Imation trades on 3M legacy in preparation for spin-off

New company faces life on its own after leaving 3M nest

The easy work is now done for Imation, the spin-off company createdafter 3M decided to divest its data storage and imaging systemsbusiness last year. Imation now has a corporate name, a logo,and a management philosophy, but the new company may find thatthe most difficult work lies ahead, as it stands on its own withoutthe support of a corporate parent with deep pockets.

3M announced last November that it would divest its data storageand imaging systems units into a separate company, with the medicalimaging operations one of the units to be spun off. Analysts perceivedthe move as an effort by 3M to jettison businesses with profitmargins lower than those of its core businesses.

Imation thus begins its corporate life with a serious challenge:Maintain profit margins at the level necessary to attract investors,while producing a steady stream of new products for the innovation-intensivemarkets in which it participates. Imation's new executives seemready to rise to the challenge, and have adopted a corporate strategyof keeping costs down while moving closer to customers.

"The new company's goal is to create a swift, lean enterprisethat will deliver customer solutions when and in the way customerswant them," said William Monahan, the 3M executive who wasnamed CEO of Imation.

When the divestiture of Imation is completed in July, the newfirm will immediately leap into the Fortune 500 with annual salesof $2.25 billion in more than 60 countries, based on 1995 revenuesof the businesses involved in the divestitures. The company willbe completely independent, spun off tax-free from 3M, and answeringonly to its shareholders. It will be based in Oakdale, MN.

In addition to medical imaging, Imation's businesses will includedata storage, printing and publishing systems, and a hardgoodsand electronics service and support organization, which will providecustomer support and information development services to all Imationbusinesses and customers.

The Medical Imaging Systems and Photo Color Systems units willbe merged to serve two distinct markets: healthcare providersand amateur photographers. Silver-halide technologies are thebackbone of both businesses, which will share development andmanufacturing facilities.

The Data Storage Products unit will be reorganized with businessteams designed around customer segments with different needs,from PC users to corporate clients. Monahan hopes to foster interactionbetween the developers of medical imaging technologies and thedigital storage unit.

"Our data storage capability is very important for a hospital'sdata management and for the medical imaging systems, for movingthe data, storing the data, and possibly doing off-site diagnoses,"he said. "There are a lot of areas where our data storageteam can work very closely with the medical imaging team."

En route to its new identity, Imation will take advantage ofthe opportunities presented by its rebirth. Monahan envisionsa company that focuses on customer needs, provides solutions ratherthan technologies, and implements those solutions through a flexibleorganization.

One key goal is to accelerate the decision-making process bystreamlining management and integrating businesses. Monahan andhis cadre of executives at Imation plan to break down the barriersbetween business units and link the company's development teamsmore closely with customers, in essence changing the very cultureof the company.

"We will change the way we go to market. We are goingto put a lot more of our employees in touch personally with thecustomer," Monahan said. "I want more of our laboratorypeople speaking personally with our customers, not getting informationfiltered from anybody else but getting it one-on-one."

International growth. One of the goals of the new company isto expand its business outside the U.S. from its current levelof 50% to 65% of total revenues within the next few years.

"We are already very strong outside the U.S. in medicalimaging; we have a strong business in Europe and we are particularlystrong in Italy, so we already have a very good start," saidMonahan, who was formerly senior managing director of 3M Italy."We are also starting to penetrate Latin America and Asia."

Meanwhile, company executives will expect more production fromfewer employees, in an effort to boost margins. About 13,500 peoplewere involved last year in the businesses that will form the newcompany. About 1200 fewer will have jobs in July. That numberis expected to eventually drop to about 11,000. The cutbacks arebeing accomplished largely through voluntary separation packages.Employees' acceptance of these packages will reduce operatingcosts and increase profitability as Imation prepares for formalseparation from 3M, Monahan says.

"We will have a very strong balance sheet," Monahansaid. "We will be in a positive cash position; we have alreadystarted establishing our line of credit and we expect to be acash-generating and cash-growth company, increasing economic profitsevery year as we go forward. We see ourselves as being able togenerate the cash we need for the company and to support our R&Dinvestment, which will be critical for our future."

Among the technologies receiving much of the early R&Dattention will be the DryView dry-processing laser printer, whichwill have expanding applications in and outside of medical imaging,Monahan said.

"Dry View is really a breakthrough in the industry,"he said. "It sets the stage for a series of new products,particularly in the electronic area in combination with data storage,as well as color management."