Imation builds its future
Minneapolis / St. Paul Business Journal - by Henry Breimhurst Staff Reporter
Piling up over a field in Oakdale stands a skeleton of a building, a frame of steel girder and brick. It is a rough sketch of Imation Corp.'s 4-story, 375,000-square-foot Discovery Technology Center, to be completed in the second half of 1998, which is the future workplace of 800 Imation scientists currently working on 3M Co.'s campus in Maplewood.
Appropriately enough, the building is starting to define itself and fill out the frame constructed months ago when Imation itself is doing much the same.
There are some growing pains to be endured, however. Most recently, the company posted lower-than-expected second-quarter earnings of $4.4 million, or 11 cents per share, on revenues of $554.8 million. Analysts had earlier placed Imation's earnings for the quarter in the 30-cents-per-share range. Reasons for the decline ranged from low demand for certain products to the strong U.S. dollar eating away at foreign revenues. But more than that, the loss demonstrates the kind of challenges the company is facing as it enters its second year of existence.
"Because Imation is a smaller company [than parent 3M], it is more flexible and has a faster response," said William Monahan, chairman and CEO of Imation. Imation hopes to use that flexibility to deal with problems as they arise. And arise they will; Imation is not only trying to run a business, it is trying to build a business, both physically and emotionally.
"They're basically in the middle of adolescence, and adolescence is a very painful period," said Rebecca Rankle, an analyst for Morgan Stanley Dean Witter in New York who follows Imation. "The management team has a very tough task in recreating a culture."
Creating a tech company
Imation was formed on July 1, 1996, from five business units of Maplewood-based 3M Co.: data storage, printing and publishing, medical imaging and photo products (this was split into two units after the spin-off), document imaging and customer service. These units were underperforming as a part of 3M, and management decided they would perform better as part of a new company, which added a sixth unit devoted to customer service. "We're a more centralized business," said Monahan. Also, the new, flatter structure (two layers of management were eliminated in the spin-off) reduces the time it takes to bring an idea into development. There are fewer employees: Of the 12,300 workers 3M had in those five segments, nearly 3,000 took buy-out packages, most before Imation even existed. Currently, Imation employs 9,800, including roughly 2,000 in the metro area.
"It was a recognition that [3M and Imation] compete in different markets and needed a different business model," said Rick Krueger, president of the Minnesota High Technology Council. "Frankly, it looks like that was very insightful."
Responding to the issues affecting the second quarter, the quicker reaction time has already come into play. Low-end Travan information backup tapes sold poorly in the quarter as companies have moved back to networked machines instead of independent desktop computers; Imation will release a new series of middle-range Travan products aimed at these network machines in the next quarter. Imation has also acquired some software companies, Cemax-Icon Inc. of Freemont, Calif., and Luminous Technologies Corp. of Seattle, in an acknowledgement of the vital role software now plays in making technology work.
"They've done a lot in a year," said Rankle. "They set up a hedge program [to mitigate the effects of currency exchange] for overseas business, and they made some real intelligent acquisitions. They need to think like a tech company ... some of the fresh blood will help them do that. It goes back to reinventing a culture."
Creating a culture
The Imation culture that management is working to create is a fast-paced, lean environment that fosters the free exchange of ideas. The reason for this aim is that in the world of technology, where sudden change is the norm, ideas have to be formed and brought to market much faster than in the traditional manufacturing environment in which 3M exists.
"We saw that these units needed to be managed under a different model," said Monahan. "The five units were not really in contact at all. One of our goals was to synergize." For example, a part of the DryView medical-imaging technology was modified for use in the printing unit.
Imation has just undergone one preplanned step of its evolution from 3M spin-off to distinct company: Its six business units, focused on technology, have been realigned into 15 units that fall under three broad headings. The first, Product Technology, deals with mature technologies already on the market. Growth Technology deals with products in the early stages of their life cycle, and Customer Solutions looks to draw different technologies, sometimes including non-Imation products, together to meet specific needs from beginning to end.
But beyond technology crossovers and bundling products to create a beginning-to-end offering for customers, Imation hopes to foster a new attitude in its employees. Some of the changes that have taken place in the corporate culture are obvious and have been well documented: Offices are gone, even for the officers; a few people work in cubicles while the rest are in an "open area" consisting of workstations arranged in U-shapes. ("Time called them cubicles in their story," said Monahan. "I'll never read that magazine again.") The only reserved parking is for customers, suits are reserved for customer meetings, and an effort is made to make management accessible to all employees.
"To be a global company, we have to leverage every idea," said Dennis Farmer, vice president of Talent Effectiveness, which is Imation's version of human resources. "Not every strategy comes from headquarters. We have to make sure people understand that everybody has a good idea. Using the intranet as a key tool, we can now provide remote employees the chance to share in things traditionally only available to headquarters-based employees."
Another Imation technique is tying compensation to company performance. "Next year, all employees will have some compensation in the `variable' column," said Farmer.
Pace-setting goals
Imation is now in the process of commercially launching its SuperDisk high-capacity disk and drive. While the company has had success within industries, the SuperDisk launch represents the first time Imation has gone into marketing and distributing a product on a wide scale.
The technology is compelling: Disks the same size and form as normal 1.44 megabyte floppy disks are able to hold 120 Mb, and are read by drives that can read both the new SuperDisks and the old floppies, meaning the user doesn't have to learn anything new and doesn't have to abandon the old disks. SuperDisk was known as LS-120 until June 16, when the SuperDisk name and marketing strategy were unveiled.
Imation's goals for the SuperDisk technology are ambitious: "We want SuperDisk to be the industry standard," said Jason Thunstrom, external communications manager. That would mean computer manufacturers building the drives into their machines in the place of the ubiquitous 1.44 drive. Given the drive's ability to read the old-style disks, the SuperDisk would seem a logical next move for the industry, although by no means is the battle won. Some have criticized Imation's slow rollout of the technology, and some have said that Iomega's Zip drive, which has sold 7 million units, is in the driver's seat for high-capacity data storage.
Imation maintains that 7 million units do not a standard make, and says that the technology was not commercially released earlier because it took time both to line up manufacturers interested in the drive and then give those manufacturers time to establish manufacturing lines, and then get commitments from original equipment manufacturers (OEMs such as Compaq) to incorporate the technology in their machines.
"The LS-120 has been on the market for over a year, and they haven't marketed it," said Rankle. "But in the past several months, they've stepped up to the plate. There is a window of opportunity here."
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