Justin Ribeiro October 4, 2013 MGMT 489 Johnson and Johnson (B) Johnson and Johnsons corporate structure

and philosophy of decentralization allowed it to cut costs, and allow a great deal of decisions to be made by the many business units it owned. However, its continued delay of change in the face of changes occurring on the business and purchasing side of the hospital business hurt it significantly in the market place, placing it behind its competitors. With this change occurring in Johnson and Johnson to create this new hospital services group, the main challenge is not getting hospitals to buy into this new, easier ordering process, but having the 13 companies that make up the hospital services division to buy into it. Ethicon reluctance to do just that is proof that it will in fact be a challenge for Johnson and Johnson to push forward such a centralized change when in fact companies had been used to the independence that they once had. Johnson and Johnson made several miscues that caused them to be in a position that would in fact hurt them in their quest to become changed. Johnson and Johnson has prided itself on how decentralization has allowed them to continue to grow and achieve outstanding return on equity. Yet, by the late 1970s, as shown in the case, they simply are becoming content on their position. Beside the fact that they did not react to changes in the hospital market, they also did not change their own discovery procedure in figuring out that these changes were in fact taking place. This I think was their first miscue. Without being able to evaluate how the market is changing or why, it would never be able to meet that change with increased customer support to cut costs in the case of the

hospital purchasing change. The fact that a study done in 1967 should have been grounds for the start of change did not go through signaled that a problem was indeed coming, complimented by the fact that the situation was not reexamined every five years. Through 1979, the situation was perceived as not a big enough change to warrant some action. The second miscue, which really isnt a miscue as much as it is part of the corporate culture, is the fact that decentralization had caused the business units to forget that they were a part of Johnson and Johnson. Theyre job was to create profits for Johnson and Johnson, as well as themselves, but that the corporate culture had given them the idea that centralized control of certain aspects of their business was in fact a bad idea. This miscue is mostly on the side of corporate control, since they set down no means of showing them that in fact some centralized control would be good for their business, such as cutting overall costs. Another issue had been that these companies had also got content on the way that Johnson and Johnson had been run in the past. They had not needed change, because they each were making money, and living by the credo and mission that Johnson and Johnson had put forward so many years before. Ethicon of course was the one most against such moves, because it was the strongest of them all. Burke points out that Ethicon was reluctant to be involved, but knew I had to. The strengths that the creation of the Hospital Services Group would bring to Johnson and Johnson could be quite beneficial, but again would possibly run into problems getting once nearly totally independent business unit to work with this new group, even with Johnson and Johnson executives backing it. What the group had going for it right off the bat was the support staff, which would be vital to getting this new

group to create and give Johnson and Johnson more power in the hospital services markets. But even after setting this group up, specific problems remained. Sure they had logistics issues with who owned the inventory in the warehouses, and tax issues. These type of problems are what anyone would face in similar situations. But the problem was, how do you get this new group, in essence a new company, to be fully integrated into Johnson and Johnson culture, as well as oriented into the market as a leader. To draw this assignment, or be stationed with this group could lead to decreased moral, since depending on how it is done, how do you show profits? Depending on how they set up the inner workings of this company, what do you charge? Of this question, I feel that you have to charge for cost, profit margin and return on investment. While these companies will surely complain about their increased costs due to this move, over time this cost will be eliminated through the centralization of key functions that once these business units once operated. Looking over Table B on page 10, you can see that quite a bit of the responsibilities once held by the individual business units are being completed now by the Hospital Services Group. This will in fact decrease costs in many areas of these companies, including labor, and support personal. Going through this list, there are several that stand out that could in fact lead to bigger profits as teach company expands their market with the Johnson and Johnson name now tacked onto their own logo. Johnson and Johnson has put forth a great deal in research and development in these individual business units, telling them to innovate. Yet, they have rarely moved towards working to create any kind of value for their customers outside the value that their products carry. The new group will allow these

smaller companies to offer customer support that will in all likelihood help them sell more units, and in turn create bigger profits, even with them paying profit margins and return on investment to the new group. This I think will be overlooked by the smaller companies, who by all measures done well, and are content. Yet, as Johnson and Johnson continue to grow, this group can provide a front-end to dealing with many costly things that have possibly plagued these smaller companies. With computer-connected systems doing central ordering, it will help reduce the cost for hospitals, and make their overall sales shoot up. They still control their some of their main feature as a company, including marketing, pricing and product performance, some of the very things that each company in all likelihood was doing well, considering that combined they had over two billion in sales. Ethicon major complaint that such a warehousing move will cause them to suffer increased costs is probably true in the short run, but in the long run this will not be the case. The idea of centralizing some of the function of these business units is the fact the centralization allows you to lower costs. Ventrella should not give in, not now, nor in the future. The customer will in fact put great value in the fact that they can order anything with only one phone call, or even better, through the automated computer system. To think, after such a convincing start to this case, involving the idea that hospitals were moving towards business practices that cut costs and increase profit, would not appeal to these new customers (even though they are not new customers in general, they are new given the fact that they are dealing with different people) is absurd. To cut costs, and plan for increased profits I saying give me one way to do everything I need to do.

Ventrella should therefore not give into the idea that costs will be so high as to through these units into disarray. It will in fact not. Overall, the idea that the Hospital Services Group is a good one, with a few miscue errors that can in fact be hammered out in the end. As long as they stick to making quality products, and shifting the focus to the customers, they will be in a position to push Johnson and Johnson into a position that will indeed lead to increased growth and profits. At the same time, they must continue to change with the developing market. If they do not, they will only hurt themselves in the long term. And since Johnson and Johnson is focused on the long term, this should not be a problem. Change is the major issue it seems. While most employees do not like change, if they can inform and get feedback, a lot of the negative effects that could come with widespread change could in fact be eliminated, and the company could continue to flourish. If this new company however does not make itself attractive, both instead and outside the corporation, it will hurt Johnson and Johnson across the board, as well as the business units as they try to recover the centralized process that were no longer their responsibility.