2014

BY: Anthony Younis, Edna H. Ruiz, Sandra Hernandez, MalolefouaIuta Geddes, Jerick Galang, Karina Hernandez, Fred Ngo

3 M STRATEGIC AUDIT

I. CURRENT SITUATION

A. Current Performance

Financially 3M is growing. Overall annual growth of the company is 5%1 3M revenue breakdown is: 1/3 Domestic USA and 2/3 International 2 3M’s Beta is at 1.24 this is a ratio far more volatile than major competitor Johnson

and Johnson whose beta remains at 0.56. 3 3M has a 0.87:1 debt to equity ratio. This means that the company could pay off its

debt with current assets but might not be leveraging its profits to expand company growth efficiently.4

R&D remains 3M’s competitive advantage and is used through-out each business segment.5

The company has a large a large dependence on inorganic growth (through acquisitions)6

The use Six Sigma through-out the company has both positive and negative effects. 1. Positive: Six Sigma helped supply line costs minimize and become more efficient.7 2. Negative: The use of Six Sigma in the innovation process has hindered

innovation.8 Despite many core problems; financially, the company is showing higher than

expected profits in its last quarter. 9 3M’s unfunded pension plan to the tune of $666 Million is a financial problem. 10 The large number of lawsuits due to recalls has the ability to hinder the cash flows of

the company.

B. Strategic Position

1. Mission “To solve unsolved problems innovatively”11

2. Strategies Alignment of the organization to become more relevant and responsible to

our customers. Commitment to increased funding in innovation Driving growth through new capabilities in marketing, sales, and e-platforms Strengthening operational excellence through focus on acquisition integration

and Lean Six Sigma 3. Financial goals & Business Strategies: • Grow earnings per share 9-11 percent per year, on average12 • Grow organic sales 4-6 percent per year, on average12 • Maintain return on invested capital above 20 percent12 • Free cash flow conversion of 100 percent.

4. Policies

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Innovation through acquisitions R&D HR – acquisition of talent is a core business strategy. Diversification to reduce risk

II. STRATEGIC MANAGERS

A. The Board of Directors-

1. The Board of Directors is largely made up of prestigious retired CEO’s whose main focus is the growth of 3M. The Board is a catalyst board who are actively focused on the vision of the company through 3M’s R&D competitive advantage method of innovation.

2. Responsible for 3M’s inorganic growth through acquisitions.

B. Board of Directors Composition13

Inge G. Thulin, Chairman of the Board, President and Chief Executive Officer Linda G. Alvarado, President and Chief Executive Officer, Alvarado Construction, Inc. Thomas K. Brown, Retired Group Vice President, Global Purchasing, Ford Motor Company Vance D. Coffman, Retired Chairman of the Board and Chief Executive Officer, Lockheed

Martin Corporation Michael L. Eskew, Retired Chairman and Chief Executive Officer, United Parcel Service Inc. W. James Farrell, Retired Chairman and Chief Executive Officer, Illinois Tool Works Inc. Herbert L. Henkel, Retired Chairman and Chief Executive Officer, Ingersoll-Rand plc Muhtar Kent, Chairman of the Board and Chief Executive Officer, The Coca-Cola Company Edward M. Liddy, Partner, Clayton, Dubilier & Rice, LLC Robert S. Morrison, Retired Vice Chairman, PepsiCo Inc. Aulana L. Peters, Retired Partner, Gibson, Dunn & Crutcher LLP Robert J. Ulrich, Retired Chairman and Chief Executive Officer, Target Corporation

C. Top Management

1. Very experienced in the industry. 2. 3M’s Top Management expertise is varied in business fields making it expertly

broad and able to handle diverse problems. 3. Responsible for the current situation in regards to product recalls and

D. Top Management Composition13

Inge G. Thulin, Chairman of the Board, President and Chief Executive Officer13 Julie L. Bushman, Senior Vice President, Business Transformation and Information Technology Joaquin Delgado, Executive Vice President, Health Care Business Group Ivan K. Fong, Senior Vice President, Legal Affairs and General Counsel Ian F. Hardgrove, Senior Vice President, Corporate Communications and Enterprise Services Christopher D. Holmes, Senior Vice President, Supply Chain

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3 M STRATEGIC AUDIT

Michael A. Kelly, Executive Vice President, Electronics and Energy Business Group Frank R. Little, Executive Vice President, Safety and Graphics Business Group Marlene M. McGrath, Senior Vice President, Human Resources David W. Meline, Senior Vice President and Chief Financial Officer Frederick J. Palensky , Executive Vice President, Research and Development and Chief

Technology Officer Michael F. Roman, Senior Vice President, Business Development Brad T. Sauer Executive Vice President, Industrial Business Group H.C. (Hak Cheol) Shin , Executive Vice President, International Operations Jesse G. Singh, Senior Vice President, Marketing and Sales Michael G. Vale, Executive Vice President, Consumer Business Group James L. Bauman, Senior Vice President, Asia Pacific Patrick Deconinck , Senior Vice President, West Europe Nicholas C. Gangestad, Vice President, Corporate Controller and Chief Accounting Officer Scott D. Krohn, Vice President and Treasurer Gregg M. Larson, Vice President, Deputy General Counsel and Corporate Secretary David G. Werpy, Vice President and General Auditor James M. Zappa, Vice President, Associate General Counsel and Chief Compliance Officer Russell Campanello, Senior VP Human Resources Alison Dean, Executive VP, CFO Treasurer Dr. Paolo Pirjanian, Chief Technology Officer

III. EXTERNAL ENVIRONMENT – COMPETITION (EFAS TABLE: SEE EXHIBIT 1)

A. Natural Environment

High barriers to entry. Extreme competition on a global scale in all market segments. Heavily invested in international markets. Manufacturing investments in 70 countries. Product Sales in 200+ countries.14 Highly competitive external environment. Domestic problems with class action lawsuits of product recalls. Growing pains of newly acquired companies (acquisitions)15 Emerging technologies like 3D printing are can make “high” barriers to entry a thing

of the past.

B. Societal Environment

1. Economic : a. 3M’s participation in the over 70 global markets makes it especially

susceptible to the global economies volatility. (T)16

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3 M STRATEGIC AUDIT

b. 3M’s participation in 70+ global markets gives 3M a larger customer reach. (O)14

c. Trade and manufacturing operations are susceptible to the instabilities of the developing world. (T)14

d. Currency exchanges and Market prices make prices and profit margins volatile in exports of finished goods and imports of raw materials. (T)17

e. 3M is susceptible to tariff and international trade transaction fees. (T) f. 3M’s localized raw materials supply chain minimizes costs (O) g. 3M’s talent source is comprised of a large diverse word population. (O)18

2. Technological

a. 46 Technology Platforms. (O)19 b. Nanotechnology: including use in professional bike frames (O) c. Designed solar lamps with special reflective film to help families in third world

countries. (O) d. Architectural glass panels: used for buildings in high altitudes, can withstand

more than 60 degrees Celsius while offering stunning views of landscape (O) e. Innovative ways of disposing old technology (O) f. Specific adhesives give architects the ability to turn heavy metal into light,

free-flowing forms (O) g. Block-buster – indium tin oxide film for use in all touch enabled technology.

(O)20 h. Time model – extremely competitive (T) i. Volatile – extremely high competition for innovative products (T) j. Non successful products can spell high losses in time and money (T)

3. Political & Legal

a. 3M is currently named as a defendant in over 2,260 individual class action claims. (T)

b. The majority of these claims are related to the damages respirator masks and poor safety in 3M manufacturing facilities (asbestos). (T)

c. Payments for past litigation cases just in mask/respirator damages have amounted to $47 Million Dollars – in 2013 these payments rose to $127 Million Dollars. (T)21

d. IP and Patent of 3M technologies. (O) e. 3M industry leader in technology means a chance for being used as a

“precedence setter” and makes 3M a high target. (T) f. The United States has free trade agreements in force with 20 countries. These

are: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico Morocco, Nicaragua, Oman, Panama, Peru, Singapore. (O)22

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3 M STRATEGIC AUDIT

g. The United States is also in negotiations of a regional, Asia-Pacific trade agreement, known as the Trans-Pacific Partnership (TPP) Agreement with the objective of shaping a high-standard, broad-based regional pact. (O)22

h. Navigating the political arena in different countries can be time consuming and taxing. (T)23

4. Sociocultural a. Automotive: (opportunity)

1. Growing global automotive manufacturing market could drive the demand for products; countries like China and India are growing and are looking for automotive innovation.

2. Has grown in value and volume 3. Expected to grow at a moderate to strong rate till 2017 despite a

slowdown in 2011 and 2012. 4. Expected to have a value of $1,831.3 billion in 2014, and increase of

8.9% over 201324 b. Global Renewable Energy Market: (opportunity)

1. With the current trend of consumers and businesses interested in preservation of natural resources in recent years, the global renewable energy market is experiencing good growth.

2. According to MarketLine, the renewable energy market will continue its good growth and is expected to have a value of $632.8 billion by the end of 2017 (increase of 20% over 2014)25

c. 3M’s renewable energy segment offers a robust portfolio of new and existing products including

C. Task Environment

1. Focus on R&D- This is the company’s competitive advantage. (O) 2. Core competence – Innovation (O) 3. Financial Performance (O) 4. Liquidity Position (O) 5. New product launches (O) 6. Strategic Contracts (O) 7. Acquisitions (O) 8. Intense Competition – (T) 9. Threat of substitutes is high (T) 10. Government Regulation and Public policy (T)

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IV. INTERNAL ENVIRONMENT (EFAS TABLE; SEE EXHIBIT 2)

A. Corporate Structure

1. Organic Structure: Almost 100 profit centers with each division managed separately. (S)26

2. Self-Directed Work Teams: Employees are in charge of the managing and decision making process on top of their duties on the job. 27

3. Separation of Industries in five Business Segments.

B. Corporate Culture

1. Culture of Innovation: Commitment to provide solutions to life’s everyday problems through innovative products, services, and technology. (S)

2. McKnight Principles: the Company’s corporate culture is based on the chairman William L. McKnight’s philosophy, “delegate responsibility and encourage men and women to exercise their initiative”. The process of initiation and trial and error is what builds the cultivation of a product. (S)28

3. 3M New Acquisitions: Collaborating and acquiring companies that share the same vision of innovating. (S)

4. Acquisitions carry “growing pains” associated with the indoctrination of the corporate culture (W)

C. Corporate resources

1. Business segments:

a. Consumer & Office, Electronics & Energy , Health Care , Industrial & Transportation, Safety, Security, Personal Protection and Displays and Graphics (S)

b. Six Sigma in every business sector and process (S)(W)

c. Electronics and Energy Segment is underperforming from, there is a decrease of 2011-2013 $339 Million in sales.29

d. Sales & Operating Income (O) - (chart continued on next page)29

NET SALES OPERATING INCOME

(Millions) 2011 2012 2013 2011 2012 2013

Industrial 10584 9943 9629 2296 2236 1983 Safety and Graphics 5657 5471 5458 1239 1217 1237 Electronics and Energy 5393 5458 5732 954 1026 1140

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Health Care 5334 5138 5011 1672 1641 1484 Consumer 4435 4386 4230 945 943 855 Corporate and Unallocated 8 4 9 -322 -471 -420

Elimination of Dual Credit -540 -496 -458 -118 -109 -101

Total Company 30871 29904 29611 6666 6483 6178

D. Marketing

1. Strong brand identity (S) 2. Decrease of $86 Million in Advertising budget from 2011-2013 .(W)29

E. Finance

1. The company’s current ratio is 1.7, which shows us that the company is capable of paying off current liabilities using short term assets. (S) 29

2. Highly Liquidity Ratio(S) 29 3. Highly capable of paying off all their debt (S) 29 4. Most of the equity in the firm is financed internally. (S) 29 5. Company’s stock buyback program (S)30 6. Unfunded pension plan $666 Million. (W)30 7. Large class action lawsuits – 2600 claims (W)31

F. R&D

a. Talent Capacity in R&D- 8500 Employees (S)32

b. IP and Patents – 3000+ Patents current. (S)

c. Competitive advantage in R&D expenditures $1.715 Billion (S)33

V. ANALYSIS OF STRATEGIC FACTORS

A. Situational Analysis (SWOT) (SFAS Matrix; see Exhibit 3)

Strengths 1. R&D department highly regarded and capable. 2. Human resources strategies 3. New Product development. 4. Revenue steady growth from 2011-201334 5. Use of Six Sigma in the manufacturing and repetitive business Processes.

Weakness

1. Inorganic Growth 2. Six Sigma in the early Innovation process 3. Involved in class action law suits regarding consumer safety and recalls.

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4. Competing with large conglomerates (in comparison to 3M size) 5. Product recalls 6. Safety in manufacturing

Opportunities

1. New product launches which are market changers. Indium Oxide film. 2. Free trade agreements in emerging markets. 3. Introduction to New markets – for example: architectural market. 4. Acquisition of specific company in line with 3M mission.

Threats

1. Volatility of global economy 2. Instability of developing countries where 3M manufactures. 3. High competition is increasing and ever changing in the innovation technology

market. 4. Rapid technological changes. 5. Economic Markets volatility

B. Review of Current Mission and Objectives

As a company that is focused on innovation 3M is constantly racing against competition to

release the latest greatest product. There are a few major issues that 3M is dealing with

however; the major burning issue that 3M is facing is the constant need to renew its push for

innovation. This may not have been the case for other companies similar to 3M however;

because 3M is so innovation focused they live and die by their ability to produce new

innovative products. 3M uses a R&D strategy or a strategy that deals with product and process

innovation and improvement, a strategy that selects the proper mix of basic, product or process

innovation and how new technology should be made available. 35 3M prefers to be the

technological leader or company that is pioneering innovation however because they are so

diversified in their product lines sometimes they are technological followers, or companies that

imitate the technological leader.36 Strategy is truly dynamic for 3M because they are in such a

high intensity fast paced race with other competitors such as Johnson and Johnson that if a

small company releases an innovative product it may cause a bidding war between these two

global giants. 3M would have to change their R&D strategy to focus on something else because

they would have been bested by a smaller firm. At this point the corporation would have two

choices for that particular situation:

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1. They would need to focus R&D to continue pursuit of a product that would place them

as a technological follower. The negative effect of this would be that they are going to

make fewer profits on that product or they may make no profits at all. The positive of

this would be that they can focus R&D elsewhere and no longer dedicate as much

resources to that particular product.

2. The second option that 3M could have is to try to use a financial strategy to possible

purchase the company. 3M like GE is known for buying other companies for a strategic

gain. Financial strategy examines the financial implications of corporate and business-

level strategic options and identifies the best financial course of action.37

The two functional areas of 3M that are very closely related to how they deal with their

burning issue are R&D strategy and financial strategy:

1. On R&D strategy 3M’s main goal as mentioned is to strive to be a technological leader as

much as possible. To achieve this on a reoccurring basis is extremely difficult and

requires immense amounts of dedication and resources. “Management that is

destructively critical when mistakes are made kills initiative. And it’s essential that we

have many people with initiative if we are to continue to grow.”38 3M must strive to

continually employ leading innovators this means having a top notch human resource

department with a well thought out selection process and compensation strategy that

rewards innovation. Among those mentioned you also need commitment from

leadership to reach the goal of continually being a tech leader. The CEO of 3M Inge

Thulin recently announced that he would increase the yearly budget for R&D by 1% of

revenue which comes out to an additional 1 billion dollars per year. Essentially the goal

for 2014 of this function is to continue to innovate and push towards being a tech leader

in every segment they compete in. Reaching this goal is a never ending battle. A

continuous implementation of a needed resource budget as well as a continuous

investment into the human resource function. The strategy that 3M uses as a company

is innovation centered. A business strategy that is based on innovation is in fact a

human resource strategy. With that being said 3M should continue to not only groom

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and promote a culture of superior R&D but they should continue to do the same for

their HR department. A leading human resource department is the recipe to a successful

R&D team.

2. Regarding financial strategy 3M must continue to be vigilant. The goal of this function is

to ensure that each company 3M owns continues to stay profitable. If a segment has a

business that is not performing to an acceptable standard it should be dealt with. “The

most challenged group of businesses are under "strategic review," and will either be

fixed, combined or exited, Thulin said.”39 As the CEO states monitoring of financial

performance will help decide strategically what to do with each challenged business.

Corporate 3M must adequately staff a talented workforce that can monitor each

segment effectively. The measures for this function are privileged this type of

information should be kept private. The reason for the needed secrecy is that standards

set and strategies planned for the future of companies would be extremely valuable to

competition as it would give them the ability to plan tactics that would possibly hinder

successful completion of this financial function. Ideally the performance of the stock of

the company would determine how well this function is being carried out. The better

the stock is doing directly correlates to how well this company is performing.

To conclude the effective implementation of an HR strategy that promotes high quality R&D

consistently combined with the effective management of financial strategies will help to solve

the major issues of continuing innovation at 3M.

VI. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY

A. Strategic Alternatives

The strategic alternatives we suggest for 3M are found in the following balanced score card analysis- We believe these to be relevant as they address key areas 3M needs to address to be successful.

1. CONSUMER: Being one of the industry leaders plays a key factor in consumer preferences.

Objective: Move into second place in consumer electronics.

Measure: Market share analysis.

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Target: Increase market share by 6%

Initiative: Aggressively marketing new electronics. Specifically indium tin oxide film

for use in all touch enabled technology.

Consumer perception is an important goal for the company and being able to be

recognized as a positive company will be key factor in gaining consumer confidence.

Objective: Strengthen Media Relations.

Measure: Number of positive vs. negative news headlines in a 3 month period

Targets: 30% increase in headlines, 30% increase in philanthropy.

Initiative: Marketing campaign and philanthropy in the affected product recall 3M

sectors.

3M customer satisfaction is important to help build brand loyalty and improve the

perception of quality of its products.

Objective: Improve customer satisfaction of products.

Measure: Observe the increase or decrease in the amount of recalls.

Target: 10% decrease in the number of recalls.

Initiative: R&D efforts to improve defective products, such as Filtrete Room Air.

3M Customer Service Excellence Initiative could help support the company’s mission

of making life better. One of the major goals of 3M is to make business and

household life better through innovation. They can help make this process more

memorable for customers by increasing the likableness of their employees through

an initiative.

Objectives: Train employees to better communicate with customers, both business

and households

Measure: Introduce training courses to help practice better communication

Target: Employees that interact with customers be certified through this training

course

Initiative: 3M Customer Service Excellence Initiative

2. FINANCIAL

To support the idea of organic growth, the company must grow internally. To accomplish

this 3M needs to increase the capabilities of its research and development.

Objective: Increased R&D capability.

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Measure: Increase R&D workforce and facilities by 20%

Target: Increased R&D budget by 1% of sales

Initiative: Increase R&D budget.

Since 3M is heavily invested in different business segments it is important for them as a

company to minimize supply costs.

Objective: Cost minimization through Six Sigma in the supply line.

Measure: Increased ROI measured with growth

Target: 5% cost minimization in the supply line

Initiative: Minimizing costs in logistics and procurement through localization efforts.

Reducing costs internally will be a key component to helping 3M with its need for organic

growth

Objective: Cost minimization through organic growth.

Measure: Increased ROIC (Return on invested capital) and growth.

Target: 10% cost minimization by acquiring less.

Initiative: Increased ROIC through core competencies and minimizing acquisitions.

3M will place companies that do not meet a return of 5% under review. If there is no

tactical purpose to the company and 3M is unable to develop a plan to fix the lack of

return, the company should be sold.

Objective: Increase profits of 3M subsidiaries

Measure: Meeting a 5% return within plan

Target: Have 100% of 3M subsidiaries participating this this process

Initiative: 3M Profit Management Initiative

3. LEARNING AND GROWTH

Avoiding unnecessary errors can help the company reduce costs, specifically in

emerging markets.

Objective: Better understand emerging markets.

Measure: Reduction of transaction costs associated with emerging markets by 10%.

Target: Mitigate liability in emerging markets.

Initiative: Acquire specialized consultants for each market.

Objective: Increased growth of ideas and innovation

Measure: The increased number of ideas or innovations making it to the mass

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production process where Six Sigma can be implemented

Target: A 10% increase in the number of ideas vetted for mass production

Initiative: Removal of Six Sigma in the early innovation process.

Originally, innovation was the foundation of success for 3M, but adopting business

processes such as Six Sigma has steered it into a path of less innovation and more

acquisition.

Objective: Create innovative ideas

Measure: Look at the number of successful patents

Target: A 5% increase in the number of innovative ideas for production.

Initiative: Increase incentives for employees through bonuses, stock options, or

percentage of proceeds.

Learning and Growth is very important to the customer as much as it is to the

employee. Having a skilled workforce that is able to continually better themselves

will in return on average better the experiences of customers and overall

performance of the company. An Initiative that helps develop employees along their

career path will be beneficial to 3M. Specifically for management a mentor program

could be introduced that would pair higher ranking managers with lower ranking

potential managers for mentoring purposes.

Objective: Identify the potential candidates for higher ranking managers positions

and match them with a mentor to help them progress. This will provide a more

trained workforce.

Measure: Overall company performance

Target: Companywide program in all departments

Initiative: 3M Mentor Initiative

4. BUSSINESS PROCESS

Six Sigma has brought the company a vast amount of success, but the Six Sigma

process hinders innovation in the early stages.

Objective: Increase innovation capability in R&D

Measure: Increase in product launches by 10%

Target: Increase products that make it to manufacturing by 10%

Initiative: Remove Six Sigma from early innovation processes.

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Objective: Increase consistency, decrease flaws in product manufacture and design

Measure: decrease in the number of recalls

Target: 0 recalls in 2014-2015

Initiative: Quality Control efforts increased through the use of training and a re-

examination of design, manufacturing and controls.

The Internal business is needed to implement dynamic strategy. If a company is able

to have an internal business process initiative that helps employees alter processes

quicker to meet changing demand strategic positives will arise.

Objective: Implement a management process that allows managers to change their

processes if needed to create quicker customer solutions. This would help support

the customer solutions initiative and create a better overall experience for

customers.

Measure: Provide managers with an action plan that would clearly define the options

they have in situations where customers could be benefited from changes in

company procedure

Target: Have all managers that meet the criteria be able to exercise this option 100%

Initiative: Dynamic Internal Manager Initiative

Objective: Improve accounts receivable process

Measure: Decrease in deficient payments

Target: 3M Co.’s receivables turnover deteriorated from 2011 to 2012 and from 2012

to 2013

Initiative: Tighten Cred terms to increase turnover rate.

B. Recommended Strategy

1. FINANCE: To support the idea of organic growth, the company must grow internally. To

accomplish this 3M needs to increase the capabilities of its research and development.

Objective: Increased R&D capability.

Measure: Increase R&D workforce and facilities by 20%

Target: Increased R&D budget by 1% of sales

Initiative: Increase R&D budget.

2. BUSINESS PROCESS: Six Sigma has brought the company a vast amount of success, but

the Six Sigma process hinders innovation in the early stages.

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Objective: Increase innovation capability in R&D

Measure: Increase in product launches by 10%

Target: Increase products that make it to manufacturing by 10%

Initiative: Remove Six Sigma from early innovation processes.

3. CONSUMER: Being one of the industry leaders plays a key factor in consumer

preferences.

Objective: Move into second place in consumer electronics.

Measure: Market share analysis.

Target: Increase market share by 6%

Initiative: Aggressively marketing new electronics. Specifically indium tin oxide film for

use in all touch enabled technology.

4. LEARNING AND GROWTH: Avoiding unnecessary errors can help the company reduce

costs, specifically in emerging markets.

Objective: Better understand emerging markets.

Measure: Reduction of transaction costs associated with emerging markets by 10%.

Target: Mitigate liability in emerging markets.

Initiative: Acquire specialized consultants for each market.

5. LEGAL: 3M is currently Involved 2600 lawsuits.

Objective: Legal must set plan to settle lawsuits in small increments.

Target: The Legal division and the CEO must set a settlement plan for these lawsuits to

include a non-disclosure agreement on all compensation damage packages.

Measure: 10% minimal decrease in open claims.

VII. IMPLEMENTATION

A. BUSINESS PROCESS: Six Sigma possibly hindering R&D business processes. Implementation is to Remove Six Sigma in early innovation processes. This initiative needs to be headed by the Head of R&D Department, and approved by the CEO

B. FINANCE: Increase R&D capability, Implementation of the R&D Budget needs to come from Head Cost Accountant, approved by the Board, and CFO

C. LEARNING AND GROWTH: New emerging markets, to better understand emerging markets. HR needs to hire company economic analysts to better navigate the global marketplace. The HR and CFO must work congruently to accomplish this goal.

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D. CONSUMER: Global Positioning – to increase consumer demand and Move into 2nd place in Consumer Electronics and Energy. The Marketing department and Lead company strategist must market efforts to promote the ilium oxide film for use in all touch devices.

E. LEGAL: 3M is currently Involved 2600 lawsuits. Legal must set plan to settle lawsuits in small increments. The Legal division and the CEO must set a settlement plan for these lawsuits to include a non-disclosure agreement on all compensation damage packages.

VIII. EVALUATION AND CONTROL

A. Audits to determine if the plans have been implemented successfully.

1. Recommended methods of valuation:

BUSINESS PROCESS: To evaluate the removal of six sigma in innovation we must see an increase products that make it to manufacturing by 10% and an increase in product launches by 10

FINANCE: the target is to increase R&D budget by 1% of sales, measured by Increase R&D workforce and facilities by 20%

LEARNING AND GROWTH: To mitigate liability in emerging markets, the target is a Reduction of transaction costs associated with emerging markets by 10%

CONSUMER: Our target of evaluation is to increase market share by 6% brining the Electronics and Energy sector to 2nd place in the industry.

LEGAL: 3M is currently Involved 2600 lawsuits. Evaluation of settlements will be the total number of lawsuits settled with non-disclosure agreements as part of the compensation damage plan. 10% decrease in all open cases is the measure of evaluation.

IX. PORTER’S FIVE FORCES

1. POTENTIAL ENTRANTS (Threat Of New Entrants) Level: Low ● Huge investment in research and development signifies the company’s brand as

the front-runner against competition by developing new products/services as well as improving their existing portfolio.

● Economies of Scale: Operating in various regions such as the United States, Europe, and Africa, 3M products are produced in a large scale. As a global multi-industrial firm, competitive advantage comes from knowing which country or region to market their product and service. Researching what a certain country needs improvement in, 3M will analyze and find solutions and provide technology

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and services to those who are in need. This coincides with their vision to improve people’s lives through their work.

● Product Differentiation: 3M’s innovative products create high barriers of entry for competitors entering a specific market to compete in. 3M meets their customers’ needs as well as provide unique qualities that are difficult for competitors to replicate and attract customers with products of their own. Products such as 3M’s waterproof sandpaper and integrated dose counter are one of many examples that provide differentiation in their portfolio.

● Access to distribution channels: 3M products are available all across the board, through retail, wholesale, and distributors both nationally and internationally. Having various channels for products gives competitive advantage knowing their brand is well known and available almost everywhere.

● Cost disadvantages independent of size: When 3M introduced Post-It notes in 1980, the product exemplified the way people communicated and organized their schedules and daily tasks. Post-It notes created a standard for that specific product. Pioneering a certain product creates step ladders for competitors to innovate, which will pay homage to the 3M brand and thus increase 3M’s recognition.

● Government policy: Patents create protection and barriers of entry for other industries to use a product or service. 3M patents for products such as lithium ion battery nickel-manganese-cobalt cathode technology create value for the firm to innovate and create value with their products. Patents create protection and barriers of entry for other industries to use a product or service

2. BUYERS (Bargaining Power Of Buyers) Level: Moderate ● Customer Demand: Customers continuously asking for better quality and service,

3M must always meet the needs and preferences of customers to avoid losing them in the long run to competitors.

● Buying in bulk: Buying 3M products in bulk can force the company the cut the price. 3M will be losing money, but negotiating will cut losses and networking creates lasting relationships.

● Hard to replicate products: Although specific products are expensive, it is rare for companies to replicate what 3M can do, whether it is their Post-It notes or

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adhesives. Getting the quality customers deserve when other companies cannot match up with them will result to buying 3M products. Buying power is restricted when 3M pioneers and innovates so well against other competitors. Patents and Intellectual property rights are a large part of this sector.

● Product Recalls: Due to the number of product recalls in terms of 3M’s safety wires, it results to untrustworthiness in terms of quality when defects are found. One mistake such as this will lead customers to find another company with a similar product that is functional and not defective.

3. SUPPLIERS (Bargaining Power of Suppliers) Level: Low/Moderate ● On a global scale, 3M has many suppliers available to purchase the resources they

need to manufacture their products. Suppliers know the company’s reputation of products that they make. Having a solid network with them means profit in both sides due to the large quantity of resources that 3M requires for their products.

● The company depends on various components, compounds, raw materials, and energy to operate efficiently. Increased demand, interruptions/shortages in supply, natural disasters, etc can result in more bargaining power for suppliers.

4. OTHER STAKEHOLDERS - (Relative Power of Unions, Governments, Special Interest Groups Etc.) Level: Moderate/High

● Staying on track with government regulations and laws in both national and international borders is a key necessity in order for financial results to improve.

● Lawsuits: Allegations such as 3M’s respirator products can lead to bad reputation and losses in all levels of the company. Quality control as well as numerous product tests is imperative to prevent any defects and future litigations. There are currently 2600 open claims against 3M.

● Philanthropic Programs: 3Mgives is a philanthropic program that gives back to the community and provides a stepping stone for the future generation. Creating the STEM curriculum increases awareness of these industries (Science, Technology, Engineering, and Math) to students who have no direction towards a career.

● Acquisition: 3M New Ventures is a collaboration mission for the company who plan to stay true to their vision of continuous growth and improvement. Collaborating and acquiring companies can help brainstorm and create the next

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best product and service which will benefit both companies in both spectrums.

5. SUBSTITUTES (Threat of Substitute Products and Services) Level: Moderate ● Private label brands are being offered in retail stores that affects customers

buying 3M products. The large number of substitutes gives customers many options to choose from and may often choose the product with the lowest price.

● 3M’s research and development brings additional value to their differentiated products that creates brand loyalty. The quality 3M brings in their products will not lure customers to other substitutes that are available.

● Brand Loyalty: 3M is continuously re-designs and improves products in hopes of gaining new customers and keeping its current customers from opting for substitutes. The Quality of products constantly available through 3M make brand recognition keep customers from engaging in heavy substitutions.

● Substitute Products: While innovation is 3M’s game for competitive advantage, innovative products require complex analysis which results in expensive products. For customers and companies on a budget and that are cost conscious, there are various products that can customers can buy as a substitute. For example, with 3M’s Bluetooth stethoscope which currently costs over $300, companies would find it imperative to buy the same product without the Bluetooth technology for a lower price.

● Continuous improvement: 3M always keeps an open ear for customers who give them informative feedback. Feedback gives the company results to how they can improve their products and services. Valuing their customers provides a connection with the community that gives a good name to the brand. Hosting Idea lounges provides customers that opportunity, as well as contacting them through various sources of communication.

6. INDUSTRY COMPETITORS (Rivalry Among Existing Firms) Level: Extremely High ● Being in a vast number of industries creates a high level of rivalry. Actively

operating in over 70 countries worldwide, 3M fights to have the bigger stick in this increasingly competitive global economy against competitors such as Johnson & Johnson, Bostik, Inc., and Sika AG.

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● The company is defensive when it comes to price wars against competitors in order to maintain their customers and attract new ones. Continuous growth is the key in order to keep up in the market.

● With the company having two-thirds of its revenue outside of the United States, projecting the rate of industry growth can be a factor if the U.S. dollar goes up significantly against foreign currencies. Global competitors who are receiving more than two-thirds of its revenue in the United States can gain the upper hand against 3M.

● The company must be aware of competitive conditions and customer preferences in order to stay ahead of industry rivals. Being a part of five different industries, the company must constantly innovate new products to stay competitive, they must respond to changes in price, and adapt to changes in customer behavior (order patterns, preferences, inventory levels required).

● With an increasing population with people of the age of 65 and above, 3M could see more competition in the healthcare industry. If the company does not find ways to stay competitive with the increase in demand, then companies such as Johnson & Johnson can take more of 3M’s market share.

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X. BALANCE SCORE CARD : MOST RELEVANT ISSUES

CONSUMER

OBJECTIVE: Move into 2nd place in consumer electronicsTARGET: Increase market share by 6%MEASURE: Market share analysisINITIATIVE: Aggressively marketing new electronics. Specifically indium tin oxide film for use in all touch enabled technology.

3MMISSION & VISION

INTERNAL BUSINESS PROCESSES

Objective: Increase innovation capability in R&D Initiative: Remove Six Sigma from early innovation processes Target: Increase products that make it to manufacturing by 10% Measure: Increase in product launches by 10%

FINANCIAL

OBJECTIVE: Increase R&D capability INCENTIVE: Increase R&D budget TARGET: Increase R&D budget by 1% of sales MEASURE: Increase R&D workforce and facilities by 20%

LEARNING AND GROWTH

OBJECTIVE: Better understand emerging markets INITIATIVE: Acquire specialized consultants for each market TARGET: Mitigate liability in emerging markets MEASURE: Reduction of transaction costs associated with emerging markets by 10%

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XI. FINANCIAL CHARTS: MOST RELEVANT FOR ANALYSIS

This graph displays the constant increase in total Revenues for the past three

Fiscal years. There has been an increase of $1.26 billion.

This Chart displays the gross margin for the past three fiscal years, 2011- 2013. Gross margin is calculated by subtracting Cost of goods sold from Revenue.

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This Pie Chart displays the 2013 total Revenue of $30.871Billion broken up by individual Segments.

The Column chart above shows the constant decrease in revenues for the past three fiscal years for the 3M's Electronic and Energy business Segment.

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The Exhibit above shows 2013 total expenses broken up into individual accounts therefore showing the

percentage that the individual expense accounts for.

The column chart abouve dispalys 3M's decrease in advertising cost over the Past three fiscal years, 2011- 3013.

3M Expenses (Millions of dollars) 2013 Fiscal Year

Selling, general andadministrative expenses

Research, development andrelated expenses

Interest expense

Total interest expense - net

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XII. EFAS EXHIBITS 1 – 6

EXHIBIT 1 EFAS EXTERNAL Table for 3M Corp. 2014 EXTERNAL FACTOR

ANALYSIS SUMMARY WEIGHT RATING WEIGHTED SCORE COMMENT

OPPORTUNITIES Ability to acquire companies that provide an advantage

10% 4 .4 Collaborating with companies with the same vision helps improve the people’s daily lives.

Patents 5% 3 .15 Owning 3,300 patents are what contributes to the company’s global sales through products, services, and technology.

New Markets 5% 4 .2 3M is on the watch for uncharted markets that will benefit the company’s economic standpoint.

Product Sales in 200+ Countries 10% 3 .3 Product sales excels internationally bringing a farther outreach to

consumers across the globe. Global Positioning 20% 4 .8 Operating in over 70 countries brings the company’s brand image

on a global scale. THREATS

Johnson & Johnson 20% 3 .6 Johnson & Johnson is their top competitor especially in the medical and health industry.

Global Government Regulations 10% 3 .3 The company must adhere to the plethora of regulations both in the

U.S. and in international countries.

Global Economy 10% 3 .3 One disaster can deter 3M’s international sales especially since they make 64% of their sales outside of the U.S...

Low Individual Markets Segment Barrier to Entry 5% 3 .15 Already part of 5 industries, there is little room to improve in

regards to innovating and entering economically feasible markets.

Talent Acquisition 5% 3 .15 The perks and benefits of being in the 3M company will be taken in consideration for future employees applying.

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EXHIBIT 2 IFAS INTERNAL Table for 3M Corp. 2014

INTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE COMMENT

STRENGTHS Increase in Revenue 5% 3 .15 Increased from $29.9 billion to $30.8 billion in sales.

Financial Position 5% 3 .15 Debt to asset ratio is under 0.5 meaning a majority of their assets

are financed through equity.

Global Position 10% 3 .3 Products are sold in nearly 200 countries given a farther reach to more consumers.

Strong R&D 20% 5 1 Consistently increasing investment in R&D which allows them to improve innovation which is their competitive advantage.

Six Sigma Implemented well in none R&D Business Processes

10% 4 .4 Six Sigma program increases efficiency and decrease cost in their supply line.

WEAKNESSES Six Sigma possibly hindering R&D business processes

20% 5 1 Six Sigma is not known to benefit for creative activities. The company is known through innovating and this can deter organic growth of the company.

Unfunded pensions and post-retirement benefit obligations

10% 3 .3 Pension plans were closed for new participants for the company to promote sustainability and future retirement plans in the long-term.

Product Recalls 5% 2 .1 Recalls on safety harnesses and air purifiers due to safety hazards.

Involved 2600 lawsuits 5% 2 .1 Class action lawsuits can hurt brand image.

Manufacturing Process 5% 1 .005 Product testing must increase to prevent future product defects and recalls.

TOTALS 100% 3.505

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EXHIBIT 3 SFAS Matrix for 3M Corp. 2014 Strategic Factors Weight Rating Weighted

Score Duration Short

Duration Int.

Duration Long

Comments

S4 Strong R&D (S) .20 5.0 1 X Company’s competitive advantage

W1 Six Sigma possibly hindering R&D business processes (W)

.20 5.0 1 X Restricts Organic Growth

W4 Involved 2600 lawsuits (W) .05 2.0 .1 X Class Action Lawsuits

O3 New Markets (O) .05 4.0 .2 X Opportunity for increase in profit

05 Global Positioning (O) .20 4.0 .8 X Brand recognition across the globe

T1 Johnson & Johnson (T) .20 3.0 .6 X Top competitor T3 Global Economy (T) .10 3.0 .3 X Volatile environment

Totals 1.00 4.0

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EXHIBIT 4 2013 2012 2011 RATIO ANALYSIS FOR THE 3M CORP.

Liquidity Ratio Current ratio 1.7

2.2

2.2

Quick Ratio 1.2

1.6

1.6

2. Leverage Ratios Debt to Asset 47%

47%

50%

Debt to Equity 87%

88%

99%

3. Activity Ratios Inventory turnover- Sales 7.99

7.79

8.67

Inventory turnover-Cost of sales 4.17

4.09

4.59 Avg. Collection Period-days 50.28

49.57

44.56

Fixed Asset Turnover 3.57

3.57

3.86 Total Assets Turnover .92

.88

.94

4. Profitability Ratios Gross Profit Margin 47.83%

47.55%

47%

Net Operating Margin 15.09%

14.86%

14.46% Return on total Assets 92%

88%

94%

Return on equity 25.96%

24.76%

27%

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Exhibit 52013 2012 2011

Common Size Income Statement

Net sales100.00% 100.00% 100.00%

3M Corp Cost of sales 52.17% 52.45% 53.00%2013-2011 Gross Margin 47.83% 47.55% 47.00%

Selling, general and administrative expenses 20.68% 20.41% 20.84%Research, development and related expenses 5.56% 5.46% 5.30%Total operating expenses 78.41% 78.32% 79.14%Operating income 21.59% 21.68% 20.86%Interest expense and incomeInterest expense 0.47% 0.57% 0.63%Interest income -0.13% -0.13% -0.13%Total interest expense - net 0.34% 0.44% 0.50%Income before income taxes 21.26% 21.24% 20.37%Provision for income taxes 5.96% 6.15% 5.65%Net income including noncontrolling interest 15.29% 15.08% 14.71%Less: Net income attributable to noncontrolling interest 0.20% 0.22% 0.25%Net income attributable to 3M 15.09% 14.86% 14.46%

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EXHIBIT 6 Implementation, Evaluation, & Control Plan for 3M Corp. 2014

STRATEGIC FACTORS ACTION PLAN PRIORITY SYTEM (1-5)

WHO WILL IMPLEMENT

WHO WILL REVIEW

HOW OFTEN CRITERIA USED

Strong R&D Increase R&D capability 3 Head Cost Accountant CFO Semi-

annually Increase R&D workforce and facilities by 20%

Six Sigma possibly hindering R&D business processes

Remove Six Sigma in early innovation processes

1 Head of R&D Department CEO Quarterly Increase in product

launches by 10%

Involved 2600 lawsuits

Set plan to settle lawsuits in small increments

1 Legal division CEO Monthly Settle a set number of lawsuits per month.

New Markets Better understand emerging markets 3 Lead company

strategist CFO Quarterly Reduction of transaction cost associated with emerging markets by 10%

Global Positioning Move into 2nd place in Electronics and Energy

2 Lead company strategist CFO Quarterly

Analysis in the market share per country operations

Johnson & Johnson

Continuously innovate based on consumer trends and competitive products and technology

5 Division manager of the Health Care and Consumer industry

CEO Monthly Up to date analysis on their top competitor

Global Economy Increase R&D Budget 4 Head Accountant CFO Semi-annually

Increase R&D budget by 1%

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Works Cited 3M. (2012). 3M Sustainability Report. 3M.

3M. (2012). Lean Six Sigma: A Critical Value Driver for 3M. Saint Paul, MN: 3M.

3M. (2013). 3M Affirms Long-Term Sales and Earnings Growth Objectives, Addresses 2014 Outlook. Saint Paul, MN: 3M Press Release .

3M. (2014). 3M - Company Information. Retrieved from HIstory: http://solutions.3m.com/wps/portal/3M/en_US/3M-Company/Information/Resources/History/

3M. (2014, 02 12). 3M Company Information - Corporate Profile - Awards. Retrieved from 3M: http://solutions.3m.com/wps/portal/3M/en_US/3M-Company/Information/Profile/Awards/

3M Company. (2014). 3M Corporate Governeance - 3M Political Activities and Issue Advocacy. Saint Paul: 3M.

Adair, J. (2007). Leadership for innovation: How to organize team creativity and harvest ideas. . London: Kogan Page.

Baird, R. (n.d.). The Four Components of a Fast-paced Organization: Going beyond Lean Sigma Tools.

Beinhocker, E. (2006). The Adaptable Corporation. McKinsey Quartely, 77-87.

BlueFin Solutions. (2014). Retrieved from BlueFin Solutions Most Innovative Company Index: http://www.bluefinsolutions.com/About-us/News-and-Media/Nike-is-the-most-innovative-company-according-to/

Cal-OSCHA Reporter. (210, 01 04). cal-osha.com. Retrieved from An Important Note on State Respirator Recall: http://www.cal-osha.com/An-Important-Note-on-State-Respirator-Recall.aspx

Finance, G. (n.d.). Google Finance - 3M. Retrieved 04 12, 2014, from Google Finance -: https://www.google.com/finance?cid=24599

GlobalData. (2014). 3M Company (MMM) Financial and Strategic SWOT Analysis Review. London: GlobalData. Retrieved from www.globalcompanyintelligence.com

HBR 10 Must Reads: On Change Management. (2012). Harvard Business Review Publishing.

HBR's 10 Must Reads: On Leadership. (2011). Boston, MA: Harvard Business School Publishing Corp.

HBR's 10 Must Reads: On Strategy. (2011). Boston, MA: Harvard Business School Publishing Corp.

HBR's 10 Must Reads: The Essentials. (2011). Boston, MA: Harvard Business School Publishing.

Hernandez, S. (n.d.). Self Calculation through SEC Financial Report 2014 10K. Fullerton.

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Hoover's a D&B Co. (2014). 3M -Hoover's Company Records - In-depth Records. St. Paul, MN: Hoover's A D&B Co.

Hoover's A D&B Company. (2014). Hoover's Company Records - In Depth Records 3M Company. Hoover's Inc.

Huang, R. (2013, 03 14). Six Sigma 'killed' innovation in 3M. Retrieved from ZDnet.com: http://www.zdnet.com/six-sigma-killed-innovation-in-3m-7000012593/

Jasso, D. (n.d.).

Jones, K. (2013, 03 26). 3M Recalls 10,000 Air Purifiers on Fire Hazard. The Wall Street Journal, p. 1.

Law, J. (2013, 04 23). 3M Air Purifiers Recalled Due to Fire Hazard. Retrieved from Rasansky Law Firm - Personal Injury Made Personal - Texas Injury Attorney's Blog: http://www.texasinjuryattorney.com/blog/blog/3m-air-purifiers-recalled-due-fire-hazard#top

Magretta, J. (2012). Understanding Michael Porter - The Essential Guide to Competition and Strategy. Boston, MA : Harvard Business Review Press.

Marketline. (2012). 3M Company Profile . New York, NY: Marketline .

Marketline. (2014). 3M Company Profile. New York: Marketline.

Mergent Online . (2014). Mergent Online Competitor Report. Competitor report.

Office of United States Trade Representative. (2014). USTR -Office of United States Trade Representative. Retrieved from Office of United States Trade Representative - Free Trade Agreements: http://www.ustr.gov/trade-agreements/free-trade-agreements

Porter, M. (2008). The Five Competitive Forces that Shape Strategy. MA: Harvard Business School Publishing.

Robert Weller - Global Quality Control and Reg. Manager. (2012). 3M Thor SRL customer recall_letter 2012. St. Louis: 3M. Retrieved from http://gallery.mailchimp.com/a5bd072ed404a65d934cf356c/files/3M_Thor_SRL_customer_recall_letter_2012.pdf

SEC. (2014, 02 13). Securities and Exchange Commmision - MMM. Retrieved from http://www.sec.gov/cgi-bin/viewer?action=view&cik=66740&accession_number=0001104659-14-009773&xbrl_type=v

The 3M Company: Top Line Will Meet Growth Forecasts. (2014, 2 14). Retrieved from Seekingalpha.com: http://seekingalpha.com/article/2023831-the-3m-company-top-line-will-meet-growth-forecasts

Welch, J. (2005). Winning. New York, NY: Harper Collins.

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Wheelen , T., & Hunger, D. (2012). Strategic Management and Business Policy Toward Global Sustainability. (13th, Ed.) Upper Saddle River , NJ: Pearson.

XIII. END NOTES:

1 (SEC, 2014) 2 (SEC, 2014) 3 (Finance, n.d.) 4 (Hernandez) 5 (Hoover's A D&B Company, 2014) 6 (Marketline, 2014) 7 (3M, Lean Six Sigma: A Critical Value Driver for 3M, 2012) 8 (Huang, 2013) 9 (SEC, 2014) 10 (3M, 2014) 11 (3M, 2014) 12 (3M Company, 2014) 13 (GlobalData, 2014) 14 (3M Company, 2014) 15 (Porter, 2008) 16 (3M, 3M Affirms Long-Term Sales and Earnings Growth Objectives, Addresses 2014 Outlook, 2013) 17 (Magretta, 2012) 18 (3M, 2014) (Hoover's a D&B Co., 2014) 19 (GlobalData, 2014) 20 (Marketline, 2014) 21 (3M Company, 2014) 22 (Office of United States Trade Representative, 2014) 23 (HBR's 10 Must Reads: The Essentials, 2011) 24 (Hoover's A D&B Company, 2014) 25 (Marketline, 2014) 26 (Adair, 2007) 27 (Baird) 28 (3M, 2014) 29 (Hernandez) 30 (SEC, 2014) 31 (SEC, 2014) 32 (3M, 2014) 33 (Hernandez) 34 (SEC, 2014) (Hernandez) 35 Wheelen, Thomas L., and J D. Hunger. Strategic management and business policy: toward global sustainability. Boston: Pearson, 2015. Print. Pg. 219 36 Wheelen and Hunger Pg. 219 37 Wheelen and Hunger Pg. 217 38 "Time to Think." 3M Global Gateway Page. N.p., n.d. Web. . <http://solutions.3m.com/innovation/en_US/stories/time-to-think#>. 39 Welbes, John. "3M CEO Inge Thulin focuses on future at annual meeting." TwinCities.com. Twincities.com, 13 May 2013. Web. 18 Apr. 2014. <http://www.twincities.com/ci_23242259/3m-ceo-inge-thulin-focuses-future-at-annual>.

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