Before we start today's events, I just want to remind you of some upcoming dates of events for 2017. Our earnings call there, the dates in January, April, July, and October. Also, next summer, we will be hosting our first international investor event in Neuss, Germany on June 6th and 7th, so please mark your calendars accordingly. Today's lineup, we'll start off with Inge Thulin, 3M's Chairman and Chief Executive Officer, and we'll wrap up with Nick Gangestad at the end, our Chief Financial Officer. In between, you'll get the opportunity to hear from Ashish Khandpur, who will talk to us regarding innovation, Julie Bushman, who will touch on business transformation. You'll also have the opportunity to hear from three of our five business leaders, Mike Roman, who heads up industrial, Jim Bauman, who heads up the electronics and energy business, and Mike Vale, who heads up healthcare.
Here's the lineup for the day. We'll take a break roughly about 9:30 or so. If we're running ahead of time, we'll stay ahead of schedule. We'll leave about 45 minutes of Q&A at the end. We'll get you out of here no later than noon. Before I turn it over to Inge, I draw your attention to our forward-looking statement. Please take a moment to read it. During today's outlook meeting, we'll make certain predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent 10-K lists some of the most important risk factors that could cause our actual results to differ from our predictions. With that, I'll hand it off to Inge. Thank you.
Thank you.
Thank you, Bruce, and good morning, everyone.
Good morning.
It's morning. It's nice to see you again, and hope that we will have a good morning here talking about 3M's outlook for 2017. What I will do is, I will talk about the highlights for the day. I will talk about how we have built strengths on strengths for the last five years, positioning us very well as we move into 2017. The outcome of all this is all around efficient growth, as you will see through the presentations today. The headlines for today is, first of all, you will see that we are very ready and well-positioned for success in 2017. In our mind, we are in a position today to create better value for our customers than any time in the past history.
Our playbook is working, and we will talk about all the key levers today in terms of portfolio management, invest in research and development and innovation and business transformation. You will also hear from Nick Gangestad in the end of how we will continue to deploy our capital to invest for both long-term success as well to return cash to our shareholders. The 2017 outlook, as you probably saw this morning in the press release, is 1%-3% total company organic local currency growth and 4%-8% EPS growth. Before we go there, let me just talk again relative to the journey we're on and that we started back in 2012, which is important relative to understand and have confidence as we move forward.
We started back in 2012 by clarify the vision and the strategies for the company, but we also start the portfolio management work that is ongoing. It was an important element for us as we moved ahead. When we moved into 2013, that was where we crystallized the three key levers that will drive more value for our shareholders as we move forward. As you probably recall, in this room, 2013, we also announced the enhanced capital deployment plan. When we went into 2014 was where we clarify our leadership behaviors, and we also make sure that the fundamental strengths, which are four, in terms of technology, manufacturing, global reach, and brand equity, was well understood, both externally but also internally, relative to the fundamentals of the company.
In 2015, we took the action of making some restructuring of the organization in order to build for efficient growth, also went forward and more fancy about deploying a new 3M brand strategy, which is 3M, Science Applied to Life. As we move into 2016, we accelerate our Business Transformation deployment, which you will hear Julie Bushman talk about later today. We also created a new five-year plan that we announced in March when you all came to St. Paul. You look upon this journey, we have worked a lot during the last five years in order to get the fundamentals even stronger for 3M, and that is what we call build strengths on strengths. Let me start with the vision because it is an important element relative to understand the purpose.
A vision is about what you do, how you do it, and where you do it. It is a stretch, and it's also something that should call out a competitive advantage for you as an enterprise. What we do and have done for 114 years is advancing, enhancing, and improving. That's what 3M is all about. We do that through technologies, products, and innovation. Where we can do it, we can do it for every company, we can do it in every home, and we can do it for every life. Life for us is healthcare, is education, is community, and is sustainability. This vision is important for us relative to what we do day out and day in order to come there. How do we do it?
We do it through six strategies that were launched in 2012 and that now are operationalized in every entity inside of 3M. As you can see, the four first of them are around growth. There's a couple of keywords I would like to call out. First one, relevance to our customers, was very important for us, that we became more relevant to our customers. Gain profitable market share is in strategy number 2. It's not market share, it's profitable market share. I think you see that relative to the improvement we have done in our margins. The third one is invest in innovation. As you know, we have moved from 5.5% closer to 6% in this period of time. Ashish will talk about that later, just after me. We continue to build on our high-performance team. Finally, operational excellence.
The Lean Six Sigma is the core of everything we do, and some comments will come later on that. You take the playbook for 3M. It's very simple in a way, because if you think about it here on the left-hand side, that is our vision, our strategies, our 3M conduct in terms of business ethics and our leadership behaviors. That is what is guiding us day out and day in. On the right-hand side, you see the three key levers that will create more value for us today and as we move ahead, and you have seen a lot of activities here in terms of portfolio management, invest in innovation, and Business Transformation. You will hear about all those three elements today during the presentations. Here is the outcome of the playbook relative to 2016.
We are around $30 billion in revenue, and you can see around 24% in operating margins. Five industry-leading businesses with Industrial at around $10 billion and the other four around $4 billion-$6 billion. Today you will hear about Healthcare from Mike Vale, you will hear from Industrial from Mike Roman, and you will hear about Electronics and Energy from Jim Bauman. Consumer, that is led with Joaquin Delgado, and Safety & Graphics by Frank Little. They are also here if you have any questions relative to those businesses. A very, very good diverse portfolio that is very strong. You can see 24% operating margin on the company level, and that range everything from 31% in Healthcare, as at low, at 21% in Electronics and Energy. Think about that. 21% in Electronics and Energy is the low end for this enterprise.
There is four fundamental strengths of the company, and if we start on the left-hand side, it's around technology. We invest around 6% in technologies, is 46 technology platforms that are owned by the company, not by one single division or country, and it can be utilized inside of the company. You can see here we are able to share and combine elements of the broad-based technology. It's not only that we own the technology platform, we can combine them for an outcome that is very, very important. As I always say around technology is not only to do things better, it's to do things different. When you do things different, that is where you have the real game-changer relative to your marketplace. Manufacturing, where we can utilize 3M's manufacturing footprint and technologies, including processes, trade secrets.
If you think about it from that perspective, here we invest 4.5%-5%. If you have 6% in technology and 4.5%-5% in manufacturing, that's a core strength of 3M. It's a core strength for us in order to create more value and get better return to our investors. We have global capabilities where we have wholly owned subsidiaries in 70 countries and been there for very, very long time and is the first entry into any country. That mean we decide the priorities in those countries. If you've been around for 70 years, or many years in 70 countries, you have a lot of connections locally, so you know what to do wherever the cycle is of those businesses. Finally, the 3M brand.
That's the brand position for us that is position us around quality, consistency, and the way we do business in terms of ethics. Those four fundamentals are important for us in everything we do, and they are vertically integrated model. We own it as an enterprise. Everyone can use it in the company. I've shown this slide for many years, and I've been in office here now for almost five years, I think, in fact, I've showed it when I led international before that for eight years. This is the evolution of any economy, it always start by infrastructure build-out. When that is in place, manufacturing will move to the next step. When manufacturing is in place, safety will come. Safety regulations will improve. After that, when disposable income is increasing and standard of living is improving, retail start to move.
Finally, healthcare is coming into play. This is an evolution for any country around the world. Wherever you are in that cycle, this is how it happens. For us, it's even more powerful in my mind, because for us, healthcare is coming slightly before retail for 3M. The model is correct for all economies. For 3M, in terms how we can capitalize on it, healthcare is coming slightly before retail. The reason for that is that healthcare is based on health economics, is based on key opinion leaders, and papers of treatment. For us, in our solutions, that's a real power. Retail is often based on, as we know, brand equity with local brands in those countries, so take slightly longer time for us.
If you think about that in terms of our portfolio, with the margins we have in healthcare, in a very fast-growing business, this is very good. Our portfolio is strong in any cycle, short, mid, long-term cycle. If you think about this, at least myself was for long time thinking, "Well, this will stop and end when you're coming up to the peak of retail and healthcare." It's not. We just saw the outcome of the election in U.S., the biggest economy in the world, where 3M has 40% of its business, is restarting. It start again with focus on infrastructure and manufacturing. For us, this model is fantastic and it's working even better and becoming stronger.
One thing you should think about relative to infrastructure and manufacturing, when people think about who will benefit short-term there, we will be ahead of that because we are the suppliers to those businesses that will short-term capitalize on this. When I look upon this slide, even if I used it maybe for 10 years, it's becoming more and more powerful and means more and more relative to 3M's model. Whatever cycle, whatever country, we are very strong to capitalize on that. It is all about efficient growth, and I think this means organic growth that outperform the markets. It's important for us because it's sustainable, it's premium returns, and when it come to margins, cash flow, and return on invested capital.
That is what we are all about, is to give back very good returns to you in margins and return on invested capital. I would like to talk about the three key levels on what we have done and what we will do as we move ahead, and I will start with portfolio management. This was important for us because the portfolio management work that started back in 2012 was all about improved relevance to our customers and to gain profitable market share, just to make sure we prioritize right where we could win, and we could give a good return to our shareholders. It was around aligning the organization with clarity so we knew where we should put our money for the best opportunities. It was also to clarify the effective deployment of capital. Where should we invest?
It was, of course, to divest non-strategic businesses and eventually buy new businesses as well, and we have done both. As I will show on the next slide, when you are going from an organization with many entities down to few entities, you will have an agile execution. You have less internal meetings. You have less infrastructure cost in the enterprise, meaning you're becoming more effective and you're becoming much faster. This is what we have done. If you look upon the left-hand side, we went from 6 sectors to 5 business groups. We have gone from 40 businesses to 25 businesses. That is to create a much more powerful portfolio for 3M. That is to create agility in the organization. That is to take out unnecessary cost that is not adding any value to the customers.
We also prioritized, and we categorized businesses in something called "Heartland" and "push-forward." Both of those elements at the time was around $10 billion each in that bubble chart, as you remember, that we showed. As we looked upon the portfolio, we also knew with more clarity where to go and where to go out. As you can see here is a couple of example of big acquisition we have done in terms of Capital Safety. That was a $2.5 billion U.S. dollar acquisition. Membrana, that was around $1 billion. We purchased the last 25% of our Japanese organization from Sumitomo Electric Industries, and I think the price there was around $850 million-$875 million. We have also left businesses that was not core to us any longer. Even if good businesses, but was not down to the core and will do better other places.
As you probably saw, we announced last week that we're exiting identity management business, and we sold that for $850 million. That's a business that will be better off with another owner after we went through the strategic work with it. Also important to know that this was diluting both the growth and our margins in the company and was not core to us. I think you look upon that and what we have done in terms of looking upon the portfolio, we have done a lot of things that have strengthened us for the future. Now, it's all about growth and what we are doing, we're actually taking money, invest for the future in something we call Core Search. We're investing over $100 million U.S. dollar already in 2017 in order to contribute 50 to 100 basis points of additional growth for the year.
These have already started. They've already started in 2016, here in the last quarter, and the movement is growing. We have identified programs that are all in to push forward all our core businesses, meaning they're already strong, they're already growing, and they are very profitable. We have aligned the whole organization relative to put that money in the commercialization part of the organization so we can move forward and get more growth as we are moving ahead. At least for me personally, this is where the focus should be based on what we can do short term, where we can get focus off something that is not strategically important for us and get right into the core and accelerate growth. I know that will work, and it will be a very important thing.
Let's talk about investing in innovation, which is the second lever on that chart. This is an important element for us. Research and development is the heartbeat of 3M. It's also why there's a differentiation of what we are doing. It's also why we have better return than most, if not all of our competitors in each of the five business groups. I think the important thing here is to make sure that we can not only do things that are better, but things that are different. As I said earlier, that is the power of 3M. We can do things differently. We just don't look upon things and try to do it better.
We do that as well, but when you do the real investigation and investment relative to how can you do things even different and better, that is what is the power of 3M. Think about it like, as I said, we have 46 technology platforms. They are type of open internally to everyone in the company, and then by definition, they're also open to our customers because we work with our customers externally. How we do that is on the left-hand side. We have two processes, only two processes how we get input relative to what we should work on. The first one is called customer-inspired innovation. The second one is called insight-to-innovation. If you think about customer-inspired innovation, that's saying customer is very direct with our customers.
We work directly with the customer, meaning the probability of success on the other side is extremely high because it's exactly what they would like to have, either specced in or designed in, or anywhere in their process. Then you have insight-to-innovation. Think about that more like around consumables, where it's a market that gives impact to a panel. Those are the two things that are important. It doesn't start in the middle and then try to do something. It starts on the left-hand side with the process with good input from the market and the customers. The outcome is, of course, high-impact outcomes in terms of extending our core and building new growth platforms as we move ahead. We do more than that. We actually invest also in more partnering and scaling up new platforms.
This is something that will have a payoff from five to 10 years. It's also activities where we say, "Hey, we can be very strong here, but we should and can work with other companies." I have four examples here, and you will hear about them all today. The four examples I have is in automotive in terms of electrification, intelligent infrastructure. It's around active safety, it's around structural adhesives, and around population health management. You will hear about automotive and electrification intelligence, both from Jim Bauman and from Mike Roman. You will hear about active safety from Ashish Khandpur. You'll hear from Mike Roman around structural adhesives and in terms of population health management, which is health information system, where we just made a deal with a company that Mike Vale will talk about that is around health information system as we move ahead.
Very important platform, where we think we have very strong power as we move ahead for the future. Third level, Business Transformation, which starts and ends with the customer. I can tell you that I have never been more confident in this initiative than I am today. It was something we started a couple of years back. It's all about efficiency. It's all about more productivity. That's a big prize for us here, a big prize for us and for you who invest in the company. You can see here, we think here's a capture of $500 million-$700 million annually in savings, and there's half a billion of working capital improvement by 2020. This is huge. We started with some smaller pilots, we have moved ahead.
As I tell you, what I see today is very encouraging, we start to see the benefit already now. If you think about in terms of the globe, we are now live in 16 countries. In Europe, that we have had focus to execution here lately, we are almost done. 11 countries is up and running. The four biggest distribution centers, our supply chain center of expertise in Switzerland are all linked up to the system. This is very clearly not an IT system. This is something that starts and ends with the customer. You have countries here that are in the forefront, like Canada and Germany. We already see the clear benefit, not only in the margins improvement, but also in the growth rates.
With the new system in place, people can spend more and more time with customers, which is the whole idea with it. It's a very encouraging movement for us, Julie Bushman will talk specifically around that. Now, two things I would like to cover also here is, first is Lean Six Sigma. We have been on Lean Six Sigma. We started with Six Sigma, we added Lean later, since 2001. We have 76,000 trained employees globally. We have completed over 100,000 projects, we have had $16 billion in savings during those 15 years. It's embedded of what we're doing, I would say we're becoming better and better at it every day. In fact, some of you that are here today, we are constant communication with relative to how we can become better. I think that's the value of 3M in a way.
We are listening to you. When you have expertise that can help us, we will listen, we will invite you to come and look upon our operation, et cetera. As late as yesterday night, I think, I had email communication with one of you here in the audience relative to what we are doing based on good input and good guidance, et cetera. We are becoming better every day in this is about efficiency and operational excellence, Lean Six Sigma is here to stay. If you think about it in terms of it's both efficiency and improvement today, it's a leadership development program for the future. Very, very important. I would like to make some comments on sustainability, which is creating opportunities for 3M.
We have been very serious ourselves relative to sustainability, 42 years ago, we started a program, Pollution Prevention Pays, called 3P, something that still today is very relevant for us, and other people and companies try to replicate and duplicate. We share that with them. We have also, for 17 consecutive years, been on Dow Jones Sustainability Index, we are now accelerated our investment, we go more offensive. More than 3 years ago, we doubled down on sustainability. The whole idea is our technology platforms can help other companies and our customers to come with better solutions. I think it's every company today that I know of, are thinking about sustainability as a topic. For many, it's maybe a threat, but they know they need to address it.
This is where we from 3M can help and support them in order to meet their expectation and objectives relative to sustainability. I think that's taking me to one thing when I said earlier that we believe that we are better positioned than ever relative to create more value for our customers. We have an initiative called Customer First. Customer First is about understanding our customers' business model and what they have promised their customers. I'm a believer, if you don't understand that, you will only be a transactional player. You need to understand what did they promise their customers, and how can you play in that chain. I think it's important to understand very early because that also where you get more growth, but you also get efficiency in the system.
If there is a way that you cannot fulfill that, what they have promised, you should go away and do something else. It's coming down to priorities in terms of what are 3M all about, how can we focus on what we need to do, and we are here to gain profitable market share as we move ahead. It's a very important element of us. In ending here, I hope you will see today, I'm sure you will see today that the 3M playbook is working. We have laid out, during the last 5 years, the fundamentals of the company, what we're all about, where we would like to play, and how we can win.
It's about the vision, it's about the strategies, it's about all our leadership behaviors and the whole team that you will see here today, not only the individuals that will present, but the whole team are just aligned relative to what we need to accomplish. Then, as I said, what is creating value for the future here is around portfolio management, that business leaders will talk about individually, invest in innovation, which Ashish will talk about, and Julie Bushman will talk about business transformation. By that, I hold it there and hope we will have a good, constructive meeting here. By that, I take and introduce Ashish Khandpur, our Senior Vice President for Research and Development. Ashish, thank you.
Thank you, Inge, and good morning, everyone. It is my pleasure to give you an update on 3M Research and Development. Innovation is central to both our vision and strategies. Investing in innovation is one of the three strategic levers in our company's playbook. We have been steadily increasing our investments in research and development from 5.5% of sales in 2012 to almost close to 6% last year, and have invested $8.5 billion over the last five years. We have a proven innovation model, where the R or the research part of the organization sits at the center of the company and creates technology for the corporation. This technology then gets transformed into products by the D or the product development part of the organization, which actually resides in the respective businesses.
This model ensures that we continue to invest in our fundamental strength of technology, even in tough business conditions. That our common pool of technologies gets commercialized in very different markets through our different businesses. As Inge mentioned, we are a science-based company with a lot of depth in technology. We have 46 technology platforms, and the unique thing about 3M is that no single business owns any of these platforms, but that they are owned by the company and can be leveraged by any of our businesses to serve their respective customers or markets. As a company, we also invest heavily in intellectual property, not only to protect our own inventions, but to obtain and sustain premium margins on our products versus the competition. Technology itself is not sufficient to create differentiated products and solutions.
Our innovation truly comes from the confluence of customer and market insights, technology, and our culture of collaboration and entrepreneurship. Combining these three factors on a routine basis creates a competitive advantage for 3M. Also, as an organization, we believe that the best way to acquire insights is to be close to the customers. Accordingly, we have built a large global presence and infrastructure, as well as technical capabilities close to our customers. We have 54 customer technical centers across the globe where our customers can experience firsthand the breadth of 3M technologies and how they can benefit from them. We also have labs in 36 countries where our scientists work closely with our customers to develop solutions for their specific problems.
In March, many of you had the chance to come and visit our newest lab building in St. Paul, which perhaps gave you an idea of how collaboration is in the DNA of 3M scientists, collaborating among themselves, as well as collaborating with our customers. Feeding this unique culture of collaboration is Technical Forum, a 10,000-plus member grassroots organization of our global scientists and engineers. This forum actually serves as a platform for freely sharing market needs, ideas, technologies, and challenges that are faced by our scientists. This boundary-less collaboration and building on each other's ideas helps 3M make connections between the market needs and our technologies, and also helps us to transfer technology from one market area to another in a seamless manner.
It was in one of these Technical Forum events where a scientist from the healthcare area was sharing his technology to precisely mix different components for tooth restoration that led to an invention by another scientist in the automotive aftermarket area who was trying to mix high viscosity filler materials to repair dents in a car. Of our breadth in technology and depth in technology, our structure, as well as unique culture of collaboration, we are able to take a single technology in many different markets through our different businesses. For example, our adhesive technology spans products from Post-it Notes, where clean removability is key, to structural adhesives, which hold airplanes together permanently.
Not only can we take a single technology in many different markets, we can combine our technologies in a way only 3M can to create highly differentiated products and solutions, and sometimes even create brand-new markets altogether. For example, we have combined our acoustics, integrated systems and design, molding, and electronics and software technologies to invent an electronic stethoscope that has transformed this product category from a simple listening device to an advanced diagnostic tool for the physician. The strength and uniqueness of 3M is our ability to combine and evolve our technologies to serve the very different and changing needs of the markets. Let me share with you some examples of how we are evolving our technology in new and fast-growing markets. Our nonwoven technology originated with the decorative sash and ribbon several decades ago and has found home in multiple markets today.
For example, this technology has been commercialized as disposable respirators in personal safety markets, as scouring pads in home care markets, and as wound dressings in healthcare markets. We continue to evolve this technology through new applications in fast-growing markets like acoustic insulation for transportation, filtration and purification solutions in life sciences, high-performance abrasives for industrial markets, and flash-free dental brackets for healthcare markets. You can see that we have been advancing our technology platforms based on the changing needs of the market and are able to leverage our set of technologies for several decades altogether. Our nanotechnology platform creates differentiation for 3M in multiple markets and product lines today.
Whether it is the dental bulk fill restoratives in healthcare area to improve the productivity of the dentist or high-performance foam tapes for joining applications in industrial markets, nanotechnology has helped 3M create innovations that have often transformed product categories. Presently, we are using the nanotechnology platform to target applications like rapid sterilization assurance in healthcare markets, low maintenance and durable floor care finishes in commercial markets, components for clean energy, and tough composite materials for broad uses in a variety of markets. To build upon and augment our expertise in material science, we have been developing technologies and products in the area of digital.
Here, our efforts are focused along two different pathways, enhancing our existing material products with digital to make them smart, connected, and more useful for our customers, and delivering software and digital solutions that improve workflow productivity and create value based on our in-depth knowledge of our customer processes. Let me share with you a short video of a product from our personal safety business, where we have connected worker safety using digital to improve the productivity of the safety manager while also improving compliance and safety of the workers themselves. Can you play the video, please? That video was a good example of how we are combining our digital capabilities with our material products. In summary, 3M continues to leverage its diversified technology portfolio to create innovative solutions for our customers and our markets.
We are evolving our technology platforms for the changing and anticipated needs of high growth markets, we are augmenting our material science expertise with digital where appropriate to create value for our customers and for 3M. This is how we apply Science to Life and are driving organic local currency growth and premium margins for our company. Thank you very much. Now it is my pleasure to introduce Julie Bushman, who will talk about Business Transformation. Thank you.
Thank you, Ashish, good morning everyone. At 3M, we are well-aligned around our playbook to drive value creation for our customers and for our shareholders. I'm very pleased today to be able to present to you an update on Business Transformation, one of our key three levers. Business Transformation creates value for our customers and our shareholders by increasing our front-end capacity and agility, freeing up our sales and marketing organization to be able from the operational and transactional activities to spend more time with our customers, by further enhancing productivity through standardizing global processes and optimizing our supply chain, by delivering $500 million-$700 million annual pre-tax savings and $half a billion working capital improvement by 2020, and also at the same time, by increasing and improving our customer service levels. Business Transformation starts and ends with the customer.
How are we making it easier for our customers to do business with us? We are improving our quality as well as timeliness of service delivery. We're enhancing on-demand or self-serve type of capabilities for our customers. We're increasing our customer service responsiveness, targeting higher levels of responsiveness, we're enhancing our collaboration and our customer intimacy. What Business Transformation is doing is it is enabling end-to-end transparency and insights, allowing us to better leverage data analytics and to improve that overall service performance. We're building strength on strength, driving to higher levels of customer satisfaction. I'll come back to the financials a little later in the presentation. There are three key elements to our Business Transformation roadmap. The first and foundational is simplification through our global ERP. Second, optimization of our nine global processes that are within scope of Business Transformation.
Third, economies of scale through new service models that we're driving across the company. Together, these three interrelated activities are driving value for our customers and for 3M. Now let's take a further in-depth look at the global ERP. Our ERP is the backbone of business transformation. We're driving not only the simplification in the number of IT solutions, but also moving from fragmented to simplified end-to-end processes that are designed inherently within the ERP. This ERP is enabling global real-time visibility and data analytics across our supply chain, our financial, and our customer processes. As you can imagine, an ERP of this magnitude requires a holistic and thorough approach encompassing the whole company, which we have taken. We began in 2011 by establishing our overall methodology, ramping up and staffing the global organization, and developing our long-term roadmap from both a geographic and a functional standpoint.
Our foundation was built on very strong business leadership alignment. This was followed over the next several years with pilot deployments as we continued to build out the overall solution. We started first with smaller sales and marketing subsidiaries, following by our manufacturing centers of expertise, then into our GSCs. We very successfully deployed over 80% of West Europe with our most recent go live in U.K. and Ireland on November 2nd. As we look towards 2017, we'll be finishing out Europe, moving into the U.S., then followed by APAC and Latin America. We have a very strong deployment program with proven success. Our experienced global deployment team works together with the local and the regional teams around the world to ensure the readiness of our customers, our vendors, as well our employees.
We provide a very extensive preparation for our employees at all levels of the organization from a change management as well as a training perspective. Our global system is mature now. We have very robust testing, controls, and validation in place. We've established global standards and significant quality audits around our data to ensure readiness as we deploy. We've walked through the foundation of business transformation, our global ERP. Now let's talk a little more detail about the other two key elements of our roadmap. We are optimizing across all the critical process areas in the company. You can see on the right-hand side of the chart the breadth of our demand, our supply, and our support processes. This is a significant scope. With this, we're moving from managed complexity to automated simplicity. We're standardizing global end-to-end processes.
We're better understanding the connections between these processes, where defects can occur, risk areas, and handoffs. We're leveraging Lean Six Sigma. We have more than 50 dedicated black belts to the business transformation efforts, with over 100 active projects. We have detailed improvement plans in each of the process areas that include the change impacts, the KPIs, targets for improvement that align to our four corporate financial metrics. All of this is with very strong governance from the center of the company. Most significant to our business transformation value realization is this third key element of our roadmap, our new internal global service models. We're delivering operational excellence by consolidating activities, creating specialization, and driving continuous improvement. We're leveraging economies of scale through these three service models to deliver that $500 million-$700 million annual operating savings by 2020.
Let's talk about these three service models and how we're already delivering benefits. Business Service Operations delivers premier customer experiences by enhancing and simplifying front-end operational processes. Our goal is to improve service delivery to customers by providing robust self-service access to things like pricing, order status, digital content, and shipping information. At the same time, we're working to take the manual effort out of order processing and pricing through simplification. We're also implementing an expanded sales coverage model of inside sales and digital services. We intend to deliver best-in-class customer experience while reducing our overall cost to serve. Our global service center strategy is to consolidate transactional processes with focus by specialized resources.
Examples of some of the services that we have transitioned to our GSCs are things like our financial close, HR requisition creation, sourcing payments, new material or stock number setups, and IT testing, just to name a few. We are standardizing and streamlining these processes using Lean Six Sigma and automation, again, leading to a lower cost to serve. Finally, supply chain centers of expertise, optimizing our supply chain, helping us deliver manufacturing costs at best-in-class levels while improving our overall service to customers. Examples of how this is happening. We're increasing productivity in our plants with improved information on material, labor, machine variances. We're increasing our planning efficiencies with end-to-end data and analytics. We're reducing transportation costs from improved visibility and freight management. We're improving the collection of procurement data, enabling additional sourcing efficiencies.
We're also reducing our duties and brokerage fees through a new global trade system and a new process. You can see here the breakdown of the $500 to $700 million in operating income improvement by each of the three service models. Overall, Business Transformation value realization will have a 2017 EPS impact of $0.05-$0.10, and as well, incremental value realization of $50 million-$100 million. As you can see here, the distribution in 2017 is more heavily weighted to our Global Service Centers and the impact from Business Service Operations. Our teams across the company are mobilized. They're engaged in this transformation. We've recently had successful deployments across West Europe, demonstrating our ability to execute at a high level. The simplification and streamlining of our global processes is happening across the company.
Every day, we're gaining new insights and end-to-end transparency that's allowing us to better leverage data analytics. The new service models are being built out and already delivering operational value. In summary, Business Transformation is generating operational and customer benefits today and well into the future. Now I would like to introduce Mike Roman, our leader of the Industrial Business. Thank you.
Good job. All right. Good morning. It is my pleasure to present our Industrial Business Group and our outlook for 2017. This is an outline of what I'd like to share with you today. I'll start with an overview of who we are, then take a look at where we play and the market dynamics that we face and our outlook for 2017. Then I'll share some specific examples of what we're doing to accelerate growth as we begin the new year. Who we are begins with this idea of strengths on strengths, building strengths on strengths, and we are building a foundation for growth based on the strengths that are represented in our 3M playbook. This starts with the sense of purpose that we have in our vision, and how we take that purpose into our industrial business strategic intent to advance our industry.
Really, all of our customers with what we do to transform how we engage them, how we transform and deliver new products to them, and how we're continuing to transform and deliver even greater levels of leading service in our industry. We also get a clear focus from the playbook on the six strategies and the code of conduct and our leadership behaviors. A focus that enables us to build sustainable business for the long run. We also gain confidence from the extraordinary value that we're able to create with the big levers. It is those levers that are helping us to build a strong foundation for growth as we enter the new year. With what we're doing with portfolio management to shift to high growth, high value portfolios, and how we're leveraging this to optimize businesses facing challenging cycles.
We're taking advantage of investments in innovation to increase our investments in new product platforms, as well as expand our application engineering, and we're transforming ourselves in the way we go to market, as well as how we face our customers and our operations. Pictured here are the businesses that make up the Industrial Business Group, a $10.3 billion business projected to grow at 1%-3% in 2017. All six businesses are global leaders in their marketplace. Four of these businesses represent high-value product platforms that face multiple markets. Our tapes and adhesives, abrasive systems, advanced materials, which is a combination of our specialty polymers as well as our ceramic technology businesses, and our separation and purification business, which is an integration of our 3M purification with the Membrana acquisition.
We also have two businesses that are global leaders in key markets, and they enable us to take the broad 3M portfolio into direct engagement with key customers in automotive, aerospace, and automotive aftermarket. Let's take a look at the markets that we face and the outlook we have for 2017. Our top six markets represent more than $115 billion of addressable market opportunity in 2017, and all six markets are projected to grow. In addition, underlying these markets are key trends that also favor growth for 3M portfolio. Trends such as new materials used in the construction of finished good products by our customers. Trends such as increase in automation and robotics, which require more precise products, in their application. Also a strong trend in sustainability, which creates opportunities for us as well.
I'd like to take a little deeper look at the two markets that we have facing into automotive. Automotive OEM, where we develop and specify products that are part of the bill of materials for our automotive OEM customers, and automotive aftermarket, where we design and specify products that are used in collision repair and auto care. These two markets have been growth leaders for us as we've come through 2016. Growth leaders because of the underlying growth dynamics in the marketplace, as well as our ability to drive penetration in those applications. I'm often asked, "Can we continue this growth going forward? Can we continue to outperform these markets?" I'd like to take just a minute to give you some insights into what we do in each of these marketplaces that can enable us to do that going forward.
The first is the automotive OEM, and you see the growth drivers behind this marketplace. The key growth driver is the build rate of Automobiles and light trucks. In 2017, we'll see more than 90 million new vehicles produced. Fuel efficiency and electrification are also key drivers for our portfolio of products and solutions. Here, we outperform when we're able to solve new customer problems and meet their specifications, when we can introduce new disruptive technologies, and when we can drive penetration across makes and models around the world. We leverage a portfolio of products pictured here, tapes and adhesives, films, acoustic insulation, and increasingly, lightweighting solutions. Looking at the automotive aftermarket, here, our growth is driven first by repairable accident rates, and we saw a 3.5% increase in the U.S. in 2016.
Total miles driven, as well as an increase in the size and age of the fleet are key drivers for both collision repair and auto care. In this market, we win when we are able to provide solutions that enable our customers to be more efficient and more profitable, when we can deliver technology to help advance their performance, and increasingly, when we can bring total solutions across repair and auto care. Pictured here is a portfolio that we bring into collision repair, masking, abrasives, paint systems, and increasingly, structural adhesives. We can continue to drive this penetration strategy well into the future, allowing us to continue that strong growth and ability to outgrow these markets. Stepping back and looking at the broader industrial marketplace, we see some improving trajectory in 2017 that we can take advantage of and capitalize.
On the left-hand side are broad industrial market indicators that we're correlated with, and we see Industrial Production Index improving across all major geographies. Imports and exports have been improving as we've come through the second half of 2016, and we expect that to be positive in 2017. The Purchasing Managers' Index in key geographies is indicating expansion, something we're also hearing directly from our customers. As we look into our CRM pipeline, we can see indications that our sales per billing day is looking to start the new year strong. On the right-hand side are two areas of trends that will also help an improving trajectory in 2017. The first is market cycles that have been a headwind for us in 2016, start to moderate and even improve as we move into the new year. Our product sales into oil and gas are stabilizing.
Our defense business is improving, and our demand for our specialty polymers is increasing. We also see a couple of trends as we look to the channel that we can also take advantage of. Our transnational distributors around the world are increasing share, and our B2B e-commerce is growing at multiples of the market. With our brand and portfolio, we are well-positioned to take advantage of both of these trends. Turning and looking globally at the key regions we face and our largest regions around the world, we see some trends also that improve the trajectory for 2017.
Looking at the U.S., Greater China area, including China, Taiwan, and Hong Kong, the DACH region, including Germany, Austria, and Switzerland, and Japan, we see a common trend that is helping to build momentum for us, and that is what our teams have done to shift their focus to domestic industrial markets. These are domestic customers, our industrial customers, who are producing products for domestic consumption. In the United States, we are taking advantage of driving increased penetration in general manufacturing, as well as increasing our penetration in those automotive aftermarkets. We also see an opportunity for our expanded portfolio in construction. In Greater China area, we're building momentum in this shift to domestic industrial, led by our abrasives and our tapes and adhesives portfolios. We also see a significant opportunity for penetration in both local and joint venture automotive OEMs manufacturing there.
The trends in Greater China area favor our separation and purification portfolio as well. In DACH, we see an opportunity to drive penetration in an improving general manufacturing marketplace, as well as a significant opportunity to drive additional spec in with large global OEMs that are based in that region. In Japan, over the last 10 years, as electronics and automotive manufacturing has shifted outside home country, our local team has been shifting their focus to domestic industrial markets. We have strong momentum off of this, helping to lead our growth in Asia in 2016. We see an opportunity there as well to specify additional applications with large global OEMs based there. Those large global OEMs based in those regions also provide an opportunity for growth elsewhere around the world where they manufacture outside their home regions.
Now, I'd like to look at some specific examples of how we're accelerating growth and how we're enhancing our portfolio, prioritizing high-value new products, and digitizing our go-to-market model. We are actively managing our portfolio in order to consistently outperform our markets. This led us to consolidate from nine to six divisions, improving our relevance with our customers, as well as improving how we focus on high priority, high value, new product opportunities. We leveraged this same view of strategic attractiveness to shape our M&A and how we think about our portfolio. This led to the acquisition of Membrana and also the divestiture of Polyfoam and PolyMask. Looking closely at the fundamental strengths of technology, manufacturing, global capabilities, and brand in each of those cases. We also use portfolio management to look deeper into our portfolio of products and businesses.
We've identified new business models for some of our legacy businesses, models that help us optimize the value they can create. Take greater advantage of leveraging the 3M brand, also think about how we do innovation. We still work to innovate in these parts of the portfolio, but innovate to maintain a strong market leadership or market position. These new models create space for additional investments in high growth, high value product areas, like the biopharma filtration and acoustic insulation examples pictured here. We leverage this increased investment to expand our go-to-market models, develop new disruptive technology, increase our investment in innovation here, really driving investment in new product areas that can accelerate our growth. We also leverage our portfolio view to identify opportunities for near-term growth. Here are two examples of where we are making a surge investment as we go into 2017.
The first is in our engineered abrasives, where when we demonstrate our superior performance with our customers, we win. That's what we're doing as we move into the new year, increasing our investment, expanding the numbers and frequencies of the demos in front of our customers. We're also investing in new applications of our precisely engineered abrasives for automation and robotics. We're making investments to be more flexible in our make-to-order product capabilities to meet every customer need. Looking at assembly solutions, we are focused on increasing our investment to win new customers. Here, we're investing in deploying additional technical expertise, both online and offline. Bringing that capability to our customers enables them to see the broad portfolio that can enable their customer designs and see how our products are fast and easy to use, improve their productivity. Getting in front of them, we win new customers.
Together, these surge investments will help us accelerate growth, delivering more than 50 basis points of growth in the new year. While we're correlated with broad industrial market indicators like IPI and imports and exports, we also are able to take advantage of strong trends underlying our markets and create new products and drive new innovation to drive greater growth for our business group. Here, I pictured several strong trends in our marketplace. A demand for greater and greater energy efficiency is leading to increased demand for a portfolio of lightweighting solutions. Automotive electrification, it drives opportunity for our electronics businesses, as you'll hear from Jim Bauman later in the morning, but it also demands new materials, new materials that require new assembly solutions. Our customers are focused on driving increased process efficiency, they're demanding a step change in productivity and yield from our products and applications.
More and more customers are demanding improvements in sustainability. Not only new raw materials, more sustainable raw materials, but partners who have a strong track record of being sustainable in their day-to-day operations as well. As I said, automation is a strong trend in general manufacturing. This requires higher performing, more precise, and higher quality products to use in their applications. Digitization is having a broad impact on industrial businesses, including customers now looking for total solutions in their application, beyond one product, but to a total system solution. We have an approach to take advantage of these trends and drive innovation. We have a systematic approach through the three strategies pictured here. In customer-driven, we're focused on leveraging customer-inspired innovation with one-to-one customer engagement, identifying their articulated and unarticulated needs.
We leverage insight-to-innovation to look across markets and customers and develop new product opportunities through that. We've increased our investment in application engineers, having more people close to our customers, solving their problems with our existing portfolio. Under disruption-driven strategy, it's about creating disruptive new 3M technologies that can create new markets or can meet the demands of leading-edge customers. Finally, an M&A-driven strategy, where we are building out through M&A, our existing platforms or adding new platforms. In each case, leveraging the fundamental strengths so that we can continue to deliver differentiated growth once the acquisitions are integrated into our businesses. This is leading to a balanced approach and a balanced result in high impact, high return new products. You see examples of each of those strategies pictured here.
Under customer-driven, we are bringing our Cubitron II, our precisely engineered abrasives, into new applications in collision repair. We have a partnership with a company called Festool, a leading provider and manufacturer of abrasive sanding systems, to bring a dustless solution combining our two capabilities. This is helping us to extend our leadership in this $1 billion-plus business for 3M. Under disruption-driven, we are innovating and bringing a portfolio of building insulation solutions to help advance commercial construction, helping to invigorate a fast-growing $500 million construction market business. Under M&A, as an example of technology that we've acquired through the Ceradyne acquisition, something called Friction Shims, which are used to transfer power in automotive transmissions.
We've combined the technology from Ceradyne with our technologies, our manufacturing processes, and our global capabilities in brand and engagement that we have with the automotive OEMs around the world to bring a new, higher performing version of Friction Shims, giving a step change improvement to our customers and helping us to expand this $500 million 3M business. Finally, we are winning in the marketplace and creating competitive advantage with how we are transforming our customer engagement, how we're engaging our OEM direct customers, our value-added resellers, our industrial distribution partners and a broad range of customers through e-commerce. An important part of this is what we are doing to digitize our B2B go-to-market models.
When you look at end users, we're creating a high-touch online connection, going deeper into customer insights and analytics so that we understand exactly how to engage our customers where they want, when they want. We're leveraging business transformation to help expand the access for our channel partners across our portfolio and to streamline how we engage with them. In e-commerce, we are leading a build-out of rich content as well as embedded brand stores with our partners. All of this is adding to us being able to win new customers, leveraging these digital strategies. There you have it, a compelling case to invest in the 3M Industrial Business Group.
A case built on a highly attractive portfolio of businesses and market positions, a case built on an improving trajectory for our market dynamics, and a case built on what we're doing to accelerate growth through new products and a transformed go-to-market model. All this leading to delivering more than one and a half times our market in growth in 2017. Thank you.
Good morning. I'm Jim Bauman, and I'd like to welcome you to the outlook update for the Electronics & Energy Business Group. The agenda I'm going to follow today is who we are, how we're improving our business, and I'm going to give you some examples of how 3M is advancing a connected world, and how that's going to grow our portfolio. Enabling connectivity in every company, home, and life has never been more pervasive. Our 3M vision and the strategic intent of the Electronics & Energy Business Group aligns well to advancing a connected world through our technology products and innovation. Electronics & Energy is a $4.8 billion business group. 60% of our business is in electronics and 40% is in energy. In electronics, we provide high-performance films, which you know quite well. We do so much more.
Our $1 billion design material business includes products that enable precision assembly, keeps devices running cooler through thermal protection, and we have products that shield from signal interference. In addition to this, in our electronics portfolio, our Novec products offer a sustainable choice to problems ranging from fire protection to electronic cleaning. With low global warming potential and short atmospheric lifetime, Novec fluids don't deplete the ozone layer. In semiconductor manufacturing, we provide solutions that enable uniformity, cleanliness, and precision, and with our Novec fluids and the use of Trizact technology for wafer pad conditioning. In energy, you know us as a company that's been developing and supplying reliable connection to utilities for over 70 years. Whether it's to the grid or to the communications network, our infrastructure solutions are designed for ease of installation in very demanding applications and environments.
Our high-performance films in the energy segment are used in a variety of different applications, from controlling sunlight in buildings and vehicles to reducing the cost of cooling and heating. Our tapes, adhesives, and coatings provide dependable electrical insulation, they seal against moisture, and they're providing mechanical protection, even extending the life of wind blades. We help our customers supply a reliable connection to the grid, reduce the cost per watt to produce energy, and reduce their costs of operations. We're always uncovering new ways to create new products in these businesses. We continue to improve our business through portfolio prioritization, and we've taken a number of actions, consolidating, divesting, and exiting businesses to strengthen our portfolio. This has increased our customer relevance. We've been able to reallocate resources to better opportunities.
We've been driving efficiency and productivity, but most importantly, we've driven over 300 basis points of operating income. That's allowed us to focus on differentiated, longer cycle, higher value markets. On the left-hand side of this chart is our core. It's a large addressable opportunity, but it's slower growing. On the right-hand side is our higher growth markets. These are longer cycle. We have initial penetration in these businesses with some very exciting applications. These markets clearly offer faster growing, higher value opportunity. Our access to these higher value markets is built on the 3M playbook that you've been hearing about this morning. We're using 3M technology platforms as our foundation. We then build strength on strength by leveraging our relationships with existing customers, as well as those that are emerging as leading innovators in these spaces.
In every one of these markets, we have a position, we have a growing portfolio aligned to these customer needs. This is not a new formula. 3M wins every day in the marketplace with this combination of linking technology and leveraging customers, and this is our key to success into the future. Before I talk about how we're going to advance a connected world, let me give you a view to our 2017 outlook for Electronics & Energy. We are projecting an organic volume growth of -3% to +1%. Our core is made up of some slower-growing markets, which includes continuing headwinds in the electronics markets. The risk in 2017 is continued slowing of consumer electronic devices, especially smartphone, tablet, and PCs. We are estimating the LCD to OLED transition to be a 1% to 3% headwind, depending on mix and volume.
That's $50 million-$150 million for our business. There's also the impact of the portfolio we exited, such as the backsheet business. We have a number of businesses that are going end of life, and our project-based businesses as well. Our core growth programs are going to concentrate in LCD and OLED penetration with all major manufacturers, and we're going to gain share in the electrical construction, driving additional growth in semiconductor with our new applications. With our reallocated resources, we're aggressively going after data center solutions, gaining automotive spec in electronics, and expanding new applications in Novec fluids. 2016's been a challenging year for us, but we're well-positioned to take advantage of our new portfolio and make progress in our growth plans this year. In fact, it's my personal goal and my team's imperative to grow the electronics and energy in 2017 despite the headwinds.
We can do this with a number of really good growth programs aligned to our direction. Let me transition now to how we advance this connected world. By 2020, it's estimated that over 25 billion devices will be connected, including mobile devices, our automobiles, energy resources, wearables, and industrial robots. Content's going to explode, with 80% of that being video. That means infrastructure's going to double in order to handle that growing bandwidth. This will have a transformational effect on data center capacity. The megatrend on connectivity is undeniable, and there's a strong, compelling business case on how 3M takes advantage of this megatrend. In electronics, we enhance visual experiences far beyond display screens using our deep expertise in optical science.
We're known for enabling thinner and brighter displays. We also ensure critical electronic systems are reliable. We bring solutions that customers can use to advance the next generation of electronic devices. We enable design and function by combining multiple sets of advanced material technologies to manage light, heat, and signal interference. We're improving data centers today by enabling higher interconnect density and novel interconnect designs that meet the needs of data center reliability and energy consumption. We're advancing a connected car with solutions in displays, battery materials, and thermal management systems. I'm going to talk more about each of these in a minute, but let's first begin with enabling design, function, and enhancing visual experience. Today, we have a $1.1 billion smartphone business. $600 million of this business is in films. It's a business that was largely built on LCD technology.
We're highly engaged with customers today. We understand their roadmaps. We're also highly engaged with all the leading manufacturers around the world. We have proven the ability to differentiate the portfolio we supply in the smartphone market. We're a leader in optics and light management. We have a breadth of capability in advanced electronic materials. We have the ability to quickly scale high-volume manufacturing around the world. Top of mind is our OLED offering. Let me highlight a number of applications we have today in these devices. First of all, recognize there is an OLED display in the center of this stack. It's about one to two microns thick, and it's true we don't have content in that particular part of this device.
However, we have a number of offerings across the entire enclosure and across the entire device. We're penetrated into existing OLED smartphones. We're going to continue to concentrate on this growth. This is our opportunity to specify 3M solutions. In the future, we're even more excited about our ability to enable new flexible and foldable designs with our advanced film technologies. Flexible and foldable OLED requires unique film technologies. We're working with leading customers now to help bring those innovative design ideas to life. Our business extends far beyond display. For example, our products that improve the performance of data centers. Data centers are about capacity, reliability, speed, and signal integrity. These are customer requirements that we serve today. We're going to serve in the future. The market is $55 billion, it's growing 10%, and it's driven by growth in cloud and hyperscale computing.
We see data rates and traffic increasing threefold over the next five years. Today, 40% of the energy demand for data centers is in cooling. Finally, in maintaining uptime and reliability is critical as well, as the cost of unplanned downtime can exceed $10,000 per minute. 3M Novec fire suppression fluids, which have been used in data centers for over 10 years, help operators avoid downtime caused by equipment damage from potential fires. Our Novec-engineered fluid also help manage heat to improve energy efficiency. This is an emerging area where we are providing fluids for immersion cooling. We're working with 10 high-speed, high-performance, high-capacity data centers with immersion cooling applications. Several are commercial. We see this growing. Versus conventional cooling methods, our solution will reduce cooling requirements by 95%.
In fact, the world's most energy-efficient supercomputer, number one on the Green500, based in Japan, is cooled with 3M fluids. Finally, our optical interconnect solutions enable the adoption of higher data speed and signal integrity using unique optical connections at the board level. We're in a development program now with a company that could deliver a $100 million platform for us in this area. We're also advancing the connected car. You know the market drivers very well. This is the use of larger heads-up and high-definition displays, and it's growing over 10% per year. The cost of electronics in vehicles are going to surpass all other costs by 2030. Plug-in, hybrid, battery-powered vehicles are going to become mainstream, and we have decades of automotive industry experience.
We work closely with OEMs, tier suppliers today to improve display quality, improve battery density, and enable new designs by combining multiple sets of advanced technologies to manage heat and signal interference. Our technology solutions touch nearly every system that's going to be important to the future of an electrified vehicle. We're building from a position today of over $100 million, and we see a way to 5x this position. This is from glass to batteries, displays to sensors. We're deploying the 3M technology toolkit to solve new problems. In fact, we have an application today in a well-known car where we provide a non-metallized solar film in the windshield. The film provides heat management, but more importantly, it's a vehicle without signal interference due to that non-metallized solution. This is technology that grew from our multilayer optical films.
As more and more sensors are incorporated in the vehicle, especially in the windshield, we're enabling a car to be connected to the outside world. In the area of power density, the industry has been working on batteries for over a decade to improve that density by 1%-1.5%. We have a technology in development today and being tested by a number of battery manufacturers that delivers 6%-10% improvement. That's game-changing. These technologies are how we advance a connected car. In energy, increasing connectivity is becoming equally important. We advance a connected energy world by connecting people at the speed of light with our fiber optic solutions. We advance a connected energy world by improving the reliability and efficiency of energy delivery with our Cold Shrink terminations that can be installed in a fraction of time without the need of special equipment or permits.
We're advancing distributed power networks by helping utilities gain visibility to their underground distribution networks. Sensor termination cable accessories, combined with multiple sets of advanced materials, are making solar, wind, and energy storage more efficient and more reliable. Let me tell you about our solutions for grid automation. In developed countries, electrical and gas distribution infrastructure is aging, and it's leading to that high-profile safety incident, such as the recent manhole explosion right here in New York City in September of this year. At the same time, there's growth in distributed energy resources, and this is creating integration challenges across the grid. In developing countries, peak load is rising two to three times faster than average, and it leads to blackouts, like the one that happened in India that left over 300 million people without power.
In countries like the U.S., the U.K., and Singapore, the distribution network is moving underground. In the U.S., the percentage of underground distribution increased from about 20% to over 40% in the last 10 years. Our locating and mapping solutions help utilities precisely locate underground assets, and this helps them manage their costs as well as avoid costly mistakes. As I mentioned earlier, our sensor termination cable accessories help utilities gain visibility to their underground distribution grids by providing highly accurate voltage and current in real time. They can retrofit these by simply replacing a standard medium voltage termination with our product. This means a utility can gain grid automation capabilities as part of their scheduled maintenance and their upgrades. At 3M, we're also focused on the fundamental efficiency, reliability, and durability problems that enable the next generation of renewable energy and storage.
Utility scale and distributed renewable penetration continues to provide opportunities for solar, wind, and storage. We see renewable electricity capacity growing by roughly 40% by 2021. However, the additional capacity causes some challenges. You're all familiar with the California duck curve, where oversupply occurs midday as solar floods the grid, but then it comes offline just as people are coming home and ramping up demand. This represents a great opportunity for energy storage, both into the distribution center as well as behind the meter. Cybersecurity concerns and the increasing severity and frequency of disaster events are driving regulation and customer demand for backup power. This opens up opportunities for our fuel cell and flow cell batteries.
Beyond forklift trucks, where we have applications today, fuel cells are becoming increasingly competitive as alternatives to generation sets, and improved technologies are going to become serious power storage devices for the future. Our solar light redirecting films, which is a micro-structured reflective film applied on a solar panel, recaptures and redirects light that would otherwise be lost. 3M's vortex generators help wind farm operators optimize blade aerodynamics to achieve high energy yields. This has been a challenging year for the electronics and energy business due to many market dynamics. It's also an exciting time as we evolve our portfolio through game-changing technology and customer relevance to advance a connected world. This is how we're going to advance every company, enhance every home, and improve every life.
At this time, it is my pleasure to introduce Mike Vale, who's going to talk about 3M's healthcare business. Thank you.
Thanks, Jim. It's my pleasure to be able to talk to you about 3M the healthcare business and our outlook for 2017 and beyond. My presentation this morning is going to look at a number of core areas, the business overview and the key themes of the business, how we see ourselves winning in an attractive but changing landscape, and how we are going to drive growth acceleration in 2017 and beyond by focusing on high-growth markets and key geographies, driving impactful technology supported by clinical evidence into the market, and increasing our customer engagement globally. As you've seen today, 3M is a very diversified science-based company, there are many unifying factors that bind the company together, none as powerful as the 3M vision statement. When you look at this, 3M healthcare embodies all aspects of the 3M vision, as all 3M businesses do.
As you heard Inge describe this morning, healthcare is uniquely identified with that last statement, 3M Innovation Improving Every Life. Our healthcare employees worldwide come to work every day driven and passionate about that mission statement and about executing our global strategic intent, which is care pathway innovation for improved and cost-effective health outcomes. This is a strong business, consistently delivering market-leading growth rates at industry-leading operating margins.
In 2017 and beyond, we will continue to deliver those growth rates and performance driven by the depth that we have in all of 3M fundamental strengths, the new product pipeline and portfolio that we are bringing to market and that we are leveraging already in the market, and the fact that we are investing in core aspects of the business today and developing new capabilities to amplify our growth impact in the market for tomorrow, all while staying disciplined in our focus on driving the three value creation levers of the company: portfolio management, investing in innovation, and business transformation. In 2016, the business will deliver $5.5 billion in sales, deliver operating margins of above 30%. We are structured in five core market segments, ranging from medical consumables, to oral health, to drug delivery systems, to health information systems and finally, food safety.
All of these markets are large, they're global, and they're growing. When you look at the slide here, when you look at the portfolio of the business, we are unique in the space. No other healthcare company in the space plays in this many segments of the market at scale, competitively and effectively. What you're seeing is a reflection of the depth of 3M's technology platform and the business's capability to bring the platforms effectively into market for healthcare consumers. We're very confident about our growth outlook going into 2017 and beyond because the markets themselves continue to be quite attractive. The causal drivers of consumption continue to point to increased demand for healthcare needs, growing population, increasing longevity, increasing middle class disposal income, advances in medical and digital technology, and the higher awareness and visibility of chronic and pervasive disease states.
You see the impact of these causal drivers, macro trends reflected in the outlook of healthcare expenditures on a global basis, which over the next five years are going to be in the mid-single digits on a worldwide basis and going up to double-digit growth rates in developing markets. While the overall macro outlook is very positive, we recognize that the market itself is changing. We know this because of our intimacy and connectivity to our customer base on a global scale. The needs of our customers, whether you are in oral care or medical markets, whether you are in developing or developed economies, is the same. They want broader access of their customers to care, better patient outcomes, better patient experience, improved outcomes, and they want to do all three at reduced cost.
These needs of our customers are reflected in the dynamics that we see in the market today, again, on a global basis, both in the near term and the foreseeable future. 3M is very well-positioned to win in this changing space, because fundamentally it plays to our strength. We as a company, we as healthcare, are all about improving performance at reduced cost. So we are very confident going into this market space in our ability to accelerate growth. That confidence is reflected because of the depth and breadth of our core portfolios across the business, but not only because of the technological strength and performance of our portfolios, but also because of the scale and pervasiveness of the challenges that we face in the market. Let me give you three examples of this.
Infections in hospitals today are one of the greatest cost amplifiers or cost complicating factors in care settings. There have been one in 10 patients that go into hospitals will acquire an infection while they are in the hospital. In the United States alone, there were 75,000 deaths last year from hospital-acquired infections, and the cost to treat those infections was over $10 billion. 3M is a leader in preventing infections within hospital and care settings. Whether you look at our sterile drapes and normothermia products in the OR, or the biological indicators that we have in the central sterilization units of the hospital settings, we are focused on reducing deaths, reducing costs, and making hospitals more effective. When you move to food safety, last year, there were 400,000 deaths globally related to food contaminated causes.
In the United States alone, there were 150 recalls of contaminated food in the market, each recall costing on average $10 million per occurrence. Our portfolio backed on Petrifilm indicators, pathogen and allergen detection makes contaminant testing more effective across the food supply chain, and it preserves the brands and quality of our partners and protects the consumers in the marketplace. Finally, health information is a critical component of the healthcare system, and it is also the source of one of the largest waste factors in the overall system. Annually, there is roughly about $750 billion in excessive cost in the healthcare system that is attributed to unnecessary services, inefficient delivery, or excessive administration costs in hospitals.
Our 360 Encompass platform, combining natural language processing, coding, and grouping of healthcare terminology, helps hospitals become more efficient and more effective in getting the right level of care at the right moment to patients in the care setting. These problems and these portfolios are global. While we continue to drive the growth in the U.S., which is our core, where we have our strongest technology, our strongest market position, we will continue to drive towards expanding our position in international, in both developed and in particular, developing economies. In these developing economies, in the large population centers where the macro consumption indicators are even higher population growth, faster middle class wealth rising, and greater pervasiveness of chronic illness. We are going to see double-digit growth rates, and we're investing into that starting this year and going through a multi-year investment program.
As we drive towards building out our educational priorities in these countries, building coverage and contact with the customer, advancing and expanding market access to change and upgrade practice in the country, leveraging and customizing our portfolio to the needs in these developing economies, and building out the local team capability. Fundamentally, we are leveraging all four fundamental strengths of the 3M winning playbook. We will access, or we do access over 2 dozen of the company's technology platforms. We leverage the network of manufacturing sites across the world, both dedicated 3M healthcare sites as well as larger 3M super sites. We are embedded and leveraging the subsidiary network to be closer to our customers across the world, and all of this is unified under the 3M brand promise, that exemplifies quality, trust, and innovation, bringing to life Science Applied to Life.
When you look at those four fundamental competitive factors, competitive strengths of the company, nothing is as strong for us as the depth and breadth of the technology platforms. Our ability to develop, leverage, and combine the technology platforms at the center of the company is the real differentiating competitive factor for this business. It underlies the core portfolios that we have today across all six divisions, and it helps us create the platforms for the future that we will evolve our business positions into on a global basis. We bring innovation to market in a variety of forms and ways, both refreshing our core portfolio in the spaces that we serve today, transforming the markets and the portfolios that we're in the core elements of the business, but also developing disruptive platforms that will take us into new spaces for growth acceleration.
In 2016, over 25% of healthcare's business will come from new products, and we anticipate that that will continue to be and expand over the course of the next five years. We're focusing the technology on more and more large market opportunities to help us accelerate the already strong growth performance that this business has delivered. Fundamentally focusing both on material science in the areas of advanced wound care, sterilization monitoring and food testing and detection, as well as increasingly digital science in the areas of population health measurement, inhalation drug delivery, and digital oral care. I'll go through two of these examples for you now in more detail. Advanced wound care is a $7 billion market that's growing in the mid to high single digits.
It is driven by the need to treat wounds that are complicated, complex, and persistent in nature, where the body's own healing processes are ineffective, and it is tied to pervasive and chronic illness. Diabetes is a global epidemic, and it's growing. $1 trillion a year globally is spent on dealing with diabetes and the complications coming from diabetes. One of those complications is the impact it has on skin cohesion. As you can see here with the example of the diabetic foot ulcer. These are very tough wounds to treat. It is a multi-stage care pathway. No healthcare company in the world has a presence in each stage of this care pathway. 3M is coming to market in 2017, and in the following years, with disruptive and impactful technology that will be in every stage of this care pathway for treating advanced wounds.
We will be combining our technologies on adhesives to create gentle but effective on skin adhesion, but also allowing us to incorporate different agents that promote active healing within the body. We will be using our film technology and our nonwoven technology platforms to create form factors that will be greater visibility for the care practitioner as well as superior breathability to the wound as it is healing. The combination of all these technology platforms and performance in these products will deliver faster and enhanced healing rates for the patient, and we feel that we have an opportunity of $700 million over the course of the next 5 years to drive this business. Let's move now from material science to digital science. As you know, global healthcare systems are moving from a volume-based model to a value care-based model.
In order to reduce costs and drive effective outcomes in a value-based care model, hospitals and practitioners have to have access to data. What's happened to the patient before? What's happening right now? What are the predictive outcomes that could happen in the future? They need it in real time. Today, healthcare systems globally are constrained by fragmented financial and healthcare clinical data. 3M is partnering, as we've announced, with Verily to create the Performance Matrix. We will take our vast expertise in health and clinical data, represented in reimbursement coding, clinical data, and diagnostics, and we will combine it with Verily's scale and domain expertise in data analysis to create the Population Health Management platform.
This will be a real-time platform that will process 1 quadrillion cells of data simultaneously, looking at data from providers, sources of care, patients, locations, and outcomes to provide the practitioner in real time a comprehensive history and options for what to do with the patient while they are in the care setting. This is a platform that is unique to the world. It is unique to the world, and we feel that it will be able to help us attack $500 billion of identified waste in healthcare spending globally. Since we have announced the deal with Verily, we have moved rapidly towards prototype testing, beta testing. We have multiple partners coming to work with us in the development and commercialization of this platform, and we anticipate launch in Q2 of next year.
While we are a healthcare technology company, we recognize that technology in and of itself is not enough in a value-based care space. We have been investing now and will continue to invest at a rate of 2 to 3 times prior levels in new capabilities that will showcase the impact of our technology in the market in more clinical settings. We will be investing to expand our capability in clinical studies, which will show the effectiveness in real-time, broad-based care settings, and we will be taking that clinical evidence and using expanded health economics capability to show the impact in a cost reduction and effective way to the hospitals and practitioners where we are deploying these product lines.
We will be investing across 12 clinical categories, focusing in 10 key geographies, and we think that this will allow us to drive over half a billion dollars of sales acceleration in the coming years. Finally, we are increasing our engagement with our customers. In 2016 alone, we have driven and educated 400,000 healthcare professionals globally through our 3M Health Care Academy. We have deployed over 350 online courses for training and development. We have staged over 10,000 customer events and training sessions around the world. We build intimacy with our customers in both direct classroom settings, and we deploy content in both static and mobile environments globally. We are increasing our presence in scientific congresses, industry trade shows, and professional seminars around the world in our key geographies.
By doing this and increasing our intimacy and connectivity in the marketplace, we are able to showcase our expertise, we are able to help develop our customers' capability, we are able to change preferences in the market and catalyze action and drive purchase intent. When you look at the combination of all these factors, we are very confident in the outlook of this business to deliver the 3%-5% organic growth and lead the company going into next year and beyond, to continue to outpace the market segments that we compete in, to deliver industry-leading operating margins built on the fundamental strengths of this company, our deep technological innovation, and a capability to evolve it into impactful solutions in the market. We continue to invest in the core capabilities and new capabilities of the business model, both in 2016, 2017, and beyond.
I have been with the company now for roughly 25 years. I can tell you, this is the most exciting role I have had in the company because I can see the value that we are going to create in the marketplace, the impact that we are going to have with our customers, and the improvement we will make in the lives of patients around the world. This business exemplifies everything that is in the 3M vision. We will continue to execute our strategic intent care pathway innovation for improved health outcomes, and we will continue to drive the 3M goal of Science Applied to Life. Thank you very much. Now I will introduce our Chief Financial Officer, Nick Gangestad.
Good morning. It's great to see everyone here today. Thanks for coming and joining us as we share our plans for 2017. Before I address our 2017 outlook, let me provide a few comments about how we're seeing 2016 closeout. We continue to expect to see positive low single-digit organic growth in the Q4, which will bring our total year organic growth to approximately flat. Our business operations remain strong and on track. We expect another year of delivering strong cash flow and premium returns on invested capital. On a non-operational front, the recent strengthening of the U.S. dollar is creating some earnings headwind as we finish out the year. As a result of FX, we now expect full-year EPS to be at the low end of our current guidance of $8.15-$8.20, or up 8% year-over-year.
Now let's look to a summary of 2017 sales growth, EPS, and free cash flow conversion. As you've heard throughout the morning, our team is focused on executing our playbook and making investments to deliver our long-term success. Looking at 2017, we expect GAAP earnings to be in the range of $8.45-$8.80 per share, up 4%-8%, primarily driven by organic growth and operations. We expect organic local currency growth between 1% and 3%. We expect foreign currency translation to reduce revenue between 1% and 2%. Finally, we anticipate another strong year of free cash flow generation with a conversion rate between 95%-105%. Now let's take a look at the overall financial headlines on the next slide. In 2017, the main drivers of our year-over-year growth in GAAP EPS will come from organic growth, along with strong operational performance.
That strong operational performance will come particularly from business transformation value realization and improved utilization. Those items will more than offset the non-operational headwinds we are seeing from FX and pension. We generate, at 3M, consistent and healthy cash flow due to the strength and diversity of our business model. In 2017, we expect another year of effective capital deployment funded by operating cash flow with added leverage. As always, investing in the business to fund efficient growth remains our top priority. That includes CapEx and R&D, which propels organic growth, as well as strategic acquisitions, which augment our growth. While we invest in the business, we also plan to continue returning cash to shareholders via dividends and share buybacks. Our team continues executing our playbook and controlling the controllable. Let's move to take a closer look at 2017 organic growth.
As mentioned earlier, investing in organic growth remains our top priority. In 2017, we expect organic growth in the range of 1%-3%, largely volume related, along with continued positive core selling price growth. We expect organic growth to add between $0.20-$0.50 to EPS in 2017. In developing markets, we expect organic growth to range from 1%-4%. In developed markets, we are expecting growth between 1% and 3%. Our 2017 plan is built on an estimate that a global Industrial Production Index, or IPI, will grow between 1%-2%. We expect our investment in the combination of R&D and CapEx to again exceed 10% of revenue as we continue to fund efficient growth in 2017 and beyond. Let's now look at organic growth by business.
Healthcare and Consumer are expected to lead our 2017 organic growth, with Healthcare up 3%-5% and Consumer up 2%-4%. We forecast organic growth in Electronics and Energy to be in the range of -3% to +1%. Finally, organic growth in our industrial-related businesses, namely Industrial and Safety and Graphics, are each estimated to grow between 1% and 3% next year. In 2017, we anticipate the second half growth to be slightly stronger than the first half, particularly in our Healthcare business. Let's now move on to organic growth by geographic area. As you can see, we expect similar organic growth across our major geographic reporting areas. We estimate organic growth in the U.S. will be between 1% and 3%. We expect organic growth in EMEIA to be in the range of flat to +2%, with West Europe increasing in the low single-digit range.
In Asia Pacific, we anticipate 1%-4% organic growth, with both China and Japan increasing in the low to mid single-digit range. Latin America/Canada is expected to grow between 2% and 4%. Next, I'll walk through our investments in Research and Development and CapEx, which support and drive organic growth and premium returns into the future. Let me start with R&D. As you've heard from the other presenters this morning, innovation is the heartbeat of our company and one of our four fundamental strengths. We connect 46 technology platforms to solve real problems for our customers, which enhances our relevance with our customers, along with supporting premium margins and return on invested capital. We are evolving our technologies into new and fast-growing markets to advance our organic growth. R&D is a significant part of our commitment to building 3M for both short-term and long-term success.
We expect R&D investments to be approximately $1.8 billion or 6% to revenue in 2017. Let's now move to our CapEx investments. Like R&D investments, CapEx also fuels our efficient growth and profitability. Portfolio prioritization drives our CapEx investment decisions, ensuring we are investing fully in our most promising growth opportunities. Our manufacturing capability, which is another of our four fundamental strengths, is leveraged across our business portfolio. We are increasing investments on disruptive technology and automation, which continues to enhance our growth and profitability while also advancing product quality. We expect 2017 CapEx investments to be in the range of $1.3 billion-$1.5 billion, or approximately 4.5%-5% of revenue. Let's now take a closer look at the impact of 2016 divestitures. Acquisitions and divestitures strengthen and focus our portfolio of businesses. Acquisitions augment our organic growth.
In 2016, we made solid progress in managing our portfolio as we took action and sold two small non-strategic businesses, which will create approximately a $0.05 earnings per share headwind in 2017. This headwind does not include the impact of our recently announced pending divestiture of our identity management business. Our ongoing portfolio management process frames up our priorities for both organic investments along with acquisitions and divestitures. On the acquisition front, we continue to have an active pipeline with focus areas in Healthcare, Safety, and parts of Industrial. Let's now look at earnings per share impact of foreign currency. As I highlighted earlier, we expect foreign currency translation impact on revenue to be a headwind of 1%-2% in 2017. Our earnings per share estimate includes the impact of foreign currency translation on sales and operations, net of gains from hedging.
In 2017, we expect to face a headwind of approximately $0.20 per share due to the stronger U.S. dollar, and for this calculation, we're using November month-end exchange rates. It also includes the net impact of any hedging gains that we experience as a result of this stronger U.S. dollar. Let's now move on to the earnings per share impact of raw materials. We have a long track record of delivering raw material savings, and we expect that to continue in 2017. Our benefits in 2017 are largely driven by our sourcing team's negotiation, material substitution, and productivity efforts, which are expected to add $0.10-$0.15 to our earnings per share. As a reminder, raw materials and purchased finished goods account for approximately one-half of our cost of goods sold. Let's move on to value realization impact from business transformation.
Earlier this morning, you heard from both Inge and Julie as they talked about business transformation being one of our three key levers. This lever creates value for our customers and enhances our efficiency in our own operations. Our ERP is the backbone of our business transformation efforts, providing the platform to simplify, standardize, and automate our global business processes. Our focus in 2017 is on completing our West European deployments and then shifting to initial deployments in the U.S. As a reminder, 2016 was our first year of operational savings from business transformation, with approximately $50 million in savings. In 2017, we are expecting another $0.05-$0.10 of incremental year-on-year earnings per share benefit through value realization in business transformation. As Julie mentioned earlier this morning, our 2017 savings will be primarily generated from our Global Service Centers and our business service operations.
Let's now take a closer look at where we expect additional productivity savings. Continuous improvement and driving productivity each and every day is a way of life at 3M. On top of our business transformation savings, we expect an additional earnings per share benefit of $0.10-$0.20 from improved utilization and productivity. This benefit is net of inflation and is built on an expectation of improved volume-related utilization versus the headwind we've experienced in 2016. We also continue to drive Lean Six Sigma company-wide, with an emphasis on our global supply chain and on business transformation. Let's now transition to the impact of strategic investments on our 2017 earnings per share. 2016 was a strong year of making strategic investments, and we expect that momentum to continue into 2017.
We will add to our targeted investments to accelerate growth in profitable core markets, and another part of our business model is to continuously reinvest in the business to drive productivity. This includes our efforts to optimize our supply chain footprint. In 2017, we expect year-on-year incremental strategic investments to be a $0.05-$0.10 earnings per share headwind. Let's now shift to retirement benefits impact in 2017. Retirement benefits per share impact next year is expected to be neutral, up to a headwind of $0.10. We estimate year-end 2016 worldwide pension OPEB funded status to be 85%, with the U.S. pension plan at 91%. Our 2017 assumptions include the U.S. discount rate at 4.38%, which is down slightly versus last year. We're also lowering our return on asset assumption by 25 basis points to 7.25% as we continue to prudently manage our investment portfolio and our return expectations.
Our 2017 cash contributions to our defined benefit plans are expected to be in the range of $300 million-$500 million. As a reminder, we have closed or frozen the majority of our defined benefit pension plans around the world. The change to defined contribution plans has provided employees with greater portability and flexibility. Let's turn to the next slide for a closer look at our effective tax rate impact. We plan to further optimize our supply chain and utilize our centers of expertise to improve efficiencies and drive down our structural tax rate. In 2017, we anticipate our tax rate to be in the range of 28%-29%. This will result in an earnings impact of neutral to a tailwind of $0.10 per share.
Our forecast is not inclusive of any future corporate tax reform. Let me take a few moments to make a few comments on this since it's top of mind for many. For years at 3M, we've been engaged in corporate tax reform discussions. We are encouraged by the recent dialogue and the positive momentum on the potential of comprehensive tax reform in the U.S. We have analyzed and continue to analyze the various proposals and the potential associated impact on 3M and will respond accordingly to whatever outcome occurs. Let's now shift topics to returning cash to shareholders. 3M has a long history of returning cash to shareholders via dividends. 2016 marks the 100th year of paying a dividend without interruption and the 58th consecutive year of increasing our dividend. As you can see, we have nearly doubled our per share dividend over the last three years.
Looking forward, we expect our dividend to grow in line with earnings over time. The second way we return cash to shareholders is through share repurchases. In 2017, we are forecasting to deploy between $2.5 billion and $4.5 billion of cash to grow share repurchases. We estimate this will reduce average diluted shares outstanding by 2%-3%, increasing our earnings per share by $0.15-$0.25. As always, the timing and amount depends on relative value and other potential uses of cash, such as M&A. As we continue to execute our plan to further enhance our capital structure, in 2016, we added nearly $2 billion of incremental debt. In 2017, we expect to add between $1.5 billion and $3.5 billion of incremental debt in 2017.
As we continue to invest in the business, returning cash to shareholders through further shifts in our capital structure, we do expect our net interest expense to increase in 2017. This will reduce our earnings per share by approximately $0.10. Let's now move on to a summary of our 2017 capital allocation plan. As I mentioned earlier, we expect another year of strong cash flow generation from operations. We are estimating between $8.8 billion and $9.3 billion prior to our investments in R&D and pension contribution. We also plan to continue further shifting our capital structure by adding leverage of $1.5 billion-$3.5 billion. Our 2017 plan calls for $13 billion-$15.5 billion of available capital for deployment. As I mentioned earlier in the divestiture earnings slide, our total funds available does not include the impact of our pending sale of the identity management business.
The first priority use of capital is to invest in our business, which includes research and development, and CapEx, and acquisitions, and at the same time, returning cash to shareholders. Specific to acquisitions, all businesses are engaged in our pipeline. As I mentioned earlier, our focus areas remain healthcare, safety, and parts of industrial. Lastly, cash contributions to our defined benefit plan is expected to be in the range of $300 million-$500 million this coming year. Now let's take a look at our total 2017 earnings bridge on the next slide. Here's our total 2017 earnings roadmap summarized on one slide. We expect 2017 earnings to be in the range of $8.45-$8.80 per share, up 4%-8% year-over-year. Our earnings growth will be primarily driven by organic growth, supported by strong operational performance as our team continues to control the controllable.
In summary, I'll wrap up where Inge started this morning. Looking at 2017, we are ready and well-positioned for success. Our business model is creating greater value for our customers. The 3M playbook is working. Our team is focused on driving efficient growth by executing on our key levers. We are investing in our future while also returning cash to shareholders. Lastly, we have a plan to deliver organic growth between 1% and 3% and earnings growth of 4%-8% in 2017. With that, we'll take a moment to assemble on the stage and then open it up for Q&A. Thanks for your attention this morning.
Just a question to you. Brought up the U.S. stimulus plan. A couple of things. Is any of it baked into your forecast for 2017? B, if you could go in more depth, because people perceive 3M as more consumer-oriented, big focus in emerging markets. If it happens, does 3M have the operating leverage and positioning to benefit from it?
Happen what, in terms of-
If the stimulus that people are talking about
Yeah
should be going through. Do you guys have the operating leverage and positioning?
Yeah, we do. First of all, is it baked in? No, it's not baked in what you saw here today in terms of if anything is happening in the U.S., but we estimate it will happen. I think it's timing relative to when you can see it coming into the pipeline. I think if you are realistic around it, if you talk about infrastructure and so forth, is probably take you some time before that acceleration will come. However, you should see, earlier, which I would say is maybe in the second part of 2017, acceleration relative to manufacturing start to come. When we look upon it in terms of we need to see more clarity on what will come, I think there's a positive momentum in the minds of people that things will start to move.
The way I look upon it, and we look upon it, is that we should be early in that process. You think about companies that have been talked about that will have clear benefit early on in that process. The more I start to think about it, we should be ahead of them because we are supplier to most of them. Do we have the capacity and capability? Yes, we have. I think it's important to think about it in the following way. 3M never left United States. We expanded internationally. We have the capabilities in United States in terms of research and development. This is the key place for us to do it. We have manufacturing capabilities, and our brand equity is stronger in United States than anywhere else in the world. As I said many times before, this is our home arena.
We should never lose here. On that point, I think we are very well-positioned in order to capitalize on what will happen in the economy. We are $3.5 billion net exporter out from U.S. That's coming back to the point that we never moved. We expanded on a localization strategy. If you connect that to that chart where the evolution of the economies are, we are, due to the fact it's a localization strategy, we are in whatever country and been there for a long time in order to capitalize on the opportunity. It looked like around the world that domestic businesses will have a favorable situation, in countries, right? That's also where you can see where we look upon consumer will grow on the high end for us, and so will healthcare.
The answer to your question is, we are ready to capitalize on growth when it's coming.
Steve, to you, sir.
Hey, Nick, you guys have crushed it on the raw material side for several years now. Oil is, I think, basically you guys have it flattish year-over-year.
Yeah.
Can you maybe talk about the sustainability of those raw materials benefits, kind of going forward? Is this now $0.10-$0.15 every year as far as the eye can see? I have a quick follow-up on healthcare.
Thanks for the question, Steve. If you look over the last two or three years, 3M's been experiencing noticeable tailwinds or benefits from lower raw material commodity prices. In the last couple of years, that's been a combination of multiple factors. Some of it has been market dynamics, where we are experienced just outright in the market lower commodity prices. It's also been a component in the last couple of years where that's been driven by 3M's own efforts in sourcing, whether it be some of our negotiation efforts, that's being enabled through business transformation, or material substitution is another example, as we look for ways to optimize the components going into our raw materials. That's been there, and that will continue. As we look at our savings that we're expecting in 2017, there's very little of that that we're expecting from outright commodity price market reductions.
The vast majority of that $0.10-$0.15 of benefits we're expecting in 2017 is coming through our own sourcing efforts through material substitution and market negotiations.
That's sustainable into kind of a 2018 time period?
That's been something we've been able to do in the past, and we keep going. I think the only caveat I'd put on that is this is in a year, in 2017, where we're seeing commodity prices in the market being somewhat neutral. In 2018, we don't know. Could the commodity prices actually become an underlying headwind? We'll still be doing those underlying efforts to drive our own productivity with sourcing.
Okay. Then on healthcare, I know that the business slowed a bit in the third quarter. There was some chatter about perhaps election related. Can you guys maybe talk about how you would see a repeal or a change in the ACA as impacting your business in the near term, understanding that longer term you guys will respond to value-based healthcare, et cetera. I guess could there be a pause at some point? What have you seen most recently around the election in healthcare in the U.S.?
Well, I don't think, generally speaking, first of all, it's a global business, so when you look upon the result for us in the third quarter, it was more than U.S. I think there was an impact of maybe wait and see in the U.S., you had other geopolitical things going on a global base. We said on the earnings call that we estimated Q4 to be very similar to Q1. I think as we move into 2017, you'll see we have a guidance of 3%-5%. I think maybe as you think about it, maybe first quarter of the year will look like the second part of 2016. After that, we should be in a really good position to move forward.
We have been in healthcare for so many years. I think I commented at some point back that I personally was involved in healthcare early 1990s back in Europe, right? I led healthcare then, or some entities of healthcare from 1991 to 1995 before they send me into Russia to learn some real business. During that time, 1991 to 1995 and before that, you had the German Healthcare Act, et cetera. What you see going on in the world from time to time, we have been part of that, so we know how to respond. I would say the value creation of our solution in healthcare are incredible. When you look upon our cost of goods sold, is world-class.
I think for us to respond with health economics, with paper and key opinion leaders, plus a very effective manufacturing capability, will put us in a very good position. For me, generally speaking, I'm not concerned at all about our healthcare business as we move forward, even if there maybe will be slowness in the next one or two quarters. We're here for the long term, and we have fantastic margins, and we are in a very good position.
Joe Ritchie.
Thank you. Can you guys hear me? Great.
Yep.
Yeah.
Nick, my first question is on the organic growth contribution, the 1%-3% equating to roughly $0.20-$0.50. Last year we were here, we were expecting about 1%-3% growth as well, the contribution was much less. Is there an embedded higher price flow-through in 2017 versus 2016, or what's the key driver of the difference?
Joe, as we go back a year ago when we were projecting 1%-3%, we were pretty conservative in our estimate on price growth, and the vast majority of that was volume growth that we were projecting. It's still true for this year in our 1%-3% growth that we're estimating, the majority of this is coming through volume. We've been historically able to drive 30-50 basis points of price growth, excluding FX. We continue to see price growth into 2017. We're not expecting it to go up from the pace that we've been at in the past couple years.
Okay. Then maybe one question to just follow on Electronics and Energy. Saw there was a pretty recent acquisition, Samsung acquiring HARMAN and their ability to get bigger in the infotainment space. How does that at all change the competitive dynamics for you guys? Is that an area where you're considering to vertically integrate?
Well, first of all, we are supplier to the industry, whoever is in that space, right? I think that was a big acquisition for them, and I think based in Europe, correct? It's a big space for them. We would continue to provide solution to whoever own those companies. If you ask relative to our own interest of an acquisition in a space like that, I think you should think about our pipeline in terms of acquisition. That's strong in all five businesses, but the preference as we speak is in Health Care, Safety and Graphics, and Industrial. The reason for that is we have still some work to do in order to make sure we're coming right with the portfolio in Electronics and Energy. If you think about that acquisition that is going very much into the automotive space, et cetera.
If you take that on a bigger platform, which we talked about here, Ashish talked about it, I made an example. I would say, if you think about that in terms of our capabilities moving forward organically, we are very strong in the automotive industry by businesses in Mike Roman's business. We are very strong in traffic safety by businesses in Safety and Graphics, and we are very strong in Electronics. If you combine those three together, that is an incredible space for us as we move forward, and we have the connection in the industry, and we have the technology platform. It's up to us to build something like that. I would not say that it's a change for us relative to move of ownership in that industry.
I think we will become stronger as we move ahead, I think that's the strengths of our technology platforms.
Andy Kaplowitz?
Thanks. Nick, you seem like you're right on track in terms of business transformation, at the March analyst day, you had talked about $125 million-$175 million of factory optimization. I'm wondering if that's in the $0.10-$0.20 of other productivity that you talked about. Then Inge, in terms of business transformation, you talked about being very happy with the rollout in Europe of ERP. Obviously, sort of the big deal is the U.S. here as you go into 2017. I know the numbers are the same, but are you sort of ahead of plan in what you see in Europe, does that help you get more confidence that business transformation can be sort of upside over time versus what you guys have been talking about?
Yeah. Maybe I start, then Nick can go into it.
Okay.
First of all, maybe pleased is a better word than happy. It is very seldom you see me real happy. I am pleased. I am pleased with the progress. Just so you know, Julie, please, I am pleased with the progress. I will say that why I am pleased is that I see the real benefit. First of all, there is a model for us now relative to the execution. You have a timing in this process where you have the development, and then you go to deployment. We spend quite some time on the development in order to be ready. When you start with the deployment, as always, you run into some challenges, right? We did as well.
We overcome that, and I think we became a much stronger team from a business perspective to understand, one, what needs to be done in terms of planning for it, and number two, the real benefit for us as a company and for the customer. I can tell you, when we started deployment in West Europe, I went myself over, and I think Paul Keel was in U.K. at the time as managing director. Julie and I went, maybe it is Ashish. I went myself to Germany to the biggest distribution center in order to kick the tires and try to convince them that we should move forward. I tried to challenge them that we are not ready, and they convinced me that we need to go, and we move.
From that point, that was the starting point to understand we are totally ready, at that time in Germany, in Europe, to move forward. That is why I am very pleased that I see country after country after country where we have executed it, where we actually, from a business perspective, started in Nordic, which is four countries that you need to get together. We went in Germany, and then Austria and Switzerland after that. We did France and Benelux, and now, as Julie said today, U.K. here early November. It is going very, very well. You have to be pleased with that. Now, I can tell you that we will complete West Europe before we move into United States. We are in a preparation phase in United States, and we will not risk anything. We will not risk anything.
In terms of my confidence and the way I am pleased with it, I am very pleased. I see more evidence of success, not only on the figures, but when I talk to the people. You talk to the people in the subsidiaries, they are so happy that they get the system, that is type of more efficient, and they can demand planning better with the customers and back to the manufacturing operation. When you do business, if you can demand plan with the customer and fulfill what they were looking for, that is a very good day. If you not can do it is a bad day. I can see in the spirit, I can see in the eyes in big countries like Germany, and I go to Nordic.
Our organization are very happy we got the system in place that is helping them in their day-to-day work, in the interaction with the customer. In addition, as we saw, we have $50 million of benefit this year. We estimate $100 million to $150 million next year. I'm pleased. Not happy, pleased. Nick, please.
For the sake of you that maybe forgot the first part of Andy's question, I'll reiterate what that is. In March, we laid out as part of our five-year outlook that we were going to be taking actions on our supply chain footprint, and that over the course of the next four years, we'd be investing between $500 million and $600 million in taking action on that footprint, in some cases, rationalizing our supply chain footprint.
That by 2020, we expected that to be generating between $125 million and $175 million in operating income benefits. We are progressing very well on that plan. We've taken actions in 2016, and we anticipate more actions in 2017. In answer to your question of how much of that other productivity, additional productivity, virtually none. This is one that is actually a little more back-end loaded than the Business Transformation, where we're seeing some of these savings starting in 2016 and growing in 2017. This takes a little longer time to fully realize the benefits as we go through our supply chain manufacturing footprint rationalization. There's probably a little bit, but not even a $0.01 worth in there, Andy.
Got it. Then, Inge or Mike, just to follow up on industrial, it's been a little slow to turn, as you guys know, a little stubborn. You guys talked about macro indicators improving. We all see it. You talked about organic growth turning positive in Q4 for the company. I would assume industrial's part of that, and part of it is advanced materials starting to turn. You've got a defense contract that's ramping up, and you kind of alluded to it. As we look at 2017, is advanced materials up when it comes down to it? How do we sort of look at pick-apart industrials when it comes down to it? That's sort of.
Yeah. I think, first of all, I think Mike and his team have done a very good job the last two years relative to the portfolio, and I think he showed that in terms of consolidation of some businesses and one acquisition in and a couple of them out, right? I think we are positioned in a much stronger in the markets where we have decided to compete. Number two, there is a comparison, of course, that will help us as we move into 2017. I think I made a statement that we will, after five quarters for industrial, where we were flat to down, see a growth in Q4, and Mike had promised me that is what he would do. You will see that then. Yeah.
Jeff Sprague.
Thank you. Good morning.
Morning.
Hey, just a couple of questions. First, I know you don't want to get into the quarterly guidance, but what was said about healthcare and maybe naturally expecting with anticipation of stimulus and other the year that be back-end loaded, maybe for everyone, do you see your Q1 organic growth within the 1%-3% band for the year? Also just on kind of a modeling point. We've heard from a number of companies, and it's probably quite obvious that people have really torqued back the compensation big time to protect margins over the last year or two. Is that a factor within 3M? It sounds like it's not a headwind for 2017, but is it something we should be thinking about? Then just a follow-up for Inge after that.
Jeff, to answer the two questions in there, I'll take the back one first. From a compensation standpoint, are we seeing anything noticeably changing? Over the last few years on a global scale, we see our wages and benefits expense has been going up about 3% per year. We're not expecting 2017 to be different from that. Jeff, can you remind me of the first part of the question?
I was wondering if you see your Q1 organic growth within the-
Yeah, on the quarterly breakout. I use the word slightly. We are not planning a radical difference between first half and second half growth. We're expecting all of them to be pretty similar, slightly higher in the second half. I'm expecting the first quarter, first half to be in the range that we laid out for the total year.
Inge, I was just wondering, just looking at the portfolio holistically, really the kind of the product tempo within the portfolio. The stuff coming out the front end is very exciting and visible and tangible. Is there any acceleration on end of life given the amount of technology change that's going on? In a way, I'm kind of asking a question, are you being forced to kind of run harder to stay in place or to get that little bit of incremental bump that you're looking for? Any color there would be helpful.
I think, first of all, as I said, we are investing another $100 million plus relative to commercialization of programs that are very solid already. They're programs that are growing well, very good margins, but that we maybe not have capitalized totally on a global base in order to execute. I think that will help us in terms of growth. In terms of, I think you talk about technology conversion in a way, we are always leading in technology conversion because we work so closely with our customers, I think specifically on the process of customer-inspired innovation. I will say that when you work direct in that process with customers, you're always challenged to move fast because, as I said in my presentation, we need to understand their business model.
They promise their customer something, they are looking for technologies that will help them to come there, they have deadlines. I will say that we have no choice. We need to stay ahead of what anyone else are doing, I think my confidence in our model on that side is that that is product that we're expecting or designing for them, they have deadlines, they are very demanding relative to what we are doing. I think generally speaking, with the investment that we have moved closer to 6% in research and development is helping us, we are close with the customers. We are determined to go after more growth on existing programs that we have with additional money of over $100 million in terms of commercialization. That's total commercialization.
Growth is not easy to come after when you have a slow economy, generally speaking, we need to take market share in many cases, they should be profitable market share. That's also why we identify those. This is 20-plus programs that we identified this summer during a strategic meeting we had with the management in order to, on a corporate level, decide on which one should we go after. I think you have to accelerate the whole time, to be honest, right? We have to be on it.
Scott Davis.
I got one. Thank you. Thanks, guys.
Morning.
Inge, can you give us a sense when you walk around the world of what you're seeing in different emerging markets? It doesn't look like year-over-year your guidance in EM is any better yet. There does seem to be some improvement in places like Brazil, et cetera. Maybe just take us through the pulse it takes there.
Yeah. You're talking emerging markets specifically?
Yes, please, just EM.
I think there's one place around the world where I am pretty sure we take longer time as we speak, and that is Middle East, Africa. If you take Turkey and down in Middle East, that will be tough at least for a year plus. You see uptick in Russia, and we had yes people in visiting Russia last week, where you can see 2x of improvement in our business and much more positive outlook. That's good. If you go that part of the world in terms of size of business, Poland is doing very well. Russia start to do well. I think Turkey and Middle East, just wait and see. If you think about growth rates there. I will say, if you go to developing countries in Asia, of course, the big driver there will be China.
We see China next year very much like this year. For us, that will be mid to high single growth rate, low to mid single as we look for the year. We don't see any change there by definition. I will say Latin America, we believe will be very much like this year. I think Brazil, which we also had just an interaction with here a couple of weeks ago, Brazil will take another year before they are coming back to growth.
Okay.
I think the whole Turkey, Middle East is something that will temper that part. You will see more growth in India, you will see more growth in Russia, you will see more growth in Latin America, generally speaking.
What is, just as a follow-up on FX, you're still a $3.5 billion, I think you said, net exporter. I think you used to be a $5 billion net exporter maybe when you took the job, somewhere around there. What's your FX mitigation strategy? Do you ramp up production in EM and Western Europe? Are the products you're exporting just happen to be things that structurally need to be exported?
Yeah, Scott, I'll take that piece. Yes, we have brought down our net exports as we continue to shift our manufacturing and align it a little more closely with our customers. We're still a net exporter out of the U.S. of approximately $3.5 billion. We don't see that becoming zero. There's a few reasons. One is we have a very established manufacturing base in the U.S. that's highly productive, and we want to continue to leverage the capabilities there. Second, from an intellectual property protection standpoint, there are some things we feel more comfortable having it manufactured in the United States.
To the heart of your first part of your question on FX management, one part of that is as we've been shifting and aligning our manufacturing, getting it closer to our customers, that gives us the benefit of better servicing our customers and giving some natural FX hedging for us. That's part of our strategy. The part we can't naturally offset, there's a portion that we, in developing markets, we can often offset with pricing to adjust. The rest of that, we go use financial hedging to diminish some of the short-term exposure for that. That's largely unchanged from our posture over the last several years, and that continues to be our stance going forward.
Cliff Ransom.
Thank you very much. This is a question for some of the segment heads. Can you talk a little bit about the flow of information in your strategic planning process from you to the people that report to you in the next layer? How does it get to the bottom? How do you get feedback from the bottom back up?
Okay. That's, I think Mike Roman is a good candidate to talk about that.
Coming out of the corporate strategy group.
Yeah
many years ago.
Yeah.
I would say our focus is really getting focused on a simple set of priorities that we're driving in our strategic plan. They're very much aligned with what you saw as we think about how we're building foundation for growth in 2017. In our process of putting together a strategic plan, we engage our entire organization globally, our sales force, our technical service people, everybody around the world is part of that. It's not a develop a strategic plan at the center and drive it out into the global organization. It's develop a strategic plan with input from those sources that are many times furthest removed from the center. Then bringing back to them, I think, a very clear and simple and aligned set of priorities that we can drive.
We bring them to life with what we do as part of our ongoing programs and priorities. It's always in that context of the strategic plan. I think we had a great improvement this year with our overall planning process. At every level, we introduced workshop kind of discussions around our strategic plan from the very beginning of our planning process. That, among other things, it created a much deeper understanding across the organization about where we're going. There's a number of changes, improvements we're making, but I think that it really is a team sport, and it lives as we go forward. It's not an event and something that goes onto the shelf. It's what we live day in and day out.
I think, one change we made, I think two years ago, was actually to include the sales reps globally in the process. Up to that point, they did not give any input relative to process. We changed that. It's a very simple format, but we engage them in order for them to be able to give input of what they see in the market, et cetera. We feel good about that, and because they will maybe see things that we, of course, not can see at the headquarters. We have taken that step forward, which I think is an important step forward.
John Inch.
John Inch.
Inge, at the March year ahead, Electronics and Energy , your five-year growth targets, well, you presented 0-4. I know I asked, a couple other people asked, and you said, "Well, if it was zero, it would be pretty bad." I think that was a direct quote.
Yeah. In the five-year plan.
In the five-year plan.
Yeah. Mm-hmm.
A year ago, you gave a flat guidance for Electronics and Energy, and you woefully missed it.
This year, you're actually giving an even more negative guide for it. I'm trying to understand what is the strategic playbook? I'm presuming you probably can't sell the business because its competencies are intertwined within the rest of the organization.
Is there something else? Number one, I guess, why do you have the confidence that it's not a repeat of 2016? Is it just comparisons, or what are you seeing?
Number two, what can you do about this business? Can you do M&A to it? Can you just rapidly change pricing models? What's sort of the playbook after two years of to the five-year plan?
Yeah. I think we all can agree if you have a business that over years are dilutive to your growth, and are flat to down, you have to say, "Yeah, that's not the best." I hope you could see today with Jim Bauman's presentation where he laid out, there are some fantastic opportunities as you move ahead. I think it's like to diversify the business as well. You have both in energy, we have good opportunities for us moving ahead. If you think about the energy space, it's almost like the core business of 3M. If you look upon electronics, due to technology conversion from time to time, there will be a challenge, as that business move forward.
It is a fantastic business for us as I said earlier, can build it out to other segments around the world and connect it to our businesses. The question of can you do something? I'm committed to that business. I believe in that business long term. There's no doubt for me that we have a very strong position moving forward, and it's based on our technology platforms. Much more will come. I think sometime we all are thinking very short term, of course, relative to some applications you're in now. For me, that's only to use the microscope. I would like to use the telescope relative to see where can we position ourself as we move forward. You can see that business now in terms of consolidation and margin expansion. The business is smaller, but it's much more profitable.
Than it was four or five years ago. You're coming to a point where I say that now you move forward when you feel, "Now I have grips relative to our portfolio where we can win," you can become offensive again, and it could be through an acquisition. It could be through an acquisition, I'm also honest with you and say, I'm not there yet. I'm not there yet in terms of making sure consolidation is right and we find the right application as we move ahead. I think that, personally, that Jim laid out very well today all the stacks we have in devices where some believe we have nothing. We have a lot of applications in every device, and we are type of trapped as always relative to the end demand in the market.
The answer to the question, this is a very good platform for us to move ahead on as we go into 2017 and beyond, right? I think that business is, for me, if we generate 20% operating income, shifting the portfolio as we go, see something in the telescope that is much stronger. That's, for me, the business that I would like to lead for the future.
Could you, just as a follow-up, could you talk about Mexico? There's sort of a couple of aspects to the question. One, what's the scope of your operations there? Number two.
3% of the total enterprise.
Had 3M been looking to, as many U.S. companies had been, prospectively begin to move more of their ops there, consequently, you would have perhaps underinvested in certain plants and other ops that would've been just slated for mothballing and moved down. Obviously, now we have this regime change. Do you in fact have to go back to these North American plants and say, "Fine, we can't politically or whatever, move them to Mexico, but we're going to double down on automation or our investments or something internally?
We haven't, no.
It doesn't sound like that's a runway based on your own CapEx plans.
Yeah. No, we have not done that yet, and I don't know if we will. Go back to our strategy, which is a localization strategy, right? We have invested in Mexico for many, many years based on the local market in Mexico. That's what we are doing. If there's any manufacturing capabilities there for things that will be exported out, it's because we are following the supply chain of our customers. We have automotive customers that are in some parts of the world, if that is in France or if it's in Japan or if it's in Mexico, and they demand a fast response from us, we will be there. Customer is number one for us, and if we would like to serve them, they demand the investment of us to be at certain places. I think that's the answer to it.
Shannon O'Callaghan.
Yeah, thanks. Maybe a follow-up, Inge, to the telescope point there on electronics.
Sure.
Assuming the LCD to OLED shift continues, when do these other opportunities become big enough to offset that and get the business to actually grow, whether it's immersion cooling or these other things? What's the barrier to those? It looks like the growth opportunities markets is great.
What's the barrier to it really taking off for you? Is there still a cost barrier in terms of what you're making to gain wider adoption or what's the barrier, and then when does the tipping point come to offset OLED?
Yeah. I think for, Jim will comment on this as well, of course, but if you look upon it, there is some of those business models are spec in and take a little bit longer in the process that Jim will talk about. The barrier is not, I would say, cost by definition. It's more maybe timing relative to get the spec in because some of them are really long projects run into the energy and utility piece, right? On the electronic part of it's basically to be able to spec in and design in as you go in order for it to be bigger.
Yeah.
I don't know, Jim, you'd like to make some comment?
Thanks, Shannon. I think our focus on the core in the near term and the strength of what we have there, we'll continue to build on it. Now, with respect to some of those advanced technologies, I think part of it's market adoption in terms of what I described. Part of it is probably centered on, if you caught it, there's some longer cycle businesses, automotive electrification as an example. Our spec in today may be realized in 18-24 months, maybe even longer, depending on what the model expands to. I think there's a part of that. For us, it's really concentrating on where we have strength in the core, both in Electronics and Energy, migrating into these advanced technologies, which maybe have a little bit longer cycle time, faster growing, and we can continue to build on those. That's our direction.
Inge, maybe just one clarification on the healthcare turn.
Yeah.
It sounds, some of the pressures there last quarter were Turkey and Brazil. It sounds like you're still pretty cautious on those. Is the turn in 2Q mainly getting through the oral care pressure, or what else generates that turn after 1Q 2017 in healthcare?
I think it's not oral. I think generally speaking, when you think about the supply chain also in healthcare consumables, that type of in the distribution system, we just became careful as we move ahead. Oral care is one, but you have consumables into healthcare where I think they made sure that they didn't sit with too much inventory as they end the year and move into the next one. You take infection prevention and wound management, et cetera. It's something in the logistics and supply chain system that's just temporarily.
Steve Winoker.
Thanks. Nick, you keep taking up leverage, incremental leverage every year. The absolute levels are still pretty low for a company that generates the amount of cash that you guys do. Where are you headed with an optimal capital structure? What is the optimal capital structure for the company?
In March of this year, Steve, we laid out over the five years that we saw for our capital structure as well as for our capital allocation plans, us adding over the course of five years between $10 billion and $15 billion of leverage to our balance sheet. That puts us at the capital structure that we see ourselves targeting. Now, that's in the world as it existed in March. It's still probably a good vision of what we think that capital structure looks like, that's the range of where we think we're headed.
What would it take you to push that more aggressively?
What would cause us to go outside that balance? The presence of a large strategic acquisition opportunity would cause us to re-look at that and cause us to look at added leverage, potentially even a credit rating downgrade for that. It would have to be something on that scale. It's likely not going to be investments in our organic business or share buybacks that would cause us to rethink that capital structure strategy we laid out.
Okay. Inge, I guess if we take R&D as a percent of sales back to the '90s, that's probably when you peaked out at north of 7%. You're approaching 6% again right now. You're spending what sounds like a large absolute number, but maybe not relative to the size of the company. My question is, given that innovation, as you say, is the lifeblood of the company, what's stopping you from investing more and getting in? Are you starting to see any results from the prior breakthrough investments that you've been talking about? I know you had some good examples up there. I guess if I look at some of the world's most innovative companies, sometimes there's a constraint to that spending, and given your margin levels, I just would challenge you, why not? What stops you from taking that number higher?
I think when you are referring to 7%+, I think that's also when we had-
Yes
pharmaceutical as part of our business. You have to think about it from there. There's two industries, generally speaking, that is on the higher end of research and development, pharmaceutical and electronics. Those are on the higher end. In our business, in fact, in electronics has a percentage that is higher, and so has healthcare. It's actually more in those spaces. I think that I'm looking for really making sure that we get out efficiency and productivity from research and development. Will I be willing to spend more than six? Yes, if there is really good programs that will be presented, we will do it. The move from 5.5% to 6% was related to, I would say, investment more in disruptive technologies. I think from the beginning, we had 30 programs there.
As you know, when you go into disruptive technology, some of them are riskier, and they take a longer time. I am, generally speaking, pleased with the outcome of research and development. My point is also to say, I would like us to grow faster and more organically, because I know that is the most effective model to do things as we move ahead. I don't know if there is a specific target in terms of what you need to have for spending. We have measured NPVI, New Product Vitality Index, for a long time, and that is an indication for me of if you do well or not, and we are 30% plus of that. You think about it as 3M, that you have one-third of your business today that did not exist five years ago in terms of new product.
I think that is acceptable, to be honest. I think in terms of you go after growth, there's a couple of things you have to address. You have to address organic local currency growth. You have also had to address erosion. You have erosion in the business, and if you can attack erosion and get 1% or 2% less erosion in a year, that's 1%-2% growth for you. Will you invest more? Yeah, if good programs are coming our way where we have high credibility in them, I will invest in them. I think the best probability for us there is actually to something coming out from customer-inspired innovation. Big programs very specifically into end customers where we can work with them, I'm willing to invest, no doubt.
Nigel Coe?
Thanks. I wanted to go back to the $0.10-$0.15 from raw materials in the bridge. You mentioned, I think, Nick, that you're getting lower prices from your suppliers, and I'm just wondering what's causing the lower prices from suppliers. Is it consolidation of the supply chain? What could change that dynamic, and how much of this is actually sort of an indirect benefit from ERP? Are we getting a better lens in supply chain, and therefore this is more of a ERP benefit?
Nigel, of that $0.10-$0.15, there's almost none of that coming from outright market price reductions. Almost all of that $0.10-$0.15 is coming through what I will characterize as 3M-initiated actions. There's a portion of it, and I'm estimating as I say this, Nigel, up to a third of that is coming through our own ability to, with better visibility, be negotiating and leveraging the full scale of 3M. I could attribute some of that to what the progress we're making on our collective business transformation. It's not included in the savings Julie's talking about, but some of that is clearly part of as we've become a better global sourcing organization and leveraging the full power of 3M's volume of what we're purchasing. That's a portion of it.
A bigger portion of it, Nigel, is coming from our own efforts, commodity by commodity, looking at is there a way to optimize the way we're making this product, and in some cases, substituting out one raw material for another. It's project by project, and there's hundreds or thousands of them going on in our company to look at ways there to optimize. That's the majority of the savings that we're seeing and is projecting in 2017.
Okay, that's helpful. I apologize for asking a question on tax reform. I know it's very early days, border adjustments, it's obviously part of the mix on reform. As a net exporter from the U.S., it sounds like that might benefit you. What about the other side of the ledger? How much of your raw mats are actually imported, and how do you think about how that could play out?
Nigel, there's three points on the border adjustment portion. One is, yes, we are a net exporter, that clearly plays to our favor with the current way border adjustments being talked about. Second is, commodities, and the movements of raw materials when we buy them in the U.S., there is not a material amount of commodities that we are bringing over the border into the U.S. Much of how we manufacture is about often wanting to have our commodities sourced locally. That's why there's not a lot that crosses the border. The third point is our own strategy around intellectual property. 3M's intellectual property is owned in the United States, under the current discussions around border adjustment, that also would be a benefit for 3M. As you started out saying, it's early.
To source locally is very important, right? If you think about any model, if you move stuff to certain places, if you still have to ship raw material, it's very, very costly.
Deane Dray.
Thank you. First question for Nick, just to clarify on your answer to Steve's question on the potential to lever up for a larger deal. Does the current pipeline have any candidates over the near term, let's say, that would put you into that position?
Deane, I'd say the current pipeline of what I would call likely, I would not say that that's imminent or likely. Are there things of that size that are in our pipeline that we look at? Yes, they are, but I would not put them right now in the likely camp.
That's helpful. Then for Inge, maybe comment on the divestiture pipeline. We've seen a few, what would appear to be one-off transactions cross. Are there businesses under strategic review, maybe potential size and timing? You used this comment about you may not be the natural owner. Just maybe give us a sense of what that thought process is. Does it also occur when you have a potential buyer on the outside that looks like they'll pay a premium?
Yeah. Well, first of all, portfolio management is an ongoing process, right? I will say since we started 2012 with a much clearer understanding on a corporate level relative to our portfolio, we have done a decent job relative to both businesses that left us and that we added into the company. When we started the process, there was, what we call an under-strategic review, was sales revenue of $2.5 billion. That is down today to a couple of hundreds of millions. In some cases, it's not a business standalone, it's product lines in different divisions that are there that are maybe underperforming relative to the company. You just drive them relative to improvements. Coming back to your question, I think this is important relative to the four fundamental strengths of 3M, technology, manufacturing, global reach, and brand equity.
If you have businesses that cannot capitalize on that vertical integrating model fully, that is the question to say, can we really continue to drive that business effectively inside of 3M? You don't need to be so-called green in four elements, but if you're not green in two and a half to three, you have had difficult time to keep pace with 3M's performance. Our performance is pretty good, I would say, in terms of your return and your margins, et cetera. The truth is, if you're not able to capitalize on many of those four fundamentals, you are not successful inside of 3M.
That is also to say, when you make an acquisition, no one is coming today to me and talk about an acquisition without knowing exactly where they are on the portfolio, Heartland and Push Forward, and can convince me that at least two and a half of those four fundamentals are green for us, we can drive value very fast. It's a very important element in terms of understanding the portfolio. There's always an L with us. In the one we sold now recently, or we announced last week. The fundamentals was not there in order for us to create value for it. It was a project-based business, if you like. It was not really core for 3M. The point is, let's stay close to the core and build out around that because we know we can win.
It came into 3M maybe 10 years ago, under the umbrella of an acquisition strategy, where you try to build out in spaces that maybe were one and maybe two adjacencies from what we really know. It was dilutive to growth with the dilutive to margins. Someone else can handle that, right? Lets us invest our money then in terms of maybe other acquisitions and/or do commercialization on our core businesses and grow that. It's simple from that perspective. I think it's important, the four fundamentals that we talk about you've seen, is a roadmap for us to really understand specifically when we add something in, right? Can we drive value for us? And reality is also when you look upon it, if you have some businesses that are underperforming versus our criteria, often they have a challenge to utilize all those four fundamentals.
We'll wrap up with Julian.
Thanks. Maybe just a couple of quick ones then. One for Nick would be around business transformation savings. Do those see a big step up in 2018 when we're thinking about the phasing of what's left to gain? Also, what's the earnings impact from identity management being divested? Then for Jim, just very quickly, $600 million of film sales in your smartphone business. Should we assume that those fall at a double-digit rate for the next few years?
Okay, Julian, let me get started on the first two. First of all, on the business transformation savings, we've laid out by 2020, we expect to have between $500 million and $700 million. We started in 2016 with approximately $50 million, what we laid out today is that we're expecting another $50 million-$100 million on top of that, bringing our cumulative savings from our baseline to now $100 million-$150 million, for what we're expecting in 2017. Our expectation in 2018, 2019, and 2020 is it will continue to show good progress. I'm not going to commit to it being outpaced on it, but it will show a natural progression to us achieving that $500 million-$700 million of savings by 2020. In regards to the identity management business, I do want to remind everyone this deal has not closed, it is subject to regulatory approvals.
We are expecting it to close in the first half of the year. At the time it closes, we anticipate that it will generate approximately a $0.55 earnings per share benefit for us, based on the gain that we'll be experiencing. We also, at the same time, anticipate that we will be taking actions directly and indirectly related to this divestiture. My request is that you're not baking this into the estimates for 2017 until we have clarity and certainty for this. At the time that that happens, we'll then share the full details on both the gain side and any actions that we think will offset a portion of that gain.
Okay. Jim?
In regards to the question around the $600 million film and the growth rate, the example I gave was that transition from LCD to OLED, and the 1% to 3% for our particular business, the $50 million to $150 million, would be most aligned to that film segment because of the LCD transition.
Okay.
Well, okay. First, thank you. We are done with two neighbors?
Yeah.
Okay.
Yeah.
Too bad. That's fine, yeah. Let me then just thank all of you for coming today on behalf of the 3M team. I hope that we have been able to convey to you that we have a very solid business model. We have a playbook that is well laid out and that is working. We have a very diverse portfolio that is playing very well for us, despite economic cycles in any country. Guidance for 2017, as we say, is 1%-3% organic local currency growth and EPS guidance of 4%-8%. Thank you very much for all your help and support and challenges, and let's look forward to a better 2017 that we ever can expect as we sit here today. Have a nice holiday. Thank you.
Thank you. Make sure you're done.