Value Innovation at Johnson and Johnson - Case Study Example

Value Innovation at Johnson and Johnson 11 August 2007 Word count (not including bibliography or appendices) 1660. Contents Contents Evidence of Research 2 Synthesis and Evaluation 3 Application of Case 5 Bibliography 8 Appendices A: Value Innovation 10 Appendices B: Value Innovation at Johnson and Johnson 11 Evidence of Research Value innovation is the ability to "mobilize knowledge and technological skills and experience to create novelty in their offerings (product/service) and the ways in which they create and deliver those offerings" (Tidd, Bessant, and Pavitt 2005 p 5). Tidd and associates offer the mobility of skills and creativity as the foundation of value innovation. By this definition of value innovation, it can be shown that value innovation depends on movement across the value chain of resources in both the technological and creative sense. Therefore, a company's ability to pool resources such as skill sets, experience, and development is integral to creating value innovation. For a large international corporation this would include the ability to manage across multiple dimensions of the business and having open communication throughout the organization. Without strong communication and the ability of skills and creation to move through the organization the value innovation would fail in Tidd, Bessant, and Pavitt's explanation of value innovation. Davilla, Epstein and Shelton (2006 p 15) examine that value innovation is technological: "research and development (R&D), or new product development" and strategic: "defining the business model." The Davilla, Epstein and Shelton (2006) definition offers a linear explanation, where there are two roads to value innovation. However, unlike Tidd, Bessant, and Pavitt (2005), Davilla, Epstein and Shelton (2006) do not examine the need to mobilize across multiple dimensions. They treat value innovation as a bilateral necessity, where one sector of management would focus on innovation of research and development while another management team focuses on strategic value. As with Tidd, Bessant, and Pavitt (2005), communication between the two divergent management sectors would be vastly important to creating and implementing any value innovation. Without it, technology may take a separate road than strategy. This would create confusion for the organization and for the consumer in deciding which ideals are concrete and which are fluid throughout the company. In contrast, O'Brien compares business strategies and defines a value innovation strategy as "Finding new ways of doing business" (O'Brien 2004 p 43). According to O'Brien, value innovation includes "the development of unique products and services, or entry into unique markets or market niches [and] making radical changes to the business processes for producing or distributing products and services that are so different from the way a business has been conducted that they alter the fundamental structure of an industry" (O'Brien 2006 p 42). O'Brien's definition is yet again different, where the focus is on the business as a whole and not as a segmentation of skill sets, technology resources, or strategy. Synthesis and Evaluation Is the assumption that value innovation must rely on technology and strategy to maintain a competitive business presence correct Authors Kim and Mauborgne (1999 p 58) do not believe that value innovation should rely on technology and strategy innovation. In fact, they treat value innovation as a separate concept. Kim and Mauborgne (1999 p 58) focus on the need of consumer value, where the "Value innovation links innovation to what the mass of buyers value." Kim and Mauborgne offer a more encompassing definition of value innovation, stating: "Value innovation also differs from technology innovation [] technology innovation is not a requisite for value innovation; value innovation can occur with or without new technology" (Kim and Mauborgne 1999 p 57). This is further supported by Holme, Mangusson and McKelvey (2007 p 32) who state that "One shortcoming is the narrow focus on scientific and technological knowledge, particularly where such knowledge is primarily outside the business context (universities, public research) or primarily ''luck of the draw'' of R&D expenditures." These theories examine value innovation as knowledge to skill creation and development rather than basing value innovation on research and development and production/services1. This is further supported by De Luca and Atuahene-Gima (2007 p 97) who explain that "Firms with a broad knowledge base have a greater potential to recombine different elements of the knowledge to improve opportunity recognition and creative potential." This theoretical concept varies greatly from other texts, where the focus is almost always on research and development or adding a value innovation strategy. Perhaps the long standing, and still current, definition of value innovation as being reliant on skills or research and development and change strategy is negating the idea of Kim and Mauborgne that value innovation can (and should) occur with neither of these things. Application of Case Johnson and Johnson is an international firm. Johnson & Johnson are engaged in the manufacture and sale of products related to human health and well being. Through over 200 operating companies, it conducts business worldwide. Johnson & Johnson's largest international competitors include Merck, Novartis, and Procter & Gamble. Because these companies all have major and multinational business activities, it is nearly impossible to gauge competition based on geographic location. Each company can boast several product lines, from non-aspirin pain reliever to Band-Aids, which tend to have similar pricing characteristics. Johnson and Johnson's prevailing strategic logic is to focus on research and development and trademark value. This is a common assumption in the pharmaceutical industry, and it is one that negates customers in value innovation. Competitors who are able to focus on the changing dynamics of more informed and service oriented consumers through value innovation are the companies that can survive in a rapidly increasing global industry (Cravens and Piercy 2003 p 19). Kim and Mauborgne (2004 p 178) describe what a company must do to move away from reliance on trademarks, industry technology and research, and product or service development to find value innovation. According to Kim and Mauborgne (2004 p 178) "First, they must identify and articulate the company's prevailing strategic logic. Then they must challenge it. They must stop and think about the industry's assumptions, the company's strategic focus, and the approaches- to customers, assets and capabilities, and product and service offerings- that are taken as given." Johnson and Johnson's degree of service seems particularly low considering the size and breadth of the company and products. Merck has a stronger customer support and vast degree of service, which is pleasantly unexpected considering their smaller product line and less than half the overall company value. Merck's and Novartis's web sites offer direct contact information, vendor, distributor and pharmaceutical service contacts as well as customer support. Procter and Gamble also offers a significant degree of service, as well as specialized services based on country of origin and product. Procter and Gamble effectively mixes a wide range of services one would expect from the smaller companies like Merck, yet maintains the significant product size that rivals Johnson and Johnson. Similarly to Kim and Mauborgne's criticizing of the reliance on technology and product/services to develop value innovation, authors Jansen, Van Den Bosch and Volberda (2006 p 1662) state that value innovation is based on two concepts, exploratory innovation and exploitative innovation. Exploratory is meeting the needs of new customers where exploitive is meeting the needs of current (or previous) customers. Thus, value innovation either broadens existing knowledge and skills [or] build[s] on existing knowledge or reinforces existing skills (Jansen, Van Den Bosch and Volberda 2006 p 1662). Johnson and Johnson's competitors are reaching beyond the trademark and brand-technology value marketing to include diversified services. Procter and Gamble has effectively maintained a strong degree of service and diversified product mix. The essence of Procter and Gamble strategy may not be challenging the products, but rather to challenge Johnson and Johnson's behaviour towards the global consumer. This can already be seen in a quick comparison between the web sites, where Procter and Gamble offers immediate information access and Johnson and Johnson requires a solid bit of navigation. It can be assumed that Procter and Gamble are more in tuned to the changes in the global networking environment and alter their behaviour. Based on an external environment that is constantly in flux, with changing multinational regulations, mergers, and consumer demographics, it can be expected that competitors will increase the amount of research and development. To integrate value innovation to their strong research and development strategy, Johnson and Johnson must follow Merck and Novartis in using the trademark and experience to offer innovative customer service strategies, instead of only offering customer focused products. Johnson and Johnson must look outward for new ideas that do not rely on technology or trademark development, but on the consumer needs and customer focus. Johnson and Johnson cannot rely on trademark, technology and research and development, but must seek value innovation through exploiting and exploring knowledge to respond to a globally informed consumer base2. Bibliography Cravens, D. and Piercy N.. 2003. Marketing Management 7th Edition. London, The McGrawHill Companies. Davilla, T., Epstein, M., Shelton, R. 2006 Making Innovation Work. Pennsylvania, Wharton School Publishing. Pearson Education. De Luca, L.., Atuahene-Gima, K. 2007 Market Knowledge Dimensions and Cross-Functional Collaboration: Examining the Different Routes to Product Innovation Performance. Journal of Marketing; 71 (1), p95-112, 18p Holmen, M. Mangusson, M., McKelvey, M. 2007. What are Innovative Opportunities Industry & Innovation; 14 (1), p27-45, 19p Jansen, J., Van Den Bosch, F. Volberda, H. 2006. Exploratory Innovation, Exploitative Innovation, and Performance: Effects of Organizational Antecedents and Environmental Moderators. Management Science; 52 (11), p1661-1674 Kim, C, . Mauborgne, R. 1999. Strategy, Value Innovation, and the Knowledge Economy. MIT Sloan Management Review; 40 (3), p41-54. Kim, C. Mauborgne, R. 2004. Value Innovation. Harvard Business Review; 82 (7), p172-180 O'Brien, James. 2004. Management Information Systems. 6th Edition. New York. The McGraw-Hill Companies, Inc. Sullivan, Patrick. 2000. Value-Driven Intellectual Capital. New York. West Sussex. John Wiley & Sons Ltd. Tidd, J., Bessant, J., Pavitt, K. 2005. Managing Innovation. 3rd Edition. West Sussex. John Wiley & Sons Ltd. Appendices A: Value Innovation Value Innovation Comparison Mobility (Tidd et al. 2005). Technology and Strategy (Davilla et al 2006) Radical Business Changes (O'Brien 2004) Mass Buyer Value (Kim and Mauborgne 1999) Open Communication X X Knowledge Management X X X X Consumer Relationship Management X Total Quality Management X X X Continuous Improvement X X To compare value innovation strategies, the following management theories were used: Open communication as fostering discussion between management teams and employees; Knowledge management as focusing on intellectual (non physical) capital; Consumer relationship management as focusing on the customer base; Total quality management as encompassing product and service quality; Continuous improvement as focusing on the cycle of innovation. Basing the analysis on only the basic theory definitions presented in the paper, it can be shown that the majority of positive strengths can be found in Kim and Mauborgne's theory of Mass Buyer Value as a driver for value innovation. Appendices B: Value Innovation at Johnson and Johnson Johnson and Johnson current logical strategy: Johnson and Johnson proposed value innovation strategy: Read More