3M this week shed some light on its research and development playbook as it aims to lift the company's ability to grow revenue.
At a William Blair investment conference, David Meline, 3M's chief financial officer, walked through how the company thinks about R&D and structures it. 3M focuses on 45 technologies and has 8,500 employees in R&D. Here's a look at the 3M way in Meline's own words.
Create one pool of innovation. Meline said:
Basically, the way it works in 3M is this pool of technologies. No business is the owner of these technologies. Rather it's a single pool that is available to any of the divisions and businesses across the Company, so it's a common resource that is available to all.
Take advantage of the unexpected find. Meline said:
When you start to understand the model there is a very strong DNA component in the R&D community where they are constantly looking as to how they can put together different technologies to come up with creative solutions that are new to the world and new to 3M. So about 15% of a time of our R&D specialists is really time that they are free to look for unexpected, unscripted type opportunities for breakthroughs. What you find when you ask them what they do with that time, a lot of the time is spent sitting together with people with various specialties and sharing problems to see if there aren't combinations that would create solutions to problems that exist.
Go global. Meline said:
This traditionally has been a group that was based originally in St. Paul, Minnesota. We still have a very strong core capability there, but what has been very deliberate by the Company over recent years is moving to a more dispersed R&D model. So we have now 37 R&D centers around the world. We have scientists in places like Brazil, in places like China that speak the local language that can understand and meet with those customers that is creating for us a whole new wave of innovation
Don't scrimp on R&D and track the returns. Meline said:
We track of our new product vitality index (NPVI). What this is the percent of the company's sales that are products that were introduced in the last five years. So you can see during the period from 2005 to 2010 our NPVI, this new product index, has increased from 21% to 31% of our sales, so there is very strong correlation between higher innovation and driving up our growth. Also we have done this while maintaining our R&D as a percent of revenue in the constant 5% to 6% zone.
Use R&D to grow market share. Meline said:
We have a goal for the company by the end of the plan period to drive that innovation index up to 40%. Importantly, what we are also doing is we are working very hard to shift that mix, which is happening successfully, from a portion of these sales are products that are replacing products that we already had. But we are moving very strongly to increase the portion of this index which is now more than 50% of new to 3M or new to the world type products, which clearly is a path for us to gain share and to increase our organic growth capability.