Johnson and Johnson

Task 4

Johnson & Johnson (J&J), once a consumer products company known for its Band-Aid line and its baby care products, has evolved into a $16 billion  diversified enterprise consisting of some 250 –plus operating companies organized into three divisions: pharmaceuticals, medical devices and diagnostics, and consumer health care products. Over the past decade J&J has made acquisitions totaling more than $50 billion; about 10 to 15% of J&J’ s annual growth in revenues has come from acquisitions. Much of the company’s recent growth has been in the pharmaceutical division, which in 2009 accounted for 36 per cent of J&J’s revenues and 41 per cent of its operating profits.

While each of J&J’s business units sets its own strategies and operates with its own finance and human resource departments, corporate management strongly encourages cross-business cooperation and collaboration, believing that many of the advances in 21-st century medicine will come from applying advances in one discipline to another. J&J’s drug coated stent grew out of a discussion between a drug researcher and a researcher in the company’s stent business. The innovative product helps prevent infection after cardiac procedures.

A gene technology database compiled by the company’s gene research lab was shared with personnel form the diagnostic division, who developed a test that the drug researchers used to predict which patients would most benefit from an experimental cancer therapy. J&J’s liquid Band-Aid product is based on a material used in a wound –closing product sold by the company’s hospital products company. Scientists from three separate business units worked collaboratively toward the development of an absorbable patch that would stop bleeding on contact. The development of the instant clotting patch was expected to save the lives of thousands of accident victims since uncontrolled bleeding was the number-one cause of death due to injury.

J&J’s corporate management maintains that close collaboration among people in its diagnostics, medical devices, and pharmaceutical businesses-where numerous examples of cross business strategic fit exist-gives J&J an edge on competitor’s, most of whom cannot match the company’s breadth and depth of expertise.

Questions

1.        What does the growth in both revenues and profits reveal about the success of J&J’s diversification through acquisition strategy?

2.        To what extent is decentralization required when seeking cross-business strategic fit?

3.        What should J&J do to ensure the continued success of its diversification strategy?

Answer:

1.         J&J are known as Band Aid and baby care products which are quit limited in term of market share value, the past decade shows if they stay in their business, they will not grow as fast they are now, increase of almost 30-40 percent. By acquisition they help themselves by killing two birds with one stone, kills the competitors in their related business, and venturing to a new industry like pharmaceutical etc. Strengthening their position in market to their existing customer and to a new potential customer by offering bundle and attractive package are the best strategy to practice. Thus it has reflects in their revenue and profits.