3M Vice President and General Manager, Security System Division Michael P. Delkoski – Interview

FBaltalt
You have very broad capabilities in the Security Systems Division of 3M; would you please provide our readers with a brief over-view of your division?

3M
Certainly; our division is called The Security Systems Division, and it mainly works in what we would call ‘the security industry,’ which we will speak more to a little later. 3M has been serving the security industry for over 30 years and our main objective is to help governments and commercial customers protect their people, documents and goods.

The primary product offerings that we presently have in The Division, if I were to try and describe those offerings in one phrase, it would be to say that, we have an end-to-end high security identity credential and authentication business.

What that means Peter is, that from the time a citizen applies for a credential—and these are high-end security credentials such as passports, national ID cards, or even driver’s licenses—until the time that they receive the credential, 3M has the end-to-end processes consisting of security materials, issuance and authentication systems to assist governments around the world to deliver state of the art high end security credentials to their citizens.

The end-to-end system includes citizen enrolment/application processes, entitlement/vetting procedures, credential production and personalization methods and in some cases, the actual delivery of the credentials to citizens. The system includes all hardware, workflow software and system integration necessary to be compatible with government legacy systems. The latest in technologies for polycarbonate laser engraving and biometric capture are also part of 3M’s product offerings.

The last component of the end-to-end system is our authentication technology and products. 3M is a leader in optical reading hardware and software used in the authentication of people and credentials. Whether the hardware is used for border management or supporting other immigration and law enforcement authentication activities, it can be found in the 3M’s broad authentication portfolio. Our reader and software products can be found helping to protect the borders of the U.S., Canada, Mexico, the U.K., South Africa, and China.

We are able to provide governments with the services that they might need in the areas of manufacturing, distribution and application, along with authentication for credentials. We take pride in being able to make these product offerings globally available. In fact, our products and solutions are used in more than 100 countries, giving us the ability to assist our customers on national and local security issues. Our service-centric view focuses less on specific technologies and more on delivering customized integrated solutions based on a sound understanding of our customers’ challenges and the requirements of their issuance and authentication systems. Additionally, as a frequent participant of the International Civil and Aviation Organization (ICAO) Standards group, we maintain strong participation in international industry standards organizations and actively review industry best practices to help evaluate how they are being applied around the world.
We enjoy conveying to countries that we are able to provide all that they might need in the areas of manufacturing, distribution, and application, along with the actual authentication identification processing for credentials. We take pride in being able to make these product offerings available on a global basis.

 

FB
Congratulations, that’s quite an accomplishment, being able to supply that kind of in-depth end-to-end solution.

3M
Thank you. We’ve strategically built our business and portfolio very deliberately. Working with our government customers, we understand the challenges of an industry that is constantly evolving toward more sophisticated secure credentials, identification and authentication systems. This industry demands suppliers that can meet their needs for advanced security technologies and 3M is such a company.

At 3M Company, we have the resources of a global leader with multi-industry experience, $26.7 billion in annual revenues and 7,000 researchers working from 35 global laboratories. This depth of expertise and our commitment to the security industry positions us well to deliver what the industry needs now and in the future.

 

FB
Thank you, this leads well into my next question Mike. I understand that in the beginning of December 2010, 3M finalized the acquisition Cogent; would you please speak a little to the main drivers behind that acquisition?

3M
Over the last three years, biometric technology has increasingly entered into both the issuance and authentication of credentials. Many states and countries around the world require that biometric capture be completed at the entitlement/application process, with the biometric being a finger or palm print, an iris scan, or even facial image.

Cogent is one of the industry’s leading providers of finger, palm, face and iris biometric systems for governments, law enforcement agencies and commercial enterprises, so their capabilities are in high demand. For our customers, the combined capabilities of 3M and Cogent can deliver a more comprehensive product portfolio to the security industry. We also share similar reputations for providing superior customer service, innovation and quality products.

 

FB
True, and as you mentioned, your goal of providing end-to-end solutions with the changing marketplace and the growth in biometrics, the acquisition of Cogent is a wonderful fit for your product offerings.

3M
Indeed, and it is entirely driven by the needs of our customers, whether they are in Asia, Europe or Latin America.

Since 9/11, security materials, credential issuance, and authentication systems have become increasingly complex. This complexity raises governments concerns related to sustainability and interoperability. 3M has been supplying products and services around the world for over a hundred years and our operations in over 65 countries uniquely position 3M to help ensure our issuance and authentication systems are compatible worldwide and allow for secure and convenient experiences for countries citizens now and in the future.

 

FB
Thank you for sharing that. Now, while it might be somewhat early to speak on this, are there any comments you could provide regarding how this will be integrated into 3M?

I noted in the early- December press release that the new name will be 3M-Cogent; will the two remain separate or will they begin to be integrated? How do you see this happening?

3M
We take our responsibility to the industry and our customers very seriously. It is our shared goal to continue with the same business practices that have worked well over the years. The new company’s name is 3M-Cogent Inc., and it will primarily be run as a separate entity, though not autonomously. We have used this model very successfully in past acquisitions. Cogent has demonstrated to the world that they have the expertise and are leaders in this industry, and 3M intends to maintain that.

 

FB
Now, will this acquisition enable you, in terms of industry verticals that you’re focusing on, to expand your focus further?

3M
Excellent question, thank you. Cogent has a very solid reach in the area of law enforcement around the world, while 3M has notable strengths in border control. Currently, both border control and law enforcement make up approximately 60 to 70 percent of total revenue in the biometric industry. Therefore, the result of this acquisition is a strengthening of our position in these two very critical industry segments.

 

FB
Would I be correct in thinking that this would also provide you with entry into access control, commercial identification and things along those lines?

3M
Certainly; when we speak about where we are today, and the growth in the industry, the expansion is expected to be in the range of 20 percent per year in the security and biometrics areas. The primary growth, at the moment, is in law enforcement and border control. There is also some growth in building access control.

You’re asking, however, about what the future holds; and what we’re counting on is that, over time, —and this is similar to GPS technology—that biometrics will migrate into many various verticals and a great many applications. There will be applications in the hospitality industry, in the financial industry, and I believe that you’ll also see an increase in applications in the building access sector. I am truly hoping that the technology, itself, will be able to drive itself down in costs, something similar to how GPS systems have, enabling us to move from high-end border and law enforcement into the other verticals, and, quite possibly, also into residential uses.
 

 

FB
May I ask, when it comes to the biometric industry in general, what do you see as being a challenge?

3M
In recent years the global economy has been slowed, and therefore, government spending has also been reduced. Much of the biometric business, especially that involving law enforcement and border control, hinges on the tendering process, even before we reach the commercial applications. Those areas are based on tenders, bids, and contracts, which also ties one into the unpredictability of governments and when they’re going to award, aside from any other additional delays that might crop up in the tendering and large contract process. However, we are optimistic about our pipeline of contracts in 2011. Additionally, we’re also seeing an increase in the movement of commercial applications, which are not tied to the volatility of the government sector.

Another challenge we see is the process of educating customers and the public on biometrics technology. We are working to deliver the messages that this technology is a statistical process science that enables public safety, creates tools to help fight crime, protect citizens, and keep borders safe.

 

FB
Every year we run the largest review of the biometrics industry. This year there were approximately 60 to 70 companies who participated—and when asked, “what are the three most important announcements in biometric industry this past year?”, the Cogent acquisition by 3M was mentioned by many of our respondents, along with the L1 –Sagem deal.
In your opinion, were there other announcements that were important to the industry?

3M
Yes. My view is that the number one announcement was certainly the consolidations; you’ve already mentioned L1 and Cogent, which were huge amalgamations that will have an enormous impact on the overall market.

Another important industry trend we’re seeing is that emerging economies are prepared to move to biometric infrastructures faster than many would have expected. We are currently seeing this with the UID program in India. The country is going through various processes in which it is attempting to enroll its entire citizen population, and is utilizing biometrics to help ensure accurate delivery of payments from the government to individuals in the country. A pilot program is currently underway, in which Cogent is participating to provide some of the hardware. Other countries, including Panama, Columbia, Ecuador, Venezuela and Romania, have moved to incorporate biometrics into its issuance system and or documents as well.

 

FB
I believe that you’ve hit-the-nail-on-the-head; and interestingly, UID mentioned your deal and you mention them; so that’s very fair.

3M
Excellent; I’m glad they mentioned that.

 

FB
Indeed, they did; they responded to our review as well. Has this been a good year for 3M?

3M
2010 has been a terrific year for 3M. Record sales of $26.7 billion, 15 percent top line growth, operating income of $5.9 billion representing 23 percent year on year growth and EPS growth of 25 percent.

3M is a corporation that is well protected in a number of ways. First, we have a very diverse overall portfolio. The Security Systems Division reports into a business unit that is called Safety, Security and Protection, which is one of six businesses within the company. Those businesses range from healthcare, to industrial, to consumer, to electronic, and to display and graphics. As a result, we have a truly wide-ranging product portfolio which branches out to our very solid international presence. Roughly 60 percent of our current revenues are derived from outside of the United States. 3M’s product and geographic diversity has enabled 3M to successfully manoeuvre through the past few years and deliver on such an outstanding 2010.

 

FB
Excellent; and thank you so much Michael, for taking the time to speak with us about the business and the Cogent acquisition; we appreciate our time.

3M
You are most welcome Peter.


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