Johnson & Johnson
Company Overview
“We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services.” [1]
As the first line in Johnson & Johnson’s values-driven Credo dictates, the company creates and captures value for a wide variety of customers. Guided by a central core philosophy of advancing the health and well-being of people around the world, Johnson & Johnson estimates that the company touches more than a billion people a day through their broad array of health care products and services. The diversified health care giant operates in three business segments through more than 265 operating companies located across 60 countries. The three business segments, Medical Devices, Pharmaceuticals, and Consumer HealthCare, are each comprised of franchises and various therapeutic categories. [2]
Business Model
At the core of the business model, J&J delivers innovative products and services to its customers fulfilling a variety of their needs across the medical device, pharmaceutical and consumer healthcare areas. J&J’s business model is reflected most notably in its M&A strategy and subsequent integration approach. As stated by Bill Cordivari, former J&J executive, following the announcement of Alex Gorsky as CEO, “The business model that Johnson & Johnson has followed for many years is a business development model. They find assets and bring them in.” [3] Following an acquisition, J&J allows the acquired company to remain separate and decentralized. As a result, J&J consists of several decentralized operating companies allowing each company to effectively provide value to their respective customer base. [4]
From a performance standpoint, J&J’s diversified business model has allowed for insulation against downturns in particular markets. For example, in 2014, revenue increased 4% to $74.3 billion, largely due to 15% growth in the Pharmaceutical segment which offset declines in the Consumer and Medical Devices segments for the year. [2]
Operating Model
As stated in the company’s 2014 Annual Report, “The Johnson & Johnson operating model is comprised of four concepts: being broadly based in human health; managing our business for the long-term; taking a decentralized approach to management; and focusing on our people and values.” [2]
It is the concept of decentralized management that I believe underlies J&J’s operating model. For example, J&J’s organizational structure and governance consists of an Executive Committee of Johnson & Johnson acting as the principal management group responsible for all strategic operations, a Group Operating Committee of managers representing critical operations and specialized functions overseeing companies related to each of the business segments, but lastly, in line with the concept of decentralized management, senior management at each of the operating companies responsible for their own strategic plans, as well as the day-to-day operations. [5]
The decentralized management approach stems from J&J’s belief that leaders, those closest to customers and patients, can best understand and address their respective customers’ needs. [6] This approach allows the independent companies and managers to apply strategies and operating models that best adapt to their customers’ needs, therefore allowing J&J to effectively deliver create and capture value to all their customers.
Conclusion
The alignment of Johnson & Johnson’s business model and operating model has been key to company’s 100-plus year’s of success. J&J’s operating model focused on decentralized management allows the company to effectively deliver on its business model – one focused on providing value through a diversified set of products and services to a variety of customers. As a recent example, decentralization has been critical to J&J’s success in global expansion. The company’s R&D centers in developing countries have been able to develop products based on local insights and customer needs, and therefore, are expanding J&J’s current product offering to meet the unique needs of the emerging market population. With a tightly aligned operating model and business model, J&J will continue to improve the health and well-being of billions of people around the world through their diversified products and services.
Sources
[1] Johnson & Johnson, Our Credo; http://www.jnj.com/sites/default/files/pdf/jnj_ourcredo_english_us_8.5x11_cmyk.pdf
[2] Johnson & Johnson 2014 Annual Report; http://www.jnj.com/sites/default/files/pdf/jnj_ourcredo_english_us_8.5x11_cmyk.pdf
[3] Johnson & Johnson’s choice of Gorsky as new CEO reflects importance of Synthes deal, Susan Todd; http://www.nj.com/business/index.ssf/2012/02/johnson_johnsons_choice_of_gor.html
[4] Interview with Jesse Wu, Worldwide Chairman, Johnson & Johnson Group of Consumer Companies, McKinsey & Company
[5] Johnson & Johnson website, Company Overview; http://www.investor.jnj.com/company-overview.cfm
[6] Johnson & Johnson Company Fact Sheet; https://www.jnj.com/sites/default/files/pdf/Johnson-Johnson_Factsheet_May%202013.pdf
Really interesting post! I’ve been exposed to J&J mainly through their pharmaceutical arm, and their strategy of growing largely through M&A is one I’ve definitely picked up on. I’d be interested to know how the productivity (as measured by new innovation/product introduction) of their target firms changes once they have been rolled up into such a large corporation, and if the decentralized management strategy is able to keep the level of innovation high.
Great post! Decentralization certainly allows for greater flexibility in business and operating models unique to each division, product and geography. How does J&J maintain a strong strategic vision across all its business units and how are they able to steer the company effectively given their decentralized management style. Additionally, it sounds like R&D is somewhat decentralized as well–how does J&J manage the information and capital flow for large-scale research and innovation opportunities? Does decentralization limit J&J’s ability to innovate on a large scale across business units (rather than incrementally within business units), or do they solely focus on increasing their product portfolio through acquisitions?
Great questions! As we have seen in many of our TOM cases, there are certainly tradeoffs made when making key operating model decisions. Although J&J operates in a highly decentralized environment, R&D is centralized by therapeutic areas which allows them to innovate on a large scale rather than within siloed operating companies. Additionally, J&J has recognized the importance of maintaining a strong mission across its over 200 operating companies through its 70-year-old Credo. The Credo is displayed in every conference room across J&J facilities around the world and acts as a north star for all decision-making. As for more specific strategic visioning, J&J senior management at the corporate level set out established company-wide strategic pillars by which each operating model then conforms its specific strategy.