Business Policy and Strategy 8

Business Policy and Strategy 8 Part 1: After reading the case study and other available information carefully, prepare a case discussion that describes your understanding of how business policy and strategy choices should be made. Provide examples to illustrate and support your position. Please write an essay of complete and well composed paragraphs (250 word minimum) Be sure to use in text citation and provide references for your sources. Wikipedia is not a source. Part 2: Please compose a well-written essay (a minimum of 600-words) about how what we have learned in this class has impacted your understanding of Business Policy and Business Strategy. Highlight anything that you learned that was new to you or things that changed understandings you already had coming into the course. Cite references to material that you use in preparing the essay. Wikipedia is not a source. Syllabus Course Description: This course addresses the formulation, implementation, monitoring and control of business strategies and supporting organizational policies. Students learn to evaluate the comprehensive business enterprise through an integrated view of the various functional disciplines. This course attempts to develop the conceptual and abstract skills required by leaders of businesses in a competitive environment in order to understand business issues and challenges from the perspective of all functional managers. This course is intended as the â??Capstoneâ? course for the studentsâ?? curriculum where much of what was learned during the studentsâ?? program is integrated into an applied context. The course is divided into two parts. Part One deals with the foundational concepts of leading a business and setting business policy strategically. Part One will cover: (1) the concepts of establishing a business vision from which business plans will align, (2) building a business team to execute business goals, and (3) techniques to monitor business progress in implementing the goals. Part Two takes the foundational concepts learned in Part One and applies them to case studies of real business situations. There is an important structure to the business applications presented in Part Two. The structure is called frame of reference analysis. The basis of this analysis is that most situations, whether oriented to business or not, consist of multiple disciplines or frames of reference. This analysis calls for studying subjects and situations through the lens or â??framesâ?? of certain disciplines. In the course, the frames of references used to view strategic choices are: (1) the structural frame of reference, (2) the economic/business frame, (3) the political/cultural frame, and (4) the human resources frame. Each week, during Part Two, case studies are presented that examine a real business situation through the frame of reference of one of the above viewpoints. The final week of the course will be an integration exercise where the role of leadership is be examined. Week 1: Unit 1 – Formulating Policy and Strategy Week 2: Unit 2 – Implementing Strategy Week 3: Unit 3 – Monitoring and Control of Policy or Strategy Execution Week 4: Unit 4 – Structural Frame of Reference Week 5: Unit 5 – Economic/Business Frame of Reference Week 6: Unit 6 -Political/Cultural Frame of Reference Week 7: Unit 7 -Human Resources Frame of Reference Week 8: Unit 8 -Policy and Strategy Integration: The Role of Leadership
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Business Policy and Strategy 8
Part 1:
After reading the case study and other available information carefully, prepare a case discussion
that describes your understanding of how business policy and strategy choices should be made.
Provide examples to illustrate and support your position.
Please write an essay of complete and well composed paragraphs (250 word minimum) Be sure to use in
text citation and provide references for your sources. Wikipedia is not a source.
Part 2:
Please compose a well-written essay (a minimum of 600-words) about how what we have
learned in this class has impacted your understanding of Business Policy and Business
Strategy. Highlight anything that you learned that was new to you or things that changed
understandings you already had coming into the course.
Cite references to material that you use in preparing the essay. Wikipedia is not a source.
Syllabus
Course Description: This course addresses the formulation, implementation, monitoring and
control of business strategies and supporting organizational policies. Students learn to evaluate
the comprehensive business enterprise through an integrated view of the various functional
disciplines. This course attempts to develop the conceptual and abstract skills required by leaders
of businesses in a competitive environment in order to understand business issues and challenges
from the perspective of all functional managers. This course is intended as the â??Capstoneâ? course
for the studentsâ?? curriculum where much of what was learned during the studentsâ?? program is
integrated into an applied context.
The course is divided into two parts. Part One deals with the foundational concepts of leading a
business and setting business policy strategically. Part One will cover: (1) the concepts of
establishing a business vision from which business plans will align, (2) building a business team
to execute business goals, and (3) techniques to monitor business progress in implementing the
goals.
Part Two takes the foundational concepts learned in Part One and applies them to case studies of
real business situations. There is an important structure to the business applications presented in
Part Two. The structure is called frame of reference analysis. The basis of this analysis is that
most situations, whether oriented to business or not, consist of multiple disciplines or frames of
reference. This analysis calls for studying subjects and situations through the lens or â??framesâ?? of
certain disciplines. In the course, the frames of references used to view strategic choices are: (1)
the structural frame of reference, (2) the economic/business frame, (3) the political/cultural
frame, and (4) the human resources frame. Each week, during Part Two, case studies are
presented that examine a real business situation through the frame of reference of one of the
above viewpoints. The final week of the course will be an integration exercise where the role of
leadership is be examined.
Week 1: Unit 1 – Formulating Policy and Strategy
Week 2: Unit 2 – Implementing Strategy
Week 3: Unit 3 – Monitoring and Control of Policy or Strategy Execution
Week 4: Unit 4 – Structural Frame of Reference
Week 5: Unit 5 – Economic/Business Frame of Reference
Week 6: Unit 6 -Political/Cultural Frame of Reference
Week 7: Unit 7 -Human Resources Frame of Reference
Week 8: Unit 8 -Policy and Strategy Integration: The Role of Leadership
08-056
Rev. April 15, 2009
Corning Incorporated: The Growth and Strategy Council
Rebecca M. Henderson and Cate Reavis
The Growth and Strategy Council provides a forum to challenge and be challenged which is essential
in a company with very low attrition rates. It prevents us from becoming paralyzed by group think
which can exist in a place where many of the people have a common history.
â??John Igel, Director, FTTx Program
We are dealing with complex, difficult to measure portfolios. You have to have a leadership group
which will invest time but also remain objective in order to make the hard decisions.
â??Mark Newhouse, Director, New Business Development
It was early February 2008. Charlie Devins, the Chief Technology Officer (CTO) of a specialty
chemicals and materials company, was interrupted mid-sentence as the 5:00pm whistle announcing
the end of the work day at Corning Incorporated broke the mid-winter tranquility of the small town of
Corning, New York, population 10,300.
The sounding of the whistle came at a timely point in the conversation Devins was having with Joe
Miller, Corningâ??s CTO. Miller had been explaining that while tradition and history were important at
Corning, it did not signify that it was a company set in its ways. On the contrary: Corning was a
company that had repeatedly reinvented itself to become one of the worldâ??s leading materials
companies. It was not a history that the firm took lightly: in 2002 the worldwide telecommunications
crash had cut Corningâ??s revenues from $6.3 billion in 2001 to $3.1 billion the following year. The
companyâ??s stock had collapsed, falling from a high of $100 in August 2000 to $1.50 in July 2002.
The company had to take a $5.4 billion loss and lay off over 12,000 people. (Exhibit 1 shows
Corningâ??s stock price over time.)
This case was prepared by Cate Reavis under the supervision of Professor Rebecca Henderson. Professor Henderson is the
Eastman Kodak Leaders for Manufacturing Professor of Management.
Copyright © 2008, Rebecca M. Henderson. This work is licensed under the Creative Commons Attribution-Noncommercial-No
Derivative Works 3.0 Unported License. To view a copy of this license visit http://creativecommons.org/licenses/by-nc-nd/3.0/
or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA.
CORNING INCORPORATED: THE GROWTH AND STRATEGY COUNCIL
Rebecca M. Henderson and Cate Reavis
By 2008, however, with 24,800 employees, 4,400 based in the town of Corning, the Corning
Corporation was maintaining its global leadership position in glass for liquid crystal displays â?? a
business with gross margins in the upper 60% range â?? while telecommunications sales had recovered
and the company was at the leading edge in a number of other promising markets. The stock price had
recovered, and in February 2008 was trading at $23, roughly its pre-bubble level. Meanwhile, roughly
70% of the people who left during the downturn in the early 2000s were back working at the
company.
Devins, whose own company was struggling with how to manage its innovation strategy, had been
urged to visit Corning to learn more about what he had been told was a best practice approach. As
Miller explained it, innovation at Corning was centrally managed by a group called the Growth and
Strategy Council. The council, which was headed by a triumverate including Corningâ??s CEO Wendell
Weeks, COO Peter Volanakis, and Miller, met once or twice a month to provide advice and guidance
to the companyâ??s four business segments. Often important strategic decisions including the allocation
of resources for various projects within a business segment were made during these meetings.
After hearing Miller describe the GSC and how it enabled innovation at Corning, Devins was at the
same time impressed and skeptical. He wondered what made it work: Did such a structure fuel
political tensions among the businesses? Wouldnâ??t a centralized decision-making body slow the
innovation process if not stifle it altogether? Then there was the question of scale. Could a centralized
body like the GSC continue to work as well as it had in the coming years, when Corning hoped to
double its rate of innovation from one to two businesses a decade to two to four, which were expected
to deliver $1.5 billion in new revenue over a 10-year investment cycle at a cost of $1 billion? What
would it take to keep making it work? And could this be replicated at another company or did
Corning have something unique that made the GSCâ??s success indigenous to Corning?
Corningâ??s History of Innovation
Innovation was the core of Corningâ??s identity and had been since the company was founded in 1851.
As one senior executive stated, â??While we are not a one business company, innovation is our only
engine.â? Another suggested, â??Weâ??re a science based company that sells innovations.â? And a third
noted that Corning â??is about taking inventions and turning them into products or processes.â?
Corningâ??s history reflected these sentiments. (See Exhibit 2 for a timeline of Corning.)
In 1851, Corningâ??s founder, Amory Houghton, first invested in glass-making in Somerville,
Massachusetts and within 20 years the company, by then known as a producer of first-quality lead
glass, made a major breakthrough in the production of signal glass for railroads. In 1880 the company
received Thomas Edisonâ??s first order for light bulbs, and produced 3,684 that first year. While for the
next 20 years, glass for railroad signals and electric light bulbs represented the majority of the
companyâ??s sales, Corning was also active in producing a wide variety of specialty glassware,
Rev: April 15, 2009
2
CORNING INCORPORATED: THE GROWTH AND STRATEGY COUNCIL
Rebecca M. Henderson and Cate Reavis
including semaphore lenses, lantern globes, thermometer tubes for medical suppliers, and tubing for
chemists and druggists.
By 1908, Corning had made a more formal commitment to its future by setting up a specialized
research lab and hiring its first research scientist whose first innovation was â??Nonex,â? a revolutionary
type of thermo shock resistant glass. Nonex eventually led to the invention of Pyrex®. Pyrex, which
was patented in 1912, was a runaway success, launching Corning into the consumer products business
with a line of heat-resistant glass baking dishes.
In 1926 Corning began producing the revolutionary â??ribbon machine,â? the centerpiece of a process to
mass manufacture light bulbs â?? a process also invented and patented by Corning. At the same time
Corning began research on refractory materials which led to the production of new materials such as
ceramics that withstood high temperatures and which were used in applications such as the lining of
furnaces. In 1929 Corning began to explore the casting of the giant mirrors used in modern
telescopes, and in 1935 delivered the 200-inch mirror for Caltechâ??s new Hale Telescope, which was
then the biggest and most expensive scientific instrument ever built.
After initially abandoning research in glass fibers in the mid-1920s, Corning resurrected this field of
research in the 1930s, and by 1938 the Owens-Corning Fiberglass Company was incorporated as a
vehicle for exploiting the results of the work. Between 1939 and 1944 sales from the joint venture
ballooned from $3.7 million to $56.2 million. The same year in which Owens Corning Fiberglass was
founded, Corning succeeded in synthesizing the first of the silicone resins (sophisticated materials
used as lubricants in a wide variety of settings), and in 1942, Dow Corning was formed to exploit
those discoveries. By 1945, the year that the company made its first offering of common stock,
Corning was producing 37,000 different items made from 450 different glasses, and accounted for
45% of the U.S. light bulb glass market.
During the 1940s and 1950s much of Corningâ??s attention was focused on the budding television
industry. While 1939 marked the first year Corning made sales to the TV industry, it was not until
1947 that the company opened a separate facility to make glass bulbs for TV cathode ray tubes. In
1949 the company made a major breakthrough in the development of centrifugal casting techniques,
and sales exploded from 3 million units in 1949 to 7.5 million in 1950. Corning essentially became
the sole volume provider of television bulbs. In 1954, Corning created a new niche for itself in the
television industry developing the technology to make color TV bulbs, investing millions of dollars
over the next few years in the new technology. While it took seven years for sales of color TVs to
take off, once they did Corning was once again positioned to be the leading supplier. Sales went from
147,000 units in 1961 to 2.7 million in 1965.
At the same time that Corning was busy at work developing color TV bulbs, it was also making
significant advances in heat resistant glass technology. In 1957, CorningWare®, a line of stovetop
cookware was introduced and was a runaway success. Between 1959 and 1960, sales went from $15
Rev: April 15, 2009
3
CORNING INCORPORATED: THE GROWTH AND STRATEGY COUNCIL
Rebecca M. Henderson and Cate Reavis
million to $25 million, and Corning continued to invest in the area, announcing another major
breakthrough, Corelle® dinnerware, in 1970. By 1965 the companyâ??s growing labs tested 200
different kinds of glass a week and had compiled files on nearly 125,000 discrete glass formulas. As
one of the senior managers proudly told the press â??R&D is our fastest growing activity.â? 1
Corningâ??s foray into developing fiber optics technology, namely in lasers and optical waveguides,
came in the mid-1960s, long before anyone had any significant use for the technology. Corning had
been approached by the British Post Office which was looking for a product that would increase
bandwidth capacity. By 1970 the fiber optics research team had made significant progress, but the
only potential U.S. customer, AT&T, claimed that â??it would be thirty years before the American
phone system would be ready for optical waveguides.� 2 Instead of scrapping its investment in fiber
optics, Corning formed a joint venture with Siemens in 1973 to develop optical fiber for cables.
Within just three years, the first full scale pilot plant was built and field tests suggested that for the
first time fiber optic waveguides might be competitive with copper. By late 1981 Corning had
invested more than $100 million in optical waveguides.
Besides the extensive investments Corning was making in fiber optics technology, the 1970s saw the
company venture into two new fields. In 1974, after four years of research in the development of
ceramic substrates, Corning entered the automobile industry by selling $100 million worth of
substrates for catalytic converters in auto exhaust systems. The 1970s also saw extensive investment
in products designed for medical and diagnostic applications. Corning Medical went from $3 million
in sales in 1970 to $30 million in 1974, and became a major focus for growth in the company. In 1981
Corning made the largest acquisition in its history buying MetPath for $125 million. In 1982, a joint
venture with Genentech was announced and the last of the light bulb plants was sold.
In 1983 Jamie Houghton, one of a long line of Houghtonâ??s to run the company, became chairman and
CEO. For the next 10 years the bulk of Corningâ??s resources were focused on medical services and
optical fiber. In the words of Peter Booth, corporate secretary and VP, corporate planning:
The winners and losers didnâ??t emerge for a while, so we rode two horses. But, the issue was
always clear in our minds â?? were we going to be able to tease out a new life for the Company
based upon Corningâ??s traditional culture of science, invention and technology, or would Corning
become the Medical Services business, which we all saw as far less tied to the traditional values
of the company? 3
By 1990 Telecommunications and Medical Services were the companyâ??s two largest segments,
generating 26% and 24% of revenue and 31% and 27% of pretax operating income, respectively.
1
Davis Dyer and Daniel Gross, The Generations of Corning: The Life and Times of a Global Corporation (Oxford University Press, June 2001).
Ibid.
Michael J. Roberts and Michael L. Tushman, â??Corning 1983-1996: Transition at the Top,â? Harvard Business School Case # 401-034 (Harvard Business
School Publishing, 2001).
2
3
Rev: April 15, 2009
4
CORNING INCORPORATED: THE GROWTH AND STRATEGY COUNCIL
Rebecca M. Henderson and Cate Reavis
However by the early 1990s the Medical Services business came under severe margin and regulatory
pressure. In 1996 the Medical Services business was spun off as two firms: blood and clinical testing
became Quest Diagnostics and pharmaceutical testing became Covance. The two companies together
took 36% of Corningâ??s revenue with them. The Consumer Products division â?? including
CorningWare®, Corelle®, Pyrex® and Revere® â?? was sold in 1998. Corning realized a price of
$975 million for a business with revenues of $630 million.
At the end of 1999 and into 2000 Corning was at the top of its game. The companyâ??s stock hit $105 4
in December of 1999, up from $28 in October of 1998, and analysts at Merrill Lynch predicted that
the companyâ??s stock would double within the next three years. 5 Corning had approximately 40% of
the worldwide market for optical fiber, and was one of the worldâ??s largest merchant manufacturers of
optical modules and components. The worldwide fiber optic cable market seemed to be poised for
growth, and analysts expected the photonics business to grow at almost 40% a year. Some estimates
suggested that telecommunications, which accounted for 70% of sales, was taking as much as 68% of
the companyâ??s R&D budget. In 2000 Corning completed more than eight significant acquisitions,
spending more than $9.9 billion to deepen the companyâ??s expertise in photonics and related
technologies. The 2000 Annual Report announced capacity expansion plans of more than $1.6 billion
in optical fiber and $815 million in photonics. The companyâ??s market value had skyrocketed from $9
billion in 1996 to $50 billion by 2000. Corning was widely regarded as a runaway success.
Much of Corningâ??s success at that time was attributed to CEO Roger Ackerman, who joined the
company in 1962. As was written in a Business Week article in 2001:
Roger Ackerman has accomplished what executives at such companies as AT&T, Kodak and
Xerox havenâ??t been able to: He has transformed a lagging giant of the Old Economy into one of
the bright stars of the digital age. When Ackerman took over as CEO in 1996, Corning
Incorporated was best known for its cookware. Now, as he steps down, itâ??s the world leading
supplier of optical fiber and other high-tech parts.
After taking over as CEO in 1996, Ackerman decided to make fundamental changes at Corning. As
he explained, â??We werenâ??t winning with the hand we had.â? 6 In addition to selling off Corningâ??s
consumer business, he invested large sums of money in optical fiber, which Corning invented in
1970. Ackermanâ??s belief in the companyâ??s intensified focus on optical fiber was tested in 1998, when
the Asian financial crisis sent fiber prices plunging, and Corningâ??s stock fell two-thirds. Instead of
retreating, Ackerman stayed the course, even boosting R&D spending from $175 million in 1995 to
$560 million in 2000. 7
4
Actuals at that time. Corning stock split 3 for 1 in October 2000, making pricing post-split at $35 and $12, respectively.
5
Fox, Labowitzz and Astle, â??Corning Inc,â? Merrill Lynch, December 1999.
6
â??Roger G. Ackerman and John W. Loose,â? Business Week, January 8, 2001
7
Ibid.
Rev: April 15, 2009
5
CORNING INCORPORATED: THE GROWTH AND STRATEGY COUNCIL
Rebecca M. Henderson and Cate Reavis
Then, at the end of 2000 and into 2001, the bottom really fell out of the market. Fiber and photonic
sales â?? and Corningâ??s stock price â?? collapsed. Some observers wondered whether the company
would survive. In April 2002, Corningâ??s former CEO Jamie Houghton, who was then Chairman, was
called back to lead the company. According to David Morse, Corningâ??s head of research, on the day
his return was announced, Houghton went to Sullivan Park where he reassured scientists that,
â??Corning is about research. I am counting on the R&D community to lead this company back to
prosperity. …
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