Case Analysis

3M: Cultivating Core Competency

By Brady Shiplet and Paul Koen

Part A. General Environment

Demographic Segment
The company's revenues are spread across six key businesses, with industrial and transport, healthcare,
and safety, security, and protection services businesses accounting for about 31%, 17%, and 14.4% of
the total revenues. The company operates on a global scale in the US; Europe, Middle East, and Africa
(EMEA); and Asia Pacific markets.

Economic Segment
The company recorded revenues of $25,269 million in the financial year ended December 2008
(FY2008), an increase of 3.3% over FY2007.The net profit was $3,460 million in FY2008, a decrease
of 15.5% compared with FY2007. Most of 3M’s costs are incurred in dollars.

The economic slowdown in the United States and abroad is the biggest economic obstacle faced by
3M. Also, Rising oil prices result in price increases and supply limitations of several oil-derived raw
materials.

Foreign currency exchange rates and fluctuations in those rates may affect the Company’s ability to
realize projected growth rates in its sales and earnings.

Political/Legal
Complying with stringent environment laws is a major concern for 3M. These ever increasing laws
could increases the company's operating costs and reduce its profits.

Sociocultural Segment
Society’s values and attitudes have been changing. More and more people are becoming concerned
about the environment and the ways in which we use energy. In order to become more energy-
conscious, 3M has moved into the realm of renewable energy.

Global Segment
3M has diversified operations in terms of the number of industries and geographic regions served. The
economic crisis is not only in the U.S. Its effects are found on a global scale as well because of
globalization.

Overall Assessment (Summary)

Most of the opportunities in the general environment come from the movement to green energy.
Renewable energy is a new market and host ample room for growth. The major threats faced by the
company come from the political legal segment. Complying with new environmental laws is hurting
the company’s bottom line.

Part B. Porter’s Five Forces Model

Threat of Entry
3M’s Innovation, technology, manufacturing capabilities, and know-how provide a significant barrier
to entry. The company’s portfolio is also diversified across a number of industries.
Bargaining Power of Suppliers
There is not much bargaining power realized by 3M’s suppliers. The company is so large it can exert
power over these entities. Also, most products purchased are raw materials. These usually change with
the market; therefore, suppliers can not set their own prices.

Bargaining Power of Buyers:

With so many substitute products available, bargaining power of buyers is high. Retailers are also
beginning to offer their own version of 3M’s older innovative products.

Threat of Substitute Products:

Because 3M operates in such a diverse array of industries, the threat of substitute products is high.
Retail stores are also beginning to offer their own private label brands at a lower price than 3M
products.

Rivalry
Within every industry 3M operates rivalry is high. Because of the large amount of industries the
company operates in there is always a barrage of new competitors.

Part C. Competition
3M operates in rapidly evolving and intensely competitive segments. As the company is diversified
manufacturing company, it would face intense competition from various large scale companies in its
existing businesses. It faces direct competition from Balchem Corporation, Bayer, CONMED
Corporation, H.B. Fuller, Johnson and Johnson, and Cardinal Health, among others. Increasing
competition from global and domestic players threatens to erode the market share of the company.

Part D. Tangible and Intangible Resources

Tangible Resources

• Financial Resources

Net income for 2007 was $4.1 billion, or $5.60 per share, versus $3.9 billion, or $5.06 per share, in
2006 — up 6 percent and 11 percent, respectively. Excluding special items, 2007 earnings were
$4.98 per share, up 11 percent.

Sales for 2009 were $23.1 billion and earnings per share of $4.52, down 8.5 percent and 7.6
percent, respectively. Excluding special items, 2009 earnings declined 9.3 percent to $4.69 per
share. The share price was lower in 2009 than in 2007; however, the company has made headway
as continues to climb out of the depression.

The major rating agencies routinely evaluate the company’s credit profile. This evaluation is based
on a number of factors, which include financial strength, business and financial risk, as well as
transparency with rating agencies and timeliness of financial reporting. The Company has an AA-
 credit rating, with a stable outlook, from Standard & Poor’s and an Aa2 credit rating, with a stable
outlook, from Moody’s Investors Service.

• Organizational Resources

3M is supported from its headquarters in Saint Paul, Minnesota. It has more than 35 business units,
organized into six businesses:
• Consumer and Office
• Display and Graphics
• Electro and Communications
• Health Care
• Industrial and Transportation
• Safety, Security and Protection Services

• Physical Resources

3M operates in more than 65 countries – 35 international companies with manufacturing operations,

35 with laboratories.

• Technological Resources

• 45 technology platforms, including:

o Adhesives
o Abrasives
o Light Management
o Microreplication
o Nonwoven Materials
o Nanotechnology
o Surface Modification
• 6,700 researchers worldwide; 3,400 in the United States.
• U.S. Patents Awarded – 518

Intangible Resources

3M is a long standing company. During its tenure it has amassed 518 U.S. patents. Also through this
time it has developed a culture of innovation and one that values knowledge. These facts cannot be
replicated.

Part E. Core Competence

The company prides itself on its innovation capabilities. It is able to produce new innovative products
because of its research and development, manufacturing, knowledge sharing, and supply chain
capabilities.
Part F. Sustainable Competitive Advantage

Valuable Capabilities

3M is a highly capable scientific, engineering, and manufacturing company with strong research and
development capabilities. They have the ability to manufacture innovative products efficiently and
consistently, on a global basis. The company has a micro-manufacturing competency, which it
leverages across many markets, making it difficult for competitors to beat its high level of innovation.

Costly to Imitate

The company is so large and diverse it would be impossible to imitate all of its capabilities. Many of its
product offerings are easily imitated however.

Non-substitutable

Many of the product/service packages offered by the company are non-substitutable. However the
majority of 3M’s business offerings are substitutable.

Summary

Although 3M has many core competencies, none are sustainable. The company operates in fast paced
industries that are constantly changing. Even though the company is focused on innovation, it does not
mean they will continuously develop groundbreaking products.

G. SWOT Analysis
Strengths
3M is a manufacturing and innovation company. They have a strong R&D capability as well as a
diversified business portfolio. Its technologies can be extended into multiple markets. 3M is amazing at
taking efficiencies and applying them across their multiple business segments to improve cost and
production.
Weaknesses
3M has 6 business units and is a very large and diverse company. Many times companies have
tendencies to get involved in too many segments and not be masters of any. They have also left
themselves open to cheaper “branded competitors” such as Wal-Mart and Target. 3M also has lower
margins in the U.S.
Opportunities
3M has the opportunity to continue their growth internationally which will continue to fuel the
company. Acquisition of brands will lead to a more comprehensive offering. There is also a growing
demand for LCD’s which is one of 3M’s core companies.
Threats
Growth in private labels is 3M’s largest threat. Higher oil prices also will lead to price increases and
supply limitations of several oil derived raw materials.

H. Problem Statement
3m’s main problems can be defined as the growth of private labeled products leading to eroded margins
, higher oil prices which will lead to input cost increases, and exchange rate fluctuations. This erosion
in margins (45% from premium priced products to 20%) will negatively impact their bottom line.
I. Business level strategy
3m’s business level strategy is a bit mixed. They definitely are part of the acquisition and restructuring
strategies as well as having a focus on international growth and development of new markets. Are these
strategies appropriate? Yes the strategies are appropriate (international revenue of $14.6 Billion 63% of
total revenue).
J. Current Position
3M is a market leader today in their core business units. I think they could narrow their focus and
possibly consolidate or eliminate business units, but their model has proved to be very successful
through 2009. According to their website 3M had sales totaling $23 Billion in 2009. 3M remains a
customer focused company providing innovative technology, superior quality, value and service. They
also continue to place high emphasis on people development and leadership.

Additional strategic issues:

Evaluate 3m’s acquisition strategy.
3M’s acquisition strategy has paid dividends. They have mainly focused on buying smaller firms that
are easier to integrate as well as less expensive.
Recommended Strategy
In the 2009 Annual Report, Buckley gives an overview of the company’s 2010 strategy.
“Our goal in 2010 is to grow 3M faster than the market grows by becoming ever more
important to our customers. We can do that by filling in product white spaces at all levels in the
market pyramid, using technology to differentiate our products from the competition, and by
using market-led pricing to attract customers and then driving service levels up to keep them.
We enable this strategy by making our supply chains shorter and our new product vitality index
higher. We then turbocharge this strategy and growth by making great new acquisitions.”
Buckley is the leader and current flagship for a gigantic, global, technology driven company for a
reason. His strategy is sound and the company is already realizing the effects his growth strategy in an
undesirable, confused global economy.