3 M Run Scared? Forget About It

For some time now, Minnesota Mining & Manufacturing chief Allen F. Jacobson has been able to survey his domain with a certain measure of satisfaction. After all, few companies boast the innovative culture of 3M. Thanks to the creative zeal Jacobson fosters, nimble 3M turns out everything from low-tech Post-it notes to futuristic synthetic ligaments. Look at the results: Since 1985, 3M's net income has doubled, to $1.3 billion last year. And more than 30% of 3M's $13 billion in 1990 revenues came from products introduced during the past five years.

But the recent recession has been a humbling experience for the diversified manufacturer. Sagging demand for 3M's array of industrial products and stiff price competition abroad have battered the company. During the first half of 1991, 3M's net income tumbled 11.5%, to $599 million. Operating margins dropped to 15.6%, a 14% decline from their 1989 peak. Worse, explains Jacobson, "we don't see any recovery coming," during the next six months. Profits, he admits, will drop in 1991 for the first time infive years. Indeed, earnings are expected to fall 7.7%, to $1.2 billion, on $13.5 billion in revenues, reckons Theresa M. Gusman, an analyst with Salomon Brothers Inc.

With that kind of a melancholy outlook, you'd think Jacobson would be sharpening his machete for some slashing. Forget about it. While other U. S. companies have retrenched by trimming research-and-development budgets, shelving new-product programs, and ousting managers, 3M has been readying itself for the coming rebound. True, the company has scrapped plans to boost capital spending by 10% this year. But it's still investing $1.3 billion to modernize its 101 factories worldwide. And there have been no layoffs among 3M's 89,000-plus employees. Research spending, the wellspring of the company's product successes, hasn't been sacrificed, either: 3M will ante up some $890 million on R&D this year. That's 6.6% of total sales--the same rate as last year and about double the average of U. S. industry.

WEAK SPOTS. At the same time, Jacobson is following through on ambitious goals set last year to cut manufacturing costs, while pushing 3M design engineers to speed up product-development cycles. Nor has Jacobson slackened the pace of 3M's aggressive move into such new overseas markets as Eastern Europe and the Soviet Union.

That's not to say that 3M hasn't been tightening a few screws to reflect tougher times. Like most companies, it's curtailing corporate travel. And it recently postponed the construction of an office building addition in Austin, Tex.

But Jacobson isn't easing up on his effort to get 3M to expand its product line, since many of the company's more than 60,000 offerings are still vulnerable to recession. Consider that about 40% of 3M's revenue stream comes from customers in such cyclical manufacturing fields as autos. The memory-technologies division is another weak spot: 3M's computer diskettes business has been hit by price competition from foreign rivals, including Sony Corp. While Jacobson insists he doesn't want to diversify away from his core customers, a couple ofhits in less recession-prone businesses, such as health care, would surely help matters.

At the same time, 3M's international operations haven't offset problems stateside, as hoped. Indeed, the stronger dollar has zapped its business overseas. As a result, analysts expect international revenues, which account for 50% of the company's total, to be flat in the second half, compared with a 22% gain during the same period a year ago. Given the downturn, Prudential Securities Inc. analyst B. Alex Henderson says 3M should have throttled back overseas capital spending and acquisitions more quickly. Still, 3M economist John McDevitt insists the company wasn't caught flat-footed: "We weren't surprised."

Still, Jacobson has managed to limit the recession's damage by running a pretty lean shop. From 1985 through 1990, his J35--that's J as in Jacobson--cost-cutting program has hit its goal of a 35% reduction in labor and manufacturing costs, largely by investing in automation, reconfiguring plant layouts, and using just-in-time inventory methods.

And 3M isn't letting up now. Last year, the company began yet another five-year progam--dubbed Challenge '95--to cut unit manufacturing costs 10% and manufacturing-cycle time by 50% from 1985 levels, among other goals. It all represents a dedicated effort to widen 3M's thinning operating margins and win over new customers with better service.

Little successes already are adding up to some big savings. Earlier this year, for instance, managers at one industrial-tape plant cut the time it takes to switch from making one kind of tape to another by 30% and reduced waste by 25%, simply by rearranging machinery and changing some work practices. The 35 engineers and managers 3M assigned to the project used video recorders to study the changeover process. One revelation: Workers often didn't have the correct tools to perform the job. The simple answer: To slash the time wasted fetching tools, engineers staged tool boxes near changeover sites.

FULL PIPELINE. The changes go well beyond the plant floor. Service is being spruced up, too. For example, the medical-products division used to take an average of 49 days to process customer complaints--which naturally prompted even more complaints. "Some customers said 3M was hard to deal with," admits Thomas Redner, manager of quality systems. So, in late 1990, Redner pulled together a team from nine departments to reform the complaints procedure. Again, little details made a big difference. The company's sales reps now carry pre-addressed, postage-paid labels so they can quickly mail samples of defective products back to 3M labs for analysis. Now, says Redner, processing a complaint about the division's surgical masks or tapes takes only five days.

The process Jacobson most wants to make faster and cheaper is the one his engineers use to get new products out the door. He has ordered design, production, and marketing teams to work more closely together. Small wonder why: This approach allowed a team of 3M designers and production experts to cut by half--from six to three years--the development cycle for a new digital color proofer, a device used in commercial printing, which is expected to be rolled out in September.

This year alone, 3M will launch more than 200 new offerings. In these austere times, 3M is more often emphasizing products that can be marketed as cost-saving devices. Last April, the company's abrasives division introduced a computerized chemical-dispensing machine that controls and records the amount of chemicals--say floor cleaners or solvents--that are used in manufacturing plants. The idea, says Group Vice-President Robert J. Hershock, is to give companies a new way to monitor their chemical costs.

Jacobson is also turning up the heat overseas, where he sees 3M's current slowdown as transitory. The company is adding staff and marketing its array of telecommunication and highway products in emerging markets such as Poland, Czechoslovakia, and the Soviet Union. At the same time, 3M is pumping resources into the Far East, where markets for its products are still growing by as much as 20%. In Western Europe, 3M is spending $20 million to link its subsidiaries and customers together via computer so they can process orders more quickly. It also plans to build or expand four larger, more efficient warehouses in Europe to replace 17 minidistribution centers.

Attention to the smallest of details has always been the hallmark of Jacobson's management tenure. Known simply as Jake by most 3Mers, he retires on Oct. 31, after six years as chief executive. He will be replaced by L. D. DeSimone, a veteran of 3M's overseas operations who speaks four languages and, like Jacobson, is an engineer by training. DeSimone will be lucky in one respect: He will inherit a pipeline full of new products and a decidely leaner and more responsive 3M, thanks in large part to Jacobson's investments and handiwork during the downturn. Apparently, even a bone-jarring recession can be turned to advantage by smart managers.

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