Jim Flaws, CFO of Corning spoke at CFO Magazine's Corporate Performance Management conference today. He presented lessons learned as his company rode the wild wave of telecom enthusiasm and bust.
In 1996 Corning spun off its healthcare and consumer products division (50% of sales) in order to focus on communications and display technologies. This proved to be a risky gamble. As telecom rapidly expanded in the late 1990s Corning's sales of fibre optic cable and stock performance soared. Then the telecom industry imploded and most of the cable capacity that was built was never used, resulting in a 75% price reduction of Corning's key product. Flaws observed that kite string became more expensive than fibre optic cable! Needless to say, Corning's stock tumbled. The company was bleeding cash and debt repayments were looming.
Under new management (actually the old CEO returned) Corning turned itself around by focusing on three key priorities:
- Restoring Financial Health – Corning maintained a billion in cash and increased their lines of credit while simultaneously driving down costs (see Return to Profitability, below). They sold smaller, well performing, businesses in order to pay down debt. The key to their financial transformation was open, on-going dialog with their bankers, the rating agencies, and financial markets.
- Returning to Profitability – Corning reduced its workforce by more than 50%, froze salaries, and close 4 out of 5 optical fibre plants in order to reduce fixed costs. They slashed costs on all but the most essential activities and introduced 6 Sigma performance improvement programs.
- Investing in the Future – Corning continued to invest in R&D in three strategic areas: large sized LCD displays, diesel environmental control technologies, and fibre designed especially for the last few meters connecting households with digital networks.
Some highlights from Jim Flaw's remarks:
- Scenario planning is key "imagine the unimaginable"
- At Corning, the Treasury department takes a proactive stance evaluating the financial viability of its customers' business models. If the buyers seem to be on shaky ground, then Corning needs to rethink its projections.
- Beware of hedging. Although it is prudent to hedge risks in order to prevent disaster, Jim Flaws believes it is the CFOs role to ensure that the company does not become too conservative.
- CFOs must play a "devil's advocate" role and ask challenging questions about potential investments.
- Continued R&D investment is critical to position the company for future growth in emerging markets.
- Integrity is key: Corning had to prove to its shareholders, Wall Street, bankers, and ratings agencies that it would follow through on its plan to restore the company's finances. With each step forward they gained the trust and confidence of their investors.
This has been a dispatch from CFO Magazine's CPM Conference in Chicago
Other posts in this series:
- Corporate Performance Management
Wal-Mart & Sustainability
- Competing on Analytics Redux
- Aligning Compensation to Drive Performance