3M's new technology chief has a bigger budget, bigger goal

By Lewis Krauskopf

ST. PAUL, Minn. (Reuters) - At a time when many companies are investing a smaller portion of revenues in research and development, 3M Co has given Chief Technology Officer Ashish Khandpur more to spend, and he is aiming at bigger targets.

Khandpur, a 20-year 3M (MMM.N) veteran and chemical engineer who holds patents related to pressure-sensitive adhesives, is helping oversee a push to expand R&D spending to about 6 percent of revenue by 2017 from about 5.5 percent in 2012. That equates to about $160 million in additional spending annually.

In an interview with Reuters, Khandpur said the fresh money will be used to develop "disruptive platforms", which can yield products that are sold into multiple markets and can change the competitive landscape.

"Each of these platforms we have funded is a several hundred million dollar opportunity at maturity," he said at 3M’s St. Paul headquarters campus. It was his first interview since assuming his post in July.

So far, 3M, which posted $31.8 billion in revenue last year, says it has 30 such programs in various stages of development, with $250 million in sales expected this year from those already commercialized.

Khandpur pointed to Crystal Silk, a new surface material that is smooth to the touch, yet also designed to be scratch- and stain-resistant. It is used for computer touchpads, a new market for 3M, and also could have applications in appliances and other areas.

3M is bucking the trend with its plans to crank up R&D spending. Consulting firm Strategy& says annual R&D spending as a percentage of revenue among the world's 1,000 largest R&D spenders fell from 4.2 percent in 2005 to 3.5 percent in 2014. R&D spending did rise in absolute terms over that time.

Already, 3M invests more than double the average 2.3 percent spent last year by 190 industrial companies tracked by Strategy&. Of other large industrial companies, United Technologies (UTX.N) reported spending 4.1 percent of revenue on R&D in 2014, while General Electric's (GE.N) research budget amounted to 4.8 percent of its industrial revenue. For GE, that budget compares to 5.3 percent in 2013, and 5.1 percent in 2012.

"Businesses, just because they are under pressure quarter-to-quarter of delivering their numbers, can get operational at times," said Khandpur, 47. "We want to make sure that as a company we don’t fall into that trap and we are able to fund big programs."

Analysts are watching 3M's R&D spending to see if the company can deliver products with higher pricing and margins.

"If R&D productivity is poor, that’s a huge disappointment," Edward Jones analyst Matt Arnold said. "Not only does it imply your pace of growth could slow, but it’s also going to be a drag because it’s significant money spent."

Khandpur says 3M is taking steps to improve its chances of delivering significant new products, such as sharpening the individual focus of its 85 labs in 37 countries.

The technology chief leads a monthly meeting of nine executives that recommends which major research programs the manufacturer should pursue, and which it should drop.

3M is also expanding efforts to get outside ideas. The company has roughly 50 technical centres globally that are designed to expose customers to 3M’s technology. In March, 3M unveiled plans for a new centre in western China.

One avenue Khandpur is exploring is creating products with digital capabilities. He is hiring people with experience in electronics, software and mathematics to augment the company’s traditional strengths in materials sciences.

Among the projects underway are work on developing sensors that can be embedded in cable splices to monitor power lines, and Khandpur envisions respirators that can track the wearer’s vital signs or detect if the device is being worn incorrectly.

"It’s not about creating a software company in Minnesota," Khandpur said. "Our thinking is our core products are intersecting with the digital world."

(Reporting by Lewis Krauskopf; Editing by Joe White and David Gregorio)