Corporate Level Strategy in the Pharmaceutical Industry
With a number of challenges such as products which are a key source of revenue going off-patent, good business or corporate level strategies are what keep the company competitive and relevant in the market. Any kind of strategy is always about the major issues regarding, to a larger extent, the long term future of the company or any corporate. Any strategy focuses on the long term direction of the organization. According to Chandler (2008), a strategy is “the determination of long-run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out the goals.” There are three levels of strategies which are very vital for every organization; these are corporate level strategy, business level strategy and operational strategy. Of interest in this paper will be corporate level strategy and business level strategy. The corporate level strategy is deals with the larger organization scope and the addition of values to the business constituent of the organization. Some of the aspects of corporate level strategy include product or service diversification, new business acquisition, allocation of resources to different aspects of the organization and geographical scope. Business level strategy is basically about the competition of the business in a particular market. It is also referred to as competitive strategy. This paper will specifically address business units with a large corporation.
The company of focus in this paper is Johnson and Johnson Corporation. JNJ is a leading corporation in the health care field. The Company is organized into three business segments which are Pharmaceutical and Medical Devices, Consumer, andDiagnostics. The Company’s Consumer segment has a broad range of products which are used in baby care, skin care wound care, oral care and women’s health products. JNJ Company operates on the principle of decentralized management and the Company is given to research and innovation of new products in health care field. JNJ is a public listed Company and it was founded in 1886 and its home State is New Jersey with headquarters located in New Brunswick, United States. It has more than 275 subsidiaries which operate in 60 countries worldwide. Some of the brands of JNJ include consumer products such as Tylenol medications, Neutrogena skin and beauty products, Band-Aid brand-line ofbandages, Clean &Clear facial wash, Acuvue contact lenses and Johnson’s baby products. Five and ten- year compounded annual growth rates for U.S. and international sales were as follows1.9%, (1.7)% and 5.5% and 6.4%, 2.9% and 10.4%, respectively (JNJ, 2012).
Business Level strategy of JNJ
In the light of the organization of JNJ into three segments (Pharmaceutical and Medical Devices, Consumer, and Diagnostics), the pharmaceutical segment has a number of competitive advantages. This is attributed to the fact that the pharmaceutical sector does not always succumb to the threat of the entrant of new players in the business. Most potential entrants would shy away due to the prohibitive cost associated with this sector thus giving monopoly to the existing firms. This is the advantage that the pharmaceutical segment of Johnson and Johnson Company (JNJ) enjoys. With a business strategy that emphasizes ondifferentiation obtained by continuous innovation, the Company is on high pedestal with regards to competition with other players in the pharmaceutical field. This distinctive competitive advantage of the pharmaceutical segment of JNJ is as a result of new products and product development pipelines which are very robust.
With a very good cash position, commitment to quality scientific research, and a marketing ability which is superior, most of the potential competitors of Johnson and Johnson Company cannot measure up to them. Research and Development (RD) is a key strategy that JNJ uses to stay relevant in a competitive market environment. This innovation strategy ensures a robust growth of the Company. This supported is supported by their Credo and strategic framework context which outlines the areas of focus in the operation of the Company and its subsidiaries (JNJ, 2012). The focus of innovation approach that JNJ adopts is not just based on new products and services, but on creating value for the products and services. The clientele in pharmaceutical field are more informed and in addition to the stringent rules of the regulatory authorities such as Food and Drug Authority, value is a vital aspect and principle that guides research and development. This coupled with robust marketing strategy employed by JNJ; the company is always on the top in this field. According JNJ annual report (2012), some of the new products launch which contributed immensely to the revenue were REMICADE® (infliximab) which was biologic for the treatment of a number of immune-mediated inflammatory diseases; VELCADE® (bortezomib) which helps in treating multiple myeloma; PREZISTA® (darunavir), significant for the treatment of HIV. This is in addition to some other new products which were launched in the previously such as ACUVUE TruEye(TM) Brand Contact Lenses, which is the first daily disposable silicone hydrogel lens in the world, Cordis NEVO(TM) Coronary Stent, with a unique reservoir-based technology vital in treatment of cardiovascular disease, ablood glucose monitoring system which guarantees the next generation of accuracy and precision referred to as OneTouch Verio (TM). All these were launched in 2010 (JNJ, 2010).
This business level strategy of innovation is vital for the long term success of the Company and this is the choice in a dynamic world of pharmaceutical business. Despite the fact that Research and Development (R&D) is very costly, it is the only strategy that would make a pharmaceutical company to be competitive and to stay relevant in the market. It cushions the companies when their key product faces off-patent. A sustained launch of new products into the market would help in addressing the needs of consumers and help in handling new health related challenges. Through the strategy of merger and acquisition, JNJ has been able to address the pipeline challenge. This has been made possible by the Company’s decentralized organizational structure. This is the best approach of merger and acquisition according to Pavlouv (2003).
The Corporate Level strategy of JNJ
One the vital corporate level strategy that JNJ operates on is product and service diversification. This kind of a moderate to high of diversification has sustained the Company over the years and given it the market power worldwide. Because of this, JNJ has a high strategic competitiveness characterized by blocking competitors through multipoint competition and Vertical integration and efficiency in internal capital allocation. This strategy is very important in sharing corporate competencies. High number of subsidiaries operating in the three segments of the business of JNJ shows the value of diversification. In cases where the U.S. based companies under JNJ go through some crisis, the revenue from the international companies has played a great role in sustaining the financial position of the business.
Another important corporate level strategy used by JNJ is High market position and this is enshrined in the management of the corporate. This can be seen by the performance of the following companies: DePuy- leading in orthopedics, spinal care, sports medicine and neurosurgical devices;Diabetes Care- leading in products allowing people with diabetes to monitor and control their blood glucose levels;Vision Care- leading in the global contact lens market;Ethicon Endo-Surgery- leading in surgical device solutions meant for minimal invasive and open surgery; Advanced Sterilization Products, leading in developing solutions for the reduction of healthcare-connected to infections; Cordis: leading in the treatment of cardiovascular disease;Ortho Clinical Diagnostics- leading in medical diagnostic products; and Ethicon which leads in sutures, tissue repair and reinforcement products, women’s health, aesthetics and conditions of the ear, nose and throat. Acquisition and Merger (A&M) has also contributed greatly in the improvement of market position of JNJ and this has been made easy by the Company’s decentralized organizational structure (JNJ, 2012).
Product and service diversification is a very important cooperate level strategy for the long term success of JNJ, operating in one product line only can be very disastrous as it may make the company to succumb to emerging difficulties in the market trends. Diversification is important in instances where the product line matures and when the product line is threatened thus acting as a defensive strategy. Thus, diversification is very important more so in pharmaceutical industry where major products goes through off-patent in a very short duration. It is also has a great relationship with the performance of the company as stated by Chandler (2008)in the model of the relationship between firm performance and diversification.
One of the significant competitors of JNJ more so with regards to contact lens is Ocular Sciences (OSI). The companies almost the same strategist both at the business level strategy and corporate level strategy, but the only difference is in the organizational structure and cash position. The superior cash position and organizational structure makes JNJ to have advantage over ISO. Thus with these two advantages, Johnson and Johnson Company would be successful in the long term compared to Ocular Science. This is attributable to the fact that the good cash position would be very vital in research and development which is a factor that influences in great way the performance of a product in the market. It would take time before ISO level or topples Johnson and Johnson Company. The fact that they both apply the strategy of innovation and diversification at business and corporate levels of strategy respectively does not make them equals. In this regard, my choice would not change in the case of first cycle market since in first cycle market, the first entrant always tend to dominate the market in terms of profit margins and shares. This explains the dominance of Johnson and Johnson Company. In fast market cycle case, it would be very difficult for ISO have advantage over JNJ in the long term since JNJ has established standards which are entry barriers to competition.
In slow cycle markets, the two Companies may have a level play ground thus it would not be easy to out rightly state the Company that would be more successful in the long term. This notwithstanding, There is some level of advantage that big corporate such as Johnson and Johnson would have even under this context.
JNJ can simply use merger and acquisition as a strategy to edge out the close competitor as seen with the case of Guidant. Nonetheless, because of high diversification due a number product line that Johnson and Johnson Company operate in, ISO may have success in the long run if they just concentrate one particular product. They would concentrate resources and enhance their ability to come up with the product that is more relevant to the customers than one produced by Johnson and Johnson Company.
The level of strategy discussed above is akey determinant of the performance of any corporate.For any enterprise to compete well at the individual business level, then it must come with business level strategies that would enable it to win against the potential competitor and exert dominance in the market. For the corporate, the high level of organization is key thus the need to come with corporate level strategies that enhance the spread of market and products. In this, the relationship between the parent and individual business must be considered before adopting any kind of corporate level strategy. As seen in the analysis above of Johnson and Johnson Company, there is no company that can do well without having relevant and appropriate business and corporate level strategy since they determine the long term success of an enterprise.
Chandler, A.D. (2008).Strategy and Structure: Chapters in the History of American Enterprise. New York: MIT Press.
Johnson and Johnson.(2010). Annual Report.Retrieved on 11th November, 2013 fromhttp://www.2010annualreport.jnj.com
Johnson and Johnson.(2012). Annual Report. Retrieved on 11th November, 2013 from http://www.2012annualreport.jnj.com
Pavlouv, A. (2003). Biotechnology M&A insight: Deals and strategies. Journal of Commercial Biotechnology, 10 (1): 85-91.
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