Document 3eO0g4L2BdgN9G1NKk6KM4X86

JANUARY 24, 1996 Bristol-Myers Reports Loss In 4th Quarter Cites Implant Fund AndPlant Closings By MILT FREUDENHEIM The Bristol-Myers Squibb Compa ny reported yesterday a net loss of $208 million for the last three months of 1995. The loss includes a new after-tax write-off of $590 million for claims by women who say they were injured by breast implants and a $310 million charge for plant clos ings and reorganizing. Bristol-Myers Squibb said pretax profit on operations, before the charges, was $910 million, up 9 per cent from the fourth quarter of 1994. Bristol-Myers Squibb said it has now made $3.2 billion available for the breast implant claims, including $1 billion covered by insurance. The company said the after-tax cost for these claims, which were written off over the last three years, was $1.39 billion. Securities analysts said the cashrich pharmaceutical and health care JANUARY 24 1996 products manufacturer was well able to deal with the claims. BristolMyers Squibb, based in New York, has withdrawn from the breast im plant business. Its shares rose $2 yesterday, to $86,125, on the New York Stock Exchange, Drug industry sales were general ly strong in the fourth quarter, al though some analysts worried that profits may erode because of grow ing competition from lower-priced generic drugs as patent protection runs out for important products. The Warner-Lambert Company, which has already felt the sting from generic competitors, said yesterday that profits fell 11 percent, to $123 million, in the quarter. Sales, includ ing the company's many lower-prof it nonpharmaceutical businesses, rose 8 percent, to $1.86 billion. Merck & Company said sales rose 18 percent, to $4.56 billion, while net income increased by 11 percent, to $858 million. Pfizer Inc., which has a strong lineup of recently introduced drugs not threatened by generic competi tors, reported 24 percent increases last week in both sales and net in come. Bristol-Myers Squibb sales rose 11 percent, to $3.61 billion. "Pfizer was spectacular, Merck was in line with expectations, Bris tol-Myers Squibb did better than ex pected, before the charges, and War ner-Lambert did slightly better than expected,'' said Scott Shevick, an analyst with Bear, Stearns & Company. Bristol-Myers Squibb reported strong growth for Taxol, an anti cancer drug and Glucophage, a new diabetes treatment. It said Capoten, which will lose patent protection next month, held its own at 1994 sales levels. "They launched their own generic version of Capoten m December," said Hemant K. Shah, an independ ent drug analyst in Warren, N.J. "The question is how Bristol-Myers Squibb will do in 1996." Merck, based in Whitehouse Sta tion, N.J., reported strong growth in its Medco managed care unit, which provides drug benefits for 47 million people, up from 41 million at the end of 1994. Medco sales rose 49 percent, to $1.58 billion, in the fourth quarter, not counting Medco sales of Merck products, which Merck does not dis close. Thirteen percent of Medco sales are from Merck drugs, up from 10 percent two years ago. Mr. Shah said Medco's ability to get Merck drugs on the preferred lists of big managed care buyers might account for the continued strength of some Merck drugs that face heavy competition. He listed Pepcid, an ulcer treatment, which had a sales gain of 9 percent in the quarter, and the cardiovascular drugs Vasotec and Vaseretic, up 2 percent. Mr. Shevick said Merck's future earnings could be tied to the success of Fosamax, its new osteoporosis treatment. "Fosamax looks like it's doing well," he said. Warner-Lambert, based in Morris Plains, N.J., said its lower earnings reflected the devalued Mexican peso and higher operating costs. FINANCIAL TIMES Drug company to cut jobs Rh6ne-Poulenc Rorer, the French controlled US pharmaceuti cals company, is to cut 140 out of 470 sales and marketing jobs in the UK following its acquisition last October of Fisons, a UK rival. The jobs will be lost from Eastbourne, RPR's UK headquarters, and Coleorton in the English Midlands, a Fisons site. Some sales staff not based at those sites will also lose their jobs. The job losses do not cover any reorganisation of manufac turing, drug and medical device development and corporate functions of RPR and Fisons in the UK. Daniel Green, London JANUARY 24, 1996. MONSANTO CO. Net Up 48% in 4th Period; Sales Held at $2.1 Billion Monsanto Co. reported fourth-quarter net income rose 48% to $80 million, or 65 cents a share, from $54 million, or 51 cents a share, a year earlier. Sales in both quarters were $2.1 billion. Nonrecurring items for the St. Louis-based chemical company included an after-tax gain of $116 million, or $1 a share, from the sale of its THE WALL STREET JOURNAL. world-wide styrenics business and an after-tax charge of $125 million, or SI.08 a share, from the cost of work-force reductions and the closing of various small facilities. The year-earlier results included an after-tax restructuring charge of $22 million. Excluding nonrecurring items, fourth-quarter net rose 17% to $89 million, or 73 cents a share, from $76 million, or 70 cents a share, a year earlier. Analysts had expected earnings of 70 cents a share, according to Zacks Investment Research. . v \n -- < E U (continued from preceding page) FORTUNt The fact that 3M shakes the trees of its cide that, because our people might find some labs and customers more vigorously than be way to make whatever they're doing work." fore reinforces its essential reliance on them Says Baukol, whose international sector ac to set the agenda. It is of course a strength to counts for more than half of 3M`s sales: "3M get ever more intimate with customers, and fundamentally is a collection of a lot of stuff." a strength to let creative flowers bloom. That aimlessness forces 3M to pay a lot of attention to the numbers. As DeSimone puts HOSE VIRTUES, however, beget a it. "3M needs its financial characteristics to Tstartling vice: 3M has no strategy. be exceptionally good because the company Asked about strategy, DeSimone is hard to understand." That's an odd thing to says: "We're going to do two principal hear about a company so famous that its nick things: be very innovative, and satisfy our cunsame is itself a global brand. It is also a con tomers in all aspects. We don't have one cocreis;e description of 3M's biggest weakness. we have lots of cores--sticky stuff, optical and Says DeSimone: "We tend to believe we can safety stuff, medical stuff, etc." How do execu do anything; we know it's not true, but we like tives decide what is or isn't a 3M business? Says to have it as a piece of our philosophy." A vice chairman Mitsch: "That's a good ques well-articulated strategy could have provided tion. None of us is foresightful enough to de a vector for the innovative energy that steams out of every corner of 3M, and helped 3M work its way to a quicker and less drastic res olution of the long-simmering problems in its imaging and electronic storage businesses. Yet the paradox that governs human things says that a weakness is also a strength. The fact that 3M must fall back on "exceptionallv good financial characteristics is not, after all, a bad thing for a business. "To'make money is part of the culture here." the chair man says, and he vows that the new 3M will be "a company that will be the envy of the worM." its recent tI.oub[es notwithstanding. 3M remains a treasure--and a treasuretrove of intelligently applied management ideas. DeSimone says: "It would take me many years to screw it up." 196 THE WALL STREET JOURNAL. Three Drug Firms Post Mixed Results, But Revenues and Volumes Are Strong By Gautam Naik Staff Reporter of The Wall Street JouRNal Three major drug companies posted mixed fourth-quarter results, amid strong revenues and volume growth. Bristol-Myers Squibb Co. reported a loss that reflected a large charge related to breast-implant litigation and restructur ing. Warner-Lambert Co.'s earnings fell 11% partly because of a higher tax rate. Merck & Co.'s profit rose 11% amid strong volume growth. Each company reported increased revenue. Results for Bristol-Myers and Merck were in line with analysts' expectations, while Wamer-Lambert's profit was at the low end of estimates, according to Zacks Investment Research Inc. In New York Stock Exchange composite trading, Bris tol-Myers closed at S86.125, up $2, WarnerLambert increased 25 cents to S92.125, and Merck gained 62.5 cents to $66,875. An Industry Turning Point Analysts said 1995 marked a turning point for an industry that as recently as two years ago, was bracing for sweeping changes in health-care legislation that were expected to hurt drug makers' profits. "The continuing surprise over the last 12 months is that the industry is fundamen tally very strong," said Alex Zisson, an analyst at Hambrecht & Quist Inc. "Two or three years ago, Wall Street was afraid the sky was falling, but it was just an acorn or two." Investors had worried that health-care overhaul would give managed-care organi zations more power to lower pharmaceuti cal prices and influence doctors' decisions about prescribing drugs. During 1993 and 1994, such fears drove pharmaceutical companies to restructure operations and sell low-performing businesses, which con tributed to the overall pessimism and ham mered drug stocks. . But with the breakdown of proposed, sweeping health-care reform, drug compa nies in 1995 began to reap the benefits of their earlier actions. Prices, which had stayed at-or even below-inflation levels during 1992-94. began to creep up in 1995 by as much as 3% over the inflation rate for some companies, Mr. Zisson said. At the same time, managed-care organizations may be more inclined to consider drugs "a cost-effective therapy" compared to other treatments, said D. Larry Smith, an ana lyst at First Albany Corp. CMA 175659 What's Coming Up For 1996, Merck's revenue is expected to receive a boost from the sale of two new drugs, one for osteoporosis and one that lowers cholesterol levels. A blockbuster Bristol-Myers blood-pressure drug will lose its U.S. patent protection this year, but potential revenue losses could be offset by increased sales of other drugs. WarnerLambert is expected to launch an over-thecounter version of the popular ulcer drug, Zantac, this year. Bristol-Myers recorded a charge of S590 million in the quarter for breast-implant litigation, similar to charges totaling S79S million in the 1993 and 1994 fourth quarters. The New York-based drug maker also recorded a charge of $198 million, or 39 cents a share, for consolidating plants and other facilities, and related costs to cut jobs. Revenue rose 11% to S3.61 billion. Wamer-Lambert's net was lowered by an increase in the tax rate to 26% from 24% in the year-earlier quarter; by a devalua tion of the peso, which reduced net by seven cents a share; and by higher manu facturing costs. Quarterly revenue in creased 8,1% to $1.86 billion for the Morris Plains, N.J., company, ^ Merck's profit gain reflected ; n isfl revenue rise to $4.56 billion. Newer pro* ucts and growth of the Merck-Medco Man aged Care business contributed to the stronger quarterly and annual revenue, the Whitehouse Station, N.J., company said. (continued from preceding page) FORTUNx. professor Van de Ven, who was the only out No one expects a one-day course to turn Ne the long run as the mistakes makes if it is dictatorial." management sider on a high-level 3M task force assembled ville Chamberlain into Audie Murphy. a decade ago to study ways to improve the management of Innovation: "You see con stant self-reorganization and self-redesign, without the need for a whole lot of coordi nation across the company." For instance, the very week Post-it Notes was launched, and before he went off to work on electronic components packaging, Leon Royer, ostensibly running labs for commer cial office supplies, w'as given a crash assign ment to come up with a new fly-fishing line for the leisure-time products department be cause a competitor's new product was killing 3M's offering. Royer called in a fluorocarbon expert from a third part of the company, who suggested playing around with a molecule that had been invented for still another piece of 3M. Royer himself spent many a Sunday afternoon testing the line by. fly-casting in high school gymnasiums--the only struc tures around that were big enough, empty enough, and warm enough on those Minne Rather, it's designed to help newcomers inhale the atmosphere of 3M at Its heady best. The company boasts thht its high employee retention rate (turnover is less than 3% a year), generous benefits, and supportive culture provide a safe environment for risk-taking entrepreneurship. Clearly so: 3M has achieved its goal of getting 30% of sales from products less than four years old so consistently that it is considering raising the bar. Amid so much invention, there's always someone around to give advice or moral sup port to an employee striking out on her own in novation journey. But at the same time, she's on her own. Says Royer: "They wrote `The Little Red Hen' about 3M. No one says, `We'U help you.' If you have an idea, you form your little ad hoc group--it may be two people. You don't have top management supporting you. You take your idea to where you bake the bread and let the aroma filter out, and see how the)' npany follow where its scientists and customers lead. Says DeSimone: "Innovation tells us where to go; we don't tell innovation where to go." It's not that simple, of course: 3M has an elaborate system (predictably larded with deliberate duplication) for eval uating which R&D projects should become "pacing programs" that might result in breakthrough innovations that change the basis of competition. A recent example: Apex, a fruit of the re markably fecund microreplication technology. Apex is an abrasive material that can replace sandpaper (3M's ven- first manufactured prod uct) for many uses. A single piece of Apex can do a job--from the first coarse smoothing to a final buff and polish--that might require half a dozen grades of sandpaper. That capability has allowed one customer, a golf club maker, to eliminate one of the three shifts it used to need to smooth and polish its clubs. Apex was a low- sota winter days. The new line was ready by respond. If they don't bother to come and eat priority item--someone was noodling around the time trout season opened, and went . your bread, you throw it out and feed it to the with it on his 15% time--when the quest for gangbusters--the result of an in-house ef birds. But if they like it, you'll know it." pacing products in abrasives turned it up. fort that not only ignored the formal organi Of course, little hens need resources Money rained down, the schedule was pushed zation but also built no permanent structure along the way, and it's in the nature of in up from 1998 to 1995, and now Mitsch says of its own. XECUTIVES don't preside over a novation to take longer and cost more than expected. That leaves senior man agers. in Van de Ven's words, "facing 45 Apex might be a half-bihion-a-year business by the turn of the century. The company has become more aggressive Eclimate: they try to keep it health project leaders all saying, Trust me, trust me, ful. That doesn't mean keeping it trust me.' " If the stakes get high enough-- genteel--nature's red in tooth and either because a project's potential is enormous daw, after all. New employees are pusheodrtobecause it's costing a ton--the petitioner about milking customers for ideas too. Thirtyyear veteran Marc Adam, head of marketing, says, "There's progressively more in common between R&D and marketing--more than at learn about this simultaneously nourishminigght find himself on the 14th floor, where the any time since I've been with the company." and ruthless environment via a class in risk top executives have their lairs, every six weeks. 3M has always tried to get deep inside its cus taking. They come with their supervisors and One time he might get avuncular counsel and tomers--hoary company lore instructs sales are taught, among other things, to be willing the benefit of the doubt; the next time he'll be men to head for the smokestacks, where end to defy their supervisors. They hear stories fending off jabs and innuendo--really rough users are, rather than the offices, where the about victories won despite the opposition of stuff, according to some who have been purchasing department sits. Now Adam is the boss--perhaps how DeSimone five times tried and failed to kill the project that be came the wildly successful Thinsulate. Story telling is an important way 3M conserves its environment. Miss Manners wrote that mar ried couples should be seated apart at dinner through the wringer. The long careers of sen ior executives help reduce politics in the envi ronment: Everyjudge has been, and can expect again to be, a supplicant. Says Royer: "You don't go up there to b.s. the company, because you're part of a community." pushing full body contact on the 3M side of the relationship too, creating major-customer teams that include representarises from every thing from R&D to sales. The idea is to foment a rich conversation that allows 3M to see not only what other stuff it can peddle but also its parties because "they tell the same stories, customers' unarticulated needs, so that 3M can and they tell them differently." 3Mers tell them the same. Student risk takers are given real money and asked to wager it. In one exercise, a small wad of cash is placed at the end of a long plank laid on the floor, and an employee O CORPORATE community is invent products that meet them. Says Coyne; Ndemocratic, but 3M has a long his tory of resisting autocracy. Half a "The technical community can participate in that, where it couldn't participate in just selling century ago, founder William L. more of what we already have." A recent in McKnight, the only superstar CEO in csotamnce: a fabric that allows water vapor to pass pany history, penned a memo that hangstharsoaugh but blocks liquids, developed after is asked to walk along it to get the loot. Then, for a bigger pot, he is asked if, for real, he'd walk the same plank if it were seven stories high and stretched between buildings in the plaque in many offices. In part, it reads, "Those men to whom we delegate authority and responsibility, if they are good men, are going to have ideas of their own and are go doctors told 3M that they wanted surgical gowns that protected them from patients' blood but didn't leave them soaked in their own sweat. company's headquarters complex, with the ing to want to do their jobs in their own way CMA 175660 asphalt parking lot below. "The downside ... These are characteristics we want in men risk--" someone might begin; and the leader and should be encouraged ... Mistakes will retorts: "What risk? You've already proved be made, but... [these] are not so serious in (continued on next page) you can do it," CMA 175661 (continued from preceding page) Yet patience cost 3M dearly in the mag netic-storage business (diskettes, videotape, and audiotape), where, according to De Simone, problems were evident for more than ten years before 3M decided to get out. The businesses were riding down a steep cost curve that rapidly turned high-tech, highvalue-added items into commodities. Prof its, never great, kept shrinking. 3M couldn't cut costs enough to get ahead of the curve or innovate its way off the slope altogether. Still, 3M held on because the businesses sup ported technologies it needed elsewhere --for instance, the chemistry-based color ca pabilities of videotape are also used in film and X-rays. What tipped the scales was 3M's realization that its knowledge of digital color technology had advanced enough that the company could afford to stop investing in the chemistry-based skills. This sacrifice of financial goals to nonfinan- ciaJ thinking hints at what may be the central'' secret of 3M; Beneath its orderly, AAA-rated, Midwestern exterior, the place is dotty. One of 3M's crazy-like-a-fox traits is famous--the "15% rule" that tells researchers to spend that much of their time working on something other than their primary project. That's a mild ec centricity next to some of the stuff that goes on. Organizational design, for instance. 3M's org chart looks as if it might have been drawn by Mr. Honeywell, the stuffy1 businessmanboss on the 1950s sitcom My Little Margie-. Beneath the CEO are boxes for two big op erating sectors (three before the restructur ing) and international, each led by an execu tive vice president who also oversees some corporate services; finance, and manufac turing also report directly to the top. Within each sector are groups, lined up as neatly as brigades in a corps, and beneath them stand divisions in serried rank. That handsome pyramid has little or noth ing to do with how the place runs. "The only reason the sectors exist is the convenience of analysts. The scientists don't care; even the marketing people don't care," says spokes person Mary Auvin. (The divisions, groups, and sectors are also a proving ground for executive talent.) Says Andrew Van de Ven, a professor at the University of Minnesota's business school who has studied innovation and organization at 3M; "You can find seemingly absurd combinations within the structure," such as the fact that the division that makes tape for disposable diapers for years was lodged in the same group as the division that makes reflective materials for traffic signs. So what does 3M's real organization chart look like? This, according to Ron Baukol, head of international operations: THIS, he explains, is "a centipedal table," upside down. The leaves of It is, however, efficient--redund^W^ without waste. Labor productivity bears witness to the achievement. In 1984, when the table are some 33 technology 3M had 88,949 employees, sales per em platforms. In 3M's lexicon, a tech ployee totaled SS8.814. In 1994, with almost nology platform we can generate is "a technology from multiple products for wmhtuhiclethisame head count (85,166). per employee ple markets," such as adhesives, chemical ce sales had jumped 99% to S 177,019. In real ramics, fluorochemicals. microreplication, or precision coating. Growing up from the table leaves are legs, each a business, some quite small, derived from the technology. Says Bau terms the gain was even higher, 101%, since 3M's average prices fell 2% in the decade. By comparison, for U.S. manufacturers as a whole, real output per person rose only kol: "We must have 500 to 1,000 different businesses." The whole thing, he goes on. is 39% during the same period. Forgive, gentle reader, a brief excursion shrink-wrapped with three tapes: financial into abstraction as we probe how 3M stays goals and disciplines, human resources prin lean while seeming not to watch its weight. ciples, and the company's values. DeSimone says. "You never see the produc Those businesses--the table legs--are fit tivity issue off the screen," but 3M rarely ted into a 3M division, group. and"sector usu pursues it in the usual ways--streamlining, ally based on marketing consanguinity--auto chopping, eliminating duplication. Those parts in one group, pharmaceuticals in an words have a mechanical feel--fine-tuning other. But not always. To make sure its scien the machine, removing superfluous parts. tists and business people know one another's The talk in 3M's offices is more holistic skills and needs, 3M wants each technology platform represented in the business portfolio of each group. Diaper tape was with road signs to give traffic products a stake in adhesives. Then there's the matter of redundancy, which 3M wallows in. The company's 8.300 researchers are scattered among so many dif and organic. Says Coyne: "We're managing in chaos, and that's the right way to do it." Baukol; "We go in helping to shape but not shaping." Appeldorn: "What matters is the climate." Mitsch: "All you really have to do in management is provide an en^^- ment; it's almost alive, always ebbinlBRd ferent labs and types of labs that no one is en flowing." Tamsky: "1 manage an environ tirely certain how many there are. There's ment." Royer: "An environment to free up central R&D; there are labs attached to each your imagination--that's the whole idea." of the sectors; more linked to groups or busi Consider, says the University of Minne nesses; and 11 centers dedicated to particu sota's Andrew Van de Ven. the difference lar technology platforms. In general, the between these mechanical and ecological main lab and technology centers do research, metaphors. In an environment like the the others development, but the generaliza ocean, "every drop of water contains all the tion is full of holes. A scientist who can't get elements of the entire ocean. The ocean is money for a project from a business unit his full of redundant drops--but the redundan lab is linked with is encouraged to see if cies are supportive, not wasteful." 3M's en someone else will pony up or, if no one will, vironment supports hundreds upon hundreds to apply for a "Genesis Grant," money that of businesses. Each contains the essential is not allocated by management but by a elements of the whole, yet none is indepen panel of fellow scientists. On occasion a stub dent of it. That is--in this metaphorical ver born and frustrated researcher has pushed sion. at least--each business can draw suste into DeSimone's office looking for scratch, and received it. Deliberate duplication abounds at 3M. For example, at the other end of the innovation pipeline, ideas are evaluated for commercial potential not only by people with hierarchical responsibility for them but also by a "techni cal audit" panel of scientists, manufacturing folk, and marketers, none of whom work for the sponsoring business. The audit has a dual purpose: to second-guess the hierarchy and, if an idea can't be used by its sponsor, to ex pose it to other businesses that might want it. nance from the whole and also flourish because a big. varied ecosystem gives it room to grow, compete, and evolve. Certainly redundancy carries costs; but it also creates opportunities and savings. First, there's knowledge sharing: 3Mers save time and money by adapting one another's ideas rather than reinventing them. Also, because 3M managers swim in the same sea. they seem able to move from one business t^nother--or to toggle between labs an^^^i- nesses--smoothly, with no loss of spemd with minimal bureaucratic drag. Marvels Says Morgan Tamsky, head of the adhesives technologies center; "One of the imponder ables of 3M is the multiplicity of interac (continued on next page) tion--it's not explainable, and it's not orderly." (continued from preceding page) ihot summer days, he would walk the -shoreline near his grandfather's house in Verplanck, a village 30 miles north of Manhattan. "When I wasn't out at the farm in Peekskill," Mr. Pataki said, "1 was down on the river. And you couldn't go in the water." Pollution from fac'tories and open sewer lines had ren dered the river untouchable. `Til never forget standing there 'throwing bricks into the river -- because it was an old brickyard," he said. "But as hot as it was, you couldn't go in." - After a pause, he added, "That should end." Mr. Pataki cited as the hallmark of his environmental accomplish ments the billion-dollar pact his of fice brokered last year to protect New York City's upstate water sheds. The agreement ended a generations-old dispute between New York City and the towns around its ..reservoirs, with the city agreeing to sponsor economic development pro grams while gaining new powers to curb pollution. The deal, he said, benefited from his ties both to rural upstate communities and to conser vationists. Mr. Pataki's environmental activ ism grew in lockstep with his politi cal career. As Mayor of Peekskill in 1982, he was credited with working to protect open space along the river. As a state legislator, he worked to clean up a riverside landfill at Cro ton Point, link green space in com munities up and down the Hudson and preserve habitats for wildlife. But at the same time, Mr. Pataki was growing increasingly frustrated with the stale's environmental bu reaucracy and the enforcement strategy of the Department of Envi ronmental Conservation. When he was Mayor of Peekskill, he recalled, he learned of a broken pump in a sewer system that was sending raw sewage into the Hudson. "So we go back and fix the pump, and tell D.E.C." Mr. Pataki recalled. "They came down and said, `Aha, you have a violation. We're fining you.' "If we had done nothing, they would have never known," Mr. Pa taki said. "But because we finally ended what had been a problem for years, we ended up getting fined. That was just typical of the attitude. It was process-oriented instead of results-oriented. We want results." Regulating, Not Condemning He said he is determined to move away from the old confrontational approach to one in which the depart ment works with industry to identify pollution problems before they be come severe. "We want to vigorous ly enforce environmental laws, but we don't think that's inconsistent with having a cooperative attitude with those who are regulated," Mr. Pataki said. But Mr. Pataki's critics say he has allowed the pro-business, or anti-regulatory, camp in his administration far too much latitude. The $1.5 mil lion tax deductible settlement nego tiated between the administration and General Electric over a pollu tion problem at an upstate silicone plant was far less than possible fines, which could have reached $20 million, according to some environ mental law experts. That is one of several issues dog ging Mr. Pataki's environmental chief, Mr. Zagata, who has traveled to Hartford on state time to buy decorative shrubs for his home and used department vehicles on other out-of-state personal trips. But the Governor said he supported Mr. Za gata, praising his aggressive ap proach to changing the way the de partment works. "He'll continue to take a lot of heat," Mr. Pataki said. Responding to criticism that the Pataki administration had weak ened the department's ability to pur sue polluters, Mr. Pataki said, ``The number of lawyers went from 128 to 103. They don't need 103 lawyers in the D.E.C. to have a solid enforce ment program." More cuts are planned, he said, This year, he said, he intends to use the same negotiating methods used last year in the Catskills water sheds to find consensus in the Adirondacks and create a plan to clean up Long Island Sound. Long on Ideas, Short On Money for Them Among environmental advocacy groups, however, concern is rising that Mr. Pataki's pledges may not be matched by his budget. They say that hidden in Mr. Pataki's plan to pump $100 million into the state's Environmental Protection Fund -- created in 1994 to pay for land and environmental projects ~ are plans by his budget office to siphon off more than $25 million for projects not related to the environment. The $25 million would go to fix state facilities, like prisons, that are some of New York's biggest pollut ers. Money to fix faulty prison septic systems or other state infrastruc ture should not come at the expense of environmental projects, said Eric J. Siy, a lobbyist for Environmental Advocates, a 30,000-member New York conservation group. But Mr. Pataki said he was com mitted to seeing New York State end its reign as its own worst polluter and begin "leading by example in stead of leading in its level of pollu tion." He also defended a plan by Berna dette Castro, his Commissioner of Parks, Recreation and Historic Preservation, that would for the first time allow commercial logging in a state park. For more than a decade, Mr. Pataki said, the state has sought a way to manage Allegany State Park, the swath of mature forest near Buffalo that at 67,000 acres is New York's largest state park. "This was a problem that was deferred over and over again," he said. But groups pressing to keep the park wild say they cannot under stand Mr. Pataki's stance. Logging would lead to destructive road con struction and set a precedent imply ing that parks must somehow pay their way, Mr. Woodworth said. Elsewhere, as well, mixed signals predominate, people representing a wide range of interests say. In his annual message to the Legislature this year, Mr. Pataki endorsed the recommendations of a 1994 commis sion on the Adirondacks, Mr. Woodworth said. But Mr. Pataki, in sharp ly cutting the budget and staff of the Adirondack Park Agency, is not pro viding the means to accomplish the goals, he said. "We said we need 10 more people, and he's subtracting 10 people," Mr. Woodworth said. "There's still a big gap between his words and his deeds." Mr. Pataki insisted that the re wards of a clean environment wen far more precious than any short term considerations. Living alon the Hudson in Garrison, he said, 1 appreciated those rewards evei day. "We had an eagle the other dt fly over my house," he said. "Wher. was a kid there weren't any. No around Iona Island at this time of tl year there are a bunch of them. It just awe inspiring." CMA 175662 FEBRUARY 5.1996 f '/ ! !\ ! 1. \/L: CMA 175663 HOEVER it is that puts a silver lining in Wevery cloud is the same character who drops rain on every parade. Lately he has been busy up in Minnesota. In midNovember, the Minnesota Mining & Fights Back The Cal Ripken of corporate consistency stumbled last year--but don't think 3M is in trouble. The company's travails are the result of the Manufacturing Co., a paragon of cor very things that make it successful. by Thomas A. Stewart porate consistency, announced the biggest restructuring in its 93-year history. The move, as the Wall Street _ Journal put it, "included all the fa vorite morsels that analysts have come to crave: layoffs, spinoffs, and business discontinuations." In the fourth quarter of 1995, 3M took a 5600 million charge against earnings, equivalent to 27% of 1994 op erating income. It is lopping off businesses with 1994 sales the word "failure" to characterize the business problems that led him to jettison a fifth of the company. He's right. The troubles that have afflicted 3M grow in the same soil that makes it flour ish: patient capital (both financial and intel lectual), an environment that encourages people to work around and even defy their superiors, and a determination to let the company follow where its scientists and cus tomers lead. of $2.95 billion, nearly a fifth That 3 M's amply proven formula for suc of 3M's total; most will be cess produces failure as a sometime byprod spun off into an as yet unnamed new uct raises a management question that bor company, but S650 million worth of ders on the profound. It is a fundamental computer diskette, videotape, and truth that the strength of every human thing audiotape manufacturing is headed for the is also its weakness, and vice versa. The opti dump. Tire new 3M--call it 2.4M7--will have mist sails over obstacles that would rip the 5,000 fewer employees, some spun off, some at- keel from someone less buoyant--but his in tritted, and perhaps 1,000 laid off. When 1995's souciance can lead him to take foolish risks. numbers are added up, for the first time in years 3M won't have met the financial goals--10% growth in earnings per share, 20% Hamlet's glory--his all-things-considered mind--is also the wellspring of his fatal hes itancy. The debilitating fractiousness of the , to 25% return on equity, 27% return on capi United States is the malign form of the ex tal employed--it sets for itself. hilarating diversity that is its strength. If this This from a company that has scored in the is so. if every human strength carries within top ten on Fortune's list of Most Admired itself the seeds of its own weakness, can the Corporations ten times in the past 11 years, a bad seeds be kept from poisoning the rest? record matched only by Rubbermaid, which Patience is one of those mixed blessings. In also took a bad bounce in 1994. It's a company that between 1985 and 1995 gave its investors a business world where it's received wisdom to a solid 15.5% annual return. A com pany where officers, their average tenure 31 years, talk about the last time they exited a major busi ness--11 years ago, when 3M sold its copier line--as if it were yesterday. 3M's name is synonymous with innovation; the company's 1995 re see an enemy in time, 3M sees an ally. Listen to Roger Appeldom, who has spent 40 of his 60 years at 3M, talk about the early days of a tech nology called miCToreplication. Microreplication is the an of covering surfaces with millions of precisely made minuscule structures--pyr amids, cubes, spheres, ridges. Like a conspiracy in an Oliver Stone film, microreplication is didn't sit down and say, `Microreplication is the next thing to do; let's go do it.' It doesn't work this way. It evolved. It reached a critical mass. And it suddenly proliferated." The technology was two decades old in 1981, and Appeldom was sticking microreplicated lenses in lighting systems at the Univer sity of Minnesota. Says his then boss Ron Mitsch. now vice chairman and the executive VP in charge of 3M's largest business sector: "Roger was a manager running a small busi ness, being judged on a day-to-day P&L." His manufacturing equipment was getting old, but sales didn't justify a pitch for capital spending. Looking for help. Appeldom found that mi croreplication had crept into half a dozen products in other business units that together might fund the investment. Mutterinc^fiureka," or words to that effect. Appeldol^Bd Mitsch realized that they might have stumbled upon the edge of a vast and largely unknown field of science, artificially managing the struc ture of surfaces. They set out. in Mitsch's words, "to enhance the capability in a me thodical way." In 1982,3M bought a company with relevant manufacturing technology; the next year Appeldom was put in charge of a new "technology center" devoted to microreplication; now DeSimone says. "We can't make enough of this stuff." 3M is full ofstories wriose moral is "ripeness is all." Says R&D chief William Coyne: "One of our goals is to increase our speed to market. But we're not trying to increase our speed be fore we decide to take something to market, because that could have a real negative impli cation for innovation." 3M can be equally pa tient with existing businesses. Leon Royer, who headed the commercial tape division labs when Post-it Notes came out in 19S0. moved sults will show that it did meet its suddenly everywhere in 3M. Depending from that triumph to the task of rescuing what goal of getting at least 30% of sales on the size and shape of the tiny struc looked like a failing business making elec from products less than four years tures and the material of which they are tronic components packaging. Says Royer, now old. But paradoxically, 3M's crea made and to which they are applied, 3M's head of organizational learning: "We tivity sits on a foundation of ex traordinary continuity, "We like to say it's innovation and stability," the CEO. L.D. "Desi" DeSimone, said just weeks before dropping the shoes--he wears size 11--of spinoff and shutdown. After announcing the restructuring, DeSimone ad products that use microreplication can refract light or transport it, strip adhesive from plastic film or serve as a fastener, reduce water drag on boat hulls or polish golf clubs. Last year 3M sold dose to a billion dollars' worth of microreplication products, and that number could increase ten times in five years. No one planned that, recalls Appeldom, who invented were losing millions, and I was compounding that through investment. At my lowesj^k roent--damn, I'm in debt beyond my dei^Hf we're doing everything right, why isn't any thing going right?--I got a note from Mitsch, who'd just seen the P&L. The note said only `Push on.' " Today the business is thriving. mitted, "This isn't the way we 3M's first miCToreplication product--lenses for wanted to do it," but he won't use overhead projectors--and now heads the lab chiefly responsible for the technology: "We (continued on next page)