3M Company is located in Canada and sells a variety of industrial products such as adhesive, tapes and plants’ maintenance appliances. The company initially served OEM customers, who bought the company’s products with the purpose of reselling them to the end users.
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The company decided to change its customers in the year 2006.Consistent with these changes was the shift from focusing on maximizing on margins to increasing sales volumes. This change was faced by a challenge since its initial customer based had reached its saturation point in terms of growth.
The company therefore decided to change its customer base from OEM to MRO, who were the end users of the products. During the transition to the new market, 3mM’s Industrial Business Division did not have experience in dealing with this type of customer.
This made the company to opt shifting from special and niche distributors, who had experience with the OEM customers to national level distributors who were promising to grow fast and had the capability to deal effectively with the MRO customers.
As part of the new strategy, the Company had laid down guidelines to help it implement these opportunities. Growth of the mainstream business, acquiring existing organizations, increasing investments and focusing on new opportunities in the market are parts of these guidelines.
To achieve the new strategies, the company had to have objectives, which dictated the actions to be taken to make them a reality. Expanding the scope of the mainstream business, cannibalism, Product customization, solving of consumers problems, designing local products and sealing white spaces are the activities that had to be carried out in order for the new strategies to be implemented. Organization of sales had to be changed as well to conform to the new strategy. Further recommendations have been given on how IBD can achieve its strategic plan. The conclusion wraps up the report in a nutshell.
3M Canada is a company that manufactures a wide range of products. Such products include tapes adhesives and other industrial products. The company’s products serve customers who purchase items of high value and those who buy commodities of low value.
Over the years, the company has specialized in serving the customers who purchase items with high monetary value. The company’s main strategy was to maximize margins while reducing the cost of production. However, in the recent past, there has been a change of focus in terms of the strategic goals.
The company’s CEO has decided that the company will change its strategic goal and focus on increasing volume of sales. This shift of attention means that the company will need to restructure itself in order to accommodate the new change.
The dilemma lies on determining the means through which the company should effectively adapt itself to achieve the new strategic goals. The accounts manager, Mahesh Yegnaswami has been mandated by the company’s CEO, George Buckey with the task of providing the direction to the company on the way forward. This case study analysis will focus on the suggestions the accounts manager gives and their effects on the company as a whole. Likewise, this analysis will give insights on other strategies that can be used by 3M and have not been given in the case study.
What is the key dilemma facing 3M Company’s industrial division? The answer to this question cannot be found without critical analysis of all the contingencies surrounding the company.3M company serves the Original Equipment Manufacturers (OEM) as their main market segment. This market segment has been facing serious challenges of late.
First, it had reached its saturation point in terms of growth. This meant that expansion prospects for this market segment were very low. The root of the problem was embedded on some factors that were beyond the company’s control.
The cost of production had been rising with the value increase of the Canadian dollar compared to the United States dollar. The manufacturers had been facing high cost of production because they incurred expenses in Canadian currency, but earned their profits using the American dollar. The Chief Executive Officer of 3m, in the year 2006 spearheaded the change of strategy from capitalizing on expanding the company’s margins to business growth and promotion. Business growth had to take two dimensions.
The Industrial Division would expand the existing market as part of its growth strategy. This, however, was not possible with OEM market segment as it had reached its upper growth limits. This called for changing the customer base from OEM to MRO.
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The MRO type of customers was a fast growing segment. Actually the players in this market segment were increasing in multiples of two. This therefore seemed to be the best type of customers for the Industrial Business Division to attract.
The second option for the Industrial Division to adopt was to venture into new markets as well as introduce new products to both existing and new market segments. Changing the market segment focus for the Industrial Business Division had to touch the structure of the division.
Dimensions of the new strategy
First, the strategy had to incorporate growth of the main Business. Growth of the mainstream business was to involve expanding the business to cover larger geographical areas as well as producing more products than it is producing initially.
Secondly, the strategy had to focus on new opportunities in the market. The new opportunities arose from the fact that the tastes and preferences changed with time. The change in tastes and preferences of consumers offered a good opportunity to produce new products that would suit them better than the existing ones.
Acquiring of existing organizations was part of the new strategy. These acquisitions could involve acquiring already existing distributors. This would help the Industrial Business Division to have an added advantage in terms of reaching the end users of its products more effectively.
The final component of the new strategy was to increase investments in new markets by multiples of two.In the emerging segments, the Industrial Business Division would have a competitive edge over its competitors by increasing its presence. This would lead to its dominance in such markets.
Objectives to guide strategy achievement
For the Industrial Business Division to accomplish its long- term goals within its new strategy, it had to put down objectives that would lead to the accomplishment of the new strategies. Objectives are those things that have to be done in order to achieve the set goals.
To expand the scope of the mainstream business, the Industrial Business Division had to find a good way of ensuring that its present customers remain loyal to it. Customer retention was not an easy task as it meant the Industrial Business Division had to satisfy them better than competitors.
The Industrial Business Division found this to be difficult, bearing in mind that it had to change its customer. The difficulty lay in the fact that the new MRO customers, who the division was wishing to satisfy better than its competitors had existing suppliers who served them initially. The division therefore had to ensure that it was up to the task of outdoing their competitors.
Cannibalism was another guideline that the division considered a milestone towards winning the new MRO market. Cannibalism is a practice where a company introduces a product in a market with its products already in existence. The new product thus compete with the company’s other products.
Cannibalism is aimed at increasing sales such that they would exceed those of the existing products. Cannibalism, however, has its demerits in that it may die after having destroyed the old business. The Industrial division must therefore be prepared to live with the consequences of this guideline if it chooses to go ahead and implement it.
The Division has adopted product customization as one of its guidelines towards achieving success in its new strategy. Product customization refers to making products and designing them in such a way that it meets the specialized needs of individual customers. Product customization showcases the company as a problem solver to the customers.
The degree to which a company is able to design products and services to meet the needs of its customers determines its ability to retain the customers. The Industrial Business Division must overcome this uphill task. To accomplish this, the division has to establish a personal contact with the end users of its products in order to understand what they desire the products to fulfill.
The division has one of its aims as being the strongest driving force in big markets. Vigorous promotions are required to achieve this guideline. To retain its dominance even in small markets, the division has one of its objectives being to have a bigger share in these markets in relation to its competitors. This would go a long way in ensuring that it controls the industry in these markets. Since the Industrial Business Division want to expand its business, it is bound to go global on a bigger scale than before. The global market consists of consumers whose buying behavior is greatly influenced by their cultural backgrounds.
Designing local products by the Industrial business Division would correlate well with the international market by increasing its ability to cater for the needs of people of diverse cultures. Differentiating its products will help its customers to recognize their products in the market. This can help in building customer loyalty. The Industrial Business
Industrial Business Division has planned to private label its products as a means of winning distributors. Private labeling refers to the process of a company offering its products, but under another company’s label. Private labeling is a very effective tool of advertising on the part of the distributors.
The final guideline on how to achieve the new strategy is ensuring that no white spaces exist in terms of product quality and characteristics. This means that the Industrial Business division is aiming at maximizing on every available chance to innovate its products and services.
Organization of sales
For the Industrial Business Division to serve its new type of customers, the managers needed to focus on some issues which were important to the success of the new strategy. There was a need to change the way sales were organized.
Initially, the Industrial Business Division (IBD) had thirty five people who were in charge of sales. They were located at different regions with each having a lot of know-how in the region they operated as well as in the products they sold.
This is a clear indication of the level of specialization that had taken place within the sales team. Each sales person had to deal with store managers as IBD was dealing with OEM customers. This meant that the sales team only had expertise in dealing with few store managers on issues of products they were well specialized in. The shift from serving the OEM to MRO had to match a change of sales tactics as customers in MRO needed to be served in a different way.
First, the new customers expected that each sales person representing IBD had the knowledge of all the products manufactured by the Division. A major disadvantage of the sales team was that all of them had grown through the hierarchy of the organization, and depending on their achievement, they were promoted to the rank above their present one. This means that the whole team had no external influence from their immediate environment.
The absence of external factors jeopardized the chances of the sales team to keep abreast with the changes taking place outside their organization. This factor would give them a hard time dealing with the MRO customers.
The present business model for 3M is very rigid. The way the sales are conducted depict a strict structure that provides convenience to its employees since it is repetitive and does not pose any challenge to them. The distribution channel is not fully structured to meet all the needs of different types of customers.
This model has depended on special and niche distributors. These were very perfect hen dealing with OEM customers. Suppliers at the national level, however, are the most suited in dealing with the MRO customers. This is because they are growing at a high rate. Their ability to grow synchronizes very well with the dynamic nature of the MRO customers who are ever changing in terms of their taste and preferences.
Areas that needed change
Yegnaswami, after conducting a survey on the national suppliers, he came up with the conclusion that IBD needed to change its methods of sales. His conclusion stemmed from the realization that the suppliers at the national level had sophisticated buying processes that were different from those the sales people were used to. The rate at which these national suppliers were growing was a clear indicator of how well IBD could grow with them.
Effective changes on the way sales would be handled in the new market included being at the supply point where the end users of the products are located. The presence of IBD at the consumer markets would help in monitoring the levels of supply with the intent of adding the supply when the level went down.
Being at the lower end of the market also provided IBD with a chance to collect the much needed feedback from the consumers. This feedback is essential so that the products could be designed to suit the preferences of the consumers thereby satisfying them. Satisfied customers make repeat business for the organization and recommend its products to others.
In the previous customer market (OEM), the Industrial Business Division entrusted the end user of its products to the niche and special distributors since the end users were large industrial markets that had a good established relationship with IBD.
In business to business markets, the demand power is usually with few powerful businesses (Brennan, 2011). In the new market, however, the IBD had to provide added support to the consumer to ensure that the products evoked the satisfaction the customer expected from them. This support included fixing of new equipment on the different plants.
A supply chain that is effective was required for the new strategy to be realized. This would help in ensuring that the products were available to the consumers when required, thereby offering convenience to them.
The success of IBD relied on its ability to solve the consumers’ solutions. Since consumers had a variety of needs, the identification and satisfaction of such needs was a critical duty of IBD if it was to achieve results with its new strategy. Bundling together several products that the consumers were willing and able to buy would lead to increase in sales volume of IBD.
A quick process of making decisions was a good recipe for swift responses to changes in the marketplace and in shift of strategies. This called for the maintenance of the bureaucratic system that initially existed.
Sales model. The initial model of sales had its focus on products. With the change of customer focus, the model had to change its point of interest to suit the new market of consumers. According to Bruhn (2003), managing customer relationships that are sustainable results to customer loyalty. Change from product focus to customer focus must be done in such a way that product quality is not compromised.
Another change that the sales model was to undergo was provision of channel specialists. These specialists were to be stationed at major existing regions to aid the specialists who dealt with products. The aim of supplying regions with channel specialists was to enhance cooperation of the IBD with national suppliers at the various regions. The channel specialist was to provide a unifying image of the company to the suppliers at the various regions. Their presence at different stations was an indicator of the company’s willingness to embrace change.
IBD had another change of sales model. It was considering the option of using sales people who were not attached to any other company in a permanent way. These suppliers would deliver IBD’s products to the customer at a specified fee as commission. A two percent commission was to be given to those sales persons who availed products to existing customers and a five percent commission on those who made new customers to the business. This change, however, posed a problem to IBD.
One of its aims was to offer personalized services to the customers by being present at the lowest level of contact with them. The presence of these suppliers created more distance between the company and the end users of its products. Private labeling is another available option that was available for IBD. This would involve the company manufacturing some products with labels belonging to the national players.
National suppliers like privately labeled products as they act as a promotion tool to their business. Manufacturing privately labeled product was in consistence with the new strategy of increasing volume of sales. These private labels would add the sales volumes in that since the labels act as a positioning tool in the market for the suppliers, they would readily buy from a manufacturing company that provides products with such labels as opposed to those which do not offer them.
Moving along the lines of producing privately labeled products had serious repercussions on the expansion and growth strategy. Since the privately labeled products would not carry 3M labels, they would reduce the likelihood of new consumers becoming familiar with the company’s brand which would eventually lead to brand loyalty. IBD faced a problem with the supply chain regarding negotiations. Much of its revenue was being used in striking bargains with suppliers.
Many suppliers requested reduction of prices on specific items in exchange for OEM customers. Vitale (2010) argued that players in the market negotiate their way by using their business advantage over those they trade with. The accounts manager was, therefore, in a dilemma on whether to move ahead and use the suppliers who were costing the business a lot or do away with them.
The dilemma was further magnified by the fact that there was a high possibility that the promised OEM customers were already being served by 3M’s niche distributors. Entering into a contract with these distributors might have meant denying 3M’s niche distributor to make business transactions. The unfamiliarity between the new distributors and 3M could lead to mistrust, which would affect the business negatively. The circumstances seemed to dictate that it would be easy to retain the niche distributor, who the company has gotten used to.
LogisticsIBD realized that the chain of supply cost a lot of money to the suppliers. Manufacturers who would have the means to reduce this high cost had a good chance of wooing these suppliers in to doing business with them. IBD put a plan in place, to associate closely with these suppliers and work towards reducing their costs. By doing so, the IBD aimed to gain a big proportion of their business. IBD also noted that by improving efficiencies such as delivering goods on time would give it a better chance than its competitors to do business with the suppliers.
Programs designed for marketing. The initial marketing programs were designed for the specialized regions which had product specialists. Because of the superior brand of 3m, coupled with good technology for manufacturing, the prices for its products were on the higher limits.
This was because the initial focus was on increasing margins of sales. The change that would be appropriate would involve coming up with a marketing program with low prices to entice the target customers. According to Bingham (2008), low prices favour new entrants in new markets market.
There existed a probability that lowering of prices would be perceived to mean reduced quality by consumers. Such interpretation would ruin business as some customers who attach value to the company’s products may shift to competitors. The degree to which the prices were to be lowered, Should have been given due consideration to avoid losing business while in the process of making it.
For 3M’s Industrial Business Division to establish itself in the market, it should incorporate sales people from outside its organization. People from outside environment come into an organization with new ways of solving problems.
They may possess experience that people who have grown and developed in the organization do not have. Entropy, in an organization refers to the existence of disorder, caused by lack of information and experience in its workforce.
To get rid of this disorder in the organization, introduction of negative entropy, through bringing people into the organization from the outside environment is very important. In 3m, the sales people lack the knowledge and experience in dealing with MRO customers. Sourcing out people from the outside environment will enrich the company with a knowledgeable work force.
3M’s Industrial Business Division should use competition based pricing strategy. This pricing strategy will help the company penetrate the new market by offering prices that are lower than those of its competitors.
The success of the new strategy depends on how well all the changes discussed in this report are implemented. The change of customers, suppliers and the sales methods would be very effective in driving the new strategy to achieve the set targets.Yegnaswami must coordinate the changes and prepare the employees to embrace the change. Resistance to change from employees would derail the achievement of the set goal.
The company must be willing to have fewer margins and risk making loses while trying to woo the new suppliers to becoming partners in doing business. According to Woodside (2010), making mistakes in business in the process of trying to improve business performance is inevitable. Market research should be a constant venture for the company until such a time when it will be satisfied that it has hit its target. The research would help the company to have the latest information and feedback from the customers. The feedback will be very useful in planning how well to serve the customers to make them loyal to the company.
Bingham, F., Gomes, R. & Knowles, P. (2008). Business marketing (4th ed.). New York: McGraw-Hill Irwin.
Brennan, R., Canning, L.& McDowell, R. (2011). Business-to business marketing. London: Sage.
Bruhn, M. (2003). Relationship marketing: Management of customer relationships. London: Prentice Hall.
Vitale, R., Pfoertsch, W. &Giglierano, J. (2010). Business to business marketing: International edition. NJ: Pearson Education
Woodside, A. (2010). Organizational culture, business-to-business relationships, and interfirm networks. edited by A.G. Woodside, Bingley, UK: Emerald.