Corning's Rings of Defense: A Survival Strategy That Grew Out of the Telecom Crash

When it comes to economic crisis, grizzled veterans like Corning have stared into the abyss before and lived to tell the tale. We look at how several giants are approaching today's meltdown with distinctive strategies for not only surviving but also thriving.

If anyone should be able to build a shatterproof fortress, it's Corning. But during the telecom crash earlier this decade, the specialty glassmaker for everything from medical devices to consumer electronics to cars saw revenue nosedive from $7 billion to $3 billion in 18 months.

<a href=Peter Volanakis" width="147" height="158" />Corning almost burned the village trying to save it. "We did a deep retrospective of what had happened and vowed never to let that happen again," says president and COO Peter Volanakis.

To prepare for the next economic upheaval, Corning's executive team, the same senior managers as during its epic fall, instituted an early-detection system to identify signs of trouble as well as four "operational rings of defense" to help it manage through a crisis in a measured, strategic way.

The first step? A good offense. Corning created its own market-research system, relying not just on its customers but also on its customers' customers, even checking stores to measure demand for the products it helps to create, such as LCD TVs. Corning also stockpiled cash, which enabled it to absorb a $400 million loss in the fourth quarter of 2008 without selling off part of its business, as it had to in 2002 to make a debt payment. And it helped that the company modeled worst-case scenarios and a response to each.

As trouble started brewing last summer, Corning implemented its first ring of defense: discretionary spending cuts, reduced production, and hiring limits. As things got rapidly worse through the fall, management quickly implemented the second and third rings: shorter work weeks in Europe and Asia, limiting its use of contractors and temps, and, finally, layoffs.

But as hard as it was to trim the staff by 13%, that was a far cry from the telecom crash, when it shed 21,000 of its 43,000 workers. This crisis feels more under control, the actions "more thoughtful," Volanakis says. "The shock cases that we have modeled are far worst than anything that’s going on now."

Most important, Corning has avoided the last ring, which would include reducing its $630 million annual R&D spending. Its lifeblood is new products, such as those it's aggressively pushing this year—scratch-free touch-screen glass for cell phones and laptops, smaller next-generation data centers, and a laser-light engine that turns a laptop into a projector.

"Over time we want to grow as a company faster than GDP, and that growth comes through new products," Volanakis says. "We're an R&D-based company. R&D is the absolute last thing we'd cut."

To read about how Cisco, IBM, Intel, and Schwab are weathering the current economic storm, be sure and check out "Through the Fire" in our June issue.

Read more of Fast Company's Recession Remedy series.

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  • Frank B. Leibold, PhD.

    I worked for Corning for 25 wonderful years. It was the most innovative, principled and community oriented company I have known. Its research prowess is well known: Corning Ware, Photochromic Glass, Auto Catalytic Coverters, Fiber Optics and Flat Screen LCD Glass, to name a few. To employees integrity and living the Corning values were paramount. During the 1972 and the Agnes flood it saved the city and improved it.

    I only wish them continued future success as they dig out of the telecom ditch.