SPINNING AWAY

By John Greenwald

To 12,700 of the 70,000 3m employees who received it last year, the blandly worded letter spelled doom. They were about to be spun off to a new company being formed around 3M's money-losing data storage and medical imaging divisions. The outcasts would have to teach those old dogs some profitable new tricks. The outfit's products, ranging from floppy disks to X-ray film and magnetic resonance devices, were well regarded but caught in viciously competitive markets. When Gallup polled the spun-off workers about their fate, typical responses included "shocked," "betrayed" and "apprehensive."

There was, in truth, plenty to be scared about. 3M (1995 sales: $13.4 billion) has long been the Ma Bell of Minnesota companies--a revered and maternalistic giant that gave the world Scotch tape and Post-It notes, where jobs for life are still a norm. The spin-off, called Imation, a $2.3 billion business that became an independent, publicly traded company last month, offered no such security. Only 3 of 4 people who worked for the new company's divisions when they were part of 3M made the move to the Imation payroll. Gone were two management layers, five manufacturing plants, seven labs and jobs ranging from clerk to scientist. Many older workers, apprehensive about the new company, took early-retirement packages. There was no going back to the mother ship either. "Imation designees," as they were known, can't work at 3M for two years.

The survivors find themselves--anxious, exhausted and excited--parked in comfortable if cramped quarters in a warren of cubicles. It's all part of the latest disruption of career life in the Nothing-Is-Sacred Nineties. When corporate behemoths spin off divisions, they often cite the need to "focus on our core competencies" (translation: "We couldn't run this thing") or to "unlock value for investors" ("We made stupid acquisitions, and now we're dumping them"). 3M had to make hard choices about where to invest its money. Imation lost out because of its lousy earnings compared with other businesses. So out the door it goes, with a bunch of products and patents and three years of prominent use of the 3M brand name with them.

The spin-off trend picked up momentum last year, when U.S. companies loosed a record $48 billion worth of ventures into the marketplace. This year, with AT&T casting off its manufacturing division as Lucent Technologies, the value of spin-offs is expected to reach $70 billion. Last week Dial Corp. sent its $1.5 billion consumer-products division spinning.

For Imation, based in a former 3M office building flanked by cornfields in suburban St. Paul, separation from the 3M way of doing things represents not only a threat but also a chance to shine. In addition to slashing costs, chairman and chief executive Bill Monahan vows to create a lean, quick-strike culture that tailors its products to the needs of its customers. "Anybody and everybody will be interacting with the customer," he says. Monahan's ambitious goal is to post a total of $150 million in "economic profit"--defined as operating income after taxes and deductions for the cost of capital--by the end of 1998.

Monahan, 49, a veteran 3M group vice president, fairly leaped at the chance to create a new culture. "Any business leader has to get excited about the opportunity to build something totally different," he observes. First to go: private offices. Everyone works out of cubicles--Dilbert-like, it must be noted--which assures there is no place to hide. All this came as a shock to Steve Frederickson, a 23-year 3M veteran who manages Imation branding and packaging programs. Frederickson had to swap a 300-sq.-ft. 3M office with a window for a 64-sq.-ft. modular cell. Gone too is his stall in a heated underground parking garage--a coveted perk during deep-freeze Minnesota winters.

"The tendency was to bitch and complain," says Frederickson. "We all kind of commiserated for a while. But then we realized, 'Oh, I can talk to this person,' which starts you toward the openness that has developed." Still, Frederickson sighs, "I could use another foot of desk space."

The message of this open environment is that in a stripped-down company every job counts, and every job holder will be held accountable. Some workers revel in this action-oriented culture that encourages them to cross traditional lines. Melissa Kaar, a 22-year-old meeting and convention planner, bursts into the doorless bullpen that Monahan shares with his three top executives when she has ideas to pitch. "I never pictured myself, especially at this age, being able to do that," says Kaar. Comments Rick Anderson, a printing and publishing marketer whose work space is adjacent to his boss's: "When we want to get something done, we don't schedule a meeting. We just lean over and say, 'Let's get this done, right now.'"

The downside of so much spontaneity, not to mention the downsizing, has been a grinding work load. "I always perceived work to be a means to an end, but not the end," observes Doug Dix, 54, a customer-service consultant on leave from 3M who plans to retire next month. Elsewhere, benefits director Ron Dockery puts in 80-hour weeks and proudly displays a note from his 13-year-old daughter that reads, "Thanks for working so hard at work and still having time for me."

To reward this kind of work, Imation is creating profit-sharing incentives for all workers and launching programs designed to give employees ownership of more than 5% of the company's shares. Basic pay and benefits are the same as at 3M. "Start messing with someone's pay," Dockery says, "and their mind is going to be on that, not on the success of the business."

So far, Wall Street has been unimpressed. Imation stock, which traded at $23.87 when the company went on the New York Stock Exchange, closed last week at $22. The slow start reflected the company's $37.8 million loss for the second quarter, which included $43.5 million in restructuring charges. That's not unexpected. Shares of a spin-off often lag at first and then sprint ahead as the newly formed company, like a newborn gazelle, discovers its legs. Many spin-offs, freed of the corporate anchor, really do run free and thrive. The irony is that these companies then catch the eye of huge corporations on the prowl for acquisition. So if Imation does flourish, it could again wind up in the belly of a big corporate beast. Its workers should enjoy their freedom while they can.

--Reported by Marq Hequet/St. Paul