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UKRIDA MAGISTER MANAGEMENT PROGRAM PERIODE 2010 Class: Creative Marketing By Prof Dr

Analysis on the Case 2-4

Johnson & Johnson

Prepared By:

1. 2. 3. 4. 5. 6. 7.

Darwin Lesmana . .

NIM : 01-2010-12

1. Introduction: Johnson & Johnson (J&J) is one of the largest enterprises in the world. The Company has established for 117 years, made up with 204 different businesses organized into three divisions: a. Drugs (Pharmaceutical) b. Medical Devices & Diagnostic c. Consumer Products. The Pharmaceutical division is the major contributor to the Companys Growth, they accounted for almost half of the Companys Sales and contribute 61% of the previous year operating profit. The consumer products Band Aid and Baby Powder is also well known to consumer. The Company also well known for the development of Innovative Products, aggressive selling, favorable prices and an unusual move of advertisement, example: - In 1991, they launch Procrit (for treating Anemia in Chemotheraphy) where J&J spend millions to educate physician and also advertisement on TV. This is an unusual common practice for Cancer Drug to be advertised on TV, however they succeed with the proven that Procrit is now the best selling drug of J&J. J&J is famed for giving for delivering at least 10% earnings growth year in and year out going back nearly two decades. In the first quarter, it reported 13% rise. The Stock Price has increased from less than $ 3 in the mid 1980 to almost 20 times that now. Although the Standard and Poors 500 Stock index has fallen 28,1% but J&J stock increased 19,4%. In 2002, J&J earned $ 6,8 billion compared with $ 5.9 billion the previous year (15% growth) J&J is fulfilled with great employees, however one of the great employees was William C Weldons, who was onetime a drug salesman and now becoming the leader of the Health Care Division. He is famed for the ability to convince, cajole and sometimes just sweet talk colleagues into seeing things his way. One of the most succesful story of Weldons ability in convincing people was when he succeeded in persuading the Chief Pharmaceutical Dr Per A Peterson to stay for J&J, although the Doctor has decide for leaving the Company.

2. Important Highlights

Maintaining the growth records to keep sustainably increase was one of the Companys problems. To keep up, the Company must make a new $ 4 billion business every year. Meanwhile there were some difficulties which the Companys facing such as: - Procrit sales were nearly flat in the 1st quarter due to the new rival, and the news has impacting on the Companys stock which decrease 3% in one day. - Although the new drug coated stent has been held up at the Food and Drug Administration and approval seems highly likely but if the devices does not get the OK , it would be one big problem for J&J. J&J style in acquisitions to continue growing has also created another problem. The Company has bought 52 business for over $ 30 billion over the past decade, 10-15% of top line growth was due to investment. Finding and acquisition that is fit with the Companys business and make contribution becomes increasingy difficult. J&J is one big Company with many subsidiaries, where each of the subsidiaries run their own Company independently. Each of the Subsidiaries set their own strategies, their own finance and human resources departments. This is creating a relatively high overhead cost. Weldons as one the leader in J&J has believe that the important breakthrough in the 21st Century medicine is the ability to apply scientific advances in one discipline to another, such as: - Sutures are coated with drugs to prevent infections. - Defibrillators may be linked to computer that alerts doctors when patient have abnormal heart diseases. The Company should combine between Drugs, Devices & Diagnostic. By implementing that, it has boost the Development and Research Budget by more than 10%, and it has employed 9.300 scientist in 40 labs around the world. In order to achieve the 21st Century breakthrough, J&Js independent business unit (Subsidiaries) must work together. Therefore Weldon has created a new system to foster better communication and more frequent collaboration among J&J disparate operations. J&J has been inching to that with the new drugs coated stent which could revolutionize the field of cardiology. It has grew out of a discussion in the mid 90s between Drug researcher and one in J&J stent business. This kind of

example is what the Companys need in order to make the independent business unit (Subsidiaries) work together. Inline the breakthrough, Weldons personifies the Companys Ethos such as: - Although becoming the first Executives to go casual in 1990, but he is a compulsively competitive. One of the famous quotation was: Its not fun to be second. - Weldon was also became famous for setting near impossible goals for his people. - His is turning up the Companys with the cooperation between his different units to have meeting quarterly for the past five years to share information. - Creating new breakthrough such as creating committee comprised of R&D executives and senior managers instead of scientist for some fixing some failure. Although the breakthrough by Weldon wont yield results for years, however there was some evidence that the new collaboration is working, such as: - J&J Pharmaceutical operation working the Companys drug delivery operation Alza. - New diagnostic unit is working with data generated by drug researcher. - In 2002, J&J rolled out the new Band Aid Brand, which formerly used by hospital, now sold through the public. - Changes in prescription antifungal treatment Nizoral into a dandruff Shampoo. These changes has increase the Operating Margins for the Consumer Business from 13,8% in 2000 to 18,7% in 2002. Facts about Weldon: - Weldon spent much of his time on the road travelling to meet surgeons and hospital executives. - Weldon often set more ambitious goals than the headquarters. - He doesnt like to be disappointed. - He is an intimidator and a dominator - Weldons background was not from a wealthy educated family. His father was a stagehand on Broadway, while his mother was a seamstress worked for the ballet and theater costumes. - Weldon was grew up in one of the less prosperous neighborhood. - While in college, he has begin to work as a mover on the weekends and public holidays.

Hes first and only interview for work as at J&J and started his career as a salesman at the Mc Neil Pharmaceutical units.

At this point, most of J&Js important drugs as under threat from competitors, such as: - Procrit (Companys biggest selling product) has been threat by Aranesp (product from Amgen Inc) and also side problem from European version called Eprex which resulting Procrit sales may actually decline 2% in 2003. - $1.3 billions Rheumatoid Arthritis drug Remicade faces competing products from Amgen and Abbott Labs. With the J&J blockbusters slowing, Weldon expect his successor to do something dramatic, like what he did two years ago when he completed J&J biggest acquisition ever by buying the drug delivery player Alza corp for $13.2 Billion. Reason for the acquisition was Alzas Technology could help J&J devise safer and more effective formulations of exisiting drugs. But buying growth would be difficult these days. Nearly every pharmaceutical company is looking for deal with J&J, but finding the right one would be a difficult problems. Now the drugs business is taken care by the new boss Christine A Poon who was recruited by Waldens from Bristol Myers Squibb Co. But Weldons still jumps in every now and then. Such as when the Senior Executives was hammering out details of $ 2.4 Billions acquisitions of Scios Inc, Walden came and supporting Poons, due to it was her first acquisitions. But Waldons also have to be carefull not to cross the line between supporting his executives and encroaching on their territory.

3. Implication to the Market Driven Strategies: a. Becoming Market- Orientation J&J has become the Market Orientation which can be proven by the facts about: - They keep on focusing on their core business in Drug, Medicine Devices and Consumer Products and keep on continuing on research for what the market demands and creating innovative products. Example new drug coated stent called Cypher. Stent is used to prop open arteries after angioplasty, Cypher is coated with a drug that prevents those arteries from re-clogging. - Almost all consumer known the products of Band Aid and Baby powder which quality was consistently control, showing that J&J brands has been the market orientation.

b. Determining Distinctive Capabilities Distinctive Capabilities that J&J have was: - J&J have one of the Best Human Resources Assets which was Mr William C Weldon who has super brilliant ideas which changes the ethos of J&J work attitude, by creating an cooperation between Drugs, Medical Services and Diagnostics. - With the Companys wealth over 2 decades of 10% sustain growth, they have precious assets in developing new products with employing over 9.300 scientist in 40 labs around the world. - Also inline with the Companys wealth, they have the potential money in acquisition of some companys which core business will support the development of J&J, such as the purchased of Technology Company Alza. c. Customers Value/Capabilities Match Creating value for customers: - Hospital purchase products from J&J due to the favourable prices that J&J given for the whole package, giving the best product with the best price to the customers. - The Producs Cypher giving value to the Stent with coating it with drugs which prevents those arteries from reclogging, which was giving value to the patients. - The Companys sustainable growth which made the stock growth almost 20 times from less than $ 3, which giving values and benefit for the stockholders. d. Achieving Superior Performance J&J has achieve Superior Performance such as: In the first quarter, it reported 13% rise. The Stock Price has increased from less than $ 3 in the mid 1980 to almost 20 times that now. Although the Standard and Poors 500 Stock index has fallen 28,1% but J&J stock increased 19,4%. In 2002, J&J earned $ 6,8 billion compared with $ 5.9 billion the previous year (15% growth). However although it has achieve the superior performance, there were some obstacle: Maintaining the growth records to keep sustainably increase was one of the Companys problems. To keep up, the Company must make a new $ 4 billion business every year. Finding and acquisition that is fit with the Companys business and make contribution becomes increasingy difficult. J&J is one big Company with many subsidiaries, where each of the subsidiaries run their own Company independently. Each of the Subsidiaries set their own strategies, their own finance and human resources departments. This is creating a relatively high overhead cost.

4. Conclusion: In order for the Companys to keep continuing: a. In order to achieve the 21st Century breakthrough, J&Js independent business unit (Subsidiaries) must work together. This program must work in order to makes more innovative products. b. With the collaboration, they should make some merger of some companys in order to reduce the High Cost of Overhead, Finance and Human Resources Department. c. Be More selective and more prudent in acquisition, must ensure that the acquisition is really2 inline with the Companys core business.