3M expects R&D spend to give it competitive edge

(China Daily)
Updated: 2009-12-24 08:06
Large Medium Small

CHICAGO: 3M Co will increase spending on research, product lines and acquisitions next year in an effort to emerge from the recession farther ahead of weaker competitors, Chief Executive Officer George Buckley said.

3M maintained this year's research and development funding at about $1.2 billion in the economic slump and will spend as much as $100 million in 2010 to advance product lines and research, partly to hire 60 to 80 employees with doctorates, Buckley said in an interview. Capital expenditures will rise as much as 15 percent to about $1.05 billion.

"I knew that if we kept on investing in R&D, and we kept it pretty much flat, that increasingly as other weaker companies couldn't maybe spend so much in R&D that there would be a separation," Buckley said at 3M's St. Paul, Minnesota, headquarters. It's "prosperity of the fittest".

Buckley, 62, says he's entering his fifth year as CEO working to reignite creativity at the inventor of consumer staples such as Scotch transparent tape. The pipeline includes a coating that may keep cars and solar cells clean without washing and a new ceramic abrasive, Cubitron II, whose grain self-sharpens during use to extend the life of the material.

"We invented the Holy Grail of abrasives," Buckley said in the Dec 18 interview. "These things change the basis of competition."

3M shares have almost doubled since closing at $41.83 on March 6 and have risen about 5.5 percent since Buckley, a native of Sheffield, England, who holds a doctorate in engineering, arrived in December 2005 from Brunswick Corp.

"He is pulling, pushing and driving 3M back to its R&D roots," said Deane Dray, an analyst at FBR Capital Markets in New York. "This is a company that prides itself on developing the most iconic products. That all came out of internal innovation, and he wants to make sure that that's not lost."

Buckley said he's having less luck ridding 3M of what he calls "zombie" products that have outlived their need. While 3M officials talk about running 55,000 product lines, Buckley says there are likely more than a million individual items.

Two years ago 3M started trying to reduce its number of SKUs, or stock-keeping units, by about half. About 95 percent of sales are in the top 50 percent of SKUs, he said.

"Things die very badly here," Buckley said. "We have lots of zombies in this company. What they produce is disorder."

3M has knocked out tens of thousands of such products in the past year and it will be "another couple of years" before the job is completed, he said.

3M will resume a regimen of about 15 to 20 acquisitions a year for a total of about $1 billion in 2010, Buckley said. Two were completed so far this year, Bloomberg data show. Areas of focus have been in dental products, helping health care become the second-largest division with about 18 percent of sales in 2009's first nine months, water treatment, and acquisitions overseas.

"We are using these kind of acquisitions to show the art of the possible when it can be done fast," Buckley said. As for larger targets, 3M may consider one or two acquisitions in the next four years for less than $4 billion each.

Bloomberg News

(China Daily 12/24/2009 page17)