3M 2008 Annual Report Download - page 4

2 Steadfast Amid Uncertainty
ultimately they are for the benefit of all stakeholders. As
the need arises for further action, we will proceed with
the care and thoroughness that you would expect from
3M. But the fact remains, we must continue to run the
business as conditions dictate.
In a tight economy, cash is king. For 2009 we have
already cut capital spending plans more than half a
billion dollars, or down 35 percent, to around $900
million. A substantial amount of the remaining spending
is simply carryover from 2008 or for the tooling needed
for new products and continued operations. That said,
we will continue to selectively invest in capacity such
as in the solar energy market where demand for our
products is very high.
All current spending is being done strictly on a “need to
do” basis. We are targeting free cash flow conversion
of greater than 100 percent and an improvement in
inventory turns in 2009 of a minimum of 0.5 turns.
Many companies today are struggling for survival. At
3M we have a different mindset: we intend not just to
survive, but to emerge from the downturn a stronger
company. As George Bernard Shaw said, “the best way
to predict the future is to create it.” We can only do that
by taking absolute control of our own destiny. It means
rigorous control of cash and costs, but it does not mean
throwing the metaphorical baby out with the bath water.
Business is still about balance and, while remaining
responsive to present-day developments, we must also
keep an eye on the future. We must still invest in the
future if we expect to thrive later on.
Toward that end, and despite these difficult times, we
continue to invest significantly in R&D. We think it even
more important right now to differentiate ourselves
from the competition through great products and great
service. We are working hard to earn new business as
customers are gradually turning to proven and stable
suppliers like 3M, companies with the demonstrated
capability to deliver in good times and bad. Even in times
of recession, a huge amount of economic activity is still
ongoing. In a 5 percent recession there is still 95 percent
of the business left and winning an increasing share
of that business has to be our focus. We will of course
prioritize our R&D investments rigorously, but the main
point is that our commitment to innovation and new
product development is not diminished one iota.
The world of competition for most companies changed
sometime in the early to middle 1990s. After China
re-emerged from its self-imposed Tiananmen Square-
related isolation, it began to rise to its full stature as
a broad scale manufacturing nation. At that point,
sometime between 1993 and 1995, the basis of world
manufacturing competition changed. That is only 13
or 14 years ago, the blink of an eye in historical time,
and companies that do not recognize and respond to
this newly configured competitive landscape are likely
to suffer from it. Gradually, piece by piece, top-quality
electronics, hand and power tools, lighting, motorcycles,
cars, industrial materials and consumables of all kinds
have come onto the world scene from China. They
have entered many new markets, almost always at
the bottom to begin with, and then have established
positions of strength almost everywhere.
We believe that the best way to defend our traditional
positions of strength at the top of markets is also to
be competitive and strong at or close to the bottom,
because this is where new competition almost always
enters. But it is not always an easy balance to achieve,
and it has dangers as well as attractions. We have
moved steadily along this pathway over the past three
years and it has proved very effective. By launching
products in the middle of the market and sometimes at