OUT OF A NEAR-DEATH EXPERIENCE INTO A CHAOTIC GLOBAL ECONOMY: HOW CORNING REDISCOVERED ITS INNOVATION ROOTS

Corning survived its own near-death experience in 2001 and weathered the global economic crisis of 2009 and 2010 through a strategy of strengthening and consolidating R&D with a focus on growth through innovation that builds on the company’s core competencies.

Joseph A. Miller, Jr.

Joseph A. Miller, Jr., is executive vice president and Chief Technology Officer of Corning Incorporated. He has been with Corning since July 2001. Before joining Corning, Miller was Chief Technology Officer and senior vice president for research & development at E.I. DuPont de Nemours, Inc. He came to DuPont in 1966 as a research chemist in polymer science; he also worked in R&D, manufacturing, and marketing. Miller received a B.S. from Virginia Military Institute and a PhD in chemistry from Penn State University. He is a member of the National Academy of Engineering and the Industrial Research Institute and is a Fellow of the American Association for the Advancement of Science. He is on the boards of Greatbatch, Inc., and Dow Corning.

OVERVIEW: In 2001, Corning faced a near-death experience. Growth had halted and revenues had plummeted. But Corning survived, and today it is thriving. The strength Corning built in facing that challenge helped it weather the global economic crisis of 2009 and 2010 and emerge stronger than before. How did Corning survive the 2001 disaster, with virtually no money to invest in rebuilding? How has it sustained its performance in an era of continual uncertainty and volatility? This article explains how Corning responded to both crises, describes the innovation-based strategy it pursued and articulates some of the lessons Corning learned from these crises and more than a century as an innovator.

KEY CONCEPTS: Corning, Core competencies, New-business development, Centralized R&D, Organic growth

For more than 160 years, Corning has been a center of invention—a place where scientists are urged to discover new materials, technologies and manufacturing processes. The resulting innovations have included a manufacturing process for mass production of light bulbs, cellular ceramic substrates for catalytic converters, glass optical fiber for telecommunication applications, and liquid crystal display glass for consumer electronics.

By the end of the twentieth century, this way of doing business seemed to have paid off handsomely. The company enjoyed sustained growth from 1984 to 2000, with net profits soaring from $100 million to $900 million. Through the late twentieth century, the company had become dependent on its highly successful optical-fiber business and had invested heavily in fiber-related acquisitions. Then, in 2001, the telecom bubble burst. Demand for optical fiber, which at that point contributed a majority of Corning’s revenue, plummeted. Sales fell by $1 billion in 2001 and another $3 billion in 2002. This crisis, which seemed to have materialized overnight, shed doubt on Corning’s survival and raised the question of whether Corning would thrive in the new millennium.

But Corning survived, adopting a strategy focused on consolidating and strengthening R&D. Corning pulled itself back from the brink, and its bold actions helped the company weather the global economic crisis of 2009 and 2010—and emerge even stronger. The Corning experience offers important lessons for any company seeking to focus on organic growth in this volatile economic climate.

2002: The Strategic Innovator Fights Back

With its fiber business decimated, Corning had so few resources that it seemed almost impossible to fend off disaster. The company’s share price had dropped from $130 per share to $1.20 per share. Revenues were down to $3 billion, with $4 billion in debt and $2 billion in cash. The management team had to slash costs, prioritize short-term revenues, and reestablish stability and stakeholder trust. But the company’s long-term health would depend on organic growth through innovation, and that meant continuing to invest in research and new business development. To address both of these imperatives, the management committee made several bold strategic decisions. They consolidated and centralized R&D, refocused the corporation on its core competencies, improved and expanded its innovation processes, and formulated an “innovation recipe” to help identify new opportunities.

Centralizing R&D

Centralizing Corning’s R&D activities and consolidating facilities was a brave step in an era when many companies were globalizing and decentralizing. The company shut down or downsized facilities in Asia, the United States, and Europe. Eliminating these satellite laboratories reduced RD&E spending by nearly half, from $620 to $320 million. Most RD&E activities were relocated and centralized within the Sullivan Park research facility in Corning, New York. That facility, which comprises more than a million and a half square feet, now houses more than 2,200 people, 600 of them principal investigator PhDs and more than 30 percent of them born outside the United States.

The downsizing was carefully managed to preserve the fundamental capabilities required for invention, innovation, and new-business development. Several key facilities important to maintaining critical capabilities were retained, including a traditional glass lab in Fontainebleau, France, a facility long associated with major glass-manufacturing facilities in Bagneaux. Technical centers have also been added in the Silicon Valley and Taipei; these are focused on providing technical support to customers and their supply chains.

Consolidating did more than simply reduce costs. It made it easier to identify and involve people with the right skills, from multiple disciplines, for each project. This cross-functional, multidisciplinary approach allowed for the generation of more ideas and the integration of more technologies in developing new or improved solutions.

Strengthening Core Competencies

Along with centralizing, Corning’s management committee decided to focus on and strengthen the company’s core capabilities—Corning’s historical R&D strengths in glass, ceramics, and optical physics. Strengthening these capabilities was essential if Corning was to pursue new opportunities. Leadership knew that speed of execution in our innovation projects would come from deep technical competencies, state-of-the-art facilities, and top-notch talent. Making these investments, however, was not always easy. For example, when fiber sales plummeted in 2001 and staff and facilities were cut significantly, some who believed that the fiber business was going to rebound fought to preserve the company’s fiber research capabilities. The fiber market did rebound and is now booming as demand for bandwidth continues to grow. Because the company preserved those capabilities, Corning has been in a strong position to take advantage of that demand.

Focusing on core competencies also meant adding new competencies cautiously, and only when they were synergistic with the historical core. For example, Corning added competencies in optical semiconductors, directly related to optical fiber and telecommunications, and biophotonics, integrating biology with materials and optical physics. To ensure that its technical work was at the highest level, Corning also paid careful attention to its characterization science and modeling organizations.

Improving Innovation Processes

To support its quest for organic growth through innovation, Corning reworked its innovation processes with a focus on filling the early-stage pipeline more systematically, prioritizing and executing later-stage programs, and fostering greater management involvement.

To guide the development of its early-stage pipeline, Corning created the Strategic Growth Organization (SGO). The organization, staffed by equal numbers of commercial managers and technologists, was responsible for identifying opportunities with the potential to become major new businesses and then developing those opportunities into fledgling businesses. Part of Corning’s Science & Technology division, SGO reports to the CTO alongside the research, development, and engineering functions, all of which help identify and support opportunities as they grow into stand-alone businesses. Governance of most SGO activities is provided by the Corporate Technology Council (CTC), a forum of Corning’s top technical leaders that meets monthly. The CTC ensures that SGO’s efforts are well aligned with corporate strategy and investment priorities. SGO also works with the Growth & Execution Council (GEC) on opportunities that have been vetted by the CTC and require additional championship and, often, investment.

To better sort and execute innovation programs, Corning improved its five-stage innovation process and worked to strengthen the skills of project teams and foster senior management and board support. The original process was organized by function and that had led to silo behavior. The process was reengineered to focus on work streams rather than functions, improving project success through the elimination of silo behavior and the enhancement of cross-functional engagement (Figure 1). A small, high-level innovation effectiveness group was created to deploy the new process across the company. These Innovation Facilitators, or Master Black Belts, work with all of the high-priority projects and tailor the innovation process to meet specific project needs. This group also trains Corning’s innovation black belts, a role modeled after the Six Sigma Black Belt program. Trained in an intensive five-day course and certified by the company, innovation black belts are experts in the practice of innovation who facilitate project teams. The black belts and Corning’s innovation facilitators, or master black belts, have been instrumental in driving widespread adoption and support of the new innovation process.

Figure 1.—Corning’s reengineered five-step innovation process ensures a focus on core competency and demands more involvement from senior management and the board.

The reengineered process also required greater involvement by senior management. Every general manager spends a considerable amount of time in the laboratories, engaging R&D staff, discussing problems, making the point that they are counting on R&D to continue to deliver to their businesses. Similarly, the CEO spends at least a day every six weeks at the central lab, and both general managers and the CEO visit Sullivan Park frequently with customers. The value of technology is recognized from the top of the company down.

The board of directors has also become more involved in the innovation process. The management committee hosts in-depth technology and innovation sessions, lasting two to three hours, with the board before each board meeting. This helps board members understand the implications of Corning’s strategy of organic growth through innovation and the investment required to execute the strategy.

Formulating an Innovation Recipe

Few research programs reach commercialization, and even fewer become substantial new businesses. Separating the winning ideas from the losers early is a fundamental goal of the innovator; effective sorting early on improves the odds of success and helps manage the R&D investment risk. Believing that much could be learned by taking a hard look at past successes, Corning’s R&D management analyzed six of the company’s major innovation successes to identify common characteristics (Table 1). The analysis revealed a number of common elements:

• The product responds to a demanding set of requirements.
• Requirements were identified only through deep understanding of a specific technology and insight into customers’ most difficult systems problems.
• The product constitutes a key enabling component of a larger system (for instance, catalytic converter substrate is an enabling component of an auto emissions control system).
• The product brings together a unique material and a unique process, both linked directly to Corning’s core capabilities (example: LCD glass substrate is made from alkali-free glass using a fusion forming process).
• Corning achieves and maintains strategic control based on the uniqueness of the solution, the intellectual property associated with its invention, and/or a unique capital investment (for instance, in large-scale fusion glass-production facilities to achieve low unit cost).

In Corning’s innovation failures, at least one or two of these components were missing. These commonalities were codified as Corning’s innovation recipe—its template for innovation success (Figure 2). This basic innovation recipe has helped Corning guide its R&D investment decisions and stay focused on the integration of core technical capabilities and customer needs. Armed with this recipe, Corning is equipped to assess how well a potential new business fits with its capabilities and strategy.

Figure 2.—Corning’s innovation recipe is the company’s template for innovation success.

The results of these strategic decisions have been dramatic. Corning didn’t just survive; it delivered outstanding financial performance, doubling revenues (to over $6 billion in 2010) and maintaining a very strong free cash flow (with cash over $4 billion greater than debt). Over the past decade, Corning Science & Technology has delivered, on average, two significant innovations for each of its existing businesses each year.

2009: A Stronger, Leaner Corning Confronts a Global Recession

When the global economic crisis hit in 2009, Corning was ready, strengthened and focused by its responses to the challenges of 2001 and 2002. Rather than panic, the management team moved rapidly to pursue emerging opportunities that leveraged its greatest capability, glass. Doing so required a massive realignment of R&D resources, made much easier and more effective by the centralized structure established in 2002.

While continuing to fill its innovation pipeline, Corning began to pursue adjacencies—opportunities that utilize existing investment and capabilities and that relate directly to the company’s core competencies. Unlike building new businesses based on new technology, which can take 5 to 10 years to provide return on the investment, adjacencies develop in 2 to 4 years. Corning’s R&D management team realigned the pipeline to place priority on some nearer-term adjacencies and to pace some of the longer-term opportunities more appropriately. It also expanded the missions of commercial units to ensure their immediate engagement with adjacency projects.

One area with immediate potential for adjacencies was specialty glass, where Corning has 50 years of institutional memory, principally around the fusion process. A new set of emerging opportunities promises to broaden potential applications for specialty glass, from auto windshields to touch screens for everything from handheld computers to televisions. These new products demand thin, strong, damage-resistant glass. They also create possibilities for some high-value-added attributes for our glass—antiglare, antifingerprint and antismudge surfaces, for example. It made sense to pursue these new markets, and Corning was prepared to do so, having maintained and hardened the core strategy formulated in 2002.

The recent emphasis on adjacencies reflects a major shift in priorities and resource allocation. Currently, at least 60 percent of R&D spending goes to near-term projects addressing the current needs of existing businesses; 25 percent is allocated to medium-term projects—adjacencies; and 15 percent goes to longer-term projects, such as emerging businesses. Flat-glass adjacency projects initiated in 2009 have become standalone businesses and a range of medium-term opportunities are emerging. For example, Corning® Gorilla® Glass—an exceptionally thin, tough glass—is a major success story. It is used as a cover glass for handheld computers and smartphones, notebooks, tablets, televisions, and a host of other products. It has become the fastest-growing business ever created at Corning, with expected 2011 revenues of around $800 million. The move toward more complex applications and capabilities (such as projected capacitive touch and multitouch) will bring even more opportunity.

The Lessons Corning Learned

In the first decade of the twenty-first century, Corning survived two severe crises. Identifying and focusing on core competencies and building processes and capabilities to support innovation enabled Corning to survive the first crisis and thrive through the second. Its strategy of pursuing organic growth through innovation will ensure the company’s long-term success. But Corning’s recent innovation successes reflect more than strategy and capability; they also reflect lessons learned through many years as an innovation-based company that invests heavily in R&D. Any company can benefit from the lessons Corning learned so painfully:

• Be patient about payback, determined to succeed, and prepared to continue spending on innovation. The innovation process requires capabilities, processes, money, a nurturing culture, and much more. But perhaps most importantly, innovation requires will. It requires a determination to succeed. It requires tremendous patience, fortitude, and faith in the ability of the organization to deliver. And from a business standpoint, it requires the courage to make substantial investments that are not certain to yield strong returns.
• Carefully identify and stick to what you are good at. Corning’s innovation recipe keeps the company focused on its core competencies. No matter how tempting it is to catch a trend, stick to strengths; that is the best way to increase the odds of success. Great leaps into arenas not supported by technical knowledge and well-developed competencies are very risky. In many cases, they may threaten the survival of a business or company. Despite what you may have heard and what people might desire, effective change is evolutionary, not a revolutionary jump into the unknown.
• Foster a team-based, inclusive culture. Never forget that innovation is a social activity. Multidisciplinary teams working together with purpose and energy beat individual genius every time. Innovation is not a handoff process; many people—with diverse experiences and perspectives—need to be involved from the beginning. Innovation is essentially team based, and leadership has the responsibility to create a culture that welcomes input from every member of that team.
• Continuously infuse new talent. There is no substitute for outstanding talent. Innovation requires a continual diet of new viewpoints and perspectives. In addition, when managing R&D people, accept that they are different. Don’t try to make them to conform to the business culture. They were educated differently and they think differently. That is what makes them excel at innovation.
• Develop or hire business leaders with the technical skill to lead innovation efforts. Innovation requires extensive technology skill and innovation leaders must have backgrounds in the technology areas they lead. They must be able to understand and judge for themselves how technology creates value for customers. Staff development should be focused on developing technical people to run businesses and nurturing leaders who can appreciate what research and technology development are all about.

Finally, an appreciation for innovation must be embedded in the heart and soul of the company. The preference for a growth trajectory through innovation must be part of an overall strategy and philosophy. The need to support the requirements of current businesses is obvious. However, corporate and business vibrancy requires that space and time be provided to look to the future and focus on the creation of new businesses. This will always create tension between the needs of today and the potential of tomorrow.