Introduction is formed as the brief background of Johnson & Johnson. The focus of this report will be placed on J&J’s subsidiary – Johnson & Johnson, Group of Consumer Companies, Inc. Johnson & Johnson. We will be focusing and relating this report on the baby product line of Johnson & Johnson.
The strategic initiatives of Johnson & Johnson `s skills, strategy, staff, structure, system, staff and shared value will be discussed and examine in this report. We looked into their company functions so as to better understand them to enable effective decision makings. A political economic analysis is conducted to provide global risk insights for Johnson & Johnson that is beneficial to J&J manage those risks as potential and risk. In relation to Johnson & Johnson `s baby care products, Porter`s forces model is used to analyze the competitive advantage of the firm. One of the key understandings is that the middle-high rivalry is present with less number of competitors on Baby Care product line from competitor like California Baby, Simple. SWOT analysis show that Johnson & Johnson holds strong competitive advantages after comparing its pros and cons despite of a few disadvantages of global standardization strategy. The growth strategy of Johnson & Johnson will be selected based on both internal and external environment factor for the three years plan. These diagnoses are in reference to the SWOT analysis based on the company resources – assets, intellectual property, and people. Lastly, the modes of entry will be affected by the several internal factors in this report. It comprises of internal requirement, technology know-how, management know-how as well as pressure for cost reduction.
The recommendation part would provide several suggestions for the improvement of Johnson & Johnson through the organization structure and Human Resource Management.
We have chosen to work on Johnson and Johnson (J&J) for our strategic global business solutions project report for it is a global American pharmaceutical, medical devices and consumer packaged goods manufacturer founded in 1886. With more than 250 subsidiary companies located in 57 countries around the world and having its products sold in over 175 countries, J&J is a listed company evident with its listing among Fortune 500 and registering its stock with NASDAQ (NYSE: JNJ). With a diverse range of products sold in global markets, J&J adopted the business strategy of global standardization whereby there is limited customization needed for its products for focus is placed on having customers’ recognise and identify J&J as a household brand.
Focus of this report will be placed on J&J’s subsidiary – Johnson & Johnson, Group of Consumer Companies, Inc.
Strategic Initiative of Johnson & Johnson
As Johnson & Johnson is a global manufacturer with many subsidiaries on a global scale, J&J would hire its employees through a stringent process of selection and focus on one’s performance. This implies that J&J recruits people of experience and ability with a global mindset – hires third-country national (TCN), indicating that recruitment of people is mainly dependent on being consistent with J&J’s organizational structure.
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With the objective of market growth and maximizing profits in order to be responsible to their stockholders, J&J adopted the business strategy of global standardization. Choice of global standardization strategy is because J&J’s focus is placed on lowering costs and that there is limited need for customization of products for it generally the same other than slight changes in the products’ packaging.
The employees of J&J can be said to be well motivated to work for J&J has provided their staff with many incentives ranging from personal to performance benefits (i.e. annual incentive bonus, long-term incentive awards, and severance benefits). As J&J have high expectations on their employees, J&J sends their staff on regular employee training that clocks an average of 8 hours or more yearly (i.e. leadership development and management education in fields like finance and marketing). J&J also makes sure that their employees are motivated by giving them the right to voice one’s opinion on company issues through J&J’s Credo survey.
J&J’s organizational structure is dictated by its corporate strategy. J&J initially adopted a decentralized approach to management but in the early 1900s, changed it to a more standardized approach for J&J’s top executives noticed that their subsidiaries are not well-positioned on a global platform to serve customers directly. The change in corporate management allowed J&J to mitigate limitations posed by the decentralization approach. One instance would be J&J having categorized all subsidiaries into three categories namely, consumer, pharmaceutical and professional. The chairman of each category is given the responsibility of identifying opportunities for leveraging services and expertise across companies in every market and the franchise managers assigned the responsibility of coordinating cross-company sales of a family of products (e.g. baby care products in US, France, Australia). The centralized management approach benefits J&J for it gives J&J’s top management a better view of its global operations and are able to effectively manage and integrate its global operations. This led to the success of J&J in being globally effective in terms of operations for cost of production is lowered in terms of reducing redundancies and duplications during the processing and manufacturing process.
In the business of health care, Johnson & Johnson is inspired and united by a common purpose: to care for the health and well-being of the people they serve around the world. Caring drives the people of Johnson & Johnson in their aim to make the world a better and healthier place through everything that they do. It is core to their business strategy and initiatives, the programs and partnerships which they build, the positions that they take on public policy issues, and their care for the environment.
As the company moves forward, it continues to push the innovation envelope as coordinated activities under the centralized control, infusing superior technology and ingenuity into every product they make and every project which the company undertakes. The procedure of the J&J functions as a system in which “build from within” organization, as 95% of their people start at entry level and then progress and prosper throughout the organization. This not only creates many wonderful opportunities to grow and advance, it creates a special camaraderie among fellow J&Jers, many of whom came up through the ranks together.
Johnson &Johnson came up with this credo which speaks about their mission statements, views and their pledges to the customers and society. Robert Wood Johnson, former chairman from 1932 to 1963 and a member of the Company’s founding family, crafted Our Credo himself in 1943, just before Johnson & Johnson became a publicly traded company. This was long before anyone ever heard the term “corporate social responsibility.”
WILLIAMC.WELDON is the chairman, Board of Directors, and Chief Executive Officer of Johnson &Johnson. He takes pride in the organization work procedures and describe their operation of their day-to-day work is about their response to the unmet needs of their patients and customers and also their response to the needs of their colleagues; their response to supporting the global communities in which they live and work; finally, their response to the call for research and innovation in health care.
The parent company of Johnson & Johnson which is Procter & Gamble (P&G) has been pioneering products in nearly 50 different categories and their baby product line will be the function in which this report will be focusing on.
As the company moves forward, it continues to push the innovation envelope every day, infusing superior technology and ingenuity into every product they make and every project which the company undertakes. The procedure of the J&J functions as a system in which “build from within” organization, as 95% of their people start at entry level and then progress and prosper throughout the organization.
This not only creates many wonderful opportunities to grow and advance, it creates a special camaraderie among fellow J&Jers, many of whom came up through the ranks together.
This also explains why their hiring process is so rigorous. J&J `s system is as such that they are not just offering a job, they expect you to grow into one of their future leaders. From day one you’ll help develop or support exciting brands you know while working on projects that have a direct impact on their global, $61.9 billion sales in 2009.
Johnson &Johnson`s management style of helping to shape and define what health and well-being means in everyday lives. Their products, services, ideas and giving now touch the lives of at least one billion people every day. They credit their strength and endurance to a consistent approach to managing their business, and to the character of their people. They are guided in everything they do by their Credo, a management document authored more than 60 years ago by Robert Wood Johnson, former chairman from 1932 to 1963, and by four strategic principles.
Their company style is deeply rooted in their Credo and deeply in filtered into their employees and leaders. Johnson & Johnson `s system is such that their overarching philosophy which guides their business is their Credo, a deeply held set of values that have served as the strategic and moral compass for generations of Johnson & Johnson leaders and employees.
Above all, their Credo challenges them to put the needs and well-being of the people they serve first. It also speaks to the responsibilities they have to their employees, to the communities in which we live and work and the world community, and to our shareholders. They believe their Credo is a blueprint for long-term growth and sustainability that’s as relevant today as when it was written.
The company behavioral style is that their values embodied in their Credo guide the actions of the people of the Johnson & Johnson Family of Companies at all levels and in all parts of the world. They have done so for more than 60 years. These Credo values extend to their accounting and financial reporting responsibilities. Their management is responsible for timely, accurate, reliable and objective financial statements and related information. As such:
They maintain a well-designed system of internal accounting controls.
They encourage strong and effective corporate governance from their Board of Directors.
They continuously review their business results and strategic choices.
They focus on financial stewardship.
All of the above of Johnson & Johnson `s skills, strategy, staff, structure, system, staff and shared value formed together and worked in cohesively to form a synergistic team of workforce that oversee the entire operation from sourcing materials ,production lines ,manufacturing to research and development (R&D). It is seen as that a synergy is the energy or force created by the working together of various parts or processes. In Johnson & Johnson, the baby care products are the result of synergy and quality reassurance as promise by the company.
Environment cannot be controlled; therefore we should analyze the environment first then indicate the strategy that also reflects the organization structure subsequently.
Political Economy Analysis
The political economy of a nation defines the forms of interdependence amongst the political, economic, and legal systems, and also reflects they interact and influence each other.
The system of government in a nation defined as political system which divided the 200 plus world entities into 2 dimensions that include the degree of collectivism versus individualism and the degree of democracy versus totalitarianism. More practically, individuals would be tied together to achieve the common or collective goals in the high context country, like South Korea, Japan, those people focus on the benefits of society and long-term relationship; individualism means democratic political systems and free market economies like Americans have free rights to vote in election. Myanmar, North Korea act as the totalitarianism that government absolutely controlled by one person or political party. Whereas, China exist the grey area that it has been a move toward greater individual free market economies, but the government is still a totalitarian dictatorship.
If the political systems are high stable, the company would be decentralized; otherwise, the company would concentrate in the low stable situation. Although the political systems in say Japan (i.e. change in 3 prime ministers since 2007) is relatively unstable as compared to that of other Asian countries like Singapore, the Japanese government is more open in terms of local market entrance of multinational companies.
In market economy, production is determined by the interaction of demand and supply; besides, the government encourages free and fair competition between private producers, the representatives of governments like the Great Britain, US and France. The objective of command economy is ‘the good of society’; all businesses are state owned in command economy, such as Thailand, South Korea, and Indonesia. India is the typical example of mixed economy in which certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have state significant ownership and government planning.
The company would decentralize in the consistent economy system or concentrate in the inconsistent economy system.
For a business that operates globally, understanding the different legal systems play an important role of the process. Legal aspects help to facilitate business operations so therefore it is very crucial and a necessity for international business operators to have an understanding of the different legal systems around the world.
Companies must take into consideration the legal structures of the country in which they operate in. Globalization breaks down barriers between nations and bring nation together in a global platform. But increasing investment among nations also makes it more difficult for those in different cultures to understand the rules of other countries. It is important to follow the legal system of the country in which business is conducted or the government has the right to have legal actions taken should laws be not comply.
International Business Laws
Businesses operate in a world in which the laws of different governments and judicial systems might conflict as they originated from different cultures. It is therefore necessary to have a basic knowledge of the legal system and also understand how does business law impacts commerce in the company’s own country and overseas. The impacts of international business on business law facilitate the inclusion of standards in their company regulations or operations that address these tricky and complex issues.
Social cultural environment
According to Geert Hofstede Cultural Theory, the global social culture roughly classify as 4 dimensions which considered as ‘costs’.
Individualism versus Collectivism
The individualism and individual achievement is common in the Western Countries, both positive and negative implementation in individualism. The positive side is showed in competition between individuals rather than collective groups and the person get pay-for-performance motivation to compete within organization especially in the dynamism of US economy that encouraged person to take chances and tried new things with unique ideas (i.e. Steve Jobs). However, the individualists just focus task-based, they cannot develop a strong and long-term relationship with others which is the advantage of collectivism. US, Canada & Australia is the classical individualist representatives that are different from Asia (i.e. South Korea, China) act as collectivists.
The degree of acceptance of hierarchy or inequality exists among the organization, the higher power distance (i.e. Japan, Vietnam) reflect in the decision making by the seniorities and reward as the status, position and experiences; in contrast, the decision making and authority took by the task representative and pay-for-performance reward represented in low power distance culture like Denmark and UK.
The degree of tolerance for uncertainty and ambiguous situation, the low uncertainty avoidance reflects the high risk taker and adaptability of new things (i.e. Australia, Singapore); the high uncertainty displayed the low tolerance for uncertainty issues like France and Italy, those countries need the structured organization or rules to obey so that French and Italians are difficult to overcome the culture shock when they sent as expatriate managers.
Masculinity versus Femininity
Whether the differences of work in gender roles accepted in society, Japan and China should be masculine society; the jobs of gender are distinct and form a male dominant society and person more focus on financial and material possessions. On the other hand, gender roles are overlapping in the femininity country, such as Thailand and Finland, people in those countries focus more on quality of life. Therefore, in the femininity countries, the purchasing power of lifestyle is relatively high which point out an appealing way to Johnson & Johnson develop.
Those external environments provide global risk insights for Johnson & Johnson that is beneficial to J&J manage those risks as potential and risk to take advantage of the relative international business strategy to form and adapt organization structure in the long-term.
Competitive Advantages – Poster’s Five Forces
Degree of Rivalry
The middle-high rivalry is present with less number of competitors on Baby Care product line, like California Baby, Simple; but Johnson &Johnson is dominant in the Baby Care industry and the economies of scale so that the firm reflects less intense competition. The cost of competitive advantage and promotions are relatively high, like the advertising and discounts; additionally, J&J has over hundreds history and good image of Corporate Social Responsibility (CSR) result them remain competitive rather than leave the industry. Next, the high rate of growth display the middle-high competitive situation overall in the industry.
Threat of new entrants
The threats of new entrants should be low despite of low barriers of entry in the lights of low costs of set-up. The brand equity of J&J is relatively high and it has great impacts in the industry so that a large number of suppliers prefer to sign contracts with it rather than the new entrants that benefit for enhancing suppliers’ brand and engaging more profits, Lafe’s Body Care is an example of new entrant who launch a new baby care product line in recent years.
In addition to the switching costs for customers, customers are keen on the brand with quality guarantee using for baby or not the less discrepancy of prices.
Threat of substitutes
Some baby care products from say Pigeon Corporation and Drapolene are suggested by doctors (i.e. responsible to babies), but lack in brand awareness recognized by customers as renowned brands and those products are not easier to buy or package of those products are not portable for customers to bring; compared with them, Johnson & Johnson baby care products differ from they could be bought in almost of all supermarkets under the world-wide distribution channels and be convenient to carry about. Hence, threats of substitutes should be low.
Power of Buyers
There are a lot of alternatives for customers contribute to the high bargaining power of customers, especially for the price-sensitive customers, who are prefer to the high-quality products with the lower costs in the traditional theory research. However, J&J’s Baby Care products are considered as the essential healthy pharmacy products for baby by an amount of loyal customers. All in all, the bargaining power of customers should be low-to-middle as its healthy baby brand image formed in customers’ mind around the world, even the adult females prefer to but baby products to care their skins.
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Power of Suppliers
There are thousands of suppliers to provide the materials, goods and services that allow J&J Family of Companies to manufacture products, supply offices and other facilities to service customers around the world. J&J committed to working with small and diverse suppliers in terms of their abilities to support its long-run growth objectives and add value to its business through providing the innovative solutions to their marketing, manufacturing and R&D efforts.
Even though the various inputs from the suppliers, the competitive situations also exist among suppliers and large amount of substitute inputs contribute to the low power of suppliers.
Analysis on J&J’s operation results is essential for it allows its stakeholders to gain an insight on how J&J is performing on the global platform and whether the management strategy employed needs to be consistent or changed according to future market projections.
Looking at J&J’s net sales figures in the last 5 years (Appendix 1), gathered from J&J’s 2009 annual report, we see a generally consistent growth in its net sales. Though there is a dip in worldwide sales figure of 2.9% ($61.9 billion) from 2008, this can be accounted with J&J’s spending on research and development ($7 billion) as well as acquisitions and collaborations. Although this will cause a reduction in J&J’s sales margin, it will benefit the organization in the long-run whereby profits will be reaped upon returns on investment. Currently, J&J is expanding its operations in the BRIC countries (i.e. Brazil, Russia, India, and China) as well as other fast-developing markets. This should be a continued project of J&J for at least the next 3 years to maximize its profits and increase its global market share. This is inline with J&J’s organizational vision – “drive superior business results and sustainable competitive advantage”.
J&J’s corporate vision, “to maximise the global power of diversity and inclusion to drive superior business results and sustainable competitive advantage” is in line with its corporate objective of profit and growth. Both J&J’s vision and focus has direct implication on its corporate structure. This is reflected upon the process within J&J’s value-chain.
In terms of J&J’s organizational structure, Human resource management (HRM) plays a vital role in the direct success of J&J as an organization for it is the people, most valued asset, that contribute to achieving the goals and objectives of J&J. At present, J&J hires experienced and capable leaders to bring the organization to greater heights and J&J does not stop there. J&J provides all top executives in training which include leadership development and management education in fields like finance and marketing. J&J prioritizes on the professional development of every employee for J&J believe that they are capable in developing leaders within the organization by exposing them to diverse fields and giving employees heavier responsibilities to assess their ability. As mentioned above where staff motivation is important, we as consultants believe that J&J should continue to train their employees and appraise the performance of employees in the next three years. This is so that J&J would be able to make better use of their employees’ capabilities and talents and this will benefit the organization in the long-run when employees are loyal to J&J.
Focusing on J&J’s consumer goods of baby products, the in-bound logistics ties in with operations before linking with outbound logistics, sales marketing and finally, providing businesses and consumers with service. J&J’s in-bound logistics would include the purchasing of raw materials needed for the manufacturing of baby products and storing the raw materials in various designated warehouses. Operations will then occur whereby factory employees would have to work along a production belt with the help of machines and maintain quality checks as well as bottling of baby products. J&J would then distribute the ready products into containers for shipment, in allocated warehouses or directly to retailers and distributors. To aid J&J’s employees in convenient dispersal of information to sales staff, they have made use of MultiAid to resolve all marketing resource management needs. This increases J&J’s operational efficiency and gives the organization a head start on asset management for product image, captured data and distribution to retail trade communities is readily accessible to employees with one click on the computer system.
With regards to sales and marketing, J&J advertises by relating consumers with real-life scenario whereby a mother bathes her baby with J&J’s baby products and having the statement of “products for the ones you love”.
There are two types of service provided by J&J – business to business (B2B) and business to consumer (B2C). J&J provides its business partners and suppliers with business opportunities. This means that the degree of success experienced by J&J has direct impact and will benefit companies that do business with J&J. Consumers of J&J are exposed to gathering useful and relevant information when having purchased J&J baby products for J&J has formed a website (i.e.BabyCentre.com) and a online Baby Care Library to increase the closeness in customer interaction.
Abundant financial resources
Strong brand name
Respected brand image
Wide product lines
Economies of scale
Superior product quality
Better marketing skills
Good distribution skills
Lack of flexibility
Opening of foreign markets
Rapid market growth
Low barriers to entry
Introduction of new substitutes products
Rival firms adopting new strategies
Johnson & Johnson is a well-known healthcare brand which ranks No. 1 within the industry under one decade of its historical development with a wide variety of skincare products and superior product quality.
Abundant financial resources are exploited by the R&D department to employ the committed staff for creating and even innovating the hygiene products through proprietary technology and build up the respected brand image. Besides, it focus on product leadership excel at product development and professional skills so that it can offer customers the best products in the industry.
As the facts show that, J&J expanded internationally around the world, like Asia (Singapore, China) that triggered by the better marketing skills. Additionally, the good world-wide distribution skills due to its global standardization strategy that allow J&J to generate great market shares by cost reduction that come from economies of scale and fast product development what based on stable relationship with local distribution agents and its respected brand image as well as superior product like baby care mainly.
Global standardization is the main international business strategy to control cost but this also is its drawback that results in the low customization. In addition to the world-wide product structure, the managers lack of flexibility to face the challenge of changes in local markets.
In order to bring along the development of local economy, most of countries welcomes the international companies introduce their products to diversify the local economy. The increasing attentions of baby nurturance and its brand image prompt customers to purchase its products and grow rapidly in the global new markets.
There is an opportunity to generate more market shares and enhance its brand image in the long-term in the lights of the rise in global demographic population reach to 7 billion that data collected from statistics of 2011, China and India act as the representatives; moreover, the superior product quality of J&J is the critical to attract customers switching from other brands.
J&J faces the threats of the low barriers to entry due to the low cost of set-up, and the proprietary product differences will be difficult to protect when the barriers are reduced so that the customers would switch to other brands more possibly. Another threat reflected by the economic downturn, J&J is difficult to manage the exchange rate risk under the global standardization strategy.
Most important, J&J would be forced to stay at the passive threat that the customers would be attracted by its competitors and sales would be declined if rivalries adopting the new strategies.
Outcome of SWOT Matrix
Generally, Johnson & Johnson holds strong competitive advantages after compare its pros and cons despite of few disadvantages of global standardization strategy. In another angle, J&J is able to switch the threats to opportunities in the lights of its calculus-based capability and resources.
Growth Strategies adopted by Johnson &Johnson
There are both internal and external environments to be carefully evaluated when planning for a three years growth strategy plan for Johnson & Johnson as what happen externally and internally will affect the company. These diagnoses are in reference to the SWOT analysis based on the company resources – assets, intellectual property, and people.
With careful consideration and by selecting market penetration growth strategy for a three year period, it will help them to gain more market shares through promotion and advertising from their strong marketing teams. Before planned the growth strategies, the firm should generate a lot of information about if the company is selling new, existing or emerging products in a new or existing market.
From the diagnosis of the Porter`s model, understanding that the threats of new entrants are low and also credited to the high brand equity of Johnson & Johnson, market penetration growth strategy defined by Ansoff is selected in the lights of situation that involves neither new markets nor new products, are forced to grow through this growth strategy. It is a strategy that is designed to give the business a greater percentage of market shares. Market penetration occurs when a company enters/penetrates a market with current products.
This type of strategy usually seeks to gain a competitive edge through competitive pricing strategies, advertising, sales promotion, marketing or other strategic initia
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