April 12, 2024

Major innovations in 3M’s history that led to its healthcare spin-off

3M spun off its health care division Monday morning, saying goodbye to an operation with 20,000 employees and $8 billion in revenue, a quarter of the company’s total revenue.

The separation follows what CEO Mike Roman last year called “the largest restructuring in the company’s history,” which saw the loss of another 8,500 jobs and significantly reduced global real estate holdings. Pensions are frozen and the 3M Foundation is closed down.

Investors, meanwhile, lost billions as the company’s market value hit $150 billion in 2018 and has now fallen to about a third of that.

To grow again — and pay mounting legal bills — the Maplewood-based company can no longer afford to be the kind of sprawling conglomerate that many companies aspired to in the 20th century. The new 3M is expected to be a leaner, more focused materials science company.

“It’s about driving better performance through the 3M model,” Roman said at an investor conference last month about the scaled-back company’s focus. “It’s about reducing risk and uncertainty.”

It’s been a long road full of intentional innovation, serendipitous discoveries, acquisitions, risks and rewards. Here’s a look back at some of the key events in 3M’s story that led to this moment.

Early years

The company that became 3M started in Two Harbors in 1902 as a natural resources company that mined corundum – a mineral excellent for making sandpaper – in Minnesota’s Iron Range. The attempt failed, so the Minnesota Mining and Manufacturing Co. opened. a few years later, a factory in Duluth to make abrasives from a different material. They did not sell well and the company was saved from financial ruin by early investors such as Edgar Ober and Lucius Ordway.

Ordway had the company build its next factory in St. Paul in 1910. The company’s first exclusive product, Three-M-ite sandpaper, appeared in 1914 and survived a patent challenge from a competitor.

3M moved its headquarters to St. Paul in 1916, the same year it issued its first dividend.

“There are a lot of people who thought we would never make it,” Ober said as he celebrated the 6 cents per share dividend, according to a 3M history book.

The McKnight era

William McKnight, hired as an accountant in 1907, would eventually lead 3M through decades of innovation and growth to make it a billion-dollar company by the time he retired.

McKnight was promoted first to general manager in 1914 and then to vice president in 1916. In 1929, McKnight succeeded Ober as president. His tenure lasted until 1949, when he became chairman of the board of directors until 1966.

After 3M introduced waterproof sandpaper in 1921 and masking tape in 1925, McKnight took over a company that was increasingly looking beyond its core line of sandpaper and abrasives. During McKnight’s time at the company, products such as Scotch clear tape, reflective traffic signs and audio tape were introduced. The commitment to research and development survived the Great Depression; 3M opened its first dedicated research laboratory in 1937.

McKnight famously instituted the company’s 15% rule, inspired by tape inventor Richard Drew, which encourages employees to spend 15% of their work hours on independent projects to generate and explore new ideas.

“The men and women to whom we delegate authority and responsibility, if they are good people, will want to do their job their own way,” reads one of McKnight’s most famous quotes, according to Star Tribune archives. “Mistakes will be made, but if a person is essentially right, the mistakes he or she makes are not as serious in the long run as the mistakes management will make if it is dictatorial and commits itself to those under its authority to tell them exactly how they should do their jobs.”

Going global

3M listed its shares on the New York Stock Exchange in 1946 and five years later opened subsidiaries in Australia, Brazil, Canada, France, Germany, Mexico and the United Kingdom, cementing its status as an international industrial company.

In the post-war era, 3M expanded its magnetic tapes into TV production, introduced Scotch-Brite and entered the healthcare field with a hypoallergenic surgical tape.

“People said to (eventual CEO) Lew Lehr, ‘What the hell are you doing getting into healthcare?’ He stuck with it and created a hugely successful company,” says former CEO Bill McLellan in the 3M history book.

In 1962, 3M opened its global headquarters in Maplewood, where it remains today.

As it grew, the company developed a reputation comparable to that of other major industrial companies of the time, such as IBM and General Electric: employees could expect to spend their entire careers with the company and retire with a comfortable pension .

In 1976, 3M became one of the thirty companies in the Dow Jones Industrial Average, a spot the company has consistently held but could potentially lose in the wake of the spinoff.

A year after sales reached $5 billion in 1979, the company introduced Post-it Notes, which remains one of 3M’s most successful and recognizable consumer brands to this day.

Chemicals and conglomerate

One of the most transformative moments in 3M’s history happened by accident. In the 1950s, Patsy Sherman and Samuel Smith were working on a rubber chemical when a lab assistant spilled it on their shoe. It wouldn’t wipe off and the water bounced right off.

The stain-resistant product became known as Scotchguard and was the first in a long line of products 3M made using the “forever chemicals” PFAS, prized for their sheer versatility but which are now an albatross around the company’s neck.

3M has made a number of acquisitions over the decades – the first was Wausau Abrasives in 1929 – but in-house R+D was still valued. In the 1990s, when sales approached $15 billion, 30% of sales came from products introduced in the previous five years.

Until Monday’s healthcare split, 3M’s most notable spinoff was its digital storage and imaging division, which became Imation in 1996.

However, around the turn of the century, 3M began to absorb companies. According to Crunchbase, 3M has acquired 77 companies since 2001. That streak culminated in 2019 with the largest deal ever, the $6.7 billion acquisition of healthcare company Acelity, which along with pandemic sales of respirators helped push 3M’s annual revenue above $35 billion.

To clean

3M is now in a shrinking phase, which in some ways began in 2018 with an $850 million settlement with the state of Minnesota over PFAS contamination in the eastern metro.

A legacy of PFAS pollution has cost the company billions in legal settlements in the US and Belgium, and more lawsuits are pending even as 3M phases out production. Billions more will be paid out to military veterans in the coming years due to allegedly defective earplugs.

When 3M hits the reset button, the company is often caught reminding people, “You are never more than five feet away from a 3M product.”

It’s more like six inches; 3M films are used in mobile phones, TVs and cars. The company holds more than 130,000 patents worldwide and adds an average of 3,000 per year. And while consumers are familiar with the household brands, 3M sells most of the materials to other companies for use in their products.

Incoming CEO Bill Brown recently said that 3M remains “an iconic global company.”

“I look forward to building on that progress as CEO as 3M continues to deliver for its customers, shareholders, employees and communities around the world.”

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