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Teaching Note: Case 31 – Johnson & Johnson
Case Objectives
1. To help students understand how a firm makes decisions about what businesses the corporation
2. To encourage discussion of the implications of a firm’s strategy for the structure of its
See the table below to determine where to use this case:
NOTE: There are both PRIMARY and Secondary chapters that can be used for this case. The Teaching
Chapter Use Key Concepts Additional Readings
PRIMARY
Strategy
Acquisition; diversification NOTE links to J&J’s
10: Organizational
Organizational structure NOTE embedded video
11: Strategic
Leadership
Leadership
SECONDARY
CONCEPTS
8: Entrepreneurial
Strategy
Entrepreneurship; opportunity
recognition
9: Strategic Control Informational vs. behavioral control
12: Managing
Innovation NOTE additional articles,
Case Synopsis
Johnson & Johnson had relied heavily on acquisitions to enter and expand into a wide range of health care
related businesses. As it grew, J&J developed into a complex enterprise made up of over 250 different
businesses, spread over 60 countries, organized into three different divisions: consumer products,
pharmaceuticals, and medical devices. J&J’s success across its three divisions and many different
However, multiple product recalls in 2009 and 2010, primarily from the McNeil Consumer Healthcare
division, had forced William C. Weldon, the firm’s chief executive, to create a more centralized form of
quality control: a single framework for all divisions, with accountability directly to him. This had been a
Weldon was aware that it was getting much harder for J&J to make the same kinds of acquisitions as it
had in the past. The firm would have to search for other avenues for growth. Weldon believed that the best
After a swarm of product recalls, manufacturing lapses, and government inquiries that tarnished the name
of one of the nation’s most trusted brands, Weldon stepped down as CEO in April 2012. Would new CEO
Alex Gorsky be able to change the corporate culture and address the growing list of problems? After all,
while he was head of the medical devices division, Gorsky was reluctant to publicize the defects in the
Teaching Plan
This case is best positioned after students have a firm grasp of strategic analysis, including how to assess
both internal and external environments. J&J provides an opportunity to investigate how strategic
implementation, including organizational design, is dependent on the choice of corporate strategy.
Before engaging in discussion, you might want to test student’s basic knowledge regarding the case and
Which of the following statements is most true?
a. Johnson & Johnson has over 250 different subsidiaries divided among three different divisions.
b. The consumer products division, including J&J baby care and Band-Aid products, was the most
profitable.
c. McNeil Consumer Healthcare, maker of Tylenol, is one of J&J’s highest quality business units.
d. New CEO Gorsky comes from outside J&J, which is a good thing.
ANSWER: a. Johnson & Johnson developed into an astonishingly complex enterprise, made up of over
250 different subsidiaries that were divided among three different divisions. Although consumer products
had grown substantially, Johnson & Johnson reaped far more sales and profits from its other two
Johnson & Johnson has a lot to do to repair its reputation.
a. Yes
b. No
ANSWER: a. To repair the damage to its reputation from the many recalls across two of its divisions,
Summary of Discussion Questions
Here is a list of the suggested discussion questions. You can decide which questions to assign, and also
which additional readings or exercises to include to augment each discussion. Refer back to the Case
Objectives Table to identify any additional readings and/or exercises so they can be assigned in advance.
1. PRIMARY QUESTIONS: What corporate strategy does Johnson & Johnson pursue?
2. What implications does Johnson & Johnson’s corporate strategy have for its organizational
design?
3. What is the role of strategic leadership in a company like Johnson & Johnson?
4. SECONDARY QUESTION: Why is synergy important for Johnson & Johnson?
Discussion Questions and Responses
1. What corporate strategy does Johnson & Johnson pursue?
Referencing Chapter 6: Corporate-Level Strategy: Creating Value through Diversification
Any discussion of strategy assumes an understanding of the strategy concept. Strategy is all about the
ideas, decisions, and actions that enable a firm to succeed. See Chapter 1, Exhibit 1.1: Strategic
management consists of the analyses, decisions, and actions an organization undertakes in order to
create and sustain competitive advantages:
●strategy directs the organization toward overall goals and objectives;
●includes multiple stakeholders in decision making;
Corporate strategy focuses discussion on the questions of what businesses a corporation should compete
Diversification is the process of firms expanding their operations by entering new businesses. In related
diversification, a firm enters a different business in which it can benefit from leveraging core
competencies, sharing activities, or building market power. Some possibilities include:
●Mergers and acquisitions
●Strategic alliances
Whatever the choice, it should create value for all stakeholders – employees, suppliers, distributors, and
Johnson & Johnson has grown mainly via acquisition in the past. Acquisition is the incorporation of one
firm into another through purchase. It can be a means of obtaining valuable resources that can help an
Some of J&J’s major acquisitions include Pfizer’s consumer health division, the largest acquisition in
J&J’s history, which was an example of consolidation in the consumer health industry. The acquisition of
Johnson & Johnson is also an interesting case to use to explore avenues for creating value through
diversification. When achieving synergy through diversification, a firm has two choices: related
Upon first glance, it would appear that J&J provides a clear example of related diversification. Almost all
of its businesses are in the health care area. Even many of its consumer businesses are tied to health care.
But a much closer scrutiny of the facts in the case does clearly indicate that J&J is quite clear about
These facts suggest that there is some degree of relatedness, most of which is designed to increase the
market power of these units. This power comes largely from the businesses being grouped together under
Weldon tried to work on developing the relatedness between the various business units. Above all, he was
trying to develop at least some R&D activities that are shared between these units. This might lead to a
Synergy due to shared resources is a key motivation for related diversification. Through synergy, each
business in a portfolio helps others, and in so doing, helps itself. As indicated above, J&J follows a related
When Weldon took over the firm in 2002, he was particularly concerned about the prospects of the firm’s
pharmaceutical division, which had consistently accounted for almost half of the firm’s revenues and
more than half of the firm’s profits. While J&J’s pharmaceutical business was robust, the company was
looking at declining revenues from its best selling drugs because of expiring patents and growing
competition. To spur growth, Weldon believed that the best opportunities would come from increased
and independence that it accorded its various business units. Weldon believed that any push for
collaboration should build upon the entrepreneurial spirit that had been built over the years through this
type of organization. How to harness this to increase synergy?
NOTE – ADDITIONAL READING, WEB LINKS:
Johnson & Johnson competes in several highly competitive markets: health care consumer products,
pharmaceuticals, and medical devices. View their financials compared to some of their competitors:
http://finance.yahoo.com/q/co?s=JNJ
How does it appear J&J is doing? Note that this chart uses the pharmaceutical industry as the comparison
industry. Would the competitive picture be different in consumer products, or medical devices? What does
this say about J&J’s competitiveness?
Here’s a list of the product categories J&J competes in:
http://www.jnj.com/about-jnj/company-structure
A major force in pharmaceuticals, medical devices, and consumer products, J&J draws its strength and
In 2009 J&J was considered a strong stock pick, the “most respected company in the world” according to
Barron’s, partly because of its diverse holdings (See
http://online.barrons.com/article/SB124527599477624863.html?mod=googlenews_barrons), but in 2011
one analyst was more leery, mostly because of the product recalls and the resulting reduction in earnings
Although the investment community may have had concerns, it’s the public trust that J&J was worried
about. In 2011 the results of a special committee of the J&J board, formed to investigate the recalls and
related claims that fiduciary duties may have been breached in the problems uncovered at DePuy and
McNeil, found no indications of systemic failure. Specifically regarding McNeil, “With the benefit of
It appears J&J will reconsider the organizational structure at McNeil, removing it from the wider group of
consumer health-care businesses, and once again becoming its own organization. Making McNeil
separate will “give focused attention to quality and compliance, and the critical task of restoring" the
reputation of its products. (See
http://online.wsj.com/article/SB10001424052748703712504576233112549707154.html )
Is J&J’s diversification strategy effective? To what degree might the possible unrelatedness of these
businesses affect investors’ decisions regarding the stock?
2. What implications does Johnson & Johnson’s corporate strategy have for its organizational
design?
Referencing Chapter 10: Creating Effective Organizational Designs
Strategy consists of analysis (setting goals, assessing the internal and external environment of the firm),
formulation (deciding which industries to compete in and how to compete in those industries), and
Chapter 10 stresses that organizational strategy has implications for a firm’s structure. Students should
relate concepts from Chapter 10 such as the differences between various structures and the effectiveness
of each possible structure for J&J’s possible choices of strategy. Organizational structure refers to
formalized patterns of interactions that link a firm’s tasks, technologies, and people. Structure provides a
An effective organizational design can encourage the flow of information and enhance working
relationships between functional departments and activities. However, achieving the coordination and
integration necessary to maximize the potential of an organization’s human capital involves much more
Historically, Johnson & Johnson had had a decentralized divisional structure. Given that Weldon wanted
to take advantage of the existing entrepreneurial spirit within the different divisions and business units, he
(NOT in the case: For instance, he created a new post to oversee all of the pharmaceutical division’s R&D
efforts. He also formed a divisional committee that brought together executives from R&D with those
Weldon worked with the company’s other top executives to set up groups that drew people from across
the firm to focus their efforts on specific diseases. Each of the groups was expected to report every six
months on potential strategies and projects. Weldon’s efforts started to payoff as seen in the following
examples:
●Liquid Band-Aid was based on a material used in a wound-closing product sold by one of J&J’s
●Its antifungal treatment, Nizoral, helped the company develop a dandruff shampoo.
●(NOT in the case: J&J’s drug-coated stent, called Cypher, was a result of collaboration between
Products developed through cross-fertilization allowed the firm’s consumer business to see considerable
growth.
However, emerging quality control problems signaled issues with restructuring: McNeil’s merger with
Pfizer Consumer Products, and subsequent transfer from the heavily regulated pharmaceutical division to
NOT in the case: In 2011 the results of a special committee of the J&J board, formed to investigate the
recalls and related claims that fiduciary duties may have been breached in the problems uncovered at
DePuy and McNeil, found no indications of systemic failure. Specifically regarding McNeil, “With the
J&J reconsidered the organizational structure at McNeil, possibly removing it from the wider group of
consumer health-care businesses, and once again becoming its own organization. Making McNeil
When contemplating the various options for corporate structures, some might suggest creating multi-
divisional strategic business units (SBUs) out of the current 250 different divisions. After all, there is a
cost for duplication of functions, i.e. Human Resources and Finance, but combining them even in a multi-
NOTE – ADDITIONAL READING, VIDEO:
J&J’s need for internal innovation, and the challenges created by the move, starting in 2006, to encourage
cross-functional interaction between decentralized business units, was profiled in Business Week in April
of 2006. To quote from the article, “while J&J managers have spoken often about the potential offered by
combining devices and drugs in one product, the company's decentralization can also create barriers to
that sort of synergy.” See the story here:
http://www.businessweek.com/stories/2006-04-16/j-and-j-reinventing-how-it-invents
An interview with CEO William Weldon about how to lead a decentralized company was published by
Knowledge@Wharton in 2008 (a 17 minute video is included):
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2003
3. What is the role of strategic leadership in a company like Johnson & Johnson?
Referencing Chapter 11: Strategic Leadership: Excellence, Ethics & Change
Johnson & Johnson’s major challenge was to create a sustainable competitive advantage in the
marketplace that is not only unique and valuable but also difficult for competitors to copy or substitute.
One of the most important sources of growth opportunities is innovation. Innovation involves using new
Some of challenges of innovation involve choosing when and how to continue to innovate, the scope of
future innovation and the pace, as well as whether or not to collaborate with innovation partners. The
At Johnson & Johnson, Weldon was pursuing corporate entrepreneurship, which uses the fruits of the
innovation process to help firms build new sources of competitive advantage and renew their value
The concept of leadership involves the process of transforming organizations from what they are to what
the leader would have them become. See Chapter 11, Exhibit 11.1. This involves:
●Setting a direction
Leaders need to set the direction for the organization by continually scanning the environment to develop
knowledge of all stakeholders, and knowledge of salient environmental trends and events. Then leaders
Leaders are responsible for designing the organization: a strategic leadership activity of building
Difficulties in implementing the leader’s vision and strategies include a lack of understanding of
responsibility and accountability among managers, reward systems that do not motivate individuals and
A key role for leaders is to set a clear direction for the organization as a whole and to then facilitate the
movement of the organization towards this direction. In the past, this direction was defined rather loosely
Under Weldon’s new approach, there was a clearer direction and a more specific emphasis upon the steps
that must be taken. He wanted the business units to share their knowledge and learn from each other.
Gorsky appeared to still see value in J&J being a large diversified company across the whole health-care
continuum. But Gorsky had some work to do to convince the investor community that he was truly doing
sincere work to improve quality and transparency. J&J’s reputation had suffered. Stakeholders were
4. SECONDARY QUESTION: Why is synergy important for Johnson & Johnson?
Note: No PowerPoint slides accompany this discussion.
Referencing Chapter 8: Entrepreneurial Strategy & Competitive Dynamics
Johnson & Johnson’s Weldon had also been trying to grow by identifying entrepreneurial opportunities
that existed among his business units. Entrepreneurship involves the creation of new value by an existing
For an entrepreneurial venture to create new value, three factors must be present—an entrepreneurial
opportunity, the resources to pursue the opportunity, and an entrepreneur or entrepreneurial team willing
Entrepreneurs need to understand the concept of opportunity recognition: the process of discovering and
evaluating changes in the business environment, such as a new technology, socio-cultural trends, or shifts
in consumer demand that can be exploited. Good entrepreneurial opportunities are those that are attractive
Resources are an essential component of a successful entrepreneurial launch. The most important resource
is usually money, but human resources, strong and skilled management, is also an essential asset. Social
As previously noted, synergy due to shared resources is a key motivation for related diversification.
Through synergy, each business in a portfolio helps others, and in so doing, helps itself. As indicated
To spur growth, Weldon believed that the best entrepreneurial opportunities would come from increased
collaboration between its units. The firm had the ability to develop new products by combining its
Referencing Chapter 9: Strategic Control & Corporate Governance
Strategic control involves the process of monitoring and correcting a firm’s strategy and performance. In
a traditional control system, top management formulates strategies and sets goals. These strategies are
This approach utilizes two different types of strategic control: informational control and behavioral
control. These two types of control play a role in the formulation and implementation of strategies.
Informational control is concerned with whether or not the organization is “doing the right things”, while
behavioral control is concerned with whether or not the organization is “doing things right” in the
Although Weldon had believed in the power of behavioral controls – the culture and rewards created to
influence employees to “do things right” through the decentralized entrepreneurial structure – the firm
This illustrates how both kinds of control are necessary, especially in a decentralized structure.
Referencing Chapter 12: Managing Innovation and Fostering Corporate Entrepreneurship
Johnson & Johnson’s major challenge was to create a sustainable competitive advantage in the
marketplace that is not only unique and valuable but also difficult for competitors to copy or substitute.
One of the most important sources of growth opportunities is innovation. Innovation involves using new
Some of challenges of innovation involve choosing when and how to continue to innovate, the scope of
future innovation and the pace, as well as whether or not to collaborate with innovation partners. The
At Johnson & Johnson, Weldon was pursuing corporate entrepreneurship, which uses the fruits of the
innovation process to help firms build new sources of competitive advantage and renew their value
NOTE – ADDITIONAL READING AND WEB LINKS:
J&J prides itself on its history of product innovation. See this section of their website:
http://www.jnj.com/connect/about-jnj/company-history/healthcare-innovations/
J&J has pursued acquisitions to grow this business, as well as soliciting ideas and funding research from
prospective partners via their COSAT office, or J&J’s Corporate Office of Science and Technology. By
opening innovation centers around the world, J&J will be looking to identify promising early stage
Even though they also seem to be trying to encourage innovation between divisions, it still appears that
external sources are important. If you were an employee in a J&J division, how might you feel about this
obvious solicitation of ideas from outside the company?
Here is a list of the various divisions within J&J:
http://www.jnj.com/about-jnj/company-structure Based on the descriptions of their businesses, what kinds
of sharing regarding innovative technology might you expect to see? J&J has a challenge discovering and
developing new products in all its product categories.
The biggest news in 2007 was related to the acquisition and integration of the newest brands acquired
from Pfizer, such as Listerine, Zyrtec, Neosporin, Nicorette and others. J&J has the reputation for
“preserving the independence of the operations it acquires”, and seems to also encourage innovation in
J&J was completing its biggest acquisition ever in the medical devices division by purchasing Synthes,
and was most likely making plans for further acquisitions. See
http://www.bloomberg.com/news/articles/2012-05-01/j-j-new-ceo-s-takeover-watch-spans-edwards-to-st-
jude-real-m-a. However, analysts were suggesting Gorsky might better consider spending “J&J’s cash to
bolster quality control rather than relying on acquisitions to lift its shares…fix their current house before
they put on an addition.” How could any new businesses be successfully integrated into the company
while also including appropriate controls?
Is any new acquisition enough to generate overall growth?
