3M: Cultivating Competency

Seyedeh Hedyeh Melatdoust

University Of Multimedia (MMU)

Malaysia

April 2010

1

Table of Content:Table of Content:.........................................................................................................................................2

Executive summary:....................................................................................................................................4

1. General External Environment:...............................................................................................................4

1.1. Political/Legal:..................................................................................................................................4

1.2. Economical:......................................................................................................................................4

1.3. Socio Cultural:...................................................................................................................................5

1.4. Technological:...................................................................................................................................6

1.5. Demographics:..................................................................................................................................6

1.5.1. Age structure:............................................................................................................................6

1.5.2. Religion:.....................................................................................................................................7

1.5.3. Gender roles:.............................................................................................................................7

1.5.4. Race:..........................................................................................................................................8

1.5.5. Income distribution:..................................................................................................................8

1.6. Global:..............................................................................................................................................9

1.7. Environment summary:..................................................................................................................10

2. Industry Analysis:...................................................................................................................................10

2.1. Threat of new Entrants:..................................................................................................................10

2.2. Power of Buyers:.............................................................................................................................10

2.3. Power of Suppliers:.........................................................................................................................10

2.4. Product Substitutes:.......................................................................................................................11

2.5. Intensity of Rivalry Among Competitors:........................................................................................11

3. Competitive Environment Analaysis:.....................................................................................................11

3.1. Strength:.........................................................................................................................................11

3.2. Major strength:...............................................................................................................................12

3.3. Competitors:...................................................................................................................................12

4. Summary: Attractiveness of External Environment of 3M’s Values:......................................................12

5. Strategic Analysis:..................................................................................................................................12

5.1. Key success factors:........................................................................................................................13

5.2. Strategies:.......................................................................................................................................13

5.2.1. Business Level:.........................................................................................................................13

2

5.2.2. Competitive strategy:..............................................................................................................14

5.2.3. Corporate-Level:......................................................................................................................15

5.2.4. Acquisitions:............................................................................................................................16

5.3. Core Competencies – Resources:....................................................................................................16

5.3.1. Tangible:..................................................................................................................................17

5.3.2. Intangible:................................................................................................................................17

5.3.3. Value Chain:.............................................................................................................................17

6. Summary: (Sustainable Competitive advantage)...................................................................................17

7. 3Ms SWOT ANALAYSIS :.........................................................................................................................18

7.1. Strengths:.......................................................................................................................................18

7.2. Weaknesses:...................................................................................................................................19

7.3. Future Opportunities:.....................................................................................................................19

7.4. Threats:...........................................................................................................................................19

8. Problem Statement(s):..........................................................................................................................20

9. Strategies:..............................................................................................................................................20

9.1. Coop rate level:...............................................................................................................................20

9.1.1. Restructuring:..........................................................................................................................20

9.1.2. Related constraint diversification strategy:...........................................................................21

9.1.3. Acquisition strategy:................................................................................................................21

9.2. Business Level:................................................................................................................................22

10. Recommendation and model:.............................................................................................................22

11. References:..........................................................................................................................................23

12. Appendix:............................................................................................................................................24

3

Executive summary:

The 3M Company is one of the largest manufacturers in the U.S which has been well known for its innovation and R&D. Increasingly, The Company has entered different geographical markets and taken different of strategies based on its unique corporate culture of research and development.

This report is about to investigate the company from Strategic point of view with looking meticulously through the strategies it has set in flow of dynamic external and internal environments of the company. In the end regarding the external, internal, competencies and sustainable competitive advantage, problem statement will be identified and the solution and hypothetical model will be designed.

1. General External Environment:

1.1. Political/Legal:The United States was founded in the late 18th century and as such, a great deal of American culture is couched in the ideals of the Enlightenment. The government plays an important role in the operation and manufacturing products and services in terms of regulations. Bear in mind that the America is a highly diverse country. It would be difficult to identify a single American attitude, or American style for the simple reason that the country is so complex.

A primary influence on culture of American is the ongoing influx of new immigrants, many of whom have fled persecution or oppression in their home countries, and are seeking freedom (including religious freedom) and economic opportunity. This leads to the rejection of totalitarian practices, another widespread American attitude. By and large, Americans value the ideals of individual liberty, individualism, self-sufficiency, altruism, equality of opportunity, free markets, a republican form of government, democracy, populism, pluralism, feminism, and patriotism. As there are lots of freedoms and economical opportunities in USA ,every year a huge number of people from other countries will immigrate to America and as the requirements of people from other countries which immigrate to America are different from the need of American so it also effect the political strategies of 3M company.

1.2. Economical:

As mentioned above, the United States features stronger free market tendencies than many other developed nations, and historically has been hostile towards socialism. America's animosity towards communism intensified during the cold war, as symbolized by the McCarthy trials in the 1950s. While a small number of Americans today favor the adoption of socialist practices such as "universal health care", economic attitudes generally favor minimizing regulation and other

4

government intrusions. The American tradition of free-market capitalism has led the populace (and representative leaders) generally to accept the continuous alterations to society that an evolving economy implies, despite the accompanying social and economic displacement.

The United States economy produced roughly $15 trillion worth of goods and services in 2008, making it easily the largest in the world. China is next, at about $12 trillion, according to one widely used estimate. Per person, the American economy has the fourth largest output-- more than $45,000 for every man, woman and child, on average --behind Luxembourg, Bermuda and Liechtenstein, all havens for offshore banking. In 2007, the American economy began to slow significantly, mostly because of a real-estate slump and related financial problems. In December 2007, the economy entered a recession, according to a committee of academic economists, overseen by the National Bureau of Economic Research that is widely considered the arbiter of recessions.

Over the last few decades, recessions have become less common than they once were. Ben S. Bernanke, the Federal Reserve chairman, and others have described this development as the "great moderation." While the economy used to swing between expansion and contraction every few years, there had been only two relatively brief recessions over the last 25 years before the current downturn.

For illustration we can consider 3m case; 3M isn't counting on a smooth economic recovery in the U.S. for the years and is focusing its business on booming markets in Asia and Latin America.

1.3. Socio Cultural:

The Culture of the United States is a western culture, and has been developing since long before the United States became a country. Today the United States is a diverse and multi-cultural nation.

The United States was a leading pioneer of television (TV) as an entertainment medium, and the tradition remains strong to this day. Many American television sitcoms, dramas, game shows and reality shows remain very popular both in the US and abroad. Animation is a popular US entertainment medium as well, both on the large and small screen. The characters created by Walt Disney and Warner Brothers animation studios remain very popular. In music, the United States has pioneered many distinct genres, such as country and western, jazz, rock music, hip hop, and gospel music. African American cultural influences play a particularly prominent role in many of these traditions. As Americans spend most of their leisure (free) times on watching TV, playing games and listening to music hence (thus) 3M Company included these 3 items in its product line.

American culture encompasses traditions, ideals, customs, beliefs, values, arts, and innovations developed both domestically and imported via British colonization and immigration. Prevalent ideas and ideals which evolved domestically such as important national holidays, uniquely American sports, proud military tradition, and innovations in the arts and entertainment give a strong sense of national pride among the population as a whole.

5

It includes both conservative and liberal elements, military and scientific competitiveness, political structures, risk taking and free expression, materialist and moral elements.

1.4. Technological:

Many of the new technological innovations in the modern world were either first invented in the United States and/or first widely adopted by Americans. Examples include: the lightbulb, the airplane, the transistor, nuclear power, the personal computer, and online shopping, as well as the development of the Internet. The iPod, the most popular gadget for portable digital music, is also American.

By comparison with Japan, however, only a small fraction of electronic devices make it to sale in the US, and household items such as toilets are rarely festooned with remotes and electronic buttons as they are in Asia. 3M Company (3M) is a diversified technology company with a presence in various businesses, including industrial and transportation, healthcare, display and graphics, consumer and office, safety, security and protection services, and electro and communications. The company is a diversified global manufacturer and marketer of a variety of products. 3M manages its operations in six business segments: Industrial and Transportation; Health Care; Display and Graphics; Consumer and Office; Safety, Security and Protection Services, and Electro and Communications.

The company’s products are sold through numerous distribution channels, including directly to users and through numerous wholesalers, retailers, jobbers, distributors and dealers in a variety of trades in many countries worldwide

1.5. Demographics:The United States has a total resident population of 309,259,000.[1] It is a very urbanized population, with 81% residing in cities and suburbs as of mid-2005 (the worldwide urban rate was 49%). California and Texas are the most populous states, as the mean center of United States population has consistently shifted westward and southward.

1.5.1. Age structure:

The age structure of the USA (2009 est.) is as follows:

0–14 years: 20.2% (male 31,639,127/female 30,305,704)

15–64 years: 67.0% (male 102,665,043/female 103,129,321)

65 years and over: 12.8% (male 16,901,232/female 22,571,696)

Population growth rate of the USA is 0.977% (2009 est.) and the birth rate is equal to 13.83 births/1,000 population (2009 est.). The death rate is 8.38 deaths/1,000 population (2009 est.)

6

1.5.2. Religion:

Historically, the United States' religious tradition has been dominated by Protestant Christianity. Today over three quarter of Americans identify as Christian with a slight majority identifying as Protestant (56%). Catholics (27%) are the largest Christian denomination as Protestants belong to a variety of denominations. There are also many other religions that are not as prevalent such as Judaism, Hinduism, Islam, and Buddhism, among others.

The government is a secular institution, with what is often called the "separation of church and state" prevailing.

1.5.3. Gender roles:

Since the 1970s, traditional gender roles of male and female have been increasingly challenged by both legal and social means.

In the USA most social roles are not gender-restricted by law, though there are still cultural inhibitions surrounding certain roles. More and more women have entered the workplace, and in the year 2000 made up 46.6% of the labor force, up from 18.3% in 1900. Most men, however, have not taken up the traditional full-time homemaker role; likewise, few men have taken traditionally feminine jobs such as receptionist or nurse (although nursing was traditionally a male role before the American Civil War).

Whereas most families in the 1950s and 1960s relied on one income earner, most commonly the husband, the vast majority of family households now have two-income earners. many young adults now remain with their parents well past their mid-20s. This topic was a cover article of TIME magazine in 2005. Exceptions to the custom of leaving home in one's mid-20s can occur especially among Italian and Hispanic Americans, and in expensive urban real estate markets such as New York City, California, and Honolulu, where monthly rents commonly exceed $1000 a month.

Year

Families (69.7%) Non-families (31.2%)

Married couples (52.5%)Single Parents

Other blood relatives

Singles (25.5%) Other non-

familyNuclear family

Without children

Male Female

2000 24.1% 28.7% 9.9% 7% 10.7% 14.8% 5.7%

1970 40.3% 30.3% 5.2% 5.5% 5.6% 11.5% 1.7%

Single-parent households are households consisting of a single adult (most often a woman) and one or more children. In the single-parent household, one parent typically raises the children with little to no help from the other. This parent is the sole "breadwinner" of the family and thus these

7

households are particularly vulnerable economically. They have higher rates of poverty, and children of these households are more likely to have educational problems.

1.5.4. Race:Race in the United States is based on the physical characteristics of skin color and has played an essential part in shaping American society even before the nation's conception. Until the civil rights movement of the 1960s racial minorities in the United States faced discrimination and social as well as economic marginalization. Today the US Department of Commerce's Bureau of the Census recognized four races, Native American or American Indian, African American, Asian and White. Hispanic Americans do not technically according to the US government, constitute a race but rather an ethnic group. During the 2000 US Census Whites made up 75.1% of the population with those being Hispanic or Latino constituting the nation's prevalent minority with 12.5% of the population. African Americans made up 12.3% of the total population, 3.6% were Asian American and 0.7% was Native American.

Ethnicity according to the 2000 US Census.

1.5.5. Income distribution:In 2007, the real median annual household income rose 1.3% to $50,233.00. The real median earnings of men, who worked full time, between 2006 and 2007, have been increased from $43,460 to $45,113. For women, the corresponding increase was from $33,437 to $35,102 (2.8 and 2.9 times minimum wage respectively). The median income per household member, including all working and non-working members above the age of 14 was $26,036 in 2006. In 2006, there were approximately 116,011,000 households in the United States. 1.93% of all households had annual incomes exceeding $250,000. 12.3% fell below the federal poverty threshold and the bottom 20% earned less than $19,178. The aggregate income distribution is highly concentrated towards the top, with the top 6.37% earning roughly one third of all income, and those with upper-middle incomes control a large, though declining, and share of the total earned income. Households in the top quintile, 77% of which had two or more income earners, had incomes exceeding $91,705. Households in the mid quintile, with a mean of approximately one income earner per household had incomes between $36,000 and $57,657. Households in the lowest quintile had incomes less than $19,178 and the majority had no income earner.

8

1.6. Global:

3M has a great global item in the US. It exploits the advantages of its global presence to the fullest extent. Its Japanese competitor Kao has made this painful experience several times. Kao had successfully launched its Quickie Wiper dusting mob in the Japanese market already in 1994. In the following years Kao introduced it in other Asian countries. However, in many parts of the world Kao has no active business in the household segment. This turns out to be a major strategic disadvantage. Starting in 1999 Procter & Gamble launches a similar product under the new brand name Swiffer in the USA, in Europe, and in many other countries. In those territories in which Quickle Wiper is not available Swiffer is being celebrated as the great innovation, and it is hugely successful.

Global innovators steer their innovations via global innovation centers. But they increasingly distribute them over the whole globe. There are several important reasons favor this organizational set-up: the respective regions “feel” a greater importance; the employees working in the regions can be offered more interesting career opportunities; the innovation centers of individual product divisions can be placed in those countries where the local divisions of the company have specific strengths, or where they have to compete against particularly strong competition; centers can be located where there is lots of talent, which furthermore often costs less. General Electric´s Health Division these days has its magnet resonance tomography machines, which normally cost millions of dollars, developed in its innovation centre in Shanghai at a target price of half a million dollar, with the option to later export these machines to other countries. Even Google is decentralizing its innovation activities away from its central innovation centre in Mountain View, and it already has 25 F&E centers worldwide.

1.7. Environment summary:As we have mentioned above, USA is confronting with a huge immigrants that makes opportunity for investors. The economy of America is improving over the recent years and especially after recession of 2007 that it has a rapid recovery of the economy. As 3M utilize high

9

technology of production, it reduced the impact of the recession. All these factors show us an attractive industry for the company to continue its business.

2. Industry Analysis:Industry analysis which includes 5 forces , it means when we want analyzing each industry we must consider 1-Threat of New Entrants . 2-Barganing Power of Customers. 3-Barganing Power of Suppliers. 4-Threat of Substitute Products.5-Competitive Rivalry Within an Industry .and analyzing each one of these elements .The five forces determine industry profitability ,and some industries may be more attractive than others.

2.1. Threat of new Entrants:

Threat of new entrants for 3M is low .New entrants must be able achieve economies of scale in order to compete in this industry, and also extreme amount of capital it needed to manufacturing the product and strong R&D. Each newcomer must consider this issue ,need to invest large financial resources in order to compete which is depended on industry that the entrants choose and evaluate financial resources and inventories which it needs for entry

3M company ,the group is a manufacturer ,innovator and marketer of a variety of products 3M company supported by research and developed budget .New entrants must be aware and keep itself up with R&D . Threat of new entrants for 3M is very low because of high level of innovation and research .

2.2. Power of Buyers:In fact ,power of customers or buyers for 3M is low because 3M identify customer needs, use 3M technology to pioneer innovative solution to meet these needs,3M invent and produce products which customer needed .It makes demand .It produce products which attracted buyers therefore buyers don’t have power on producer.3M producing new or shifting buyer need. High level of innovation causes the power of buyer be less than others for this multi market company.

In fact ,power of customers or buyers for 3M is low because 3M identify customer needs, use 3M technology to pioneer innovative solution to meet these needs,3M invent and produce products which customer needed .It makes demand .It produce products which attracted buyers therefore buyers don’t have power on producer.

2.3. Power of Suppliers:3M operates in six business segments industrial .power of suppliers for 3M seems be moderate because some products that 3M produced are unique some are common ,for common products for instance in health care segment may be the number of suppliers be more therefore it seems the suppliers don’t have any power on producer versus 3M makes unique products which needs unique suppliers so in this situation supplier has power on 3M.

10

2.4. Product Substitutes:A substitute product is a product from another industry that offers similar benefits to the consumer as the product produced by the firms within the industry .The percentage of substitution for 3M products is low .As I mentioned above 3M produce innovative products which are new and unique in the market and hardly competitors can imitate and also for the customer is difficult to replace it .Almost there isn’t substitute for these innovative products but as we know the 3M is multi market company and works in six segment it means some products of 3M are common and may be customer can replace it with other things ,therefore for these type of products which is more in healthcare segment.

The percentage of substitution for 3M products is low .As I mentioned above 3M produce innovative products which are new in the market and hardly competitors can imitate and also for the customer is difficult to replace it .Almost there isn’t substitute for these innovative products .

2.5. Intensity of Rivalry Among Competitors:intensity of competitive rivalry can make industry more competitive and causes decreasing profit against low intensity of competitive rivalry makes industry less competitive and increases profit for the existing firms. This is too difficult for competitors to compete with 3M .It has diversification and innovation in high level and also intensive R&D.

3. Competitive Environment Analaysis: Multimarket competition .

Slow-cycle market.

Companies with multi market are less likely to initiate attack but are more likely respond aggressively when attackted .3M has multi market and is diversified company .slow- cycle markets are those in which the firm’s competitive advantages are shielded from imitation ,as I mentioned before persentage of imitation for 3M competitive advantage is low because 3M supported by research and development and is not easy for imitate .

3.1. Strength: Unusual corporate culture ,which comfortably fostered and interdepartmental cooperation.

Massive Research .

Strong diversification .

Sales Representation {instead of dealing with a company’s purchasing agent ,were encouraged to proceed directly to the shop where they could talk with the people who used the product .

Capture Niche Market .

Operate in six business segment.

Focused on product research.

11

3.2. Major strength:Lay in solving and delivering unique solution for original equipment manufacturers (OEM) and mass channel customers .Its technologies could be extended into multiple market .3M’s technology portfolio and process capability were at the core of its unique business model .

3.3. Competitors:in the early 1920 ,the corporation manufactured a line of sand papers , which it sold to several key industries .Its competitors offered similar product and sold to the same customers . In that era, 3M’s strategy was straight forward :”we will make a quality product at a fair price-and sell it aggressively”. During the 1970 ,a number of obstacles interfered with its growth and the company also lost the cassette tape market to two Japanese companies, TDK and Maxell ,who were engaged in price –cutting .3M stuck to its traditional of abanding markets where it could not set its own prices.Avery Dennison is one of the three top competitors .It’s a global leader in the marketing of adhesive labels used on packaging .second ,Johnson & Johnson which is diversified health care and it is a competitor for 3M in health care segment.Third one Du Pont ,one of the largest chemical companies in the world .

In fact for 3M there isn’t strong competitor because it is diversified manufacturer and works in 6 segments with out any conflict with competitors .3M is first mover and innovator and the products which produces are unique and hard to imitate.

4. Summary: Attractiveness of External Environment of 3M’s Values:

3M has strong brands that are recognizable in almost every part of the world.

Satisfy its customer with innovative technology and superior ,value and service.

Provide its investors an attractive return through sustainable ,global growth.

Respect its social and physical environment around the world.

Value and develop its employee’s diverse talent ,innovative and leadership.

5. Strategic Analysis:Strategic analysis is important for every company working in this dynamic market and it has four parts, including key success factors, strategies, core competency-resources, and summary whether the case which is studying has sustainable competitive advantage or not.

From this analysis and by applying creativity will come a number of options and opportunities that can be used to build and implement a solid strategic plan for new or existing markets. Investigating strategies being used as well as core competency (s) gives the company a very

12

good insight for future to take timely action and recover from those mistakes with which company has been in troubles.

5.1. Key success factors:The first part of strategic analysis is investigating success factors which has made the company different from the others work in the same field , they have blind point and weaknesses though. The case that has been investigated is 3M and its success factors are existent in the case objectively.

The 3M Company has a formidable strength to its unusual corporate culture that feed innovation and interdepartmental cooperation with back up of 1 billion dollar annually and as a result, it is leader in many technologies. For example, pressure sensitive tapes, sand paper, protective chemical, premium graphic and so on.

Like any other successful companies in the world, 3M has many success keys that out stand it from other companies, including product development, founder and leader in many technologies, Strong knowledge, innovative products globally, Strong R&D with $1 billion budget per year, Innovative culture, adjacency lattice, Interdepartmental cooperation, operation in multiple industries and so on that are exhibited in appendix A in detail extracted from the case study of 3M in different CEO’s periods.

5.2. Strategies:Current strategies of the Company have been mentioned in this part, including business level, competitive strategies and corporate level and been exhibited in tables of appendix (A) in detail during the time.

5.2.1. Business Level:As the common business level strategies for staying in the market, including: 1.differentation 2. Cost leader ship 3. Focus on differentiation 4. Focus on cost leader ship5. Both differentiation and cost leadership at the same time.

5.2.1.1. Differentiation:The 3M Company has been well known for its R&D as a result, it focus more on the invention of brand new products to solve the problems of people. Then it turns invention to the innovation to exploit commercial goods that are different from the others.

Since this company have had innovation culture from first few days till now ( As you can see in Appendix A) so, almost all CEO use differentiation strategy in business level .

5.2.1.2. Relatively Low cost:Another common business level strategy that the 3M Company is using is relatively cost leadership not an absolute one. It could be asked as a controversial question why 3M has no

13

absolute cost leadership with this big size and global presence. The answer is because the Company has a diversified business in at least six different areas and to be a cost leader in all of those markets is a big deal therefore, 3M has relatively low cost in any of the businesses it works.

5.2.1.3. Niche Market:Emerging markets offer untapped growth and niche that are good potential markets for the Company to enter and do the expansion strategy. For examples countries such as Brazil, Russia, India, and China with high GDP rate and growth could be good destination for 3M to serve those unreached target markets.

3M’s core strategy recently has been to focus on developing and growing the existence markets. therefore it closed those businesses where it could not build scale or take the market share therefore the strategy to use the same technology for many businesses which will be discussed more in the corporate level, was used.

5.2.2. Competitive strategy:Each company in competition with other competitors has some strategies that force them to take action or response to action of others that depend on many factors including: size, quality, being pioneer, market cycle, market dependence and so forth.

5.2.2.1. Big size yet flexible:One of the components of competitive strategy is size which specifies either a company is quick in responses to the actions or it is rigid and inflexible.

3M is one of the biggest companies in the world since 1902 that is a globalized company with presence in more than 60 countries that verify its big size, but the Company is yet flexible because of diversified business. The company can take action very soon in any six markets which is working in because it is not that big in those businesses and the strategy has been to keep the eggs in different baskets not just in one basket.

5.2.2.2. Quality of product:Like most of Japanese Companies, 3M offers high quality products that causes customers be willing to pay more on high quality products. The more quality it has, the more profit it can earn. Quality control is not enough, however it is necessary to makes a brand well known to be zero defects and it makes 3M different and is a kind of non-price competition. 3M has been solving people’s problem with innovating products with high quality that been given people durability, good performance and so on.

14

5.2.2.3. First mover (Innovation):To be first or second or late mover increase or decrease the likelihood of attack and response. Small firms are flexible and quick in taking action, while big Companies cannot response quickly to the actions.

Being first mover in many markets has made 3M to gain the loyalty of customers as well as market share because the Company has been allocating around $1 billion in product innovation and development, advertising and advanced research and development.

5.2.2.4. Positive reputation:Reputation is one of the negative or positive attribute ascribed by one rival to another based on past competitive behaviour. 3M again with its problem solving has a good reputation , good brand image and good positioning that out stands it from other competitors.

5.2.2.5. Slow –cycle market:In slow cycle market competitive advantage is that Company can be relax of imitation and are sustainable in this kind of market. 3M is shielded from imitation because the company is not only the first mover, but also work in a slow cycle. Focusing on R&D has made the Company to be inimitable as a result, it can be sustainable in each market which has come first to serve needs as well as innovation that scarcely companies can imitate easily.

5.2.3. Corporate-Level:Corporate-level strategies address the entire strategic scope of the enterprise. This is the big picture view of the organization and includes deciding in which product or service markets to compete and in which geographic regions to operate. For multi-business firms, the resource allocation process—how cash, staffing, equipment and other resources are distributed—is typically established at the corporate level.

5.2.3.1. Value creating diversification:Among three different kinds of diversification-including value creating, value neutral and value reducing diversification- 3M has value creating diversification in which it is looking for to collect profit more than average return.

The level of diversification in 3M is high as well as related that means less than 70% of profit comes from the dominant business however they have share their competencies in many cases we cannot call it a related diversification because 3M is working in six completely different businesses. E.g. Pushing research staff to work more closely with marketer is due to value creating diversification.

15

5.2.3.2. Sharing activities (cross business with the same tech):Although 3M Company has an unrelated diversification strategy , they have had operational relatedness in the field of technology that they have used in many of their businesses to produce commercial goods.

5.2.3.3. Poor management of inventory:As mentioned in previous part, a company can have operational relatedness when they can share their activity whether it is primary or support. From the primary stage, managing the inventory for a diversified company is critical , 3M cannot have good inventory management due to unrelated diversification though.

5.2.3.4. Downsizing:With laying off 6500 of its employees, 3M did downsizing so that it can balance its R&D intellectuals however it has been more down scoping rather than downsizing to put an end on those ideas and businesses where 3M could not earn more than average return.

5.2.4. Acquisitions:The single biggest component of Buckley's strategy that requires attention is his acquisition strategy, primarily because it is a diversion away from the goal of tapping core competencies to achieve growth. 3M's acquisition experience is limited, and the company's competency at successfully acquiring technology is not yet fully developed.

The use of acquisitions to satisfy strategic goals is well-chosen. Acquisitions offer 3M a low-risk, cost-effective way to develop new products, build technology, rapidly access markets and meet expectations for sustainable growth. However, the success of acquisitions can be tampered by integration difficulties, excessive debt, and the inability to achieve synergy.

3M's use of strategic licensing and investments in small technology companies that readily tuck in to their existing businesses can protect the company from common problems that interfere with successful acquisitions. This cautious approach also fits with the company's conservative values. Targeting acquisitions to fill openings in geography and channel capacity is consistent with the company's other strategic efforts and should provide synergy when acquisitions are complementary to the company's core businesses and capabilities.

5.3. Core Competencies – Resources:The case provides an extensive definition of 3M's core competency, which is based on its invention and manufacturing capabilities to solve and deliver unique solutions for industrial and commercial customers. The company's technology platforms hold together its diverse business activities.

According to Buckley, 3M's fundamental core competency is in applying coatings to backings, processes which were both developed internally. He identified six competitive platforms giving

16

3M an edge over its competitors: low cost, scale and relative share, customer value chain, pristine service, and premium brands.

3M’s core competencies including tangible and intangible and value chain are as follow:

5.3.1. Tangible: Formidable organizational culture One of the first R&D department Patent purchasing in 1921 Multinational company

5.3.2. Intangible: Invention Superior technology platforms Superior manufacturing process capabilities Know-how

5.3.3. Value Chain: Superior operational process rapid advancements in technology well-aligned to external environment Very intellectual HR in R&D department Good customer relationship (CRM) particularly in recent years Poor management of inventory

6. Summary: (Sustainable Competitive advantage)Competitive advantage derives from the company's practice of cooperatively sharing technology across operations, brands, market segments, and regions.

The company unique business model is a competitive advantage that offers a steady stream of groundbreaking product opportunities in adjacent businesses where less obvious applications are discovered.

This competitive advantage is a sustainable advantage in that it meets the qualifications for sustainability - possessing capabilities which are valuable, rare, costly-to-imitate, and non-substitutable.

As a conclusion, If the company's innovative technology portfolio and superior manufacturing process capabilities are 3M's core competencies, its competitive advantage derives from the company's practice of cooperatively sharing technology across operations, brands, market segments, and regions. Referred to as the 3M Lattice, the unique business model is a competitive advantage that offers a steady stream of groundbreaking product opportunities in adjacent businesses where less obvious applications are discovered.

17

This competitive advantage is a sustainable advantage in that it meets the qualifications for sustainability - possessing capabilities which are valuable, rare, costly-to-imitate, and non-substitutable.

7. 3Ms SWOT ANALAYSIS :SWOT is a tool that identifies the Strengths, Weaknesses, Opportunities and Threats of an organization. Specifically, SWOT is a basic, straightforward model that assesses what an organization can and cannot do as well as its potential opportunities and threats .The 3M Company - SWOT Analysis company profile is the essential source for top-level company data and information. 3M Company - SWOT Analysis examines the company’s key business structure and operations, history and products, and provides summary analysis of its key revenue lines and strategy. The method of SWOT analysis is to take the information from an environmental analysis and separate it into internal (strengths and weaknesses) and external issues (opportunities and threats).

7.1. Strengths:One of the most important strengths of 3m company is its diversification across so many industries and so many areas worldwide. Diversified businesses such as: industrial and transportation, healthcare, dhisplay and graphics, consumer and office, safety, security and protection services, and electro and communications. Accounts shown for around 30% of revenues, grew 9.5% in 2007.and The next biggest division, Health Care, accounts for just over 16% of total sales.  Each of the other four divisions account for an even lower percentage of total revenues.  3M is not slowing down in its diversification either; it acquired 16 different companies in 2007. One of 3Ms strengths, its large research and development division, also represents a significant weakness for the company. 3M describes itself as a “science” company, and as such, they must have a constant pipeline of new products coming to market to keep them on top of the most recent technological innovations. As such, this pipeline can represent a significant liability for a corporation such as 3M if it turns out that one of their products that has been in development for a while does not work out. another one is Solid revenue & profit growth , which has grown net income, revenue, and dividends consistently for the past five years, can do so because it is constantly developing new products and innovations. 3M employs over 7,000 researchers in its 35 different operations that have laborites throughout the world. In the last five years, 3M spent over $6.5 billion on research and development, with $1.368 in 2007 alone. This huge investment into developing new products pays off because it keeps 3M at the top of the technological curve. It can and has lead to the development of hugely successful new products, such as masking tape, that increase revenue for years to come. Over its century long company history, 3M has successfully filed over 500 patents. other immediate strength of this company is the number of fantastic brand names it has license too, including such household favorites as Scotch Tape c and Post-It Notes c . This brand name recognition gives 3M an advantage in the stores when customers are deciding between competing products of similar quality; individuals

18

will go with what they know. It also keeps customers from switching to different products. 3M is focusing on continuing to develop these “enduring franchises,” while at the same time focusing on emerging brand names, such as the new Filtrete brand air filters that are part of 3M’s Consumer & Office business.

7.2. Weaknesses:

The main weakness is high health care cost. Energy independence has the opportunity to propel growth. And another weaknesses of this company include: Low inventory turnover which impacts inventories and marginsWeaker than expected performance in key segmentsNot as nimble as smaller, more focused competitors

7.3. Future Opportunities:

The most important area for future growth of 3M is in its international operations.  3M does well internationally now, with 63% of 2007 revenue coming from areas outside the US.  Even with these strong international sales, 3M is looking to expand even more outside the US, with 70% international revenue expected by 2010.  3M is focusing specifically on emerging markets, such as Latin America, Eastern Europe, and China, in which sales have been growing at an average of 20% over the last five years.  In fact, nearly 30% of total revenue, or $7 billion, comes from these emerging markets . also another opportunities of 3m includes: Acquisitions in key operating areas, Continued global expansion, Rising healthcare spending in the US, and Security concerns with weaker economy in the US could present opportunities for 3M's security business

7.4. Threats: The major threat is the housing crisis, which will lower growth and Rising commodity and energy prices, Environmental regulations , other threats include 3Ms susceptibility to international exchange rates.  Since 63% of its revenues come from outside sources, strengthening of the US dollar against other currencies could lead to unexpected decreases in reported sales.  3M is also highly dependent on energy and raw material prices, and any unexpected changes which lead to lower supplies could raise the costs of natural resources such as oil and severely hurt 3Ms future business development another major threat for 3M is the pollution costs it faces from litigation and cleanup.  As recently as 2003, 3M was rated on the Political Economy Research Institute’s list of 100 most toxic companies in the US, releasing 4.75 million pounds of air pollutants every year. Also 3M is a very diverse company, both by product and location, a large portion of revenues, 27%, still comes from the US.  This is a dangerously high percentage because any major economic slowdown in the US, such as the one that happened in 2008, could have a substantial negative effect on 3M’s revenue and sales.

19

8. Problem Statement(s):The recent problems that this company face with and new CEO should try to figure out them are :

1. Apply unrelated strategy and Make a little, sell a little so this strategy leading to complex supply chains and costly logistics between operations.

2. They lost their sales growth opportunities where it was readily available by continuing using past strategy.

9. Strategies:

9.1. Coop rate level:

9.1.1. Restructuring: Companies use restructuring strategy by changing or eliminating extra units in the company that they are not profitable as a result, as mentioned in previous part this company is so diversified and have several branches and units of business and act in variety of areas, however for more focus and control on the businesses and segments this company need to do restructuring strategy to decrease its market area and for more control and focus on market.

Here two method of restructuring strategy for this company has been suggested which are mentioned as follow:

9.1.1.1. Downsizing:Downsizing reduces the size and scope of a business to improve its financial performance (Robbins & Pearce, 1992).Companies can do that by reducing firm’s employees ,number of functions and operations in which company cannot earn above average return. This strategy may lead to reduce layers and hierarchical systems of management to increase decision making speed and accelerate the rate of the performance. In addition, this strategy can also increase productivity in special levels. Totally we can say that this strategy have positive impacts on company’s performance in short term, however in long term it does not have the effect as it has in long term .For example, when company like 3M does downsizing and lay off its employee in the short term it can do cost saving but in long term it may lose human resource and knowledge management.

20

9.1.1.2. Down scoping:Down scoping is a type of firm’s restructuring that can lead to the reaching of above average return for unrelated diversified firms.

To achieve above average return with this strategy, companies should improve methods of governance, and the firm must commit to R&D development and expenditures. Therefore, this strategy is not enough and it is not guarantee for success unless the suitable business is selected as the core and the restructuring activity is applied effectively. I think 3M company also need to use this strategy in this time because it need to decrease the numbers of its scope to focus and apply better control on company. Moreover, It has good infrastructure in term of R&D and innovation culture for applying this strategy .

 9.1.2. Related constraint diversification strategy:As it has been mentioned before current strategy in corporate level for this company is unrelated diversification, which is not so successful. A good suggestion for this level is applying related diversification because, this company now is diversified but type of diversification that it has is not useful .it can be suggested that this company can use current diversification strategy more usefully by using related diversification after doing restructuring. By use of this way company achieve some capabilities mentioned as follow :

9.1.2.1. Market power:By this capabilities 3M company can Sell its product above the existing competitive level and also it can decrease the cost of primary and support activates below the competitive level (it means that it can improve its supply chain system and solve the problem of poor management inventory .

9.1.2.2. Multipoint market:By using this strategy company can be more flexible and apply in different markets, however in this time it is more powerful because has enough control on its businesses.

9.1.3. Acquisition strategy:

Third solution and recommendation for corporate level is acquisition strategy. Since this strategy have different types, our suggestion for this company after analyzing situation of this company is applying vertical acquisition. When we use related diversification strategy each unit in the company has relation to another one and output for each part can be as an input for other parts as a result, applying this acquisition in company can be very useful. In addition it has effect on market power by controlling additional parts of the value chain that is made by related diversification.

21

9.2. Business Level:

In this level recommendation could be differentiation strategy as a strategy that can guide this company to more success. There is good economic condition and power in the U.S therefore, high price for differentiation can apply so company does not have limitation to set price for its differentiated product .The company has a lot of potential in innovation and problem solving and has ability to introduce unique product . The other characteristic that can be mentioned about this company that create suitable condition for applying this strategy in business level are: 1. Strong capability in basic research, 2. Product engineering, 3. Drawn from other businesses, 4. Strong cooperation from channels, and 5. Long tradition in the industry or unique combination of skills 6. Reputation for quality or technological leadership

10. Recommendation and model:

3M Company should Continue Focus in the Following Areas:

• Brand image (problem solving)• first mover (innovation)• Leadership in technology• Economic of scope• Continuing launch six sigma• Lack of dependent on the market

Customer involvement in innovative process.

22

Corporate Level

Business Level

Improve performance and profit ability

Downsizing

Knowledge Management

Related Diversification

More niche markets

Down scoping

Vertical Acquisition

11. References:

[1] Management Development Review, Lessons in teamwork: the 3M experience, Volume 10 ·

Number 6/7 · 1997 · pp. 276–278, © MCB University Press · ISSN 0962-2519

[2] Edmund E. Price and Donald R. Coy, Life cycle management at 3M: A practical approach,

3M Center, St Paul, Minnesota, USA.

[3] Strategic Direction, R&D before all at Hewlett Packard, 3M and GE, VOL.20 NO. 10 2004,

PP. 15-17, Emerald Group Publishing Limited, ISSN 0258-0543

[4] DeSimone, L.D. (1997), Signals of Change, Business Progress towards Sustainable

Development, World Business Council for Sustainable Development.

[5] Adam Brand, 3M United Kingdom Plc, Knowledge Management and Innovation at 3M,

Journal of Knowledge Management Volume 2 Number 1 September 1998

[6] Irene chong on( 01 February, 2009)

[7] Charlie Witmer (Charles.Witmer@KnowTheCo.com) 17 January, 2009

[8] Alga D. Foschi, The Coast Port Industry in the U.S.A. A Key Factor in the Process of

Economic Growth, Discussion Papers - Department of Economics No. 46, May 2005

[9] Jeanne H. Yamamura and Yvonne E. Stedham, Globalization and Culture: An Exploratory

Study, November 2004

[10] Bibo Liang, Political Economy of Us Trade Policy Towards China, China & World

Economy, Vol. 15, No. 5, pp. 50-64, September-October 2007

[11] Arnold Reisma and Aldona Cytraus, Institutionalized Technology Transfer in USA: A

Historic Review, 2004

[12] http://www.stock-analysis-on.net/NYSE/Company/3M-Co/Financial-Statement/Income-

Statement

23

12. Appendix:

Appendix A:

Strengths Performance Problems Strategic Goals

1907

McKnight/

Bush

1930's

1940's

1952

Carlton-

1970's

Aggressive, customer-oriented salesmanship

One of first corporate R&D divisions in US

Innovations

Major product innovation

Product discovery

First large-scale consumer product

Tripled in size

$100 million sales

10,000 employees

Lost cassette tape market

Filling market niches

Abandoning markets where it could not set its own prices

Strengths Performance Problems Strategic Goals

1991

DeSimone

Product development

New product turnaround time reduced

Invention of customer-driven products

Declining revenues/profits

Focus shifted from research

R&D teamed with marketers

Transformation of existing technology into commercial products

24

Strengths Performance Problems Strategic Goals

2001

McNerney

1-launching 6 sigma

2-downsizing-laying off 6500 of employees

3-more product development-to get the best products to market much faster

Lacking direction

Fewer hits from vaunted research facilities - no major breakthrough in 2 decades

Culture becoming more short-term

1-Balance science of management against innovation

2-improvement initiative - cost cutting and reducing errors/defects

Channeled product development funds on most promising ideas

3-Dropping weaker ideas earlier in the process

Getting best ideas to market faster

Retain culture of innovation

Strengths Performance Problems Strategic Goals

2002 Underinvestment in growth platforms and overemphasis on boosting short-term profits

Acquisitions to generate growth

Realigned R&D to customer-development divisions

25

2003

2005

Increasing sales and operating margin

Strong performance - industrial division products driven by acquisition

R&D $1.14 billion - 6.3% sales

Net Profit $3.2 billion - 7% increase

R&D $1.2 billion - 5.9% sales

evenue growth (1-5%) while markets expanding

Declining personal care segment - price pressures in Europe

Decreased demand for some older products

Growth driven by acquisition

Strengths Performance Problems Strategic Goals

2006

Buckley

Upon Arrival

50,000 diverse products end-user segments based on both high- technology and low-technology

Founder and leader in many technologies - more than 40 technology platforms

Continual new markets built through "technical adjacency machine"

Strong knowledge and understanding of technologies yielding innovative

1-Growth strategy based on enhanced core competency and building long-term competency

2-Technology and innovation as the engine to grow and develop existing markets through disruptive (natural substitute) technologies, logical developments and extensions of existing products, and "out of the garage" technology developments

3-Grow core business through the strength of constant reinvention, stronger key customer partnership, customization, solving customer needs, entering niche segments, and capturing new

26

products globally and consistently

Cycle time to commercialization reduced from 4 yrs. to 2-1/2 yrs. for faster sales

Often entered markets only after intellectual property positions were built

segments

Strengths Performance Problems Strategic Goals

Buckley Arrival Cont.

Brand ownership

Participation in niche markets

Strong R&D with an annual budget over $1 billion

Innovative culture

Strong capabilities in science, engineering, and manufacturing (world class) with efficient plants

World class materials

"Invent and Experiment" approach - make a little, sell a little - leading to complex supply chains and costly logistics

1-Emphasize product localization using mix of brands and local acquisitions

2-Speed growth through strategic licensing,

3-Maintain innovative culture - follow 15% rule

27

science and surface chemistry capability

Less risky capital investments through flexible machining

Intersegment technology sharing across products and markets

Cross-business use of central technologies historically yielded participation in high-margin niche markets

between operations

Deeply conservative values

Incremental capacity and planning

Chronic underinvestment in core capacity - lost sales growth opportunities where it was readily available

28

Strengths Performance Problems Strategic Goals

Buckley After First Year

Successfully reinvigorating engineering culture and technological foundation

Innovation sparked

Morale boosted

Investments focused on core competencies

Sales $21.2 billion

60% sales outside US, more than 20% in emerging markets

April - record 1st qtr sales and profits (over 10% increase) - EPS increase over 20%

June - missed targets, driving stock prices down

Waiting to see growth accelerate at core businesses

Display and Graphics business launch of new optical film factory

Misread demand for LCD TV's

1-Revitalize competitive advantages through technological differentiation, application across multiple lines of business, and renewed focus on innovation, new products, international expansion and penetration with greater emphasis on localization (concentrating on BRICP, E&W Europe, Japan, and Australia)

2-Defend created markets against new entrants, using dual branding in upper middle market -

29