3M (NYSE: Mmm) Is a

3M (NYSE: MMM) is a diversified manufacturing company that makes a wide range of consumer products. They are best known for Scotch tape Post-It Notes and Thinsulate, but produce dozens of other products. With over 75,000 employees in over 60 countries, 3M is one of the largest firms in the United States. Major business divisions include Industrial/Transportation, Health Care, Display and Graphics; Consumer and Office; Safety, Security and Protection; and Electro and Communications. All told, 3M recorded a net income of $4.096 billion on revenues of $24.462 billion in 2007.

In recent months, 3M has made a steady stream of acquisitions in a wide variety of sectors. The company has, however, lowered its guidance to investors in terms of its 2008 and 2009 earnings expectations. The global economic downturn is not expected to impact 3M as much as many other firms, but the company still expects some sluggishness. In order to withstand the downturn, the company is shedding approximately 1800 jobs, with an estimated cost savings of $170 million (Chernikoff, 2008). SWOT 3M has many strengths from which they derive competitive advantage.

The company has a very strong balance sheet, featuring almost $3 billion in cash and short-term investments at the end of the last quarter (Reuters, 2008). The company is liquid and thus able to meet their financial obligations even in the event of economic downturn. 3M has a debt ratio of 55.8%, which is in the optimal range for a stable, diversified consumer products company. The company is well-diversified both geographically and by product, which will help insulate them against economic downturn, although they are somewhat dependent on the U.S.

market, which accounts for around 37% of their sales (3M 2007 Annual Report). The firm has several powerhouse products that dominate their respective markets, giving 3M high franchise value. Many 3M brands are market leaders. Furthermore, they have been able to maintain this leadership through innovation. They do this by plugging 6% of sales back into research and development (Marcial, 2008). The company has also demonstrated strong, consistent growth over the past few years, impressive given its size. 3M has few weaknesses. The company has some dependency on the U.S.

market, because that market is the largest. The wide range of products insulates it from sector-specific shocks, but 3M's dependency on the American market makes it susceptible to broad-scale downturns. The company's size and matrix structure is difficult to execute well. It can be difficult, at the executive level, to understand the nuances of each business and each market when the company operates a matrix structure. However, there is strong cooperation between 3M units, mitigating this weakness.

Another weakness is the company's environmental record, which has been questioned over the years. There are no current environmental scandals, but the firm has large manufacturing facilities that make heavy use of chemicals, making it one of the nation's largest polluters. After that, 3M's weaknesses are mostly related to soft spots in specific products - this is a very strong company. 3M has many opportunities. During recession, 3M's strategy is typically to pursue acquisitions. They use their strong balance sheet to acquire firms at low valuations.

The company also uses recessions as opportunities to streamline their operations, as the recent jobs cuts illustrate. 3M still has room for improvement in their supply chain, which can bring about further cost reductions. Another key opportunity for 3M is to improve investment in research and development. The economy is chief among threats to 3M's growth and profitability, although its diversification and innovation strategies help to mitigate that threat somewhat. There is a significant threat in the optical film business.

This product line, which was 16% of the firm's revenues in 2006 (Jayson, 2006) has suffered a slowdown since that point. The company is transitioning this division towards the LCD market. Competitors represent another significant threat, especially in fast-paced technology-driven markets like optical film (3M 2007 Annual Report). Another threat is increased costs of inputs. In 2007, raw materials costs increased significantly as global commodities prices increased significantly. This in turn squeezes 3M's margins. Five Forces It is difficult to analyze 3M's competitive environment, given that the firm is a diversified conglomerate.

3M has strong buyer power, a function of their size and purchasing capacity. 3M also has strong seller power, given the quality of their goods and 3M's size and distribution capacity. Availability of substitutes is generally high for 3M products, and they face strong competitors in many categories. The threat of new entrants is moderate. In any given category, new entrants are a possibility but 3M's businesses are often in segments where R&D expenses are high, keeping new entrants down.

The intensity of rivalry is low to moderate, as for many segments there is moderate concentration, low exit barriers, moderate growth, and high diversity of rivals. Overall, the competitive environment faced by 3M is moderately favorable, made more so by the company's internal strength. Recommendation It is recommended that 3M continue to pursue its acquisition strategy during the next year or so. The company's financial situation is sufficiently strong that it can afford to make such purchases.

Unlike other conglomerates, 3M easily absorbs new businesses into its fold, and the complexity of its matrix structure does not appear to be an impediment to success. Asset values have fallen significantly this year, providing significant opportunity for 3M to invest in quality firms at bargain prices. This strategy.