‘Our products are aging’: New 3M CEO wants more innovation

3M’s new boss has a stump speech: Make 3M innovative again.

The Maplewood-based company once launched a thousand new products a year, but by the end of 2024, it will introduce maybe 150.

”The simple fact is that our products are aging,” CEO Bill Brown said on a conference call last week. “So we’ve really got to turn that around.”

3M’s recent legal settlements, health care spinoff, the pandemic and a massive reorganization and layoffs all distracted from investing in product development, but the R&D slowdown goes back even further.

“The number of and revenue from new product introductions has steadily declined over the past decade,” Brown said.

The maker of Post-it Notes, Command strips and a bevy of industrial products spends about $1 billion on research and development, roughly 4.5% of sales. That figure has not grown for years now.

Brown, who became CEO on May 1, said his top priority is ending a stagnant stretch of sales growth and meaningfully boosting the company’s top line. New products will be fundamental to that strategy.

“I think we have an opportunity to drive velocity through the new product development pipeline,” he said. “These efforts are essential to reinvigorating the 3M innovation machine but will take time to bear fruit.”

The new-product focus hearkens back to a former era of 3M’s history. In the early 1990s, nearly a third of the company’s revenue came from products introduced in the previous five years.

While Brown has not yet announced a comparable quota, the expectation for now is, simply, more.

“We’ve got to sort of bottom out on how much we’re spending on new product development and start to turn the ship,” Brown said.

A recent cause of the R&D decline is 3M’s pledge to end PFAS manufacturing next year. 3M researchers are looking for alternatives to the toxic “forever chemicals” to compensate for the loss of a $500 million revenue stream.

Redeploying those employees, Brown said, will be part of a broader scheme to refocus research on the most lucrative opportunities. Instead of immediately increasing the R&D budget, however, 3M will first focus on “opportunities to get more from what we currently spend,” he said.

Investors liked what they heard Friday and sent 3M’s stock price up a record 23%.

“I’m not sure I’ve ever seen a new CEO in the first three months be shot out of a cannon like this and have this kind of detail,” JP Morgan analyst Stephen Tusa said. “It sounds like you’ve been busy.”

Morningstar analyst Nicholas Lieb said it’s clear the company is trying to “crank up organic growth” through a resurgent R&D push, since many of the company’s existing product lines don’t have strong growth.

As to where all these new products will be built, Brown said the company’s 110 global factories might be too large and complicated of a footprint.

“Looking forward, we don’t think we necessarily need 110,” he said. “I can’t decide what it exactly is and when that cadence might happen, but we’re taking a hard look at it.”

There might also be acquisitions and divestitures on the horizon as 3M continues to right-size after spinning off its health care business into a standalone company, Solventum, earlier this year. But the company that invented Scotch tape wants another hit of its own making.

“At the end of the day, we’re an innovation-driven company,” Brown said. “Technology differentiation is the lifeblood of how we compete.”