0
An Emerging Strategy for Growth

      George W. Buckley
      Chairman, President and Chief Executive Officer




3M Inve...
Topics We Will Address Today


             Demystifying 3M and understanding the workings of the
       1
             “3...
3M’s Summary Strategy

                                                                                20%+
   Drill into ...
Portfolio Priorities
      Portfolio                                    By Activity                      15%+
            ...
What 3M Businesses Should
Look Like in 5 Years
                                                                           ...
Building Scale And Relative Share In Our Core

                                   Relative Share or
  Scale or Getting Sca...
Understanding 3M’s History and Culture

     3M’s history is rooted in an “invent and experiment” approach
     called “ma...
Understanding 3M’s History and Culture

     A high degree of conservatism became the norm
     The “make a little sell a ...
What Emerged From Our History

      A highly capable scientific, engineering and manufacturing
      company with deeply ...
We Can Address Growth By Being More Systematic
                                                            Understand our ...
Defining 3M’s Core

     3M’s fundamental core competency is applying coatings to backings
      – Both the coatings and t...
Defining 3M’s Core

     3M sometimes sells its coatings and backings separately,
     configured as other products, such ...
Defining 3M’s Core

     In applying coatings, 3M developed world class competencies
     in modifying the shapes and patt...
Defining 3M’s Core: Other Core Competencies

     In developing the previous “backings and coatings” competencies,
     br...
3M’s Technologies Extend Into Multiple Markets
     3M Technology Platforms                                 Markets

     ...
But Here’s What The Lattice Really Covers;
3M’s Other 32 Technology Platforms…

                                          ...
Demystifying 3M: It is not a Conglomerate

     In understanding 3M, it is important to realize the company is not a
     ...
How The 3M Invention Machine
Goes To Market

  Materials Science                                                   Surface...
Product And Technology Migration At 3M;
Microreplication Technology
                                                      ...
The Role Of Technology and Innovation at 3M

     As well as our history, it is the engine of our future growth
     We be...
The World’s Most Innovative Companies 2005

                Asia                         Europe                      North...
Innovation Is Not Just About Process,
It’s Also About Imagination and People
                                          Ins...
Some Breakthrough 3M Products




                                          3M Confirm Laminate with
         Dual Brightn...
3M Patent Portfolio
                           100,000
                                                                   ...
3M BRICP Patent Filings

                                                         Approaching 1000 in 2006
   900

   800 ...
3M Will Lead The 21st Century
Materials Science Revolution

                               Material
                      ...
3M, Becoming the World’s Nanotechnology Giant

        What is it?; The application of micro-manufacturing and micro-
    ...
New Applications of Nanotechnology; Fuel Cells
What is a Fuel Cell?

                               Oxygen from
          ...
Nanostructured Thin Film Catalysts for Fuel Cells

       50 square km field of new wheat,
               4quot; tall, 2qu...
3M Fuel Cell Membrane Manufacturing Lines



                                     • Input material from CCM line &
       ...
Another Nanotechnology Success
BEF (Brightness Enhancing film) Optical Film Solutions




                            Digi...
New Functionalities Enabled by
Multilayer Optical Films
  Color without colorants                                         ...
Advancing 3M’s Growth




3M Investor Meeting 2006       © 3M 2006 All Rights Reserved
The Four Principal Elements
Of Growth We’ll Use
                                            Strategic
                    ...
Growing The Current Core Business

                                               Grow the
                               ...
Core Strategy
Grow the Current Core

                     Becoming more intimate with our customers

     Build first wher...
Core Strategy
Extend the Core – Build Scale and Relative Share

            Significant new volume exists in the core. Lac...
Core Strategy
 Using Differentiated Brands and Technology to Grow Our Market
  Industrial                                 ...
Core Strategy
Vigorously Focus On Inventing A New Future

              All markets wax and wane; we want to be there when...
Core Strategy
Build Broad Long Term Basic Competencies

                Long term market power can be enhanced by long ter...
Acquisitions and Divestitures

     Over time we’ll divest or close those businesses where;
      – We cannot, over time, ...
Growth Acquisitions - Screening Criteria
                                                                                 ...
EBO Adjacencies

          “EBOs” are Emerging Business Opportunities used to drive faster growth
     Concept
      – Enh...
EBO Adjacencies: Filtration

                                                   What is the scale of the opportunity?
    ...
Filtration EBO: A Critical Capability for 21st Century
Healthcare & Industrial Production
                                ...
EBO Adjacencies: Track & Trace
                                                    What is the scale of the opportunity?
 ...
Track And Trace Has Broad Based Opportunities


Existing and Potential                     Solution Spaces



            ...
Example Opportunities in the
RFID and GPS Space
Tr ack and Trace Needs RFID and GPS Capability


                         ...
Perhaps the Largest
Single Growth Opportunity
                                                                            ...
Adjacency EBOs: Power Transmission

                                                    What is the scale of the opportuni...
The Opportunity of International Growth

     International growth rates 2X – 3X US
     61% of 3M sales are outside the
 ...
Capital Expenditure in BRICP Countries

  $300                                                                            ...
Building Emerging Country Capacity; End 2006


                                                                       RUSS...
International Growth
  Investing in Higher GDP - Growth Economies


           2003                                       ...
Operational Excellence




3M Investor Meeting 2006            © 3M 2006 All Rights Reserved
Our Foundational Beliefs on Competitiveness
                                                                            6σ...
Keeping Our Commitment
To Operational Excellence

     Our commitment to operational excellence and Six Sigma
     remains...
Moving The Supply Chain Closer
to The Customer Is A Priority
                           Plant 2
                          ...
History Of                                  Flags - Manufacturing

                                                       ...
And Here’s What Happens To Cost
When You Do It

        Non-Material Unit6Cost / 6 8 3 - 4 A B
                          8...
ECB Service Improvements Drive Growth
                                            95%                                     ...
Manufacturing Footprint

     We’re going where the customers are going
     Where we have scale, or can get scale, manufa...
Sourcing: Price vs Inflation

                                                                Asian sourcing up 30 % over ...
George W. Buckley Chairman, President and Chief Executive Officer
George W. Buckley Chairman, President and Chief Executive Officer
George W. Buckley Chairman, President and Chief Executive Officer
George W. Buckley Chairman, President and Chief Executive Officer
George W. Buckley Chairman, President and Chief Executive Officer
George W. Buckley Chairman, President and Chief Executive Officer
George W. Buckley Chairman, President and Chief Executive Officer
George W. Buckley Chairman, President and Chief Executive Officer
George W. Buckley Chairman, President and Chief Executive Officer
George W. Buckley Chairman, President and Chief Executive Officer
George W. Buckley Chairman, President and Chief Executive Officer
George W. Buckley Chairman, President and Chief Executive Officer
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  • “A Masterpiece and a blueprint for success for “All” Company Executives and Business Students, a chart on Marketing 3M Products and a thoughtful path to eliminate the NIH syndrome and to boost other Company’s innovative processes for growth, a 75 slide “course in marketing,” simply a must to read and study.”

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Transcript of "George W. Buckley Chairman, President and Chief Executive Officer"

  1. 1. An Emerging Strategy for Growth George W. Buckley Chairman, President and Chief Executive Officer 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  2. 2. Topics We Will Address Today Demystifying 3M and understanding the workings of the 1 “3M Lattice” Describing 3M’s strategy for growth while maintaining 2 premium margins Explaining the origins of further incremental margin 3 growth at 3M Strategic Management of 3M’s Portfolio 4 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  3. 3. 3M’s Summary Strategy 20%+ Drill into the core. Move towards 12 -15% scale where markets are large 8%+ and Move towards higher relative share growing in smaller markets Heavy up on globalization Technology remains part of who we are Earnings Investment Organic Sales Careful tradeoffs of share and Growth Returns Growth growth to maintain value creation momentum Technology lattice protects the downsides and ensures upsides Building on brands, technology, Investment through the economic cycles people, service & distribution Driving growth as a way of doing business 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  4. 4. Portfolio Priorities Portfolio By Activity 15%+ 10%+ 18%+ 8%+ 13%+ 8%+ and growing 2 1 Health Industrial Safety 1 Care Hi-Tech By Technology Growing International Adjacencies the Core Growth 15%+ 15%+ 13%+ Foundation Principles 1 1 2 Growing the core; filling white spaces Becoming vital to customers Nano- Track & Electronics Building broad platforms for our technologies technologies Trace & Software Taking careful and logical adjacency steps 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  5. 5. What 3M Businesses Should Look Like in 5 Years Large Markets In every market we will maintain strong technological superiority Businesses with scale Businesses getting scale Smaller Markets Businesses with relative share Businesses getting relative share Experimental And Niche Grow, close or sell Niche Share Scale Non Core Invent & experiment 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  6. 6. Building Scale And Relative Share In Our Core Relative Share or Scale or Getting Scale Targeting Relative Share Sub-Scale Scotch® branded Industrial Pharmaceuticals Dentistry and Office Tapes Touch systems Orthodontics Abrasives Precision Optics Office supplies Automotive after-market Visual displays Roofing granules Optical Films Lighting Commercial Graphics Face masks & respirators Electrical Connectors Adhesives Medical tapes and drapes RFID Post-It® Notes Traffic Signage 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  7. 7. Understanding 3M’s History and Culture 3M’s history is rooted in an “invent and experiment” approach called “make a little, sell a little” where markets were built by bootstrapping. This produced the following outcomes for 3M: – World class materials science and surface chemistry capability was built over many years – Markets were often entered only after privileged IP positions were built – Scale was not considered important – Demand and capacity were often underestimated – 3M focused on making “risk free” capital investments by using highly flexible machine tools capable of making many products in plants that served multiple businesses. – Cross business use of central technologies was encouraged that led to 3M’s participation in many high-margin niche areas 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  8. 8. Understanding 3M’s History and Culture A high degree of conservatism became the norm The “make a little sell a little” approach led to an incremental approach to capacity and strategic planning – Complex supply chains evolved quite naturally, with extrusion processes at one plant, coating in another plant and final conversion at yet another – Individual plants were run with superb efficiency, but interconnecting logistics were often complicated and costly – Higher inventory and WIP compensated for the complex supply chains – Chronic underinvestment in core capacity led to many upside sales growth opportunities being missed 3M’s inward focus brought margin benefits but often hindered growth and good long-range planning 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  9. 9. What Emerged From Our History A highly capable scientific, engineering and manufacturing company with deeply conservative values, participating in many successful niche markets Underinvestment in core markets that made readily available growth hard to capture Incredible inter-segment technology sharing, where new markets were continually built via a virtual “adjacency machine” Hugely capable (and generally unknown) world-class manufacturing Modest and unassuming management Underdeveloped strategic planning capability 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  10. 10. We Can Address Growth By Being More Systematic Understand our competencies Identify the Basis of Differentiation Resultant Economic advantage Define The Pose a view of the future Play in near adjacencies only Core Sequencing adjacency moves Business Watch for discontinuities Achieve Create A Long Full Potential Term Addition In The Core Path Get Scale Gain relative share Relative low cost Identify Decision criteria Customer importance Systematic processes Truly Adjacent Always maintain Distance from the core technological advantage Markets Organizational links 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  11. 11. Defining 3M’s Core 3M’s fundamental core competency is applying coatings to backings – Both the coatings and the backings are traditionally developed inside 3M – Backings may be woven or non-woven fabrics, paper, cloth, plastics or metal – Coatings are adhesives, abrasives, medicines, nano particles or imprinted optical patterns It does this in a highly precise manufacturing approach that involves the large scale unwinding, winding and splitting of tapes Incredible manufacturing capability and know how is the hidden and unsung hero of 3M and a significant barrier to entry 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  12. 12. Defining 3M’s Core 3M sometimes sells its coatings and backings separately, configured as other products, such as face masks, Thinsulate thermal and acoustic insulation and roofing granules Cubitron™ Roofing Respirator Ceramic Grain Granules This same precision machining and materials science capabilities have also been applied in market adjacencies such as dentistry 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  13. 13. Defining 3M’s Core In applying coatings, 3M developed world class competencies in modifying the shapes and patterns of surface coatings (called micro-replication) that alters the fundamental behavior of a product Fuel Cell MEA Cubitron Trizact Abrasive VIKUITI™ BEF This micro-manufacturing competency, leveraged across many markets into nanotechnology makes 3M so hard to beat Reinvention of the materials science space over the next few years with nanotechnology is one source of the next wave of growth 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  14. 14. Defining 3M’s Core: Other Core Competencies In developing the previous “backings and coatings” competencies, broad know-how in adjacent technologies was built, viz – Micro-replication of surface patterns – Optics and light management – Nanotechnology – Ceramics and adhesives And 3M extended this adjacent knowledge across multiple markets in less obvious applications such as – Post-it® notes (the adhesive is “micro-replicated’) – Adhesives (on which 3M’s dentistry competency is based) So 3M is, at its heart, an invention and manufacturing company Its major strength is in solving and delivering unique solutions for OEM and mass channel customers 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  15. 15. 3M’s Technologies Extend Into Multiple Markets 3M Technology Platforms Markets Adhesives Architecture & Const. Abrasives Auto. & Aerospace Ceramics Electronics Manuf. Electronic packaging Graphic arts Micro replication Health care Optics Home and Leisure Specialty materials Industrial OEM Non-woven Materials Consumer & Office Polymer melting Safety & Security Telecoms and Utilities 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  16. 16. But Here’s What The Lattice Really Covers; 3M’s Other 32 Technology Platforms… Rf Ad Am Bi Reclosable Adhesives Advanced Biotech Fasteners Materials Ab Dd Mr Pe Rp Abrasives Drug Micro- Predictive Radiation Engineering Delivery replication Processing & Modeling Ac Dm Nt Nm Pm Sm Acoustics Display Nano Nonwoven Polymer Specialty Melt Materials Technology Materials Materials Processing As Do Fi Fs Is Md Mi Pc Po Su Application Dental & Films Filtration, Integrated Medical Microbial Precision Porous Surface Systems Software Orthodontic Separation, Data Detection Coating Materials & Modification Materials Purification Design Mgmt & Control Membrane s Ce Ep Fl Im Lm Me Mo Pd Pr Wo Ceramics Electronic Fluoro- Imaging Light Metal Molding Particle & Process Wound Packaging materials Mgmt Matrix Dispersion Design & Mgmt Composites Processing Control Vp Cp Fc Fo Ip Pp Precision Vacuum Chemical Flexible Fiber Inks & Processing Power Converting Optics Pigments Processing Sources & Packaging 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  17. 17. Demystifying 3M: It is not a Conglomerate In understanding 3M, it is important to realize the company is not a conglomerate with siloed independent business units 3M is a unique model of a technology and manufacturing “adjacency lattice” that shares basic technologies and manufacturing processes across multiple businesses, markets & product lines – Almost all of 3M’s basic businesses are connected to each other in this way, from water filtration to Scotch brand tape In network theory, the power of a network (or lattice) is proportional to the square of the number of users.* It is this lattice that makes 3M so powerful and enduring as an industrial competitor But ….the lattice can also make 3M difficult to organize for optimal growth * Robert M etcalfe, Inventor of the Ethernet 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  18. 18. How The 3M Invention Machine Goes To Market Materials Science Surface Chemistry Backings Coatings Abrasives Extrusions Adhesives Woven Oxides Non woven Medicines Plastics Roll to Roll Tape Petri Broth Metals Optical Patterns and Cut Out Manf. Final Product Configuration OEM Mass Channel Channel 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  19. 19. Product And Technology Migration At 3M; Microreplication Technology Micro-channel Fluid High flow Structured 1983 cooling Transport Filter Surface MATERIALS Optical ISO Structured Filter porous Surface Sensor Technology Center ELECTRONICS Electrical Connectors Formed Stem Web Control Smart ADHESIVES Micro Comply Tape TAC Adhesives Cube corner Reclosable Griplets Diamond Structured Fasteners Prism ABRASIVES Shaped Trizact Grade Surface Reflectivity Particles Abrasives Sheeting Abrasives Glare-free Lane Markers REFLECTIVE Overhead Fluorescent Wide Angle Projector DGS DG3 Programmed MATERIALS DGS Lens Conspicuity Optics for Signs Scotchlite Internally Light Lens DGS Lit Signs Pole Film ILLUMINATION Total Lighted Lighted Traffic Internal Guidance Lane Signal Optical Reflection Tube Marker Lighting Film LED Light Mixing Brightness LCD Linear Enhancement Film FLG FILM Solar Film Light Control Concen- Day X-ray Notched Large-Diameter trator lighting Scan Fiber Optical Fiber Ov erhead Low-profile Radial Multi focal Proj ector LENSES Overhead Solar Interocular Micro lenses Lens Projector Concentrator Lens 1964 1970 1980 1990 2000 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  20. 20. The Role Of Technology and Innovation at 3M As well as our history, it is the engine of our future growth We believe that one of the keys to sustainable success is unfettered and well-directed innovation – But it’s not only about monetary volume, it’s also about direction – Shared technology model essentially unique – The 15% rule is alive and well We’ll be searching for disruptive technologies as well as logical developments and extensions to invent new futures for our products We’ll increasingly prospect for “just out of the garage” technology developments key to building our core The heart and soul of 3M’s approach will remain technological differentiation and application across multiple lines of business We’ll add “digital” oriented competencies over time 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  21. 21. The World’s Most Innovative Companies 2005 Asia Europe North America Global 1. Apple 1. Apple 1. Apple 1. Apple 2. Google 2. Google 2. Google 2. Google 3. Nokia 3. P & G 3. 3M 3. 3M 4. Samsung 4. Microsoft 4. Toyota 4. 3M 5. Microsoft 5. Toyota 5. Microsoft 5. 3M 6. IBM 6. Toyota 6. GE 6. General Electric 7. GE 7. Virgin 7. Starbucks 7. Proctor & Gamble 8. Toyota 8. BMW 8. Microsoft 8. Nokia 9. Nokia 9. GE 9. IBM 9. Starbucks 10. Infosys 10. eBay 10. Dell 10. IBM 11. Virgin 11. IKEA 11. Wal-Mart 11. Virgin 12. P&G 12. RyanAir 12. IDEO 12. Samsung 12. Dell 12. Sony 12. Target 13. Sony 14. Sony 14. Intel 14. Samsung 14. Dell 15. Intel 15. Porsche 15. Southwest 15. IDEO Source: “The World’s Most innovative Companies”, Business Week, April 24, 2006 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  22. 22. Innovation Is Not Just About Process, It’s Also About Imagination and People Inspired Growth Aspirational Long Minded Leaders Term Organic Growth Growth Minded → 10% Inventors Imagination Technology X ≈3-4% Commercial Customers X Excellence GDP 3M Great Products Clear Goal of > 2X GDP Globalization Growth 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  23. 23. Some Breakthrough 3M Products 3M Confirm Laminate with Dual Brightness Floating Image Enhancing Films Advanced Composite Conductor 3M Trizact Abrasives Littmann® Electronic Stethoscope with A mbient Post-it Picture Paper Noise Reduction Flexible Circuit 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  24. 24. 3M Patent Portfolio 100,000 Approaching 100,000 90,000 R AG Pending & Issued Patents C 80,000 % 3.5 1 70,000 60,000 R C AG 50,000 2% 11. 40,000 30,000 20,000 10,000 0 00 01 02 03 04 05 06 07 08 09 10 11 20 20 20 20 20 20 20 20 20 20 20 20 US Pending & Issued OUS Pending & Issued 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  25. 25. 3M BRICP Patent Filings Approaching 1000 in 2006 900 800 China Brazil India Russia Poland 700 600 500 400 300 200 100 0 2002 2003 2004 2005 2006 Projected 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  26. 26. 3M Will Lead The 21st Century Materials Science Revolution Material Nanotechnology Substitution (i.e., Metal to Plastics) Rapid Expansion of Manufacturing Adper™ Adhesive Named Top Ten Nanotech Product 1950s - 60s 1970s – 80s 2000 -> 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  27. 27. 3M, Becoming the World’s Nanotechnology Giant What is it?; The application of micro-manufacturing and micro- assembly of products in sizes less than 1000 nanometers 3M has more than $1 Billion in sales from nano products – And the broadest patent portfolio in the world The next wave of the breakthroughs will come from nanotechnology 3M has applications in many fields; – Self assembling molecules in medical applications – Optical applications – Adhesives and abrasives – Fuel cells – 3M Surface Modified Ceramic Nanoparticles for LCD TV screens New applications are being discovered every day 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  28. 28. New Applications of Nanotechnology; Fuel Cells What is a Fuel Cell? Oxygen from the air Hydrogen Heat Electricity Water Fuel Cell Stored Hydrogen The ultimate potential is generation of off-grid electricity from hydrogen produced from completely renewable, widely dispersed energy sources. 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  29. 29. Nanostructured Thin Film Catalysts for Fuel Cells 50 square km field of new wheat, 4quot; tall, 2quot; apart 12,355 Acres Shrink it down by factor of 100,000 1 Nanostructured = Whisker for Each Blade of Wheat 50 cm2 MEA ~ 4 billion whiskers/cm2 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  30. 30. 3M Fuel Cell Membrane Manufacturing Lines • Input material from CCM line & GDL process • Robotic assembly process • Precision cut • Sequenced assembly • Bonded under heat & pressure • Automated gasket dispensing • Curing Alpha Line Pi Line Menomonie, Wisconsin 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  31. 31. Another Nanotechnology Success BEF (Brightness Enhancing film) Optical Film Solutions Digital Still Camera PDA LCD Panel Main LCD for Mobile Phone Thin BEF Thin BEF Light guide plate ESR Sub-LCD for Mobile Phone Structure of Backlight 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  32. 32. New Functionalities Enabled by Multilayer Optical Films Color without colorants 99.5% 98.5 - 99.5% reflective Mirrors Highest efficiency mirror without known metal Multiple bounce for light transport and redirection Light without heat Polarization without absorption Reflective polarizer for LCD brightness enhancement 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  33. 33. Advancing 3M’s Growth 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  34. 34. The Four Principal Elements Of Growth We’ll Use Strategic Thrust Grow the Current Complementary Build New International Core Business Acquisitions Business via EBOs Growth Defend and extend the Follows core Adjacency Mega Trends BRICP core strategy Seeded by small M&A Eastern Europe Build scale Supports Electronics and software Western Europe adjacencies Build relative share Facilitated by grouping Japan Mostly tuck-ins Emphasize localization RFID/Wireless/GPS Australasia Baby bear strategy Disruptive technologies Minerals extraction Growth Build long term everywhere Oil & Gas competency Food safety Border crossing & security Consumer Electronics 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  35. 35. Growing The Current Core Business Grow the Current Core Invent a Extend The Core New Future Build key customer partnerships Customization as tool Constant reinvention; drill down Imagine, dream and invent Build first where we’re strong Localization and differentiation Beat competitors to the future Get scale & build relative share Plan for cannibalization Fill in the product “white spaces” Licensing as a route Build Broad Long Become important to customers Avoid NIH syndrome Term Competencies Use dual branding International product localization Local acquisitions Private labeling Develop broad based long-term capabilities Acquire supporting core technology with quality brands Build volume and scale 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  36. 36. Core Strategy Grow the Current Core Becoming more intimate with our customers Build first where we are strong Grow the Invent a Current Core New Future Constant reinvention in the Current Core (Light Pipes → BEF → DBEF→ APF) Build even stronger key customer Growing The Current Core Business partnerships Grow the Customize for customers Current Core Invent a Extend The Core New Future Build key customer pa rtnerships – Solving their needs as well as ours Customization as tool Consta nt reinvention; drill down Imagine, dream and invent Build first where we’ re strong Localization and differenti ati on Beat competitors to the future Get scal e & build relati ve share – Drilling into the niche and capturing new Plan for cannibal izati on Fill in the product “white spaces” Li ce nsi ng as a route Build Broad Long Become important to customers Avoid NIH syndrome product segments Use dual branding Term Competencies Inte rnational product local izati on Local acquisitions Private label ing Localization of production Develop broad based l ong-term capabi lities Acquire supporting core technology w ith quality bran ds Build volume and scale – Factories, businesses, product 3M Inve stor Meeti ng 20 06 © 3M 20 06 All Righ ts Re ser ved converting 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  37. 37. Core Strategy Extend the Core – Build Scale and Relative Share Significant new volume exists in the core. Lack of product breadth often weakens our customer influence Extend the core to build scale and grow Invent a Extend relative share New Future The Core Fill in the product “white spaces” and become more important to our customers Growing The Current Core Business Defend created markets against new entrants Grow the Current Core Invent a Use dual branding in the upper middle Extend The Core New Future Bu ild key custome r partnerships Custo mi zation as tool market Constant reinvention; drill down Imagi ne, dream an d i nvent Bui ld first wh ere we’ re stro ng Localization and differe nti ati on Bea t competi tors to the future Get scale & b uild relative sh are Pl an for cannibal izati on Fill i n the product “white spaces” Emphasize product localization; use Licensing as a rou te B uild Broad Long Become importa nt to customers Avoi d NIH syndrome Term Competencies U se dua l b ra nding a mixture of brands & local acquisitions International product l ocalization L ocal acquisitions Private labeli ng Develo p broad based lon g-term capabili ti es Acquire supporti ng co re technolog y with quality b ran ds Thoughtfully extend private labeling Build volume and scale Accurate capacity planning 3M Investor Meeti ng 2 006 © 3M 20 06 A Rig hts Res erv ed ll 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  38. 38. Core Strategy Using Differentiated Brands and Technology to Grow Our Market Industrial Consumer Use principal brands and differentiated technology or features Diamond Grade™ Use Secondary Brands / Technologies High Intensity Grade Selective private labeling or manufacturing JVs to support partnership customers Engineering Grade 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  39. 39. Core Strategy Vigorously Focus On Inventing A New Future All markets wax and wane; we want to be there when it waxes and reinvent it before it wanes While developing and growing the existing Invent a market, plan for cannibalization by inventing New Future a new future Use our technological prowess to invent the Growing The Current Core Business natural substitute technology To aid speed we’ll: Grow the Current Core Invent a – Strategic licensing of technology Extend The Core New Future Build key customer pa rtnerships Customization as tool – Investment in small technology companies Consta nt reinvention; drill down Imagine, dream and invent Build first where we’ re strong Localization and differenti ati on Beat competitors to the future Get scal e & build relati ve share Plan for cannibal izati on – Greater University support and liaison Fill in the product “white spaces” Li ce nsi ng as a route Build Broad Long Become important to customers Avoid NIH syndrome Use dual branding Term Competencies – Use imagination and invention extensively Inte rnational product local izati on Local acquisitions Private label ing Avoid the NIH Syndrome Develop broad based l ong-term capabi lities Acquire supporting core technology w ith quality bran ds Build volume and scale Beat our competitors to our future 3M Inve stor Meeti ng 20 06 © 3M 20 06 All Righ ts Re ser ved 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  40. 40. Core Strategy Build Broad Long Term Basic Competencies Long term market power can be enhanced by long term strengthening of the core and near adjacencies Build deep, broad and consumer-friendly Build Broad competitive advantage in our core Long Term Competencies markets Quality acquisitions and internal development Growing The Current Core Business Any acquisitions will be premium Grow the Current Core brands that deepen our technology Invent a Extend The Core New Future Bui ld key customer partnerships Customizati on as tool bench, provide new applications and Constant rei nvention; dril l down Imagine, dream and invent Build first where we’re strong Localization and differentiation Beat competitors to the future Get scale & buil d relative share channel access for 3M Plan for cannibalization Fi ll in the product “white spaces” Li censing as a route Build Broad Long Become important to customers Avoid NIH syndrome Use dua l branding Term Com petencies Filling in the logical complementary core International product localizati on Local acquisiti ons Pri vate labeling extensions, & providing new platforms Develop broad based long-term capabil iti es Acqui re supporti ng core technology wi th quality brands Bui ld vol ume and scale for growth 3M Investo r Meeting 2006 © 3M 20 06 All Righ ts Re ser ved 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  41. 41. Acquisitions and Divestitures Over time we’ll divest or close those businesses where; – We cannot, over time, build scale or good relative share, or – We cannot differentiate through technology, or – The base technology is at “end of life” and cannot be refreshed, or – The risk profile suggests another owner could extract more value than 3M The majority of acquisitions will be EPS accretive or neutral in year 1 and EVA accretive by the end of year 3 They will closely reflect and support our strategic plan We’re prepared to sacrifice some % margin for additional growth provided net shareholder value creation is positive. We expect returns to remain high Strategic Thrust Grow the Current Build New International Complementary Acquisitions Core Business Business via EBOs Growth 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  42. 42. Growth Acquisitions - Screening Criteria Strategic Thrust Grow the Current Build New International Complementary Acquisitions Core Business Business via EBOs Growth High Growth Market Screen Operating Metrics & Fit Select Healthcare Screen Valuation segments Inorganic and Safety & Double digit growth Size Growth Protection Potential for margin Opportunities improvement Track & Trace Potential Energy Ability to leverage Mostly Mid-size across current Targets rather than Display & customers transformational Graphics Integration with Early EPS Consumer current 3M accretion innovation processes 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  43. 43. EBO Adjacencies “EBOs” are Emerging Business Opportunities used to drive faster growth Concept – Enhanced focus on emerging business opportunities with high growth – Concept used where capability exists with ready adjacencies but no current focus Attributes Collect all related activities into a single entity Initial EBO Candidates Initial EBO Candidates “Housed” in a Segment 1 Filtration Filtration Leader reports directly to the EVP Track & Trace 2 Track & Trace Acquisitions and additional resources provide support Energy & minerals extraction 3 Energy & minerals extraction Growth and speed are the focus Food Safety Food Safety 4 Strategic Thrust Grow the Current Complementary Build New International Core Business Acquisitions Business via EBOs Growth 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  44. 44. EBO Adjacencies: Filtration What is the scale of the opportunity? ($MM) 2006E 2009E CAGR $5,500 $7,300 10% Market What are our assets? People Technical 212 Marketing & Sales 400 What business are we in? Business Development 12 Fluid Processing - cleaner, safer fluids: Manufacturing / Other 1700 reduce operating costs Healthcare Market - depth filtration media Total 2,324 Water Filtration - bacteria reduction 137 Patents Manufacturing Capability What products do we have? Membrane materials & processing Membrane cartridges, antimicrobial media CUNO is a strong player with industrial fluid processing customers 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  45. 45. Filtration EBO: A Critical Capability for 21st Century Healthcare & Industrial Production Appliance Direct manufacturers marketers Appliance OEMs Plumbing w holesalers Kitchen & Residential Bath Retailers Water Water Restaurants Specialists Food Post mix Service drink Coffee service Paints / General Coatings Industrial Packaging Chemicals Fluid Wafer Processing Oil & Gas Handling Components Electronics Depth Membrane Filtration TFF / Health Chromato- Systems graphy Care Pharma Bioprocess Biologics Filtration Sheets Filter Aids Food & Beverage Filter TFF / Systems 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  46. 46. EBO Adjacencies: Track & Trace What is the scale of the opportunity? ($MM) 2006E 2009E CAGR $9,300 $35,000 100% Market What business are we in? What are our assets? Automated tracking of critical assets and People products Technical 94 Benefits include: Asset utilization, cycle time reduction, working capital reduction & product Marketing & Sales 56 security Business Development 14 What products do we have? Manufacturing / Other 12 Library Total 176 -3M™ One-Tag RFID System Office/Legal 80 Patents -3M™ RFID Tracking Solutions: File Location Communications / Utilities What other assets do we need? -3M Dynatel™ Location and Marking Products GPS, wireless, other electronics and -Telecom Access Control – CMD Germany software capability Supply Chain Execution -HighJump™ Software Specific applications for high value asset management solutions 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  47. 47. Track And Trace Has Broad Based Opportunities Existing and Potential Solution Spaces Improve and Advantage Me! How Am I? • Location-based serv ices • Supply chain optimization • Competitive “superiority” Sensor Networks Where Am I? in Order Fulfillment • Sensors – Supply chain • Temp • Tracking Software Who Am I? – Distribution • Vibration • RFID Network • Humidity • Wireless Location • RFID Tag • Light • RTLS • Bar Code • Contaminants • GPS • Database • Road Tolling 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  48. 48. Example Opportunities in the RFID and GPS Space Tr ack and Trace Needs RFID and GPS Capability RFID + Container Monitoring 1 GPS 2 Food Supply Chain 41 Innovation 3 Medical Specimen Tracking RFID +GPS RFID +GPS Track and Trace Track and Trace 4 Yard and Warehouse Management 5 Oil, Gas and Minerals Extraction 6 Ground Vehicle Asset Tracking 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  49. 49. Perhaps the Largest Single Growth Opportunity Hike Personal Outdoor Navigation Ski Vehicle Security Fish Target ID Battlefield Automotive Mngmt Fish Animals Consumer Farms Asset Military Warehouse Agriculture Mngmt Navigation Surveying Asset GPS Library Information Industrial Track RFID Records UHFID Government Containers Transport Medical Patients Railway Security Packages Signals Pathology Vehicle Records Security Road Toll Border Passports Assets Crossing Asset ID cards Track Runway Transplants Pets Mgmt Children Criminals 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  50. 50. Adjacency EBOs: Power Transmission What is the scale of the opportunity? ($MM) 2006E 2009E CAGR $19,000 $24,550 7% Market What are our assets? People What business are we in? Technical 8 High performance overhead cables to Marketing & Sales 2 increase transmission capacity by 2-3X using existing towers and infrastructure Business Development 1 Cost competitive, quick solution, no visual Total change to line, no permitting because it use 11 existing rights of way 26 What products do we have? Patents Family of high performance high temperature ACCR conductors that can replace any of the overhead line conductors in use today Multiple test lines with utilities; lower manufacturing costs is the key 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  51. 51. The Opportunity of International Growth International growth rates 2X – 3X US 61% of 3M sales are outside the United States today, ≈ 70% in 2011 Focus is on BRICP; double investments there China growing ≈ 35% CAGR, expecting circa $1Bn sales in 2006 India growing at 40%+ Double digit growth rates in E. Europe and LA W. Europe grows faster on localization strategies Acquire local brands and manufacturing as well as organic expansion Strategic Thrust Grow the Current Complementary Build New International Core Business Acquisitions Business via EBOs Growth 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  52. 52. Capital Expenditure in BRICP Countries $300 $280 BRICP Capital Investment $240 $250 $217 $200 $166 $150 $98 $100 $64 $34 $34 $50 $0 2002 2003 2004 2005 2006 2007 2008 2009 Increased Capital Expenditures to BRICP drives OUS growth 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  53. 53. Building Emerging Country Capacity; End 2006 RUSSIA ● 237 Employees POLAND ● 1 Plant ● 652 employees ● 2 Plants CHINA INDIA ● 2,070 Employees ● 722 Employees ● 6 Plants BRAZIL ● 2 Plants ● 2,943 Employees ● 3 Plants 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  54. 54. International Growth Investing in Higher GDP - Growth Economies 2003 2006E 2011E US APAC APAC APAC 30% US 25% 29% 35% US 38% 46% EM EA 22% LAC EMEA LAC LAC EMEA 25% 9% 7% 8% 26% *GDP is w eighted average of 3M sales by region 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  55. 55. Operational Excellence 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  56. 56. Our Foundational Beliefs on Competitiveness 6σ & Lean Global sourcing We compete on six competitive Cost Factory costs platforms Taxes Low cost is the ultimate Protect the Primary Brands Secondary for local competitive deadly weapon Scale and relative share are Secure the best Distribution Secure the broadest vital for efficiency and competitiveness Follow the customer value chain Nanotechnology Technology Electronics & Software Pristine service and brands can overcome price in some markets Speed to market Service OTIF We can compete best in the core, Quality but the core evolves dynamically Inspire and guide People Develop leadership Continuing education 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  57. 57. Keeping Our Commitment To Operational Excellence Our commitment to operational excellence and Six Sigma remains strong Put process in where it belongs… and ignore it where it doesn’t Six Sigma is evolving to also include “Lean” methods, beginning first in manufacturing Operational excellence focus will be expanded to cover procurement and logistics – Offers large opportunities for margin expansion & sales growth Initiatives will be driven into the fabric of 3M’s culture 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  58. 58. Moving The Supply Chain Closer to The Customer Is A Priority Plant 2 Finished Plant 3 Plant 1 Goods Shortening Plant 4 Supply Raw Materials Chains Plant 5 Plant 6 Master FG Inventory Production Schedule Reducing Cycle Times 10 Days Time 220 Days 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  59. 59. History Of Flags - Manufacturing CMA Automated Assembly Jumbo Gannicott Master Pad 12” Master Roll converting and Pack-out Production Converting into Lefts and Rights Amery, WI U.S./O.U.S. *Split Flag Asmby Distribution MN *2” Prtd Asmby Hutchinson, MN Custom Printing *Hldy Tags Asmby •Jumbo Coating & Printing Milwaukee, WI •Slitting *2” Prtg (Index) Minneapolis, MN *Leaderstrips •All Assembly *1”, 2” Printed *Holiday Tags Hartford City, IN *Quality Flags *Matte Coating Nevada, MO *LAB, Adh, Color Greenville, SC Lolita, TX *Slitting *Polyester Jumbo BOPP Jumbo *1” Assembly *2” Assembly U.S./O.U.S. Distribution 1988-1996 2006 WIP/RM’s: 100 days WIP/RM’s: <20 days Cycle time: 95+ days Cycle time: <15 days 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  60. 60. And Here’s What Happens To Cost When You Do It Non-Material Unit6Cost / 6 8 3 - 4 A B 8 3-4 U n i t C o st B r e a k d o w n Flags $ 0 .9 0 $ 100% 0 .8 0 O Costrelement a g i n g th e P a c k 1 $ 0 .7 0 In Cost c t d i re element 2 75% $ 0 .6 0 H Cost D o w n L a b e l o l d element 3 $ 0 .5 0 L o g o element 4 Cost L a b e l 50% $ 0 .4 0 D Cost element 5 isp e n s e r P a d element 6 Cost $ 0 .3 0 M Cost element 7 25% a c h in e $ 0 .2 0 L a b o relement 8 Cost $ 0 .1 0 $ 00%0 .0 ac k TD 0 1 2 3 4 rd 200 200 200 200 200 gca 5- Y 2P Lon 200 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  61. 61. ECB Service Improvements Drive Growth 95% 25% 20% % On-Time & In-Full YOY Sales Growth 90% Step-Change 15% Improvement 10% 85% in Service and 5% Sales 0% 80% (5%) (10%) 75% (15%) 70% (20%) ECB Service ECB Sales Growth Jan ’03 Mar ’06 ► Approximately 1/3 of business recovery due to improved service ► Improved fill rate 2000 bps from a low of 75% in Dec ’03 to a high of 95% in Aug ’05 ► Consistently achieving 90% or better ► Customers are recognizing better service with loyalty Critical business differentiator that powers growth 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  62. 62. Manufacturing Footprint We’re going where the customers are going Where we have scale, or can get scale, manufacturing will be done in single focus plants in high volumes close to the customer base – Shorten supply chains, improve order on-time-in-full (OTIF) and drive out WIP and FG – Over time, more supply chains will be designed for Make To Order supply “X-Factors” are increasingly with us and, while unpredictable in detail and nature, are probably a feature of life going forward Plants will be highly automated and designed with a small amount of surge capacity 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
  63. 63. Sourcing: Price vs Inflation Asian sourcing up 30 % over 2004 Net Impact ($MM) Local sourcing developed before 500 local manufacturing 316 264 110 209 300 68 Operating sourcing offices in 100 Eastern Europe, China and Latin -100 America -300 '02 '03 '04 '05 '06 Global business process driving Net Cost Savings Pricing down back office costs Reverse auctions for Pricing initially difficult in 2004 commodities showing great Added value made positive pricing promise power better in ’05 Negative price still expected to be a Legal entity and tax structures factor in ‘06 important Great Progress, More To Do 3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
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