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The Drought Is Over At 3 M


The Corporation

THE DROUGHT IS OVER AT 3M

A few years ago, 3M Co. was looking haggard. The recession and stiff price competition were taking a heavy toll on the diversified manufacturer, based in St. Paul, Minn. Worst of all, the downturn highlighted disturbing flaws in the company's research and development process. It turned out that the creative juices that had transformed 3M into a paragon of innovation and the inventor of everything from ubiquitous yellow Post-it notes to surgical staples just weren't producing new products fast enough. After seeing sales rise 60% in the second half of the 1980s, the 3M growth machine ground to a halt. Annual sales growth averaged an anemic 2% from 1991 to 1993.

It's a humbling experience that 3M ceo L.D. DeSimone vows not to repeat. Under his leadership, 3M has undertaken a revolution in product development. It has slashed the time it takes to introduce new products by up to half, to less than three years in many cases. DeSimone is also shifting 3M's vast technological resources away from basic research and toward nitty-gritty product development. One of its biggest consumer hits of late: the Never Rust Wool Soap Pad, made of recycled plastic bottles (page 141). "We're driving even harder at what is the soul of this place: innovation," declares DeSimone, 58 and ceo since 1991.

That drive is showing results. On Oct. 24, the company announced that third-quarter profits climbed 8%, to $341 million, as 3M's revenue increased 10%, to $3.8 billion. For the entire year, Merrill Lynch Capital Markets analyst Robert P. Curran figures net income could rise 5.5%, to $1.3 billion, on sales of $14.9 billion, up 7% (chart).

TEAMWORK. As DeSimone notes, innovation has always been the soul of 3M, which markets some 60,000 different products. Rivals have long marveled at how the company's R&D staff would spend months, sometimes years, building a storehouse of technology before seriously thinking about product development. As long as the economy was humming, 3M wasn't too concerned about its slow research process. But when the recession began hammering revenue, 3M's chief knew the company had to start pumping out products faster and more cheaply to compete. "We had to do more," says DeSimone, who joined 3M in 1958 as a manufacturing engineer.

DeSimone decided to inject a dose of competitive urgency into 3M's R&D efforts. As other manufacturers have done, he encouraged closer teamwork among researchers and marketers to speed new-product introductions. DeSimone also ordered his staff to pay closer attention to customers. More significant, he pushed to commercialize more of the company's existing technology. He ordered his R&D staffers to scour 3M's library of scientific knowledge to find potential new products.

In 1992, for example, 3M started manufacturing a special film for laptop computer screens that enhances brightness while conserving energy. The company first developed the film, made of microscopic prisms that reflect light long distances, for decorative signs on buildings in the mid-1980s. Then in 1991, 3M decided to adapt its so-called light pipe technology to computer screens after computer makers complained that bright screens were draining batteries. Thanks in part to 3M's film, the battery life of laptops made by Compaq and Apple has been extended to 4 hours from 21/2 hours. 3M won't disclose sales figures for the high-tech film.

DeSimone is urging his R&D teams to apply 3M's proprietary technology wherever they think it can work--no matter how prosaic the product. He reckons such an approach will lead to more competitive products--and ones that will fetch premium prices. That's certainly been the case for the Never Rust Wool Soap Pad, and its cousin, the Never Scratch, which have made a big splash in the stodgy $300 million market. 3M went to work developing the pads in the early 1990s, after focus groups told the company they would pay a little extra for a soap pad that didn't rust or fray. "People didn't like getting stuck by steel wool," says Moe S. Nozari, vice-president of 3M's consumer products division. Nozari pulled together researchers from both the tape and abrasives divisions to work on the problem. Researchers at the home-care lab suggested using pads made of fibers from recycled plastic bottles.

TOUGHER RIVALS. For the 52 weeks ended Oct. 14, 3M's scouring pad and sponge sales rose 18.8%, to $50.8 million, giving it a 16.2% share of the market, according to Information Resources Inc. That's just shy of Clorox Co.'s market leader S.O.S. brand, whose sales dropped 5%, to $52 million. Best of all, 3M sells a box of eight soap pads for about $1.80, compared to roughly $2 for a box of 10 S.O.S. pads. That's more than a 12% premium for each Never Rust pad. Thanks to the Never Scratch soap pad and other entries, such as the O-Cel-O Stay Fresh Sponge, sales of new products introduced in the current year could total $1.3 billion in 1994, up 122% over 1992.

Even with its recent new-product successes, it's doubtful 3M will ever duplicate the giddy growth it enjoyed in the 1980s. The competition is intensifying. 3M's computer diskettes are under price pressure from Sony Corp.'s products. The company's photography film unit is also feeling the heat from Eastman Kodak Co. Still, DeSimone isn't letting up. Roughly 50% of 3M's sales come from international markets. And DeSimone wants to enlarge that share by pushing the company into new markets in the Pacific Rim, excluding Japan, where sales could hit $3 billion by the year 2000, up from $750 million today. DeSimone also expects to maintain his research budget at more than $1 billion this year. After all, DeSimone figures the road to better products starts with innovation. He'll just have to make sure that 3M's R&D machine stays in the fast lane.Kevin Kelly in St. Paul, Minn.


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