Creating value from long-term bets
Corning’s CEO reminds us that big corporate
achievements rarely come overnight.
The argument for corporate longevity is quite simple: achieving something
strategic, significant, and sustainable almost always takes time. Longevity is
particularly important for innovation because time and sustained investment are
needed to solve really tough problems. To understand why, consider an example
from the history of my company, Corning.
This story begins in the mid-1960s. Phone carriers were in trouble
because their existing copper lines were being strained by the volume of
information. Physicists thought optical technology could provide a solution.
There were high-powered lasers, but no way to transport the light without major
signal loss.
So Corning stepped up to tackle that challenge. It was a highly
speculative project, and Bill Armistead, the company’s chief technical officer
at the time, was concerned about taking on such a long-term initiative when he
was facing pressure to deliver on existing projects. But he approved the
capital expenditure because the challenge seemed uniquely suited to Corning’s
capabilities, and he recognized that the technology had enormous potential.
Armistead assembled a team of three scientists, and they decided to pursue an
unconventional path—using strands of pure silica to transport the light. The
lead researcher argued to his colleagues that if you do the same thing everyone
else does, the best you can have is a tie.
One afternoon in 1970, about four years into the project, one of the
scientists was in the lab and decided to run another experiment before leaving
for the weekend. He treated a strand of fiber, lined up the laser, examined it
under the microscope, and the light hit him right in the pupil. It was
literally and figuratively an eye-opening experience.
That was the pivotal moment in the
development of optical fiber, as evidenced by the scientist’s highly
technical entry—“Whoopee!”—in his lab journal (exhibit). Of course,
fiber didn’t proliferate until two decades later, because we needed to develop
effective manufacturing processes and the right infrastructure. Today, more
than two billion kilometers of optical fiber have been installed worldwide, and
a single fiber can transmit the entire collection of the US Library of Congress
from Florida to London in less than 25 seconds. This life-changing invention
would not have been possible without a long-term focus and sustained
investment—a pattern that has repeated itself throughout Corning’s history. We
lost money on LCD glass for 14 years before it became an overnight success.
Today, that business accounts for about 65 percent of Corning’s profits.
Corning is often questioned on its R&D investments or urged to shed
businesses that aren’t delivering double-digit growth in the current year. For
example, during the fiber boom in the late 1990s and early 2000s, investors
encouraged us to shed most of our business segments and become a
telecommunications-focused company because that appeared to offer the most
potential for growth. Does anyone recall what happened to the telecom industry
in 2002? As someone who watched his company’s net income drop by 70 percent, I
sure do. Fortunately, we didn’t follow this advice. We maintained our diverse
businesses and our investment in R&D, which not only drove Corning’s next
growth surge but also led to breakthrough innovations in LCD glass, fiber to
the home, clean-air technologies, and more. I am not saying that we can neglect
our responsibility to create value for investors, but we must recognize that
the greatest value often comes from our longer-term bets.
I’m a capitalist. I believe capitalism is the best tool to allocate
resources and drive progress efficiently. But we can continue to evolve and
improve that tool to create more paths to success. The metrics that emphasize
near-term results were developed for a world in which capital was scarce;
today, we’re awash in capital.
I believe we can create a more balanced approach, between near-term
payoffs and long-term investment. As investors, we need to expand our notion of
value and broaden our horizon for value creation. As leaders, we need to keep
challenging ourselves with questions. What is our unique contribution to the
world? How can we be the best in the world at what we do? How do we focus so
that we spend at least as much time managing talent, which is scarce, as we do
managing capital, which is plentiful? And how do we continually create better
versions of ourselves? As directors and trustees, we must understand and
embrace the organization’s mission, hold leaders accountable for executing
strategies that advance it, and support them through periods of volatility.
Finally, as
individuals, we need to ask what we value. What kind of world do we want? What
organizations are creating that world? And what sacrifices do we refuse to
make? Otherwise, we could sacrifice valuable institutions and lose our
opportunity to tackle challenges that generate the greatest progress and
improve our quality of life.
February 2016 | byWendell P. Weeks
By Wendell P. Weeks
http://www.mckinsey.com/insights/leadership/creating_value_from_long_term_bets?cid=other-eml-alt-mkq-mck-oth-1602
No comments:
Post a Comment