Harvard Business School
9-381-160
Rev. October 15, 1998
Corning Glass Works International (A)
It was early spring 1975 and Forrest Behm, president of Corning International Corporation
(CIC), the international operations of Corning Glass Works (CGW), was reviewing the organization
structure of CIC as he had often done over the previous few weeks. The coordination of the overseas
subsidiaries and affiliates, and their integration with the domestic organization, were still not being
achieved to his satisfaction, and he wondered if there was any way the situation could be improved.
The major risk in trying to improve coordination and integration, in Behm’s mind, was that increasing
centralized decision making could weaken the strong subsidiary organizations he had built, thus
possibly compromising CIC’s ability to respond to local needs.
The company had been through several organizational modifications over the last few years,
some of which had been less successful than Behm had hoped. He realized that some managers in
both the domestic and the international organizations had become somewhat frustrated with
continuing problems, and that they were growing skeptical of the company’s organization changes
designed to alleviate the problems. For the sake of the management group’s morale and confidence,
Behm knew that any further restructuring would have to provide a more effective and more durable
solution to the problems.
Company Background
Although Corning Glass Works had been in operation for almost 125 years, in 1975 the
company was still very much family owned and operated. Amory Houghton, Jr., the great-greatgrandson of the founder, had become president in 1961 at age 35 and in 1964 was appointed
chairman of the board. His brother James had been named vice chairman in 1971, assuming
responsibility for the company’s international operations and many of its corporate staff groups. The
Houghton family still owned more than 10% of the stock which was listed on the New York Stock
Exchange. This long history of family involvement, together with the location of the company
headquarters in Corning, a small town in upstate New York, created a corporate environment that
was personal and informal. Many of the managers were social friends during nonworking hours, and
the company itself played a major role in local civic affairs.
Since its establishment in 1851, the company had built a strong reputation as a manufacturer
and marketer of specialty glasses with properties adapted to specific end uses. CGW’s stated
corporate objective was "to pursue excellence in glass worldwide, making this family of materials, its
related products, and its corollary technologies the most unusual and useful in our civilization." This
strategy, built around a material and its applications, led Corning in 1908 to become one of the
Assistant Professor Christopher A. Bartlett and Professor Michael Y. Yoshino prepared this case as the basis for class
discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
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country’s first companies to establish a research laboratory; from then on, technology-based research
was at the center of the company’s operation.
The way in which R&D led Corning’s growth and diversification is illustrated by the
following examples:
Corning’s turn of the century research to find a railroad lantern glass that would
not crack in snowstorms led to the development of a low-expansion glass that
became the company’s Pyrex® bakeware and laboratory glassware. The entry
into the laboratory market gave the company the opportunity in the 1960s and
1970s to develop a line of sophisticated medical products, including diagnostic
reagents and biomedical instruments.
Thomas Edison approached Corning to develop a glass envelope for his first
incandescent lamp, launching the company as a major supplier of lighting
products. The product line was extended to sealed beam headlamps for Detroit,
and this industry relationship led to the development of ceramics for auto
emission-control devices in the 1970s.
Through expansion of existing businesses and diversification into new products, Corning’s
sales were growing at around 10% annually, and by 1974 sales had surpassed the $1 billion mark
(Exhibit 1). The company had 46,000 employees worldwide, and it operated 90 plants in 20 countries.
Corning’s Businesses
Through the research efforts described, Corning had developed over 300 different glasses
which it converted into over 60,000 products. These products were consolidated into 10 major
business groupings, each of which was managed by one of CGW’s product divisions in the United
States. However, only the following six product groups had significant foreign sales.
Television products Corning got into the television bulb business after gaining experience in
manufacturing radar tubes in World War II. By continually developing the product through research
and development efforts, particularly on the color picture tube, Corning became one of the two major
suppliers to the television original equipment manufacturers (OEMs) in the United States. By
subsequently starting up bulb manufacturing facilities in France, Brazil, Mexico, and Taiwan, Corning
was able to capitalize on the international purchases of major customers such as Philips, RCA, and
Sylvania. Competitive pricing was important but product development and delivery were also
critical. The bulb differed in specification between regions due to the differences in TV transmission
characteristics. In France and Brazil, TV bulb manufacturing facilities were a part of larger broad
product line plants. Technology was becoming fairly well established by the 1970s and was not
subject to the rapid changes it had been through in the 1950s and 1960s. A substantial percentage of
the company’s sales were overseas. Competitors tended to be regional, some being licensees of
Corning technology, such as Schott in Europe and Asahi in Japan.
Electronics products These were largely resistors and capacitors for electronic equipment
manufacturers such as the OEMs of computers, communications, home entertainment, and military
equipment. Most of the products were mature commodities, but the technology was changing and
product development had to keep up with customer needs. Manufacturing value added was the
major cost component of most products, and price competition forced managers in this business to
focus attention on manufacturing cost reductions. Manufacturing abroad was concentrated heavily in
two separate manufacturing and marketing organizations set up as joint ventures in the early 1960s:
Electrosil in the United Kingdom and Sovcor in France. A few key customers accounted for a
substantial part of Corning’s sales and several of these were multinational. Most users sourced
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components multinationally, with price being a major decision factor. About one-third of CGW’s total
sales were in foreign markets.
Consumer products Pyrex® bakeware, the company’s first major consumer product, was
launched in 1915 in the United States and within a few years spread globally through export sales and
licensing agreements. In the 1950s, Corning research developed a glass ceramics material with
properties that allowed freezer-to-oven-to-table cookware to be developed from it. This product
became Corning Ware® which was soon the leading cookware product in the United States. Other
recent developments were Centura® and Corelle® tableware, and flattop glass ceramic cooking
surfaces. As the company moved into foreign markets it began to realize that different markets
demanded different product shapes and designs, such as the soufflé dishes and demitasse cups that
were popular in France. The high cost of new molds and equipment, however, limited Corning’s
ability to respond to all local demands, since sales of $3 million were required to break even on a new
product shape. Pyrex manufacturing facilities existed in many markets—including France, the United
Kingdom, Argentina, and Australia—usually within a large multiproduct plant. However, facilities
for Corning Ware manufacture outside North America existed only in Holland in a plant built solely
for the product in 1963. There were two broad groups of customers: the mass home market and
commercial food operations. The types of retail outlets used to reach the former varied by country as
did the distribution channels to the retailer. For example, in Argentina distributors sold to
independent retailers, while in the United Kingdom a direct sales force fought for shelf space in mass
merchandisers and national chains. A few global competitors existed, such as the popular Noritake
line, but most were local or regional. The competitive combination of price, promotion, and
advertising also varied by market. About one-third of consumer product sales were overseas.
Medical products These were scientific instruments such as blood gas analyzers and white cell
analyzers, and the reagents required to calibrate them, mainly used to determine body chemistry. In
addition, the company had a line of single test diagnostic reagent materials and kits used, for
example, to test patients’ blood for thyroid-related disorders. Some of the instrumentation technology
had come with the 1970 Evans Electroselenium acquisition in the United Kingdom, with most of the
instruments being high value added products, manufactured in small numbers in highly technical,
specialized operations. The product life cycle of many instruments and tests was relatively short, and
identification, specification, and development of new products was a key task. Although most
products had application in worldwide markets, some local differences in medical practice or
physical facilities such as electric current complicated product development. Some global competitors
existed along with specialist local instrument companies. Direct sales forces demonstrated products to
potential customers in labs and hospitals. Approximately one-quarter of all sales were outside the
United States.
Science products The two major science businesses were scientific glassware and chemical
systems. The former was special lab glassware, usually manufactured from Pyrex® glass. It was an old,
mature product line with competition based mainly on price and delivery. End users were small and
widely spread, and Corning generally sold through local distributors. Foreign sales were almost 40%
of the CGW total. The second major science products business was chemical systems, consisting of
process systems designed for specific applications. Pyrex® heat exchangers and process piping were
designed into specific applications. Overseas markets—particularly France, Germany, and the United
Kingdom—were large and represented over two-thirds of CGW’s total process systems business.
Technical products Two very different businesses were included under this grouping. First there
were ophthalmic products, which were principally eyeglass blanks produced to a variety of thickness,
curvature, and periphery specifications, and made from either fixed or photochromic glass. The latter
was a recent Corning research breakthrough which caused the lens to darken when exposed to bright
light. Although manufacturing facilities existed only in the United States, France, and Brazil, exports
were shipped to markets worldwide. Due to the variety of shapes, sizes, colors, and materials that
could be used, sourcing decisions were complex and important. High value to weight made export
sales attractive to all major manufacturers in the world, however, and competition took on global
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Corning Glass Works International (A)
implications. A few large lens finishers generally dominated each national market, and these were
Corning’s main customers. Approximately one-third of all Corning’s ophthalmic sales were overseas.
The second part of technical products was known as technical materials, a highly varied business
which basically involved supplying specialty subassemblies to a variety of industrial and government
OEMs. Corning generally designed the product specifically for the customer’s application. Products
varied from substrates for disc memories for computer companies to refrigerator heater components
and oven-window glass for appliance manufacturers. Overseas materials business accounted for
perhaps 15% of the total.
International Operations
Company Development
Although Corning began exporting Pyrex® products as early as 1918, its primary strategic
focus remained on the U.S. market over the next four decades. While export sales continued to be the
company’s primary foreign revenue generator, licensing agreements were also quite lucrative. Only
rarely did Corning take an equity position in its foreign ventures, and even then it would exchange a
minority shareholding position for technology.
After assuming the chairman’s responsibility in 1964, however, Amory Houghton, Jr., made it
clear that he intended to increase significantly the company’s international position. His goal was to
transform Corning from a U.S. company into a truly international corporation that developed,
manufactured, and sold its products to worldwide markets.
The impact of this strategic change can be seen immediately in Exhibit 2. Over the next
decade, there was hardly a year when some major new foreign venture was not being launched. From
1965 to 1974 international sales increased almost tenfold from $35 million to $336 million. Although
the French and English affiliates were clearly the most important, a wide diversity of product markets
had been developed as illustrated by Exhibit 3. By the early 1970s Corning had become an important
international company, and it was feeling some of the management and organizational strains that
flowed from the new strategy. Country operations that had been fiercely independent and often in
direct competition against each other (Jobling, Corning’s U.K. affiliate, and Sovirel, the French
subsidiary, had a bitterly competitive history over half a century long) now had to give up some of
their independence and back off from their internal competitive battles.
Organization until 1972: Area Orientation
Two men held major responsibility for implementing Corning’s overseas expansion in the
1960s and early 1970s. Ambassador Robert D. Murphy was elected International Division president in
1960 when he joined the company after retiring from a 40-year diplomatic career. In 1965 Murphy
became chairman of Corning Glass International and Forrest Behm was appointed division president.
Behm, a 20-year veteran with CGW, had had both sales and manufacturing management experience
and, before his appointment to International, had been general manager of the old Lamp Division.
From the mid-1960s until 1972 the organization within the International Division was largely
structured around geography (see Exhibit 4). Reporting to Forrest Behm were three area managers,
one each for Europe, Asia-Pacific, and Latin America. All three were located in international
headquarters, along with their individual area staffs for sales, marketing and distribution, and for
manufacturing and engineering.
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In 1971 a change of leadership and structure occurred in the parent company when Thomas
MacAvoy, previously vice president and general manager of the Technical Products Group, was
named president and chief operating officer of Corning Glass Works. MacAvoy had a doctorate in
science and had entered Coming through its research laboratory. Under the reorganization all
product divisions and internal staff groups reported to him. In the same reorganization, James
Houghton moved from his position as vice president and general manager of the Consumer Products
Division to become vice chairman of Corning Glass Works, with responsibility for corporate staff
groups and international operations, where he had gained previous experience as European area
manager from 1965 to 1968. Both men reported to the chairman (see Exhibit 5).
At this time, the legal structure of the international organization was overhauled and Coming
Intentional Corporation (CIC) was created as a separate legal entity and a subsidiary of CGW. The
separate international corporation was designed in part to emphasize the growing importance of
Corning’s overseas business, and that image of growth and separateness was strongly advocated
within CIC. The separate corporate status was intended, at least partially, to upgrade the role of
international managers and to help them feel more accepted within Coming.
The creation of CIC as a separate company, however, was insufficient by itself to change
relationships between senior managers in the parent company and the international corporation.
Within Coming, vice presidents in CIC (the area manager level) never really achieved the status and
importance of vice presidents in CGW (the product division manager level). Nevertheless,
relationships were generally cordial, even if contact between division managers and area managers
was infrequent. More regular contact was taking place both above and below this level of
management. Above, the president of CIC was pushing his key projects with corporate management
to win his share of company resources; and below, strong informal technical links had been
established between plant management and technical experts in the domestic product divisions.
Expertise, assistance, and advice were exchanged along these channels, sometimes being billed in
intercompany charges if a substantial amount of time or expense was involved.
Management Systems and Process until 1972
Before the international strategy shift of the mid-1960s, there was little need for elaborate
management systems or processes to control foreign operations. Minority positions did not have to be
consolidated for reporting purposes, so individual foreign affiliates could be left with their own
individual reporting and control systems. Without a majority share, CGW could not intervene in
operating issues such as global sourcing or manufacturing coordination, nor did it want to. Each
subsidiary operated as an independent entity, maximizing its own position. Following the strategic
shift of the mid1960s, however, the management systems and processes began to change. With the
decision to take majority positions in foreign operations wherever possible, financial results of these
operations had to be consolidated. This, in turn, required the integration of their accounting systems
into the parent company’s—a move that created some problems according to Bill Hudson, president
of the major French subsidiary, Sovirel, at the time of its consolidation:
When I first arrived in Sovirel, we were a nonconsolidated operation, and the
parent company really exercised very little direct control over us. Basically, they were
interested only in how much our dividend payment to them would be, and when
they could expect it. Otherwise, we were pretty much out of the corporate
information and control system. We did have our own internal information, control,
and planning systems, but they weren’t heavy and they were only for our own use.
But in 1969, when Corning’s equity share went from 49% to 73%, the whole corporate
information system was dumped on us. Everything was in English and in the
American accounting system format, so from a local standpoint it was hardly helpful
or meaningful to us at all. It couldn’t replace our existing systems, so we just ran the
corporate system in parallel.
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With the availability of regular standardized reports and the growth of a staff group at
international headquarters, controls on subsidiaries began to increase. Bill Hudson explained that
while the change in information systems was felt immediately, controls grew a little more gradually
and subtly:
Fast on the heels of centralized information came centralized control. We
would receive telexes from CIC in the United States stating that "by month’s end your
receivables will be at X number of days’ sales, and your inventories will be at Y level."
The availability of data tempted people back in Corning to second-guess subsidiary
managers.
Most controls were still in the form of personal contacts, however, rather than systems, since
the accounting system was more financial than management oriented. Behm, president of ClC, built
up a strong internal budgeting system and a management-by-objectives style. He would visit
subsidiaries regularly and review progress on financial goals set by the budget, and project goals set
by the individual manager with Behm. International’s budget was consolidated and presented to
corporate headquarters as a package, and although data were available on an entity basis, there was
rarely a line-by-line review at that level by corporate management.
The capital allocation process also changed as majority shareholding was taken in a foreign
entity. One country manager referred to it as "part of the colonization that accompanies majority
ownership." He explained that before consolidation the decision process used to consist of a meeting
of key local managers who could discuss and decide the issue among themselves, then go out and
raise the capital. Once the entity was consolidated, however, it was required to submit a formal
capital appropriation request form, prepared in English. This form had to be reviewed and agreed to
by the area manager who then passed it on to the president of CIC for his approval. In this phase,
several CIC accountants and technicians could be asked for their evaluation of the project. Once it had
Behm’s support, the request would pass to the corporate level where it would again be evaluated by
corporate controllers, technical advisers, and senior managers. Because there was no overall capital
budgeting system, as such, individual appropriation requests had to be sold on their merits and this
typically required the subsidiary general manager to "ride his request document through the system. "
One country manager observed that this allocation system also had other implications for the
management process between the subsidiary and the parent company: "Our relationship with
technical managers changed as a result. Whereas previously their role was simply to provide us with
assistance on projects we had decided on, they now became part of the judge and jury system to
decide if the project was feasible. As a result, they tended to become a lot more conservative with
their advice and assistance, since they knew their judgment was on the line with the project."
The acquisition of majority shareholdings also encouraged management to begin to
coordinate and integrate some of the foreign operations. The appointment of area managers provided
the structure to achieve this, at least at a regional level. Jack Allen, who had spent most of his 25 years
with Corning in plant management, division controllership, and corporate personnel positions, was
appointed area manager for Europe in 1971. He recalled that his major tasks at that time were to unify
and coordinate the European operations, and to integrate them into the parent company:
It was a difficult time in Europe. We were trying to bring under control a
number of long-established independent companies. Although tensions and rivalries
between Jobling in the United Kingdom and Sovirel in France were perhaps the most
extreme and best recognized, the lack of coordination and cooperation existed at
every level. The parent company in the United States was exporting into Europe as
were other Corning subsidiaries and affiliates as far away as Argentina and
Australia. Furthermore, each of the European companies had export customers and
often sales offices in several other European countries. When I became area manager,
Corning had 31 legal entities oper…
