The Internal Environment of Johnson and Johnson - Essay Example

18 October 2006 Johnson and Johnson I. Internal Environment This section will look at the internal environment of Johnson and Johnson. The first section will examine the company's corporate vision; mission; goal; and current corporate, business, and functional strategies. In order to fully understand how the company operates, the second section will look at the primary activities of Johnson and Johnson's value chain. Lastly, the firm's competitive advantage, competitive disadvantage, competitive parity, temporary competitive advantage and sustainable competitive advantage will be identified. Johnson and Johnson do not state a formal vision. In fact, the company does not also offer a mission statement. However, the operation of Johnson and Johnson is guided by its famous credo which is translated in 36 languages around the globe.1 This credo has become the company's guiding light in fulfilling its role to its various stakeholders which include its customers, its employees, its community, and its stockholders. In its quest to satisfy its customers, Johnson and Johnson promises the delivery of high quality products and services and efficient operations to maintain reasonable prices. The company also promises to enable its suppliers and distributors make a good profit from their partnerships. Johnson and Johnson recognizes the huge role carried out by its employees to ensure its success. With this, its credo promises the elimination of discrimination, hazardous working condition and abuse. Instead, the company provides respect, job security, equitable compensation, and opportunities for growth. Johnson and Johnson also encourages its employee to voice their various concerns. The company is also mindful of the externalities it bring to the society where it operates. With this, Johnson and Johnson strive to become a good corporate citizen by supporting charities, paying taxes, and pushing for sustainable development. Lastly, Johnson and Johnson gives credit to its stockholders by ensuring the profitability of its operations (Johnson and Johnson 3). The credo of Johnson and Johnson provides a glimpse of the company's goals and objectives namely profitability, innovation, social responsibility, growth, and leadership. As with any other business organization, Johnson and Johnson's primary goal is the maximization of profit. With this, the company can have the financial muscle to back its operations. At the heart of its goals is the innovation of products which can be released to the public in order to convey greater customer satisfaction. Johnson and Johnson's goal of maintaining sustainable development is fueled by its being a socially responsible business organization. The company also continues to push for growth and market leadership. In order to achieve these goals, Johnson and Johnson has crafted strategies. On the corporate level, the company is seen to utilize its credo to achieve its numerous goals. However, the interdependence within its departments and the diversity of its product line leads to multiple strategies within its divisions. Taken altogether, the company's primary strategy in fulfilling its goal is the creation of high quality medicine, medical equipment, and consumer goods at reasonable prices. In order to market its product efficiently, Johnson and Johnson creates an excellent brand image by actively taking part in socially responsible programs and activities. It can also be seen that one of its main strategies is the acquisition of small companies which have embarked on promising new products. The company's broad product lines and growth has been the result of numerous acquisitions. However, it can also be seen that the business organization is slowly coming to grips with the reality that this strategy is unsustainable in the long run and that it needs to develop new products. Johnson and Johnson is comprised of three main divisions-Pharmaceuticals, Devices and Diagnostics, and Consumer Goods (Johnson and Johnson 5). Since the operation of the company is decentralized, these divisions operate in their own. It should be noted that the value chain activities of the company is separate from each division. Due to the large number of small organizations acquired for its products, the manufacture of products is often undertaken separately by its 230 subsidiaries. These subsidiaries are solely tasked to source their inputs from various suppliers prior to production. After the manufacturing process, the finished goods are shipped to the divisions' warehouses before being finally delivered to various distribution channels. It should be noted that interdependence among the divisions does not allow unified logistics. Even the support activities in the value chain like general administrative, human resources management, research and development, technology, and systems development are being undertaken separately. Utilizing a resource-based view, it can be seen that the resources of Johnson and Johnson are used in order to support its differentiation competitive advantage. As a company which primarily operates in the health and medical industry, the company capitalizes on manufacturing products which are proven to be of higher quality than its competitors. In order to do this, the company banks on its scientific expertise and its marketing savvy to position its various products. This, together with the strategy of Johnson and Johnson to bring innovative products at a faster pace than its competitors, command a high price to the buying public. This competitive advantage is seen to be sustainable as it cannot be easily replicated by any of its competitor. However, it can be seen that some of the Johnson and Johnson's competitors are rapidly targeting the market with lower priced products. With these, Johnson and Johnson is challenged to come up with a more efficient value chain in order to survive the intense competition. II. Critical Issues The global business arena has evolved into a hypercompetitive environment which is characterized by more intense rivalry and higher customer bargaining power. It should be noted that Johnson and Johnson seem to have no current problem in dealing with this evolving business environment. Looking at the market condition, the scientific capability in each of its divisions is unmatched by its competitors. Johnson and Johnson shows remarkably high revenues and profits together with a high market share. However, the company is faced with various challenges which regards to its corporate structure and strategy. As a new era of business practices emerge, the company needs to look at the moves it can make in order to make its operation function efficiently. Johnson and Johnson's growth has been always linked with its strategy of acquiring small business organization with promising new products. This strategy worked for the mutual advantage of the two business organization involved. In the part of the small business entity, it gives it a chance to market its product under the more efficient management, stronger financial muscle, and brand equity of Johnson and Johnson. On the other hand, it helps Johnson and Johnson launch new products in the market without the huge research and development costs. This strategy also wards off competitors in developing and marketing the product. However, Johnson and Johnson recognizes that this strategy is not sustainable in the long run. For one, it is becoming increasingly difficult to find small companies with huge market potential. Second, more and more firms are also recognizing the huge gains of this kind of strategy resulting to higher competition. Faced with this dilemma, Johnson and Johnson's management is looking at maximizing the growth potential of its existing businesses. This means that the company is looking at developing its own products by utilizing its scientific expertise. However, shifting to this strategy will necessitate important changes in the structure and culture of Johnson and Johnson. First of all, the proposed change will disrupt the present operation of the company. Currently, Johnson and Johnson's division operates independently from each other. The company has been profiting and benefiting from this interdependence as it enables the rapid institution of changes. Johnson and Johnson has easily adapted to its external environment as each division has the freedom to decide on its own and is no t hampered by the approval of the upper management strata. Johnson and Johnson believes that it can significantly reduced its cost of operation, specifically its overheads by integrating some activities in each division. With this, the company can enhance its operational efficiency and price more competitively. Integration also means that Johnson and Johnson will be able to integrate the knowledge, skill, and competencies of each department to innovate new products. It can be seen that Johnson and Johnson has already profited from this system. The invention of cutting edge products like the Liquid Band-Aid is the product of the collaboration of different divisions. Collaboration between divisions also strengthens the relationship between each department. However, more centralized operation will ultimately change the organizational structure and culture of Johnson and Johnson. Integration among the divisions will require reducing or eliminating the autonomy that they enjoy. This will include coming up with a different structure from the current organizational business model. Johnson and Johnson will need to have a central office which will closely monitor the activities and decisions of the three divisions. The process by which this change will be accomplished is expected to be tedious and can possibly harm Johnson and Johnson in the short-run. This will possibly disrupt the company's operation during the early stage as employees try to cope with the changes. The integration can be costly as the company needs to establish a common headquarter and information system. This will require the purchase of software and computers in order to facilitate the flow of information between each division. The company's decision should be backed by its employees. Oftentimes, organizational changes are met by resistance by the workforce. Changes can consequently lower the morale of employees. As some processes will be integrated, Johnson and Johnson might need to downsize its workforce. The company might also need to train its employees in order to make them suitable to the new business model. Johnson and Johnson will specifically need to find employees who are capable of handling the change in information system. Organizational change also means the introduction of new culture in Johnson and Johnson. One of the fears of the top management in instituting the integration is crushing the entrepreneurial spirit which has long prevailed and used for the advantage of the firm. This entrepreneurial spirit results from the autonomy of each division from the corporate headquarter. Convergence requires a higher level of formality where each division must seek approval from the headquarters before implementing various decisions. In fact, the integration might even require that top-down management will be utilized. III. Strategic Alternatives and Recommendations Alternative 1. Johnson and Johns on will rely on its current strategy of acquiring small companies with promising products This means that Johnson and Johnson will maintain its current strategy of introducing new products by the acquisition of smaller firms. With this, the company will not be dealing with a lot of changes. The entrepreneurial spirit which long prevailed and have become the growth factor of the company will also be preserved. There will be no change in the corporate culture as well as costs of employee training, etc. However, maintaining the status quo proves to be unsustainable in the long run. . The emergence of a hypercompetitive business landscape becomes a challenge which requires quick response. As mentioned above, it is becoming difficult to find small business entities with promising new products. More and more competitors are also venturing in this kind of strategy. If this situation persists, Johnson and Johnson will not be able to launch new products and damage its position in the market. Alternative 2. Johnson and Johnson will establish a single research and development department which utilizes the expertise of its workforce from all divisions The company can also opt to use its resources in coming up with new products. Johnson and Johnson can establish its own its research and development team which will be given the task to invent new customer solutions. In order to maximize this opportunity, the firm should integrate the research and development departments within each division and subsidiary. The diversity within the R&D teams gives a higher opportunity to harness the scientific expertise of each of the division to come up with superior products. This alternative becomes advantageous to Johnson and Johnson as it allows the integration of knowledge in each division. Coming up with its own research team ultimately lessens the dependence of the business organization on market conditions. It should be noted that as technology advances, companies should come up with more cutting edge products. Non-reliance on acquisition will also make it faster for Johnson and Johnson to launch its products in the market. Establishing its own research and development department will also reduce the overhead cost currently allocated to each subsidiary. It will also enable Johnson and Johnson to maximize the growth potential of its existing business. However, establishing a single research and development department will require investments in buildings and equipments. As researchers will be moving out in their previous locations and will be dealing with new colleagues, Johnson and Johnson is also required to come up with team building activities which will enhance the relationship among the researchers in each department. This move might also be met by resistance by other division heads as this will lessen their control in the division's activities. Alternative 3. Johnson and John will integrate its value chain activities Johnson and Johnson can also look at integrating various activities in the value chain. This will mean a more centralized approach in management. Integration of the processes will totally eliminate the autonomy within each division as they will be subjected to a common top management. Integrating the value chain activities within the business organization is expected to result in lower overhead costs. It can be seen that Johnson and Johnson is currently in cost disadvantage because of its inability to lower its production cost and improve its efficiency. If it chooses to integrate all its activities, costs are expected to significantly go down. However, integration of all value chain activities poses the greatest risk for the company. Convergence will totally change the structure of the company together with its current culture. Integration is expected to be met by resistance among the employees. It will also totally eliminate the prevailing entrepreneurial culture and possibly reduce the capability of each division to respond to environmental issues immediately. Recommendations It is recommended that Johnson and Johnson choose the second alternative which is to establish a common research and development. It can be seen that this alternative is a median between the other two maxims. Maintaining the status quo is not chosen as it will not alleviate Johnson and Johnson in its current predicament. On the other extreme, making the decision to integrate all the activities in the value chain is a major organizational change which is not appropriate for Johnson and Johnson at the moment. The advantages of establishing a common research and development team will outweigh its costs. It can be seen that in this current business landscape, diversity in working groups is becoming a trend. This enables business organizations to come up with ideas by integrating the various views and skills of different individuals. Johnson and Johnson can easily come up with team building activities and motivation techniques to help employees get along with each other. Investment in buildings and other facilities will not be problem knowing that Johnson and Johnson has a strong financial muscle. Works Cited "Our Company." Johnson and Johnson. 2006. 18 October 2006 "Johnson and Johnson." 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