Managerial Economics and Strategic Analysis
MANAGERIAL ECONOMICS 7
ManagerialEconomics and Strategic Analysis
ManagerialEconomics and Strategic Analysis
Johnson& Johnson (J & J) is a multinational company that specializesin providing health care products. The firm focuses primarily onmanufacturing and selling pharmaceuticals, medical care products, andmedical devices. It also engages in research and development. J &J headquarters are in New Brunswick, New Jersey, and operates over250 subsidiaries in Africa, America, Asia Pacific, and Europe. Thecompany has withstood the test of time from different crises such asthe faulty artificial hips and cyanide-intoxicated Tylenol that madeit change its management strategies to maintain its competitiveadvantage in the market and its brand name. This essay aims atexamining strategic controls, the balance between rewards, culture,and boundaries, organizational structure, leadership, ethicsprograms, and risks with regard to J & J. The topics are ofinterest because of their fundamental role in influencing thestrategies the company employs in its internal allocation ofresources to optimize cost, capital spending, and profit.
Typesof Strategic Control
Strategiccontrol is an integral process of an organization that is continuous.It facilitates planning, preparing, and implementation of workslinked to the company’s operations. It entails human capitalmanagement, building a reputation, or improving the operatingprocess. Thus, strategic control is a crucial management tool thatwhen implemented is instrumental in product development, marketingplanning and making pricing decisions. J & J battles with qualityissues of its products triggered a series of lawsuits from theaffected clients. Similarly, the conflict with the Food and DrugAdministration (FDA) made it reconsider different managementstrategies. The strategic control chosen modified the managementprocess to align the activities for achieving optimal sales andprofits while minimizing the costs of operation. Strategicsurveillance and implementation control apply to J & J.
J& J uses medical devices and diagnostic group to investigate andmonitor any unexpected incidences of faulty hip replacements orcontaminated drugs. Since the risks are known, J & J’s measuresaim at eliminating any uncertain event that would make the companylose sales or incur high costs due to the necessity to scrap theproducts from the market(Birch, 1965).
Thecompany hired a consulting firm to improve and modify its systems tocounter the problem experienced in McNeil with the manufacture of theover-the-counter drug. Alex Gorsky was appointed to head the healthcare team due to his previous background with J & J. Gorsky’sdecision was strategic because he directed on scrapping off thedeficient hip replacements on the grounds that the companyencountered low sales instead of disclosing their faulty nature. Theaction ensured that the firm maintained its competitive position inthe market and that its sales did not decline on reintroducing thehip replacements in the market. The change in management as astrategy control method aimed at creating employee synergy, andimprove creativity and innovation to keep up with dynamic marketchanges, competition, and legal regulations in the industry.
Balancebetween Rewards, Culture, and Boundaries
J& J has an entrepreneurial culture that enables it to acquirebusinesses and expand its operations. Reports show that it has boughtan estimate of more than 70 firms(Gregory, Lumpkin, Eisner, & McNamara, 2013).Its strategy puts it in an advantaged position compared to its rivalsbecause it purchases companies that augment its initial operations.For instance, it recently acquired a manufacturer of orthopedicdevices. Similarly, the innovative culture promotes the company’sundertakings due to the resulting increased production associatedwith the potential for emerging products from the expanded complexbusiness system. The reward system builds on the existing staff andpromotes them to higher positions such as Gorsky. It enables them tohandle problems affecting the organization articulately. The settingboundary is the decentralized culture that makes different businessunits to function independently(Egan, 1995).The output of each unit, coupled with support services create acompetitive edge for J & J. The intertwinement of the rewardsystem, company’s culture and its constraints result in increasedproduction.
J& J operates a divisional organizational structure where thecompany is subdivided into different smaller units that operate ontheir own from the other. The company has three segments, which aremedical devices and diagnostics, consumer products andpharmaceuticals. In addition, the three sections are furthersegregated into 250 distinct units. J & J adopts this structureto facilitate its control and coordination over various activities(Kochanny, 2015).The autonomy of each section enables them to cater for the demand ofgoods, determine price and sales for their units. As such, theybecome responsible for a proportion of the company’s profitability.
Theattributes of leaders in J & J are visible in incidences ofuncertain events such as the hip replacement and over-the-counterdrug crises. William C. Weldon, the CEO did not register anall-rounded performance because of his concentration in achieving theset target that eventually compromised the quality(Gregory, Lumpkin, Eisner, & McNamara, 2013).James Burke embraced open communication, particularly during theTylenol crisis that saw him harness high cohesion with the media, andsteered the decision for 31 million bottles to be recalled. Finally,J & J holds various leadership positions in healthcare like inanti-thrombostic agents, biosurgicals, and antipsychotics(Johnson & Johnson, 2016).It makes it easier for the company to enter into new markets andlaunch new products.
J& J complies with the regulations provided by the FDA thatrequire the firms manufacturing drugs to follow the outlinedprocedures in producing, and distributing generic drugs(Wulf, 2012).The program acts as a precautionary measure to avoid crisis such asthe Tylenol, which impacted the image of J & J as a reputableorganization. Also, it ensures that commodities that reach theconsumers are quality and safe for consumption. Failure to adhere tothe guidelines, or compromising the production process affects theleadership, output, sales and consumption patterns of the products.The company also has a risk program that aims at downplayingfinancial, climate change, reputation and any other risk that mayaffect the company. With these strategies in place, the companymaintains its market share through continuous production thatprovides a leeway for increased competition, profit maximization andmeeting the demand of the market.
RisksJ & J may take
Introducingnew products into the market is one of the principal risks J & Jmay partake because it is based on speculation on how the commoditymight perform in the market. Launching products is inevitable inhealth care industry since it is a strategy of creating value andcatering for the unmet demand(Schuhmacher, Hinder, & Gassmann, 2016).The company also expands its operations and keeps up with theemerging trends in the sector. Restructuring is considered a riskeither through acquisitions or reorganizing the leadership andinternal activities. These changes are made in anticipation of futurebenefits. Notably, acquisitions have worked in the advantage of J &J. The strategic annexation enables it to expand its market reach andoffer a variety of commodities to the clients.
Inconclusion, the topics discussed in this essay relate to internaloperations in J & J, and their association with the marketdynamics. They impact the revenue generated or cost incurred directlyor indirectly. Whether they apply out of default or from decisionsmade, due diligence should be taken to ensure that the factors ofproduction interplay in such a way that the marginal revenue and costyield the optimal profit. The business manager employs the bestcombination of the factors of production, but decisions have to bemade on production, pricing, and materials needed. The dynamicity ofthe business environment makes information about future costs, salesand profits uncertain, but with the understanding of the concepts ofmanagerial economics, approximations are made by forecasting usingthe previous performance of the products in the market. It enablesbusinesses to make decisions and adequate plans. Therefore,managerial economics is attributable to J & J plans of continuousacquisitions, which factor in the market dynamics and minimize risksbecause of the expertise in estimating future demand, profit, andsales from the huge production.
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Egan,T. P. (1995). Updating managerial economics. BusinessEconomics,51-56.
Gregory,D., Lumpkin, G., Eisner, A., & McNamara, G. (2013). StrategicManagement: Text and Cases(7th ed.). McGraw-Hill Learning Solutions.
Johnson& Johnson. (2016). Johnson& Johnson SWOT Analysis.MarketLine.
Kochanny,M. (2015). Johnson and Johnson Tylenol Crisis. FeatureEdition, 2015(2),38-48.
Schuhmacher,A., Hinder, M., & Gassmann, O. (2016). ValueCreation in the Pharmaceutical Industry: The Critical Path toInnovation.John Wiley & Sons.
Wulf,K. (2012). Ethicsand Compliance Programs in Multinational Organizations.Springer Science & Business Media.
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