3M’s Strategic Elements and Whether to “Invest” or “Expense” Costs

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In This Downturn – Expense Core Products And Brands
Companies should lean more toward costs which are expenses to harvest profits and grow revenue in the short term during lean economic times such as the current recession. They should look to do more investing during slowdowns and when better economic times are forecast. Given this paradigm, 3M should look to utilize “expensing” for its core products and brands such as Scotch, Post-It, Scotchlite, and Scotch-Brite. They should leverage out the brand equity, and not put heavy investment types of costs into these brands in the current economic climate. This will help maintain the margins, and the maintained strong equity in 3M will carry over to lesser product lines.

Invest In BRIC Country Businesses
For another one of their strategic elements, it is suggested to invest in the BRIC countries (Brazil, Russia, India, and China) with a slight amount of harvesting due to the global recession and the need to do some profit-taking. This can take the form of acquisitions in these countries as an investment type of cost to increase 3M’s footprint in these regions to leverage future growth. Within the U.S., conversely, 3M should seek to “expense” acquisitions, and buy companies which provide immediate substantial cash flow and/or are highly synergic with core businesses or product lines. For 3M, acquired businesses must have an immediate impact on the bottom line and be a strategic fit. If there is not immediate positive cash flow “as is,” then 3M’s managers must be able to use cost reduction techniques such as Six Sigma to drive costs down until the business is profitable.

Selective “Investment” In EBO’s
It is strongly suggested that 3M “invest” selectively in emerging business opportunities (EBOs). As a consideration of the current economic downturn, EBOs must be synergic with core products lines and businesses. The other key factor for investing in EBOs is that it can be initiated as part of a key mega-trend. In this recession, 3M’s EBOs still need to see significant investment because of the internal fabric of innovation within the 3M culture. Also, it is important to be positioned advantageously emerging from this recession when consumer confidence and spending rebounds.

3M’s Management Must Look at Businesses for ROI and Cash Flow
There are four strategic elements which CEO George W. Buckley must balance properly via optimizing resource allocation. For all of these elements, 3M executives and managers must balance two critical factors: ROI and Cash Flow. 3M must examine its products as elements of a portfolio and understand s the cash flow generated by them and their respective ROIs. For the product lines and businesses kicking off a high amount of cash, look to allocate costs as expenses and favor them along a shorter time horizon. For products which provide a high return on resources allocated to them, concentrate on a longer time horizon and treat their costs as investment.

Navigating Any Kind Of Economic Weather to Keep People in Their Jobs
3M’s innovation is a trademark strength and a major part of their culture. Resource allocation is the backbone of any company, and is the enabler for its strategy. Weighing the short- and long-term expensing and investing of costs is vital to ensuring that a business weathers difficult economic seas, and opens full throttle in calm seas. These past two posts offer guideposts to 3M’s brain trust and the four key elements by which they operate their company. Ultimately, their choices keep people in jobs and protect families – these posts help toward that end.

3M’s Key to Renewed Growth Is Resource Allocation in Midst of Falling Profits

Substantial Drop in Income – To Cut Spending
After posting a 37% drop in quarterly net income, the 3M Company plans to reduce capital spending by 30% in this year. According to the Wall Street Journal, 3M’s net income fell to $536 million from $851 million a year earlier. They have cut expenditures because of the uncertain economic outlook and challenges in their markets. An example of challenges in key markets is 3M’s health-care unit which makes bandages, braces, and drug delivery systems – it saw profits fall 12% on a 2.1% reduction in revenue. When profits decrease dramatically disproportionately relative to the revenue drop, something is wrong. If this occurs to a key unit like health-care, one can only guess that it is emblematic of most of the units of the 3M Company.

Investing Vs. Expensing
This dilemma is symptomatic of the key issue: how to effectively allocate resources to optimize short-term revenue-generating horizons while providing a critical mass for longer-term growth. It really becomes a question of investing or expensing. To fully understand 3M’s situation, let’s examine their core corporate-wide strategy:
1) Grow the current core business
2) Continue complementary acquisitions to support core businesses and expansion into adjacent markets
3) Build new business via Emerging Business Opportunities (EBOs)
4) Significantly increase investment in international opportunities

Decide On Businesses Associated With Strategic Elements
With each of these elements, there are investment decisions to be made about the type of resources to be put into the corresponding business opportunities. For the businesses associated with these elements, they can invest and focus on longer-term growth over a greater time horizon. Or, they expense short-term costs to pull cash out of a business, and seek greater short-term profitability. This type of allocation involves focusing less on building the brand and more on marketing-oriented initiatives and slashing short-time horizon-oriented costs. Investments in a business consist of spending on improving production equipment and facilities, IT initiatives to improve production, and marketing which focuses on increasing overall brand equity.

How Motorola Can Return To Life – Harvest, Translate, and Innovate

How Motorola Can Stop The Short-Term Bleeding
To address the health of Motorola going forward, they must stop the short-term bleeding, begin to pull successful products from the pipeline in a mid-range timeframe, and recapture and own key marketspaces for the long-term. In the short-term, Motorola must “harvest” revenue from its current product line, and not invest in developing them further. This may seem counterintuitive – but look, they are not successful and some of these products should be cut off and “milked” for current revenue. They have the economic value of a boat taking on water due to a hole – salvage what can be saved and find a new ship! Concentrate and focus resources toward marketing the best-selling high margin products. Forget about the high potential lower margin product lines – they should head in this direction soon as soon as possible.

In The Mid-Range Motorola Must Pull Marketable Products From Its Pipeline
Motorola’s mid-range goal should be to revive their brand relevance by developing and pulling new products out of the pipeline. Management should use the “utility-usage” technique which was outlined in the last article to translate utility directly into product features. Simply stated, use usage type and occasion to drive new features for new designs. Use these new models to position Motorola within specific marketspaces based on a combination of demographical, geographical, and lifestyle characteristics. At the beginning of this timeframe, Motorola should be well underway in dimensionizing the utility of key buyer groups; consider and/or use the key utility factors of Nokia cell phone buyers (Nokia is the world leader in terms of market share for cell phones) for features of new Motorola models. An extremely effective approach is to juxtapose features of new Motorola models with “missing” Nokia features – in other words, features that Nokia buyers want for their Nokia cell phones but don’t have. This is a “killer” strategy which would likely develop dominance for given buyer groups – the “trick” is to make it applicable to a widely reaching buyer group.

Recapture Share and Own Key Marketspaces For the Long Term
Motorola seems to be lacking a long-term vision for its cell phone business – which in a way is understandable given its current dire straights. But after they develop solid short-term measures to keep their cell phone business from crashing, they need to create an effective long-term strategy. This strategy should be simply this: recapture share and own key marketspaces. For a mid-range strategy, we talked about translating usage types and occasions into features to develop new designs. For Motorola’s long-term visioning, they should take it a step further and look to new benefits which fill desires and latent utility of key substantial buyer groups.

Tap Into Latent Demand
The long-term strategy for Motorola to exploit new benefits and tap into latent demand can be effective when executed by using orthogonal innovation of looking across other industries. In other words, what are the benefits accrued to customers or buyer groups in other industries which can be translated into features for Motorola cell phones? This is another point where breakthrough innovation can occur on a long-term and habitual basis. The essence of this strategy is to continually tap into latent demand for key customer groups – giving them benefits that they didn’t think about and want until they got them. This is how Motorola can own and dominate whole areas of a market space. The invention of the cell phone, iPod, and VCR are all examples of products which tapped into latent demand.

Motorola’s “Magic Show”
Motorola is in bad shape now, but given the right combination for the three-prong lock — short-term, mid-range, and long-term strategy – they can reclaim their market share, profitability, and strong brand equity. They need to minimize the bleeding in the short term by harvesting and milking revenue from their most popular current products – but without reinvesting in them. In the mid-range of two to four years, they need to “pull rabbits out the hat,” and introduce products which have features directly translated from the utility for key customer groups. Long-term, they need a “whole magic show,” impressing customers with “new tricks” that they didn’t even imagine before – features which tap into latent demand benefits. With this blueprint for success, the “motor” will rev back to life in Motorola.