Johnson & Johnson is a well-known multinational company with over 134,000 employees worldwide engaged in the research, development, manufacture and sale of a broad range of products in the health care field. The business is organized into three segments: consumer, pharmaceutical, and medical devices. It had annual revenues of $76.5 billion in 2017—with earnings before taxes on income at $17.67 billion down from $19.80 billion the previous year and a high of $21.83 billion in 2013. However, digital transformations are occurring across all large, medium and small industries and companies. New technologies are changing the way products are developed and the way companies operate and streamline the entire manufacturing process. Thus, it comes as no surprise that one of the largest and most well-known multinational companies is now amongst those facing stiff competition—not only from its large rivals but also from a growing list of startups that are taking aim to disrupt the behemoth. Such is the reason for the undeniable existence of the Johnson and Johnson innovation strategy.
Startups are Taking Aim
Johnson and Johnson competes with businesses of all sizes, both locally and globally, and across its product lines. There is a significant and growing competition in research, involving the development and improvement of new products or enhancements to legacy products. Recently, Johnson and Johnson has felt the growth of this competition coming not from only the large typical players but from an assortment of startups that are able to produce new innovations at a faster pace. Specifically, the company’s baby care, oral care, women’s health, and wound care franchises were all down significantly and facing new competition that is able to ideate more quickly.
Startups see the growth of these sectors and are expected to have a growth spurt which can raise awareness about their presence as investment opportunities. Additionally, these startups are operating in small agile teams with an attitude of building the next billion dollar company. These startups are laser focused on specific product areas with the ability to examine the problem from a completely different perspective. Also, they lack the bureaucracy that is common in most large multinational companies. Notably, Amazon is famous for operating in small teams, similar to a startup. And Johnson and Johnson is not only taking notice but also making drastic changes. Thus, the Johnson and Johnson innovation strategy—which involves the use of small squads—enters the scene.
Johnson and Johnson Innovation Strategy — Inspiration from Amazon’s “Two Pizza Rule”
The 10-person squad idea was borrowed from Amazon, where team size was limited to the number of people who can be fed with two boxes of pizza during a meeting. In actual terms, this was between 7 to 10 people. The group size also happens to be the optimal size for a small management group. In the development of the Johnson and Johnson innovation strategy, the idea for more smaller teams was to help create a small company mindset, which is to be agile as a startup.
J&J has recently reorganized the consumer business operations for improved flexibility by organizing itself into teams or squads of 10. The competitive environment requires substantial investments in continuing research.
Additionally, the company has launched Johnson & Johnson Innovation with the first centers in California, Boston, London and Asia Pacific. The goal is to develop regional innovation in the areas of medical technologies, consumer health care, and therapeutics. These centers bring together business development, venture investment, incubation and R&D from across the company.
According to Paul Soffels, M.D., the chief scientific officer at the company, “At Johnson & Johnson innovation, our goal is to bring forth highly differentiated health care solutions that extend and improve lives.”
The Consumer division has also extended this mindset, as a request, to its advertising partners. It instigated a review of its agency partnerships with the aim of streamlining the workload. According to Alison Lewis, Chief Marketing Officer of J&J Consumer, this does not change the actual workflow, like a request for proposal, as well as brand assignments for the creative agencies. However, it will streamline agency teams aligning them with the changes done to the J&J U.S. consumer business, which is now composed of 10 multidisciplinary teams revolving around pain relief, oral care, and others.
Another Note on the Johnson and Johnson Innovation Strategy
This initiative is not meant to change the current line-up of agencies. However, it might impact the way the agencies work or the work distribution among the agencies. J&J, like most large multinationals, employs several specialty companies for its digital, social media, shopper and public relations. This case would also result in a restructuring to eliminate duplication, including the use of multiple account managers working with J&J.
Jeff Smith, J&J Consumer for North America group chairman says that “we may not end up with an agency that does it all end to end.” He was referring to the various tasks agencies now do for the company, which include more than 20 touch points such as social media updates and interaction, digital media, social media video ads, apart from TV and video ads. “If my squads are going to operate in a more agile, entrepreneurial way, they can’t really manage 20-plus touch points,” says Smith.
In the long run, J&J is also looking at developing smaller in-house teams to handle quick turnaround, real-time interaction. This bold move in relation to the Johnson and Johnson innovation strategy is increasingly becoming a necessity for big multinationals and cannot be left to agencies.