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Subject: Strategic Management

Code: MGT 4802

Assignment on Strategy Evaluation


of Johnson and Johnson

Submitted By
Group E
Yeahyea Khan (B1506024)
Fuhad Ahmed (B1506025)
Sajeed Mahmud Mahee (B1506045)
Izbath Tarik (B1506061)
Abdul Gaffar Sadi (B1506148)

Submitted To
Major General (Retired) Prof. Alauddin M A Wadud, BP

Date of Submission: 12 August, 2018


Letter of Transmittal
12 August 2018
Major General (Retired) Prof. Alauddin M A Wadud, BP

Bangladesh University of Professionals

Subject: Submission of assignment on “Strategy Evaluation of Johnson and Johnson”

Dear Sir,

Here is the assignment that we are assigned on the topic as per your request. The assignment has been
completed by the knowledge that we have gathered from the course “Strategic Management”

We have tried our level best to complete this assignment meaningfully and correctly, as much as possible. We would
be happy if you read the report carefully and we will be trying to answer all the questions that you have about the
assignment. If you need any assistance in interpreting this assignment please contact us without any kind of hesitation.

Thanking you.
Yours obediently,
Yeahyea Khan (B1506024)
Fuhad Ahmed (B1506025)
Sajeed Mahmud Mahee (B1506045)
Izbath Tarik (B1506061)
Abdul Gaffar Sadi (B1506148)

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Abstract
The purpose of this report is to justify the effectiveness of Johnson and Johnson’s strategies based on its
respective industry analysis and evaluation of both its own and competitors’ strategies. Johnson and
Johnson is a global American pharmaceutical, medical devices and consumer packaged goods
manufacturer founded in 1886. The pharmaceutical industry comprises of the companies that develop,
produce and market pharmaceuticals or drugs that are used as medications. There are at least 250
pharmaceutical countries all around the world. Among them, top ten companies in this industry own 40%
market share. Driving forces of this industry are innovation, globalization, changing definitions of value
and price, shifting health policy, reshaping value propositions across the healthcare ecosystem, rise in
consumer accountability and power, technology etc. The strategic initiatives of Johnson & Johnson’s
overall strategy, staff, structure, system and shared values are discussed and examine in this report. In
relation to Johnson & Johnson’s products, Porter’s five forces model is used to analyze the competitive
advantage of the firm. 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.
Strategic moves that rivals are likely to make and J&J’s value chain are also discussed in this study. The
recommendation part provides several suggestions for the improvement of Johnson & Johnson through
the organization structure and Human Resource Management.

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Acknowledgements
We would like to extend thanks to the many people whose generous contribution is present in this report.

Special mention goes to our enthusiastic faculty, Major General (Retired) Professor. Alauddin M A
Wadud, BP. Our class taken by him has been an amazing experience and we thank him wholeheartedly,
not only for his tremendous academic support, but also for giving us so many wonderful opportunities for
enhancing expertise on real world scenario.

Special mention goes to the authors of books, articles related to Johnson and Johnson and pharmaceutical
industry. I am also hugely appreciative to researchers whose hard work has been a great instructor for us.

Finally, but by no means least, thanks go to our family for almost unbelievable support. They are the most
important people in our world and we dedicate this study to them.

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Table of Contents

Content Page
1. Pharmaceutical Industry’s Dominant Economic Features 01
2. Competitiveness in Industry and Strength of Each Competitive Forces 03
3. Driving Forces of Pharmaceutical Industry 05
4. Competitive Position of Major Companies 06
5. Strategic Moves Rivals Are Likely to Make 09
6. Key Success Factors of Pharmaceutical Industry 12
7. Strategy of Johnson and Johnson in 2016 and 2017 14
8. Performance of Johnson and Johnson in 2016, 2017 and 2018(Till Now) 17
9. SWOT Analysis of Johnson and Johnson 19
10. Value Chain of Johnson and Johnson 20
11. Strategic Issues Faced by Johnson and Johnson 24
12. Conclusion 25
13. Recommendations 26
Reference 27
Individual Assignments 28

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1. Pharmaceutical Industry’s Dominant Economic Features
Market Size: The pharmaceutical industry comprises of the companies that develop, produce and
market pharmaceuticals or drugs that are used as medications. These companies can deal in brand or
generic medications as well as medical devices. The pharmaceutical industry, or pharma industry, is one
of the fastest-growing economic sectors with predicted worldwide sales of more than $1.3 trillion in 2018.
Approximately 44.5% of sales each year come from North America, with U.S. sales predicted to be more
than $370 billion in 2016.

Scope of Competitive Rivalry: Leading pharmaceutical companies are Roche, Phfzer, Abbvie,
Johnson & Johnson etc. With more than $1 trillion in global sales, pharmaceutical business can be
cutthroat. The huge importance of intellectual property results in strong competition for high-level
workers and leading researchers. Even strong nondisclosure and non-compete clauses cannot prevent the
leaking of competitive information. Any potential new drug has its public information analyzed for the
possibility of creating a similar drug to market as a substitute. The industry exhibits a pattern of firms
merging and larger firms buying smaller firms that have promising research or new drugs.

Market Growth Rate: In 2001, worldwide revenue was around 390.2 billion U.S. dollars. Ten years
later, this figure stood at some 963 billion U.S. dollars. In 2014, global pharmaceutical revenues for the
first time increased to over one trillion U.S. dollars. Its current growth rate is 9.5%

Number of Rivals and Their Relative Sizes: There are at least 250 pharmaceutical countries all
around the world. Among them, top ten companies in this industry own 40% market share.

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Top ten companies in this industry with respective revenue:

Number of Buyers and Their Relative Sizes: The US has the largest pharmaceutical market in
the world with a value of $339,694 million USD followed by Japan ($94,025 million USD) and China
($86,774 million USD). In Germany, the value of its pharmaceutical market is about $45,828 million USD
and in France, it is about $37,156 million USD. In Brazil, the value of its pharmaceutical market is about
$30,670 million USD. In Italy, the value is about $27,930 million USD. In the UK, it is about $24,513
million USD while in Canada it is about $21,353 million USD. In Spain, it is about $20,741 million USD.

Impact of Economies of Scale: It is easier for large firms to carry the overheads of sophisticated
research and development (R&D). In the pharmaceuticals industry R&D is crucial. Yet the cost of
discovering the next blockbuster drug is enormous and increasing. Several of the mergers between
pharmaceuticals companies in recent years have been driven by the companies' desire to spread their R&D
expenditure across a greater volume of sales.

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2. Competitiveness in Industry and Strength of Each Competitive
Forces
One model for examining an industry and a company's strategic position within its industry is Porter's five
forces analysis. The analysis looks at five competitive forces that influence an industry: threat of new
entrants, power of suppliers, power of buyers, availability of substitutes, and competitive rivalry in the
industry. How these five forces interact provides a good picture of the sector's dynamics and whether an
individual company is properly positioned for survival in the sector.

Threat of New Entrants: The big payoffs available in the pharmaceutical industry lead to a steady
flow of new companies being created. A team of researchers with a hot idea or newly granted patents can
find venture capital funds eager to provide millions of dollars in startup funding. These smaller companies
pose no serious threat to big pharma. In fact, one of a startup investor's main exit strategies is to sell out
to a big pharma firm when new products are through the initial development phase.

Power of Suppliers: Suppliers have very little power in the pharmaceutical industry. The raw
materials for manufacturing drugs are commodity products in the chemical industry, which are available
from numerous sources. Most of the equipment used in manufacturing and research is available from
multiple manufacturers. Suppliers usually offer multiple products to the manufacturer, which moderates
pricing on rarer materials and unique equipment.

Power of Buyers: Pharma is unique among industries because the medical patient has an absolute lack
of power regarding pricing. The prescriber of the drugs, the physician, ethically is not allowed to profit
from the sale of drugs. The entity that pays for the drugs, the insurance company, only has a say in how
much it will pay to the distributor of the drugs, meaning it has little power with the drug manufacturers.
The insurer can refuse to pay for treatments it believes are overpriced. The only entities with any
negotiating power are the pharmacies and medical institutions that fulfill the medical patients’
prescriptions. Even these entities have little power over newer drugs under patent or drugs with only one
manufacturer. Pharmacies focus on their profit margins and have little incentive to provide patients with
the lowest possible pricing.

Availability of Substitutes: The effect of substitutes is dependent on the individual drug. A new
FDA-approved blockbuster drug that has patent protection, treats a major health condition and is first to

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market in its category has a license to print billions of dollars. The development of a new drug that cures
a major disease could be worth tens of billions of dollars per year. However, the 30th drug to treat a
common condition could take years to recoup the R&D costs.

Once a drug loses its patents, generic drug manufacturers start selling copycat versions at substantially
lower prices. A drug that netted $100 million a year in profit could become one that earns only $1 million
a year in profit overnight. Additionally, there is a major international problem with counterfeit drugs. The
best of these counterfeits duplicates a real drug's formula and sells it at a lower price, which hurts corporate
profits. The worst counterfeits are made with low-grade materials and can destroy the reputations of the
legitimate products.

Competitive Rivalry: With more than $1 trillion in global sales, pharmaceutical business can be
cutthroat. The huge importance of intellectual property results in strong competition for high-level
workers and leading researchers. Even strong nondisclosure and non-compete clauses cannot prevent the
leaking of competitive information.

Any potential new drug has its public information analyzed for the possibility of creating a similar drug
to market as a substitute. The industry exhibits a pattern of firms merging and larger firms buying smaller
firms that have promising research or new drugs.

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3. Driving Forces of Pharmaceutical Industry
Many events affect pharmaceutical industry powerfully enough to qualify as driving forces:

Pace, Cost and Risk of Innovation: Increased pressure to bring products and services to the market
has led to a push toward patient-centric and personalized care models.

Impact of Globalization: Competition is global and emerging markets all over the world are
disrupting the industry. Meanwhile, adhering to government regulations around taxation, trade, approvals,
market access, and pricing continues to be a struggle.

Changing Definitions of Value and Price: Increasing pressure to lower drug prices and
nontraditional ways of serving patients, such as education, support, and self-administration, means pricing
is more value-based.

Shifting Health Policy, Legislation, Reforms, and Regulations: Government policy, funding
level, law, and regulation are constantly changing around the globe, and these continue to affect how life
sciences organizations operate.

Reshaping Value Propositions across the Healthcare Ecosystem: “Coopetition” has


become more common between organizations as they develop new business models and create winning
business strategies.

Rise in Consumer Accountability and Power: Patients will control most of the power due to
the growing impact of omni-channel communication between consumers and organizations.

The Role of Technology: Previous drivers impact business priorities, and the role of IT in life
sciences organizations has expanded as a result. The operating model of the future for life sciences is
centered around value to the patient and must happen on a global scale, all while maintaining compliance
to regulations.

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4. Competitive Position of Major Companies
Strategic group maps help to assess competitive positions of rival firms. A strategic group consists of
those rival firms with similar competitive approaches and positions in the market.

Strategic Group Map in Pharmaceutical Industry:

Group A consists of the companies Lundbeck and Servier. These companies are both of European origin
and both focus their attention upon one area of therapeutic medicine. Both companies spend a substantial
amount on sales force but are not overall therapeutic leaders. Use of Porter’s generic strategies (Porter,
1980) would classify these companies as pursuing a focused differentiated strategy.

Group B is interesting in that it includes all of the Japanese companies within the industry, i.e. Sankyo,
Takeda, Yamanouchi, Eisai, Ajinomoto, and Fujisawa, together with two recent European entrants,
Menarini and Orion. The only surprise in this group is Reckitt Benckiser an industrial company that is the
world number 1 in household cleaning but has a small pharmaceutical division. This group appears to
encompass virtually all the industry new entrants in recent years, who appear to have adopted a similar

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focused entry strategy based upon no more than two therapeutic areas and supported by a moderate-sized
sales force.

Group C comprises Mundi Pharma and Elan, both US drug delivery companies, together with UCB
Pharma, a niche speciality pharmaceutical company engaged in research and development in the fields of
allergic/respiratory diseases and disorders of the central nervous system. All three companies are pursuing
a focused differentiation strategy based upon a limited number of therapy areas.

Group D includes Ferring and Schering AG both niche pharmaceutical companies together with 3M,
Procter and Gamble and Solvay. These are all large diversified industrial companies with limited
pharmaceutical operations. All are focused upon four therapeutic areas and employ relatively small sales
forces. The exception is Ferring, which does not employ a conventional detailing force.

Group E encompasses Leo laboratories, a Danish company specializing in pharmaceuticals and animal
health, Merck KGAA, which is a German pharmaceutical company with a strong interest in generics, Ivax,
a US branded generic manufacturer, and Baxter, a US company specializing in hospital products. This
group is somewhat of a hybrid hence the dotted line on the mapping and includes a number of companies
that appear diverse, with both Merck KGAA and Ivax marketing generic products.

Group F includes Bayer and Lilly both companies that have recently experienced strong market changes,
Bayer with the withdrawal of its main product Lipobay and Lilly that lost 90% of its revenues from Prozac
following patent expiry. The third company, Shire Pharmaceuticals, recently underwent dramatic changes
following the removal of its chief executive. There is evidence from our research that all three companies
have reduced their promotional expenditure whilst considering their options.

Group G comprises Boehringer Ingelheim, Bristol Myers Squibb and Johnson and Johnson. All field good
sized sales forces and support a broad and not wholly congruent range of products both to the retail and
hospital markets. All three companies derive between 20% and 30% of revenue from sales to hospitals.

Group H consists solely of Roche, a company engaged in a number of healthcare related businesses and
that grew both organically and as a result of merger. Roche derives 40% of its revenues from the hospital
market and fields a number of specialised sales teams rather than the large, mainly GP oriented, field
forces typical of rival companies of a similar size. Roche employs a differentiated strategy aimed at a
broad section of the market.

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Group I occupies the middle ground within the pharmaceutical industry. The companies within this
strategic group include Abbott, Astra Zeneca, Sanofi Synthelabo, Schering Plough and Wyeth. All of these
companies derive more than 85% of their revenues from the retail pharmaceutical market. All, and
particularly Astra Zeneca, Wyeth and Schering Plough, are known for strongly targeted, aggressively
driven sales forces, which concentrate upon general practitioners. All with the exception of Schering
Plough have grown in part through merger or acquisition and all are pure pharmaceutical companies.
Sanofi Synthelabo and Novartis are the only members of this group with an interest in generic medicines.
These companies sell through high contact coverage of their targeted customer group and operate a
broadly differentiated strategy.

Group J includes Merck Sharp and Dohme together with Pfizer. These two companies have a lot in
common. They are both US based pharmaceutical companies renowned for large and high coverage
contact sales forces, high spending on research and development, and they derive more than 90% of their
revenues from the retail market. Support for this positioning appears in a recent book on Merck, which
cites the company’s executives as saying that Pfizer is their number one competitor (Hawthorne, 2003).

Group K companies span a broad range of therapeutic areas and derive up to 30% of their revenues from
sales to hospitals. All of these companies are the result of serial mergers and all face the problem of
sustaining their present size given declining industry research and development productivity. Given the
number of therapeutic areas that they are involved in, they all have large numbers of differently focused
sales teams to support and invest heavily in both product promotion and research. Their strategy, therefore,
is very much broad market and differentiated.

Group L companies appears to be stuck in the middle. Goldshield is a branded generic manufacturer and
relies largely on telesales to sell its products to retail chemists and hospital pharmacies rather than via
doctors. The company faces strong competition from generic manufacturers with a lower cost base.
Celltech is a biotechnology company that has been around a long time but which has yet to produce a
significant product. The company has grown through acquisition and derives the bulk of its sales from
products acquired from Medeva, one of its acquisitions. It is not apparent that either of these companies
has a clear positioning and the share prices of both companies have suffered recently. To denote this
somewhat hybrid group it is surrounded by a rectangular dotted line.

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5. Strategic Moves Rivals Are Likely to Make
Current and future strategies of the rivals of Johnson and Johnson are presented below based on their
recent annual reports and articles related to their strategies

Phfzer: The main strength of this brand is that six of their products are among the top pharmaceuticals
brands in India. It has an excellent R&D wing that continuously produces and innovate products. Due to
the strong brand name, Pfizer is regarded as one of the top Johnson & Johnson’s competitors. Their
strategic approaches:

 The drug giant will continue to develop its early-stage pipeline and look for ways to expand use for
existing products, but it's also looking to enhance its existing operations through needle-moving
acquisitions.
 Historically speaking, Pfizer isn't the type of company to "dink and dunk" its way to more sales and
profits. It's more than willing to take the plunge on huge deals, such as its $60 billion acquisition of
Pharmacia in 2002 and its $68 billion buyout of Wyeth in 2009. Pfizer is looking for ways to boost
business development within its innovative product portfolio. This means Pfizer is probably looking
at ways to boost its oncology offerings, or perhaps acquire drugmakers focused on certain types of
chronic-condition therapeutics.

Merck: This company has a huge portfolio of products and has an excellent R&D wing. Due to their
strong brand name in the pharmacy sector, Merck is considered as one of the top Johnson & Johnson’s
competitors. Their strategic approaches:

 Commit resources to achieve research breadth and depth in priority disease areas
 Prioritize disease areas based on unmet medical need, scientific opportunity, and commercial
opportunity
 Develop products that are highly valued by patients, payers, and physicians
 Sustain investment in innovation throughout product lifecycle
 Achieve scientific leadership in priority disease areas

Roche: This company has a great focus to R&D in their respective sectors. It is considered the biggest
biotechnology company and has about 14 biological products. Due to their great innovations in the

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pharmacy sector, Roche is considered as one of the top Johnson & Johnson’s competitors. Their strategic
approaches:

 Focusing on strong pipeline of differentiated medicines across a range of therapeutic areas


 Crafting strategy focused on innovation and advancing treatment in areas of high medical need
 Taking efficiency initiatives supporting optimal resource use, R&D productivity and commercial
reach
 Nurturing molecular information as an emerging key element in personalized healthcare strategy

Novartis: Their main focus is to research, develop, and market innovative products related to medicine
which will help to cure disease and to ease the suffering of people to help them live a quality life. Due to
their global reach, Novartis is considered as one of the top Johnson & Johnson’s competitors. Their
strategic approaches:

 They are finding new ways to harness the power of digital technology in all aspects of their business–
including R&D, sales and operations – to improve effectiveness and efficiency.
 They aim to strengthen their position in specific therapeutic areas in innovative medicines (including
oncology, cardiology, ophthalmology, and immunology and dermatology), as well as in biosimilars
and some specialty generics.
 Novartis continue to maintain its investment in research and development (R&D) at a level that is
among the highest in the industry.

Bristol Myers Squibb: This company produces new medicines regularly. Their core operations
include an array of new technologies which has strengthened the brand. Due to their strong focus on
innovative medicines, Bristol Myers Squibb is considered as one of the top Johnson & Johnson’s
competitors. Their strategic approaches:

 An innovative portfolio of new products targeted at serious unmet medical needs, or significant clinical
advancement over existing therapies
 A selectively integrated business model, which complements internal capabilities with external
innovation, streamlines manufacturing, creates a targeted approach to geographies and customers,
utilizes strategic partnerships with suppliers and competitors, and focuses on innovative sales and
marketing practices

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 Strong continuous improvement capabilities, simplified processes, enhanced efficiency and
effectiveness and aligned infrastructure to support growth

Amgen: It has a strong sales distribution network worldwide. The products of this brand are available
in almost 100 countries. Due to their brand and its presence everywhere, it is considered as one of the top
Johnson & Johnson’s competitors. Their strategic approaches:

 Their current focus is on developing innovative, breakaway medicines to address important unmet
needs. So they are allocating resources across the best of the internal and external programs available
to them within their core therapeutic areas.
 They have initiated programs to, among other things, reduce the time it takes to bring new medicines
to market, reengineer internal processes to make them as efficient as possible, explore new
technologies with the potential to further enhance the value we deliver to patients, and make working
at Amgen an attractive and dynamic long-term proposition.
 Earlier this decade, Amgen set a target of operating in 75 countries by 2015, which they have well
exceeded. Amgen medicines are now available to patients in approximately 100 countries worldwide.
They have been working actively to expand their presence by opening new affiliates and locations
around the world, pursuing smart acquisitions and acquiring global rights to market their products.

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6. Key Success Factors of Pharmaceutical Industry
Market Position: It covers comprehensive assessments on the company’s competitive market position,
which could be quantitatively and qualitatively determined using the company’s market share, size in
terms of sales value and volume, as well as its growth history and anticipated growth prospect going
forward. Brand recognition or brand equity is also important particularly for over the counter (OTC)
branded products. Strong market position leads to stronger bargaining power to distributors, hospitals,
physicians and retailers. In addition, the analysis considers any opportunities for having alliances with
other leading global pharmaceutical producers and additional licenses to grab potential new market.

Product Mix and Development: It includes risk assessments on the company’s diversification
strategy and policy in terms of demographic profile, products and market segments in an effort to maintain
steady revenue and profitability. Pharmaceutical industry is identical with high variety types of product
that generates wide range of profits. Management’s strategy to focus on higher margin products is
important.

Operating Management: It includes thorough reviews on how well the company manages its daily
business operation, as a failure to effectively and efficiently manage the operation would adversely affect
the company’s future operating results. The company’s cost control strategy and policy is also diligently
assessed, as the company’s strong ability to control costs is crucial, particularly for low margin nature of
generic pharmaceutical. Generally, larger players have competitive advantages, as they have stronger
bargaining power and economies of scale in purchasing, logistics and advertising. Condition and
utilization of the equipment and the integration of technological improvements will also become important
factors to achieve the company’s degree of efficiency in its operational activities. The analysis on
operating margins (EBIT and EBITDA) is also assessed by comparing the company’s ratios with other
players in the same industry or other industry with similar characteristic, which is important in analyzing
the company’s competitiveness. The analysis is helpful to measure operating efficiency.

Marketing and Distribution Channel: It covers thorough risks examinations on the company's
strategies to distribute products (how well the company adopts to the needs of retailers, how well the
distribution matches the retail forms, how well the company manages distributors, what kind of
linkage/relationship/agreement between the company and distributors) and examinations on others related

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factors that can ensure continuous product availability in the market in an effort to support sales. The
company’s ability to maintain good relationships with its business network (including with distributors
and retailers) as well as terms and condition of the cooperation are further assessed in rating determination.
Furthermore, risks assessments on the company's marketing, particularly OTC and ethical products,
including commitments on advertising, creativity on advertising, ability to identify targeted customers and
markets, ability to capture the trends in consumers' preferences, as well as ability to keep consistent
marketing strategy to build brand loyalty.

Financial Policy: It includes a review of management's philosophy, strategy and policies toward
financial risk (historical, current and future). It also includes examination of management's financial
targets (growth, leverage, debt structure and dividend policy), hedging and other policies in an effort to
reduce the company's overall financial risk (historical vs. future). The company's track record on fulfilling
its previous financial obligations is also examined to determine the degree of its commitments and
willingness and consistency to pay obligations on a timely basis.

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7. Strategy of Johnson and Johnson in 2016 and 2017
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.
All of Johnson & Johnson’s staff, structure, system, operating style and shared value form together and
work 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).

Staff: 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.

Structure: 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.

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Systems: 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.

Operating Style: 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 one'll help develop
or support exciting brands he/she knows/ while working on projects that have a direct impact on their
global, $35000 million sales in 2016.

Shared Values: 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

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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.

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8. Performance of Johnson and Johnson in 2016, 2017 and
2018(Till Now)
2016: J&J reported a revenue growth of 2.6% year-on-year during 2016. Pharmaceuticals Industry grew
at 7.7% in the same period. As a percentage of revenue, it spent 30.2% of its total revenues on COGS.
Pharmaceuticals industry average (COGS share of revenue) in the same period was 31.7%. J&J spent
12.7% of its total revenues on R&D. Pharmaceutical industry average R&D spending in the same period
was 15.6%. It spent 27.7% of its total revenues on Sales, Marketing, and General Administration (SG&A).
Pharmaceuticals industry average SG&A spending in the same period was 27.9%.

J&J spent 11.3% of its total revenues on Inventories. Pharmaceuticals industry average Inventory spending
in the same period was 13.1%. It invested 9.6% of its total revenues on Accounts Payable (A/P)
Pharmaceuticals industry average Accounts Payable investment in the same period was 12.4%. J&J
invested 16.3% of its total revenues on Accounts Receivable (A/R). Pharmaceuticals industry average
Accounts Receivable investment in the same period was 19.0%. It invested 22.1% of its total revenues on
Property, Plants, and Equipments (PP&E). Pharmaceuticals industry average PPE investment in the same
period was 26.2%. J&J invested 69.1% of its total revenues on Intangibles. Pharmaceuticals industry
average Intangibles investment in the same period was 161.8%. J&J’s net margin in the year 2016 was
23.0%. Pharmaceutical industry average net margins in the same period was 15.8%.

2017: Two major acquisitions changed the dynamics for Johnson & Johnson in 2017. The first was J&J's
purchase of Abbott Medical Optics from Abbott Labs for $4.3 billion. This deal was completed in
February, and brought a lineup of cataract surgery, laser refractive surgery and consumer eye health
products into J&J's fold to join the company's successful Acuvue contact lens business. Largely as a result
of this acquisition, J&J's medical device segment posted solid sales growth in 2017.

The bigger deal, however, was Johnson & Johnson's buyout of Actelion for $30 billion, which closed in
June. Some observers thought that J&J overpaid for the Swiss drugmaker. However, Actelion was
expected to give a shot in the arm to J&J's pharmaceutical segment -- and it did.

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A big question among Johnson & Johnson shareholders for 2017 was how autoimmune disease drug
Remicade, would fare against biosimilar competition from Pfizer (NYSE:PFE). It did Pretty good. While
Remicade sales slipped more than 9% year over year in the first nine months of 2017, it could have been
much worse.

Remicade remains a very important component of Johnson & Johnson's lineup. It's J&J's top-selling
product by far, generating nearly 10% of the company's total revenue in 2016. Even with the sales decline
in 2017, the drug will still represent close to 9% of total revenue.

Pfizer, however, isn't a happy camper. During the big pharma company's third-quarter conference call,
Pfizer CEO Ian Read said that Johnson & Johnson's "exclusionary contracting of Remicade" has unfairly
limited the uptake of Pfizer's Remicade biosimilar, Inflectra. As a result, Pfizer sued J&J for alleged
violation of antitrust laws.

Johnson & Johnson's strongest sales growth in 2017, however, came from its oncology lineup. Multiple
myeloma drug Darzalex should become a blockbuster in its first full year on the market in 2017.
Imbruvica, which won two new FDA approvals this year for treating marginal zone lymphoma and
chronic graft versus host disease, is on pace to make close to $2 billion in 2017.

2018(Till Now): Johnson & Johnson announced a total of $20 billion in sales in the first quarter of
2018, with growth reported in all three of its sectors: Consumer, Medical Devices and Pharmaceuticals.
The company's Pharmaceutical business, for instance, reported a worldwide sales increase of 19.4% in
this quarter.

But the stock market has gone through a correction to begin 2018, and healthcare giant Johnson & Johnson
(NYSE:JNJ) has been particularly susceptible to the market's declines. A 7% decline so far this year isn't
a huge downward move, but it still flies in the face of beliefs among many investors that the company's
solid performance in 2017 reflected its stability in the face of market uncertainty.

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9. SWOT Analysis of Johnson and Johnson
Strengths:

 Abundant financial resources


 Strong brand name
 Proprietary technology
 Respected brand image
 Wide product lines
 Economies of scale
 Committed employees
 Superior product quality
 Better marketing skills
 Good distribution skills

Weaknesses:

 Low customization
 Lack of flexibility

Opportunities:

 Opening of foreign markets


 Rapid market growth
 Demographic shifts

Threats:

 Low barriers to entry


 Economic downturn
 Introduction of new substitutes products
 Rival firms adopting new strategies

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10. Value Chain of Johnson and Johnson
The value chain map of Johnson and Johnson frames the boundaries of their impacts, and helps them
better understand and leverage opportunities together with stakeholders.

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J&J's corporate vision, "to maximize 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.

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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 an online Baby Care Library
to increase the closeness in customer interaction.

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11. Strategic Issues Faced by Johnson and Johnson
 Global standardization, which is adopted by J&J, is the main international business strategy to control
cost but this is also its drawback that results in the low customization. In addition to the world-wide
product structure, the managers don’t have required flexibility to face the challenge of changes in local
markets.
 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.
 Many times, Johnson and Johnson products have been found to have ingredients which could be
carcinogens. Similarly, these ingredients have been banned in the US and other countries. Repeatedly,
these fight against harmful ingredients has affected the brand image of Johnson and Johnson.
 Due to the presence of strong global competitors who provide alternative & substitute products J & J
is facing stiff competition. Also local players who are offering generic products are also affecting the
business.

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12. Conclusion
The pharmaceutical industry comprises of the companies that develop, produce and market
pharmaceuticals or drugs that are used as medications. These companies can deal in brand or generic
medications as well as medical devices. The pharmaceutical industry, or pharma industry, is one of the
fastest-growing economic sectors with predicted worldwide sales of more than $1.3 trillion in 2018.
Approximately 44.5% of sales each year come from North America, with U.S. sales predicted to be more
than $370 billion in 2016.

J&J adopted the business strategy of global standardization because its 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. All 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 products are the result of synergy and quality
reassurance as promise by the company. Though they are one of the market leaders in pharmaceutical
industry, they are currently facing some strategic issues that can be terminated by our proposed
recommendations.

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13. Recommendations
 J&J should adopt a more centralized approach to management to encourage employees in the sharing
of information and knowledge across subsidiaries. This can be done so by firstly, implement a standard
IT system that is accessible to all employees whereby it will allow the headquarters of J&J to have
better control and oversee the company's operations effectively. In terms of decision making, J&J
should try to make faster decisions on a smaller scale (i.e. consulting the top executives overseeing
regional operations - Asia, Oceania, Europe, Africa) since emphasis is to be based on consensus
decision making. This would indicate J&J's respect for the opinions made by majority.
 To respond to changing global business conditions, J&J would need to be engage in initiatives
including developing rewards and incentives upon achieving corporate goals as well as increase cross-
company transfers so that employees are able to engage in both information dissemination and sharing
of experiences. Although J&J has a strong collaborative relationship with its suppliers, J&J might
want to consider the choice of outsourcing for it would help to bring down its cost of production of
consumer products under competitive conditions and ultimately, allow J&J to attain global effectively
and efficiency.
 Since J&J hires employees based on ability and experience, expatriation or inpatriation (i.e. possible
physical relocation of staff) would help to strengthen J&J's corporate structure whereby employees
from different cultures and backgrounds can work together in a global perspective and J&J would be
able to draw knowledge and innovative ideas from its subsidiaries around the world.

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Reference
 Annual Reports of Johnson and Johnson from the Year 2015-2017.
 Annual Reports of Phfzer from the Year 2015-2017.
 Annual Reports of Merck from the Year 2015-2017.
 Annual Reports of Roche from the Year 2015-2017.
 Annual Reports of Novartis from the Year 2015-2017.
 Annual Reports of Amgen from the Year 2015-2017.
 Quarterly Report of Johnson & Johnson on First-Quarter of 2018
 Graham, L. Strategic Group Theory: Review, Examination and Application In the Pharmaceutical
Industry (2014). Oxford University Press, New York.
 Kenhan, R. Top Johnson & Johnson Competitors (2018). Retrieved from
https://www.marketing91.com/johnson-johnson-competitors/
 Morgan, K. Johnson and Johnson Strategic Plans (2017). Retrieved from
https://www.ukessays.com/essays/business/strategic-global-business-solutions-report-on-johnson-
and-johnson-business-essay.php
 Eric, W. The Industry Handbook: Pharma Industry (2016). Retrieved from
https://www.investopedia.com/articles/markets/051316/industry-handbook-pharma-industry.asp
 Keith, S. Why 2017 Was a Year to Remember for Johnson & Johnson (2017). Retrieved from
https://www.fool.com/investing/2017/12/19/why-2017-was-a-year-to-remember-for-johnson-
johnso.aspx
 Demitrios, K. Why Johnson & Johnson Stock Has Lost 13% So Far in 2018 (2018). Retrieved from
https://www.fool.com/investing/2018/07/12/why-johnson-johnson-stock-has-lost-13-so-far-in-
20.aspx

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Individual
Assignments

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Sajeed Mahmud Mahee
ID: B1506045

European Pharmaceutical Review


Behind the Numbers: The Pharmaceutical Industry and
Global Health
By Cristina Arnés
June 09, 2018

The most indisputable of all facts on global health is that we’re living longer and healthier lives than ever,
and in an era of continuous health improvement. What were once considered life-threatening diseases are
now manageable conditions, and not just for patients, but for our health systems also.

Where Hepatitis C, for example, would have in the past required a long-term treatment and lately liver
transplant that significantly reduced a patient’s quality of life, medical advances mean that 90-95% of
patients can now be cured after receiving an 8-12 week treatment. Peptic ulcers, previously carrying a
300-day recovery post-surgery and a hefty $17,000 price tag, can now be simply treated thanks to the
antibiotics ‘revolution’, keeping patients without the need for invasive surgery and expensive hospital
beds for under $1,000.

Sustainable Healthcare: What these figures unequivocally show is that improving patients quality of life
and reducing health system pressures are both possible through the valuable contribution of the research-
based pharmaceutical industry, ultimately leading to healthier, more productive and sustainable societies.
The International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) 2017 Facts &
Figures report and microsite put forward a snapshot of this value using statistics that are difficult to contest,
easy to remember, and an indispensable reference to explain how innovation must be fostered to continue
generating this value for society.
Research and Development: The research-based pharmaceutical sector is one of the most innovative in
the world, saving millions of lives. Literally billions of dollars are spent every year developing the drugs
to combat HIV/AIDS, diabetes, cancer and other serious illnesses. More than software and computer
services and other high tech industries. The effort is mammoth: of over 7,000 compounds under
researcher’s microscopes in 2015, 56 were launched as new medicines.

Economic Footprint: The report is built around three sections. The first deep-dives into statistics on the
scale of pharmaceutical innovation. The second looks at the global health landscape and looks at increased
life expectancy, decreased infant mortality and the scale of the budgetary burdens of aging populations.
Finally, the economic footprint of the pharmaceutical industry is quantified as positively affecting society
and economic growth: from the 40% of the industry’s jobs created by IFPMA members alone, to the
market expansion in “pharmerging” countries, to the global brand spending forecasted to reach $815
billion by 2021.

Positive Progress: The research-based pharmaceutical industry has a unique role developing new and
improved medicines to prevent and treat diseases. Five-hundred million people have been immunised
since the turn of the century. Deaths from measles were down 79% between 2000-2014. HIV/AIDS
related deaths have more than halved between 2005 and 2015, thanks to new treatments and better access
for patients.

Strategic Alliances: With results like this, we demonstrate our ongoing commitment to foster innovation,
advance global health, and build strong strategic alliances across the world that benefit the whole of
society. As an advocacy tool, this compendium of facts demonstrates that the pharmaceutical industry is
here to improve the health of our populations and support the efficacy of our healthcare systems, working
as one of the combination of vital actors needed at the global health table. IFPMA members can bring the
R&D and scaled outputs needed for us to be greater than the sum of our parts when we work together with
systems and policy makers, to bring better healthcare to patients around the world.

Global Health Community: This is an exciting, quantifiable moment for healthcare advances, but the
pharmaceutical industry must at the same time keep looking forward, constantly rethinking how to
maximise positive impacts. This means continuing to work together with the other actors in the global
health community, while doing what we do best: analyzing the changes in patients’ needs and responding
with new medicines to keep society healthy.
Epidemic threat: As the industry also works together to become better prepared for global health threats
and epidemics like Ebola and pandemic influenza, scientists, manufacturers and governmental institutions
will all need to continue to join forces to develop, test, and introduce new medicines and vaccines to save
lives.
Behind the Numbers: The Pharmaceutical Industry and
Global Health

SYNOPSIS
Now we are living longer and healthier due to continuous improvement in pharmaceutical industry.
Diseases that were considered life threatening in the past are now manageable for both patients and health
system. Medical advances including antibiotics revolution keep patient away from long time treatment
and risk of decreased quality of life.

Improving patients’ quality of life and reducing health system pressures are possible through the valuable
contribution of the research-based pharmaceutical industry. These ultimately leads to healthier, more
productive and sustainable societies. Innovation must be fostered to continue generating this value for
society. The research-based pharmaceutical sector is one of the most innovative in the world. Literally
billions of dollars are spent every year to develop the drugs for serious illnesses.

The economic footprint of the pharmaceutical industry is also positively affecting society and economic
growth by job creation, market expansion etc. The research-based pharmaceutical industry has a unique
role developing new and improved medicines to prevent and treat diseases. Five-hundred million people
have been immunised since the turn of the century.

Pharmaceutical sector demonstrates its ongoing commitment to foster innovation, advance global health,
and build strong strategic alliances across the world that benefit the whole of society. It is here to improve
the health of the people and support the efficacy of our healthcare systems, working as one of the
combination of vital actors needed at the global health table.

Though it is an exciting moment for healthcare advances, the pharmaceutical industry must keep looking
forward, constantly rethinking how to maximize positive impacts. So they need to continue working
together with the other actors in the global health community. The industry also works together to become
better prepared for global health threats and epidemics. Therefore, scientists, manufacturers and
governmental institutions will need to continue to join forces to develop, test, and introduce new medicines
and vaccines. It will help them do what they do best: saving lives.