THE ART OF STICKING TOGETHER – 3M

At a time when so many corporations have amassed their acquisitions into large conglomerates and are now splitting up, 3M is making a deliberate point of sticking together.

And, it’s working out well for them.  The company is increasing its 60,000 products – and, more importantly, it’s also expanding its research budget.  The company remains dedicated to its current corporate structure at a time when rivals are splitting up or, at least, divesting themselves of some of their acquisitions: United Technologies and DowDupont are splitting  up; General Electric is shrinking its assets; and Alcoa  divested itself of Arconic 3 years ago (ref. WSJ).  3M employs 93,000 workers worldwide and has 182 factories and acknowledged the global economic slowing in January when it reduced its profit margin outlook for the year, citing slowing demand in China and abroad for cars, electronics and other goods made with its products.  The company plans to spend roughy 6% of its revenue on research and development and 5.5% on capital investments over the next five years.  The research amounts are an increase in annual revenue expenditures over the past five years.  We have frequently talked about the need to take this action, but it appears to be counter-intuitive to most of the corporate culture.  When there are slowing signs of economies in parts of the world where large corporations trade, it’s typical for those companies to reduce outlays on research and development, not increase those expenditures as 3M is doing.  We’re told that often expansion in the R&D areas at other companies adds layers of management that slows innovation rather than speeds it.  Well, there’s a simple solution for that – figure out a better corporate strategy for the R&D division, as 3M has.  The company has managed to keep up its innovation thrusts by “creating the right internal culture and incentives.”  An analyst has recently said that “Although [3M] is diversified, it has an engineering culture producing things rather than [a culture] of playing with financial investments.”  3M says that its businesses are better off together because many of its products share a central technology and can be made by the same methods and machines.  Employees frequently cite the fact that “the company produces its tape, film and wrappers by the mile and sells them by the inch.”  Despite current worldwide economic trends, 3M says that its centralized research operations and wide reach also position it to benefit when growth picks in the biggest countries and industries that it serves.  And, 3M says that it encourages its scientists to think of more than one use for the technologies that they invent.  In addition, the company has focused on closing or selling plants that don’t work with its multipurpose processes.  Last year, 23 factories were closed or sold, in an effort to gain greater profitability by making even more products at a smaller number of sites.  CEO Michael Roman sums it up by saying, “We innovate, create new markets, new segments and we’re always moving to new places to prioritize.”

Sounds like all the right things for ALL THE MOVING PARTS.

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