BALIUAG UNIVERSITY

College of Business Administration and Accountancy

CASE STUDY

Submitted by: Submitted to: Subject: Unit: Time: Day: Room:

Edgardo Angelo de Guzman Mark Reynald Mao Mrs. Maria Socorro Bartolome, CPA SYN 101 Synthesis 1.00 2:00 3:00 Friday ANX3_201

BRIEF COMPANY HISTORY Johnson & Johnson, also known as J & J, is a large diverse health care firm. The firm dates back to humble beginnings in 1886. The company was founded by Robert Wood Johnson, James Wood Johnson, and Edward Meade Johnson. It began with the Johnson brothers producing dressing in New Brunswick, New Jersey. The next year, the company became incorporated. The company is currently split into three segments: pharmaceutical, professional, and consumer. ISSUES FACING JOHNSON & JOHNSON Rising health care costs, social responsibility, and a difficult economic climate are all external threats to J & J. Competitors are also an external threat, but based on the revenues and sales of the company, competitors are not the most serious threat as of now. Internal threats to the organization include changing top level management and globalization. The issue of raising health care cost depends on government regulation. As of today, health care costs are high, but that may change with a new president in office. As of 2009, national health care spending is expected to reach $2.5 trillion. This could be a good the thing for the company as far as sales, but it would have a negative impact on their public image. J & J also has an issue with social responsibility. The company decided to donate funds to a Virginia-based organization called Human Life International. In this philanthropic effort the company supported an organization that supports abortions. The company provides abortions and abortion referrals. In J & Js efforts toward corporate social responsibility, they became a target for pro-life toorganizations. ANALYSIS In this case, we see that Johnson and Johnson are dealing with issues that could ultimately hurt their companys reputation and sales. One of the main issues that are currently hurting Johnson and Johnson is the contribution that they made to Planned Parenthood Federation of America, Inc. Planned Parenthood Federation of America is an organization that provided reproductive health care and sexual health information to women, men, and teens (Lawrence and Weber). One main thing that Planned Parenthood Federation of American did was that they provided abortions and abortion referrals. Abortions are any of various surgical methods for terminating a pregnancy, especially during the first six months. From the case abstract, it states that Planned Parenthood is the single largest provider of abortions in the United States (Lawyer Links). Due to this charitable donation, this sparked some outrageous concerns with several pro-life organizations. Another main issue that hovered over Johnson and Johnson was the companys disclosure of information about its donations. The arguments for Johnson and Johnson were that its corporate contribution programs were essential to its mission and values, regardless of its effect on shareholder

Comment [m1]: Does this has something to do with geographical decision of J&J? In other areas, country, do they have other social orgs that they supported? If so, what are their other social projects? Were there contracts that goes with the donation like about limiting utilization of funds to mission supporting abortion if pregnancy will have adverse effect to health of mothers?

wealth. However, these charitable contributions on the company web site would be made public and some employees felt that it had potential to hurt shareholder value (Lawrence & Weber). In an attempt to make this plan happen, a group of employees put together a proposal that would in fact publicize the organizations charitable contributions on the companys web site. In doing this, Johnson and Johnson would also have to display their contributions to Planned Parenthood along with all the other donations to other organizations. RECOMMENDATIONS We recommend that the company work diligently to raise its image through corporate social responsibility In order for Johnson and Johnson to prosper as a company and not put its reputation in jeopardy, we feel it is best for the CEO, James McCafferty, to not approve of the proposal. This would have saved a lot of time. If the company wants to display its organizations it has donated to, we recommend that they should do it publicly. They can do this by using the media and not the companys home page. When Johnson and Johnson displayed the information on their website, it caused them to receive a lot of bad feedback. Getting the media involved would help change their image. We also recommend that Johnson and Johnson continue to help charitable organizations around the world, just not at the expense of the company itself. We feel that Johnson and Johnson should show their concern for health care by lowering their product prices and donating some of their products to the less fortunate. RATIONALE The subject of the matter is the issue of social responsibility of Johnson and Johnson to its stakeholders. Being that Johnson & Johnson was presented with a shareholder proposal on charitable contributions they have no choice but to deliberate and see what the strong points are. We recommend that Johnson & Johnson should not publicize their charitable contribution information because of the risk it poses for shareholders. J&J is a well respected organization with product lines that are sold and consumed by people every day. To throw this amount of success away over a few words on a web site is ridiculous in our opinion. Even though the recommendation is based off what the proposal can do to the reputation of the company, J & J has argued that it is not such a huge risk. HLI has made a separate issue of J & J contributing to Planned Parenthood because it is a pro-life, woman and family organization. But the proposal remains specifically that charitable donations be available online. In response, J & J has said that they are a social responsible and give to a broad range of charities in which they work and live in. Although they do have a responsibility to its shareholders in terms of profits but also to its stakeholders, their credo is very close fitting to stakeholder view of J & J.

Comment [m2]: Great idea, burencyranspat does this promote transparency and disclosure?

RESULTS Overall, Johnson & Johnson is a very successful company and has been doing well for over a century. The company has grown internally by acquiring other brands to increase its competitiveness on a domestic level. Also, the company has moved into overseas markets with its decision to expand globally. The company should thrive in any economic situation as long as it keeps being innovative and socially responsible. Johnson and Johnson will make good progress if they take in to account certain recommendations made. Their number one focus should be to their shareholders. If they are not happy tthen what are you to do? They are the ones, besides the employees, that keep the company rolling. Without their investments and input, the company will fall. We think if Johnson and Johnson actually sit down with their shareholders and get their opinions on what they think, positive changes could be made. Johnson and Johnson have a good image in the community and should keep this image clean for many more years. They will be a leader in the healthcare industry for a long time. Making a few changes will do the company well and gain mega profits in return. CONCLUSION The Johnson & Johnson company is so omnipresent in the market that without it even the world of the baby products and health care product sounds incomplete. They believe their first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use Johnson and Johnson products and services. In meeting their needs everything they do are in high quality. In India when we talk about baby products Johnson and Johnson products is what comes first in our mind. Everything related to the brand, be its advertisements, products, after sale services are all example of perfect excellence. The company has rooted itself in India much stronger than it did when it first entered the Indian Market. Every time they make an advertisement they make it sure that it leaves along lasting impact on the users, and the company is always successful in doing so. The taglines of the company always leave a lasting impression on the viewers. The sequences they show are so similar to our daily lives that people can easily connect to it. The catchy slogans have always helped the company to enhance it brand quality and brand loyalty. Johnson and Johnson deal with all kind of baby care products, cosmetic products etc. The marketing strategy of such a global company is real vast and global in nature. The company very well knows that different countries have different people who again have different set of minds, so they built marketing strategies based on the people they deal with. The company for several years has been the favorite amongst nursing mothers and now is continuing its position amongst the mothers. The main area of concern is cosmetic products, health care products and oral care products though the company is ace in manufacturing and trading its products, cosmetics, oral and health care products have constantly failed to find consumers in India.

Comment [m3]: Constantly, issues on social responsibilities are raised as complement on how responsive an entity is to its social mission. Among the target inclusions are clients, stakeholders, community and environment; and shareholders is just one among the stakeholders. Please comment why we consider shareholders as number one when we need to balance these 4 aspects to attain our double line objective of profitability and social return.

The company has been taking several steps to enhance its sales of cosmetics and health care products. The sales report of the company has shown increase in the sales of such products though not in vast quantity. The company still is struggling to set its base in India for its health care, oral and cosmetic products. Johnson and Johnson has successfully transformed its brand image globally amongst different types of people by convincing people that the service they provide is best and superior than any of their present competitors. This has led to a major thrust in increasing the number of distributors and retailers across the country with the result that Johnson and Johnson products are available in every medicine, cosmetics and grocery shops of India.

ANOTHER ISSUES FACING JOHNSON & JOHNSON: CHIEF INFORMATION OFFICER PLAYS AN IMPORTANT ROLE AT JOHNSON & JOHNSON PHILIPPINES Johnson & Johnson is the world's most comprehensive and broadly based manufacturer of health care products, and as a provider of related services, for the consumer, pharmaceutical, and medical devices and diagnostic markets according to its website. Consider what is must be like to be chief information officer (CIO) of a division of Johnson & Johnson located in a developing country. On one hand, you are affiliated with one of the most technologically advanced corporations in the world. On the other, you are working to support operations in a poor and technologically-young environment. Such is the task of Sadiq Rowther, regional IT director for Johnson & Johnson ASEAN, Philippines. The Philippines division of Johnson & Johnson is well aware of the importance of information systems to a business' success. Sadiq Rowther is involved in making all of the company's key business decisions. While some business executives still perceive an IS department as a back office operation that provides support functions, smart businesses, like Johnson & Johnson are including the CIO in toplevel decisions. CIO Sadiq Rowther participates in customer interfaces in order to better understand the issues the company faces. He believes that a CIO must think like a business owner. The value I bring to the leadership team is really how IT can seize a business opportunity and bring about a solution that uses a combination of both business and IT skills." Rowther explained in a Computerworld interview. Johnson & Johnson Philippines utilizes information systems to automate its core functions including supply chain order processing, and finance. An enterprise resource planning (ERP) system from SAP ties together all the systems into one cohesive system. Unfortunately, much of the corporation's IT budget is used in systems maintenance, and it is difficult to find funding for innovative advances. Sadiq Rowther implements new systems by tying them to organizational goals. "Whatever we are doing in IT has to help grow the business," Rowther is quoted as saying. In fact, rather than calling them information system or IT projects, Johnson & Johnson calls them IT enabled business projects. An example of some IT enabled business projects includes the recently launched Neutrogena Philippines Web site, (www.neutrogena.com.ph). Rowther looks at the project as a direct to consumer

approach for targeted marketing and collaborated closely with the brand team to make sure the site was effective. In another project, Rowther worked closely with sales and marketing to streamline the ordering process for Johnson & Johnson distributors. The resulting system provided faster and more reliable order processing Rowther is currently working on a project to get smart phones in the hands of the sales force and provide mobile software tools to help Johnson & Johnson sales and service representatives are more effective. Working on a shoestring budget, Rowther has to constantly prioritize the company's information system projects and decide which are financially feasible. He teaches his team to continuously check for the value-add to the business when considering information system expenditures. Each project has to show a return on investment (ROI) in the near term. At the end of the day, it's all about aligning with the priorities of the business and ensuring that it is not your choice of projects to keep or throw but a decision jointly made with the rest of the_business,_concludes_Rowther. DISCUSSION QUESTIONS: 1. Why have CIOs become important contributors to corporate strategies? 2. How might a CIO with a larger budget have an advantage over Sadiq Rowther at Johnson & Johnson Philippines? CRITICAL THINKING QUESTIONS: 1. If you were CIO at Johnson & Johnson Philippines, how might you convince the corporation to invest in a project you designed? 2. Johnson & Johnson Philippines, like the country, is growing rapidly. What considerations should Rowther take into account when planning the information system budget for next five years? What about considerations for current investments in information systems? JOHNSON & JOHNSON: OTHER ISSUES Johnson & Johnson has been listed as one of the most admired companies for many years. Whereas this reputation has made it easier for J&J to continue to attract high-quality talent to its various operating units, , J&Js CEO, wondered if the organizational structure and management style that has elicited this praise is now getting in the way of helping to develop the synergies that may be necessary to maintain the companys global expansion. nNoted in his report to the stockholders in an Annual Report that our objective continues to be to make Johnson & Johnson the best and most competitive health care company in the world. He went on to note that this goal would have to be achieved while facing more tough competition than we have today in every field in which we compete. This is true not only in the United States, but in every important market overseas.

J&J has experienced significant growth in recent years. Sales increased from just over $8 billion in 1987 to more than $15.2 billion in 1994. Net income increased at an even faster rate, from $833 million in 1987 to $2.0 billion in 1994. But worried that the 168 separate subsidiary companies that make up J&J were too decentralized. In an article in, noted that decentralization is the heart of Johnson & Johnson. The article summarized that: With decentralization you get tremendous speed at the local level, but youre slower when you need to sweep across continents. felt that company growth was partly the result of a management decision made early in the companys history. rRealized in the 1930s that the company had to find ways to foster entrepreneurial spirit among its managers to be able to keep ahead of competition in the various geographical and product markets in which J&J operated. To help achieve this objective, management organized J&J in a highly decentralized manner. Since early on, Johnson & Johnson has sold its products in most countries of the world and operated manufacturing facilities in 50 countries. Wherever possible, J&J recruited managers from the country in which the operation was established. J&J had also followed a policy of looking to any sources for new and improved products. The company had entered into a string of joint ventures with both large and small companies since the beginning of the 1980s. One of the most successful was a licensing agreement with a Danish manufacturer that had developed a process for producing inexpensive contact lenses. The technology was further developed by J&] researchers. The results were the successful introduction of Acuvue, J&Js trade name for a line of disposable contact lenses, which eventually turned into a worldwide line of products. The company continued to expand the uses and production of these products, resulting in an increased share of the contact lens market became CEO of J&J in April 1989. He acknowledged in the Annual Report that year that the company owed a debt of gratitude to his predecessor. The manner in which J&J top management reacted under leadership to the poisoning of some Tylenol capsules after they had left the factory constituted a commendable model for corporate crisis response. It also earned the company top marks for its corporate communications. J&J immediately recalled all Tylenol products, responded publicly to all questions and concerns, and set up hotlines and consumer response systems at all levels of the company. This rapid and open response by the company led to the reestablishment of Tylenol as the leader in the area of analgesic medicines within a short period. Both and noted that their actions were based on the company Credo that was prepared in 1956 by Johnson, son of the companys founder. According to an article the Credo .. . .a 309 word statement.... stresses honesty, integrity, and putting people before profits. The article went on to state that Whats unusual is the amount of energy J&Js high executives devote to ensuring that employees live by those words.... On his globetrotting tours, Larsen never fails to mention its ideals . . . In the late 1980s, J&J embarked on a quality improvement process which called for the training of people at all levels of the organization in the concept of total quality for the company. Part of the training was done at the job site. The company also established an education and conference centre at its corporate headquarters in New Brunswick (New Jersey), in order to provide centralized training activities. Finally, entered into a cooperative effort with Duke University, where it established the Johnson & Johnson Operations Institute. As noted, We are sending managers there to benefit from the most advanced thinking in manufacturing and distribution technology.

Johnson n johnson realized that all these factors had placed J&J in a healthy position. The Fortune article ranking the firm as the sixth most admired company in the United States also placed the pharmaceutical industry highest among all domestic industries. The same article noted, however, that the number-one ranked firm overall was another pharmaceutical manufacturer, Merck. The article noted that Merck leaves number 2 (J&J) in the dust - Moreover, several other large pharmaceutical firms were close behind J&J in the rankings. The company continues to press ahead with its Quality Improvement Process at each subsidiary. The challenge facing Larsen is to continue the commitment of the firm to improving its employees and the environment at the same time as it maintains its position in an extremely competitive industry. And, all of this has to be implemented while governments around the world are bringing increased pressure on the industry to control costs in the delivery of health care for their citizens. When confronted by the high overhead and low integration that the decentralized organization structure placed on the company, asked the various managers to provide recommendations to improve their cost structure. A proposed solution was to implement global product managers to provide integration within product lines. The question remaining was whether similar solutions could be developed to provide integration across product lines as well. This appeared to be much more of a threat to subsidiary autonomy and entrepreneurial spirit. Johnson n johnson employed a cadre of roving auditors and product quality checkers within the company, believing that this helped company management to be more tolerant of their subsidiary managers. However, Johnson n johnson pressed his presidents to hold the line on hiring, which also placed pressure on advancement for promising, young managers. Some envisioned a slimmed-down company where it would be more difficult to advance rapidly within their own units. Since it was difficult to transfer between companies, let alone divisions, this placed a constraint on the ability of the company to recruit and retain highly qualified managers. QUESTIONS 1. What are the environmental pressures facing Johnson & Johnson today? 2. How do you evaluate the changes in quality management Johnson & Johnson made to adapt to increased competition? 3. What operations changes have Johnson & Johnson management made to gain competitive advantage in its environment?