3M (MMM +1.25%) was once one of the most innovative companies in the world. But recent years have seen fewer noteworthy innovations and less organic growth, a sign that the innovation engine may be slowing. So, is the innovation gone at 3M?
I've taken a close look at 3M's level of innovation in recent years and created a new premium report that answers that question. Below is an excerpt of that report and a look at how leadership may have changed the company's path. Find our more about this exciting report by clicking here.
Where are 3M's invention and innovation?
The opportunity for 3M is enormous, but historically 3M has invented businesses instead of making incremental changes and growing into existing businesses. Former CEO William McKnight said that engineers should be allowed 15% of their time to work on innovative projects of their own -- this "15% time" became a symbol of 3M's innovative culture.
Is this culture still alive and well at 3M? Three of the most famous inventions coming from 3M are Scotch Tape, Scotchgard, and the Post-It Note, and they're examples even to young engineers at the company. But many don't realize that all of these products were launched over 30 years ago; the idea for the most recent product, the Post-It Note, came about 38 years ago.
- Scotch Tape: The famous Scotch Tape was invented in 1930 by Richard Drew.
- Scotchgard: Discovered accidentally in 1952; launched in 1956.
- Post-It Note: Invented in 1974, the initial "Press 'n Peel" product was relaunched as the Post-It Note in 1980.
So where have the transformative inventions been for the past 30 years? It's hard to tell if 3M is inventing fewer or less impactful products than it was earlier in its history, or if we just haven't noticed the big inventions in our daily lives. Brightness enhancing film and multilayer optical films are phenomenal inventions that are likely in the computer, tablet, or smartphone you're reading this on, but they don't get the same attention as the Post-It Note. The progress of inventiveness and innovation at 3M can be debated, but two factors exist that should make investors question the company's ability to invent and innovate the way it did under McKnight: recent leadership, and the company's organic growth.
Arguably the biggest change that took place at 3M in recent memory was the decision to look outside for a CEO. On Jan. 1, 2001, James McNerney took over as CEO and, as the first outside CEO in 3M's history, changed the culture forever. Before McNerney, 3M was viewed as a willy nilly product inventor with little focus. When McNerney started he installed Six Sigma, the efficiency system he brought from GE, and made cuts across the company. Margins rose and the company returned to sustained earnings growth, which shareholders love.
Recently retired George Buckley was also brought in from the outside and introduced a strategy of "bolt on acquisitions" that would augment the company's existing products. But Buckley also had trouble jump-starting innovation and organic growth. With the company struggling to gain traction, it recently appointed a new CEO.
Newly minted CEO Inge Thulin is the first CEO since McNerney to come from within 3M, having worked at the company for 35 years. It's unknown whether or not Thulin will jump-start invention and innovation, but as an insider he has a different perspective than those who came before him. If Thulin can kick-start the R&D factory, then the market may view the stock as more than just a reliable dividend.
For investors, the biggest upside in 3M's stock comes from invention and innovation. A single idea in the lab can change the future of the company, just the way Scotch Tape did 80 years ago. It's hard to say whether these two factors are alive and well at 3M but, with organic growth stuck at around 2%, it's hard to argue that new ideas are driving the company. If Thulin is able to inspire the lab again it could transform what has been a challenging decade for the company.
