This project builds on the in-depth analysis of a pharmaceutical giant: Johnson&Johnson (J&J) within the pharmaceutical industry sector carried out in Business Analysis Project 1. The overall aim is to critically evaluate the strategies that J&J pursues. In addition, by benchmarking key competitor companies, the strategies operating within the industry are assessed. Finally, the viable strategic options for J&J in the medium-long term future are predicted. Introduction The project is based on the systematic theory which was developed by Johnson and Scholes (1997) to explore the corporate strategies.
On the base of analysis of external environment and industry forces in BAP1, this project first figures out the current situation of J&J in the broad industry environment. By using the tool of SWOT to analyze J&J’s internal strategic capability, its current or possible strategies are explained and evaluated. Finally, with the prediction of the industry future development, the author pointed out the probable strategy for J&J in the long run. This article is divided into six parts. Part 1 evaluates J&J’s positioning within the external business environment.
Part 2 sees through the internal strategic capabilities of the company. In part 3, the author relates the company purposes and stakeholders’ expectations with J&J’s strategic choices. Part 4 is the current or possible strategies development directions and methods. Part 5 deals with the strategy evaluation and Part 6 points out the future variable strategy options.
From 1999 to 2002, pharmaceutical sales increased worldwide by about 25 percent to USD 424 billion. With regard to both size and dynamics, the U. S. market is in the lead, which occupies 47 percent of the total market. (VFA, 2003) Pharmaceutical industry has been one of the most important industries, and the value added to the economy by this industry is among top industries in most of the countries. Since drug is a special product, in the worldwide range, the regulation from government such as on innovation, marketing, manufacturing, pricing, distributing, international trading, etc. plays an important role in shaping pharmaceutical market and development.
Changes in social factors, such as population, employment, life style, etc will strongly affect the way people consumer medicine, drug catalogue and sales figures. Pharmaceutical industry has a high cost on R&D in terms of high failure rate and time consuming of research, patent expiration, etc. Due to the high cost and strict industry standard, the entry to this industry is higher than other industries. Pharmaceutical companies differentiate themselves by being experts on certain therapy categories. Some of them adopt the strategies of mergers and acquisitions in order to seek a larger product range and market.
Some of them are proactive to the changing environment by improving the information system, changing the relationship between sales-representatives and physicians or diversification. The future pictures will be like this: some huge R&D based pharmaceutical giants dominate the branded medicine market while other smaller companies product the generic medicines in order to meet low cost requirements from the government and patients, meanwhile, some small companies will still be alive in this industry since they can provide with some unique technologies.
In order to survive in this industry, companies need to be very carefully positioned. High cost of R&D and regulations will mainly decide in what level the company could compete with rivals. Quick learning is another critical factor, since this industry is driven by technology. Pharmaceutical companies should try their best to set the benchmark of this industry, and they should be proactive to those constraints rather than just act upon them. Company Background To most people, J&J means Band-aid and Baby powder, however, the company has been grown into one of the pharmaceutical giants in the world.
J&J’s growth comes from three principle divisions: (1) pharmaceuticals; (2) medical devices; (3) consumer healthcare products, of which drugs dominates more than 60% of its operating profits in 2002. (Taylor, 2002) J&J was founded by Robert Wood Johnson and his two brothers, James Wood and Edward Mead Johnson in 1885. The company’s first products were improved medicinal plasters containing medical compounds mixed in an adhesive. In 1890, the company introduced to the world its most famous product line-Baby powder, which remains one of the most recognized and trusted products in the world.
This led to the introduction of a number of other baby products. By 1910, under Robert Wood Johnson’s direction, the Company had become firmly established as a leader in the health care field. During the 1920s, the company stepped up its program of product diversification, introducing one of the best-known and most widely used of all J&J products, BAND-AID(r) Brand Adhesive Bandages. General Robert Wood Johnson, the son of the founder Robert Wood Johnson, brought a vigorous new approach and philosophy of business to the organization after he took over direction of the Company in 1932.
Under his leadership, a firm policy of decentralization was initiated, giving to the ever-growing number of divisions and affiliates both the autonomy and the opportunity to chart their own futures. In 1943, General Johnson wrote a Credo that codified the Company’s socially responsible approach to conducting business. The Credo states that the Company’s first responsibility is to the people who use its products and services; the second responsibility is to its employees; the third to the community and environment; and the fourth to the stockholders.
General Johnson and his successors in managing the business have believed that if the Credo’s first three responsibilities are met, the stockholders will be well served. During the 1950s, the management of J& J saw the need to diversify the business, and the company began expanding into the field of pharmaceuticals. Its international growth was initiated in 1919, and further expansion through international growth resulted from the creation of new companies and the acquisition of existing ones. Today J& J has become a worldwide family of 200 companies, marketing health care products in more than 175 countries.
The company’s more than 110,600 employees are engaged in producing products that serve a broad segment of medical needs. They range from baby care, first aid and hospital products to prescription pharmaceuticals, diagnostics and products relating to family planning, dermatology and feminine hygiene. In 2003, with the sales of $19. 5 billion in pharmaceuticals, the company ranked No. 4 of the world top ten pharmaceutical companies. (Sellers, 2004). Figure 1 indicates the sales income of the major three divisions.