CASE STUDY 3 Band-Aid bandages, Johnson’s Baby Oil, Mylanta, Reach toothbrushes,

Question

CASE STUDY 3 Band-Aid bandages, Johnson’s Baby Oil, Mylanta, Reach toothbrushes, and Tylenol are well-known products found in medicine cabinets around the world. What you might not know, however, is that all these products--and many others--come from the same company: Johnson & Johnson (J&J). More precisely, they come from any of 166 separate companies belonging to J&J. Starting in the 1930's, under the guidance of Robert Wood Johnson, long- time chairman and son of one of the co-founders, J&J went out its way to keep the various businesses independent of each other. Believing the companies would be more manageable and responsive to their markets if they remained smaller, self- governing units, Johnson resisted pressures to merge them. He feared an enormous bureaucracy. According to J&J’s Chief Executive from 1989 to 2002, Ralph S. Larsen, this approach helped to create a sense of ownership and responsibility. At the same time, Larsen realized these benefits had to be weighed against the costs; namely, excessive expenses because of redundancies. For example, J&J’s overhead was considerably greater than that of competitors Merck & Co. or Bristol-Meyers Squibb Co. Another cost arose in the area of customer service. Large retailers such as Wal-Mart were increasingly interested in streamlining their contacts with suppliers, and they became impatient with sales calls from dozens of J&J companies. To meet these realities, J&J centralized some of its operations. For example, under Larsen’s guidance, J&J has began pooling various administrative functions, such as payroll and benefits processing, computer services, purchasing, and accounts payable. So, too, were some companies merged--creating, for example, Ortho-McNeil Pharmaceuticals, a drug company formed from two previously separate companies. Another innovation united customer-service and credit functions that once resided in four different departments of various companies. With this change, a single phone call could handle all these needs. Streamlining J&J operations meant trimming the workforce by 3,000 in 1993, thereby leading to an annual savings of $100 million. Not all J&J insiders agreed with Larsen’s plans. In fact, one top executive, William C. Egan, III, quit J&J after l7 years because he so strongly disagreed with Larsen’s approach. In that case, the straw that broke the camel’s back was the decision to merge the Baby Products Company with several others to form the Johnson & Johnson Consumer Products Company. (J&J also has many companies specializing in medical and surgical supplies, such as sutures and anesthetics.) What bothered Egan was that the decentralization he associated with J&J was, in his view, being dismantled. Larsen believed he was simply righting an imbalance in J&J’s corporate structure. Allaying the fears of those worried he will take things too far, Larsen cautioned, “We will never give up the principle of decentralization which is to give our operating executives ownership of a business.” Indeed, things continue to work this way at J&J, where business strategy flows not from the top down but from the bottom up--that is, initiatives come from the individual companies themselves, not from executives in some distant corporate headquarters. J&J still, in 2015, consists of 265 operating companies (the Johnson & Johnson family of companies) and employs 126,500 people Questions:

(1) What were the advantages and disadvantages of J&J becoming more highly centralized? Based on this assessment, what type of structure do you recommend?

(2) Is the more centralized J&J a boundaryless organization? If so, why? If not, how could it change to become one?

(3) Might J&J benefit from a strategic alliance with another company? What kind of company would be a good potential partner? Why?

(4) What is the impact on employees, from an OB perspective. of a more a highly centralized organization?

Explanation / Answer

1. Advantage and disadvantages of centralization

Advantage

Centralized purchasing reduce redundancy of work,

-helps in better inventory management

- increased control

- can avail quantity discounts

-centralized customers service helps in dealing with customer efficiently

- centralized payroll helps in monitoring cost centres effectively

Disadvantage

Centralized purchasing impacts the quality of material that department wants to purchase

- centralization decrease the sense of responsibility and belonging amongst employees

- centralization generally leads to layoff and restructuring of organization

2. As far as question of being boundryless due to centralization is concerned, we must differentiate between visible boundaries and invisible boundaries.

Visible boundaries like different purchasing department in different organization, SBUs became blurred on one hand.

But, on the other hand invisible boundaries like increased bureaucracy, documentation, poor coordination and communication, and politics will become eminent.

3. Definitely strategic alliance with many companies would have helped the J and J in better way.

J and J could make some supplers as their strategic partner. Supplies similar in many units could be purchased from a single supplier, infact supplier should be handed over the responsibility of inventory management for different units by using ERP system.

Similarly, J and J could partner with supply channel partner organisation to distribute its products eg creation of J andJ stores in various locations.

4. Impact of centralization from OB perspective

-Decreased sense of belonging

-increased job insecurity fear

-increased layoff

-change in the power structure

-increase of politics

-more hierarchical structure rather than team or flat structure

-increased bureaucracy

-decreased communication and coordination

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.