CASE STUDY: JOHNSON AND JOHNSON
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JOHNSON & JOHNSON Case Study
Johnson & Johnson has been listed as one of the most admired companies for many years. Whereas this reputation has made it easier for J&J to continue to attract high-quality talent to its various operating units, , J&Js CEO, wondered if the organizational structure and management style that has elicited this praise is now getting in the way of helping to develop the synergies that
may be necessary to maintain the company’s global expansion. noted in his report to the stockholders in an Annual Report that “our objective continues to be to make Johnson & Johnson the best and most competitive health care company in the world.”
He went on to note that this goal would have to be achieved while facing “more tough competition than we have today in every field in which we compete. This is true not only in the United States, but in every important market overseas.
J&J has experienced significant growth in recent years. Sales increased from just over $8 billion in 1987 to more than $15.2 billion in 1994. Net income increased at an even faster rate, from $833 million in 1987 to $2.0 billion in 1994. But worried that the 168 separate subsidiary companies that make up J&J were too decentralized. In an article in , noted that “decentralization is the heart of Johnson & Johnson.” The article summarized that: “With decentralization you get tremendous speed at the local level, but you’re slower when you need to sweep across continents.”
felt that company growth was partly the result of a management decision made early in the company’s history. realized in the 1930s that the company had to find ways to foster entrepreneurial spirit among its managers to be able to keep ahead of competition in the various geographical and product markets in which J&J operated. To help achieve this objective, management organized J&J in a highly decentralized manner.
Since early on, Johnson & Johnson has sold its products in most countries of the world and operated manufacturing facilities in 50 countries. Wherever possible, J&J recruited managers from the country in which the operation was established. J&J had also followed a policy of looking to any sources for new and improved products. The company had entered into a string of joint ventures with both large and small companies since the beginning of the 1980s. One of the most successful was a licensing agreement with a Danish manufacturer that had developed a process for producing inexpensive contact lenses. The technology was further developed by J&] researchers. The results were the successful introduction of Acuvue, J&J’s trade name for a line of disposable contact lenses, which eventually turned into a worldwide line of products. The company continued to expand the uses and production of these products, resulting in an increased share of the contact lens market.
became CEO of J&J in April 1989. He acknowledged in the Annual Report that year that the company owed a debt of gratitude to his predecessor, . The manner in which J&J top management reacted under ’s leadership to the poisoning of some Tylenol capsules after they had left the factory constituted a commendable model for corporate crisis response. It also earned the company top marks for its corporate communications. J&J immediately recalled all Tylenol products, responded publicly to all questions and concerns, and set up hotlines and consumer response systems at all levels of the company. This rapid and open response by the company led to the reestablishment of Tylenol as the leader in the area of analgesic medicines within a short period.
Both and noted that their actions were based on the company Credo that was prepared in 1956 by Johnson, son of the company’s founder. According to a article “the Credo .. . .a 309 word statement.... stresses honesty, integrity, and putting people before profits.” The article went on to state that “What’s unusual is the amount of energy J&J’s high executives devote to ensuring that employees live by those words.... On his globe trotting tours, Larsen never fails to mention its ideals . . .
In the late 1980s, J&J embarked on a quality improvement process which called for the training of people at all levels of the organization in the concept of total quality for the company. Part of the training was done at the job site. The company also established an education and conference center at its corporate headquarters in New Brunswick (New Jersey), in order to provide centralized training activities. Finally, entered into a cooperative effort with Duke University, where it established the Johnson & Johnson Operations Institute. As noted, “We are sending managers there to benefit from the most advanced thinking in manufacturing and distribution technology.”
realized that all these factors had placed J&J in a healthy position. The Fortune article ranking the firm as the sixth most admired company in the United States also placed the pharmaceutical industry highest among all domestic industries. The same article noted, however, that the number-one ranked firm overall was another pharmaceutical manufacturer, Merck. The article noted that Merck “leaves number 2 (J&J) in the dust - Moreover, several other large pharmaceutical firms were close behind J&J in the rankings.
The company continues to press ahead with its Quality Improvement Process at each subsidiary. The challenge facing Larsen is to continue the commitment of the firm to improving its employees and the environment at the same time as it maintains its position in an extremely competitive industry. And, all of this has to be implemented while governments around the world are bringing increased pressure on the industry to control costs in the delivery of health care for their citizens.
When confronted by the high overhead and low integration that the decentralized organization structure placed on the company, asked the various managers to provide recommendations to improve their cost structure. A pro posed solution was to implement global product managers to provide integration within product lines. The question remaining was whether similar solutions could be developed to provide integration across product lines as well. This appeared to be much more of a threat to subsidiary autonomy and entrepreneurial spirit. employed a cadre of roving auditors and product quality checkers within the company, believing that this helped company management to be more tolerant of their subsidiary managers. However, pressed his presidents to hold the line on hiring, which also placed pressure on advancement for promising, young managers. Some envisioned a slimmed-down company where it would be more difficult to advance rapidly within their own units. Since it was difficult to transfer between companies, let alone divisions, this placed a constraint on the ability of the company to recruit and retain highly qualified managers.
1. What are the environmental pressures facing Johnson & Johnson today?
2. How do you evaluate the changes in quality management Johnson & Johnson made to adapt to
3. What operations changes have Johnson & Johnson management made to gain competitive
advantage in its environment?
The case study was taken from . 1996, , (5th edition),
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