Johnson & Johnson relied heavily upon acquisitions to enter into and expand into a wide range of businesses that fell broadly under the category of health care. It purchased more than 70 different firms over the past decade. Among Johnson & Johnson’s recent moves was the $20 billion purchase of Synthes, a leading player in trauma surgery. In November 2014, J&J completed its $1.75 billion acquisition of Alios BioPharma, which produced therapeutics for viral infections.
As it grew, Johnson & Johnson developed into an astonishingly complex enterprise, made up of over 250 different subsidiaries that were divided among three different divisions. The most widely known of these was the division that made consumer products such as Johnson & Johnson baby care products, Band-Aid adhesive strips, and Visine eyedrops. The division grew substantially after J&J acquired the consumer health unit of Pfizer in 2006 for $16.6 billion, the biggest acquisition in its 120-year history. The acquisition allowed J&J to add well-known products to its lineup, such as Listerine mouthwash and Benadryl cough syrup.
But Johnson & Johnson reaped far more sales and profits from its other two divisions. Its pharmaceuticals division sold several blockbuster drugs, such as anemia drug Procrit and schizophrenia drug Risperdal. A new drug, named Zytiga, prescribed to treat prostate cancer, was selling well. The medical devices division was responsible for best-selling products such as DePuy orthopedic joint replacements and Cypher coronary stents. These two divisions generated operating profit margins of around 30 percent, almost double those generated by the consumer business.
To a large extent, however, Johnson & Johnson’s success across its three divisions and many different businesses hinged on its unique structure and culture. Most of its far-flung subsidiaries were acquired because of the potential demonstrated by some promising new products in their pipelines. Each of these units was therefore granted near-total autonomy to develop and expand upon its best-selling products (see Exhibit 3). That independence fostered an entrepreneurial attitude that kept J&J intensely competitive as others around it faltered. The relative autonomy that was accorded to the business units also provided the firm with the ability to respond swiftly to emerging opportunities.
Johnson & Johnson was actually quite proud of the considerable freedom that it gave to its different subsidiaries to develop and execute their own strategies. Besides developing their strategies, these units were also allowed to work with their own resources. Many of them even had their own finance and human resources departments. While this degree of decentralization had led to relatively high overhead costs, none of the executives who ran J&J, Weldon included, had ever thought that this was too high a price to pay. “J&J is a huge company, but you didn’t feel like you were in a big company,” recalled a scientist who used to work there.4
Pushing for More Collaboration
The entrepreneurial culture that Johnson & Johnson developed over the years clearly allowed the firm to show a consistent level of high performance. Indeed, Johnson & Johnson had top-notch products in each of the areas in which it operated. It had been spending heavily on research and development for many years, taking its position among the world’s top spenders (see Exhibit 4). In 2014, it spent about 12 percent of its sales on about 9,000 scientists working in research laboratories around the world. This allowed each of the three divisions to continually introduce promising new products.
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