CASE: Building a magical organization at Johnson and Johnson The typical pharmac

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CASE: Building a magical organization at Johnson and Johnson

The typical pharmaceutical MNE emphasizes global integration, given its steep product development costs and potential scale economies. However, it must respond to local market conditions, obtaining government approval for its product in various countries and establishing local sales, support, and distribution systems. Consequently, headquarters and subsidiaries jointly implement the company’s strategy. Building an organization that can meet this mission is tough. One standout that does is Johnson & Johnson (J&J).
Since the start of its U.S. operations in 1886, J&J has evolved into the most broadly-based health-care company in the world. international activity began in 1919 with J&J Canada. Headquartered in New Brunswick, New Jersey, J&J now lists some 275 operating units in 60 countries. Approximately 55 percent of its $75 billion in sales occurs outside of the United States. Its diversified portfolio of anti—infective, cardiovascular, dermatology, immunology, and oncology products rests on more than 55,000 U.S. and foreign patents. Some, though, believe the intricacy of the company’s organization, in terms of its decentralized structure, sophisticated coordination and control systems, and Credo-based culture, anchors its superior performance.

The “Magic of Decentralization”

Decentralized management is the heart of J&J’s organization. It allows managers who are closest to customers and competitors to make decisions. As the company says,
‘it aims to be big and small all at once, building its global reach from the integration of many small units. By design, each of its 275 units operates with substantial autonomy. commanding the authority to act as it believes best given its read of local conditions. Each performs as its own business, entrepreneurial in character, and aware that success depends on anticipating local customers’ needs and delivering solutions.
Decentralization, explains Ralph Larsen, former CEO, “gives people a sense of ownership and control—and the freedom to act more rapidly.”‘ His successor, William Weldon, concurs, adding that reducing bureaucracy, liberating initiative, and rewarding enterprise—the hallmarks of a decentralized organization—is the wellspring of the “magic around J&J.” Moving decision-making from headquarters to the front lines helps a large, globe-spanning MNE capture the qualities typically found in smaller companies. Certainly, a top-down hierarchy delivers benefits. Still, J&J reasoned that centralization reduces the magic cast by entrepreneurial drive, close customer contact, and agile decision-making. Shortening chains of command, increasing spans of responsibilities, and breaking down boundaries in a decentralized organization gives everyone a strong sense of ownership of action and accountability for outcomes.
These outlooks, Larsen explains, make the managers running J&J’ s 275 operating units intensely competitive, both with each other as well as rivals. Furthermore, managers that directly shape their future are driven to innovate, translating ideas into new products and insights into better processes. Backstopping their efforts are the deep Pools of resources and capabilities that one finds in a large, successful MNE.

J&J’s successful decentralization attracted talented, bright, and motivated people. The authority to make decisions, Weldon noted, encouraged them to dream big dreams, keen to test new ideas that improved their While often found in small companies, these entrepreneurial outlooks and orientations are seldom seen in large MNEs. As such, senior leadership believes the company's ability to simultaneously achieve local effectiveness and global efficiencies sustained its competitiveness.

The Dilemma of Decentralization

local autonomy and global integration, spurs tightening coordination and control systems. Communication channels cut across the organization, thereby helping far-flung units share ideas. Self-directed councils— for research, engineering, and operations, among others-meet regularly to swap ideas. Headquarters negotiates planning formats, scheduled mandatory reports, and formally reviewed budgets and interim results. Senior executives push a global perspective into local decision-making. Likewise, local objectives influence global discussions.

Pressures to integrate operations due to market trends, competitors' moves, and shifting technologies push J&J to centralize some activities. These changes, while understood, are not entirely welcome. Some local units resist integration, arguing that global standards poorly fit their unique circumstances. Senior executives acknowledge these concerns and reiterates their commitment to decentralize decision-making. They argue, however, that leveraging core competencies, as well as capturing location and scale effects, means that when J&J rolls out a key product or process, country operations worldwide roll with it.

J&J has recentralized some activities from operating units. Senior executives set standards for issues common to all operating units, such as finance, science and technology, government affairs, and quality management. It has installed centralized reporting processes for key business functions, including manufacturing and quality control. Centrally managing common support activities, senior executives reason, frees operating units to focus on their day-to-day performance.

Culture and the Credo

J&J's philosophy held that people who understand how the company creates value, are familiar with the company's Competencies, and are culturally and physically close to the market ought to run the local business. Thus, for example, baby oil managers in Italy decide how big a bottle to use, even if that bottle differs from the one sold in Germany, Japan, or Mexico, given their sense of the local marketplace.

J&J entered markets by adding subsidiaries through investment, alliance, or acquisition. New units do not fear being overrun by legions of expatriates directed by headquarters-based generals because, with few exceptions, host-country citizens direct local subsidiaries –indeed, a common view holds that “companies love to be acquired by J&J because they don't mess with you."130 Granted, headquarters installs coordination and control systems and negotiates performance targets. But, then it steps aside, supporting subsidiaries as needed, patiently awaiting superior results, yet always prepared to intervene in the event of shortfalls.

High degrees of autonomy created dilemmas for local management. At one point, the centralization decentralization balance had tipped so unevenly that the directors of J&J's foreign subsidiaries acted as kings of their own countries. For example, J&J launched Tylenol in 1960 as an over-the-counter pain reliever in the United States. Although it was available to local operating units shortly thereafter, the Japanese unit did not begin local sales until 2000.131

This sort of situation no longer exists. Yes, the company's commitment to decentralization endorses delegating authority to local managers. Headquarters however, increasingly relies on coordination and control systems to ensure that subsidiaries optimize local activities while supporting global performance.

Inconsistent market development and duplicated efforts fan friction between headquarters and subsidiaries. Tempting as it was to adopt a policy of benevolent tyranny J&J's proud legacy encourages otherwise. It relies on its organizational culture to add a global orientation to local entrepreneurialism. From the CEO to the employees of the smallest unit, management believes that the people and their values are the firm's greatest assets.

Senior executives note that rank-and-file workers have created product breakthroughs, process innovations, and customer insights. In and of itself, such praise is not terribly unusual. Many companies-perhaps even some that you have worked for-have likely expressed similar sentiments. Separating J&J from the pack is the primacy of its organizational culture, as embodied in “Our Credo." Crafted in 1943 by Robert Wood Johnson, company chair from 1932 to 1963, this one-page ethical code of conduct states how J&J fulfills its responsibilities. Former CEO Larsen called it the "glue that binds this company together."

The Credo specifies who and what to care about and in what order. J&J's "first responsibility is to the doctors, nurses, patients, mothers, and fathers who use our products

Herding 275 SBUs Decentralization enables J&J to respond to local needs but slows the global diffusion of products and programs. Preserving the magic of decentralization, given the contest between and services." It addresses the communities where J&J operates and the roles and duties of employees. Notably, shareholders come last, long after customers, suppliers, and distributors. It declares that shareholders will get a reasonable return if other stakeholders are treated fairly. Collectively, the "Credo underscores J&J's personal responsibility to put the needs...of the people we serve first. It liberates our passion and deepens our commitment to delivering meaningful health innovations."133 J&J steadfastly maintains that the Credo is more than just a moral compass; it anchors its long-running success.

Despite its direct message, executives worry that differing outlooks in different markets might blur its interpretation. Consequently, J&J periodically surveys employees on how well the Credo fits their world. Where there are shortcomings, senior management steps in. They have modernized aspects of the Credo given rising environmental concerns and work/family balance tensions. Despite occasional revisions, though, management believes the founding spirit of the Credo transcends time and place.

The Power of Organization

J&J's long list of accomplishments, earned by developing, adjusting, and improving its structure, systems, and culture, has built an organization that confidently leverages bright ideas, no matter if global executives or local subsidiary leaders champion them. Ultimately, the power of decentralization, the balance of coordination and control systems, and the clarity of the Credo anchors a magical organization that lets employees capitalize on their initiative, develop their capabilities, enrich their perspectives, and quite possibly change the game.

Question:

Identify the key problem(s) in the case and determine the decision(s) to be made.

Explain in details. 10 marks

Explanation / Answer

Key Problems:-

The case is about the decentralization culture adopted by the company Johnson & Johnson in its operation since its inception.As you know there are several advantages and disadvantages there for a decentralized system.I have discussed some key issues faced by the company with respect to the case presented above.Please note I have added the answer as per my perspective and understanding of the case, but the things I discussed below are the most important parameters to be considered.

Problem1: Differences of opinion among global and local Unit

As presented in the case the due to new technology change, market trend and data-driven environment push J&J to centralize some functions like reporting formats, scheduling, and new technology adaptation etc. which sometimes face a resistance from the local units as they are not ready to adapt themselves to these new changes and focusses on local standards rather than global standards.

Decisions to be made:-

In these type of scenarios, the company strategy is to use the change management strategy where in order to globally adopt some new policies they have to train the local subsidiaries about the new changes in technology and the required standards which ultimately affect the company reputation.Frequent communication with the local units may help on this issue where company global representatives to be appointed in each division or zone wise to look after the changes required to meet the global prospect as well as not harming the local standards and requirements.

Problem 2: Communication channels

It can be understood from the case that there is a huge gap in the communication system in the MNE which makes it difficult to centralize some global standards among the local units.This prevents the top executives to pass on and swap ideas.

Decisions to be made:-

There should be an infrastructural development in the IT division in order to bridge the communication gap.This should be adopted in every unit of J&J to communicate any new technological adaptation, notices etc. in order to aware all the units about the centralized policies and standard.It also will help in providing training modules across the globe easily.

Problem 3. Conflict and competition among the Units

J&J's all 275 units are having conflict and competition among each other along with other companies which create a shortfall in company ethics and values.Conflict creates a poor standard which affects the image of the organization.

Decisions to be made:

There should be a uniformity in decision making among the units though they operate in different areas according to different standards which will lessen the conflict among the units and address more issues on quality and production.

Problem 4:-High level of autonomy sometimes

High level of autonomy creates problems in J&J as defined in the case of the Tylenol drug.The acquisitions J&J makes also create a problem because it let them operate as per their own standard and the decision superiority remain unchanged.Only when there is a shortfall global executives intervene into the matter which creates a conflict and the unit head are not ready to adopt changes that time.

Decisions to be made:-

With new subsidiaries and units acquisitions, the company needs to change some operations and management style according to the global requirements without affecting the local policies which in future won't create a conflict.Full autonomy of power should not be given in decision making and there should be a top executive to be appointed to whom the company heads need to report periodically.

Problem 5: Absence of Uniformity:

The Credo defined in the case is not uniform along the organization which created a greater issue of Tylenol.It's like a policy to be adopted globally which at times fails.Creation of central policies and decentralizing them according to the unit requirement creates a conflict.

Decisions to be made:-

Occasional revision of policies and adopting an as per requirement system in policy making among the unit may help in this regard.Sometimes the company has to look after its shareholder as well as people which is a trade-off and decisions to be made accordingly.

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