3M

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3M

also known as: minnesota mining & manufacturing co. founded: 1902

Contact Information:

headquarters: 3m center
st. paul, mn 55144-1000 phone: (612)736-1110 fax: (612)736-2133 toll free: (800)3m-helps email: [email protected] url: http://www.mmm.com

OVERVIEW

Minnesota Mining and Manufacturing Company, or 3M as the company prefers to be known, manufactures over 50,000 products in a variety of different markets. From Scotch Tape, which recently celebrated its sixty-fifth anniversary as a home and office staple, to Post-it Notes, the 1980's product rumored to be the result of an engineering mistake, 3M products have significantly impacted how people work in the office and in the home.

Currently organized into three main sectors, 3M's corporate structure reflects the diversity of their product line. The Industrial and Consumer Sector, which includes 3M's profitable office products line, oversees the production and sale of products to the transportation, construction, and electronics industries. The Health Care Sector focuses on health care products including bandages, surgical supplies, and computer software for health care organizations. The Transportation, Safety, and Chemicals Sector develops products for the automotive industry, performance chemicals, and sign materials. The strategy for all three sectors is largely the same; the focus is on creating new products that allow 3M to compete quickly and significantly in new markets. 3M's primary goal is to decrease the amount of time it takes a product to move from the research and development phase to being available for purchase. High growth industries, such as computers and health care services, are being particularly targeted as 3M seeks to improve productivity while expanding its international presence. With operations in 63 countries and product sales in more than 200 countries, 3M is a highly diversified Fortune 500 company with a strong global presence. 3M's continued focus on new product development has been successful with 30 percent of sales in the 1990s coming from products created since 1994.

COMPANY FINANCES

From 1995 to 1997, 3M has shown steady increases in revenue. In 1995, the company had revenues of $13.5 billion, and this increased to $14.2 billion in 1996. Revenue for 1997 was $15.1 billion. Stock prices rose as well during this time period. For fiscal year 1995, the high was 69.88; for fiscal year 1996, the high was 85.88, and fiscal year 1997's high was 105.50.

3M's 50,000 products are sold to a well diversified customer base. Sales to industrial customers total 45 percent, while sales to service related industry consumers make up an additional 45 percent of 3M's sales. Ten percent of 3M's products are sold to consumers. In 1997 international sales accounted for 52 percent of the company's revenue total.

ANALYSTS' OPINIONS

As one of the 30 companies of the Dow Jones Industrial Average, 3M will tell any potential investor that because of their long record of innovation, the company has established itself as the market leader in many diverse product lines and has maintained consistent profit and dividend growth since 1916. Many analysts agree with 3M's assessment and consider it a safe and stable stock. For example, Value Line Investment Survey reported that 3M, as a diversified company with multiple product lines, will grow slowly and steadily, paralleling the U.S. economy. As a stock purchase, 3M appeals to conservative investors, ones who expect long-term steady growth in their portfolio rather than an immediate high return. Consistently ranked by Fortune magazine as one of the country's most admired corporations, 3M will continue to encourage heavy research and development into new technologies in order to insure the company's future success.

HISTORY

3M's reputation as a company that balances innovation and risk-taking with solid financial success was largely the result of its ability to overcome early obstacles. The five businessmen who founded 3M in Two Harbors, Minnesota, in 1902 set out to mine corundum, a very hard mineral that could be used as an abrasive for grinding-wheels. This mining venture was not a success because their mineral holdings were not corundum, but instead anorthosite, which had no commercial value. Abandoning this venture, co-founder John Dwan turned to early investors and solicited funds in exchange for stock. Edgar Ober and Lucius Ordway accepted Dwan's offer and took over the company in 1905. After moving its headquarters to Duluth, they began researching and producing sandpaper products. William McKnight, soon to be a key executive in the firm, joined the company in 1907, and A.G. Bush, McKnight's eventual co-leader, joined in 1909. After years of struggle—not only with production methods, but also with getting the raw supplies necessary for producing their product—3M finally became financially stable in 1916. 3M president Edgar Ober, who had gone without a salary for most of the company's tumultuous early years, announced to company investors: "Gentlemen this is the day we've been waiting for, the day some of us wondered would ever come. We're out of debt, and the future looks good. Business has more than doubled in the past two years, and for the first time, we'll have enough left after expenses to pay a dividend."

Early successes for 3M included Three-M-ite sandpaper, Wetordry sandpaper, and Scotch Brand Tape. The development plans of these early products had common elements that contributed to their eventual success. All three products were innovative, fulfilled a customer need, and were either better quality than similar products on the market or were completely new product concepts that filled needs customers had but were unable to describe. Three-M-ite sandpaper was a more effective sandpaper than others that were on the market. The Wetordry sandpaper was a revolutionary product as it was the first waterproof sandpaper that made sanding dust far less dangerous to the health of factory workers. Scotch masking tape filled a customer need by allowing auto workers to temporarily tape and protect car bodies while painting.

Timing was also essential to the success of many 3M products. Three-M-ite sandpaper was introduced shortly before the United States entry into World War I when automotive and machine tool factories were responsible for supplying equipment to the armed forces. Vast quantities of sandpaper were required to complete the job. In 1930, when 3M developers found a way to graft cellophane, a DuPont invention, to adhesive, the company succeeded in producing a product (Transparent Scotch Tape) that allowed workers to repair items rather than replace them, which was of growing importance during the Depression. This helped the company to grow at a time when most businesses struggled to break even. When a 3M salesman invented the portable tape dispenser, Transparent Scotch Tape became 3M's first large-scale consumer product. By 1932 the product was doing so well that 3M's main client base shifted from factories to office supply stores.

Succeeding decades found 3M constantly striving to diversify and expand their product line. During the 1940s, 3M expanded industrial uses of their adhesives to include vinyl electrical tape and Sound Recording Tape, a product innovation that spurred growth in the music recording industry. The 1950s saw the creation of 3M's subsidiary companies in Australia, Canada, France, Germany, Mexico, and the United Kingdom. Health care products were developed for the first time, and the household cleaning product Scotch-Brite Scouring Pads were derived from abrasives traditionally sold into the industrial market. During the 1970s, 3M's technology base continued to expand. As their web site history points out, "the innovative new products they produced held automotive parts in place; fastened diapers; provided backup security for computers; gave dentists new filling materials; helped keep buildings clean; helped prevent theft of library books; and made insulated clothing less bulky and more comfortable." The 1980s brought the creation of Post-it Notes and the establishment of 3M's first research and administrative complex outside of the company's home state of Minnesota; the Austin Center was established to better enable networking with other high tech electronics and telecommunications firms headquartered in Texas. Noteworthy new products of the 1990s have again demonstrated 3M's ability to make new and successful products out of their most familiar materials and technologies. 3M introduced the O-Cel-O StayFresh sponge, the first sponge to use anti-microbial technology to eliminate odor-causing germs on contact. 3M also introduced large-format graphics with its Scotchprint Electronic Graphic System, which allows advertisers to transfer self-sticking images and text onto unlikely surfaces such as buses, trains, floors, and buildings. The future direction of the company is the same as the direction of the company founded in 1902. 3M continues to expand product lines with new and innovative uses of the technologies they know best.

FAST FACTS: About 3M

Ownership: 3M is a publicly owned company traded on the New York, Pacific, Chicago, Tokyo, Paris, Amsterdam, Swiss, and German Stock Exchanges.

Ticker symbol: MMM

Officers: Livio D. DeSimone, Chmn. & CEO, 61, $1,598,870; Ronald A. Mitsch, Vchmn. & Exec. VP, 63, $752,411; J. Marc Adam, VP Marketing, 59

Employees: 75,639

Principal Subsidiary Companies: 3M has subsidiary companies and facilities in over 60 countries.

Chief Competitors: Because of its diverse product line, 3M competes with multinational companies in a variety of industries including manufacturers, wholesalers, and retailers of pharmaceuticals, electronics, and industrial supplies. Some primary competitors are: BASF; Johnson & Johnson; DuPont; Exxon; and General Electric.

STRATEGY

In 1948, 3M's corporate strategy was developed by one of the company's key executives, William L. McKnight, and it has remained largely the same throughout the company's history. The updated version, still present in many 3M offices, reflects the company's emphasis on allowing employees to do their work in their own way. "As our business grows, it becomes increasingly necessary to delegate responsibility and to encourage men and women to exercise their initiative. . . . 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 undertakes to tell those in authority exactly how they must do their jobs. Management that is destructively critical when mistakes are made kills initiative. And it's essential that we have many people with initiative if we are to continue to grow." Corporate goals are clearly aligned to 3M's entrepreneurial environment, including its emphasis on developing and selling distinctive products and services of great quality and dependability.

Financial goals are also tied to their entrepreneurial strategy as the company seeks to provide investors a return on their investment (company dividends paid against purchased stock), that grows at a rate of 10 percent per year. As this type of growth typically requires a steady stream of successful new products, 3M has established the corporate goal of obtaining 30 percent of worldwide sales from products released since 1994. Customers are an integral part of the new product design process. For example, the development of electronic Post-it Notes started with a survey of the product's users and finished with preliminary copies of the software going to 1,000 potential users who tested and provided feedback on the product. Additional incentives are offered to accomplish the company's other corporate goals that stress earning customer loyalty, encouraging international growth, and continually improving productivity and global competitiveness. In order to achieve these goals, 3M focuses on measurable results; each of the company's business units must report on sales, earnings, market share, inventory and, most important for 3M, percentage of new product growth.

INFLUENCES

3M's emphasis on continual new product development created an environment where risk-taking is rewarded. Some of 3M's most successful inventions came from creating new products based on technologies that failed their original purpose. One such invention was Post-It Notes, the notepad that made use of an adhesive that would not stick. 3M engineers also developed micro replication technology, which is a process of covering surfaces with millions of perfectly made miniature shapes such as cubes or pyramids. This process, used in highly reflective highway signs, lap-top computer screens, and certain abrasives, changes the physical properties of the materials and improves their functionality. As this new technology satisfies 3M's goal of focusing on products that create new markets and has the potential to generate several billion dollars of new sales by the end of this decade, its importance to 3M lies in its future, not current, profitability and success. This ability to transform a failed technology into a successful product encourages 3M employees to continually focus on innovation.

CHRONOLOGY: Key Dates for 3M

1902:: Minnesota Mining and Manufacturing (3M) is founded in Two Harbors, Minnesota
1916:: 3M makes a profit and pays its first dividend
1930:: Scotch Transparent Tape is introduced
1947:: Scotch Magnetic Tape is introduced
1948:: Scotch-Brite scouring pads are developed
1950:: 3M manufactures its first health care product
1963:: Carlton Society is created to reward 3M innovators
1975:: 3M creates its 3P Program to encourage pollution prevention
1980:: Post-It Notes are introduced
1994:: 3M introduces its O-Cel-O StayFresh Sponge, the first sponge to use anti-microbial technology to kill germs
1995:: 3M makes its Precise Mousing Surface, a mouse pad that makes use of microreplication technology

Innovation, however, has not been able to salvage every technology. When faced with a pricing war in the late 1970s, during which TDK and Maxell slashed the prices of their consumer audio cassette tapes, 3M stopped manufacturing cassettes and instead began purchasing the magnetic media from an overseas supplier and placing the 3M label on the imported tapes. While the loss of sales and increased production costs did not seriously impact 3M's profitability, it did reinforce their tradition of abandoning markets where it could not set its own prices. This practice caused difficulties for 3M during the 1970s and 1980s when competition in their traditional markets became more fierce. Faced with an eroding customer base in what 3M considered to be their core technology of abrasives, 3M began increasing the amount of money spent in research and development. For the past 20 years, even when business slowed, 3M has continually increased research dollars in order to stimulate development and meet the company's aggressive new product goals.

3M's method of creative madness carries over into 3M's organizational blueprint. 3M's divisions, groups, and sectors all function in odd combinations. For example, the same division that makes tape for disposable diapers was at one time grouped with the division that makes reflective substances for traffic signs. To some business analysts, these odd combinations of product lines seem chaotic and disorganized, and they have generally applauded 3M's recent reorganizations that grouped 3M subsidiary companies and divisions around common markets, industries, and distribution channels. To supporters, 3M's chaos is a form of creative genius that reflect a very unsystematic approach to successful management.

CURRENT TRENDS

While 3M is still seeking to produce innovative products that fill customer needs, the company is currently focused on consolidating marketing efforts around common product lines. In 1995, the company reorganized into market-centered groups that would focus on different branches of the company's diverse customer base. One such group was the Electronic Market Center, which handles product marketing for 18 electronic product divisions. The goal of these market centers is to leverage 3M's marketing efforts by eliminating multiple calls to customers. The Electronic Market Center, which took over a year to establish, has account managers for key electronic product accounts and will focus on key industry segments such as storage systems, semiconductors, electronic displays, and electronic components.

Other trends affecting 3M management include their continued efforts to reduce pollution during the manufacturing process, lower production costs through streamlining, and increase the speed and efficiency of new product development.

PRODUCTS

A listing of 3M's products would be quite extensive since they have more than 50,000. Some of the company's well-known products include sandpaper, Scotch tape, Scotchguard fabric protector, Post-it Notes, O-CelO sponges, asthma inhalers, medical and dental adhesives, and plastic sheeting.

3M's focus on limiting pollution during product manufacturing resulted in new technologies such as its aircraft painting and re-coating technique. Using sticky film, wheat, and dry ice to paint and re-coat aircraft, the company has succeeded in patenting a technique that eliminates hazardous wastes and lessens pollution in the entire aircraft painting and re-coating process. Other new product ventures include electronic Post-it Software Notes, a software program that allows users to post notes within electronic documents, and 3M Nexcare Waterproof Bandages with Tattoo Designs, which stick to the skin during long periods of underwater wear and looks like a tattoo. 3M also plans to expand its Thinsulate material product line, which is currently used for boots, gloves, and other clothing items; Thinsulate Acoustical Material is an insulating material used in automobiles with potential applications in home theaters, household appliances, and offices. Additionally, 3M Light Fiber is a breakthrough product that provides lighting underwater and to heat sensitive materials.

CORPORATE CITIZENSHIP

In 1975, 3M adopted an Environmental Policy that stated it would solve its own environmental problems, prevent pollution at the source, and develop products that have a minimum impact on the environment. Viewed as a means of reducing production and manufacturing costs, 3M created its Pollution Prevention Pays (3P) Program. This program rewards employees for preventing pollution rather than cleaning it up after it occurs. Since this program was instituted in 1975, 4,651 employee 3P Programs have been organized, saving the company an estimated $810 million dollars. The company received national recognition for the program in 1996 when it was given the Presidential Award for Sustainable Development.

3M continuously seeks to improve the environmental performance of its products by considering the impact at all stages of the product's life cycle, from manufacturing and shipping through use and disposal. By installing air pollution control equipment at 3M locations where it was not required by law, they have since cut air emissions by more than 70 percent. They have also cut waste—what is left after counting raw materials and subtracting product and used byproduct—by one-third. Their goals for the year 2000 include cutting process releases to the environment 90 percent from a 1990 base; they have achieved a 50 percent reduction from air emissions and plan to achieve the remaining 40 percent from pollution prevention.

In addition to a strong environmental policy, 3M also funds educational initiatives through the 3M Foundation and the Corporate Contributions Program. In 1996, they donated approximately $47 million in cash, products, and services to educational and charitable institutions. One such initiative was MATHCOUNTS, a national math program for middle school students. 3M also funds continuing education programs in science and economics, and it sponsors science programs on PBS. Employees are also encouraged to take part in community development programs such as Meals-On-Wheels and Habitat for Humanity. 3M's participation in environmental and community development initiatives have become an integral part of the company's strategy.

THE POST-IT NOTES STORY

Art Fry, the inventor of Post-It Notes, used 3M's famed 15–percent rule to develop a bookmark he could use for his choir book. Needing a placeholder that would stick temporarily without ripping the pages, he heard of a 3M adhesive developed by Dr. Spence Silver that did not stick to a surface permanently. Working with developers in engineering and production, they developed a unique coating process that would apply the nonsticky adhesive to the back of small pieces of paper. Once the prototype was in place, Fry used company employees to test his bookmark. Initial feedback was not reassuring as critics thought they were too frivolous and expensive. It was only after receiving a letter with his "bookmark" used to add scribbled comments, that Fry realized he hadn't invented a bookmark but rather a new way to communicate or organize information. He was also unprepared for the almost instant demand by employees for additional supplies of "stickies." Today Post-It Notes are one of the five top-selling office products in the United States.

GLOBAL PRESENCE

With 52 percent of the company's total 1997 sales of $15.1 billion coming from product sales in more than 200 countries, 3M has a well established international market. It is a major player in the global economy with operations in more than 60 countries accounting for more than half of its business. Its international operations are grouped into three areas including Asia and the Pacific; Latin America, Africa, and Canada; and Europe and the Middle East. Forty-four international companies have manufacturing operations; 29 international companies have laboratories. The company employs more than 36,000 people outside the United States, less than 200 of them being U.S. citizens. 3M's current strategy includes expanding their international presence even further by increasing their global marketing programs. The strongest international growth has been in Eastern Europe and the Middle East. In order to sustain and build growth in these regions, 3M has added more than 600 people to their International Division during the past seven years and established additional sales offices in the emerging economies of eastern Europe and the former Soviet Union. 3M also plans to expand production facilities and distribution centers in Singapore, Korea, and the Philippines in order to build on the 12 percent growth in sales to countries in Asia and the Pacific.

EMPLOYMENT

There are more than 75,000 3M employees worldwide. Boasting a low turnover rate of less than 3 percent annually, 3M encourages career employees and maintains that its formula for success produces workers satisfied enough to spend their work-life at 3M. The company's unique management style demands that employees be creative and take risks. New employees are required to take a class in risk taking, where numerous stories are told of great inventions coming from employees not afraid to contradict their supervisors. Researchers are required to stick to what the company calls the "15 percent rule," meaning the researchers are encouraged to spend that amount of their time working on their own projects. The company is so focused on hiring innovators that it researched and developed a personality profile of successful inventors; successful 3M innovators are creative and resourceful, have broad interests, and are self-motivated problem solvers with a strong work ethic. Creating what the company calls "a culture of cooperation," 3M encourages employees to freely share knowledge and rewards innovations that come from such exchanges.