Chairman and chief executive officer, 3M
Born: August 22, 1949, in Providence, Rhode Island.
Education: Yale University, BA, 1971; Harvard University, MBA, 1975.
Family: Son of Walter James McNerney (professor of public health); married (first wife's name unknown; divorced); married Haity; children: three (first marriage), two (second marriage).
Career: Procter & Gamble, 1975–1978, brand manager; McKinsey & Company, 1978–1982, senior manager; GE Mobile Communications, 1982–1988, general manager; GE Information Services, 1988–1989, president; GE Financial Services and GE Capital, 1989–1991, executive vice president; GE Electrical Distribution and Control, 1991–1992, president and chief executive officer; GE Asia-Pacific, 1993–1995, president; GE Lighting, 1995–1997, president; GE Aircraft Engines, 1997–2000, president and chief executive officer; 3M, 2000–, chairman and chief executive officer.
Awards: Vision for America Award, Keep America Beautiful, 2002; one of the Best Managers of 2003, BusinessWeek , 2003; CEO of the Year, Industry Week , 2003.
Address: 3M Corporate Headquarters, 3M Center, Saint Paul, Minnesota 55144-1000; http://www.3m.com.
■ W. James McNerney was the first outsider to head 3M in the conglomerate's 100-year history. His success in this role cemented McNerney's reputation as one of America's most respected business leaders. An executive at General Electric since 1982 McNerney was one of CEO Jack Welch's leading protégés, a star of the highly vaunted GE leadership development system. McNerney's public profile soared in 2000, when he became one of the three contenders in the race to become CEO when Welch retired. When the position went to Jeffrey R. Immelt, McNerney accepted the offer to move to 3M.
Some observers predicted that McNerney's desire to import GE methods into 3M would clash with the culture of innovation and independence that was 3M's hallmark. However, McNerney's managerial qualities enabled him to instigate profound changes in the company while largely maintaining the trust of employees. McNerney was widely praised by staff and analysts as a dynamic and effective leader.
McNerney attended Yale University, where he was on the baseball team with George W. Bush, and then Harvard Business School. After graduation, McNerney's first position was with Procter & Gamble, a company famous for its consumer products such as Pampers disposable diapers and Tide laundry detergent. At Procter & Gamble, McNerney worked in brand management for Ivory soap. He then moved to the management consultancy firm McKinsey & Company for four years.
In 1982 McNerney joined GE as general manager of GE Mobile Communications. Over the next 18 years he held seven positions at GE. Such movement was typical of the GE leadership development model, whereby promising managers moved from job to job every two or three years. The aim was to provide managers with diverse experience and exposure. By the time McNerney was named president and CEO of GE Aircraft Engines in September 1997, it had become obvious to observers that he was being groomed as a possible successor to Welch. McNerney developed a reputation as a skilled team builder and proved his ability to grow the businesses with which he was involved at GE. In particular, during McNerney's time as CEO at GE Aircraft Engines, revenue increased from $6.3 billion, the 1996 figure, to $10.6 billion in 1999. Profits increased from $1.2 billion to $2.1 billion. With McNerney at the helm, GE Aircraft Engines became the second largest profit-making division in GE, behind GE Capital. A major success during this time was restoration of the relationship between GE and Boeing, which led to a deal whereby GE90 engines were supplied to Boeing 777 jets. Boeing executives cited McNerney's sincerity, focus, and decisive, hands-on style as key factors in his success. Although he likely received many lucrative offers from outside GE, McNerney was committed to staying in the race for the top job.
When Immelt was named Welch's successor in November 2000, McNerney and the third candidate, Robert J. Nardelli, became the most hotly recruited executives in corporate America. As a star of the GE system, McNerney faced extreme expectations of success. The day McNerney was named 3M's next CEO, replacing the retiring Livio D. DeSimone, the price of 3M shares jumped 11 percent. Some observers were skeptical about whether the GE "hotshots" could perform outside the confines of GE, and there were doubts about whether a company as insular as 3M would accept an outsider.
3M, established in 1902 as the Minnesota Mining and Manufacturing Company, had a long tradition of achieving innovation by allowing its researchers the independence to pursue their projects without interference from management. This approach had produced thousands of successful products, including household names such as Scotch tape, Scotchguard fabric protector, and Post-It notes. 3M leaders had always been chosen from within the company and were therefore largely committed to protecting the existing company culture. In the late 1990s, however, economic conditions changed. Although still a sound performer, 3M had been affected by weakening overseas markets, which had a negative effect on revenue. In particular, the 1997–1998 downturn in the Asian economies hurt 3M, as did the high value of the U.S. dollar in 1996–2000. The company's share price also slipped as the U.S. stock market came to the end of a 10-year growth period. In addition, analysts believed that the 3M leadership lacked dynamism and that the venerable company was underperforming.
McNerney's mandate when he arrived at 3M was to reinvigorate the company. In particular, he aimed to reestablish the company as a growth venture with double-digit growth figures, whereas 3M had been achieving approximately 5 percent. McNerney focused his strategy on initiatives in five key areas: sourcing, indirect costs, e-productivity, 3M Acceleration, and Six Sigma. McNerney faced the difficult task of increasing efficiency and discipline in business while not stifling the innovation for which 3M was famous. One of McNerney's first moves as CEO was to order a global restructuring that cost approximately six thousand jobs, approximately 7 percent of the total workforce. Because this approach seemed to mirror that of Welch, infamous for his job cuts at GE, there were fears that McNerney was trying to turn 3M into "3E." Another profound change that raised fears of a GE takeover was McNerney's drive to implement Six Sigma into 3M. Six Sigma was the management method developed at Motorola in the early 1980s to eliminate inefficiencies and errors. The process was adopted by Welch and expanded to all parts of GE. McNerney also imported the GE system of grading employees to identify and reward performance, a program quite alien to the 3M culture. In addition, McNerney embarked on a major program of acquisitions as part of the aim of increasing sales growth at 3M. GE had been adept at integrating new business, but analysts questioned 3M's lack of experience in this area.
A crucial part of McNerney's strategy was his 3M Acceleration initiative, which targeted the research and development culture at 3M. In a company that prided itself on its independent and unconventional research culture, this program struck at the heart of the company's values. Before McNerney's arrival, research and development was spread equally across the various business divisions. This style was based on the premise that all divisions should be encouraged to innovate and grow and that great things could arise from the most unprepossessing beginnings. The purpose of the acceleration program was to focus resources on projects that looked promising and to cull projects that did not. Some observers and employees feared that in modifying 3M's eclectic approach to fostering innovation, McNerney risked destroying the very elements that had made 3M great.
From the outset of his tenure as CEO at 3M, McNerney was careful to emphasize he was trying to improve the existing 3M culture, not replace it with the GE culture. In an article in Fortune , McNerney was quoted as saying, "I'm not showing up at 3M with a cultural tool kit that I'm going to transplant" (January 8, 2001). Several factors in McNerney's management approach allayed fears of a GE takeover. He did not arrive at 3M with a band of GE executives in tow and instead emphasized the quality of the people already at 3M. As a result, 3M staff accepted the concept that they were the ones driving change. Many 3M managers noted that McNerney, instead of dictating changes, encouraged the managers to recognize 3M's assets and identify opportunities. Some of the staff welcomed the accompanying sense of rejuvenation. As one senior employee said in an interview in Fortune , "He's delivered a very consistent message. There's a sense of speed and a sense of urgency" (August 12, 2002). The ability to clearly communicate his vision for the company and empower his employees was McNerney's main asset during the initial period of transition at 3M. Many observers cited McNerney's low-key style and lack of arrogance as important factors in his success. In the age of the celebrity CEO, McNerney preferred to avoid the spotlight and instead concentrated on building relationships with those around him at 3M.
By the beginning of 2004 McNerney had moved out of the shadow of Welch and GE. Financial indicators ensured general optimism about the success of McNerney's strategy at 3M. Revenue increased 11.6 percent, to $18.2 billion in 2003, and net income increased 21.7 percent to $2.4 billion. The value of 3M stock increased 38 percent over 2003. In late 2003 rumors that McNerney would head Boeing were proved wrong when he announced he would be staying with 3M. Business analysts agreed that McNerney's work at 3M was not over, and most observers remained uncommitted about whether Six Sigma and 3M Acceleration had improved or detracted from 3M's traditional strengths. Nevertheless, the initial success of McNerney's tenure at 3M resulted in his being held up as an example of the benefits of injecting new blood into long-established companies. McNerney's challenge in 2004 was to prove that his business strategy had improved 3M's organic growth rate—the growth in sales revenue from products developed within 3M as opposed to those acquired from outside businesses. The outcome would indicate whether McNerney's drive for efficiency and discipline was compatible with the 3M culture of innovation. In 2004 McNerney was on the boards of directors of Boeing, Procter & Gamble, and the Greater Twin Cities United Way.
See also entries on 3M Company, General Electric Company, and Procter & Gamble Company in International Directory of Company Histories .
Arndt, Michael, "3M: A Lab for Growth?" BusinessWeek , January 21, 2001, pp. 50–51.
"The Best and Worst Managers of 2003—The Best Managers: James McNerney," BusinessWeek , January 12, 2004, p. 61.
Brady, Diane, "The Corporation: Succession—The Jet Powered Candidate," BusinessWeek , October 2, 2000, p. 132.
"I'm Not Taking a Cultural Tool Kit to 3M," Fortune , January 8, 2001, p. 86.
McClenahan, John S., "New World Leader: 3M Co.'s James McNerney, CEO of The Year, Is Committed to Operating Excellence and Organic Growth through Innovation, International Strength, Leadership Development, and Six Sigma," IndustryWeek , January 2004, pp. 36–39.
Miller, William H., "New Leader, New Era," IndustryWeek , November 2001, pp. 48–49.