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3M STRATEGIC MANGAMENT & IMPLEMENTATION

C O M PA N Y A N A LY S I S
Tessa Larson Ginny Petroveck Caitlin Kenna Chris Nowakiswsky Danielle McMillin Option 2 March 9, 2009 Professor Angelo Camillo MGMT 3800

Table of Contents 1. Company Background a. History....................................................................................................................4 b. Current Situation...................................................................................................5 c. Financial Overview...............................................................................................6 d. Future Objectives..................................................................................................6 2. Corporate Governance e. Maintaining Success..............................................................................................7 f. Identifying Opportunities and Risks..................................................................8 g. Shareholder Input..................................................................................................9 h. Governance Structure...........................................................................................9 i. Board of Directors...............................................................................................10 3. 3Ms Ethical Framework a. Values....................................................................................................................11 4. 3Ms societal Responsibility a. Sustaining the environment...............................................................................13 b. Community environment...................................................................................13 c. Global opportunity..............................................................................................13 5. Specialty Chemical Manufacturing Industry Analysis a. Rivalry .................................................................................................................14 b. Supplier Power....................................................................................................15 c. Buyer Power........................................................................................................15 d. Threat of Substitutes..........................................................................................16 e. Threat of New Entrants ...................................................................................16 6. Environmental Scanning a. Political..................................................................................................................17 b. Economical...........................................................................................................17 c. Sociocultural.........................................................................................................18 d. Technological........................................................................................................19 7. 3Ms Core Competencies....................................................................................................19 a. Corporate Culture................................................................................................23 b. Value Chain Analysis...........................................................................................27 8. 3Ms SWOT Analysis a. Strengths................................................................................................................30 b. Weaknesses............................................................................................................30 c. Opportunities........................................................................................................31 d. Threats....................................................................................................................31 9. 3M Research and Development Overview.....................................................................31 2

10.Information Systems & Technology Strategy..................................................................33 a. Research and Development.................................................................................33 b. 3M Technology/R&D Strategy Structure.........................................................34 c. Policies and Philosophies ....................................................................................35 d. Information Systems.............................................................................................35 e. Changes to Consumer Resource Management.................................................38 f. IBMs Contributions.............................................................................................38 g. Marketing Productivity: European Strategy.......................................................39 h. Forward Looking Risks.........................................................................................41 11. 3M Financial Position and Strategy..................................................................................42 a. 3M Financial Market Data...................................................................................44 b. Industry and Market Averages Data...................................................................45 c. 3M Forward Looking Statements.......................................................................47 12. Outside Corporations Capitalization of 3Ms Success.................................................47 13. Bibliography........................................................................................................................49

3M COMPANY BACKGROUND HISTORY Starting in 1902, five men in Two Harbors, Minnesota started a company called Minnesota Mining and Manufacturing. They focused on selling corundum to grind-wheel manufacturers and a few years later moved the company to Duluth to focus on selling sandpaper. In 1916 the company declared their first dividends and have never missed a year since. In 1925 they invented masking tape and five years later developed cellophane tape. 3M created one of the first pension plans in 1931. Then in 1940 the implemented a vertical management structure to help organize their diversifying company. McKnight created his basic rules of management in 1948 that states that as a company grows they must delegate and encourage initiative. This management style allows mistakes to be made and believes in not being destructively critical.

Over the next decade 3M developed magnetic recording tape, the Thermo-Fax copying machine, reflective sheeting, filament adhesive tape, Scotchgard, and Scotch-Brite cleaning pads. Into the 1960s they continued to innovate by creating dry-silver microfilm, photographic products, carbonless paper, overhead projection system, as well as medical and dental records. The seventies and eighties brought 3M into the pharmaceutical business along with radiology, energy control and office markets. In 1980 the famous Post-It note was invented as an solution to holding page markers into a hymnals. O-Cel-O was acquired in 1990 and cause a lot of problems for 3M with their personal-injury claims for breast implants. 1998 brought around the 3M Nexcare line of firstaid and home health products. A drastic change was put into place in 2002 by restructuring the

company around end uses rather than product and raw materials. 3M has been committed to stay at the top of its industries by cutting unprofitable lines and selling of certain sectors.1

CURRENT SITUATION Right now 3M is divided into six businesses as stated earlier based off of end uses and not just products and materials. (1) Consumer and Office Business a) Brands, products and global presence to help consumers and office workers (2) Display and Graphics Business a) Display enhancement films, reflective materials, graphics (3) Electro and Communications Business a) Solutions for electrical, electronics and communication markets b) Reliable sources of electrical power, electronic devices, telecommunication networks (4) Health Care Business a) Medical and oral care products b) Drug delivery and health information systems (5) Industrial and Transportation Business a) Tapes, adhesives, specialty chemicals, filtration systems, supply chain management b) Manufacture, repair and maintenance for cars, planes, and boats (6) Safety, Security and Protection Services Business a) Security for people, facilities and systems b) Roofing granules and asphalt shingles

"3M United States: Products, Brands and Technologies." 3M Worldwide. 2009. 3M. 20 Feb. 2009 <http://solutions.3m.com/en_US/>.
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As of 2008 3M has businesses in 60 countries and their products are sold in 200 countries. They employ 79,183 people worldwide and prefer to hire local nationals over bring in employees from the US. This is seen by the less than 300 people that are Foreign Service employees. Currently the position of Chairman, President, and CEO is held by George Buckley.1 3M has been named The Best Company for Developing Leaders by Chief Executive magazine, Businessweeks 50 Most Innovative Companies, and Fortunes Most Admired Companies.2

FINANCIAL OVERVIEW As an entire entity 3M is huge with 25.3 billion dollars in sales. Sixteen billion of these sales are international, equaling 63% of their total sales. They have seen a 3.3% growth in one year. Their net income is $3,460 and their net income growth dropped 15.5% in the past year. Also traditional financial ratios can be seen: - ROI = 16.6% - EPS = 36.42 - ROE = 32% Industry = 1.9% Industry = 3.34 Industry = 4%1

FUTURE OBJECTIVES In February of 2009 3M created a Renewable Energy Division. This new sector will focus on energy generation as well as energy management. Also 3M plans to work on their ability to mix and match unrelated technology to create innovative solutions.1 At the end of 2008 3M had a 2009 Outlook Meeting that addressed problems of the declining economy and their plans for the next year. Part of their plans includes creating cash optimization by planning conservatively as well as preserving cash.

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Rankings Results Page." 2008. Business & Company Resource Center. Penrose Library, Denver. 20 Feb. 2008 <http://galenet.galegroup.com>.

They addressed their issues with organic growth, currency, pension and higher net interest expenses. Also they discussed how they plan to maximize their opportunities by adjusting to the slow economy but also still planning for long term growth. Some of their adjustments for the current economy do involve making cuts and consolidation so that 3M does not lose its leadership in the industry. To make all of this possible and measure it 3M plans to use a Lean Six Sigma to stay a profitable company.3

3MS CORPORATE GOVERNANCE 3M defines corporate governance through corporate values of honesty and integrity by focusing on maintaining excellence, identifying opportunities in relation to sustainable development, identifying risks in relation to sustainable development, shareholder input, and its governance structure of sustainability.

MAINTAINING EXCELLENCE In order for 3M to accomplish maintaining excellence under its corporate governance their Board of Directors Nominating and Governance committee completes periodic reviews with 3Ms Board of Directors to access the skills and characteristics of the board members to help ensure the success of the company. By accessing the skills and characteristics of the members of the board 3M will be able to better maintain a competitive advantage in its industry and over its competitors. Some of the skills and characteristics required of the board members are leadership values and roles, success within their career, able to make large contributions to the operations of the company, and effectively and accurately represent the interests and objectives of 3Ms shareholders. Maintaining
"3M Company 2009 Outlook Meeting." Grand Hyatt, New York. 8 Dec. 2008. 3M Worldwide. 3M. 20 Feb. 2008 <http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=80574&eventID=2044379>.
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excellence within 3M is an important part that builds the foundation for the company to uphold its values of honesty and integrity under its corporate governance. IDENTIFYING OPPORTUNITIES AND RISKS IN RELATION TO SUSTAINABLE DEVELOPMENT 3M identifies opportunities and risks in relation to sustainable development through the assessment of public policy and trends that are affecting the company by the Public Issues Committee. By identifying the opportunities and risks 3M can maintain a greater competitive advantage. The committee also reviews the companys environmental, health and safety programs and compliance, human resources programs, corporate contributions and 3M Foundation programs. These are important aspects that continue to build the companys success. It is also important for the committee to ensure response to shareholders input relative to the companys public policy issues. The committee is also responsible for the following: Monitoring 3M's corporate citizenship activities. Offering advice, insights and making recommendations regarding policies, programs, actions and procedures enable 3M to continue to respond appropriately to their social responsibilities and the public interest in their business affairs, including activities related to the environment, human resources, labor and community relations. The Public Issues Committee plays a vital role in the success of identifying the opportunities and risks relative to the sustainable development of the company.

SHAREHOLDER INPUT Shareholder input is an important aspect of the success of the company. 3M values shareholder input and believes that its shareholders are the foundation of the company that continue to play a vital role in 3Ms success. The company promotes a high level of open communication between the shareholders and the committees of the Board of Directors in order to maintain their commitment to excellence under their corporate governance and as a result further build 3Ms success. GOVERNANCE STRUCTURE 3M defines their governance structure through sustainability. The company emphasizes their success through sustainable development focusing on environmental protection, social responsibility and economic progress. The Board of Directors builds sustainable development by reviewing public policy and social trends affecting 3M, monitoring the company's corporate citizenship activities, evaluating company policies and programs to enable 3M to respond appropriately to its social responsibilities and the public interest in the conduct of its businesses, including activities related to the improvement of the environment and community relations (3M Governance Structure). The companys corporate governance through sustainability is shown in the following figure.

BOARD OF DIRECTORS GEORGE W. BUCKLEY George W. Buckley is the Chairman, President and Chief Executive Officer of 3M. He was hired as 3Ms chairman, president and chief executive officer on December 7, 2005. His previous experience/positions are chairman and chief executive officer of Brunswick Corporation, President of the U.S. Electric Motors Division, and the Automotive and Precision Motors Division of Emerson Electric Company, and President of the Central Services Division of British Railways. Buckley is also a member of the Board of Directors for Black & Decker, Archer-Daniels-Midland Company and on the Board of Trustees at St. Thomas University. Buckley has been on the Board of Directors for 3M since 2005. 3M as an independent Board of Directors outside of Buckley with the goal to maintain diversity and further the success of the company. The other members of the board include Linda G. Alvarado, President and Chief Executive Officer, Alvarado Construction Inc, Vance D. Coffman, Retired Chairman of the Board and Chief Executive

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Officer, Lockheed Martin Corp., Michael L. Eskew, Retired Chairman of the Board and Chief Executive Officer, United Parcel Service Inc., W. James Farrell, Retired Chairman and Chief Executive Officer, Illinois Tool Works Inc., Herbert L. Henkel, Chairman, President and Chief Executive Officer, Ingersoll-Rand Company, Ltd., Edward M. Liddy, Chairman and Chief Executive Officer, American International Group, Inc. (AIG), Robert S. Morrison, Former Interim Chairman of the Board and Chief Executive Officer, 3M. Retired Vice Chairman, PepsiCo, and Retired Chairman, PepsiCo Beverages and Foods North America, Aulana L. Peters, Retired Partner, Gibson, Dunn & Crutcher LLP, and Robert J. Ulrich, Chairman and former Chief Executive Officer, Target Corporation. 3MS ETHICAL FRAMEWORK VALUES 3M believes the ethical values of a company play an important role in the innovation and success of the company. Some of the ethical values 3M upholds include equal opportunity and diversity, employee security, forced labor, minimum hiring age/child labor, harassment, bribery and corruption, compensation, freedom of association (3M and Unions and Collective Bargaining), and measurement.

By maintaining a commitment to uphold the ethical values 3M increases its reputation of being a respectable and innovative company. The image of 3M is a key aspect in the success and sustainable development of the company. Under equal opportunity and diversity 3M promotes the right for every individual to participate in all aspects of employment without regard to race, religion, national origin, sex, disability, age, marital status, citizenship status, veteran status, sexual orientation, or status regarding public assistance. 3M is also committed to attracting and retaining a diverse work

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force (3M Ethics and Employment). 3M values employee security to maintain a safe work environment, preventative measures against possible threats, and the development of productive working relationships (3M Ethics and Employment). 3M is in accordance to the law under forced labor, minimum hiring age, and child labor laws. The hiring age for 3M in the United States in 18 years or older. 3M prohibits harassment at work including inappropriate behavior that violates workplace standards. 3M values their employees and feels they are the basis of the companys success. Bribery and Corruption is also prohibited at 3M. The compensation requirements at 3M are also in accordance with minimum wage legislation. 3M also believes it is important to maintain a competitive salary in order to maintain a positive and successful work force. Under the ethical value of Freedom of Association 3M works toward developing a culture that gives employees the opportunity to work without fear of intimidation, reprisal, or harassment, and to get their questions resolved in a fair and timely manner (3M Ethics and Employment). Following Freedom of Association six percent of U.S. 3M employees are represented by unions. The company's relationship with employees, whether union or non-union, is a key responsibility of all 3M leaders and 3Ms Human Resources department to maintain positive employee relations (3M Ethics and Employment). Collective Bargaining under Freedom of Association is also defined under 3Ms ethical values. The final ethical value is measurement. Measurement is carried out under 3Ms Corporate Policy to administer a Standard Opinion Survey to all employees at all locations worldwide every two years to address employee concerns and identify opportunities to improve our work environment (3M Ethics and Employment). The ethical values of 3M build the success of the company.

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3MS SOCIETAL RESPONSIBILITY SUSTAINING THE ENVIRONMENT Since the late 1960s 3M has been working on reducing the environmental impact of its products and processes. In 1975, 3Ms developed an Environmental Policy to define their commitment to the environment and prevention of creating pollution. 3M also created a voluntary Pollution Prevention Pays program to build awareness regarding the environment and prevention of pollution created by the company. This program has been successful in creating employee involvement, maintaining an environmentally friendly work environment, and preventing pollution. The companys commitment to the environment has also become a part of their culture. 3M maintains their commitment to the environment and social responsibility through the following: 30+ Years of Pollution Prevention Pays (3P), Eco-Efficiency Management & Results, Climate Change & Energy, Reducing Air Emissions, Water Management, Reducing Waste, Enhancing Biodiversity, Product Innovations, and Environmental Compliance. (3M Sustaining the Environment) COMMUNITY INVOLVEMENT 3M invests in Community innovation programs in order to give back to the community. The community plays a vital role in the success of the company and 3M believes it is important to show their appreciation through community involvement and in turn continue to build the success of the company. GLOBAL OPPORTUNITY The global opportunity of this diverse technology company is that it provides employment opportunities globally. 3M operates in over 60 countries and employs nearly 75,000 employees worldwide. By employing people worldwide 3M increases the economic status within its 13

communities. 3M has become successful and a more innovative company because of its global opportunity. Every country has provided 3M with unique ideas and strategies that have helped to build the innovation and success of 3M. (3M Global Opportunity)

SPECIALTY CHEMICAL MANUFACTURING INDUSTRY ANALY SIS RIVALRY 3M is a large company that has a significant market share in many different industries. It is a large competitor in the specialty chemical manufacturing industry. The chemical manufacturing industry is one of 3Ms la rgest and most profitable sectors. Within the industry, some of the top

competitors include Exxon Mobil, Honeywell, and du Pont.4 The specialty chemical production is what most people think of when they think about 3M because this is the industry that 3M makes their adhesives. The chemical industry is a high revenue business and 3M excels at maintaining its competitive advantage within the industry. However, 3M also has to compete with fierce rivals in other industries.

3M also competes in the paints, coatings and other finishing product manufacturing, plastic and fiber manufacturing, and health care products sectors. Each area has its own challenges that 3M must face, and the competition varies from sector to sector. In the health care product industry, for instance, 3M must cope with strong competition from companies like Johnson & Johnson and

Specialty Chemical Manufacturing. Hoovers. 2009. 12 Feb. 2009 <http://premium.hoovers.com/ subscribe/ind/factsheet.xhtml?HICID=1091>.


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General Electric.5 So, among each industry that 3M competes in, there is a different combination of companies that 3M must fight with to gain market share.

SUPPLIER POWER For the most part, 3M is a manufacturer, so it does not have many raw materials it must buy from suppliers. The few inputs 3M does have include stainless steel, plastic, rubber, and polymers.6 The suppliers of these products do not have very high power because 3M is such a large company. So, 3M essentially sets the rules for doing business with them. The suppliers need 3M in order to stay in business, so they do not have high supplier power.

BUYER POWER The buyer power that affects 3M is moderate. 3M makes a myriad of products ranging from Post-it notes and polishing paper7 to medical tapes and stethoscopes8. The wide variety of products means that only a limited number of these products are actually specialty products. Considering the nonspecialty products that 3M manufactures, buyers have more power in who they want to buy from. There is more selection, so prices can be set more competitively, which favors buyers more. However, 3M focuses its production on innovation, so it comes out with specialty items that are in high demand because they fill a strong need for consumers. Since there is generally a high demand for these products, they can be priced at a premium.

Health Care Products. Hoovers. 2009. 12 Feb. 2009 <http://premium.hoovers.com/subscribe/ ind/factsheet.xhtml?HICID=1375>.


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Annual Report. 3M. 17 Feb. 2009. 20 Feb. 2009 <http://phx.corporate-ir.net/phoenix.zhtml? c=80574&p=irol-sec>. 7 Product Index. 3M. 2009. 27 Feb. 2009 <http://www.3m.com/product/p_index.html>. 8 Annual Report. 3M. 17 Feb. 2009. 20 Feb. 2009 <http://phx.corporate-ir.net/phoenix. zhtml?c=80574&p=irol-sec>.
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THREAT OF SUBSTITUTES Each industry that 3m competes in is highly competitive and very dynamic. In a trade that is driven by innovation, substitute products can arise quickly and make older products obsolete.9 The threat of substitutes is high for 3M simply because it must constantly focus on innovation and advancing its processes in order to maintain its position as a leader in the manufacturing industry. All the industries that 3M competes in have constant imitation and innovation, so the direction in which the industry goes is unpredictable. This forces every company to continuously change and it constantly alters the competitive landscape.10

THREAT OF NEW ENTRANTS The manufacturing industry, and particularly the specialty chemical manufacturing sector, is quite capital-intensive and highly automated.11 So, it would seem as though the threat of new entrants would be low. However, a new company does not have to enter each industry that 3M currently occupies. It can simply start making one specialty brand product in one industry and immediately gain a significant market share. There are thousands of potential products that can be created or improved. So, assuming a company has the resources, it is not difficult for a new company to enter the market and immediately take away market share. This means that the threat of new entrants is actually high. Fortunately for 3M, it is such a large company and it has diversified into so many industries that one occasional threat from a new entrant does not affect it significantly.12
3M Industry Information. Hoovers. 2009. 12 Feb. 2009 <http://premium.hoovers.com/ subscribe/co/industry.xhtml?ID=ffffrrffyffjrkyfxt>. 10 3M Industry Information. Hoovers. 2009. 12 Feb. 2009 <http://premium.hoovers.com/ subscribe/co/industry.xhtml?ID=ffffrrffyffjrkyfxt>. 11 3M Industry Information. Hoovers. 2009. 12 Feb. 2009 <http://premium.hoovers.com/ subscribe/co/industry.xhtml?ID=ffffrrffyffjrkyfxt>. 12 Annual Report. 3M. 17 Feb. 2009. 20 Feb. 2009 <http://phx.corporate-ir.net/phoenix. zhtml?c=80574&p=irol-sec>.
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ENVIRONMENTAL SCANNING POLITICAL The political environment in the United States is stable. It is a democratic republic and a free trade country, which generally tends to support large businesses. There has been a recent push over the last few years by the U.S. government towards supporting more domestic companies in an effort to maintain a strong economy. The U.S. government does not have strict laws on what can or cannot be sold. It does, however, have tight laws and regulations on the safety and quality of any products sold on the U.S. market.13 Relatively speaking, terrorist activities are at a minimum, so that does not detract from doing business in the United States. While the U.S. government welcomes business within its borders, the labor is more expensive.14 U.S. companies have a tendency to outsource any work they can in order to reduce costs.

ECONOMICAL The Gross Domestic Product of the United States was approximately $14.6 trillion in 2008. Even with the sinking economy, the GDP still increased by 1.1% from 2007 to 2008. However, the unemployment rate jumped from 7 million people to 9 million people in the last year. This has had a negative effect on the entire country because people are less willing to spend money and companies are cutting costs wherever possible, so the economy continues in a downward spiral.

World Factbook. Central Intelligence Agency. 14 Feb. 2009. 17 Feb. 2009 <https://www.cia.gov/library/publications/the-world-factbook/geos/us.html>. 14 World Factbook. Central Intelligence Agency. 14 Feb. 2009. 17 Feb. 2009 <https://www.cia.gov/library/publications/the-world-factbook/geos/us.html>.
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The inflation rate for 2008 was 3.8%.15 When coupled with the unemployment rate, it has led to a very frugal economic situation.

As companies are laying off workers and the unemployment rate continues to increase, competition for jobs continues to shoot up. The future of the economy is unpredictable. When looking at a short-term timeline, things do not look good. Unemployment will most likely keep rising before it falls again. Both people and companies will not be able to afford spending money like they once did. When considering the long-term state of the economy, everything looks more manageable. History has shown that all trends have a tendency to balance out eventually.

SOCIOCULTURAL In the United States, consumers value quality products. They have gotten used to a high standard and are not satisfied with goods of average quality. In addition, consumers expect to be able to buy superior-quality products at affordable prices. The introduction of wholesalers completely changed consumers expectations on how much products should cost.

Status is also very important to a majority of people. People want to be recognized for having the best goods, even if they are not necessarily practical. The media has altered that perception and made material wealth very important in todays society. As a result, consumers in the United States have gotten used to living lavish lifestyles. People are usually not financially conscious. However, as the economy has taken a turn for the worse, people are becoming more mindful of how much money they have and are trying to save as much money as they can.
World Factbook. Central Intelligence Agency. 14 Feb. 2009. 17 Feb. 2009 <https://www.cia.gov/library/publications/the-world-factbook/geos/us.html>.
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The people in the United States are concerned with environmentalism. Yet, they do not want environmental movements to changing their lifestyles. Consumers are willing to spend extra amounts of money just to avoid altering their way of life. Consumers also value honest work, and tend to support ethically made products. They are willing to spend more money just to avoid buying a product that was made unethically.16

TECHNOLOGICAL Many industries that 3M is in are highly automated. Since they are very precise processes, the labor by hand is minimized. The workforce is highly-skilled, so menial jobs are outsourced to minimize costs. The jobs that exist are more specialized and less labor-intensive. So, 3M continually improves its machines to help the company stay at the forefront of innovation and progress. There is also a high number of patents because technology is constantly improving and companies are constantly looking to gain a competitive edge.

3MS CORE COMPETENCIES Core competencies are the collective learning and coordination skills behind the firms product lines. Core competencies are a companys source of competitive advantage. The important factors of a companys core competencies are that these characteristics should meet the terms of the VRIO framework in order to be successful. The acronym VRIO stands for Value, Rareness, Imitability and Organization. Value asks if the company provides the customer value and competitive advantage. Rareness asks whether other competitors possess the qualities of the company.
Trudel, Remi and June Cotte. Does Being Ethical Pay? Wall Street Journal 12 May 2008. 12 Feb. 2009 <http://online.wsj.com/article/SB121018735490274425.html? mod=2_1573_topbox>.
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Imitability questions the cost at which certain products or developments of the one company are costly to imitate by a competitor. And finally organization involves whether the firm is run properly to exploit and market the resource or products made.17 By defining a particular competency of 3M within this framework, the company can understand its strengths and how these strengths can transfer into giving the company a competitive advantage within the industries its products fall into.

One of 3Ms many core competencies would be its development of pressure sensitive adhesives, coatings and substrates. These three particular core competencies are really the essence of the diversified products within the company. Adhesives, substrates and coatings have helped 3M to develop more than just post-it notes, but also magnetic tapes, photographic film, pressure sensitive tapes and coated abrasives. 3M scientists know how to vary stickiness better than anyone in the world. 3M has generated billions of dollars by creating these tape products from Post-It NotesTM and Scotch TapeTM to reflective highway striping; which distinguishes its adhesive products from competitive products.18 CEO George Buckley stated that the fundamental core competency lies in applying coatings to backings.19 This particular core competency for the company proves to be a competitive advantage for its products developed with this special adhesive, thus making it a distinctive competency for 3M.

Its 7 Pillars of Innovation, or known as The Seven Habits of Highly Innovative Corporations by 3Ms Vice President of Corporate Research Labs Larry Wending, shows a clear overview of the
Hunger, David J. Wheelen, Thomas L. Concept in Strategic Management and Business Policy. P106, 11th ed. Upper Saddle River, NJ: Pearson Prentice Hall, 2008. 18 Our Living Legacy. 2009. Wisconsin Lutheran College. 3 Mar. 2009 <http://www.wlc.edu/about/index.aspx?id=1349>. 19 Erma, Mridu. 3M Cultivating Core Competency. 2007. IBS Case Development Centre. 3 Mar. 2009 <http://www.ibscdc.org/Case_Studies/Strategy/Core%20Competency%20and%20Competitive%20Advant age/CCA0035P.htm>.
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companys core competencies. This would include large spending on R&D (1.24 billion in 2005), active corporate culture and strong leadership development (very important and touched on in more detail later in paper), open discussion between researchers both in and outside of the company, individual recognition, quantity efforts, customer discussion and research, and of course innovation.20 Still overall, and what is seen as most important to 3M in terms of a core competency is its innovation and technology developments in general. The companys portfolio spans from health care products to home improvement products to electronics and scotch tape. So its difficult to explore the wide range of products that 3M has developed and whether or not each and every one is a specific core competency. Yet, in recognizing that the core of 3M is its strength in the innovativeness of its employees, the company has continuously been on the rise for over a hundred years. In 2005 and 2006, 3M ranked 2nd and 3rd, respectively, in BusinessWeeks ranking of the worlds most innovative companies.21 And simply scrolling through the list of hundreds of products, this innovation is essential to the companys longevity and continual profitability.

ORGANIZATIONAL STRUCTURE The organizational structure of 3M is straight - forward and easily understood on the companys website. The structure of the companys executives, board of directors and shareholders, aligns with the direction of the company. On the company website, 3M outlines the roles of the Board of Directors and different committees within the company. 3M is highly concerned with sustainability, thus the structure of the company is organized to make sure 3M is running strong now, and into the future. The Board of Directors, (comprised of CEO of 3M George Buckley, President and CEO of

Arndt, Michael. "3M's Seven Pillars of Innovation." BusinessWeek. 10 May 2006. 1 Mar. 2009 <http://www.businessweek.com/innovate/content/may2006/id20060510_682823.htm>. 21 Arndt, Michael. "3M's Seven Pillars of Innovation." BusinessWeek. 10 May 2006. 1 Mar. 2009 <http://www.businessweek.com/innovate/content/may2006/id20060510_682823.htm>.
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Alvarado Construction Inc. Linda G Alvarado, retired CEO and Chairman of the Board at Lockheed Martin Corp.,Vance D Coffman, retired Chairman of the Board and CEO of UPS, Michael L Eskew, retired Chairman and CEO of Illinois Tool Works Inc, W. James Farrell, Chairman, President and CEO of Ingersoll-Rand Company, Herbert Henkel, Chairman and CEO of AIG Edward Liddy, Former CEO of 3M, Robert S Morrison, retired partner at Gibson, Dunn & Crutcher LLp Aulana Peters, and former CEO and Chairman of Target, Robert Ulrich22) job duty is to review public policy and social trends affecting 3M, monitor the companys corporate citizenship activities, and evaluate the companys policies and programs.

Coming to the core of 3M are the companys leadership team are the top corporate officers and CEO George Buckley. These corporate officers Patrick Campbell CFO, Joe Harlan SVP Electro and Communications Business, Michael Kelly SVP Display and Graphics Business, Angela Lalor SVP Human Resources, Jean Lobey VP Safety, Security and Protection Services Business, Robert MacDonald SVP Marketing and Sales, Moe Nozari VP Consumer and Office Business, Frederick Palensky VP Research and Development and Chief Technology Officer, Brad Sauer VP Health Care Business, H.C. Shin VP Industrial Transportation and Business, Marschall Smith SVP Legal Affairs and General Counsel, Inge Thulin VP International Operations, and John Woodworth SVP Corporate Supply Chain Operations, are the essence of 3Ms organizational structure.23 (Please see organizational chart Appendix A and B). As said on the company website Of all the pathways to growth, investing in our people is most important. The premise is very simple-if your people grow, your company will grow. With that being said, most of the corporate officers have been with the

Board of Directors. 2009. 3M. 3 Mar. 2009 http://solutions.3m.com/wps/portal/3M/en_US/our/ company/information/leadership/board-directors/ 23 CEO and Corporate Officers. 2009. 3 Mar. 2009 <http://solutions.3m.com/wps/portal/3M/en_US/our/ company/information/leadership/ceo-officers/>
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company for ten years or more. Obviously this shows how valued employees are to 3M, and how invested the company is in growing people and their ideas.

For the Corporate Environmental, Health and Safety Committee, and the Business Conduct Committee, these groups consist of executives working towards sustainability by setting policies. The other staff groups such as human resources and community affairs, worked to carry about 3Ms sustainability policies and directions the executives put in place and develop.24

CORPORATE CULTURE Corporate culture is important to any company that wants to have successes and reach new heights through the development of its products or services for hundreds of years. At 3M, the companys chairman of the board from 1949 to 1966, William L. McKnight, insisted that 3Ms management encourage men and women to exercise personal initiative and to delegate responsibility to these employees. McKnight truly encouraged his employees and that innovative and exciting corporate culture lives on through the 21st century for the company. He spoke constantly about initiative; ensuring those within the company that even though mistakes inevitably will be made, it is more important to facilitate open communication and encourage employees to use their ideas daily. 25 3M encourages employees to pursue ideas, even if it is out of the line of business for the company. Such out of the box thinking led to the post-it note by Art Fry in the mid 1970s. Research started with

Governance Structure. 2009. 3M. 1 Mar. 2009 <http://solutions.3m.com/wps/portal/3M/en_US/ global/sustainability/policies-standards/governance-structure/>. 25 3M website. McKnight Principles http://solutions.3m.com/wps/portal/3M/en_US/our/company/ information/history/McKnight-principles/ 25 Feb 2009.
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Spencer Silvers failed adhesive. Yet, this not-too-sticky note was perfect to stick to surfaces and then be removed without leaving residue; thus the Post it was founded.26

The spirit of innovation has proved successful in that it has provided customers with new products or improved existing ones due to the employees actions. With that being said, McKnights message of innovation and taking risks is important to 3Ms business strategy.27 3M conveys that researchers at the company should spend 15% of their time working on something other than their primary project. This may seem like wasted time and could put the company at a disadvantage, but over the years it has improved the product development strategy for the company as a whole.28 As said before, even when a development doesnt succeed, 3M does not doubt their employees initiative, but recognizes the potential that any failure could turn into a success later (just like the Post-it notes). This message of personal initiative has institutionalized an intrapreneurship feel for 3M. The company also is a motivating place to work because of its internal promotion. Employees are encouraged and recognized, and likely to move up the company ladder during their employment.29 Different 3M facilities around the country such as Petaluma in California host holiday parties, annual appreciation dinners, diversity celebrations, summer picnics and family days for the employees at this location.30

"Art Fry, Inventor of Post-it Notes: "One Man's Mistake Is Another's Inspiration"" 2004. Inventhelp. 3 Mar. 2009. <http://www.inventhelp.com/articles-for-inventors-art-fry.asp> 27 Humad, Aditya. 3M Company: Market Buster. 3 June 2005. 25 Feb 2009. 28 Hunger, David J, Wheelen, Thomas L. Concept in Strategic Management and Business Policy. P 16. 11th ed. Upper Saddle River, NJ: Pearson Prentice Hall, 2008. 29 Collins, James et all, Built to Last: Successful Habits of Visionary Companies (New York:HarperBusiness, 1995), pp 156-158. 30 3M website. News & Events. 2009. 3 Mar. 2009 <http://solutions.3m.com/wps/portal/3M/en_US/ Petaluma/Plant/Resources/News/>
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Besides a company rooted in innovations and caring for its employees, 3M prides itself on the companys Business Conduct Policies which were first introduced in 1988. The policies incorporate the importance of integrity, and legal and ethical conduct of each and every employee in the global market that the company embarks on each day.31 3Ms Business Conduct Policies outline the companys commitment to doing business legally and ethically, protecting the companys assets and reputation, respecting the communities and people within the organization, and the responsibilities and duties when it comes to operating in countries all over the world with differing government systems.32 Such policies and commitments only enhance the positive corporate culture are 3M.

However, there have been slips through the more than a hundred years that 3M has been operating. Most recently, with James McNerney, who was CEO in 2000 and left in 2005, the culture of the company changed and although it became much more productive by the introduction of the Six Sigma program he was familiar with at GE, the fun and creative atmosphere left 3M.33 At this point, it was up to 3M to see whether the company had remained creative and innovative at heart, and whether or not new leadership would bring 3M back into the game with new products. Luckily, when George Buckley joined the company in 2005, he was the perfect fit to get the company back and running in the creative field. Before Buckley there was much friction between the structure of Six Sigma and innovation. But upon taking over as CEO, a lot of the rigid steps that scientists and researchers had to abide by with Six Sigma were erased. Bob Anderson, a business director in 3Ms radio frequency identification division puts it perfectly, Buckley has brought back a spark around

3M website. Business Conduct. http://solutions.3m.co.za/wps/portal/3M/en_ZA/about3M/information/corporate/business-conduct/ 25 feb 2009. 32 3M Website. Business Conduct Policies. http://solutions.3m.com/wps/portal/3M/en_US/ businessconduct/bcmain/policy/policies/ 33 Hindo, Brian. "At 3M, A Struggle Between Efficiency And Creativity." 11 June 2007. 3 Mar. 2009. http://www.businessweek.com/magazine/content/07_24/b4038406.htm
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creativity. We feel like we can dream again. With that being said, 3M is slowly revising the McNerney legacy and reinventing the company. 34

Another important part to the corporate culture at 3M is the companys investment in developing employees leadership attributes (also seen as a core competency of the company), thus contributing to the succession planning and internal promotion of employees in the company. The leadership attributes most important to 3M are that the person thinks from the outside in, drives innovation and growth, develop, teach and engage others, make courageous decisions, lead with energy, passion and urgency, and of course live 3M values.35 These six qualities are a must for any succession candidate. 3M identifies future leaders with the freedom that is given to all employees to create their own level of success. Having employees succeed at projects on their own develops creative thinkers and the innovative minds needed to keep the company at the top, 3M believes. As said before, 3M believes the companys most important asset is their employees. Finding the right people and setting them in the right direction will lead to success in his or her own way. The five key steps to 3Ms succession planning is getting commitment from the top executives, identifying the common set of leadership attributes, strong and comprehensive performance reviews, identifying talent, and then linking that talent to the long strategy of 3M.36

Hindo, Brian. "At 3M, A Struggle Between Efficiency And Creativity." 11 June 2007. 3 Mar. 2009. http://www.businessweek.com/magazine/content/07_24/b4038406.htm 35 3M website. Learning and Career Growth. 2009. 3 Mar 2009 < http://solutions.3m.com/wps/portal/ 3M/en_US/global/sustainability/our-people/learning-career-growth/> 36 Seeing Forward: Succession Planning at 3M. 2009. Society for Human Resource Management. 6 Mar. 2009 <http://www.shrm.org/about/foundation/products/Pages/SeeingForwardDVD.aspx>
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VALUE CHAIN ANALYSIS A value chain is a linked set of value creating activities that begin with basic raw materials, to a series of value-added activities involved in producing and marketing, and end with distributors getting the final goods into the hands of the ultimate consumer.

With the incredible number of products produced at 3M its difficult to analyze the precise value chain within the company. Its necessary to realize how the companys support activities are so strongly developed; which is why the overall profitability has remained impressive through the years. Below is a chart of a corporations value chain37:

From discussing the corporate culture and organizational structure previously, it is known that in terms of the strength behind the firms infrastructure and human resources management, 3M has those two components strongly in place. One specific strength within the strategic planning phase
Hunger, David J, Wheelen, Thomas L. Concept in Strategic Management and Business Policy. P 113. 11th ed. Upper Saddle River, NJ: Pearson Prentice Hall, 2008.
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of developing a product is having employees spend time with potential customers. Larry Wending, vice-president of 3Ms corporate research labs, believes that connecting with customers is key to 3Ms successes. The Post-it Photo Paper came out of employee conversations with customers.38 In regard to the technology development, this is at the core of the innovative nature of 3M. The continual process of creating new technology for the variety of products at 3M is not only a valued strength of the company, but an integral part of its value chain. In terms of procurement of material to make products, this does not apply to 3M. The scientists and researchers at 3M are the ones whom develop and create the products from start to finish.

But, after the stages of talking to customers and understanding their needs, and then developing the actual products, the marketing and distribution of these products is key to analyze its success. Again, due to the enormous size of 3M and its varying products it is hard to understand all the ways that the company advertises these products since many are so diverse and different from each other. One product line, which includes scotch tape and post-it notes, are essential for companies like Office Max or Staples. A strategy highlight, in the book on page 197, outlines 3Ms new online ordering (Shop 3M) and how it strengthened the companys relationship with Staples. Before the websites development in 1997, 3M was struggling with poor finished goods, incorrect inventory and customer service issues. With the development of this Global Enterprise Data Warehouse, 3M can deliver customer, product, sales, inventory, and financial data directly to partners and employees through the website (www.3m.com). Not only has this helped 3M save nearly 10 million a year in

Arndt, Michael. "3M's Seven Pillars of Innovation." BusinessWeek. 10 May 2006. 1 Mar. 2009 <http://www.businessweek.com/innovate/content/may2006/id20060510_682823.htm>.
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maintenance and customer service costs, but the website is promoting global sales and helping the productivity of retail stores such as Staples.39

Being such a large company, 3M has many outlets in which to advertise its many products and brands. For example, the company has print and direct mail, coupons, television and radio, online and classified ads, merchandise (license agreement with NASCAR), presentations, tradeshows and exhibits and more to advertise its products.40 Luckily for 3M, word of mouth and the simple necessity of its various products, serves very well and inexpensively for marketing these products.

3M strives at customer satisfaction for all of its products, thus the Supply Chain division within the company is invested in seeing the value chain through. It analyzes the entire process from the development straight to the customer to ensure 3M is delivering not only a high quality product, but also a high quality of service to its customers.41

3MS SWOT ANALY SIS A SWOT analysis is important for 3M to review regularly so that the company can recognize the potential of expansion and future products, and to make sure it is consistently above its competitors. Because 3M is in a global market its important to see where the company struggles and where it succeeds. The strengths and weaknesses categories analyze the internal environment of 3M, whereas the opportunities and threats look at the external environment that affects 3M.
Wheelen, Thomas L. Concept in Strategic Management and Business Policy. 11th ed. Upper Saddle River, NJ: Pearson Prentice Hall, 2008. 40 3M website. Marketing and Communications. 2009 3 Mar 3009. < http://solutions.3m.com/wps/portal/3M/en_WW/Corp/Identity/Applications/MarComm/> 41 3M website. Supply Chain. 2009 7 Mar 2009 <http://solutions.3m.com/wps/portal/3M/en_US/Careers/Home/WorkingAt3M/CareerAreas/Supply/>
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Strengths: Success in global market Strong company corporate culture. Pushes innovation and does not punish those who try new things. 6 strong market segments: Consumer and Office Business, Display and Graphics Business, Electro and Communications Business, Health Care Businesses, Industrial and Transportation Business, and Safety, Security and Protection Services Business. Continual Profitability and dedication to tracking new inventions to see their success in the different markets 3M occupies. Stable core competencies and strong leadership development Ethical business practices that are ingrained in the company

Weaknesses The information systems function on individual networks, creating very distinct brands, making it hard for the customer to identify the company behind the brand Financially, the company is expecting such high returns on assets, but these high goals are overestimated Adding the total quality management process risks compromising the corporate culture and innovations The large diverse product divisions can cause problems meeting customer needs, due to the diversity of the company Any metrics, such as Six Sigma, puts too much restriction on the creative power of the company Keeping the strong corporate culture with such a large, global and diverse company

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Opportunities Entering into new business developments. Pursuing different countries for innovative developments 3M should look regionally or locally to create specific products to meet that market Possible merge with IBM due to the consistency of their partnership. The collaboration of these two into one large conglomerate Threats Possible collapses or failures oversees Overexpansion, spread too thin Economic impacts from the U.S and other countries abroad Timing and acceptance of new product offerings Impact of acquisitions, strategic alliances, evolving business strategies, organizational restructuring Competition, difficult to be top in all divisions across the global market

3M RESEARCH AND DEVELOPMENT OVERVIEW Ever since 3M was created in 1902 it has been committed to innovation through research and development. In 2008 3M spent 1.47 billion dollars on R&D and 5.94 billion dollars over the past five years. Worldwide 3M has 7,000 researchers, 3,700 of which are located internationally. When McNerney headed 3M the company followed a strict six sigma for four years. The company emerged stronger but the restrictions stifled innovation. With Buckley now with 3M he has de-

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emphasized the six sigma in regards to R&D. Now researchers use DMAIC to analyze productiveness because it works so well within the boundaries of innovation.42

Previously 3M used to measure the companys success based on the percentage (usually 25 to 30 percent) of products that were new or less than five years old. This is not always an accurate representation of success because innovation often depends on the industry for example pharmaceuticals come out with new products monthly but others take a lot longer to develop. 3M previously and still attempts to focus on creating commercial products as well as solving customer problems as to make effective products that will be profitable. The final measurement that 3M still uses is the 15% rule that gives employees the right to use 15% of their time to explore projects outside of their day-to-day activities.1 Larry Wendling is a Vice-President of 3M corporate research labs and create a list of seven point list of 3M commitment to innovation. 1. Innovation is a commitment that starts at the top and goes all the way down the company 2. Corporate culture must be kept up and centered around innovation 3. A broad-base of technology is absolutely necessary to remain innovative 4. Communication is key to keep ideas flowing and goals in mind 5. Set expectations and reward employees for reaching goals 6. Find a way to quantify efforts 7. Research needs to be tied to the customer in order to be effective43

Hindo, Brian. "At 3M, A Struggle Between Efficiency And Creativity." BusinessWeek 11 June 2007. 20 Feb. 2008 <http://www.businessweek.com /magazine/content/07_24/b4038406.htm> 43 Hindo, Brian. "At 3M, A Struggle Between Efficiency And Creativity." BusinessWeek 11 June 2007. 20 Feb. 2008 <http://www.businessweek.com>.
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INFORMATION SY STEMS & TECHNOLOGY STRATEGY 3Ms information technology and technology systems are used as tools to promote the science-based fundamentals of the company. 3M is able to apply technology, and combine its technological competencies, causing the company to be a leader in diverse markets. 3M is a manufacture of innovative products from health care to office products and optical films. Its diverse portfolio relies on information technology systems instill a singular commitment in the people of 3M, despite the endless array of operations that the people of 3M have a singular commitment despite the endless array of operational divisions. RESEARCH AND DEVELOPMENT RELATIVE TO INFORAMTION TECHNOLOGY 3Ms corporate culture consists of implementing policies and philosophies that are considered to be responsible for 3Ms ability to innovate consistently. The company believes that technology and innovation is cornerstone for 3Ms current success and forward looking success. The emphasis on creativity in order to increase innovative product release is therefore a high priority objective of 3M. Research and Development: 3Ms Comparative Summary from 2005-200744 Percent of Net Sales Cost of Sales S,G & A Expenses Research, development and related expenses Gain on Sale of Businesses Operating Income 2007 52.10% 20.5 5.6 -3.5 25.3% 2006 51.10% 22.1 6.6 -4.6 24.8% 2005 07 vs. '06 49.20% 100 % 21.9 -1.6 6 -1 0 1.1 22.0% 0.5% 06' vs. '05 19% 0.2 0.6 -4.6 1.9%

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3M Industry Information. Hoovers. 2009. 12 Feb. 2009 www.hoovers.com

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According to Roland Berger, a Strategy Consultant Company, 3M is considered a Globalization Leader of R&D models. The characteristics of a Globalization leader include45: Network of central research and local development Strong coordination among central and decentralized units Significant developments/customization for local and global markets.

3M achieves the status of being a leader in globalization by capitalizing on its three-tried technology strategy. 3MS: TECHNOLOGY/R&D STRATEGY STRUCTURE (1) Business Unit: focuses on specific markets and takes into consideration innovations arising in the near-term (2) Sector: focuses on the application of the technology with a 3-10 year time window for the product to become established and viable in the market (3) Corporate: focuses on the basic, overall research with a time horizon of up to 20 years46 Because 3Ms R&D functions on divisional units, a forum is needed in order to communicate progress on technology projects and/or prospective innovations. During 3Ms Technology Forums scientists present ideas and thesis. Also, a large discussion occurs regarding the mechanisms for technology sharing or finding cross-functional uses for the technology. In order to improve consumer oriented product ideas, customers are frequently invited to participate in the sessions. 3M

Roland Berger: Strategy Consultants Evaluation of Information Technology Strategic Postioning 1 March 2009 www.rolandberger.com 46 T. Wheelen & J. Hunger, Concepts in Strategic Management & Business Policy: 11th Edition; Pearson Prentice Hall
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has 32 R&D locations worldwide in 30 countries which are connected by a central research center at the corporations headquarters. POLICIES AND PHILOSOPHIES: 3MS COMPETITIVE TECHNOLOGY STRATEGY (1) Employees, at all levels, have the option to spend up to 15% of the workweek pursuing individual projects of their choice without having to provide justification to manager or disclosures to project managers. (2) 30% of 3Ms business unit revenues must be result of products introduced in the last years. Bonuses are paid to business unit managers based upon reaching or exceed this metric. (3) Employees can be given awards up to $50,000 in order to conduct independent research. This award is called the Genesis Grant and approximately 100 awards are given each year. (4) 3Ms corporate culture does not punish its people for failure. As the past has shown, failures can turn into success. For example, 3M developed a weak adhesive which failed in the market. However, a new take on the implementation of the product created the foundation for Post-it notes. *Illustration how 3M can use outstanding technology management process makes the difference between an idea and a profitable success. INFORMATION SYSTEMS INTERNAL In 1995 3M began using an internal Website that allowed employees to access common information. The first sit was termed the Job Information System. Employees accessed the information from Multiple Virtual Storage (MVS) systems. MVS was developed by IBM, however, due to the discrepancies which will be mention latter. It is no longer a part of IBMs information system services. Due to the structure of the MVS, a multidimensional operating system, information could be accessed through multiple different pathways. While this was a plus for the employees 35

accessing the data, the information technologists were placed with a heave burden on how to administer consistent information.

The second movement 3M took to improve its information systems was to make the information more appealing and easy to read. This program was called 3M Internal Information System. Simply, the IT team added graphics to the information to make it more appealing. However, this did not meet the demands of all staff.

Users of 3M Internal Information System wanted the information systems database to be more vibrant, heading way for the evolution to a new data base called 3M Frontier. Again, minor changes were made to make working with the information user friendly and less mundane. Also, 3M added structure to its information by categorically defining the information on its relevance to 3Ms threetier structure (personal, business, enterprise). (1) Personal: posted by individuals, quarterly reports, project status, used by managers to keep track of departmental activities (2) Business: operated by department managers, relevant information is posted for the use of staff within the department (3) Enterprise: corporate marketing, annual reports, community programs, overall corporate wide updates Management has a strong belief that this is goodness. Its looking at how to make the intranet pervasive throughout 3M, especially for application-based legacy, transaction-oriented systems. Norman Hickel, Application Manager of 3M Information Technology The transitions that occurred in 3Ms internal information systems where done by a CISS team. The team changed the PROFS environment of MVS to integrated and concise technology.

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Designation of Acronyms47: CISS team: Computerized Inventory Systems Specialists PROFS environment: Professional Office System MVS host/clients: Multiple Virtual Storage, former most commonly used operating system Due to 3Ms growth in customer base and products, the Frontier required additional changes. The information system sill needed to become globally interactive and appealing to users across the entire company. Up to current date, 3M improved efficiency and effectiveness of implementing information technology systems. In result, 3M improved service to its customers, along with reducing costs via enhanced management capabilities48.

Maintaining over 40 business units which develop various products and services, departments operate largely on its unique process systems. Separation of divisions has allowed for individual and distinct brands to be created under the 3M Corporate Brand. While the structure of Frontier was efficient for the company, customers were not able to see 3M as a unified company because the system separated data. Due to the disparate brands, 3Ms business units were not able to capitalize on strategic information obtaining from other units, further separating the business units from the 3M Brand. The separation of customer information in the individual business unit database caused 3M to waste important information that enables business units to enter new consumer markets.

Recognizing and responding to this problem, 3M spent approximately $20 million to invest in a global data warehouse. The new and improved Frontier information technology system allows data to be integrated from all business units and stores information on customers, products,

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3M website. Information Technology Systems. 2009 3 Mar 3009. solutions.3m.com

K. Oberts, Revitalizing Information Services to Better Meet Client Initiatives. American Society for Science and Technology Vl. 22 No. 4 www.interscience.com

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revenues, inventory, and financing. 3Ms change in information technology allows managers the ability to globally analyze profitability and performance of products across the entire company.49 CHANGES TO CONSUMER RESOURCE MANAGEMENT50

IT savings from eliminating dozens of independent data marts Re-engineering sales reporting processes and reducing the people resources required to report sales and reward sales forces; Value of understanding customers and markets across all 3M business units globally; Improving sales force and customer service productivity; Reducing 3M and channel partner cost of providing product information to customers (marketing communications cost); Speeding the product commercialization process; and Improving growth and profits by increasing customer satisfaction.

3Ms current information technology includes two basic systems: hardware and software. 3M, needing to completely revamp its database new hardware for the company and software, turned back to IBM for to meet both of the needs. While the 3Ms use of IBMs MPV proved to be unsuccessful, innovated information systems were on the market. Currently, 3M uses IBM software for its internal information technology systems.51 IBMS CONTRIBUTIONS TO 3MS INFORMATION TECHNOLOGY SYSTEMS52 (1) EDMSuite OnDemand (Content Manager) Manages large collections of data (2) DB2 Database Management Software Multimedia, internet based database management software. (3) Tivoli Management Software Backup and security
3M: Moves to a Customer Focus Using a Global Data Warehouse Haley, B. J., Watson, H. J., & Goodhue, D. L. (1999). The benefits of data warehousing. Annuals of Cases in Information Technology Applications and Management in Organizations 2 March 2009 50 Crofts, S. (1998). Twenty steps to data warehousing success. Journal of Data Warehousing 51 3M: Introduces Wide Range of Connectivity Products: New Product Family for IS Managers. 2 March 2009 www.thefreelibrary.com Business Wire 52 IBM: Server Proven Systems: Storage Devices, Server Applications & Middleware Systems Management. 2 March 2009, www-03.ibm.com
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3M also adopted contemporary IBM hardware, which is called the IBM 3995 Optical Library. Due to the expansion of its information systems, 3M is now considered to have the most advanced and reliable software and hardware on the market. 3Ms integrated information technology creates a corporate system that allows business units to complement each other. Opposed to each business unit becoming competitors, universal information establishes a unified team, enabling 3M to improve its competitive strategy.53

The change of information systems allows 3M to be more flexible to market changes, combating the risk of the company become too bureaucratic. While the tangible change is important, 3Ms main competitive advantage is the staffs ability to use the information systems. Because 3Ms staff has the competence to capitalize on technology, creating a significant step up over its competitors.54

MARKETING PRODUCTIVITY: EUROPEAN STRATEGY 3M information technology strategy also creates the opportunity to centralize all marketing strategies. The implementation included the founding of 3M Marketing Online. All initiatives relation to sales and promotions will be collaborated to provide a universal resource. The goal is to improve the effectiveness and efficiency of the management of marketing materials. 3M Marketing Online is a multifaceted and interactive site, providing users with individualized information. Constantly improving our productivity and results are key objectives in regards to commercializing our European Paper and Office product lines across our international sales network. 3M Marketing Online is key to our worldwide e-productivity initiative. Thanks to InStranet and T-Systems, this project will accelerate marketing strategy
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IBM: 3995 Optical Library Dataserver: Hardware & Computer Storage. 1 March 2009. www.ibm.com 3M Case Study: Sticky Business 3M Internal Information Systems: 23 Feb 2009. www.linuxworld.com

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deployment across Europe and will result in more responsive in better informed teams, while reducing information exchange costs and encouraging economies of scale Anne Bertrand, Marketing Manager for Scotch Brand of 3M 3Ms Marketing Online was created by partnering resources with T-Systems. T-Systems is a leading provider of information technology. It has improved competitiveness of its clients through bettering processes, earnings, market segmentation and innovative technology. T-Systems bettered 3M by providing a network of data centers.

InStranet, is another company that took part in the implementation of 3M Marketing Online. InStranet, a leader of implementing multi-channel business applications, automated 3Ms content and delivery. Overall, InStranet gave 3M Marketing Online the ability to manage its profile and analyze results. 3M benefits from InStranet because managers are able to use the information provided by InStranet to identify potential opportunities and recognize weaknesses.55

EXTERNAL The Military has found the use of 3Ms information system technology to drastically improve its operations. This past year 3M developed an RFID Smart Shelf System.56 Its main function is to track and manage files of the U.S. Army. The overall information systems 3M provides the Army is called the 3M Track and Trace Solutions. The main component of the Track and Trace Solutions is the newly developed RFID Smart Shelf System. The hope is that these systems will improve efficiency in tracking and retrieving medical records. Due to the thousands of files, the Track and Trace Solutions have the opportunity to create substantial changes in many aspects of the Army.

3M Drives Improvements in Marketing Productivity with Instranet and T-Systems: Press Releases 9/30/08. www.instranet.com 56 3M: Tract and Trace Soluctions Assist U.S. Army In Managing Medical Records 6/29/2008 Publication. 2 March 2009 www.allbusiness.com
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For instance, healthcare information will be easier to access and therefore, delivered more timely. Also, the deployment process will be shortened due to the management of medical data. The overall impact of 3Ms information system is to allow instant access to medical records and current medical conditions of soldiers for their friends and familys.57

Using a similar concept the Healthcare industry also uses 3M information systems to manage its databases. 3M provides well established information systems for its clients. For instance, 3M offers software and consulting services for Healthcare. 3M fully trains the client on how to use the systems and offers reliable support services. The Health Information Systems service improves the quality of documentation and financial performance through the use of integrated solutions. The infrastructure of the systems allows Healthcare providers to meet the changing needs of the industry. 3Ms systems are reliable, largely due to the 25 years of Healthcare experience of the company.58 The cost-efficiency and far-reaching versatility of RFID is prompting an expanding range of innovative applications in almost all facets of society. As a leader in this emerging technology, 3M is very proud to help introduce this powerful tool to the Army. Lem Amen, Vice President of 3M Track and Trace Solutions

FORWARD LOOKING RISKS ON TECHNOLOGY STRATEGY AND IMPLEMENTATION An emphasis on efficiency risks reducing creativity of the company due to the use of Six Sigma measurements. The addition of total quality management processes risk compromising the corporate culture and innovations.

Invention is by its very nature a disorderly process -CEO George Buckley

3M: Track and Trace Solutions Products and Services Recent News 22 February 2009. solutions.3M.com L. Kim: 3M Health Information Systems: Abstracts Solutions Center. Service News 1 March 2009 www.faqs.org
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The more you hardwire a company on total quality management, the more it is going to hurt breakthrough innovation59 -Vijay Govindarajan, Dartmouths Tuck School of Business Large diversity of products and services (over 50,000 different products) risks causing discrepancies in the transfer of knowledge across business units. 3M must consistently provide leverage across markets and the multiple business units. 3M is a highly decentralized organization keeping a strong culture throughout the conglomerate could fail, resulting in massive product failures. Due to 3Ms size, it may prove to become more challenging to compete in local markets and meet the customers needs. The company must ensure that the customers expectations at markets are integrated into the R&D processes.

The product belongs to the division, the technology to the whole company Metrics in place that are supposed to promote the sales of innovative products can be disabling to 3Ms ability to invent and expand due to the strictness of the quotas.

3Ms information technology systems are highly competitive in the industry. The company is consistently adjusting systems in order to meet the needs of the company. Its ability to adapt information systems to meet demands and changes in the industry, consumers, employees and managers is a main contributing fact to the long-term success of 3M.

3M FINANCIAL POSITION AND STRATEGY 3M competes in the Specialty Chemical Manufacturing Industry. The company also competes in the Paints, Coatings/Finishing, Product Manufacturing, Plastic & Fiber Manufacturing and Health Care Products sectors. 3Ms main competitors are Avery Dennison, DuPont, and Johnson & Johnson. 3Ms Financial Statements display the companys ability to continue providing solid returns to its shareholders and maintain a strong cash position. The companys emphasis is currently on
Hindo, Brian. "At 3M, A Struggle Between Efficiency And Creativity." 11 June 2007. 3 Mar. 2009. www.businessweek.com
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marinating liquidity and enhancing its balance sheet strength. 3M is going to suspend its share repurchasing activity until the market conditions are improved. The worldwide chemical industry accounts for $500 billion annual revenues. There are approximately 10,000 United States companies competing in the chemical industry. Successful companies in this industry must demonstrate extremely efficient operations. The industry is highly automated with average annual revenue per employee exceeding $500,00060 Market Cap (mil.) Shares Outstanding (mil.) Return on Equity Current Ratio Long-Term Debt/Equity $31,528.5 693.5 32.0% 1.64 0.71

Ratio Analysis and Implications on 3Ms Financial Positioning Market Capitalization: the value of the company based on its outstanding shares and market value comparative to stock price. (stock price * total number of shares outstanding) o Big/Large Cap: shows that 3M is stable and a secure investment, indicates that the company is nationally recognized and financially strong. This is achieved by 3M selling quality and widely accepted products. Downturns do not affect 3M as intensely comparatively to companies with a lower market capitalization. Subsequently, 3M will be able to maintain its reliable growth. Due to 3Ms market capitalization falling in the category of big/large, it has been constantly been noted in the S&P 500. Shares Outstanding: stock currently held by investors in addition to restricted shares and shares held by insiders and the public, repurchased shares are not included in outstanding stock.

3M Industry Information, Financial Statements, Historical Data, Earnings Estimates, Comparative Data, Income Statement, Balance Sheet. Hoovers. 2009. 12 Feb. 2009 premium.hoovers.com
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o 3Ms outstanding shares are less than DuPont, a main competitor. DuPont as 902.4 million shares outstanding compared to 3Ms 693.3 million. 3M has repurchased approximately 40.9 million shares over the past 3 years. This was done in order to increase the price per share by reducing the supply of outstanding shares. 3M released information about releasing some of its treasury stock in the next period. Return on Equity: amount of net income produced from investors equity, it measures 3Ms profitability compared to the money shareholders invested. o 3M has a higher Return on Equity than the Market Median. The Markets ROE is 6.5%. 3Ms is 32%. 3M has been more profitable than the market over the past 3 years. However, its overall profitability has been declining. Relative to the market, 3Ms profitability is declining at a slower rate, allowing 3M to be more profitable than competitors. Current Ratio: measures a companys ability to pay off short-term obligations from its current assets. The higher the current ration the more capable to company is of meeting the obligations. If the number is less than 100% than it shows that the company would be unable to pay off its obligations if they were due. o 3M is extremely liquid, showing that it is has financial strength. It is extremely unlikely that the company would go bankrupt or need to rely heavily on financing. This is because its revenue generating assets are more than the current existing liabilities or obligations 3M has. Long-Term Debt/Equity: is based on the companys leverage by comparing its liabilities and stockholders equity, it is an indicator of how much equity and debt the company utilizes in order to purchase its assets. o 3Ms Debt/Equity ratio is fairly high. This shows that 3M finances its growth of debt significantly. This is why 3M is a risky company to investment. The use of financing results in fluctuation in overall earnings due to the interest incurred. The use of debt to pay for operations, could allow 3M to increase its earnings. If 3M avoids using outside financing risks decreasing earnings. 3Ms debt financing is risky because it may outweigh the return produced from the debt.61

3M FINANCIAL MARKET DATA Price/ Sales Ratio Price/ Book Ratio Price/ Earnings Ratio
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1.25 3.19 9.18

3M Industry Information, Financial Statements, Historical Data, Earnings Estimates, Comparative Data, Income Statement, Balance Sheet. Hoovers. 2009. 12 Feb. 2009 premium.hoovers.com

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Price/ Cash Flow Ratio

6.96

INDUSTRY AND MARKET AVERAGES DATA Industry Median Price/Sales Ratio Price/Book Ratio Price/Earnings Ratio Price/Cash Flow Ratio 1.18 1.27 14.14 10.38

Price to Sales Ratio: shows the value of stock relative to its currents price and the annual revenue per share. Disregarding debt and expenses, 3Ms stock has a higher value than the industry average.62 Price to Book Ratio: values stock by comparing the stock price (market value) and the book value (actual value). 3Ms stock is valued accurately than the industry median. Overall, it appears that the industrys stock may be undervalued or there is something fundamentally wrong with the industry. 45 Price to Earnings Ratio: shows investors their earnings by dividing the market value per share and the earnings per share, it shows how much is earned from each share that the investor holds. It also shows how much investors are willing to invest per each dollar of earnings. 3M for example has a P/E ratio of 9.18, meaning that the investor is willing to pay $9.18 for one dollar of current earnings. This is lower than the industry median of 14.14. Investors of 3M are not earning as much per share nor are they willing to pay more for shares compared to the industry. 45 Price to Cash Flow Ratio: measures the companys projected financial health based on market expectations, calculated as share price divided by cash flow per share. 3Ms financial health based on the cash it generates is relatively low to the industry median. This ratio, however, does not necessarily mean that 3M is insolvent. Due to the other current ratio findings, 3M likely has a safe amount of cash flow. 3M simply has slightly less cash on hand generated from stock purchases. 45

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J. Pratt, Financial Accounting in an Economic Context: 7th Edition; John Wiley & Sons, Inc. 2009.

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J. Pratt, Financial Accounting in an Economic Context: 7th Edition; John Wiley & Sons, Inc. 2009.

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3MS FINANCIAL POSITION COMPARED TO INDUSTRY COMPETITORS (SCORE OUT OF 10) Relative to 2630 International Companies in Chemical Manufacturing Industry 3M COMPANY INDUSTRY COMPETITORS

Growth 2.2 2.7

Profitability 8.6 6.3

Value 2.9 4.1

Risk 7.7 5.8

o Aggregated Growth: based on the historical growth of Net Sales, shows the companys ability to grow. 3M shows slightly less growth than the industry competitors. The value is rather immaterial due to the small difference. However, 3Ms sales growth, in isolation, shows that 3M sales are growing considerably far below than the industry.63 2008 1-Year Sales Growth 3M = 3.3% Industry Median = 6.8% o Aggregated Profitability: based on EBIT profit margin and current Return on Equity Ratio. Compared to the market, 3M it is more profitable. 2008 EBIT Profit Margin Ratio 3M = 20.65% Industry = 10.42% o Aggregated Value: the higher the value the more attractive the company is to investors based upon the Retention Ratio which looks at the percent of earnings credited to retained earnings. 3M is significantly less valuable than the other companies in the Chemical Manufacturing Industry. This may be due to 3Ms large expenditures on R&D and is recent activity of repurchasing stock. 2008 Retention Ratio 3M = 59.60% Industry = 65.78%
3M Financial Performance Indicators Infinancials: Benchmarking and Financial Ratios 1, March 2009; www.infincancials.com
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o Aggregated Risk: the lower the number the better the company, based upon fluctuations and current market capitalization in millions and the capital structure of the company. It is also designated by the Financial Leverage of the company. The higher the ratio the more leverage a company has. 3Ms is a precarious company to invest in (compared to other companies within the same industry) due to the nature of its business strategy. Innovation is expensive and a risky purchase for 3M because of the threat that products are not accepted or the products are simply too expensive.64 2008 Financial Leverage 3M= 68% Industry = 73.50% 3M FORWARD LOOKING STATEMENTS: SUBSTANTIAL RISKS AFFECTING FINANCIALS (1) Worldwide economic and capital market conditions (2) Competitive conditions and customer preferences (3) Foreign currency exchange rates and fluctuations (4) Timing and acceptance of new product offerings (5) Availability and cost of materials (6) Impact of acquisitions, strategic alliances, evolving business strategies, organizational restructuring (7) Generating fewer productivity improvements than projected65

OUTSIDE CORPORATIONS CAPITALIZATION OF 3MS SUCCESS In regards to how young college-educated, hopefully successful business men and women, can take advantage of what 3M has to offer as a company, the variety of ways are endless. First, the company offers many different job opportunities from its website. A section specifically for attracting students and new college graduates identifies different ways to start your career at 3M. The
3M Financial Performance Indicators Infinancials: Benchmarking and Financial Ratios 1, March 2009; www.infincancials.com 65 3M: Recent Press Releases. 3M Increases Dividend for the 51st Straight Year: 5 March 2009. www.businesswire.com
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company emphasizes coming to career fairs or conferences where 3M associates can interview you, or the company also has full-time summer internships, and co-op programs for students to gain hands-on experience. And as such a huge company, obviously there are many career paths that are within the structure of 3Ms organization such as finance, human resources, IT, marketing, communications and sales, research and development, sourcing operations, supply chain and engineering.66

If your career path enters you into the business world, it would be hard to not come across 3M, whether its through using one of their products or modeling your business strategy to theirs. Companies like Staples, IBM, hospitals and colleges and government agencies use 3M products for their needs. Or, if youre the entrepreneur, 3M can certainly help you with your first load of post-it notes! Overall, as seen through our research and understanding the principles of ethics, the sincere encouragement of employees, and a strong business model, what company would not want to live up to the business standards of 3M.

3M website. 3M Careers Home Page. 2009 7 Mar 2009. <http://solutions.3m.com/wps/portal/3M/ en_US/Careers/Home/>


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