A Memorandum on the Case 3M: Profile of an Innovating Company

To: Mr. Livio Desi Desimone, CEO, 3M Company From: Date: Subject: Recommendations for returning 3M to 20% return on equity and improved ROCE

To Whom It May Concern, The company 3M has been known through the years for its innovative approaches when it comes to doing business. It was even recognized by the magazine Fortune as one of the most innovative brands in the world to date. With this in mind such strategies and marketing approaches that are used by the company ought to be at par with the innovative standards that 3M has been known for. Yet, the current policy implementation schemes of the company fall short in the attainment of such goals. The past administrative frameworks that 3M adopted are aimed more at addressing short term goals that addressing the long term objectives which is quite important in situations that the overall market would not fair in well. For instance, the worldwide recession in the early 90s serve as a new challenge for 3M specifically in the area of risk management. Currently, the risk management policies of the company are gauged in at addressing only the internal risks. At some point it is quite positive to do so, but looking at the situation in the long run, it would not be beneficial for the assessment of the performance of the company if 3M remains passive on the emerging threats in the market and thereby would forego market opportunities. The need to innovate such company policies is highly advisable for the case of 3M. In an effort to address the current company situation of 3M wherein is at a point of sluggishness in terms of sales and profitability, it is therefore highly recommended that the company return on its 20% return on equity levels from the current 18.8% level (Bartlett & Mohammed, 1995). Additionally, the Return on Capital Employed or ROCE levels has also

3 significantly increased in the past couple of years wherein the current rate of 22% going far below the 27% confidence level (Marcus, Geffen, & Sexton, 2002). Concentration of the company resources on vital product lines of 3M is one of most advisable points that the company could do. For instance, investing more on research and development of new product lines could bring about possible new product innovations in the future. 3M could gain advantage here in the market among its competitors by offering more of the product differentiation while at the same time fulfilling its overall company image being an innovative company. The operating costs incurred then by 3M could be compensated by the profitability that the developed product offering would entail as it is released in the market. In the long run, it could be well considered as a company investment. The value of research and development has been inherently present in the companys foundations and is evident throughout 3Ms corporate history. For example, William McKnight, chairman of 3M after the great depression, was evidently enthusiastic in investing in technology whereas such investments led to the establishment of 3M as a technologybased and an innovative company during that time. With that, McKnight would then see 3M grow into a multi-billion dollar company that would specialize in commercial abrasives and adhesives. Internationally, the company was established more with the consumers through the introduction of the various offerings in its adhesives line which introduced various forms of sticky tapes, post-it notes, and several others. However, the company went too far in recent years with declining levels of development in its product offerings. Instead, 3M has been gauged in at producing more variations of the products that they already have instead of developing new product concepts. Although there is still profitability in the product variation of 3M products, it would be little compared with the possible foregone profitability level of establishing new product offerings.

4 Diversification is viewed then as one of the major causes of the decline in company statistics. Through the companys aggressive efforts in the past to diversify and engage into several business lines, the efficiency rate of the company operations thereby decreased. 3M lost hold of its vital business lines as the resources as well as the attention of the company was diverted into several company operating fronts. It is therefore highly advised that the company downsize its business ventures in order to maintain the current level of competency in the market as well as sustain the market shares that the company has in the present. Furthermore, 3M could opt to divest on some business ventures wherein it needs great improvement of current marketing strategies as well as implementation plans. It is not necessary for the current company administration to compare itself from the previous company management (Concourse Gallery (Saint Paul Minn.), 1995). It would be better if the current company office would take lessons from the past and use such strength and thereby creating a specific identity for the company administration. Lessons from which the company values of 3M are rooted on. For instance, the theoretical approach of William McKnight in the past which puts heavy emphasis on product development and research is a good foundation which the company could benefit from in the long run. With this, 3M could continue to maintain the current market share that it has while at the same time, adjusting its shares with the overall growth of the market. 3M could do this by realizing and addressing appropriately the emergence of new market threats such as market competition. By addressing this, 3M could increase its profitability by differentiating its products from the rest of the pack and through the retaining the intricate quality values that 3M has already been known for. The company has more experience in the market; it would then be highly recommended that 3M bank on this company image through the maintenance of company commitments which are geared towards standards of quality and innovation.

5 Should the company not be able to address such concern, 3M would continue to have high operating costs which could lead to a further possible decline of company sales levels. When that happens, the company would then have more dilemmas far greater which could include on the ways how to stay afloat. If worse comes to worse, 3M may lead to a possible bankruptcy if its current resources are not directed to specific business lines that are worthy of company attention. It would be best if the company would consider such recommendations for the betterment of our company.

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