The open innovation of 3M—i.e., the way in which it works closely with its customers to leverage its 45 core innovation technologies—is the best advantage that the company has to add value for its customers.
The company remains solidly on track with its five-year (2013-2017) plan of 9%-11% EPS growth, 4%-6% organic sales growth, roughly 20% ROIC, and about 100% free cash flow conversion of net income.
The company believes its organic revenues can grow about 1.5 times global GDP, with emerging-market organic sales expanding 8%-12% and developed markets rising 2%-4% annually, resulting in worldwide company revenue growth of 4%-6% from 2013 to 2017.
Emerging markets should generate 40%-45% of estimated 2017 sales, while developed markets’ share of the company’s revenue is expected to decline to 55%-60%. The company can participate in all phases of emerging markets’ growth, including infrastructure, manufacturing, safety, consumer, and healthcare.
Western Europe looks to be near the upper end of zero to 3% organic growth, led by industrial (automotive, abrasives, and personal safety). Asia had 7% growth in the most recent quarter, and China should have mid- to high-single-digit organic growth in 2014. The United States and Latin America should be up midsingle digits in 2014.
Active portfolio management, investment in innovation, and business transformation will be the cornerstone levers to create value in the future.
Heartland divisions—one-third profitability and five core businesses—represent the best cash-generating businesses in 3M, growing slightly slower than the markets they serve and the corporate average.
The company’s “push-forward” divisions, which are smaller than many in 3M but are growing at high rates, will become key sources of core operations.
Strategic-review divisions are profitable but are not growing satisfactorily; 3M has identified four of these in its existing portfolio. It looks to create value by fixing, partaking of a joint venture, or otherwise profitably rejuvenating these businesses.
The company believes the unique set of technologies and businesses that commercialize it can help all emerging countries grow at every stage of their economic maturity. It believes that two-thirds of its growth between now and 2017 will come from developing economies.