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The Innovation Magic Is Gone at 3M

Travis Hoium
June 23, 2011

3M (NYSE: MMM  ) used to be one of the most innovative companies in the world. It invented the concept of masking tape, revolutionized office products with the Post-it Note, and made the films that made possible the thin LCD display on which you're probably reading this article.

But the company seems to have gone astray since Jim McNerney implemented Six Sigma across the organization in 2001. The innovation machine has screeched to a halt and the investment 3M is making in the future seems half-hearted and misguided.

Just look at 3M's home page to see how little has changed in 20 years. Featured products include Post-it Notes, Scotchguard, and Scotch Tape; lines invented 33, 59, and 70-odd years ago, respectively. You may buy Filtrete or Nexcare products from 3M, but these product lines neither revolutionized nor dominate the market. These are the type of safe, albeit profitable bets 3M has been making for more than a decade. In following this strategy, I worry 3M may at the same time be losing the magic of its past.

Mini bets on the future
Take the company's investment in renewable energy for example, something I have pushed in my time as a Fool (and my time as an engineer at 3M). Solar energy leaders like First Solar (Nasdaq: FSLR  ) make thin-film solar panels with industry-leading technology driven by research and development. Film, technology, and research in an energy industry ready to be revolutionized. This should be right up 3M's alley.

But 3M has decided to take a supplier role, making products that "enable" new technologies instead of revolutionizing the sector itself. This worked in the 1990s in optical films, but in recent years the optical film business has turned into its slowest-growing business because low-cost competitors have learned to make products that are nearly as good as 3M's for less money.

This is a tough sell in an industry where costs can mean life or death. SunPower (Nasdaq: SPWRA  ) may be able to justify 3M's high-end solar products for its high-efficiency panels, but will competitors be able to justify the cost? Evergreen Solar (Nasdaq: ESLR  ) is struggling to survive because of high costs and Chinese competitors like ReneSola (Nasdaq: SOL  ) are feverishly trying to cut costs to keep up. Being a solar film supplier doesn't sound like the high-tech, high-margin world 3M wants to be in.

The future library
For more proof that 3M is living in a bubble while the world passes it by, look at the company's release about the 3M Cloud Library this week. 3M has invested countless millions of dollars on library technology (you read that correctly, library technology), at a time when fewer books are being printed and content is moving online.

3M is making an effort to catch up, pushing its 3M Cloud Library, an online collection of books. The concept gives readers three options:

  • 3M Discovery Terminals allow library patrons to browse content from electronic kiosks.
  • 3M eReaders can be checked out just like a book at the library.
  • For those with PCs, Macs,