Corning Incorporated Reinventing New Business

CASE: SM-167A
DATE: 06/10/08 (REV. 11/16/10)
CORNING INCORPORATED (A):

REINVENTING NEW BUSINESS DEVELOPMENT
Technology is at the heart of whatever we do. We are going to keep putting money into new
technologies and we will go wherever new technologies tend to take us.
Jamie Houghton, Chairman Emeritus of Corning Incorporated, in 2008
INTRODUCTION
Throughout its history, Corning Incorporated had maintained a strong dedication to technology
and innovation, committing approximately four to six percent of its annual sales to research,
development, and engineering (RD&E) until the late 1990s when this figure climbed to 10
percent. Even when the company was faced with severe financial challenges in the early 2000s
by a crash in the telecommunications industry, its largest business segment, Corning saw
investment in innovationand particularly in new business developmentas its road to
recovery. While other companies might have slashed their RD&E budgets in a desperate effort
to regain profitability, Corning increased and formalized the amount of time, money, and
resources it dedicated to the identification of potentially large new businesses. As the company
emerged from its financial crisis, management set a goal to double Cornings rate of innovation
with the objective of launching two to four significant new businesses each decade.
To accomplish its ambitious goals, Corning created an organization called Strategic Growth.
The purpose of this new team was to collaborate with corporate research to identify and develop
new, large (approximately $0.5 billion), and profitable business opportunities. Under the
leadership of Dr. Mark Newhouse, a Corning senior vice president, Strategic Growth was more
than three years into its charter by late 2007. Although the group had realized many
accomplishments since its inception, the question facing Newhouse, his team, and Cornings
executives was how well the companys innovative approach to organic growth was working.
Lyn Denend prepared this case under the supervision of Professor Robert A. Burgelman as the basis for class
discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
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This document is authorized for use only in economics of strategy1 by Dr. Suresh Srinivasan at Great Lakes Institute of Management (GLIM) from September 2014 to March 2015.
SM-167A Corning Incorporated: Reinventing New Business Development
p. 2
COMPANY BACKGROUND
Cornings Early History
The story of Corning Incorporated began in 1851 when Amory Houghton Sr., a carpenter,
builder, and entrepreneur, purchased an interest in a small Cambridge, Massachusetts glass
company.1 Although glass had been in use for thousands of years, Houghton perceived it to be a
poorly understood and vastly underutilized material.2 After buying two other glass companies in
the northeastern U.S. (and selling one), Houghton and his sons moved their operation to Corning,
New York in 1868, thus establishing the Corning Flint Glass Company. Overcoming a difficult
start, the business was incorporated as Corning Glass Works in 1875.
Cornings commitment to innovation can be traced back to the companys roots. Houghtons
sons, Amory, Jr. and Charles, had a great interest in experimentation. Some of their earliest
work led to formulations that produced high-quality glass with consistent color, making glass a
more viable material for new applications. Under the leadership of the Houghton family (and
drawing on the familys passion for invention), Corning began to develop a reputation for
innovation and deep technological prowess. This reputation led Thomas Edison to approach
Corning in 1879 to develop bulbs for his electric lights. The resulting invention made electric
lighting commercially feasible.
To continue fueling innovation within the company, Corning established a corporate research
center in 1908, one of the first in the United States. An important early innovation coming out of
the new lab was a heat-resistant glass (called borosilicate after its composition) that was capable
of withstanding extreme changes in temperature. In 1912, this product was used to make
shatterproof lanterns for the railroads. In 1915, Corning released another borosilicate product,
Pyrex, which was first used for laboratory equipment and eventually for consumer cookware
products.
During World War I, Corning prospered as a supplier to defense contractors based on the
companys ability to produce high-quality glass that others could not replicate. As demand for
Cornings products continued to grow, the company invested in developing its process expertise.
In 1926, it invented the ribbon machine, which produced blanks for incandescent lamps at the
rate of 2,000 bulbs per minute. During the Great Depression, Corning continued to expand,
developing breakthrough products such as silicones in the early 1930s, electrical sealing in 1938,
and 96-percent-silica glass in 1939. In this era, Corning initiated several joint ventures,
including Owens-Corning in 1938 (to produce fiberglass), Pittsburgh Corning Corporation in
1937 (to make glass blocks), and Dow Corning in 1943 (to produce silicones).
In the 1940s, the company realized many improvements in optical glassmaking. Beginning in
1942, Corning mass-produced cathode-ray tubes for use in World War II radar detection
systems. By the end of the decade, Corning had revolutionized the materials and process used to
1
Much of this company history based on Corning Incorporated: Company Profile, ReferenceforBusiness.com,
http://www.referenceforbusiness.com/history2/3/Corning-Incorporated.html (January 16, 2008).
2
Brian Howard, Corning Incorporated, American Biotechnology Laboratory, October 2005,
http://www.corning.com/docs/corporate/media_center/ABL-Howard-Reprint.pdf (January 16, 2008).
p. 3
produce television picture tubes, making TVs affordable to the mass market. Beyond these
scientific innovations, Corning experienced a number of other changes in the 1940s. The
company went public in 1945. That same year, it created the position of chairman of the board,
which Amory Houghton Sr. assumed. The decade also began an extended period during which
Corning was led by chief executives outside the Houghton family (see Exhibit 1 for a
chronology of Houghton family leadership at Corning). To help sustain the Houghton familys
commitment to innovation, Corning began committing approximately four to six percent of the
companys sales to research, development, and engineering (RD&E).
In the 1950s, Corning introduced electricity-conducting coated glass, fused silica, and color
television tubes. A new process for producing glass ceramic materials (Pyroceram products)
led to the marketing of CorningWare cookware in 1958. In the 1960s, Cornings record of
innovation continued. Among other accomplishments, the company made the ceramic heatresistant reentry shields and the glass windshields for the 1960s Apollo moon program (and
produced glass for every manned spaceflight thereafter). Cornings advancement in cellularceramic structures became key components of automobile catalytic converters in the 1970s after
automakers approached the company for help addressing new emission control requirements.
Corning also developed the first optical fiber capable of maintaining the strength of laser light
signals over significant distances. This advancement would launch the use of fiber optics for
telecommunications. In the 1980s, the company pioneered glass substrates for liquid crystal
display technology that would make large, high-quality flat display panels possible for a variety
of applications.
Cyclical Slowdowns in the 70s and 80s
Despite this track record of successful innovations, Corning suffered a downturn in the 1970s.
Although more than one-third of the products in the companys portfolio were new, their
contributions were significantly unbalanced, making the company vulnerable. For example,
Corning generated half of its sales and three-quarters of its profits from the glass envelopes that
housed TV picture tubes. When competition from Japanese imports dramatically reduced
domestic demand for Cornings television glass, the companys sales plunged. According to
Amory Houghton Jr., the companys chairman at the time, Cornings earnings dropped so far, so
fast during the 1974-1975 recession that the integrity of the company was in danger.3 From $4
a share in 1973, earnings fell to $1.76 in 1975.4
In response, Houghton initiated a major turnaround, reducing the companys workforce to
29,000 employees (from a high of 46,000), selling off a troubled semiconductor manufacturing
unit (acquired by the company in 1962, but never made profitable), selling or closing five other
plants, and eliminating thousands of products (from black-and-white TV tubes to Christmas
ornaments).5 These efforts enabled the company to rebound, to some extent, in parallel with the
1976 economic recovery.
The
Trials
of
Amory
Houghton
Jr.,
Forbes.com,
http://www.forbes.com/forbes/1977/0901/032.html (January 14, 2008).
4
Ibid.
5
Ibid.
September
1,
1977,
p. 4
The recovery of Cornings stock, however, was slow (with some analysts and investors
remaining disillusioned by the fall and critical of Cornings overall, long-term performance to
shareholders). Moreover, the companys growth was uneven through the 1980s and into the
1990s. For example, a recession in 1982 caused the companys profits to plummet 30 percent.
Consumer products sales (CorningWare, Pyrex, and Corelle dinnerware) also began to slip in
1982. In 1983, Corning halted production of light bulbs. Yet these types of challenges paled in
comparison to what would come next: the rise and fall of Cornings telecommunication business.
The Telecom Bubble
While there was little demand for Cornings optical fiber when it was originally developed,
deregulation of the U.S. telephone industry led to a boom that peaked in the 2000/2001
timeframe. In the build-up, customers submitted huge orders to Corning. In turn, the company
invested heavily in ramping-up its production capacity, spending millions internally and $10
billion on external acquisitions in the space. Cornings revenue jumped from $4.7 billion in
1999 to more than $7 billion in 2000. Telecommunications-related products, including optical
fiber, accounted for 75 percent of total sales.6 As sales grew, so did the companys employee
base. In 2001, Corning had more than 40,000 employees, up from a low of 17,000.7 Its research
center tripled in size in three years and, in 2000, 65 percent of all RD&E spending was focused
on fiber optics.8 Less profitable or less exciting9 businesses, such as housewares, medical
testing, drug research, television, and laboratory glass, were sold off, closed down, or sidelined
to allow the company to concentrate on telecom.10 Through this growth, Cornings stock price
soared, reaching a high of $113 in September 2000.11 We caught one hell of a wave in
telecommunications, said John Loose, Cornings CEO at the time. I think we can keep
growing the top and bottom lines by 20 to 30 percent a year, he predicted in a January 2001
interview with the New York Times.12
But by July 2001, just six months later, Corning was in shambles, described by the New York
Times as the victim of the greatest bubble of our time, the fiber optics craze.13 As it turned out,
telecommunications companies discovered that their fiber networks were being grossly overbuilt,
and that there was more than enough existing fiber, not being used, to meet demand. Cornings
orders for new fiber stopped abruptly, catching the company completely unprepared. We lost
half our revenues in a year, said Wendell Weeks, who was the head of optical communications
during the crash and later became the companys CEO. Even in the Great Depression, that
didn't happen.14 Telecommunication sales dropped more than 75 percent, from $5 billion to
6
Claudia Deutsch, The Horse and the Cart, in Order, The New York Times, January 7, 2001.
Ibid.
8
Jonathan Fahey, The Glass Menagerie, Forbes.com, April 24, 2006,
http://www.forbes.com/forbes/2006/0424/063.html (January 15, 2008).
9
Floyd Norris, Cornings Desperate Deal Destroys Value, The New York Times, August 2, 2002.
10
Deutsch, The Horse and the Cart, in Order, op. cit.
11
Ibid.
12
Ibid.
13
Floyd Norris, Disaster at Corning: At Least the Balance Sheet Is Strong, The New York Times, July 13, 2001.
14
Kevin Maney, Corning CEO Keeps His Eye on Long-Term Ball, USA Today, May 10, 2005,
http://www.usatoday.com/money/industries/technology/maney/2005-05-10-corning_x.htm (January 14, 2008).
7
p. 5
$1.6 billion in 2002.15 The stock plunged to a low of $1.10 per share in October
200216roughly one one-hundredth of its value two years earlier (see Exhibits 2 and 3 for select
Corning financials). The companys debt ballooned to nearly $5 billion.17 And, although the
company had about $1.8 billion in cash on its balance sheet, it was burning through it at a rate of
approximately $1 billion a year, with no end to its losses in sight.18 CEO Loose abruptly left the
company and James Houghton, the great-great grandson of founder Amory Houghton, came
back to lead the companys turnaround. Jamie Houghton, as he is known, served as Cornings
chairman and CEO from 1983-1996 and then as chairman emeritus until 2001 when he returned
as non-executive chairman. In 2002, he reassumed executive responsibilities as the companys
chairman and CEO. Houghton alone owned more than 600,000 shares of Corning stock at the
time of his return19 (with the Houghton family retaining approximately 5 percent of the
companys voting shares20). As CEO, he and his leadership team immediately initiated a series
of painful cuts intended to quickly and dramatically reduce Cornings costs to a level
commensurate with its revenues. This included once again slashing the workforce (from 44,000
to 20,000 employees), selling off businesses, and closing plants.21 Despite these cuts, Corning
employees seemed relieved to have him in charge. As Houghton described in an interview with
the New York Times, I have a record of leadership, and theres a feeling that a Houghton is
back, and everything will be okay.22
Getting Back on Track
Against this backdrop, the Corning organization went through a period of extreme
introspectionwhat many within the company called soul searching. When you have
survived a near-death experience, whether youre a corporation or youre a human being, youre
going to wake up and say, Wow. Where am I? Let me take stock of the current situation,
recalled Dr. Lina Echeverria, who joined the company in 1983 as a scientist and worked her way
up to a corporate vice president role.23 Dr. Mark Newhouse, another scientist turned executive
hired by the organization in 1986, agreed. Reflecting on his experience managing Cornings
optical switching business through the boom and then selling it off after the bust, he said, I shut
down more locations than any other human being at Corning. After doing something like that,
youd have to be a robot not to ask yourself, What went wrong?
Throughout the organization, significant time and effort was devoted to helping Corning define a
clear company identity. According to Dr. David Morse, a senior vice president who joined
15
Claudia Deutsch, Hot Product Has Corning Thriving and Wary, The New York Times, September 20, 2005.
Fahey, op. cit.
17
Claudia Deutsch, A Familiar Face Is Trying to Put Corning Back on the Right Track, The New York Times,
June 13, 2002.
18
Ibid.
19
Deutsch, A Familiar Face Is Trying to Put Corning Back on the Right Track, op. cit.
20
Americas Oldest Family Companies, Family Business Magazine, 2002,
http://www.familybusinessmagazine.com/oldestcos.html (January 17, 2008).
21
Deutsch, Hot Product Has Corning Thriving and Wary, op. cit.
22
Deutsch, A Familiar Face Is Trying to Put Corning Back on the Right Track, op. cit.
23
All quotations are from interviews with Corning representatives conducted by the authors in late 2007 and early
2008, unless otherwise cited.
16
p. 6
Corning as a scientist in 1976, For decades, analysts on Wall Street have had a hard time saying
what Corning is. When we were doing great with optical displays in the early 1990s, they
wanted us to be in consumer products. And when we started doing a lot of fiber, they said Why
dont you sell off displays and become a pure play telecom? And if you look us up in
BusinessWeek or Fortune, youll find us under building materials or some odd category like
that. According to Houghton, During this period, I spent a lot of time talking about the
contextthe context is who we are. I wanted to make sure everyone understood who we were,
what our values were, and what we stood for. After thats done, then you can go and talk about
content, which is the strategy. The context, to me, is more important then the content.
At its most basic, Corning defined itself as a technology company. Houghton explained:
I was brainwashed from the minute I was born about the value of technology from
my father and my brother. Its a fundamental, core belief with us and has been
ever since the company was founded. We believe very strongly in patient money
and investing in technology. To some extent, were swimming against the stream.
There are a lot of companies that are getting out of basic research and relying on
universities or other places for it, but were going in completely the opposite
direction. We are adding all the time.
According to Charles Craig, a 33-year Corning veteran, Throughout our history, weve
continued to spend 10 percent of sales on research and developmentit varies between 9 and 11
percent (see Exhibit 4 for Cornings spending on research, development, and engineering as a
percentage of sales over the last several years). For the segments that we participate in, thats
incredibly high, noted Echeverria, particularly during down periods. Thats one of the
advantages Corning has always had with the Houghton family: weve always taken the long
view. We know that were not just going be around as a CEO for four or five years and then
retire, noted Houghton. Were not going to pay as much attention to the short-term results of
the firm. Were just not. Anybody whos followed us for any length of time understands that.
When we hit a blockbuster, it's usually a 10-to-15-year time frame before we make any money,
and so we have to be long-term oriented. Weeks concurred by adding, Innovation takes a very
long time. Its easier for families to think about the next generation.
Through its soul searching, Corning came to believe that the fundamental basis of the company
was sound, and what we needed to do was address some of the excesses that we went through
and mitigate the downside of being who we are, said Weeks. From a corporate perspective, this
included stabilizing the companys balance sheet and taking a more careful approach to its
financial management. What we do has volatility in it. We have to accept that and build the
financials to reduce the volatility. Thats why our balance sheet is now so conservative, he
explained. After the telecom collapse, Corning improved its balance sheet specifically by
reducing the companys debt and cost structure so it could more effectively weather the volatility
inherent in being a technology-driven company. Additionally, it modified its P&L by
centralizing research (and leaving development and engineering within the businesses, e.g., for
product line extensions and other near-term projects related to its existing divisions). These
centralized funds, along with the savings from the cost reductions, were reinvested back into
research and innovation-based activities to help the company rebuild for the future.
p. 7
Another key activity initiated by the leadership team was to dramatically change the companys
approach to managing innovation. To accomplish this, Houghton and Weeks turned to
Cornings Science & Technology (S&T) organization.
Changes Within S&T
Changes within the companys Science and Technology (S&T) function began in earnest after
Dr. Joseph Miller was hired as Cornings new chief technology officer (CTO) in mid-2001.
Miller came from Dupont. It was the first time that we had a CTO who was not home-grown in
a long time, commented Echeverria. He was able to look at the way we managed innovation
with fresh eyes. As the leader of S&T, Miller would oversee all science and research that was
not led directly by Cornings four primary divisions: display technologies, environmental
technologies, telecommunications, and life sciences (see Exhibit 5 for a directional
representation of Millers organization).
Of all the money Corning devoted to research and development, 60 percent is spent on whats
called development and engineering [D&E], explained Craig, who was vice president S&T and
Millers chief of staff. D&E focuses on the implementation of new innovations, so these funds
are charged directly to the businesses. The remaining 40 percent is corporate funding for longerrange and exploratory research, which is managed by S&T (see Exhibit 6). S&Ts specific
charter was to: (1) provide support for research projects aligned with Cornings existing
businesses, (2) fund non-directed exploratory research led by scientists in areas they found
interesting, and (3) play a role in supporting new business development.
Centralizing Corporate Research to Address Business-Aligned and Exploratory Research
As CTO, Millers first priority was to stabilize and rebuild corporate research at Corning. To do
so, We made a very clear decision to have a strong central lab, said Morse. According to
Weeks, Corning was a strong believer in the value of having a centralized research function. If
you leave it to the businesses, the division thats doing the best will get the most resources. But
if you centralize it, you can actually help protect the company against volatility by starving the
businesses that are doing best and giving more resources to the others that have up-and-coming
technologies.
Corning shut down all but two of its 10 research labs, maintaining the Sullivan Park laboratory in
Corning, New York as the primary hub (the second facility was located in France). The reasons
for that were around preserving the lab that had the longest history and, therefore, the greatest
culture of innovation. At Sullivan Park, the scientists have the deepest understanding of
Cornings core technology and what we have done well for the past 100 years, Morse
explained. In the process, Miller changed the entire leadership team and cut more than 100
active projects. The need was to eliminate them so that we could begin to think about a more
purposeful and complete way of recreating the portfolio, he said. Before this happened, we
had nearly 70 percent of our technical resources going to telecommunications, with 30 percent
focused on other areas. When we got finished, we had 70 percent going to other areas and 30
percent focused on telecommunications.
p. 8
The changes were also intended to help create more synergy among projects, rather than
preserving research silos within the organization. We set up a series of directorships of
research, each one with a different competency area. And then we set up a project management
approach that would help us cross-pollinate across areas on major projects, said Morse, who
was asked by Miller to become the director of the centralized corporate research organization.
Once these structural changes were complete, motivating scientists to once again begin nondirected exploratory projects in areas outside of telecom was relatively easy. Scientists were
asked to spend five to 10 percent of their time on work they feel is important and that can add a
significant value to Corning in the future, said Dr. M.K. Badrinarayan, division vice president
for inorganic and integration technology.
In contrast, reestablishing linkages between corporate research and Cornings non-telecom
businesses was a slightly more difficult challenge. As one article put it, When Corning was all
fiber optics, research in other areas was crowded out.24 As a result, We had to reestablish
credibility with some of the businesses, explained Morse. Business and research had grown
apart from each other. And so the first thing we did was to focus a lot of talent on relatively
short-range problems so that all the major businesses would have the best chance to get back on
their feet, at least from the standpoint of what the technology could do. We did lots of analytical
work, and we added lots of top people to business-aligned projects that were going out the door
in the next year or two to help make those successful. He continued: The next step was
working with businesses on major new productsproduct extensions and product renewals.
Corporate research also undertook a major budget readjustment with the goal of regaining the
credibility of top management and the financial management of the company that we could, in
fact, manage to a budget because it just hadnt been done for about five years or so, said Morse.
In combination, these steps helped corporate research get back on track with regard to S&Ts
exploratory and business-aligned research projects. We came out the other side with a much
different feel about RD&E, Miller commented. There was much better communication,
greater interaction with senior management, and more credibility for RD&E. Then we said,
Okay, what do we need to do now to begin to build the portfolio of the future?
New Business Development
To help address the issue of new business development, Miller advocated for what he initially
called an inbound marketing function. The idea was to build a group that could do two-sided
assessmentsfrom the technology side and the market side, he said. Miller had experimented
with this approach during his years with Dupont and had seen the benefits of having a group
within corporate research that proactively sought new ideas and market-led opportunities.
Because these opportunities were explicitly meant to be in areas that were not aligned with
Cornings existing products or divisions, this effort would help maintain diversification in the
companys portfolio and ensure that corporate research was directly contributing to Cornings
future growth. Because Corning does not think of itself as aligned with any particular markets,
we needed a group that could think beyond what were currently doing, recalled Weeks.
Corning had experimented with different incarnations of inbound or early-stage marketing over
the years. In the 1970s, we had a new business development function with the same goal of
24
Fahey, op. cit.
p. 9
finding opportunities that werent aligned with our current divisions. But it eventually waned
and disappeared, recalled Craig. When asked what went wrong, he continued: For one thing,
its hard to find new opportunities, ones that are real and big enough to create a new business.
So it takes organizational patience to sustain the effort. The second thing is that established
businesses dont actually favor new business being created because it takes away from their total
capacity to access resources and so forth. But if there is a good opportunity coming up, theyre
first in line to receive it. So you have this sort of love-hate relationship at work within the
company.
In the mid-1980s, another new business development function was formed. It was called
corporate marketing, said Craig. This group had several functions. One, of course, was to
provide early-stage marketing capability to develop and understand markets. The second was to
have some nominal new business development skills to move new opportunities into further
stages of development. The third thing was to provide experience for new MBAs when they
joined the company. Through corporate marketing, they would get experience to learn the
companys culture, and then wed move them into a marketing role in one of the divisions.
Deborah Mills, a marketing director and long-time Corning veteran, was part of this
organization. I did this job in the 1980s and it was the worst job I had ever had, she recalled.
I was a lone ranger, working independently to identify opportunities. We had access to
technology people within research who would act as resources to the group, but they didnt really
pound the pavement with us. The other thing was that we were working inside-outso taking a
really cool material that Corning had invented and trying to find an application for it. It was a
hard job made even harder by the approach. Over time, the prominence and results of this
group ebbed and flowed. While corporate marketing still existed when Miller joined Corning, it
wasnt working, said Craig. But Joe strongly believed it was important for Corning to grow
and for the R&D function to contribute. And so we basically began to take down corporate
marketing and rebuild it in the context of Joes experience with inbound marketing. Thats what
started in 2002.
Miller and team also conducted some benchmarking to see how other major companies managed
their new business development efforts. By looking at companies such as IBM and Johnson &
Johnson, they had several realizations: One observation was that this was not something we
should do halfway. Just putting a little bit into it was basically as effective as putting nothing
into it. We had to be willing to make a sizable investment, said Mark McClusky, founder and
president of Newry Corp., a consultancy that began working with Corning in the mid-1990s.
Another observation was that we needed to put somebody in charge of it who had a lot of
commercial and technical credibility, because this is a very hard job. In order to sustain peoples
willingness to invest in this over time, we had to get someone with a lot of personal clout.
In terms of finding the right leader, There were only a couple of people at Corning who were
the right fit, and Newhouse was one of them, recalled McClusky. So we did some
reconfiguration and we attracted Mark Newhouse to the job after he wound down his
restructuring in optical switching, added Craig. When he accepted, Newhouse became the
leader of a new group within S&T called Strategic Growth. The big change was that this
function became part of the research organization as opposed to being in marketing or the
p. 10
businesses, noted Dr. M.K. Badrinarayan, division vice president for inorganic and integration
technology. The vision for Strategic Growth was to create the ability for Corning to identify and
build new businesses that directly expanded its portfolio (i.e., products that did not fit within an
established line of business). In the past, Corning had successfully launched one to two major
new businesses per decade (with annual revenue greater than $500 million). Millers goal was to
boost that success rate to two to four new business every 10 years.
The creation of Strategic Growth was met with mixed reviews, largely due to its timing. For
Joe Miller to say, I want an early-stage marketing group within research, and I'm going to fund
it, was a hugely courageous act. We had just let go half of our employees worldwide, so some
people thought Gosh, shouldnt we be working on things that are more applied, more nearterm? recalled Mills, who became the director of early-stage marketing within the new team.
People didn't believe in it, added McClusky. Around that time, people really thought that
what they should be doing is keeping their eye on the ball. However, with the support of
Miller, as well as Weeks, who was promoted to president after the crash and became the
companys next CEO, the Strategic Growth organization was given the green light to proceed.
The new group would receive roughly 25 percent of S&Ts research budget (with 50 percent
going to business-aligned opportunities and the remainder allocated to exploratory research).
Cornings Innovation Recipe
With some of these preliminary issues within S&T addressed, Weeks asked Miller, Morse, and
Newhouse to capture and describe the essence of what Corning did best. Together, they
developed what would come to be known as Cornings innovation recipe. As input to this
exercise, they drew from the various soul searching exercises that had been taking place across
Corning after the telecom collapse. For example, one key observation came shortly after the
crash from a working session that included Morse, Echeverria, and six or seven of the corporate
research directors. We were talking about our competencies and it was immediately clear that
what were really, really good at is glass and optical physics, said Echeverria. But David kept
saying, Keep going at it. So what? And I remember getting to the point where we recognized
that what we like to do are things that other people cannot doreally difficult projects that result
in technology that becomes part of a larger product. So we do not make systems, but we do
make what we now say is the keystone component of systems. Its like the Intel Inside
model, added Morse. Corning is inside the catalytic converter, were inside the display. It
doesnt say Corning Inside, but were a totally enabling part of the overall system. Without us,
the system doesnt work. As Miller summarized, We find the strategic spot in the value chain
where the value chain doesnt work without us.
Another important realization was that Cornings success relied on the combination of materials
expertise and deep process know-how. For instance, said Mills, Thomas Edison needed a costeffective way to make his electric light work. So we developed a material and a process. The
material was a specific type of glass. The process was the ribbon machine. Together, they made
light bulbs cost-effective. Similarly, RCA came to us and said, We think we can take radar
technology and make it commercially viable for television if we can find a better way to make
the back end of the tube, the funnel. And so we again developed a glass and a process that made
that economical and gave birth to the television industry.
p. 11
Finally, there was the recognition that Cornings deep scientific knowledge necessitated strategic
positioning. We are not the kind of company that can compete on price alone. We just dont do
that well. So, we compete by creating a strategic position based on our intellectual property [IP]
and our ability to defend it, said Echeverria.
All of these elements came together in the innovation recipe. Mills described the end result (see
Exhibits 7 and 8):
We have the input of the research and our deep technical capabilities. We have
the problem that we identify in the market or industry. We invent the materials
and the process to meet the very demanding attributes necessitated by the
problem. What results is a keystone component. And because we invent that key
enabler, were generally able to get a lot of IP protection. Also because we are in
high-capital, high-investment businesses, thatin combination with the
IPtends to give us strategic control.
Newhouse and Morse presented the recipe to Cornings executive management team as part of a
corporate strategy review in the summer of 2004. This was really the first place where the
recipe was written down and articulated, remembered Newhouse. The idea was to use it to help
evaluate new opportunities and determine whether or not they were aligned with the factors that
typically brought Corning success. The recipe and the approach resonated with the executive
management team because it embodies the tradition of innovation and the culture that members
of the Houghton family have indoctrinated into Corning employees over many years, explained
Weeks. As one way to begin institutionalizing the recipe within Corning, Newhouse was
encouraged to incorporate it into the processes he was developing for Strategic Growth.
BUILDING STRATEGIC GROWTH
The formal mission of the Strategic Growth organization was defined as follows:
In partnership with research, fuel the strategic renewal of Corning Incorporated
by identifying and developing new, profitable, large ($0.5B) business
opportunities.
The specific objectives of the Strategic Growth team were to:
Identify large, complex system problems that could be solved through the development of
keystone components.
Evolve the opportunity into a business proposition, and where appropriate, ramp the
business so that it can stand on its own.
(See Exhibit 9 for an illustrative organization chart for the group.)

In contrast to Cornings established business divisions, Strategic Growth would be focused
primarily on white space markets and technologies, or fields in which Corning did not already
have a presence. While the businesses sought adjacencies to their established markets or
p. 12
technologies, worth $50 million or more, which could be realized within one to five years,
Strategic Growth would go after new material and process innovations requiring significantly
more time and investment to accomplish, but with much larger potential returns.
In addition to embedding the innovation recipe into Strategic Growth, Newhouse committed to
using Cornings innovation process as an organizing principle for his group. Corning had an
existing, five-stage innovation process, he said (see Exhibit 10). While the innovation recipe
is an articulation of what made Corning successful in the past, the innovation process is more
general. Its a process for how you make sure youre doing the appropriate activities required to
create a new product. Echeverria elaborated: The innovation process takes three currents
simultaneously and looks at the requirements of each one in order to deliver the project at each
stage. Those currents are marketing, technology, and manufacturing.
Of the stages in the innovation process, Strategic Growth, in close collaboration with corporate
research, would oversee new opportunities through stage 1 (build knowledge), stage 2 (determine
feasibility), and stage 3 (test practicality). Opportunities progressing beyond stage 3 would
require the creation of a new business unit or division within Corning, which would then be
responsible for managing the resulting product through stage 4 (prove profitability) and stage 5
(manage lifecycle). A group dedicated to stage 1 activities already existed. Echeverria was
asked to lead this team, which became known as exploratory markets and technologies. To
address stage 2, Newhouse explained, I brought an individual, David Charlton, with me. He
was very experienced in the next stage in the process, which was essentially new business
development or incubation. We added this function to go beyond just identifying an opportunity
to actually begin commercial interactions and the formulation of a business proposition. Given
the increasing importance of each project as it progressed from stage to stage, Newhouse decided
that, at least initially, when a project got to stage 3 it would report directly to him.
Pre-Stage 1 Activities: Early-Stage Opportunity Identification
Activities leading up to stage 1 were driven by technology and market-oriented resources, funded
and managed by Strategic Growths exploratory markets and technologies group under
Echeverria. Reporting to Echeverria were Mills, who led the marketing workstream, and Daniel
Ricoult, director of early-stage technology, who led the technical workstream. Together, they
co-managed the early-stage commercial effort via a team of Strategic Growth marketing and
technology professionals.
Opportunities were identified through workshops and other
connections and activities that involved Corning scientists and commercial representatives, as
well as external experts in high potential fields. Strategic Growth professionals wrote white
papers on the most promising ideas resulting from these sessions to help facilitate more informed
decision making regarding which ones warranted more detailed opportunities analysis.
Opportunity analysis was performed by pairs of Strategic Growth resourcesone person with a
technical background and one with a marketing focus. Over a six-to-eight-month time period,
these resources attended conferences, networked with academics, scientists, government
agencies, and potential customers to gather more information about the opportunity. The data
they gathered were then assessed in great detail and a recommendation was developed as to
whether or not a more elaborate research project should be launched.
p. 13
Importantly, corporate research resources participated in these early-stage activities, providing

input, expertise, and sponsorship for different opportunities, on a largely voluntary basis (they
were not formally assigned to work with the Strategic Growth teams). Ricoult elaborated: Once
the team has identified the problem to be solved, its important to identify scientists in the
research organization that may either have the right skill or may be interested in the topic. And
from that time on, whatever recommendation we make will be much stronger and more effective
if it can come as a joint recommendation between our team and a few scientists. If the scientists
have already been involved and engaged in the pre-stage 1 analysis, the transition to stage 1 is
almost flawless.
Corning was pursuing early-stage opportunities in fields such as energy, the environment,
consumer electronics, transportation, chemical processing, and architectural materials. Between
2005 and early 2007, the exploratory markets and technologies team had involved more than 45
external speakers at ideation workshops, completed 61 white papers, performed 21 in-depth
analyses, and launched 10 stage 1 research projects.
Stage 1 Activities: Building Knowledge
If Corning decided to launch a research project based on the outcome of early-stage opportunity
analysis, the opportunity transitioned to a stage 1 project. At this point, scientists would begin
performing experiments to build the companys technical knowledge. The commercial resources
that worked on the early-stage assessment would also remain involved, conducting the
continuous market analysis that Corning required for all projects. According to Ricoult, Stage 1
teams start out small, with maybe four or five people. By the end of stage 1, if there is enough
progress, there could be 10 to 12 people on the team.
In stage 1, corporate research resources were formally assigned to the project. These resources
were sponsored by Newhouse and funded from an allocation within Morses research budget
based on the percentage of their time that was dedicated to Strategic Growth projects. In
addition, Newhouse funded the commercial resources (the marketing and technical
representatives that worked on the project through opportunity identification). Resources are
assigned to stage 1 projects, Morse explained, through a consensus-driven process between the
research directors and the stage 1 team. Ricoult noted, One thing that you have to keep in mind
is that Strategic Growth does not own the scientists. So, we act as champions of a project
through stage 1, making sure that it is progressing at an appropriate pace and moving in the right
direction. But its more of an influential role at that stage. We have to be very close to our
colleagues in the research organization and work with them to make sure that we have the right
resources, maintain the right staffing levels, and address all the bumps on the road that may
exist.
Negotiations for resources took place between the leaders of exploratory markets and
technologies and the 10 or 12 research directors within corporate research. Assigning resources
to a project is based on our interactions and our gut feelings. Its never a decision made by one
person, explained Badrinarayan, who was involved in many such discussions. In my group, I
talk with my managers, get their feedback, and then talk with my peers to get to the right
decision. But there is no real process. And I dont think its a good idea to have a process for
staffing early-stage projects because that process would only be as good as the information you
p. 14
have. Scientists typically worked on one to three projects at a time. Whenever possible, they
were given input into what projects were of greatest interest to them.
According to
Badrinarayan, Its usually a mutual discussion between the supervisors and the scientists when
we locate people on a project. There are some people who really want to do exploratory research
and others who would prefer to work on things that are more applied. We try to take that into
account, but we dont have that freedom all the time. Sometimes, based on the skill
requirements and needs for a particular project, we may assign a certain person to work on a
project that isnt their first choice.
While opinions differed to some extent among scientists, many saw early-stage work as an outlet
for their interests and the results that stemmed from their non-directed exploratory research.
Newhouse explained: The near-death experience of Corning Incorporated left everyone without
any illusions regarding the need to create financial value for the corporation. During that time
period, the company made a continued investment in technology even though the whole
corporation was at risk. Its a pretty small number of companies that almost go bankrupt but still
maintain R&D. The research organization up here noticed that. They saw that they were valued
and that gave them a sense, I think, of responsibility and accountability that you often dont see
in research labs. When the Strategic Growth function was put into place and it was clear that it
could become a path to commercialization for the scientists great ideas, it was received pretty
well.
As projects entered stage 1, more formal mechanisms were put into place to manage the effort,
which usually spanned one to three years. For one thing, a steering committee was formed. In
general, anyone with resources assigned to the project was invited to play a role on this
governance committee (including Mills, Ricoult, and the research directors who contributed
scientists to the project). Additionally, a stage 1 contract was developed that outlined success
criteria for the project. Theres usually a one-day meeting where the team defines what it has to
accomplish for this specific project in order to complete stage 1, said Ricoult. For example,
they may have to demonstrate the viability of the technology concept, define how many samples
to make, demonstrate that there is a significant market pull, and determine that the technology
will be conducive of a feasible manufacturing process. These metrics were defined with the
help of a proprietary online tool designed to take some of the guesswork out of project
evaluation. It's probably the closest thing we have to a crystal ball, said Rob Craig, a former
Strategic Growth analyst. The project contract was reviewed and approved by the steering
committee. To date, 10 projects had transitioned to stage 1.
Stage 2 Activities: Determining Feasibility
Once a stage 1 project had achieved the metrics within its project contract, another
recommendation was made as to whether or not it should advance to stage 2. If so, the project
was transitioned to the new business development team within Strategic Growth, which was
managed by Charlton, a division vice president. At this point, a program manager with deep
domain expertise was added to the project and the focus shifted; no longer driven only by science
and technology, it was now dominated by customers and markets. The primary objectives at this
stage were to test prototypes with customers, refine product concepts based on their feedback,
validate all assumptions in the marketplace, develop a business model, and establish customer
pull.
p. 15
Generally, most of the research resources assigned to the project in stage 1 transitioned to the
stage 2 project (and more were added). However, more often than not, the early-stage Strategic
Growth resources transitioned off the project to refocus their efforts on the identification of new
early-stage opportunities. In parallel, Mills and Ricoult handed off their management
responsibilities to Charlton. To date, stage 2 projects had spanned anywhere from two to five
years.
In terms of funding, Charlton described the process, which was managed by Strategic Growth, as
a little muddy. By the time were in late stage 2, its department funding. So, to fund a
project, we create a whole new department with separate people and accounting systems. In
early stage 2, its what I call project funding. We set up a project budget and have people charge
time to their project, whether theyre assigned to the project or just helping out on a secondary
basis. This allows us some flexibility, so we can move people in and out without having to
worry about reporting changes and the messiness that occurs when you start changing peoples
bosswe try to avoid that.
Charlton further commented on how the dynamics of the project shifted with the transition from
stage 1 to stage 2: Stage 1 is highly consensus driven. My focus is not consensus By the
time we get into stage 2, what we need to accomplish has been set by the mission of the group.
So its more about how do we do itand who has a right to an opinion. My experience is that
way too many research directors want to get way too involved in way too many things. He
elaborated with an example:
On my first stage 2 project, there were three oversight groups21 people
involved to oversee a project of 14 people. So, there was no way the project
could maintain a consistent direction from month to month. My role was to come
in and say, There will be no more meetings. I said, Let's negotiate a set of
objectives. After we got the set of objectives approved, I took them back to all
the groups and said, These are our objectives. If anyone has a new objective,
they're welcome to introduce it, but that means well have to drop an old objective
off the list. Then, I basically shut down the interaction for a year. And we were
able to get our feet underneath us and start to move forward. Now, thats not to
say that the research directors cant be invaluable as advisors and supporters. But
the context has to be something more along the lines of risk management and
audit, and not on actually operating the project.
This conflict was driven, in part, by the fact that the scientists still formally reported to the
research directors, even though they were working on a stage 2 project. As a result, the research
directors wanted to maintain a voice in managing these resources despite the fact that they were
under someone elses immediate supervision. Furthermore, there were cultural difference
between research and business that came into play. Dr. Chung-en Zah, research director for
semiconductor technology research, explained:
When the project gets bigger and bigger, we always have issues with the balance
between efficiency and transparency. Running a research project [stage 1] is very
p. 16
simple. Everybody knows what's going on. But when it progresses to

development and customer interaction [stage 2], sometimes its not based on
science anymore. In research, the people who have the scientific knowledge are
making the call. But later, the people who have the information about what the
customer wants become those with more authority. Business and research are
two different cultures, so the tension is unavoidable. But people have to
compromise.
Morse agreed that stage 2 could be somewhat tumultuous before it became clear whether or not a
project would make it through. You oscillate a project wildly, sometimes going backwards,
sometimes going forwards. But if you are successful at collecting knowledge, the oscillations
narrow. And at some point, youre not in stage 3 yet, but you can look ahead and say, Okay. I
can tell what stage 3 is going to be like. As of late 2007, four projects had transitioned into
stage 2.
Stage 3 Activities: Testing Practicality
As Craig described, The challenge, of course, is to get to the famous stage 2 to stage 3
transition. At stage 3, we actually begin the commercialization of a new product. This was the
point at which Strategic Growth, in collaboration with research and the engineering group,
sought to test the practicality of the opportunity. The focus of the work shifted from research to
development. Were looking at things like will the customers actually buy? Will they buy in
quantity? Can we actually support that with our scale-up? And so forth, said Craig.
As of late 2007, no projects had yet transitioned into stage 3, but several were getting close to
being ready. We have four potentially significant business opportunities in stage 2 that fit the
original innovation recipe concept and are roughly the $0.5 billion range for size, explained
Craig. Will any of these four make it? Thats where we are today, trying to figure out what we
call the customer driven transition from stage 2 to 3. According to Newhouse, having to
become increasingly dependent on customer input to make these decisions was risky, because it
doesnt really cost them very much to be nice. Customers will not reject you fast enough to be a
filter on your spending because they have no direct incentive to tell you no. Its very
difficult. We have not yet demonstrated our capability to make judgments past early stage 2.
Newhouse elaborated on additional challenges faced by Corning in preparing to transfer a project
from stage 2 to stage 3:
If new skills are required that are nonexistent in the company, its our preference
to create those skills while the project is still within Strategic Growth, or at least
seed those skills before a project is pushed out to a division. In addition, we have
to have a receiver who can devote adequate attention to the project. The
complexity of new business opportunities is out of proportion with their scale. We
have pushed out programs in stage 1, in stage 2, and we'll hopefully do it in stage
3. It all depends on whether those two elements are present It also depends
how big the opportunity is. Since big opportunities will require more attention
from the division to be successful, theyre more likely to stay in our organization
longer.
p. 17
Because of these complexities, Newhouse intended to oversee the first few stage 3 projects
himself before putting in leadership and/or a more formalized process for managing new
businesses at this stage in their development.
In terms of staffing at the stage 2 to stage 3 transition, Mills said, The projects are like a flaming
inferno in terms of the resource requirements. More resources from engineering became
involved, while some corporate research resources transitioned out. I think if scientists are
willing to go into development, they can move with the project into stage 3, said Zah. But if
they are more inclined to do fundamental research, then they should be able to shift back to that
kind of work in the same topic area or on different topics.
Evaluating and Filtering Projects: Cornings Seven Questions
Deciding which opportunities or projects would progress from stage 1 to stage 2 to stage 3 (and
which would not), was an ongoing source of concern. We knew we had to develop and
implement filters, said Newhouse. I was worried that stage 1 would generate lots of ideas, and
we should have lots of projects incubating in stage 2. But there were only so many that we could
support. A funnel would bottleneck with the first few projects that got into it. And we knew that
coming up with net present value models too early in the development of a business did not work
as a filter. So we needed a different approach. Craig had come up with a series of questions
that the company might ask itself when considering new opportunities based on the innovation
recipe. We took those questions and said, Okay, how can we reformulate those questions a
little more precisely so that they could be used as filters as projects move through the innovation
process, recalled Newhouse. It wasnt a big change to what Charlie had already written, but it
led to the creation of what we now call the seven questions.
According to McClusky, the seven questions were built around issues such as:
Is this thing an attractive commercial opportunity? Is it big? Is it connected to a
megatrend? If its not connected to a megatrend, then one could be suspicious
that it would be a flash in the pan kind of thing. Is there a technical fit? Is this
something Corning is really good at? Is it something that we can protect through
intellectual property or specialized manufacturing processes? And is the timing
right? Are we too early or are we too late?
The seven questions were customized slightly for each stage gate in the innovation process (see
Exhibit 11). Mills explained: The questions are all tailored to allow us to reduce uncertainty as
more information becomes known over time. They required us to be rigorous without being
unrealistic about what we can understand at each stage. Otherwise, projects would never get past
stage 1. For example, a question that changes from stage 1 to stage 2 is about market pull. In
stage 1, we ask, Is there a problem that requires a step change in cost or capability? Its a
relatively generic question. But in stage 2 the question becomes Is there customer pull for the
innovation? The process becomes a lot more rigorous as you go forward, because its not just
conceptual work anymore, noted Dr. Kishor Gadkaree, a Corning research fellow.
p. 18
In terms of their implementation, We had to spend a fair amount of time trying to get people to
use the questions correctly, said Newhouse. The challenges were helping people understand
them, getting them to adopt them, and then teaching folks not to always answer them yes.
According to McClusky, The seven questions are sort of religion at this point. They take a lot
of the guesswork and ambiguity out the decisions at each stage gate. However, he noted,
Theres still a lot of judgment in the process. Its not nearly as clear as If youve checked all
seven boxes, go to the next stage. Its much more about, Now that youve checked those seven
boxes, what do we think? Is this really a good idea?
The Corning Technology Council
Ultimately, the decision to advance a project from one stage to another was made by an entity
called the Corning Technology Council (CTC). The CTC, led by Miller in his role as CTO, was
the governance body with oversight for stages 1 and 2 in the Corning innovation process (a
second group, led by CEO Weeks, called the Growth Strategy Council (GSC), oversaw stages 3,
4, and 5). Millers staff made up the voting members of the CTC. However, all of the research
directors and research fellows in Morses corporate research organization were invited to attend
the monthly CTC meetings. A benefit to opening the meetings to a wider audience was that it
provided a forum to keep members of the research organization informed about new projects. I
try to attend every CTC meeting if I'm available. To me, its a useful way to get an overview of
whats going on since Cornings research organization is quite large, said Zah. On the other
hand, said Charlton, If you really want to have a dialogue and build a consensus, you need to
have an exchange of views. And you cant have an exchange of views with 30 people in the
room. There isnt time.
Regarding the decisions themselves, explained Newhouse, Most are made in advance of the
CTC meeting. Its rare for a real decision to be made in that forumits more of an
endorsement or an opportunity for you to share with the organization whats been going on and
to gather understanding and support for the recommendation. Echeverria added, This is a
culture that doesnt have big discussions, big heated arguments in meetings. Even though you
may disagree, you express it in a very polite way. Or you may not even express it thereyou
express it later on. So commonly there would be meetings before the meetings so that there is
agreement before you go in.
Benefits of a Structured Process
While there was still much to work out regarding the way new business development was
managed at Corning, particularly in the later stages, the company had taken great strides forward
in terms of managing this process. When I came here, I think the theme that I emphasized was
the importance of rigor, said Newhouse. I called it rigor without precision. The philosophy
is to know what you can know well. Dont just throw up your hands and say I can't know
things precisely; therefore, I dont have to proceed in a rigorous manner. Following this
approach, Newhouse and his team sought to understand as much as they could while
acknowledging variables that were unknown or difficult to predict. The other thing we
emphasized was how value could be created. We brought a standard of value analysis to most of
our problems, which was a standard that was not well implemented and a skill that was not well
p. 19
developed outside a few businesses, he added. This led to a process that rejects more than we
accept, said Newhouse. That is the principal reward of having such a rigorous process.
Others agreed with this assessment. Newhouse established a very rigorous process, said
Echeverria. In the past, we looked at opportunities and made our decisions based on a gut feel
or what somebody desired. Mark established, with the help of his team, a process and the
systems for evaluating the outcomes of this process. Therefore, he gained credibility, so he
started having access to good people. And, as you know, success brings success. I have been
exposed to many new business development groups around the world, said Dr. Waguih Ishak,
vice president and director of Cornings West Coast research center, who joined the company in
mid-2007. I was stunned when I saw the structure of Corning. At first when I saw the structure
and the relationships between corporate research, Strategic Growth, and development, it was
very strange to me. It was strange because I have always believed that you could not put so
much structure and strong guidelines on the way technology is transferred from research to the
business end But every place I go I see it working.
Craig elaborated on some additional reasons why the process seemed to be off to a strong start:
First of all, I'd say this process is strategically aligned with our corporate direction. So its not
the guys in R&D doing their thing. It has the support of the CEO and the board. Second, Joe
Miller is a big believer in early-stage work. So the championship is strong, which is so critical.
To build a strong base of support at the highest levels of the organization, Miller had proactively
worked to inform and engage the board of directors regarding the companys new business
development activities. Miller started by setting up education sessions with the two most
technically astute members of the board before each board meeting to brief them on key projects
in the companys new business portfolio. Before long, these individuals recommended to the
other board members that they all attend, based on the value that the sessions provided. This
helped ensure that there was adequate visibility within the organization to these growth-oriented
activities, that they had a better chance of being sustained, and that they would also play a role in
helping shape corporate strategy. Weve got this whole top-to-bottom approach to governance
that connected. It really makes a big difference in being able to pace and allocate resources to
these programs, noted Miller.
Ricoult highlighted other organizational benefits associated with Strategic Growth:
The overall intent of this process is to make sure that the organization is allocating
resources to the right problems, and that we are not wasting our precious
resources to pursue opportunities that are not good opportunities. Strategic
Growth is buffered from the rest of the organization. Our only objective is to
identify these new opportunities. We are not distracted by having to support the
existing business which can and does happen in the research organization.
Whenever theres a crisis in the plant, regardless of whether youre working on
another project, research is going to be involved in solving the problem. But we
are not. Thats good because that guarantees our absolute focus on the search for
new opportunities. Its not a mission that we pursue whenever we have the time.
It is our missionperiod.
p. 20
Zah added, I think its a good model. Otherwise, the existing businesses would get all the
money and youd end up with no new products.
Finally, Ishak commented on the advantages of the companys market-based approach to new
business development. In order to succeed in corporate research, he said, you have to solve
problems that matter. You have to be marketing-driven, not technology-driven. We cant design
a laser or a transistor and then find an application for it in the future. That time is over
Corning has been relatively insular for a long time. Let us open up. By taking a more marketoriented approach to new business development, Corning would not only improve its focus on
problems that mattered but find potential new synergies. The Strategic Growth group is a
driving force in this new approach, said Ishak. They go outside, talk to customers, and bring
problems that matter back to the researchers. This approach also helped ensure that Corning
remained market-focused without requiring scientists to take on new commercial roles for which
they might not be well suited.
LOOKING FORWARD
As Corning looked forward, the company was optimistic about its approach to new business
development and the results its efforts would yield. However, there were still many issues to
resolve, including challenges related to human resource and financial management, as well as
measuring and sustaining the success of Strategic Growth.
Human Resource Management
Cornings corporate research group had a portfolio process that evaluated the best allocation of
the companys scientists. In contrast to the CTC meetings, which were focused on which
projects moved forward without getting into the specifics of how they would be staffed, the
portfolio process sought to balance Cornings supply of scientists with demand created by the
businesses, Strategic Growth, and non-directed exploratory research projects. Morses chief of
staff managed the process with input from Cornings divisions, Mills, Ricoult, and Charlton, as
representatives of Strategic Growth, and the research directors. We meet every three or four
months and review the entire portfolio of research projects, said Ricoult. And we have a giveand-take discussion. At the end, theres always a compromise, but we try to find the best
compromise in terms of allocating resources to the right projects. There is no formula for how
much time research should spend on each of those three activities [supporting the businesses,
working with Strategic Growth, and conducting exploratory research], said Ishak. You need
really good managers who can balance the need for short-term versus long-term solutions. Its
all about balance, concurred Craig, and very high levels of communications.
As in most organizations, demand for scientists generally outstripped the available supply. This
problem had gotten increasingly worse as the early-stage opportunity identification process
ramped up. Mills explained: We have eight active stage 1 projects right now, and were coming
up with more. At the same time, the company is doing exceedingly well, and theres a lot of
stuff that research needs to do to support its ongoing businesses. So people are getting tapped
out. Badrinarayan elaborated on how the Strategic Growth approach was exacerbating this
problem: The rate at which we can identify new market opportunities is not in balance with the
time it takes to develop new businesses. The number of ideas being generated is a lot more than
p. 21
our funding and resources can support. For example, it took just 8 to 10 months to identify and
evaluate a new opportunity, but several years to develop the project through stage 1. With a
dedicated force of nearly 20 people focused on early-stage opportunity identification in Strategic
Growth, Corning faced the risk of developing a sizable bottleneck in its new business
development pipeline.
To help address this imbalance, Corning recognized the need to improve its project selection
process. A good idea and a bad idea look exactly the same in the beginning, commented
Weeks. Project selection is our number one issue, said Morse. The scientists will always
invent and the engineers will always be able to solve the tough engineering problems. But if we
havent chosen the right project, it wont matter. Further, the company could not afford to
commit scarce scientific resources to projects without a relatively high probability of success.
This applied to work that occurred in the early stages, but also to Cornings later-stage activities,
which were much more resource intensive. At least half of our large projects have to die, said
Newhouse.
While stringent selection and project evaluation criteria would help manage the supply of scarce
resources, it would create new people-related issues to resolve. Its difficult to manage
organizations through the huge changes that are associated with killing projects. We dont have
a perfect model for doing that, said Newhouse. For example, when Corning recently decided to
shut down a stage 2 project focused on fuel cell technology, the strain on the organization,
particularly all of the scientists assigned to the project, was apparent. For the people sitting
outside the project, it might look like a perfectly logical decision. But to those of us who were
deeply involved, its tough. Its disappointing, noted one individual.
The challenges associated with redirecting resources after a project was closed down could be
difficult, especially when they had highly specialized skills sets that were not easily
transferrable. We need a model for making sure we know how each person could be used on
another project, said Charlton. Everybody has to have at least two plausible uses so we can
minimize the impact on any one team if a project goes south. Project shutdowns also had the
potential to make it harder for Corning to attract employees to later-stage projects. Newhouse
explained: I think we are having difficulty attracting qualified people for the later stages
because the risks are high and the management tension is high. People are more willing to come
in the early stages. However, more resources were needed as the work progressed.
In terms of resolving these human resource-related challenges, there were at least two factors
working in Cornings favor. First, and most importantly, while many other companies sidelined
or fired individuals who failed, Corning had a well-established history of giving them new
opportunities to be successful. A unique part of this culture is that it allows people to fail and
still contribute because often they are the ones who have learned the most, said Weeks. We
dont punish people if they fail, especially in these brand new business, Houghton added. We
believe deeply in risk-taking. But if you take risks, youve got to assume that sometimes theyre
not going to work, and thats okay. Second, even when Corning discontinued a project, it put
it on the shelf rather than completely abandoning the effort. As a result, the work of a team or
individual could be reinvigorated when technological advancements, market conditions, and/or
customer demand appeared more promising. For example, Houghton reminisced about one such
p. 22
opportunity that came from a visit to the British Post Office in the 1970s. This group requested a
glass with sufficient purity to transmit communications over long distances without losing the
signal. Corning was able to satisfy the need with the chemical vapor deposition process that had
been invented in-house in the 1930s, but had not yet found a commercial application. As of
2007, the company still used this process for the manufacture of optical wave guides, an
important product for the company.
Financial Management
Of course, financial resources related to new business development also required careful
management. We are used to investing in long exercises. We are comfortable with patient
money, noted Echeverria. On the other hand, countered Newhouse, It sometimes takes years
and years to become profitable. According to Charlton, there was a study performed in the
1970s that indicated roughly 17 years were required for a business to achieve nominal
profitability in a new field.25 The effect of this time frame was that the more new businesses
Corning moved into the development pipeline, the more money the company would lose until
they reached their eventual payback. The more we succeed, the more we lose, and the more it
hurts the rest of the company until we actually get a profitable business launched, Charlton said.
While new business development was widely perceived as a necessary investment, the extent and
duration of that investment (with little or no payback) was the issue that could become
controversial. I would say that we're pushing the envelope on 10 percent [of sales directed
toward RD&E], which is causing strains everywhere, said Newhouse. The company has done
well. The model hasnt broken yet. So far, 10 percent of sales goes up nicely every year. But
we are pushing it. Were under more budget constraint now than weve ever been before.
Charlton added, All we can do is minimize the damage, which is a hell of a way to motivate a
senior executive, you know: Instead of generating wealth, lets try to lose fewer resources.
The question is how long the corporation will be willing to put up 10 to 15 percent of sales to
create these new businesses, said Badrinarayan. My concern is that these big, new
opportunities may require us to spend more than 10 percent in the next 10 years.
Measuring and Sustaining Success
Effective financial management was intricately linked to Cornings ability to measure and,
therefore, sustain the success of Strategic Growth. As Newhouse put it:
Well, I think how this organization is managed and how decisions are made
remains a learning process which were not done with. A core problem with new
venture arms is they dont produce the kind of quantitative results that
management traditionally uses to manage organizations. Being able to say, You
have a target for profitability. You have a target for sales. Did you hit them? If
not, why not? yields a very straightforward management model. But when
youre essentially doing discovery-based work, which is what new ventures are
25
E. Ralph Biggadike, Corporate Diversification: Entry, Strategy, and Performance (Harvard Business School
Press, 1979).
p. 23
like, what are you accountable for? Ive tried to set up a system where we
develop a hypothesis. Were accountable for testing that hypothesis and returning
results versus that hypothesis and then defining how were going to change our
action on the basis of that result. However, the first thing that creates trouble is
that organizations tend to not want to hear whats inconsistent with their
hypothesis, so they dont change. Even if they hear it, they dont actually change
their response. The second thing is that people have great difficulty reporting that
kind of information to management, and management has trouble hearing it.
Management values predictability more than anythingeven more than
profitability. But by the very nature of new business development work, were
going to surprise them. How do I keep management comfortable and hold onto
the credibility of those who are doing this work when, by its very nature, it is
uncertain? People have to be willing to go in front of management and effectively
say I was wrong again multiple times. How can we sustain the reputation of the
people who work in that environment? That is an unresolved problem.
One long-term metric for assessing the success of Strategic Growth could be the number of
divisions formed within Corning based on its work. What was less clear was how long Corning
should give the group to accomplish this desired end result in light of the sizable investment
required, competitive pressures, and other complicating factors. Corning would, indeed, need to
be patient given the complexity of the businesses it was investigating. The question was how to
gauge the extent to which the effort was working to help ensure that it would be sustained in
good times and in bad.
Reflecting on Strategic Growths first few years in existence, Newhouse said, We have created
the right kind of structure and approach, I believe, to tackle this problem. But we wont know
the answer for yearsthe next 5 years will tell.
p. 24
Exhibit 1
Chronology of Houghton Family Chief Executives at Corning
Corning has been led by five generations of Houghtons over its 150+ year history.
Name
Amory Houghton, Sr.
Amory Houghton, Jr.
Alanson Houghton
Arthur Houghton
Amory Houghton, Sr.
Amory Houghton, Jr.
James Houghton
Dates
1851-1870
1875-1910
1910-1918
1919-1920
1930-1941
1961-1964
1983-1996
2002-2005
Source: Compiled from public sources.
p. 25
Exhibit 2
Corning Incorporated Income Statement (2000-2007)
12/31/00
7,127.10
12/31/01
6,272.00
12/31/02
3,164.00
12/31/03
3,090.00
12/31/04
3,854.00
12/31/05
4,579.00
12/31/06
5,174.00
12/31/07
5,860.00
Cost of Goods Sold

Depreciation, Depletion
& Amortization
3,611.20
764.90
3,406.00
1,080.00
1,944.00
661.00
1,761.00
517.00
1,954.00
523.00
2,191.00
512.00
2,311.00
591.00
2,514.00
607.00
Gross Income
Selling, General &
Admin Expenses
Other Operating
Expenses
Operating Expenses Total
Operating Income
Extraordinary Credit Pretax
Extraordinary Charge Pretax
Non-Operating Interest
Income
Reserves - Inc(Dec)
Pretax Equity In
Earnings
Other Income/Expense Net
Earnings Before
Interest And Taxes
(EBIT)
Interest Expense On
Debt
Interest Capitalized
Pretax Income
IncomeTaxes
Current Domestic
IncomeTaxes
Current Foreign
IncomeTaxes
Deferred Domestic
IncomeTaxes
Deferred Foreign
IncomeTaxes
Income Tax Credits
Minority Interest
Equity In Earnings
After Tax Other
Income/Expense
Discontinued
Operations
Net Income Before
Extra Items/Preferred
Div
Extr Items & Gain(Loss)
Sale of Assets
2,751.00
1,587.30
1,786.00
1,728.00
559.00
1,199.00
812.00
943.00
1,377.00
1,008.00
1,876.00
1,104.00
2,272.00
1,374.00
2,739.00
1,477.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
5,963.40
6,214.00
3,804.00
3,221.00
3,485.00
3,807.00
4,276.00
4,598.00
1,163.70
6.80
58.00
-
(640.00)
176.00
(131.00)
19.00
369.00
6.00
772.00
84.00
898.00
0.00
1,262.00
4.00
462.60
6,058.00
2,080.00
672.00
1,858.00
259.00
65.00
200.00
104.60
68.00
41.00
32.00
25.00
61.00
118.00
145.00
0.00
#N/A
0.00
#N/A
0.00
#N/A
0.00
#N/A
0.00
#N/A
0.00
#N/A
0.00
#N/A
0.00
#N/A
(14.50)
(26.00)
(38.00)
147.00
19.00
30.00
86.00
162.00
(605.00) (1,439.00)
688.00
1,037.00
1,373.00
163.00
143.00
113.00
101.00
9.00
22.00
(759.00) (1,580.00)
(254.00)
1,031.00
(14.00)
(27.00)
27.00
572.00
578.00
(14.00)
37.00
961.00
55.00
(8.00)
19.00
1,291.00
80.00
2.00
Net Sales or Revenues
Net Income Before

Preferred Dividends
Preferred Dividend
Requirements
Net Income Available
to Common
798.00 (5,958.00) (2,541.00)
163.10
202.00
192.00
56.50
49.00
13.00
691.40 (6,111.00) (2,720.00)
407.10
(452.00)
(726.00)
372.60
(14.00)
(337.00)
163.00
82.90
73.00
43.00
23.00
111.00
167.00
164.00
176.00
(54.40)
(475.00)
(333.00)
(282.00)
767.00
443.00
0.00
(3.00)
6.00
(36.00)
(99.00)
19.00
180.00
(18.00)
(101.00)
(95.00)
0.00
23.70
185.20
0.00
0.00
(13.00)
148.00
0.00
0.00
(98.00)
116.00
0.00
0.00
(73.00)
209.00
0.00
0.00
17.00
443.00
0.00
0.00
7.00
598.00
0.00
0.00
11.00
960.00
#N/A
0.00
3.00
942.00
#N/A
12.50
0.00
#N/A
0.00
0.00
0.00
0.00
0.00
(223.00) (2,185.00)
585.00
1,855.00
2,150.00
20.00
0.00
0.00
0.00
(223.00) (2,165.00)
585.00
1,855.00
2,150.00
0.00
0.00
0.00
0.00
(223.00) (2,185.00)
585.00
1,855.00
2,150.00
458.30 (5,498.00) (1,780.00)
(36.30)
0.00
415.00
422.00 (5,498.00) (1,365.00)

0.80
1.00
128.00
457.50 (5,499.00) (1,908.00)
0.00
0.00
Note: In millions of U.S. dollars.

Source: Complied using data from Worldscope.
p. 26
Exhibit 3
Other Select Corning Incorporated Financials
Cornings Quarterly Revenue in Thousands (1998-2007)

Corning Inc. (NYSE:GLW) - Total Revenues ($mm)
2500
2000
1500
1000
500
0
Cornings Weekly Stock Price in Dollars per Share (1998-2007)

120
100
80
60
40
20
1/20/2007
1/20/2006
1/20/2005
1/20/2004
1/20/2003
1/20/2002
1/20/2001
1/20/2000
1/20/1999
1/20/1998
Source: Compiled using data from Capital IQ and FT.com.
p. 27
Exhibit 4
Corning Spending on RD&E (1999-2006)
700
18
14
$ Millions
500
12
400
10
300
8
6
200
4
100
Percentage of Sales
16
600
0
1999
2000
2001
2002
2003
2004
2005
2006
Source: Information provided by Corning Incorporated.
p. 28
Exhibit 5
Illustrative Organization Chart
Science & Technology
Joseph Miller
Executive Vice President
Chief Technology Officer
Strategy & Technology (S&T)
Charles Craig
Vice President
Director, Administration &
Operations for S&T
David Morse
Mark Newhouse
Senior Vice President

Director, Corporate Research

Director, Strategic Growth
Jean-Pierre Mazeau
Marc Giroux

Director, Corporate Product &
Process Development
Vice President
Director, Corporate
Engineering
Source: Developed by authors based on information provided by Corning Incorporated.
p. 29
Exhibit 6
Approximate Breakdown of Cornings RD&E Expenditures
The companys total annual RD&E allocation equals approximately 10 percent of sales. It is
divided between corporate research and development & engineering.
Corporate Research 34 percent
3-20 year timeframe
Focused on research and new business development
Budget managed centrally by corporate research
34%
66%
Development & Engineering 66 percent

1-5 year timeframe
Focused on existing product lines
Budget managed as part of business P&Ls
The percentage allocated to corporate research is shared across three primary types of
research activities.
Exploratory Research 25 percent
Non-directed invention
Driven by scientists
Unspecified timeframe
25%
50%
Exploratory Markets & Technologies 25 percent

Market opportunity focused
Driven by Strategic Growth
7-20 year timeframe
25%
Business Aligned Research 50 percent

Focused on extensions to existing businesses
Driven by businesses
3-7 year timeframe
Source: Developed based on information provided by Corning Incorporated.
p. 30
Exhibit 7
Cornings Innovation Recipe
p. 31
Exhibit 8
Cornings Recipe Results
Materials
Keystone
Component
Process
p. 32
Exhibit 9
Illustrative Organization Chart
Strategic Growth
Mark Newhouse
Director, Strategic Growth
Business
Development
EMT
Marketing
Technology
Government
Programs
Licensing
Human Resources
Finance
Manufacturing
p. 33
Exhibit 10
Cornings Innovation Process
I.
II.
III.
IV.
V.
Marketing
Technology
Manufacturing
I
Build
Knowledge
Ideas
II
Determine
Feasibility
Experiments
III
Test
Practicality
IV
Prove
Profitability
Projects
Production
V
Manage
Life Cycle
Profits
Source: Reprinted with permission from Corning. Corning Incorporated 2005. All Rights Reserved.
p. 34
Exhibit 11
Cornings Seven Questions
Stage One
What, if any, are the key megatrends driving
the opportunity?
Is the opportunity large?
Is the problem significant requiring a step
change in cost or capability?
What is the hypothetical (quantified) value
proposition?
Is Cornings approach unique? Is there a
possibility for significant differentiation?
Does it fit Cornings materials and process
expertise?
Are the required resources available?
Stage Two
What, if any, are the key megatrends driving
the opportunity?
Is the opportunity large?
Is there clear customer pull?
Does it have clearly articulated value
proposition?
Do we have opportunity for substantial
differentiation/strategic control?
Does it fit Cornings materials and process
expertise?
Do the size of the opportunity and the potential
investment appear to be in balance?

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Corning Incorporated Reinventing New Business

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CASE: SM-167A

DATE: 06/10/08 (REV. 11/16/10)

CORNING INCORPORATED (A):

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

Fahey, op. cit.

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

(See Exhibit 9 for an illustrative organization chart for the group.)

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

Importantly, corporate research resources participated in these early-stage activities, providing

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

simple. Everybody knows what's going on. But when it progresses to

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development

Source: Compiled from public sources.

SM-167A Corning Incorporated: Reinventing New Business Development

Cost of Goods Sold

Net Sales or Revenues

Net Income Before

798.00 (5,958.00) (2,541.00)

458.30 (5,498.00) (1,780.00)

422.00 (5,498.00) (1,365.00)

457.50 (5,499.00) (1,908.00)

Note: In millions of U.S. dollars.

SM-167A Corning Incorporated: Reinventing New Business Development

Cornings Quarterly Revenue in Thousands (1998-2007)

Cornings Weekly Stock Price in Dollars per Share (1998-2007)

Source: Compiled using data from Capital IQ and FT.com.

SM-167A Corning Incorporated: Reinventing New Business Development

Source: Information provided by Corning Incorporated.

SM-167A Corning Incorporated: Reinventing New Business Development

Senior Vice President

Senior Vice President

Senior Vice President

Source: Developed by authors based on information provided by Corning Incorporated.

SM-167A Corning Incorporated: Reinventing New Business Development

Development & Engineering 66 percent

Exploratory Markets & Technologies 25 percent

Business Aligned Research 50 percent

Source: Developed based on information provided by Corning Incorporated.

SM-167A Corning Incorporated: Reinventing New Business Development

Source: Information provided by Corning Incorporated.

SM-167A Corning Incorporated: Reinventing New Business Development

Source: Information provided by Corning Incorporated.

SM-167A Corning Incorporated: Reinventing New Business Development

Source: Information provided by Corning Incorporated.

SM-167A Corning Incorporated: Reinventing New Business Development

SM-167A Corning Incorporated: Reinventing New Business Development