Started as Minnesota Mining and Manufacturing Company in 1902, 3M, as it is known today, has been the subject of many a case study in business schools for its culture of innovation. Though the company, which began with mining stone from quarries for use in grinding wheels, itself may not enjoy instant brand recall, its products do: Scotch Tape, Scotch-Brite, and waterproof sandpaper, to name a few. On his second visit to India, George Buckley, Chairman, President and CEO, 3M, spoke with BT's K.R. Balasubramanyam and Josey Puliyenthuruthel on a range of issues, including the 3M culture, how emerging markets are changing corporations such as his, India's growing role as a supplier to the bottom-of-the-pyramid markets, and his personal learnings. Edited excerpts:
3M has been known to have innovation as its DNA much before innovation became a fashionable word. Do you still follow the philosophy that 20 per cent of your revenues five years on will come from products that you don't have in your portfolio today?
Yes, we do. That number is higher this year; it would be close to 30 per cent. And in five years, we want that number to be about 40 per cent. That is a measure of new product vitality as we call it, and that's very important to us.
Do you achieve such targets?
We have achieved that number (30 per cent) this year (2009). That number had begun to fall when we began focussing on big projects in the opticals or pharmaceutical business. But when I came to the company (in December 2005), we decided to focus more on the core. You can't plan a certain financial future on accidental big bangs. A far better approach is to make sure the core is strong. You can (then) get a lot of smaller pops. The best way to ensure steady growth is to invest in many more, perhaps, smaller programmes than occasionally relying on the one or two programmes that may become very, very large. A change of philosophy, shall we say.
What are the defining factors of that philosophy?
It's in the culture, not in the process. It's in the way we hire, the way we promote, the way we encourage, the sharing of technological ideas. That culture has been built over 60 years. It is a natural self-sustaining element and you capitalise on it. Of course, it depends on the individual taste of CEOs, but I was a researcher many years ago and understand the process. Second, what is different about 3M is that we celebrate the sharing of technology as much as we celebrate individual success in technology. I find this openness, this willingness to share and celebrate when someone else takes an idea that you had and maybe even makes it better an unusual feature at 3M.
At former companies that I worked for, the technology was always isolated and confined to individual divisions or silos. We grant 15 per cent of time to (personal interest) research; we grant people about one day a week to do research on what they want to work on. A lot of 3M researchers are extremely creative and want to do a lot of things independently. Creativity can be encouraged only in an atmosphere of relative freedom. What we don't want is the other extreme of laissezfaire: Anarchy. So, the vast majority of things get done either within the core or some distance from the core.
If the current economic squeeze were to continue for five years, will you be able to support this kind of innovation?
Absolutely, without a question. In fact, for 3M, it almost will be a blessing if the current economic circumstances stretched out because it will allow us to pull away from the competition who can't do what we can. They can't fund either their own growth or fund capital investment or fund this level of R&D. We can. We can do it forever. It is a sort of twist of irony. It almost will be a Godsend competitively.
That said, how has the recession treated 3M?
This was the worst contraction in industrial production in the United States in 85 years.... What we did was to build a financial model of what we thought would probably happen in a downturn. It was very, very accurate. It enabled us to have some kind of a view on the future, to suggest how long the economy would continue contracting before the turnaround, what we have to do to downsize and where, how urgent it is or otherwise.
Has your concept of innovation changed post-recession?
I don't think so. I think the recession was more an endorsement of the value of our course. No question that we should turn a different route. Earlier, we only participated in the top of the pyramid. When I came to the company, we started moving down the pyramid. The reason for that was in businesses with low entry barriers like industrial tapes, abrasives, etc., there were too many competitors around the world and most of them were Asian. And they might always come out with low-cost offerings for the bottom of the pyramid.
We did that for strategic reasons, but we got kind of lucky that we were already prepared when the economic downturn came along. The middle of the market shrank, some people went down and the bottom grew. We were just hugely well-positioned to respond to that. At this point, I will make a forecast. The Tatas, even without the Jaguar and Land Rover acquisitions, have gathered capability coming from the bottom of the pyramid. Eventually, in 20 years, they will become one of the premier manufacturers of cars in the world.
Will you then also consider moving a large chunk of your R&D into emerging markets?
It has already happened. When we want to grow a market, we have a money-back guarantee. In emerging markets, we have installed labs. We did it in China and other markets and are doing it now in India. It is an absolute guarantee for growth. Historically, a vast majority (of innovation) came from the US. But increasingly, innovation is coming from overseas.
I am convinced that India will follow the China pattern.... We have wonderful capabilities in surface chemistry and materials science. India is a great source of mathematicians. So, electronics and mathematical modelling have become more and more important parts of what we do (in India). I think India has the capability to become the centre of excellence in not just industrial manufacturing, but even very high technological developments will naturally gravitate to India.
India has an opportunity of a lifetime to become the world's leading small carmaker. I don't mean just volumes. India will get volumes because of the population. When you build that kind of volume, you build the supporting ecosystem, you suppose the way people think about design, austerity, materials, ingenuity.
Could you elaborate further?
It takes a lot more ingenuity to bring technology and value at the bottom of the pyramid than it does at the top— to bring real value and breakthrough ideas and value that costs next to nothing. It is a vital adjustment in the way we think about innovation. Nano is the start of a sea change in attitudes, what people are prepared to buy, their value proposition, and obviously, the Tatas will start with capacity. As the Tatas add capacity and, perhaps, consider doing that in other countries, they have the chance to really rewrite the future.
We, as 3M, need to be here with it, finding ways to reduce emissions, weight and noise to help the Tatas realise these dreams. And, when they realise their dreams, we can realise ours with them.
You don't have a history of doing work for the bottom of the pyramid. What are the top things in your labs that will enable you to make transition to that kind of innovation?
Nature has very inexpensive nonwoven material available right here in India: Coconut. So, one of the things we have been looking at for the bottom of the pyramid market is how to substitute something made with expensive polypropylene with less expensive material like nylon. God has also presented us with a wonderful natural material in coconut. So, we are substituting that in products.
Then, for noise reduction in a car, over a year and half ago, we developed a small plastic sheeting with little columns that naturally tunes out noise. You can substitute heavy padding with relatively thin layer of micro replicated plastics and get the same impact. So, it is always about introducing either using a natural material, which is inexpensive, or using a higher level of technology.
That's interesting. Are there any more examples?
In the quest for weight reduction— weight reduction equals fuel reduction equals emissions—we make small microscopic glass bubbles that are used to alter the density of a wide variety of materials. Customers were using resin to achieve this effect. About two years ago, I said I wanted glass bubbles at the same cost per pound as the cost of resin it displaces.
If you can do that, the value proposition for the customer is to have a material which is no more expensive than the material that they are currently using. It brings volume to us and light weight to the customer. For a Japanese car manufacturer, we can take out about 100 pounds or 50 kg out of cars using these materials for no extra cost.
There are many other examples. In LCD televisions, we have film technology that cuts the number of backlit lamps and energy usage by half. The film does not cost any more than the bulbs. We have been thinking on these lines: Not about what we can add but about what we can take out.
What are your plans for investment and hiring in India?
We have just announced development of new labs. We have five manufacturing plants and we will continue to invest in India as it is a huge growth market. We have very high internal growth targets for India. My own aspiration is that I want five times the volume in five years and it is possible.
Sales will top $1 billion in five years— up from some $200 million today. My first target was why not $3 billion. The market is expanding so rapidly here that we probably have to stop thinking in terms of percentages but in folds: Two-fold, three-fold, fourfold, five-fold. India is very unusual and I said this in a meeting with analysts in New York: India for India. Not India for exports. The growth of domestic market here is huge. I think India in five years could even be several billion dollars for us.
I think within 10 years, China will be bigger than the US for us and in the same period, India can be at least as big as China is today. We may see China as the largest of markets for 3M. It is entirely possible the US will be #2 and India will be #3 or #4.
Give us some sense of your emerging markets focus.
We sell two-thirds of our products outside the US today. I think emerging market sales are 17 per cent of our total. These are not tiny numbers. And we are talking of accelerating that significantly so that, perhaps, the total sales in emerging markets will be equal to emerged markets.
Will you also align your prices to suit the bottom of the pyramid consumers?
I think we will respond to that by some changes in products. It is not just about pricing, it is in finding products that are appropriate to the market. It is about how do you to find a way to deliver value at much lower costs. And you always benefit if you can always carry those lessons forward in high cost markets and use those lessons either to alter pricing or make more money. It is not just about pricing, it is about content. It is dangerous in a market if you think good as the best.
You are an outsider at 3M; what have you learnt at 3M?
I have learnt the old things still work. The three things that are important in a business: That's about cash, profit and return on investment, in that order. As long as you don't focus on those, you cannot drive your company to prosperity.
I have long been known for my push for growth. Because, in terms of value creation for the shareholders, when you think of all stakeholders, if we can find a way to grow, which will be value for shareholders, and brings opportunities for our employees and brings choice for customers, it is an absolute virtuous circle: Win, win, win, if you can drive growth. You can drive growth, through market, through invention, through penetrating all levels of the pyramid... I have had a lifelong abiding curiosity about learning, about other people's culture, and how to take a thing and do better with it. Just this morning we were talking about similar things that are important to Indian market. Something I have been pressing about since I came here is the power of local brands. So many companies imagine it the American way, or the British way, or the German way, or the Japanese way as the best way. But I think in the end it is the Indian way that is best for India. And the China way is the best for China.
The other thing is to be openminded, to be a believer in the power of diversity—I don't mean this in any kind of stupid political way. If you look at the leadership of our company, it is an American icon; it is 122 or 123rd in terms of market capitalisation. Yet I am a Brit. The man who just retired from consumer (division) was an Iranian, who made way for a Spaniard. The man who heads our industrial business is a Korean, the man who heads international business is a Swede. The man who heads strategy is British, the man who heads safety and security business is French. Innovation is a journey of curiosity. It is a journey of accepting something different for what you probably have.