Johnson & Johnson

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Successfully Strategizing for the Changing Global Business Environment

April 27, 2009 IBE – D

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medical devices and diagnostics. this paper seeks to explore the complex multinational environment within which the company operates as well as the opportunities and threats that the environment poses. the company has been profitable for 75 straight years and currently operates 250 subsidiary companies in 57 countries.200 people worldwide and sells its products in 175 countries. with 25%. A truly global corporation.Kara Findley Emily Manz Alex Thompson I. as well as take advantage of the opportunities presented. the paper will analyze Johnson & Johnson's current positioning. Next. with 39% of total sales. The paper will close by evaluating how Johnson & Johnson both can seize these opportunities to realize the goals of the company. and consumer products. 2 . the company employs 119. Founded in the United States in 1886. Introduction Johnson & Johnson is the world's largest healthcare company. With a focus primarily on Johnson & Johnson’s pharmaceutical segment. Additionally. Its products fall into three segments: pharmaceuticals. Johnson & Johnson has securely positioned itself to overcome the challenges its ever-changing business environment poses. with 36%. describing its value-chain and competitive positioning.

are extremely high if not unsurpassable.II. Due to a lack of available information about the bargaining power of suppliers as it applies to Johnson & Johnson. The two sets of external forces that face the company are competitive and contextual. especially in the industries of pharmaceuticals and medical devices. 1. These top firms also have patents that 3 . it is important that it understands the environment in which it is operating. the threat of substitutes. as well as adapt to those changes. the bargaining power of customers. Analyzing the Environment In industries as competitive as pharmaceutical. The world’s top pharmaceutical companies have extensive manufacturing capabilities. Barriers to entry. A. The Threat of New Entrants – High Barriers to Entry The threat of new entrants is not of particular concern to Johnson & Johnson. this paper will address the four other forces: the threat of new entrants. analyzing the environment is vital for being able to make sound strategic decisions. medical devices and consumer goods. Since Johnson & Johnson strives to anticipate the external factors that affect its international business environment. distribution systems. Competitive Environments – Five Forces Model Michael Porter’s five forces model provides a way of analyzing Johnson & Johnson’s competitive environment. and economies of scale that have been built up over decades and would be virtually impossible for a new entrant to replicate. and the rivalry among industry competitors.

Finally. face an influx of upcoming patent expirations. The Threat of Substitutes – The Rise of Generics The threat of substitutes is much more problematic than that of new entrants. In fact. thus a strong brand name is vital for standing out. was a significant source of profits. The Food and Drug Administration (FDA) requires that generic drugs be bioequivalent to their brand name counterparts.2 billion. they have strong brand names and large marketing budgets with which to defend them.800 jobs. Johnson & Johnson included. the company’s revenue from pharmaceutical sales stagnated. As the world’s most respected company according to Barron Magazine. making them serious substitutes. Also. as well as established research pipelines that ensure the continual development of new products. it will face more negative consequences. 4 . the vast number of competitors makes this industry very competitive.5 billion in 2005 and surged 21% percent in the first quarter of 2006. If the company does not prepare for the difficult transition between enjoying market exclusivity and losing that security as those patents expire. especially in the pharmaceutical segment.protect their current products. For example. Virtually all the top pharmaceutical companies. Johnson & Johnson announced plans to eliminate up to 4. The impending loss of sales when generic versions of the drugs inevitably become available is a serious threat to the profitability of many players in the industry. Risperdal. citing patent expirations as the main motivation to trim the workforce and thus save money. 2. a drug for schizophrenia made by a subsidiary of Johnson & Johnson’s called Janssen-Cilag. generic manufacturers are quick to reverse-engineer the formerly proprietary drugs and sell generic versions at a fraction of the cost. However. to $1. with sales that totaled $3. While entering the consumer goods market is easier. relatively. The medical device industry has similarly high barriers to entry. Once a patent expires. in July of 2007. new entrants to the consumer goods market do not pose a threat to Johnson & Johnson. when the patent for Risperdal expired in December of 2007 and became available in generic form in October of 2008. the exceptionally high capital requirements for founding a pharmaceutical company and the sharp retaliation that new entrants could expect from the established competitors render the threat of new entrants very low.

When drugs are patent-protected. as they decide which drugs to endorse and provide. The Bargaining Power of Buyers – Influence of Generics In the pharmaceutical industry. they exert a strong downward pressure on drug prices. mergers and acquisitions have increased rivalry. customers have little choice but to pay these prices. Since they have an interest in lowering costs.3. have more power than patients. pharmaceutical companies have a need to establish successful relationships with these groups and market towards them heavily. once cheaper. 5 . insurance companies and health maintenance companies (HMOs) have considerable bargaining power. especially if their lives depend on the drugs. The Degree of Rivalry – Fierce and Changing Competition Competition in the pharmaceutical industry is intense and growing in intensity. while fragmented. partly due to the threat of the availability of generics. and other health authorities. if not higher due to strict price controls. buyers include patients. The bargaining power of patients goes hand in hand with the threat of substitutes. and price-sensitive buyers will likely switch to generic versions once available. European governments’ national healthcare systems have a similarly high level of power. Johnson & Johnson’s main tool in combating this problem is its strong brand name. pharmacists. hospital boards. While the numerous competitors remain fairly fragmented. insurance companies. However. Within the American healthcare system. Many customers have more trust in brand name products and are willing to pay extra for this perceived security. medical doctors who prescribe drugs. Since there are few to no substitutes for their products during this time. are fairly low. 4. generic versions of the drugs become available. pharmaceutical companies enjoy a monopoly where they can set prices to include high profit margins. The other groups within buyers of pharmaceutical products. Patients’ switching costs. an important element in determining the bargaining power of buyers. Thus. buyers gain more power.

and have lower overhead costs than their conglomerate competitors. B. are growing in power and taking market share. While the main competitors in the pharmaceutical industry are concentrated in the United States. Also. Since “me too” drugs are not as profitable. such as the pain reliever segment. Rivalry is especially intense in saturated markets. innovation drives the race to be first-to-market. Economic. and Technological) analysis is a useful tool for understanding the larger environment within which the company operates. stakes are high to find the cash cow drugs that recuperate the increasingly high costs of development. numerous biotech upstarts. which are smaller. an increasing number of players – especially generic drug manufacturers – are appearing in developing countries. Contextual Environment – PEST Analysis A PEST (Political. the established companies will find themselves facing stiff competition from all sides. These companies are driving the shift in the industry toward becoming more commoditized. such as China and India. Europe. In growing markets. Social. As the dynamics of the industry change. 1. Companies can use this tool to identify a multitude of important aspects of their environments that may impact their businesses. and Japan. Political Environment – Changing Politics and Policies 6 . in which Johnson & Johnson competes with its products Tylenol and Motrin. With only one out of every 10.000 discovered drugs approved to be sold. innovation is a key driver of competition since pharmaceutical companies depend on “blockbuster” drugs for a large proportion of their revenue.as the top firms’ areas of expertise began to overlap. more agile.

In respect to the Johnson & Johnson branch in the Czech Republic. and certain aspects of working in the Czech Republic may still be affected by this history. Also. and fortunately. the company has been able to plan for its impact. Though the Czech Republic has embraced free market principles since the fall of the Soviet Union. as medical products remain necessities even in periods of economic downturn. the politics on local. planned economy to the free market. Since Johnson & Johnson operates worldwide. Economic Environment – The Crisis and the Euro The economic climate is also important for Johnson & Johnson to analyze in order to predict when its business may face challenges. Finally. Johnson & Johnson should be aware that the Czech Republic has a weak Parliament that will change in 2010’s elections. Finally. in the Czech Republic. For example. 2. national. the effects on Johnson & Johnson have not been severe. Johnson & Johnson should be aware that the Czech Republic will serve as president of the Council of the European Union for the first six months of 2009. This is the best time for the Johnson & Johnson branch located in the Czech Republic to lobby for any policy changes regarding the company’s interests and the business environment. as well as when it can seize an opportunity for growth. it is important that Johnson & Johnson recognize that this change was relatively recent. and with whom it needs to negotiate if the company wants its products covered by the Czech healthcare system. Changes in the healthcare system may affect to whom Johnson & Johnson needs to market. Operating in the European Union and larger European community means that Johnson & Johnson has felt the effects of the current economic crisis. or international scales can exert strong forces on businesses. 7 . The company needs to anticipate which policies may shift under the new government. discussions surrounding the use of the euro and the benefits and disadvantages of a common currency are debates that Johnson & Johnson should be aware of in this time period. health care is the subject of a major political debate. the economic environment is one that quickly transitioned from a communist.First. Aware of the crisis. it must keep track of the political developments that may affect its business. regional.

in order to cater to the aging population. As a company that invests heavily in research 8 . The influx of senior citizens will create huge demands throughout all realms of medical care. It should also be ready for the numerous practical difficulties with tasks such as accounting that may occur with a change in currency. companies in medicine-related industries such as Johnson & Johnson are finding themselves with an increasing number of people to treat and cure. The first is the aging population. Though highly problematic for society. Social Environment – Aging Population and Public Health Problems There are two major social changes on the horizon that will both affect Johnson & Johnson as well as provide tremendous opportunities. and Johnson & Johnson should understand the implications for its business if that change occurs in the Czech Republic. adopting the euro would make transactions with other countries more convenient. For example. the Czech Republic has kept its own currency. medical devices and diagnostics. some positive and some negative. and Johnson & Johnson should be prepared for a possible increase in transactions or the speed in which transactions take place in order to take advantage of the opportunities this change could provide. especially in developed societies but spreading worldwide. and consumer goods – in the coming decades. Johnson & Johnson can expect to see increased sales across all three of its segments – pharmaceuticals. has had a huge social and economic impact on the world since its birth. and must plan production accordingly to be able to meet the needs of this huge generation as they enter their most medically-dependent years. The gigantic baby boomer generation. 3. Additionally.While Slovakia adopted the euro in January 2009. This trend will continue as the generation is beginning to enter old age. from obesity and diabetes to cancer and mental disorders. Keeping these economic scenarios in mind is the kind of forward-thinking that is crucial to Johnson & Johnson's success. Another major social change affecting Johnson & Johnson is the phenomenon of surging rates of various health problems. consisting of those born between 1946 and 1964. A switch to the euro in the Czech Republic could have a wide range of effects. Johnson & Johnson is pioneering developments in preventative medicine as well as less invasive surgery techniques.

Especially within the consumer products and pharmaceuticals markets. innovation and breakthrough medical technologies are essential for finding blue oceans in which to compete. as 9 . C. Johnson & Johnson has the opportunity to lead the way in finding ways to address these serious public health issues. Johnson & Johnson must continually work hard to make sure that people are aware of its products and the quality that it ensures through effective branding and promotional practices. Determining Threats and Opportunities 1. Threats – The Uneducated Consumer and Mergers and Acquisitions One of the biggest threats facing a company like Johnson & Johnson is the uneducated consumer. which involves managing a patient’s health based on his or her individual characteristics as opposed to following the more traditional “standards of care” model. with the increasing availability and lower cost of generic products.and development. a key component of continued competitiveness is the discerning consumer who has preferences when it comes to treatment options. Predictive medicine. are growing fields into which Johnson & Johnson can expand. Technological Environment – Promising New Fields As many pharmaceutical drug markets become saturated and the blockbuster drug strategy becomes obsolete due to the major changes occurring in the industry. The company’s strong emphasis on research and development and its leadership in the medical devices and diagnostics segment put it in an excellent position to become a frontrunner in making new discoveries in these promising new technological fields. which entails predicting diseases based on genetics and preventing them. and personalized medicine. 4.

The company has pursued M&As that have served to expand the company’s resources and help penetrate new and diverse markets. This is especially important for its medical devices and diagnostics and pharmaceutical divisions. Opportunities – Research. For example. Strong pipelines in its pharmaceutical and medical devices sectors are a major source of confidence in the company’s long-term success. As for the pharmaceutical sector. It is necessary for the company to be on the leading technological edge when it comes to medical devices to ensure that it can offer the most accurate and up-to-date machines available. Mergers and acquisitions (M&As) present both potential opportunities and threats for Johnson & Johnson. These are just a couple examples of how Johnson & Johnson is able to both grow and innovate through M&A. Johnson & Johnson seems to be advancing its pipeline quite progressively. 2. Emerging Markets. In 2008. and the Aging Population Johnson & Johnson’s greatest opportunity is found in its heavy investment in research and development. patent expiration and generic drugs demand constant innovation and addition to Johnson & Johnson’s pipeline of products for sustained success. an important new medical product called the Fibrin Pad was developed with the cooperation of three Johnson & Johnson-owned subsidiaries. Also. Johnson & Johnson spent $7. M&As between other companies in the healthcare industry have the potential to upset Johnson & Johnson’s value chain and competitive advantages. Synergies. With eight new late-stage compounds in the pharmaceutical sector and the introduction of several new products to new markets in the medical devices sector. and around 40% of its current products have been developed within the last 3-4 years.well as consumer education. On the other hand. Johnson & Johnson must pay close attention to the actions of rival companies in order to maintain its market-leader positions and barriers to entry against competitors.6 billion on research and 10 . Patent expirations are also a constant concern for Johnson & Johnson as proprietary information is an integral part of sustained revenue streams. It also strives to be a consistently innovative company. Johnson & Johnson recently acquired Mentor Corporation in order to expand its operations in to the aesthetic and reconstructive medicine market.

This is yet another example of how the company is able to pool its resources in order to find ways to fulfill both the needs of both its customers and stakeholders. new types of medical needs are arising all the time. Synergies between product branches are yet another source of opportunities for Johnson & Johnson. Russia. One method Johnson & Johnson has been able to reach a broader consumer base through is the de-featuring of products. such simplified blood-glucose meters. People are living longer. versus the industry average of 3%. The reinvestment of 11% of sales in to R&D. demonstrates a source of competitive advantage for the company. One final opportunity exists in the demographic trend towards an ageing population. such as hip replacements and plastic surgery. Establishing European and Global Opportunities A. Johnson & Johnson is reaching an ever-increasing consumer base. However.development. III. which allows for access to lower-income customers and dampens the parasitic effect of cheap substitutes. Patients want to be able to fix their ailments and expect a quick and uncomplicated recovery afterwards. Other opportunities for Johnson & Johnson are present in emerging markets such as Brazil. and because of this. through its decentralized management approach and the adjustment of its products and strategies to match local needs and preferences. Many types of medical treatments and surgeries are being developed and becoming more commonplace. which came to be the company’s most successful product launch in 2008. Expansion into New Markets – Developing Countries 11 . Johnson & Johnson was able to make the formerly prescribed drug Zyrtec available as an over-the-counter drug. Through the well-coordinated efforts of its pharmaceutical and consumer products divisions. It is up to Johnson & Johnson to develop and provide the best possible equipment and supplies to do this and fulfill the company promise of customer success. India and China. Its products are currently available to only 25% of the world’s population.

Johnson & Johnson must remain synonymous with quality. Johnson & Johnson has begun to offer products that will appeal to people in less affluent nations. Next. To do this. thus becoming accessible to more patients. a heart stent. the company realizes that keeping up its reputation and remaining a household name will help it as it moves into foreign markets. B. Despite being the world's largest healthcare company. it must also maintain its secure position domestically. grown too confident in its product. Johnson & Johnson has many opportunities to sell its products in new markets or expand more in markets it has previously penetrated. it now seems aware of this problem in its business strategy and therefore will be prepared for similar situations as it continue to penetrate new markets. 12 . such as Pfizer. it still faces competition and has run into problems when it has attained the market lead. To put it simply. In order to take advantage of the broadening market field. Because Johnson & Johnson has twice lost its lead with one particular product. it is clear that these environments also allow Johnson & Johnson to strengthen and continue to grow its business. With income and living standards on the rise in many European countries such as Turkey and the Czech Republic. and then lost the lead. and across the globe in developing countries like China and India. where sales have already increased. Domestic Market Defense – Competition and Mistakes While Johnson & Johnson expands to serve more customers in new markets. Though the consumer segment only accounts for only 25% of its total sales.Despite the many challenges of working in both the European and global business environments. Johnson & Johnson must be ready to compete with an even greater number of competitors. Merck. Johnson & Johnson has created de-featured versions of products that can be sold at a lower price. safe products. Its objective is clear: make products that are affordable for most of the world. Novartis and Eli Lilly.

Standardization initiatives in its pharmaceutical sector enabled the company to streamline operations and cut costs by $1. Johnson & Johnson consists of 250 companies that operate in 57 countries worldwide. The widespread nature of its operations and decentralized management practices allow for a high degree of local autonomy and adaptation. B. Johnson & Johnson demonstrates that it is capable of attracting and retaining the right kind of people to help it remain successful. Cost savings are also created by means of acquisitions. most notably IT. They allow for timely. the convergence of knowledge and information from branches across the globe gives the corporation a great advantage in the development of new products and technologies. Analyzing Johnson & Johnson’s Current Position A. Cost Reductions. Competitive Positioning – Differentiation and Resource Allocation 13 . Value Chain Analysis – Synergies. Johnson & Johnson also emphasizes the importance of relationships with both its consumers and employees in its company credo. The company demonstrates its desire for employee welfare with healthcare services and carefully developed online resources. A talented and dependable workforce is important for innovation and efficiency in operations for any corporation. Flexibility and detailed. are the main production-based value drivers of the corporation. and Relationships A value chain analysis of Johnson & Johnson reveals several key sources of value generation. With an employee turnover ratio of less than 5%.6 billion in 2008.IV. Johnson & Johnson is making progress in finding ways to reduce costs. Johnson & Johnson’s acquisition of Pfizer Consumer Healthcare is expected to generate up to $600 billion in “cost synergies” by unifying the efforts of the two companies. For example. Also. adaptive responses to changing needs and the ability to achieve first leader power in emerging markets. locationspecific knowledge coupled with heavy investments in technology. This makes Johnson & Johnson very efficient in discovering and reacting to changing consumer demands across the globe.

Johnson & Johnson’s ability to perform these actions successfully is due to the sprawling nature of its subsidiaries and the amount of resources dedicated towards making sure that they all work with each other and share information. the company does use competitive pricing strategies and is continually trying to find ways to lower costs without sacrificing quality or reputation. “Be the first. It is able to maintain its position as market leader in several product categories. Johnson & Johnson is constantly seeking to expand its product portfolio across all divisions and spends large amounts of money in R&D to that end. but in industries as competitive as the ones in which Johnson & Johnson 14 . and consumer products divisions. however. The company must remain vigilant. These products are made in response to both local and global consumer demands. any firm needs to consistently reevaluate its strategic positioning. However. It offers a plethora of products throughout its pharmaceutical. as well as penetrate emerging markets. medical devices and diagnostics. These factors are evidence that Johnson & Johnson has chosen the competitive strategy of differentiation. because of its ability to adapt quickly and intelligently. Johnson & Johnson is a company focused on broad-based human healthcare. V. be the best.” This is the most effective way for the company to enter new markets and secure a strong position by being the first to offer the right products in the right locations in a time efficient manner. Johnson & Johnson holds a very strong competitive position versus other corporations due to the amount of its resources and depth of its operations. Using this strategy affords Johnson & Johnson a sense of prestige and quality and this is evident in its pricing practices. Assessing Effectiveness and Conclusion In today’s fast-paced business environment. representing solutions for many different customer segments. as complacency can result in loss of market share.As stated in the annual report. A Johnson & Johnson representative said.

We believe it’s a recipe for business success. Johnson & Johnson’s credo has endured. According to the company’s website. employees.com/doc/jnj/Johnson-And-Johnson/2009030501/> 15 . unchanged. By any quantitative measures. known as “Our Credo” and written by former chairman Robert W. “2008 Annual Report. REFERENCES Academic Visit to Johnson & Johnson. Johnson in 1943.” Johnson & Johnson <http://www. from making high quality products and recognizing employees’ merit to protecting the environment and experimenting with new ideas. may have a role in this success. The credo outlines Johnson & Johnson’s responsibilities to its customers. Due to its strategic positioning and eye on the future. continual evaluation is vital for long-term success. Johnson & Johnson will likely survive another century. It consistently tops the corporate reputation charts and is a role model for social responsibility. Johnson & Johnson is a very successful company. and finally its stockholders. The company’s famous credo. It also establishes the principles that guide the company. for over 65 years. Prague. “Our Credo is more than just a moral compass. Moreover.” Johnson & Johnson has indeed flourished. Czech Republic. communities. The fact that the Johnson & Johnson is one of only a handful of companies that have flourished through more than a century of change is proof of that. While it does not explicitly state long term goals. the principles within it express the company’s intrinsic values. and the fact that it has earned a profit for 75 straight years suggests that there is a definite plan for long-term success. the company is clearly prepared for the many challenges its ever-changing international business environment poses.competes.myvirtualpaper.

cnn.cosmeticsandtoiletries.google. <http://www.com/connect/about-jnj/jnj-credo/> “Patent Expirations Behind J&J Cuts.” Duke University <http://www.html#barriers> “Mental health drug market tapped out?” CNNMoney. C&T Looks Closer at Patents.htm> “Our Credo Values.venturenavigator.co.” Cosmetics and Toiletries <http://www.” Venture Navigator <http://www.com/books?id=FcMmMrL7VSoC> “The Global Pharmaceutical Industry. Gerrit Reepmeyer and Maximilian von Zedtwitz.Gassman.” QuickMBA <http://www.” Johnson & Johnson. Oliver. “Leading Pharmaceutical Innovation.quickmba.com/networking/news/company/8830827.uk/content/154> 16 .shtml> “A Recent History Of The Pharmaceutical Industry.com/2006/04/18/news/companies/antipsychotic/index.com <http://money.com/strategy/porter.html> “Porter's Five Forces: A Model For Industry Analysis.jnj.edu/web/soc142/team2/social.duke.” Springer <http://books.

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