3M Company - Challenges of the 1990s

Challenges of the 1990s

L.D. DeSimone, who joined 3M in 1958 as a manufacturing engineer and moved into management while working in international operations, was named CEO in 1991. He took the helm of a ship being buffeted by economic recession and stiff price competition: sales rose an annual average of just 2 percent from 1991 to 1993. Kevin Kelly wrote in a 1994 Business Week article, "It turned out that the creative juices that had transformed 3M into a paragon of innovation and the inventor of everything from ubiquitous yellow Post-it notes to surgical staples weren't producing new products fast enough."

DeSimone pushed research staff to work more closely with marketers and transform existing technology into commercial products. Connecting with customers' needs took on more urgency. Product turnaround time was slashed; product development rivaled basic research. Customer-driven products gleaned from the new system included the Never Rust Wool Soap Pad made from recycled plastic bottles and a laptop computer screen film that enhanced brightness without heavy battery drain.

On the international front, foreign sales produced more than 50 percent of total 3M sales for the first time in company history in 1992. The Asia-Pacific region yielded nearly 27 percent of the $7 billion foreign sales volume. A major restructuring of European operations was completed in 1993: manufacturing plants were closed and consolidated and the workforce was trimmed in response to declining operating income.

The company achieved record sales, operating income, net income, and earnings per share in 1994. More than $1 billion of the $15 billion in total sales came from first-year products. DeSimone raised the bar: at least 30 percent of future sales were to come from products introduced within the past four years.

On a more somber note, in 1994 3M took a $35 million pretax charge against probable liabilities and associated expenses related to litigation over 3M's silicone breast implant business operated through former subsidiary McGhan Medical Corporation. 3M was named in more than 5,800 lawsuits claiming injuries caused by leakage or rupture of the implants.

In 1996, 3M dismantled the Information, Imaging and Electronics sector, which accounted for a fifth of its business. It was the largest restructuring effort in company history. The divisionsmaking floppy disks and other data-storage media, X-ray film, and specialty imaging equipment were spun off as an independent, public company (Imation Corporation), and the audio- and videotape operations shut down entirely. 3M retained the businesses making electrical tapes, connectors, insulating materials, overhead projects, and transparency films. The company cut about 5,000 jobs.

Since DeSimone took command, 3M had pumped $1.2 billion into the Information, Imaging and Electronics division, yet operating profit margins remained only a third of the Industrial and Consumer Products and Life Sciences divisions. Persistent pricing pressures from competitors such as Kodak plus rising raw material costs prompted DeSimone to pull the plug on the audio and videotape business. A smaller, leaner operation—the new $2 billion Imation—was deemed to have better prospects in the equally fierce data-storage marketplace.

Following restructuring, 3M concentrated product development efforts on about two dozen core technologies. In 1997 the company achieved one of DeSimone's goals: 30 percent of total sales were generated from products introduced within the past four years. But 3M's numbers began slipping again in 1998. Michelle Conlin wrote in an October 1998 Forbes article, "Are these unavoidable downward blips on a rising curve? Or are they signs of deeper trouble? 3M has been glacially slow to respond to the economic meltdown in Asia, where it gets 23% of its business. In the U.S. a flood of cheaper products made by competitors like Korean polyester film outfits SKC and Kolon have cut into 3M's sales." Conlin nevertheless conceded that 3M had promising products, such as bendable fiber-optic cable and a fluid to replace ozone-depleting chlorofluorocarbons, already in the pipeline.

Declines in both revenues and profits in 1998 prompted further restructuring, including a workforce reduction of about 5,000 that was completed by the end of 1999, the closure of about 10 percent of its global factories, and the jettisoning of a number of underperforming product lines. 3M also reorganized into six business segments in 1999: Industrial Markets; Transportation, Graphics, and Safety; Health Care; Consumer and Office Products; Electro and Communications; and Specialty Material. Highlighting the company's continued commitment to innovation, nearly 35 percent of revenues in 2000 came from products that had been introduced within the previous four years. Many of these products fell within higher-technology areas—a point often ignored by Wall Street analysts critical of the company's more recent product development efforts. For example, an important new 3M product line developed in the 1990s consisted of films to enhance the brightness of electronic displays, including those found on laptop computers, cellular phones, LCD televisions, and personal digital assistants. In 2000 the company began marketing these films under the Vikuiti brand.