Case Study

3715 Words Feb 18th, 2013 15 Pages
Johnson & Johnson

On January 26, 2011, health care conglomerate Johnson & Johnson announced that earnings had declined in the fourth quarter of the previous year, and lowered its estimates for its earnings for 2010. The firm claimed that the weaker results could be attributed to the depressed economy and to a string of product recalls. Sales figures do indicate that Johnson and Johnson has clearly been hurt by 17 recalls since September 2009, covering several over-the-counter medicines, a batch of contact lenses and some hip replacements.

The most serious problems have surfaced at McNeil Consumer Healthcare, which has had to recall many of its products, including one for an estimated 136 million bottles of children’s Tylenol,
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The most widely known of these is the division that makes consumer products such as Johnson & Johnson baby care products, Band-Aid adhesive strips and Visine eye drops. The division grew substantially after J&J acquired the consumer health unit of Pfizer in 2006 for $16.6 billion, the biggest in its 120-year old history. The acquisition allowed the firm to add well known products to its line up such as Listerine mouth wash and Benadryl cough syrup.

But Johnson & Johnson has reaped far more sales and profits from its other two divisions. Its pharmaceuticals division sells several blockbuster drugs such as anemia drug Procit and schizophrenia drug Risperdal. Its medical devices division is responsible for best selling products such as Depuy orthopedic joint replacements and Cyper coronary stents. These two divisions tend to generate operating profit margins of around 30%, 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 has hinged on its unique structure and culture. Most of its far-flung business units were acquired because of the potential demonstrated by some promising new products in its pipeline. Each of these units was therefore granted

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