in competitiveness in Europe laboratories, which had been
Europe in the 1950s and 1960s, created to address European
and it was primarily focused on
meant developing products manufacturing issues, was
making improvements to the specifically for that market, expanded to include supporting
manufacturing processes. the customization of products
rather than just selling for the European market as well
In keeping with the level of American designs as providing technical service
competition in the international expertise to customers. Senior
markets during the 1950s and 1960s, the international technical management, in the role of technical directors
business for 3M was considered somewhat inferior to for the CSOs, were brought over from the US to
the American market. Monteiro described the mentality, manage the labs and to instil the historical 3M values
'We went through an early stage in Intemational when considered to be important to the innovation process.
you could walk through a factory in the US and see a big According to Mardey Johnston, technical director of
roll of tape marked "Rejected, OK for International."' Europe in 1993:
This attitude toward the international markets
sometimes tainted the image of those people who 'One of their jobs was to reinforce the 3 M R&D culture in the
worked for International. Often the managers who were European labs. With this, there was a lot of empowerment.
sent overseas found it very difficult to find a domestic They tried to adhere to the philosophy that everyone had the
position again after their tour was completed. The result right to be an entrepreneur.'
was that few high potential managers who were not
dedicated to long term careers in International would At first, the technical laboratories reported directly to
voluntarily take an overseas assignment for fear of the CSO in which they were located - e.g., the
derailing their careers. Abrasives lab reported to the CSO in the UK and the
Chemicals lab reported to the German CSO. However,
However, by the 1970s, the low priority given to the as the European technical organization's importance and
international markets had changed through a sustained, size increased, it became very difficult to optimize the lab
focused effort on the part of 3M management. In the resources to serve all of Europe as they were continually
face of the high quality goods being introduced into being pulled to meet their local CSO's needs. Thus, in
Europe by the Japanese and others in the 1970s, 3M the early 1980s, the labs' mission to work on a pan-

European ManagementJournal Vo114 No 1 February 1996 2,7

RESTRUCTURING 3M FOR AN INTEGRATED EUROPE. PART ONE: INITIATING THE CHANGE
European basis was reinforced by creating a reporting
relationship to the appropriate lab head in the US,
though the day-to-day management was still the
responsibility of the CSO management.
With the new emphasis on building 3M's European
technical capability, the technical function in Europe
blossomed to include 1500 3M scientists, spread among
17 labs in 7 countries with each lab specializing in a
different technology. Factory support activities had
shrunk to on]y 20 per cent of the labs' activities while
60 per cent was technical service/product modifications
and 10 per cent was truly new product development. An
important role played by the European labs was to work
with the US development labs to assure that any product
being developed was truly global in nature or could be
made to fit European needs with minimal effort.
However, if a CSO wanted a product developed
specifically for its local market, there was no strong link
between the CSO and European lab to drive this unless
the lab happened to be located in that country.
Europe had by this time developed enough critical mass
The networking between labs in Europe paid off not only
in developing products within divisions but across
divisional technological developments as well, though
on a much less frequent scale than in the US The
creation of car door aperture refinish tape was one such
development that demonstrates that European technical
development often followed the same circuitous path
experienced in the US.
In the mid 80s, a Belgian body shop owner 'jury-rigged' a
system for painting damaged car doors by blocking the
aperture with a circular piece of foam tubing to keep
paint from spraying on the seats. Normally, when doing
this type of work, a tradesman would use masking tape
and paper to make a protective frill but this method
tended to leave a hard edge of paint that had to be
sanded afterwards. The body shop owner showed his
method to a 3M salesman who took it to the Tape
Division technical director (TD), located in Germany, as
a potential new product. Though the TD was interested,
his lab management vetoed it because they thought that
the market for the application was too small. The TD did
not give up. He then took it to the Automotive Trades
technical service manager who happened to be a
qualified body shop painter. The service manager
immediately saw potential in the product and called the
abrasives lab which was associated with the
Automotive Trades Marketing Division and sold 3M
product offerings into the auto body shop trade. He
explained the opportunity and asked if the lab would
back the development effort. Lab management resisted
at first, protesting that it was an abrasives lab and thus
had expertise in neither foam nor adhesive
technologies which this project would require. They
finally relented and asked one of the abrasives lab
scientists to donate his 15 per cent 'free time' to the
project as there were no other available resources.
~hlblt 2 The Unlikely Development of Door Aperture Tape
28
in the technical function to necessitate fostering a number
of processes which would encourage a two-way transfer
of knowledge and ideas between the US and Europe, and
among the labs in Europe. There were transfers of
scientists between the US and Europe for 6 months to a
year. Additionally, individuals switched between labs in
Europe according to the needs of the business. Technical
management of the labs traveled to the US twice per year
to see their counterparts and this visit was reciprocated
on the same scale allowing these managers to
communicate face-to-face four times a year. On a CSO
basis, technical fairs were held in the larger countries (UK,
France and Germany) to allow all labs in those countries
to share their technologies. European-wide fairs were not
held due to the cost and the language barriers.
Technology fairs in the US, were not normally attended
by Europeans, though occasionally, a European lab would
have a booth. However, to encourage global integration
of the technical function among the research centers of St.
Paul, Austin, Japan and Europe, annual technical planning
meetings were held by some divisions. Teleconferencing
was also strongly encouraged with every major lab in
Europe having on-site facilities.
The assigned scientist spent most of his time talking to
various technical service representatives about the
idea and eventually came to the conclusion that is was a
good idea but after reviewing possible methods of
fabrication, he was not convinced that 3M could do it
cost effectively. Marketing persisted that they were very
interested in the product and the development effort
became an authorized project which allowed the
scientist to work on it full time. He continued his futile
search for a cost effective material to use.
The breakthrough came when he asked a lab worker who
was working on a completely different project in the next
cubicle if he had some left over foam samples that he
could try out. He took one of the samples and cut it with a
pair of dull scissors and surprisingly the two sides stuck
together from the pressure of the scissors This is just
what he had been searching for to form the foam tubing.
A technical manager in the lab explained, 'The irony is
that he would never have discovered that it welded if he
had been working in the Tape lab because he would have
had sharp scissors. Only a guy in the Abrasives lab
would have scissors that were dull!'
After the foam was identified, a cross-functional team
including the Tape Division and the Automotive Trades
lab was formed to develop a manufacturing process.
The Tape Division was interested because they thought
they would be allowed to manufacture it and then sell it
through the Automotive Trades sales force. In the end,
the Automotive Trades Division kept the manufacturing
capability because the processing equipment was
relatively inexpensive and did not share any resources
with the rest of the Tape Division processes. The
technology was patented and by 1993, sales for door
aperture tape hit $10 million, a 45 per cent increase over
the previous year.
EuropeanManagementJournalVo114No 1 February1996
 RESTRUCTURING 3M FOR AN INTEGRATEDEUROPE.PART ONE: INITIATINGTHE CHANGE

The formal and informal networking on the part of the
technical community in Europe paid off in the form of
product developments which leveraged expertise from
more than one Business Unit. Just as was common in the
3M culture in the US, a 'no' to a development request by
one lab did not necessarily mean the product idea would
die. Such was the development of a 3M product called
car door aperture tape which was rejected by the
European tape lab, its natural home, and later developed
into a multi-million dollar business by the European
abrasives lab. (See Exhibit 2 for complete story.)
EMATs
In the early 1980s, in the face of increasing competition
for European sales, it became clear to the VP of 3M
Europe, Bent Bjom, that an improved integration of
product line strategies across the countries in Europe
could increase 3M's effectiveness. Thus, in 1982, he
expanded the European management team to include a
European-based group director for each product group
which was active in Europe and a European-based
product manager for each division. They functioned in a
strictly advisory capacity to the CSOs and became an
informal extension of the US Division structure. At the
same time, in the corporate structure, international
product and business responsibilities were transferred to
a newly established international director position which
reported to each US division VP. (See Exhibit 3 for
organization chart.) This change increased the focus
upon each Division's international business, but
produced varying levels of committed interaction
between the US and International business personnel.
In the instances when the division VP took a strong
interest and involvement, the new structure improved
the planning, marketing and general resource coordina-
tion for the Division's products in overseas markets.
Continuing the push to integrate the product strategies
across Europe, a number of European Management
Action Teams (EMATs) were formed which pulled key
sales and marketing managers from the larger CSOs into
teams responsible for the sales and marketing strategy
for each of the major product lines in Europe. The heads
of the EMAT teams were the product managers from
3M Europe. Secondary to their marketing mission, the
groups also worked with the European manufacturing
and technical support for their product lines. To support
the EMAT mindset, the management in Europe
participated in an ongoing training program to help
them begin thinking and managing on a European basis
to reduce the managerial focus on the country level. The
changing political and economic environment in Europe,
as it moved towards unification, also helped CSO
management to think beyond their own country's
borders and internal resource trade-offs. According to
Hammerly:
'The external environment [in the 1980s] enabled you to do
things which you could have done anyway, but now it was
much more acceptable to people. You could say, "This is not
3M, this is something that is happening outside." For
example, because the French were driving some of the
European unification effort, we found that the French 3 M
organization was willing to quickly support some of these
attempts to better integrate 3 M across Europe, such as the
EMA Ts.'
However, the Achilles' heel of the EMAT structure soon
emerged when the sales and marketing managers went

I I
Chairman
& CEO

Electronics and
t I
Graphic Industrial and Information Life
Staff Technology Consumer Sciences International
Technology Sector
Functions Sector Sector Sector Exec. VP
Exec. VP Exec. VP Exec. VP Exec. VP

J _ I
1 1 I
Latin Europe Asia Japan
America
VP VP VP VP
I
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Managing
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Group I
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Group
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(17)

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Director
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Director
Pro!uct
Division
Manager
Product
Division I
Manager

Exhibit 8 European Organization 1988-199t

European ManagementJournalVo114 No 1 February1996 2,9

RESTRUCTURING 3M FOR AN INTEGRATED EUROPE. PART ONE: INITIATING THE CHANGE
back to their CSO roles to implement the agreed-upon
European plans. Often either their boss, the division
director of the country, or less often, the managing
director of the country, would not support the
implementation of the program in his or her country.
When Bill Monahan was the product manager for Data
Services in Europe in the 1980s, this was the dilemma
that he faced:
'I would call together a team from the top 6 countries in Europe
and we would agree on a strategy, but when they went back to
their CSOs, the next level up might say "Now we do not agree
with that strategy and we are not going to support the
resources." To do my job right, I would have to sell the division
directors in each country, who each might have 5 or 6 divisions
and did not understand my business very well, on what I
wanted to do. Then, I would have to get the managing
directors behind me and then finally work with the people who
were dedicated to my business in each country to get it done.'
As one manager commented, 'The effectiveness of the
EMAT structure varied with the amount of time the
Product Managers were willing and able to put into the
team.' According to Monteiro, q'he EMATs solidified
the conversation and communication between the
country organizations',
Additionally, the integration along the technical and
manufacturing dimensions was not always well
managed. Peter Williams, a future European business
center head for the abrasives business, explained:
'Technology and manufacturing were run by the subsidiaries
[CSOs] and the effectiveness of the link between them varied
by business from very good to poor. The manufacturing
director in Europe had a coordinating role mainly, with
limited decision making authority. Thus, an investment
decision often involved a dialogue between the group director
[in Europe] and the country manufacturing manager and I'm
not sure that this led to strategically optimized decisions from
a European business perspective.'
In 1986, 3M management commissioned a task force to
determine whether the EMAT structure, in spite of its
weaknesses, was still the best organizational structure to
encourage the CSOs to operate in a pan-European
manner without compromising their local effectiveness.
After completion of the study, the task force proposed a
more formal pan-European structure organized along
product lines, while maintaining the CSOs to support
the local needs of the business. This recommendation
found favor with many in 3M but the executive team in
St. Paul decided not to implement the proposal at that
time. Thus, Europe continued to be managed as country
organizations, linked by EMAT teams, in spite of the
growing recognition of the problems encountered with
this approach.
Customer Pressures
By 1989, many of 3M's traditional European customers
30
were beginning to work on a pan-European basis which
made it increasingly difficult for the local, autonomous
3M units to respond effectively to their customers'
needs. For example, distribution channels were
consolidating across Europe, taxing the capability of
the CSOs' order entry systems. A large customer like
Ford Europe might want to place purchase orders out of
its Brussels headquarters for delivery to sites in several
different European countries with the bill being sent to
yet another site. However, order entry activity involving
more than one country was impossible for the CSOs to
manage, except manually, because their order systems
were independent. Though this new pan-European
customer represented only around 20 per cent of 3M's
customer base, most of 3M's customers were operating
across borders and therefore the company expected that
up to 80 per cent of its customers would eventually
require some form of pan-European service. Monahan
described how stressful the situation became:
'The business units were screaming that they could not
respond to the marketplace the way they had to. Towards the
end of the 1980s, you had the development of multinational
buyers, companies like lip or Olivetti, who wanted to be
treated the same in each country. Large distributors were
popping up in Europe that were doing business in many
countries and the pan-European distribution had really started
to mature. Buyers would say to us, "Well, my price is 10
dollars in France, but in Italy, it is 15 dollars. Wait a minute,
what is the deal?" To which we might reply, "Well, we have
a rebate program in France but we do not have one in Italy."'
As pricing was always under the authority of individual
CSOs, differentiated pricing prompted a significant
amount of cross-border sales as the more sophisticated
pan-European customers supplied all of their needs for
3M products in Europe from the CSO with the lowest
price.
Customers also wanted to have only one contact point
with 3M that could speak for all of 3M's operations in
Europe. Hanson elaborated:
'Customers wanted decisions immediately. We might have a
customer in The Netherlands and our Dutch salesperson
would go in and call on them. The customer would say, "Here
is what I want done and I want it done in Germany, France
and Switzerland." In the past, our man would say "I am
sorry, I can make this deal with you for The Netherlands, but
you will have to go to our people in those other countries
yourself to work things out." And the customer would ask,
"Aren't you a multinational company?"'
Nevertheless, the need for improved coordination
across Europe was quite different for the many busi-
nesses on the Continent. For example, in data storage
products (e.g. floppy diskettes), the European manage-
ment team had already become very integrated because
it was the only way to survive against strong global
competitors such as Sony and Verbatim. In contrast, the
visual systems business, which primarily marketed over-
head transparency projectors and supplies, competed
European ManagementJournaIVo114No 1 February 1996
 RESTRUCTURING 3M FOR AN INTEGRATED EUROPE. PART ONE: INITIATING THE CHANGE

against a number of local competitors which made it 'The transparency films [for overhead projectors] that 3 M
difficult to integrate the 3M line across Europe because, makes in Europe are done in 2 different steps in 2 different
"It was smaller and didn't attract much management countries. First, the polyester is extruded in Italy and then
attention." shipped to France for coating and converting. The E M A T
was always more marketing oriented and had no power to
combine these two operations for better efficiency. The
Pressures for Growth Manufacturing Director for Europe [who primarily had an
advisory role] had no power to make this decision. Each of the
As the growth of 3M's sales slowed in the US towards country heads lobbied to keep their own operations, or even to
the end of the 1980s, 3M management looked to the take it all.'
overseas markets as immediate sources of increased sales
to help meet the corporate goal for the 1990s of 10 per These ongoing concerns led to the creation of another
cent annual profit growth. Attracting particular attentiontask force in 1990, made up of several of the younger
was the fact that market penetration in Europe was only MDs from the smaller countries in Europe and two
half of that in the US on many of the company's product Americans who had a lot of experience in Europe. Their
lines. However, management knew that there were some brief was to take another look at the effectiveness of
important differences between the way products were 3M's European organization and its ability to meet the
sold in Europe and the US which would have to be changing needs of customers. The task force solicited
addressed to fully exploit the potential of the European opinions from the group VPs in the US, as well as the
continent. MDs from the major CSOs and key European staff
members. The condusions of the task force, which were
For example, the acceptance of 3M in Europe as a presented to the executive committee in the US and the
technical company which sold products based on their European management team, were very similar to the
technological uniqueness was not well-recognized, ones of the task force commissioned four years earlier.
neither intemally by much of the 3M local management, Specifically, the report recommended a new European
nor externally by customers. Furthermore, the organizational structure supported by three management
philosophy of 'selling at the bottom of the smokestack' structures: European Business Centers (EBCs), regional
which the company had historically used to justify its subsidiaries and a European operating committee. The
high margins, was much weaker as well. The European EBCs would be formal pan-European product line
3M salespeople were less likely organizations which would
to have technical backgrounds h l 1991, 31Vl began to report into the US Group Vice
than their US counterparts which Presidents. Each EBC would be
meant that many technical implement the responsible for developing and
explanations or problems which o "gamzat onm change to a implementing the group's
normally could be solved on the European business plan with
spot in the US, required the European business center direct responsibility for manu-
involvement of a Technical facturing, R&D and technical
Service representative in Europe,
pan -European product line
services, as well as profit and
and all the expense associated structure as a priority loss responsibility. Within the
with this extra assistance. In EBC, there might be one or more
contrast to the US, where the technical service European business units (EBUs) which would be
representatives reported to the technical arm of the responsible for the sales and marketing of a product
business, in Europe this group reported to the sales line within the EBC (see Exhibit 3 for organization chart
organization. These field technical service representa- of the proposed EBC). For example, the Abrasives EBC
tives were not considered to be as capable as their US might be comprised of several EBUs such as automotive
counterparts by the laboratory organizations with whom trades, abrasive systems and ceramics. However, all
they had limited contact. manufacturing and technical resources would be held at
the EBC level.
Because of 3M's lesser reputation in Europe as compared
to the US, European customers were more sensitive to The report recommended that the current CSO structure
the pricing of the product. As global competitors began be realigned on a regional basis to 'support a con-
aggressively competing in Europe, the pressure on 3M tinuation of our strong local market presence while
pricing became even more intense and the costly nature facilitating pan-European cooperation.' While before
of 'supporting 45 product lines 20 times over,' as one there had been 17 different CSOs, the proposed
manager characterized the CSO structure, came structure would combine them into 10 regional
increasingly under attack. It was clear that the EMAT subsidiary organizations (RSOs) of which only 4 (UK,
structure was not strong enough to solve many France, Germany and Italy) would be one-country
seemingly obvious inefficiendes. Stefano Rosselli Del regions. These 10 RSOs would provide the resources
Turco, a Division Director in Italy before the necessary to carry out the plans of the EBCs, including
reorganization, gave an example of an inefficient, costly human resources, financial resources, logistics, manufac-
manufacturing arrangement that was never resolvable turing and general administration. Importantly, the
under the EMAT structure: RSOs would represent 3M externally at the regional

European ManagementJournelVot 14 No 1 February 1996 3~

RESTRUCTURING 3M FOR AN INTEGRATED EUROPE. PART ONE: INITIATING THE CHANGE
level, identify local business opportunities and manage
the legal entity of 3M in each country.
An overall management committee called the European
operating committee (EOC) was proposed to oversee
the new European organization. Members of the EOC
would include both EBC and RSO heads, as well as
various European staff in areas such as technical direction
and human resource management. The vice president of
Europe would have 'dotted line' authority over the EBCs
and direct authority over the RSOs.
As in the case of the earlier task force, this second task
force's proposal was not immediately accepted with the
exception of the move from country organizations to
regional organizations which was implemented in May
1991. In the case of the one-country regions, the
previous MD of the country organization became the
new MD of the regional organization. However, upon
the retirement of Monteiro as executive VP of Inter-
national in the Fall of 1991, his successor, Hammerly,
began to implement the organizational change to an EBC
pan-European product line structure as his top priority.
Reorganizing for Emerging Opportunity
Hammerly was a well-known and respected individual
within the 3M international community, having spent
most of his career in this area. In the early 1970s, he had
worked as the European Controller with Bent Bjorn, the
Danish head of 3M Europe, and had shared his vision of
an integrated product line organization in Europe.
Hammerly had then moved on to various assignments
in Asia and Latin America before being called back to St.
Paul in 1982 to serve as the VP of Finance. In 1986,
when Bjorn moved on to another job within 3M,
Hammerly had asked to be allowed to return to the
international arena as the European VP to continue the
work that Bjorn had started. After a period as head of
Europe, in 1989, Hammefly had relocated back to the
States to run the industrial and electronics sector, which
he did for two years, until he was called back to the
international side of the business as the executive VP of
International. In his new post, there was no question
about what had to be done:
'When I took over International my mind was made up that I
was going to carry out the vision that we had in I972 which
had really been evolving for 20 years, though more
aggressively for the last 10 years.'
Announcing the Change
To help refresh the organizational memory on why a
realignment was needed in Europe along product lines,
Harnrnerly orchestrated a discussion of the issue with the
heads of the CSOs in October 1991 and then in
November, another presentation of the task force report
was made to the US top executive group. With the
groundwork laid, in January 1992, Hammerly and his
32
European VP, Doug Hanson, embarked on a two week
whirlwind tour of the European CSOs to announce the
change. They met with each CSO's management
operating committee (the MD, the division directors
and staff) to present the customer and competitive
reasons that were driving the change. They then
introduced the new EBC/EBU organization which was
structured as recommended in the task force report.
Hammerly remembered:
'After we finished our piece, we told people, "Now we are
willing to sit here and talk about it as long as you want to." If
people asked questions that we couldn't answer, we said, "We
don't know - we're going to have to work together to figure
that out."'
Shortly after the completion of the two week tour, a
brochure entitled, 'Managing Business in Europe in the
1990s' was issued describing the new organization in as
much detail as was possible at the time. The publication
made clear, strong statements on the changes in
responsibility and authority under the new structure. It
was perhaps 'overly explicit' in some areas to ensure that
the deep nature of the change was understood.
From the information presented to the CSOs on the new
organization, it was dear that it might be 'career
threatening' to some individuals. Though it was not
explicitly stated, it was fairly obvious that the whole first
layer of management under the MDs, the division direc-
tors, was going to be eliminated. In one manager's view:
'These division directors had been there forever, in some cases
I5--20 years. They were some of our finest, long-term,
national employees. On the other hand, this group was a lot
more responsible for us not being able to have European-wide
programs than the MDs were.'
Thus, shortly after the initial presentations, Hanson met
individually with all 70 division directors to openly
discuss their endangered positions and future oppor-
tunities.
In a very short time, the entire European organization
seemed very comfortable with the change to come. and
many even thought it was overdue in coming.
Hammerly attributed this acceptance to the history of
the top management team in Europe:
'I was a known quantity to those people and they knew that I
had been consistent over all the years - when I said
something, we followed through on it. Likewise, Hanson had
been the Managing Director of Switzerland and Italy for a
total of six years so he was also known. One of his strengths
is working with people. Together we emphasized open
dialogue and visible management.'
According to one manager:
'Having worked for Hammerly in the past, we trusted him
and we trusted 3M. He really represented 3 M in this
particular change and we bought in.'
EuropeanManagementJournaIVo114No 1 February 1996
 RESTRUCTURING 3M FOR AN INTEGRATED EUROPE. PART ONE: INITIATING THE CHANGE

Group VP ] [ VP Europe ]
I
IF.___US Division I I European Business Center ]. J [
Business Unit
I
I
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I ] I
i I
EBC EBC EBC
L_ Business Business Controller* Manufacturing* Technical*
Unit* Unit

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Regional Regional Subsidiary Subsidiary
Subsidiary Subsidiary Manufacturing Technical
S&M Function* S&M Function
i
,, I
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I Regional Subsidiary Organization I

Note:
-- An EBC may in itself be one or consist of several 'Euro Business Units'
-- In certain cases the EBC Head and EBU Director Function may be the same
-- Finance, Manufacturing and Technical Support depending on need and size
- - (*) European Business Operating Committee Members (EBOC)
-- Organization structure may vary according to business needs

Exhibit 4 European Business Center n Organization Model

Many of the management team in place at the time
attributed the strong buy-in to the participative process
used to develop and introduce the change.
Planning the EBCs
The implementation of the change was made the
responsibility of the EOC which consisted of the MDs
of the largest subsidiaries as well as Hanson, the head of
Finance in Europe and the director who had
responsibility for the smaller RSOs. Of the five MDs
representing the largest RSOs, three had been recently
appointed to their posts in the six months prior to the
announcement of the reorganization with the under-
standing that they were likely to be asked to implement
a major reorganization which would significantly change
their own and others roles in Europe. One EBC head
reflected on how this facilitated the change:
'There was a big difference between the MDs named before
the change and those named after or during the change. The
ones named before the change were the leaders of that country
and had total authority of what was going on in that country.
For them it was not easy to accept that they would lose a lot
of power to the EBCs and EBUs. The ones named after or
during were briefed that they would have to manage a
transition in the right way and fully supported it.'
The implementation of the new organization at the EBC
and EBU level began immediately after the restructuring
announcement was completed by Hammerly and
Hanson. EBC plans were developed by the key people
from the European headquarters operation and sub-
sidiary organizations in collaboration with the group
vice presidents and their teams in the US to detail how
the labs, plants and other resources were to be split
between EBCs. By design, no uniformity in organiza-
tional structures was required for the proposed EBCs.
Hanson explained:
'We were smart enough to know that a group of as were not
going to be able to go into a room and design a structure that
would work for each of our businesses, so we allowed each
business in 3 M to design the structure for itself that would
best fit the customer and the business. What we had then was
the people who knew the most about the business, and the
Europeans who knew the most about Europe, along with the
key people from the US together designing the structure.'
The plans for the new EBC/EBU structures were then
presented to the EOC for approval. Karen Welke, the
head of the new RSO for France and a part of the
committee, described the planning and approval process
for the EBC proposals:
'It was all done to the time line of the group VPs' targets for
the EBCs - there were no formal deadlines. The process used
to develop the plans varied by business. Some business groups
had very open forums and planning processes, and others
involved few personnel. European management approved
almost all of the EBC structure plans, knowing that any
problems would be corrected as the structure evolved.'
Hammerly felt that the participation of the key players in
developing the new EBC structures was critical:

European ManagementJournal Vo114No 1 February1996 33

RESTRUCTURING 3M FOR AN INTEGRATED EUROPE. PART ONE: INITIATING THE CHANGE

'Many companies put out a new organization chart and say
"We have changed the organization." But I do not believe you
change an organization by putting out a new organization
chart. You have to change the behavior and the thinking of
the people and you only do that by their participation in the
process.'
creativity, innovation and risk taking. We could not leave
some of those division directors in place, not knowing when or
if they were going to be pulled out of those businesses. And
then the people with EBCs that had not formed were saying
all the good people were going to be taken by the time theirs
came up.'

In making the critical choice of the EBC head, Hanson Stefano Rosselli Del Turco described his personal
had committed to the organization from the start that he experience as a division director in Italy as he waited
wanted the majority to be Europeans: to see if he had a place in the new organization:

'These are very difficult jobs. To run a business across 20
countries in Europe with multiple cultures, at least a dozen
languages and different distribution channels, you have to
understand Europe. You can not take inexperienced
Americans, even though they may really understand the
producL and put them in Europe in the role of running one of
the businesses.'
In parallel with the development of the EBC plans,
Hanson and the relevant US group vice president
developed a list of 3 or 4 candidates for each EBC head
position, stating their preferred individual, which went
first for approval by a European executive resource
committee and then afterwards to the corporate
executive resource committee in St. Paul Hanson
commented, 'In virtually every case, we received both
their approvals for our candidate'.
'I was a very happy man in Italy. I had a well-respected job. I
knew I was not going anywhere because I was reporting to an
M D who was always American, but I had one of the biggest
groups I could have in Italy. So that was it. And when this
change occurred, it was, "Oh, my God/Will I be a candidate
for one of those European jobs? Will 1 have to leave my
country?" So after a few years of being happy and secure, now
I did not know.'
Furthermore, the dual organizational structure with
some businesses being run under the new EBC
structure and others still being run at the regional
level added more complexity and it was becoming too
confusing. Therefore, the decision was made to
expedite the reorganization to be completed by the
end of 1993.

Another key decision was where Following reorganization, As the European organization
anxiously awaited the com-
to locate the headquarters for 70 pet" cent of heads of pletion of the reorganization,
each EBC. Many of the MDs on trying to guess what it would
the EOC were convinced that European Business Centers
mean for them personally, daily
the EBCs should be sited in close were Europeans. Only a few business still had to be
proximity to the manufacturing conducted in an increasingly
and technical sites, which were previous Divisional poor economic climate, as the
located across Europe. As Bill
Monahan, then head of the
Directors were not placed in recession in Europe deepened.
The new heads of the RSOs
Italian RSO, explained, 'A the new organization played a key role in filling the
business unit has to be as close gaps by taking a much more
to its technology as possible so hands on role than normal.
that when a manager wants to visit a plant or lab, it does
Monahan told how he handled it as MD of Italy:
not have to be a special trip.' The opposing viewpoint,
held mainly by the US group VPs, was to locate the
majority of the EBCs in Brussels, the traditional seat of 'As the division directors in Italy were disappearing, I began
3M Europe, which one MD characterized as 'a meeting with the sales and marketing managers of the
comfortable American ghetto.' businesses on a monthly basis, talking about how to get their
sales up, what the issues were and what could the subsidiary
Between the January announcement and the summer of do to help them. Still there was no question that the business
1992 (see Exhibit 3 for time line of events), four EBC suffered when we were in this state of flux.'
plans were approved by the EOC out of the potential 19
EBCs planned. However, by this point, though Hanson Del Turco, after being appointed as the EBC head for the
had originally targeted the reorganization to be Data Storage and Visual Systems EBC, explained the
completed by the end of 1994, the change was becoming dependency he had on the RSO management to bridge
too disruptive to be allowed to drag out. Monahan from the old to the new organization:
explained the problems that the organization was facing
at that time: 'You have to recognize that when I was named it was just me
alone, and my secretary. Now you can not run a business that
'There was great uncertainty on the part of the people and way. You need to put a team together and help that team
their jobs. One of their concerns was obviously, what is going become effective. There is quite a lot of time between those two
to happen to me - are there jobs for all of us? I believe you can moments. I needed them [the RSOs] because it had to be a
not operate in an environment like that - it freezes people's gradual taking on of responsibility, step by step.'

34 EuropeanManagernentJournalVo114No 1 February 1996

 RESTRUCTURING 3M FOR AN INTEGRATED EUROPE. PART ONE: INITIATING THE CHANGE
Recruiting the N e w Team
After the EBC heads were in place, they worked to
assemble their own teams. Peter Williams, EBC head for
Abrasives, spoke for many EBC heads when he
commented, 'The biggest difficulties I had when
assembling my team was competing for talent and the
availability of people with the proper skills.' Though all
the EBCs wanted to hire managers with pan-European
experience, in reality, there were relatively few managers
within 3M with that type of background - it was clear
that it would have to be learned 'on the job.'
Another concern when hiring was the mobility of the
3M managers in Europe. In many instances, the new
heads of the EBCs were asked to leave their home
countries to relocate at the predetermined EBC
headquarters. Hanson admitted that he expected this
to be a problem, but for the most part, they went
willingly. Nevertheless, at the next level below EBC
head, the EBU heads and staffs, recruiting managers was
more difficult. Del Turco explained what he faced when
staffing his EBC:
'Most of the people have always worked in the same country,
their families have lived in the same place, and not many are
willing to move. So you look at your best people, the ones you
think can do the European job, then they have to ask their
spouse and family if they should accept the European job. So
you have that kind of constraint. It has not been easy to form
a team - in fact, I have some Americans on the team because I
did not have any Europeans willing to take those positions.'
Many individuals found intermediate solutions to the
problem of location. For example, Richard Northrop, the
56 year-old British EBC head of Hardgoods and
Electronic Resources, maintained an apartment in Neuss,
Germany, the headquarters of the EBC, while his wife
divided her time between the UK and Germany. As for
his people:
'I had the option to relocate them to Germany but because this
change is evolutionary, not revolutionary, I said, "We will
review it in 2-3 years, but for now, stay where you are." I
imagined that if I was 30 years old, I would not want to
move. Many are married to professional partners who just
could not move. In any case, I was more interested in the
person's skills than where he or she lived.'
The EBC structures were all in place by February 1993,
18 months after Hammerly had taken over International
with his agenda to reorganize 3M's activities in Europe
and 10 months earlier than the second, expedited
deadline. To everyone's satisfaction, 70 per cent of the
new heads were Europeans, primarily drawn from the
ranks of division directors, but also including a few of
the MDs from smaller countries. In the final count, there
were 18 EBCs comprised of 33 EBUs. 6 EBCs were
headquartered in Belgium, 3 in the UK, 3 in France, 4 in
Germany and 2 were in Italy. Most were located with
EuropeanManagementJournalVo114No 1 February 1996
planned logic such as proximity to lab or manufacturing
expertise, or co-location with EBCs which shared the
same distribution channels.
To the surprise of the European management team, there
were only a handful of Division Directors which could
not be placed in the new organization. The rest either
became EBC or EBU heads or they became Sales and
Marketing regional managers with the responsibility for
selling a group of commodities across one or more
countries and reported to the EBU head. As for those
who did not adapt easily to the new structure, Hanson
explained, 'We took very good care of them and made
sure they left with a good feeling about the company'.
While the management team of 3M Europe had much
apparent success in reorienting the organization, not
everyone observing the transition believed it was
complete or had taken hold. As one senior manager in
3M's International management team noted:
'I worked in Europe for many years. I am still not completely
convinced that this transition is either over or could be
declared successful yet. There are still many challenges ahead.'
This comment was echoed by a senior manager in the
European organization who noted:
W e have been through a great deal of change. When I reflect
on it, I am not completely sure how we did it all, nor am I
sure it is over, or that we know what needs to be changed
next.'
The troubles, triumphs, and surprises of the next few
months are described in the second part of this article,
'Restructuring 3M for an Integrated Europe:
Implementing the Change', to be published in the April
1966 issue of the European Management Journal.
Notes
This article is based on an INSEAD Case Study. Copyright ©
1994 INSEAD. Permission kindly granted by INSEAD.
1. With the increased use of 'best in class' benchmarking as a
tool for evaluating management processes, 3M staff found
that it had to sometimes temporarily refuse requests for
benchmarking interviews due to the amount of time being
consumed by discussions with companies interested in its
innovation processes.
2. The brand name for 3M's clear adhesive tape used in offices.
3. 3M institutionalized the differences in these time horizons
by putting very long run fundamental research into the
corporate or central laboratories, medium range work in the
sector laboratories and short-run application development
work in the divisional laboratories.
4. A technical audit was carried out on each lab, worldwide,
every few years by a team of both staff and line technical
management to give the lab management non-binding
feedback on various measures of its effectiveness.
5. For example, Scotch® tape did not yellow or lose its
adhesive properties with time and it could be written on.
35
RESTRUCTURING 3 M FOR A N INTEGRATED EUROPE. PART ONE: INITIATING THE C H A N G E

MARY ACKENHUSEN, DANIEL MUZYKA,

INSEAD, Boulevard de INSEAD, Boulevard de
Constance, Fontainebleau Constance, Fontainebleau
77305, Cede:c, France 77305, Cedex, France,

Mary Ackenhusen is a Dr. Muzyka is currently IAF

researcher at INSF.AD, where
she has written a number of
case studies exploring
entrepreneurial management
within large corporations and
corporate transformation. She
co-authored with Sumantra Ghoshal the case study
'Andersen Consulting--Europe: The Business of Business
Integration' which won the European Foundation for
Management Development award for the best European
Service case in I992, as well as the European Case
Clearing House award for I994. Other companies that
she has written case studies on include Canon, Digital
Equipment Corporation, Philips, A T & T and
International Service Systems.
Before coming to INSEAD in 1990, she worked as a
plant manager for a final assembly and test plant which
fabricated industrial automation equipment in the United
States. She has an M B A from Harvard Business School,
a BS Industrial Engineering and a M S in Industrial
Engineering from West Virginia University.
Professor Of Entrepreneurship
and Associate Dean of the
MBA Program at INSEAD.
He teaches and researches
into entrepreneurship and
corporate strategy, particularly as it applies to growing
businesses. He has also acted as consultant and educator
to a number of corporations and continuing Executive
Education Programs.
Daniel has previous experience in finance and corporate
strategy at the General Electric Company and spent 5
years as a strategy consultant, mainly with Braxton
Associates, Boston. He was also involved in starting up
an entrepreneurial business.
He was educated at Williams College, the Wharton
School, University of Pennsylvania and Harvard
Business School.

NElL C. CHURCHILL, INSEAD, Boulevard de Constance, Fountainebleau 77305,

Cedex, France,

Neil Churchill is a Professor of Entrepreneurship at INSEAD. Before that, he held chaired

professorships at Babson College in Massachusetts, Southern Methodist University in
Texas, and Harvard Business School. His research and teaching interests are in innovation
and the management of entrepreneurial businesses. Professor Churchill has published over
60 articles and books and 30 cases, is on the editorial boards of six journals, and has
lectured and taught in a number of countries including China, ]apan, France, UK,
Switzerland, Italy and Poland; and is a member of the board of directors of a number of
owner-managed businesses.

He holds a BS in accounting, and an MBA in organizational behavior from UCLA and a Ph.D in business
economics from the University of Michigan. He is also a CPA {California) and has an AM(Honorary) from Harvard
University.

36 European ManagementJournalVo114 No 1 February 1996