Assessment of Johnson & Johnson's Business Strategy

Part One

Johnson & Johnson are a family of companies operating through three segments: Pharmaceuticals, Medical Devices and Consumer Health Care. Within the pharmaceutical segment, operated in Switzerland by Janssen, medicines are developed and shipped worldwide to thousands of patients. The medical devices sector, run by DePuy Synthes is responsible for ‘the world’s most extensive portfolio of orthopaedic products and services’ including joint reconstruction, spinal surgery and neurosurgery (Johnson & Johnson, 2019). Within the consumer health care sector, Johnson & Johnson provide its consumers with various products ranging from over the counter medicines to its world-renowned baby products. 

Johnson & Johnson was founded in 1886 by three brothers with the aim to create a line of ready to use surgical dressings. The company started with just 14 employees but over the years, Johnson & Johnson has grown an extensive portfolio of facilities spanning across 60 countries with an impressive 265 manufacturing plants. The company now employs 126,500 people around the world with net earnings of $16.540 billion. (Johnson & Johnson, 2019)

Company Milestones

Johnson and Johnsons company strategy is encompassed in its principles as outlined in its vision, mission, values and goals (credo). It sets out the long-term plans and direction of the company. If we begin with the company’s vision, often defined as a broad and undefined concept, De Wit (2017, p.54) describes it as being an organisation’s ‘strategic intent’, ‘envisioned future’ or ‘aspiration’. Johnson and Johnsons simplistic vision ‘be yourself, change the world’ is a broad representation of where it plans to be in the future. Being comprised of 126,500 employees, Johnson and Johnson aspire to advance its unique culture ‘to spark solutions that create a better healthier world’. A clear vision provides direction on where an organisation would like to move to and from Johnson & Johnsons vision, it is evident that diversity and inclusion is at the forefront of its future. The vision is explored in more detail in the companies Credo where Johnson & Johnson strive to ‘provide an inclusive work environment where each person must be considered as an individual’ and have their diversity and dignity respected and their merit rewarded’ (Johnson & Johnson, 2019).

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De Wit (2017) indicates that there are four constitutive components that lay at the heart of any clear vison. Focusing on the envisioned contextual environment element in De Wits theory, it is claimed that the external environment plays a vital role in the future of an organisation. This can be linked to the socio-cultural factors such as ethnicity, culture, religion, level of education as well as the attitudes of society that have all been considered by Johnson and Johnson when considering its vision. This leads us to the company’s mission. De Wit (2017, p.51: Johnson et al., 2017, p.7) describes a mission as being a purpose, a driver or a duty able to send people towards a direction which is the final state described in the vision of the organisation. Johnson & Johnsons mission to ‘make diversity and inclusion how we work every day’ is strongly supported by the vision. In reflection back to Activity 2.2, how a mission statement is written or how we interpret it can reveal key aspects about an organisation (Open University, 2019). In the case of Johnson and Johnson, it is clear that its mission is to ‘make diversity and inclusion its way of doing business’. Johnson et al. (2017, p.7) suggests that a company’s mission statement should answer the following questions. What is our business? What would be lost if the organisation didn’t exist? How do we make a difference? Why do we do what we do?

However, when applying the above theory to their mission, it could be implied that Johnson & Johnsons mission is lacking a few qualities due to its succinctness. Indeed, Johnson and Johnson do set out how they make a difference (diversity and inclusion) but due to the conciseness of its mission, the other elements set out in Johnson et al’s (2017) theory are lost.

Values are an important part of any strategic framework and so Hill et al. (2014, p.16) considered values to be the ‘bedrock of a company’s organisational culture’. Values define by the attributes and beliefs that inspire behaviour in the workplace. The foundation of Johnson & Johnsons strategic framework is outlined in the Credo. The Credo serves as a reminder of the standards upheld at Johnson & Johnson in correspondence with its aspirations as a company. Between the Credo and its aspirations, the values that guide Johnson & Johnsons decision making are identified, with its end users at the forefront of its responsibility. Johnson and Johnson mention its customers, employees, communities and stockholders in its Credo, where it claims they are challenged ‘to put the needs and well-being of the people’ they serve first (Johnson & Johnson, 2019). It is important to note that values are not fixed and can change over time. It is vital that values are not too fluid and can be adapted as change comes around.

Schwartz and Bilsky (1987) suggests that there is a distinct link between values and motivational goals. We can see Johnson & Johnson’s goals set out in its Health for Humanity 2020 Goals report. These goals tie in well with the company’s mission. The goals are a representation that Johnson and Johnson are constantly pursuing its mission. One of the goals that stands out from the report is the 5-year aim to ‘help people be healthier by providing better access and care in more places around the world’ (Johnson & Johnson, 2019). The company have proved that they are advancing on their goals already by ‘providing more than 160 million doses of medication to children in underprivileged areas’. In doing this, the company’s actions are supporting its mission’ (Johnson & Johnson, 2019).

The company’s vision, mission, values and goals all support its foundation of strategic framework, by always ‘putting the people first’.

Part Two

It is important to note why performance is linked to strategy. If we can establish why an organisation has performed poorly, it is easier to identify and in turn, take corrective or preventative actions. Johnson et al (2017, p.4) suggests that strategies to do with the ‘long term direction of an organisation’ should be measured over time. We can see this in the data provided from Johnson & Johnsons financial summary.

First looking at the annual revenue and profit over the years there has been a steady increase since 2015. Annual Revenue for 2016 was $71.89 billion, then 2017 was $76.45 billion, a 6.34% increase from the previous year. In 2018, the annual revenue was $81.581 billion, which was up 6.71% from 2017. The overall summary tells us that Johnson & Johnson are making profits from their goods and services. In 2014 revenue increased by 4% and this could be attributed to the 15% growth in the company’s pharmaceutical segment. The evidence suggests that the increases like this can offset any declines in other segments of the business. Johnson and Johnson create value through meaningful innovation by engaging with the consumer to find out what they want/need. It could be argued that by engaging in this way with its stakeholders, Johnson and Johnson has a competitive advantage in the market (Giarratana, 2013). Afterall, value is perceived benefit to the customer.

We can tell from the ROE that Johnson and Johnson are capable of generating value for its owners however in 2016 the ROE took a slight dip, presumably due to an increase in the cost of interest cover on the company’s long-term debt. The steady measure of ROCE tells us that there is good value capture as well as value creation and that the capital invested in Johnson and Johnson created a positive return for its shareholders. However, in 2017 the ROCE decreased, possibly due to an increase in market share or the launch of new products. Johnson and Johnson are such an extensive firm and its financial measurements show that it is capable of accumulating profit and investment year after year as well as having the ability to acquire and grow assets within the company.

The data shows that the EBIT Margin (ROS) has decreased over the last 3 years which may pose a concern as it indicates that the firm may be struggling to generate a return from its sales. Nevertheless, the ROS shows that Johnson and Johnson still have a worthwhile market position. The decrease over the past 5 years may be down to production costs or marketing issues. The market value of Johnson and Johnson was 376,196 billion in May 2019. (Johnson & Johnson, 2019)

Part Three

Friedman (1970) contends that ‘as long as a firm keeps within the law, its only social responsibility is to increase profits’ for its Shareholders. However, over the years this theory has been challenged due to various cases of corporate misconduct which include the Enron corporate fraud scandal (Open University, 2019). This has led to an emergent welcoming approach to stakeholders. Thompson (1967) defines Stakeholders as ‘any group or individual who can affect or is affected by the achievement of the organisation’s objectives’. Nowadays though Stakeholders urge companies to account for more than profit maximisation. In its credo, Johnson & Johnson identifies end users of their goods and services e.g. doctors, patients and parents as well as business partners, employees, the community and stockholders as its stakeholders. Corporate social responsibility is a vital cog in a company’s strategy in that customers want to buy products or use services from companies that they trust in the same way that employees want to work for companies they respect. In satisfying each of their stakeholders’ groups, Johnson and Johnson are maximising their commitment to their investors. Put simply, the stakeholders are interlinked in some way. One benefits when another’s needs are being met. For example, if employees are respected and looked after, then customers will get the best products available which in turn means more sales leading to an increase in profits for the shareholders and investors alike.

It is worth considering if all stakeholders receive equal consideration. Johnson and Johnson don’t have unlimited resources, so it begs the question, how does it engage in stakeholder prioritisation? If we consider Hill et al. (2017, p.352) Stakeholder Analysis, and apply it to Johnson and Johnson, we can identify the stakeholders to whom it should be catering to. Firstly, Johnson and Johnson have already clearly identified its stakeholders in both its credo and health for humanity report and have identified their interests and concerns in the form of issues and method of engagement. However, the report doesn’t clearly outline any claims made by its stakeholders. Nonetheless, based on the stakeholder’s interests and concerns as already identified in the Health for Humanity report, there could be potential claims such as, shareholders wishing to increase profits at the expense of lower prices or employees demanding higher wages. Although Johnson and Johnson have identified issues within each stakeholder category, it is very vague and doesn’t offer much description or insight. From the employer’s perspective and as set out in its Credo, it would seem that its employees are high on Johnson and Johnsons stakeholder’s priority. The report points out that as a company it ‘must support the health and well-being of employees and help them fulfil their family and other personal responsibilities’ and ‘outside of work, employees are supported as they volunteer their time and resources to activities that support their local or global communities’ (Johnson & Johnson, 2019). However, in the company’s credo, Johnson and Johnson state ‘we believe our first responsibility is to the patients, doctors and nurses, to mothers and fathers and all others who use our products and services’. Therefore, both customers and employees are at the top of their list. This makes perfect sense as both are key to the company’s success, growth and profits. 

Johnson & Johnson claim to have created its credo long before anyone had heard of ‘corporate social responsibility’. In their credo, which acts as a ‘code of ethics’, Johnson & Johnson have encompassed its ethical, social and environmental responsibility as a company. Carroll (1991) claims in his pyramid of corporate social responsibility that ‘socially responsible companies should demonstrate ethical conduct and act as good corporate citizens, going beyond the responsibilities of making money and abiding by the law’. Johnson and Johnson show that they can exceed their legal obligation in their support of our communities. They do this by helping ‘people to be healthier by supporting better access and care in more places around the world’ as well as being ‘good citizens, supporting charities, better health and education, and bear a fair share of taxes’. This falls under the Philanthropic responsibility as set out in Carroll’s pyramid. Johnson and Johnson want to contribute their resources to the community in order to provide a better quality of life for others. Overall, ethically speaking, Johnson and Johnson seem to want to do what is right, just and fair and as suggested in their Health for Humanity Report. Johnson and Johnson go a step further in stating that their corporate leaders must be ‘just and ethical’ in their actions. Johnson and Johnsons Corporate Contributions Report contains the list of programs that it supports including ‘saving the lives of women and children, preventing disease and strengthening the health care workforce’. This evidence suggests that Johnson and Johnson are not shirking their ethical or philanthropic responsibilities in any form. We can link this evidence of CSR back to the company’s vision, mission and goals which reaffirms that Johnson and Johnson are a company setting out to ‘put people first’ (Johnson & Johnson, 2019).

Part Four

Throughout the module so far, I have learned to develop my ability to think/analyse critically as well as learning how to build and structure an argument.

In developing my critical thinking skills, I have learned to question what I am reading or what is being said to me. I have learned to ask myself a few questions in attempt to continue my train of critical thought. I ask myself the following set of questions which I find helps:

• Does this make sense?
• Does this stack up against what I already know?
• Am I looking at this objectively?
• Is there evidence to back up the claims being made?

I found activity 4.3 Exploring CSR really helped me to develop my critical thinking/analysis skills. I was able to test the reliability of the information provided to me in the video. I looked for validity and evidence to back up the points I wanted to make. I watched the video twice to see if it could be viewed subjectively and in doing so checked that it lacked bias.

As well as developing critical thinking/analysis skills, I also developed my skills on how to structure an argument. I learned the importance of evidence and how its presence in the argument helps to back up the claim being made. I found that Activity 2.5 Boeings Goals particularly helped me to gain a better understanding of how to build an argument by breaking it down into Claim, Evidence, Warrant and Qualification. 

On the flip side of my development, I have found managing time more difficult with this being my first level 3 module. However, I had to learn quickly to draw up a comprehensible timetable that allowed me to structure my study time into my daily schedule. In the timetable, I have also factored in my full-time job and family time. I think I have finally struck a good balance now and am managing time much better.

References

1. Carroll, A. (1991) ‘The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders’, Business Horizons, vol. 34, no. 4, pp. 39–48.
2. de Wit, B. (2017) Strategy Synthesis: for Leaders, Andover, Cengage Learning.
3. Friedman, M. (1970) ‘The social responsibility of business is to increase its profits’, New York Times, 13 September, pp. 122–6.).
4. Giarratana, M. (2013) Strategy Notes, Milano, EGEA Tools.
5. Hill, C. W. L., Jones, G. R. and Schilling, M. A. (2014) Strategic Management: Theory, 11th edn, student edn, Stamford, Cengage Learning.
6. Hill, C. W. L., Schilling, M. A. and Jones, G. R. (2017) Strategic Management: An Integrated Approach, Theory and Cases, 12th edn, Boston, Cengage Learning.
7. Johnson, G., Whittington, R. and Scholes, K. (2017) Exploring Strategy, 11th edn, New York, Pearson.
8. Macrotrends.net. (2019). Johnson & Johnson Market Cap 2006-2019 | JNJ. [online] Available at: https://www.macrotrends.net/stocks/charts/JNJ/johnson-johnson/market-cap  (Accessed 11 Nov. 2019)
9. Schwartz, S. H. and Bilsky, W. (1987) ‘Toward a universal psychological structure of human values,’ Journal of Personality and Social Psychology, vol. 53, no. 3, pp. 550–62.
10. The Open University (2019) ‘B302 Week 2: Vision, mission, values and goals’ [Online]. Available at https://learn2.open.ac.uk/mod/oucontent/view.php?id=1442804§ion=4 (Accessed 11 November 2019).
11. The Open University (2019) ‘Activity 2.5: Boeing’s Goals, B302 Week 2: Vision, mission, values and goals’ [Online]. Available at https://learn2.open.ac.uk/mod/oucontent/view.php?id=1442804§ion=8  (Accessed 11 November 2019).
12. The Open University (2019) ‘B302 Week 3: Understanding Performance’ [Online]. Available at https://learn2.open.ac.uk/mod/oucontent/view.php?id=1442817 (Accessed 11 November 2019).
13. The Open University (2019) ‘B302 Week 4: Corporate social responsibility’ [Online]. Available at https://learn2.open.ac.uk/mod/oucontent/view.php?id=1444552 (Accessed 11 November 2019).
14. The Open University (2019) ‘Activity 4.3: Exploring CSR Strategies, B302 Week 4: Corporate social responsibility’ [Online]. Available at https://learn2.open.ac.uk/mod/oucontent/view.php?id=1444552§ion=5.1 (Accessed 11 November 2019).