Johnson & Johnson (JNJ)

Company: Johnson & Johnson

Website address: http://www.jnj.com/

Industry: Medical Equipment, Pharmaceutical

Background and History of Company

Johnson and Johnson (JNJ) is a US-based cosmopolitan manufacturer of medical equipment and diagnostics, pharmaceutical as well as consumer packaged products. It was established in 1986. Its headquarters is located in New Brunswick, New Jersey. The establishment has 250 subsidiaries, has operations in over 60 nations with its products being sold in over a 180 countries worldwide. The organization and its subsidiaries research, develop, manufacture, and sell healthcare products. JNJ faces stiff competition as the industry is dominated by large and strong businesses. The major competitors include Merck & Company Inc. and GlaxoSmithKline. Presently, JNJ commands 7.7% of the market. Competition in the industry is huge and continues to rise as patents expire, new markets emerge, and as the generic producers enter the market. According to R&D investments, firms compete majorly on product invention (“Frequently Asked Questions”, 2015).

William C, Weldon was the chair and CEO of the company between 2002-2012, then Alex Gorsky took over until present. In 2014, JNJ had total sales of 74.3 billion dollars, with a net income of 16.3 billion dollars. The company’s corporate structure is founded on a decentralized management ideology. It operates in the three segments, with the Central Executive Committee allocating resources and setting strategic priorities for the segments. In 1982, the company had one of the huge recalls in the American history when it recalled 31 million bottles of Tylenol, after the scare that killed 7 people from taking the cyanide laced drugs (“Frequently Asked Questions”, 2015).

Five Forces Analysis

Bargaining power of suppliers (Low)

  • Products needs standardization
  • Suppliers compete among themselves
  • Low cost of switching suppliers
  • Difficulty for suppliers in creating increased value for the products
Bargaining power of customers (Low)

  • The products are important to customers
  • Large customer base
  • Buyers need special customization
Core competencies of JNJ

  • Is an industry leader
  • Valued brand name
  • Large industry size
  • Fast growing industry
Threats of substitute (High)

  • The substitute is lower quality
  • Threat of substitute is high in the pharmaceutical industry
  • Substitutes are unpopular and rare (e.g. herbs)
Threat of potential new entrants (Low)

  • Capital requirement is high
  • Has a strong distribution network
  • Industry require economies of scale
  • Entry barriers are high
  • Production processes take longer and requires advanced R & D
  • Strong brand names are paramount

Strategy Used

Johnson & Johnson is interested in producing products as well as technologies that have a wide addressable market with distinctively defined competitive advantages. R&D and investments must be supported by an executable clinical commercialization strategy with a clear a clear way to outlining and maintaining a leading market position and balancing the competitive advantages to increase market dominance and revenue growth. A company’s competitive advantage evaluates its business, focusing mainly on its ability to increase returns on capital and link the business strategy with principal finance and the main markets for a longer period, since there is a genuine concern for the permanence of the company on the market (Lamster, 2008). The Porter’s generic strategies demonstrate how a company follows its competitive advantage across its market dominance. JNJ chose to differentiate itself along the lines valued by its customers to become a leader in the industry. As such, the company applied a cost leadership strategy.

Related Diversification

Related diversification occurs when a company adds or extends the prevailing line of production or the existing markets. In this strategy, the company begins producing a new product or enters into a new market that is closely associated with its business activity. This makes it very easy for the company to utilize its resources and technology to produce related goods or services. JNJ applied related diversification by entering into pharmaceutical related business. The company started as a pharmaceutical manufacturing company, but it has diversified to medical equipment and diagnostics as well as consumer products manufacturing, which are both related. It now operates under the three separate divisions. The related diversification has proved highly successful for the company as it has seen it grow to become the largest multinational health care service company, mostly through the acquisition of other healthcare manufacturers along the three segments. The strategy has also provided the company with added advantages, which includes the provision for sharing resources. The company shares all kinds of physical and non-physical resources and it can use the same trademark. Integration of marketing strategies of related businesses comes with benefits, and the integrated efforts bring additional competitive advantages. For example, in the past, the company had combined the skills of pharmaceutical engineers with that of medical equipment engineers to come up with ground breaking products that cannot compete with any others on the market.

Related diversification is less risky and it does not need much investment. It also fits well with the life cycle of the industry as the industry is dynamic, competitive, and it needs improvement of technology since new diseases come up that require treatment. JNJ felt secure with the strategy as it understood the threats and opportunities in the industry. Some other companies can apply this strategy, but a number of them may fail to provide the original predicted returns because their diversification analysis may underestimate some issues or may overestimate the expected gains (Dess, Lumpkin, & Eisner, 2012).

Creating Ambidextrous Organization Designs

This strategy involves creating an organization with an ability to manage its present business efficiently and also adapt to coping with future changing needs. This requires the company to employ both exploration and exploitation tactics to be prosperous. The companies that have successfully balanced between exploration and exploitation have been described as being ‘ambidextrous’. These organizations develop different units that have their own distinct processes, cultures, and frameworks that are particularly designed to support early-stage innovation. The units, with their innovation teams, are based in the parent organization but they support the processes required when opening a new business (Dess, Lumpkin, & Eisner, 2012).

The executive leadership at Johnson & Johnson has applied the ambidextrous organizational model to develop separate business units for conducting research and development of products and services, but at the same time, maintaining the existing business units intact. The teams within the separate units are encouraged to carry out their R & D processes, but they are still linked to the parent company through executive committees who make sure that organizations goals and image are upheld, while there is no conflict or competition that can threaten the company. The strategy fits well in the highly technological dynamic pharmaceutical industry, and most companies can apply it, although it comes with many risks including compromised standards of products (Brookfield, 2003).

Recommendation

The aim of Johnson & Johnson should not be to have a short-lived dominance over its competitors, but to maintain a sustainable competitive advantage. Studies have shown that the companies that choose between differentiation or low cost, and those that do not make a clear choice are more often left hanging between. As a result, JNJ should apply all means of strategy so as to maintain a competitive advantage. It should mix unique values developed by different strategies rather than rely on a single strategy; this is best described as a hybrid strategy (Johnson, 2015).

Opinion

As for the case study, the problems were caused by diversification, the huge margin as well as a lapse in management. This may be avoided in the future by reducing the autonomy of the subsidiaries, although this may affect the entrepreneurship spirit of the company.

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