Essay Example on 3M: A Leader in High Tech Innovation and R&D Investment

Introduction

In 2006, 3M was considered the epitome of high or low technology as it has over 50,000 products (Verma, n.d). The company’s strength was achieved from its unique corporate culture that fostered interdepartmental cooperation and innovation backed with an exclusive budget on research and development. Annually, the average budget on R & D exceeded $1 billion (Verma, n.d). Investing in research and development made the company be a leader in most of the significant technologies. When George Buckley joined the company as its CEO, it was facing criticisms over anemic growth in revenue. Initially, the company's founders mainly worked on building a customer-oriented and aggressive salesmanship brand. The sales representatives proceeded to the different shops directly, where they met the consumers and asked them about the firm's products (Verma, n.d). Through this strategy, it was able to invent and improve its products. Even during the Second World War, the company continued to focus on getting a niche to fill and understanding its different markets. In 1952, the firm focused on enhancing research, which resulted in further innovations.

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The past CEOs have always ensured that the company focuses on innovation, research and development, providing directions, launching Six Sigma, and others (Verma, n.d). However, when Buckley took over, he mainly focused on technology and innovation. He believed that it would enhance the company's future growth. In 2006, the company increased its earnings per share with over 20%, and local currency sales grew with another 10% (Verma, n.d). Unfortunately, in June 2006, the CEO Buckley surprised Wall Street as he said that the firm was going to miss its earnings target in the second quarter. The 52 weeks per share in May was $88 and is reduced to $67 in July (Verma, n.d). The company argued that the problems accrued from graphics and display business that resulted in launching a factory called Optical film. After convincing investors, the sales of the firm increased to 7.3%. Therefore, Buckley is not sure whether the strategy will help in building the company's core competency.

Situation Analysis

General Environmental Analysis

Technological Trends

In 2006, the company was regarded as high technology as it has founded several significant technologies (Verma, n.d). It has been using technology to transform commercial products. Also, the company had great intersegment technology sharing in which new markets were built on simulated adjacency machine technology transfer cross and sharing markets and products. The company has been successful in understanding different technologies, including nonwoven materials, microreplication, light management, materials science, and adhesives, which has played a role in its growth. Furthermore, the company has about 46 technology platforms, which shows that it is up to date with the current technology in different platforms. The company should also work towards nanotechnology, which includes professional bike frames and get innovative ways of disposing of its previous technologies.

Demographic Trends

According to Trefis Team (2017), Western Europe is a significant market for the country as it contributed about $4.7 billion on 3M sales in 2016. In the region, 3 M is present in 17 states, with about 20,000 employees in which 1300 of them are technicians and scientists (Trefis Team, 2017). The region is considered a good landscape for the firm since it institutes 22% of global gross domestic product and largest manufactured services and goods exporter (Trefis Team, 2017). In Europe, aging is a demographic phenomenon associated with high life expectancy, a decline in fertility, and a decreased mortality rate. By 2050, the region's population will have individuals aged over 60 years, which shows that they will need more healthcare demands produced by 3M (Trefis Team, 2017).

Economic Trends

One of the economic trends that have affected the company in the past is inflation. For instance, the personal care diaper business experienced price increases as a result of increased raw materials. The company was unable to raise the process of covering raw material inflation due to stiff competition in the diaper market. Exchange rates cannot be predicted, and this makes a business to be uncertain of what the future holds as it operates in different nations. Also, since the company majorly operates outside, fluctuation and exchange rates affect its operations. Concerning interest rates, a rising U.S dollar weakens the world’s economy or even increased the costs of borrowing that can negatively impact the business of 3M and makes its stock to be low (Heller, 2016).

Political/Legal Trends

They entail the political factors that can affect the chances of survival or profitability of the company. The political trends that might affect the company include tax policies introduced in the companies it operates, political stability, trade tariffs and restrictions, environmental regulations, employment laws, and tax policies. For instance, in 2009, the company spent about $15 million on projects that aim at protecting the environment (3M).

Sociocultural Trends

The business policies of the company ensure that it establishes a safe workplace, encourages individual innovation and initiative, and promoting accountability, fairness, promise-keeping, and personal accountability. The company is also successful in advancing women. Over the years, it has increased women representation in stem-related positions and senior leadership. In ensuring a diverse workplace, the firm has put up initiatives such as CEO Champions for Change (3M).

Global Trends

3M is regarded as a global leader in oral care and medical products, offering its clients with trustful products, and drug delivery. The company operates in about 60 countries, which means that the issue of the exchange rate will still affect it as the main branch is in the United States. Trade deficits of the countries in which 3M work affects its operations. According to Tarullo (2001), free Trades Agreements should be encouraged in the company since it ensures that countries interact peacefully and for economic benefits.

Industry Analysis

According to Rothaermel (2013c) Chapter 3, the five forces model is efficient in understanding a company’s industry profit potential. The models include threats of substitute products or even services, bargaining power of buyers, bargaining power of suppliers, rivalry among the competitors that exist, and the threat of new entrants. The importance of linking a firm to the environment and knowing the things that should be avoided.

Threats of New Entry

The new entry of diversified machines enhances new ways to do things, innovation, and pressuring 3M by reducing costs, introducing a low price strategy, and offering the customers' new proposition value. It means that 3M should be able to manage the strategies in ensuring effective barriers that safeguard a competitive edge. The company can tackle the issue of threats of new entrants by innovating new products or services, building economies of scale, and investing in research and development as it has always done in the past (Rothaermel, 2013c).

Power of Suppliers

The power of suppliers can be high when the product is an essential input to the buyer, the incumbents encounter high costs for switching, and there are no substitutes concerning the supplier products (Rothaermel, 2013c). The firms in Diversified Machinery purchase their raw materials from different suppliers. It means the dominant position of the suppliers might 3M's margin on the company. In the good industrial sector, influential suppliers do utilize their negotiating power in extracting very high prices from Diversified Machinery companies. The company can resolve the issue of suppliers' bargaining power by created dedicated suppliers that the firm influences their business operations, experimenting product designs through several materials, and creating an effective supply chain that has different suppliers.

Power of Buyers

According to Rothaermel (2013c), the power of buyers is high when there are a few large buyers, products are standardized, the buyer has all information, buyers encounter few switching costs, and there is credible backward integration. The company can handle the issue of the bargaining power of the buyers by building a vast customer base, innovating new products or items rapidly, and new products will play a role in reducing the defection of the existing 3M clients to the competitors (Rothaermel, 2013b).

Threats of Substitutes

A substitute is an efficient price-performance trade-off (Rothaermel, 2013c). In a case where a new service or product meets similar client needs in a different way, then the profitability of the industry suffers. The issue of the threat of substitute products or services includes increasing clients' switching costs, understanding the core needs of the customers, and being service-oriented instead of product-oriented.

Incumbent Rivalry

According to Rothaermel (2013c), an incumbent rivalry is high when there are several competitors in the industry, there are high exit barriers, slow industry growth, and companies are equal size. The issue of incumbent rivalry can be handled by collaborating with the competitors in increasing the size of the market and not just engaging in competition for the small market. Other things that can be done include building a scale to compete efficiently and enhancing sustainable differentiation.

Competitor Analysis

According to Laughlin (2019), 3M major competitors include Honeywell and General Electric. The main competitive advantage of the company is that it makes different products, over 50,000. According to Rothaermel (2013e), the three standards of measuring competitive advantage include economic value, accounting profitability, and shareholder value. Currently, the P/E ratio of the company is 18.51, while that of the major competitors Honeywell, Johnson and Johnson, and General Electric, includes 16.85, 22.03, and 10.88, respectively (Wall Street Journal). The fact that the company makes different products highly satisfies investors. Unfortunately, while the automakers are cutting on inventory and production, the demand for the company's product is at a threat (Laughlin, 2019). Therefore, the company has to reconsider its auto business. Also, the company can put more focus on investing in its research and development investments, as that is what has always made the company stand out from its competitors.

Internal Analysis

Financially, the company is growing. For instance, the return on assets has been averagely doing well since 2005, although it reduced to 10.26 in 2019 from 14.69 2018, as evident in the profitability ratios table. Therefore, the company should reduce expenses, increase revenue, and reduce asset costs to efficiently increase its return on assets. The revenue breakdown of the company is such that 2/3 is international and 1/3 is domestic. The company heavily relies on organic growth by carrying out acquisitions. The main competitive advantage of 3M is research and development. The company's leadership is mainly focused on investing in people. Even though the firm's leadership develops in new growth, processes, and techniques, investing in people is an essential thing for the company ('Corporate Officers'). The company's CEO is also responsible for collaborating with different employees in solving problems and improving lives.