Minnesota Mining & Manufacturing Company

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Minnesota Mining & Manufacturing Company

3M Center
St. Paul, Minnesota 55144
U.S.A.
(612) 733-1110

Public Company
Incorporated: June 25, 1929
Employees: 85,466
Sales: $779 million
Market Value: $15.055 billion
Stock Index: New York Frankfurt Dusseldorf Geneva Zurich Basle Amsterdam Tokyo

Observers and outsiders frequently describe Minnesota Mining and Manufacturing in terms approaching awe. 3M earns such respect because of its improbable, almost defiantly non-corporate nature. The company is gigantic, yet it is as innovative and as full of growth potential as though it were a small venture. 3M’s very existence is in itself somewhat improbable. It was formed in 1902 to exploit the mineral corundum, a venture that almost bankrupted the company. But 3M learned its lesson the first time, developed a fiercely entrepreneurial spirit, and earned a reputation as a company that does good work, and a good company to work for.

From its beginning, 3M concentrated on industrial wares. Its founders, headed by Minnesota industrialists Lucius P. Ordway and John Ober, planned to mine corundum, a mineral harder than all others save diamonds. Three years after it started, 3M concluded its history as a mining firm with nothing to show but a pile of useless rock (the “corundum” was actually anorthosite).

To go with 3M’s pile of rocks was a pile of debts. To nurture the company, Ober went without a salary for its first 11 years, and Ordway poured some $230,000 of his own money into it, much more faith than the company seemed to warrant.

Ordway and Ober were able to use their pile of anorthosite to make sandpaper, which had a large and expanding market, thanks to the midwest’s numerous furniture factories and fast-growing industrial economy. While 3M did not turn a profit for several more years, two of the employees it hired in 1907 would ensure its future.

The two employees were William L. McKnight and A.G. Bush. The two worked as a team for some 60 years, and developed the sales system that helped make 3M a success. McKnight ran 3M between 1916 and 1966, serving as president from 1929 to 1949 and chairman of the board from 1949 to 1966. McKnight created the guidelines which seem something of a company creed—diversification, avoiding price cuts, increasing sales by 10% a year, high employee morale, and quality control.

In some ways, the sales system overshadowed the guidelines. McKnight and Bush designed an aggressive, customer-oriented brand of salesmanship. Sales representatives, instead of dealing with a company’s purchasing agent, were sent past the purchasing agent and into the shop where they could talk to the people who used the products. Going into the shop enabled 3M salesmen to find out both how products could be improved and what products were needed. This resulted in some of 3M’s early innovations. For instance, when Henry Ford’s newly motorized assembly lines created too much friction for existing sandpapers, which were designed to sand wood and static objects, a 3M salesman went back to St. Paul with the news. 3M came up with a tougher sandpaper, and thus captured much of the sandpaper market for the growing auto industry. Another salesman noticed that dust from sandpaper use made the shop environment extremely unhealthy. In response, 3M began looking for a way to make waterproof sandpaper. It found a glassworker-cum-inventor with a patent for waterproof (thus substantially dust-free) sandpaper. 3M bought the patent, came out with WetorDry sandpaper, and grew larger. It also hired the inventor as its first full-time researcher. This marked the creation of one of the nation’s first corporate research and development divisions.

Sending salesmen into the shops paid off a few years later in an even more significant way, by giving 3M a product line entirely removed from sandpaper. In 1923 a salesman in an auto body painting shop noticed that the process used to paint cars in two tones worked poorly. He promised the painter that 3M could develop an effective way to prevent the paints from running together. It took two years, but the research and development division invented a successful masking tape.

The invention of Scotch tape established 3M as a force for innovation in American industry. As with sandpaper, 3M immediately began to develop different applications of its new technology. Its most famous adaptation came in 1930, when some industrious 3M workers found a way to graft cellophane to Scotch tape, creating a transparent tape.

Transparent Scotch tape provided a major windfall during the depression, helping 3M to grow at a time when most businesses struggled to break even. Another salesman invented a portable tape dispenser, and 3M had its first large-scale consumer product. Consumers used Scotch tape in a variety of ways: to repair torn paper products of all sorts, strengthen book bindings, hold clothes together until they could be sewn, and even remove lint.

By 1932 the new product was doing so well that 3M’s main client base shifted from midwestern furniture and automobile factories to Scotch tape and a host of similar office products. During the 1930’s 3M funnelled some 45 percent of its profits into new product research; consequently, 3M tripled in size during the worst decade American business had ever endured.

3M continued to grow during World War II. The company did not shift to making military goods, as many U.S. corporations did, but continued to concentrate on understanding its markets and finding a “niche” to fill.

The war did leave 3M with a need to do some rebuilding, and not enough cash on hand to do so. Since its early days, 3M had needed no debt to keep going. Earnings had always financed new plants and equipment. To meet its building needs, in 1947 3M issued its first bond offerings to help fund the program.

Its first stock offering, coupled with its tremendous growth rate, attracted attention to 3M. In 1949, when President McKnight became Chairman of the Board McKnight (with A.G. Bush also moving from daily operations to the boardroom), it marked the end of a tremendous era for 3M. Under McKnight, 3M grew almost 20 times, from $5.4 million to $108 million in sales.

Such growth could not be ignored. Now that 3M was publicly traded, investment bankers took to recommending it as a buy, business magazines sent reporters to write about it, and other companies tried to figure out how 3M grew. One writer argued that 3M’s formula was to find an uninhabited market (a niche), fill it, patent the product, and let the lawyers defend its monopoly for as long as possible. If legal work seemed too expensive, said the writer, 3M would enter into licensing agreements to protect profits.

This cynical assessment has some truth to it. 3M did not and does not produce “me-too” products, preferring to develop new products to find the niche. Or, as McKnight’s immediate successor as president, Richard Carlton, put it: “we’ll make any damn thing we can make money on.” Uninhabited markets do not lend themselves to easy discovery. Research and development received money that most companies spent on other things (most companies still did not have such departments by the early 1950’s), and the pursuit for ideas was intense.

Carlton kept the company focused on product research (today, 3M rewards its scientists with Carlton Awards), which led to another innovation in the 1950’s, the first dry-printing photocopy process, ThermoFax.

3M went through the 1950’s in impressive fashion, with 1959 marking the company’s 20th consecutive year of increased sales. A Forbes article noted that research, patents, and marketing know-how had created a growth environment that seemed unstoppable, and quoted then-president Herbert Buetow as saying “we are virtually recession-proof.”

For all its growth and diversity, 3M continued to produce strong profits for its established products. In a way, this was almost to be expected, given 3M’s penchant for being in “uninhabited” markets. As noted by John Pitblado, 3M’s president of U.S. Operations, “almost everything depends on a coated abrasive during some phase of its manufacture. Your eyeglasses, wrist watches, the printed circuit that’s in a TV set, knitting needles... all require sandpaper.”

In the 1960’s 3M went on another growth binge, doubling in size between 1963 and 1967 and becoming a billion-dollar company in the process. Existing product lines did well, and 3M’s ventures into magnetic media provided excellent returns. One venture, the backdrops used for some of the spectacular scenes for the 1968 movie 2001: A Space Odyssey, earned an Academy Award.

But the 1970’s brought some obstacles to 3M’s seeming odyssey of growth. First, several of the company’s top executives resigned when it was revealed that they had operated an illegal slush fund from company money between 1963 and 1975, which included a contribution of some $30,000 to Richard Nixon’s 1972 campaign.

Worse than the political embarrassment, sales growth slowed during the decade, particularly in the oil crunch of 1974, ending 3M’s phenomenal string of averaging a 15% growth rate every five years. 3M responded to its cost crunch in characteristic fashion: it turned to its employees, who devised ways for the company to cut costs at each plant.

The company also had difficulties with consumer products. Particularly galling was the loss of the cassette tape market, which two Japanese companies, TDK and Maxell, dominated through engaging in price cutting. 3M stuck to its tradition of abandoning markets where it could not set its own prices, and backed off. Eventually, 3M stopped making much of its magnetic media, instead buying from an overseas supplier and putting the 3M label on it. The loss of the magnetic media market, coupled with a shaky performance in computer disks, was not overwhelming: revenues doubled between 1975 and 1980, and in 1976 3M was named one of the Dow Jones Industrial 30.

Unfortunately, price cutting was not the only problem confronting 3M. Major competitors seemed to face it on all fronts, and the niches seemed extinct. Some business writers even speculated that 3M might be taken over and split up. Others wondered whether a company “admirably suited” for the 1950’s, 1960’s, and 1970’s could be transformed into a company for the 1980’s. Corporate structure was also becoming a problem. 3M is radically decentralized, particularly for a large company. This accounts for its creativity, but it also results in communication problems and an inability to concentrate resources on a few particularly promising ideas.

These problems faced 3M in the 1980’s. Lewis Lehr became company president in 1981. Lehr, who fretted that “there isn’t a business where we don’t have to come up with a new technology,” promptly restructured 3M from 6 divisions into 4 sectors: Industrial and Consumer, Electronic and Information Technologies, Graphic Technologies, and Life Sciences, containing a total of some 40 divisions. He also established a goal of having 25 percent of each division’s earnings come from products that did not exist five years prior, a goal 3M met in 1984 and 1985, giving 3M a range of 45,000 to 85,000 products, depending on how many variants of the same idea you count. (Half of its new products are specifically designed for customers or potential customers.)

Lehr’s concern was not to keep the company going; 3M was still well respected, with a very low (less than 25%) debt-to-equity ratio and reasonable levels of growth. Shareholders had little to complain about; 1986 marked the 18th consecutive year of increased dividends. Rather, Lehr wanted to ensure that 3M would continue to develop new ideas.

So far, the major product of the 1980’s has been the ubiquitous yellow Post-it, but 3M may have an even bigger idea on the horizon. 3M has developed optical disks, a product with tremendous long-range potential but no true market yet. Meanwhile, in a possible shift in strategy, 3M is sticking with its video tape sector, even engaging in costcutting to fend off severe pressure from competitors. At stake is what could become an $8 billion market.

3M is also trying to create more consumer products, as this is a division that accounts for only 10% of company sales. 3M has not tended to do well with consumer products, creating things like the eminently forgettable Mmm What a Tan! 3M made a bold move and brought in outsiders to help create and market consumer products.

The company is committed to its employees, and offers excellent work conditions. 3M views itself as a family, and, accordingly, tries to make working for it enjoyable. From sponsoring employee road races in the Philippines to encouraging corporate clubs, 3M constantly strives to keep its people satisfied and working productively. The process seems to work — most 3M workers and executives, including current chairman Allen Jacobson, never move on to other companies.

3M’s concern for people spreads beyond its employees. A number of new products, such as WetorDry sandpaper, were created to improve working conditions. When Thermo-Fax dominated the copier market, 3M established a number of copy centers, which were all run by handicapped people. It designs new plants so they don’t infringe on the environment, and works to eliminate environmental abuses before the product reaches the market.