Corning's Class ActKeith H. Hammonds
To understand Corning Inc., stop by Donna's coffee shop in the small upstate New York community that shares the company's name. There, you'll hear folks at the counter refer to the $3 billion corporation as the Glass Works. Its chairman and chief executive, James R. Houghton, is known as Jamie. His older brother Amory, who ran the company before him, is simply Amo.
People are fond of the Houghtons, who are known to drop into Donna's for a cup or two. But they also know that the company built by the Houghtons' ancestors employs some 6,000 of the 60,000 residents of Corning and the surrounding Chemung River valley. "I'll tell you this," says shop owner Donna Robbins as her customers nod, "without Corning here, there wouldn't be a city."
A family company in a company town. The phrase doesn't exactly conjure images of forward-thinking management, progressive labor relations, global competitiveness, or technological prowess, does it? For much of recent U. S. business history, such companies have often been bastions of complacency, insularity, even arrogance. And legions of such old-line American industrial companies have proven easy prey to foreign competitors or the buy-'em-and-bust-'em-up brigade of the 1980s. Think of Singer, or Firestone, or J. P. Stevens.
But when it comes to Corning, think again. Its visionary CEO has managed to turn the long relationship among family, company, and community to unique advantage. For Jamie Houghton, family control--the Houghtons own 15% of Corning's stock, worth some $900 million--has proven a luxury that gives him the freedom to take risks and manage for the long term. And while quality, employee partnerships, work-force diversity, and technology-sharing are merely buzzwords of the moment at many U. S. corporations, the close ties between company and town have given Houghton a laboratory for experimenting with these sometimes messy issues.
WAKE-UP CALL. Not all the formulas he has concocted have worked. Nor can they all be applied to other corporations. But Corning offers a model of how aging U. S. manufacturers can reinvent themselves. What Corning has become, Houghton argues, is a global network, an interrelated group of businesses--some consolidated, some partly owned--that share technology and people. With that organization, Houghton has proven "that you can take traditional industries and, through technology, revitalize them," says Ira C. Magaziner, president of SJS Inc., a management consulting firm that works with Corning and other large corporations.
Corning certainly needed plenty of revitalization when Houghton took the reins from his older brother in 1983. At the time, nearly 70% of the company's revenues came from slow-growth businesses in which Corning held low to middling market shares. Profits from the company's heavily cyclical businesses had declined for three years in a row.
Although Houghton was the family standard-bearer, he was no sentimentalist. He wasted little time in divesting marginal businesses. From 1983 to 1989, he sold off units worth $500 million in revenues, including one of Corning's oldest--the light-bulb business. Also out were units in laboratory glassware, electronics, and biotechnology. At the same time, he spent $500 million to acquire new businesses, mostly in laboratory services, and established a half-dozen foreign joint ventures to build a business in fiber optics. Corning also smoothed production processes and cut costs, lifting gross margins by three percentage points. And suddenly, stodgy old Corning was a growth company, with leading shares in hot markets.
Today, the company boasts a return on equity of 16.3%, up from 7.3% in 1983. It has leading market shares in optical fibers and in ceramics for pollution control, units whose operating profits and revenues are expected to increase by 20% annually. And the laboratory-services unit, created from scratch through acquisitions, is growing even faster. In 1990, earnings for the whole company rose 11.8%, to $292 million, on an 11% gain in sales, to $3.05 billion. Analysts expect profits to jump at least 15% this year. Nor has Houghton's focus on the long term hurt the company on Wall Street: Corning's stock has risen 36%, to around $60, since the beginning of the year. "They are progressive, and it makes a big difference when you look at how far they've come in a relatively short time," says Remy M. Fisher, an analyst at Kemper Financial Services Inc., which recently bought $34.3 million worth of Corning stock.
If Corning seems an unlikely archetype for a reinvented corporation, Houghton is an improbable visionary. The great-great-grandson of the company founder, he looks every bit the privileged scion. His silvery hair is slicked back from a well-tanned face. He wears his suspenders loud and outrageous and lost count of how many pairs he owns. Houghton revels in his 1938 Rolls-Royce station wagon, in building stone walls, and in fly-fishing for trout in the stocked pond at The Field, the estate he built on Spencer Hill in 1972.
Houghton, 55, says he was never pressured to enter the family business. "But you don't grow up in this town and in a family so involved without becoming proud of the company," he says. A history major at Harvard, he jumped straight to Harvard business school. "I never should have gone," he recalls. "I didn't know a thing." His first-year grades were so poor that the school asked him to leave and get some work experience before returning. He spent two years at Goldman, Sachs & Co. and considered a career there after finally getting his MBA from Harvard. Instead, he landed in a Corning light-bulb factory in Kentucky, where he was a shift supervisor.
As CEO, Houghton has brought focus and urgency to a company that sorely needed both. Along the way, he has put into practice the kinds of enlightened measures that other executives think about and then dismiss as too difficult or expensive. Houghton is relentless in his pursuit of quality, which he defines as complete customer satisfaction. To help make quality a reality, Houghton has established partnerships that give Corning's unionized employees more control over how factories are run.
At the same time, he is promoting diversity by enacting policies designed to make Corning--both company and town--more hospitable to women and blacks. To attract high-quality labor to upstate New York, Corning is investing in its community, funding such amenities as a hotel, museum, and library. To make the most of Corning's long-standing emphasis on research and development, he's tearing down walls between business units and making them share technology. For instance, a ceramic originally developed for consumer tableware became the basis for a lightweight computer-memory disk. And he's extending the technology-sharing well beyond Corning's corporate boundaries with a worldwide network of joint ventures and alliances.
Such efforts are often mere public-relations pap at many companies, and cynics at Corning needed plenty of convincing. Take the commitment to quality. In October, 1983, at a meeting of top managers in a dreary Rochester (N. Y.) hotel, Houghton announced his plan to spend $5 million on a total-quality program. The legions were not impressed. "It went over like a bomb," Houghton admits. "They thought it was the flavor of the month."
It wasn't. Houghton appointed the company's first director of quality, then sent every employee through a two-day quality seminar. He established goals: By 1991, all employees would spend 5% of their time in job-related training, errors would be cut by 90%, and all new goods and services would meet customer requirements and competitors' quality. He preached the goals--and the means--time after time in open meetings at 50 company and joint-venture sites a year. (This practice itself created a small quality quandary: Houghton must remember which suspenders were given to him by a particular plant's employees, so he can wear the right ones for return visits.)
There's plenty of evidence that Houghton's efforts to improve quality are paying off. For instance, MetPath, Corning's clinical-lab testing unit, delivered 98.5% of its reports to customers in 24 hours or less last year, up from 88% in 1986. Customer returns of optical fiber have dropped to fewer than 1,000 parts per million from 6,800 in 1986.
Houghton understood that managers alone could not improve quality. He has given more responsibility and a share of profits to Corning's unionized laborers, allowing teams of hourly workers to redesign their factories and decide who should work which jobs. In 1989, for example, Corning moved production of molten-metal filters to its Specialty Cellular Ceramics (SCC) plant in Erwin, N. Y., from an older plant. It let union workers structure the new plant.
A design team opted for large, open spaces; a high, sound-dampening ceiling; and plenty of windows. To ensure cooperation, they built their production line so that an entire team worked within earshot of one another, rather than scattered along 100 yards. A total of 47 job classifications were folded into one: Employees rotate through jobs weekly and earn higher pay for each new skill they learn. The payoff? Defects were reduced to 3 parts per million from 10,000 parts per million, and no customer has returned any products since July, 1990.
RADICAL CHANGE. And when slack demand forced budget-cutting this year, it was another union team that decided to eliminate overtime, impose a two-week shutdown, redeploy workers, and cut travel. Their plan saved more than the $450,000 target without cutting jobs. Houghton plans to have all 28 U. S. plants working this way by 1993.
Corning's efforts to educate its workers in the ways of quality have earned admiration and imitation from other large corporations. Polaroid Corp. expects to send all its U. S. employees through two-day quality training sessions by yearend. "We were impressed" by Corning, says Harvey M. Greenberg, Polaroid's director of corporate training and development. "Everything they did seemed to smack of true total quality."
As he did with quality, Houghton also turned work-force diversity into a personal crusade. Like many other employers, Corning realized that demographic changes in the U. S. would ultimately spell big staffing problems for companies that knew how to hire, manage, and promote only white males. And Corning had thought for years about attracting female and black managers, but not much was happening. In fact, women and minorities were leaving in droves, costing the company as much as $5 million a year for hiring and training, an expense that frustrated Houghton.
Late in 1987, Houghton established two companywide teams, led by top executives, to address the diversity issue. They examined compensation and promotion practices. They then recruited consultants to run training courses, required for all 3,100 salaried employees, aimed at recognizing and accepting differences. Meanwhile, networks of mentors were established to help new hires learn and advance. Some managers are compensated in part on their ability to hire and retain women and minorities.
One team also looked outside the company to address aspects of upstate New York life that might make minorities feel uncomfortable. It sought to increase minority employment in the city's stores and persuaded the local cable-TV operator to offer the Black Entertainment Television channel. Next, Corning hopes to sponsor a diversity-training program for teachers in the regional school system.
Here, too, Corning is starting to see tangible results. More women and black executives than ever have reached top management (chart). And attrition is down sharply--from 16.2% in 1987 to 7.6% last year for women and from 15.3% in 1987 to 11.3% last year for blacks. "We do have more black people in senior management, and I see that as a cause for celebration," says Lezli H. White, a black senior public-relations specialist. So far, Corning's attempts to attract and retain minorities have focused on blacks, but it plans to target Asians and Hispanics soon.
Houghton knows he can't create ethnic diversity overnight. Nor does he expect immediate results from many of Corning's other efforts. Take R&D. Corning put 17 years and $100 million into fiber optics before getting a major order. Today, the $600 million-a-year business is the leader in a market growing at 20% annually. And 27 scientists in Corning's labs are poring over the glass used in liquid-crystal displays, the sort found in laptop computers. The basic technology derives from sunglass lenses and auto-headlight glass Corning makes. Now, LCDs are a big market, and Corning is the major supplier of glass to Japanese companies such as Sharp Corp. and Hitachi Ltd. To maintain its leadership, it plans to spend $100 million on R&D by the time it breaks even on the project, around 1995.
Corning wants a quarter of each year's revenue to come from new products. So this year, it will spend at least $3 million apiece on eight projects, and at least 30 more are in earlier stages. "I just looked at something new yesterday," says Norman E. Garrity, an executive vice-president for specialty materials. "It's a material for supersonic flight, but we're not going to see anything for 12 years."
Odds are good Corning won't bring that new material to market alone. Joint ventures and other alliances with external partners, a hallmark of the company since 1924, accounted for 37% of net income last year. The lion's share of that came from Dow Corning Corp., a tremendous cash generator that makes silicones. Eighteen other partnerships produce typical returns on assets of 10%, vs. 7% on wholly owned units.
These alliances allow Corning to develop and sell new products faster, providing size and power without the bulk. Take Cormetech, a new venture with Mitsubishi Heavy Industries Ltd. Corning found it could manufacture a ceramic-based product to filter pollutants from industrial chimneys. But it kept running into patents owned by Mitsubishi. For its part, Mitsubishi knew how to build the smokestacks that held the filters but lacked the process to make the filter. The two formed Cormetech to take advantage of a new market created by growing environmental regulation.
While it makes some mistakes, Corning has enjoyed unusual success in its joint ventures. The company "has the critical ability to treat its partners as true equals, to see their interests and respond to them," says Jordan D. Lewis, author of Partnerships for Profit, a book about such ventures.
BITTER STRIKES. The far-flung businesses in the likes of computer disks and fiber optics are a long way from Corning's humble beginnings in Brooklyn, N. Y., more than a century ago. The company moved upstate in 1868, after local investors pledged $50,000 in financing. It built its foundation in tableware and decorative glass, then diversified into railway signal lenses, lantern globes, and thermometer tubes--and later, into light bulbs and picture tubes. Founder Amory Houghton passed control of the company to his son Amory Jr., and since then, five more Houghtons have held the chief-executive title.
The company had its share of labor strife: There were bitter strikes in the early 1900s. But the Houghtons had a human touch. Thomas C. MacAvoy, Corning's president until 1983, recalls that Jamie Houghton's father, Amory, held black-tie galas at his mansion that were attended by union leaders and middle managers alike. The elder Houghton "could get along with de Gaulle and also with a blower in the factory," says MacAvoy. "It was something he knew in his bones." Jamie's 64-year-old brother, Amory Jr., has parlayed the Houghton touch into a political career as a Republican U. S. congressman from New York.
Although not as gregarious as Amory Jr., who ran Corning for 19 years, Jamie Houghton feels close to his employees, and his down-to-earth demeanor appeals to many. "He's a friend of ours and has done a good job with what we consider our company," says Dick Wheat, a local realtor. "He's also very easy to talk to, a very warm person."
Despite Houghton's best efforts, though, a large part of Corning hasn't quite got the hang of his vision. In the area of employee partnerships, some critics say workers have given up more than they have gained. As the dominant employer in a depressed and isolated region, Corning can pretty much do what it wants. "People feel lucky to have jobs at all," says one union worker out of management's earshot. As Houghton forces the company away from its old paternalism, temporary layoffs are common and lifetime employment extinct. Last year, for the first time in their history, the glass workers voted down a regional contract.
And for all the progress, minority executives say Corning is still run by white men. The glass ceiling has moved a bit higher, but it's still solid. That became clear last November, they say, when a major corporate reorganization yielded no gains for senior black executives.
Nor does Houghton yet have all of Corning cooking. A case in point is its most visible unit, consumer products, which makes the likes of Pyrex and Visions kitchenware. The division had operating profits of $83.2 million last year on revenues of $726.5 million--a profit margin about a third lower than those of Corning's other main businesses. Earnings overall, though much improved, still aren't exceptional. And the company faces tough global competition in three of its four major businesses. So Houghton keeps pushing.
Which is to say, he's still thinking for the long haul. From his office, Houghton can see his beloved Spencer Hill, the town below, and, now, in the city's center, surveyors at the site of what will become Corning's new headquarters. He may well be the only Houghton to occupy the big office in that new building. Neither his two grown children nor any of their cousins work at the company. Says Houghton: "The days are over when a Houghton could walk in and say, `I want a seat at the table.' " And Jamie Houghton will remain chief executive for only another decade or so. But the fortunes of his family, company, and community will be intertwined for years to come.
THE CORNING RECIPE
In the past eight years, Corning has redefined many of the ways it does business. Here's a primer on Corning's progressive strategies:
FOCUS ON QUALITY
During a three-year period, every employee was sent through a two-day quality training course. Thousands of employee teams have been established to address and fix quality problems. The goal: complete customer satisfaction.
Corning established its first joint venture in 1924. It's now a participant in 19 such partnerships and many more technology and marketing alliances. The links free capital, create marketing clout, and merge skills.
A central research department serves all business groups, so technologies are communicated and recycled through the organization. Joint ventures share development with each other, leveraging expenditures.
COOPERATE WITH LABOR
A partnership with the glass workers' union promotes joint decision-making. Worker teams determine job schedules, and even factory design. Soon, all U.S. workers will share a bonus based on plant
All managers and salaried workers attend seminars to build sensitivity and support for women and black co-workers. A network of mentors helps blacks and women with career planning. Asians and Hispanics will be targeted next.
IMPROVE THE COMMUNITY
Corning acquires and rehabilitates commercial properties, then finds tenants--some minority-owned--at market rates. It works to attract new business to the region and it built the local Hilton hotel, museum, and city library.