Strategic Management: Case Study 黃延聰

Department : Master of Business Administration (First Year)

Case Title : Case Study of Diversified Company: Johnson and Johnson
Group Number : 10
Group Member : 莫鑫沙 U0611029

梁美芳 G05410706
龔莉君 G05410708

Brief Introduction of Johnson and Johnson

Johnson & Johnson (J&J), an American-based multinational firm is one of the
successful diversified companies with three main business units: consumer products,
pharmaceuticals, and medical devices. Founded in 1886, the company now is listed among
the Fortune 500. Headquartered in New Brunswick, New Jersey, the company has 250
subsidiary companies with operations in 60 countries and products sold in over 175 countries.
The company has cultivated a strong corporate culture based on a common mission: To help
people everywhere live longer, healthier, happier lives.
J&J consumer segment includes baby care, skin care, oral care, wound care and
women's health care fields, as well as nutritional and over-the-counter pharmaceutical
products. The pharmaceutical segment sells prescription drugs including Concerta for
attention deficit disorder, Remicade for arthritis, Prezista for HIV/AIDS, etc. The medical
segment provides products used principally in the professional fields by physicians, nurses,
hospitals, and clinics.

1. Industry, Strategic Motivation, and Competitive Advantage

J&J has a long history in medical equipment and pharmaceuticals since the
establishment. Initially, the company focused on direct marketing of prescription drugs to
hospitals, pharmacists, and doctors. Until 1960, the company started to sell drugs without a
prescription to consumers. Over the years, the company has developed a broad product range
in these three business groups and each of them is large enough to be the industry leader. The
key of J&J success is diversifying within a single industry which enables the collaboration of
the business units to address unmet health care needs. It has utilized the related
diversification strategy wisely in expanding its business. Related diversification is the process
expanding the business into product lines that are similar to those it currently offers.
Basically, a diversification strategy is executed because it can reduce risks. J&J decided
to diversify within the related industry is because of it has the access of the common research
and development (R&D) and new product capabilities. Thus, the R&D department can share
skills and exchange know-how. Having a diverse portfolio of health care businesses, the
company can serve the customers through their lifetimes starting from baby products to adult
skin care products. This strategy helps J&J to achieve competitive advantage as follow:
 Strong corporate culture
Driven by the company's vision and support from top management, employee diversity
has become one competitive advantage for J&J supported by various programs and
activities like affinity groups, mentoring programs, diversity university, etc. Employees
are encouraged to work in different divisions and roles so as to develop broadly.
 R&D and Innovation
J&J has strong and well-equipped R&D network, state-of-art technology, huge
investment capacity, world-class research facilities, highly productive small team
settings, and sound scientific methods. The medical devices and pharmaceutical
Strategic Management: Case Study 黃延聰

segments benefit from a research and development competitive advantage. Johnson &
Johnson's large size gives it a bigger research and development budget than its peers. The
company spent $8.5 billion on research in development in 2015.
 Credible product quality
Safety, comfort, and gentleness have always been a top most priority in J&J products.
Instead of soap or alcohol it uses various harmless chemicals, and its products go through
rigorous clinical testing to ensure the highest standards in baby care.
 Powerful brand value
J&J has a history of 120 years of operations which has been trusted by doctors, nurses
and parents around the world. The company has been involved in many CSR activities
like - supporting International Youth Foundation for HIV/AIDS prevention program in
Africa, child center in India, educating the people and providing handful tips regarding
healthy and safety living, caring babies, and healthy environment. It also enhances the
brand value through economies of scale in advertisement.
 Extensive collaboration
The company has excellent connections with suppliers and governments around the
world. The company can keep input costs low by buying in far larger quantities than
competitors can. The ability to work across company and countries has helped J&J to
produce most comprehensive and broad health care products, which has made them
unique in the market.

2. The Strategy Used for Diversification

 Internal Development
Internally developed resources and units were more likely to be retained: indeed, stable
internally created units, where business routines were most understood, were the most
common sources of innovations. The underlying message of these evolutionary patterns
is that innovation stems from maintaining a deep understanding of organizationally-
embedded routines, while undertaking careful ongoing redefinition of unit and firm
boundaries.
 Acquisition
Johnson and Johnson's strategy throughout the past decade has been the acquisition of
companies around the globe. This enables J&J to offer a wide variety of products and
services, thus creating a diverse organization in consumer, pharmaceutical and
medical/diagnostic products.
The company commonly looked beyond its boundaries for new resources, acquiring most
of its product lines and units during the period, and actively reconfiguring most acquired
units in attempts to create new value, rather than simply leaving them to operate within
their original boundaries. In addition, unit reconfiguration commonly preceded product
line movement across unit boundaries, providing evidence of the embedded nature of
resources within structure.
Based on Crunchbase, there are 21 companies acquired by J&J up to date 2017.
 Strategic Alliances
Strategic collaboration with Google, Inc., working with the Life Sciences team on
advancing surgical robotics to benefit surgeons, patients and health care systems. The
companies will bring together capabilities, intellectual property and expertise to create an
innovative robotic-assisted surgical platform capable of integrating advanced
technologies with the goal of improving health care delivery in the operating room.
Strategic Management: Case Study 黃延聰

3. Managing the Overall Corporate Portfolio

Johnson & Johnson Development Corporation (JJDC) is the venture capital subsidiary of
Johnson & Johnson. JJDC is comprised of experts and leaders in the health care and
technology venture communities who identify early market indicators, health care trends, and
strategic investment opportunities. Unlike traditional venture capital firms, it determines the
success of an investment’s performance not only in financial returns, but also in the viability
of providing strategic growth options for Johnson & Johnson.
JJDC plays an integral role in the identification of new business opportunities outside of
Johnson & Johnson’s traditional portfolio and market presence. JJDC identifies new market
opportunities and develops new businesses in emergent health care sectors while also creating
support venture investments in alignment with the strategic objectives of Johnson & Johnson
operating companies.

4. Managing Individual Businesses

J&J tends to manage its business units with close communication and collaboration instead
of direct corporate involvement. Under the principles of J&J Strategic Framework, businesses
operate under a decentralized operating model, providing those business units with autonomy
to make decisions that reflect the demands of the markets they operate within. As a result,
each J&J company has different business models, markets or geographies.
In order to monitor the individual business units, J&J sets compliance requirement within its
global Policy on Business Conduct and communicates it across J&J. Each business and all
senior leaders must certify compliance with Policy on Business Conduct annually, and results
are reviewed by the Corporate Secretary’s Office, Internal Audit and the Board’s Regulatory,
Compliance & Government Affairs Committee.
Also, J&J has successfully developed strong culture and values embodied in Our Credo
which is the spirit for all business units to operate with the highest standards regarding its
employees, the environment, the patients and consumers, and all other stakeholders.

5. Managing Linkages across Businesses

In managing linkages across its businesses, Johnson & Johnson Global Services, the global
shared services organization supports the businesses of J&J by performing select functional
work in a consistent manner across regions and sectors using simplified, standardized end-to-
end processes and state-of-the-art technology. The vision of Johnson & Johnson Global
Services is “to be trusted business partners who deliver increasing value by creating and
sustaining globally standard world-class services that enable the power of J&J. Employees
within Johnson & Johnson Global Services find opportunities to learn, grow and succeed as
they support the Johnson & Johnson businesses in their region and stay connected to a global
team with shared values and a clear vision.
Besides Johnson & Johnson Global Services, J&J also launched its Global Finance Services
to provide high-quality and cost-effective transactional processing and financial reporting
services for J&J’s global governance, executed at global, regional and country levels. GFS
provides the human-resource and procurement-services requirement, aside from finance
services requirement of J&J branches in Asia, the US and EMEA (Europe, the Middle East
and Africa), as well as Australia.