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Johnson and Johnson Facing the Challenges of Putting Up a Centralized Information System

Johnson and Johnson Facing the Challenges of Putting Up a Centralized Information System

Executive Summary

            Johnson and Johnson (J&J) is a leading name when speaking of health care products manufacturing and selling.It has existed for more than 120 years and has been a trendsetter when it comes to health care products.Its success in the business and health care industry is largely due to its decentralized management approach.

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Now, Information Technology is finding its way into becoming a core concept in the management of J&J but it must first overstep the challenges presented by a centralized Information System which it so desires.

Introduction

            J&J’s business revolves around providing health care products to its clients and it is the leading manufacturer of such products with its 1994 sales amounting to over $15 billion. It was founded in 1886 and it quickly found its way to being a very profitable business. It has been providing quality health care products to consumers for more than 120 years. J&J was the first to manufacture sterile dressings and its products range from baby shampoo, disposable contact lenses as well as treatments and relief from various diseases (Ross, 1995).

            J&J continues to introduce new line of health care products that really captivate the market. The quality of their products is evidenced by their sales. Their newest products include a glucose management system for diabetics and contact lenses that feel like wearing nothing. The new line of products has always been a big help to the company. Thirty percent of 2007 sales come from new products that have been introduced in the past five years (Johnson & Johnson, 2008).

            J&J comprises of more than 250 operating companies in 57 countries. It has employees numbering more than 120,000 and its main headquarters is stationed in New Jersey in the United States. It markets its products in more than 175 countries and it manages its operating companies as independent business (Analysis of Johnson and Johnson, 2008). In 2007, global sales amounted to $61.1 billion (Johnson & Johnson, 2008). The autonomous status given to operating companies aims to increase flexibility, accountability and creativity. It has also adopted a decentralized management approach which put the company in a strong financial light.

J&J’s organizational structure is different from other companies. It treats its operating companies as independent businesses but still a part of the corporation. Another aspect that separates J&J apart from other businesses is that it focuses on a decentralized structure.

The decentralized organizational structure is composed of three different segments, namely, Consumer, Pharmaceutical and Medical Devices and Diagnostics. Each segment has a chairman charged with identifying opportunities and leveraging services and expertise for every market. Each segment also composes of franchise and therapeutic categories (Serving Markets in Three Business Segments). Franchise managers were assigned to coordinate the sales of the different operating companies for every product line. The introduction of the Health Care System, which provides J&J products to health care provider organizations, and the Customer Support Center, which was instituted to market the products to large retailers, reinvented the way work is distributed at the company (Ross, 1995).

This decentralized structure is the secret formula for the success of J&J. It became the largest and most comprehensive distributor of health care products because of this formula. The decentralized structure allowed the company to effectively focus on the needs of its customers. The structure also ensured that company activities are always in line with the company’s overall strategic objectives.

            Many admired the management practices adopted by J&J but the autonomy granted to operating companies had its drawbacks. Employees have a tendency to view themselves as working only for the operating company and not the entirety of the corporation (Ross, 1995) which somehow creates an absence of a global mindset. It is important to consider the cultural differences of different countries since cultural differences may dictate the need for a certain product or how the product will be marketed effectively (Telschow, 2001).

An ideal manager should be one that is able to think globally but act according to the locality of the business operations. J&J has addressed this aspect since it employs managers from diverse cultural backgrounds and exposes them to cultural backgrounds that they are not familiar with (Telschow, 2001).

Problem Definition

            The decentralized structure is the most important strategy that has worked for this leading health care product manufacturer. IT is important to ensure the continuous flow of information from the operating companies to the clients as well as the financial information from the company to the main headquarters based in New Jersey in the US (Ross, 1995).

            Basically, information technology makes for a more convenient transfer of information and it is particularly useful in systems planning, developments, operations, and maintenance. But for the decentralized system of J&J, its established multiplexed T1 network allowed data transfer between operating companies, the main headquarters and other facilities that are critical in maintaining a smooth flow of operations (Ross, 1995). In this decentralized organization where administrative powers and functions are given to a central authority, Information Technology allows the chairman of each operating company’s segment to coordinate with the other segment chairmen. Information technology ensures that the system runs efficiently. The people in J&J are opting to adopt a centralized information system but there are certain challenges that need to be addressed in order for a centralized system to be established and for to be successful.

Four limitations were identified by J&J Information Technology Team, namely “(1) the amount of IS attention allocated to infrastructure management across the company…diluting the attention that could be focused on more strategic IT applications”, “(2) the lack of technology standards…inhibiting connectivity, aggravating attempts to service business needs and costing too much support”, “(3) the funding process for infrastructure projects…retarding efforts to build a enterprise-wide infrastructure”, and “(4) lack of data standards…impending the meaningful exchange of data across companies” (Ross, 1995).

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            The first limitation was caused by a mismanagement of IT resources. On J&J’s Networking and Computer Services Vice President Bob Chaput’s estimation, around 550 of the 1,500 IS professionals were deployed to support infrastructure technologies just in the US; a number which was too high making it an inefficient way of handling human resources. This created a void in the Information Technology system as very few IT personnel work on projects that are crucial to the company (Ross, 1995).

            The lack of information technology standards was caused by the autonomy granted to the operating companies. The autonomy led to differences in the kinds of technologies utilized. Different types of hardware are utilized from routers to bridges and even choosing between Macintosh and Windows was debated. There were also differences in the software used (Ross, 1995).

Infrastructure developments were hindered by the payment for services received. For example, a franchise manager comes to an operating company to install networks connections for a certain price but the problem is the company may not be raking enough money to pay for the installation. Thus, installing the new network connection is not in its best interest (Ross, 1995).

The problem on the lack of data standards was uncovered upon the creation of the Customer Support Center and J&J’s Health Care Systems (HCS) since differences in data definitions prevented personnel from determining the total business that a customer did with J&J (Ross, 1995).

Recommendations

            Like any other organization that has flaws in its system, J&J tried to address its lapses in the company Information Systems using various methods from leveraging to making complete changes.

            J&J’s global IT network linked together all the 250 operating companies in 57 countries. Majority of the operating companies received network support from the main headquarters in New Jersey. More importantly, operating companies based in Western and Eastern Europe, the Middle East and Africa receive their network support from a regional center that was established in Belgium. This regional center supported 100 operating companies with over a hundred routers and more than 1,000 servers at its disposal. This well-controlled network made it possible for 11 employees and six contractors to provide the Europe-based J&J companies with centralized support (Ross, 1995).

            European operating companies have a more decentralized network support since many of the companies in Europe are small and this also meant that they have fewer employees capable of addressing all the Information Technology needs of whole countries. Adopting the Jansen Standard, which has been utilized by one of the largest J&J operating companies in Europe, has led to the centralization of the European operating companies. US-based operating companies were large enough to be able to provide all their IT needs which eliminates the need for a centralized network support. But for Chaput, the European model would work well for the entire corporation.

            To solve the problem regarding the allocation of IS human resources, “five major Professional Group companies in the US had agreed to turn over responsibility for voice communications to Chaput’s organization“, which is the Networking and Computer Services. This brought the focus of many IS personnel into more important IT applications (Ross, 1995). This will most likely address the problem since IT personnel no longer have to worry about the supporting infrastructure technologies giving them more time to focus on IT projects that would better benefit the company.

            In establishing information technology standards, Jan Fields, the Director of Corporate Network Services said that imposing a limited set of standards was critical if J&J seeks the centralization of infrastructure services. He gave the IT personnel the decision to make the most efficient and economical choice when it comes to choosing the software (Ross, 1995). Even as a limited set of standards was imposed, this is not as effective as adopting a single information technology standard. Making the economical and efficient choice is a good enough choice since it would be hard to adopt a single IT standard especially in considering the costs associated with adopting this single standard.

            Information systems infrastructure investments is important to J&J but new businesses cannot afford hefty payments for upgrades and they are more vent on investing their money on aspects that would improve the company performance, but HCS and the Customer Support Center requires that operating companies adopt such changes. Since this has been the scenario, Chaput talks to the operating company to make a proposal and after the company has got the funds for infrastructure investments, the projects starts (Ross, 1995). This is a friendlier approach since those who are just starting out in the business have the option of prioritizing what they really need in terms of profitability and providing better services to its customers.

            Creating data standards that would enable the interpretation of data from across other operating companies. J&J is already a leader when it comes to manufacturing health care products and it is time that an organized definition of terms is set up. This would prevent any unnecessary confusion in the future (Ross, 1995).

J&J is on its way to adopting a centralized IT management system but it is faced with a lot of challenges. Its existing information system has four lapses as already indicated. It is critical that these lapses be addressed for a smoother information systems management. The capabilities of the IT personnel must be utilized efficiently. This was not done in the past since too much attention was given to infrastructure management. Adopting a single IT standard should also be pursued as a gradual process to prevent any complexities. A single IT standard would allow for better coordination among operating companies. Making sure that all operating companies have the required IT system is also important but since the problem here that not all operating companies can pay the fees, this could also be done gradually so that the expenses will not heavily impact the operations of the smaller operating companies especially those that are only starting out. Creating a specific data standard would also be critical so that cross-company information could easily be analyzed. This would require a lot of work since it would require coordination with the many operating companies but it would prevent any more mishaps resulting from not having a clear data standard.

IT personnel should adopt a specific goal that is doable. J&J must be careful that they do not stray away from attaining this goal. This is a basic step for any organization that wants to accomplish a certain goal.

Making IT a corporate function rather than being a company function would also prove useful and this can be done by first initiating training programs that would give IT personnel the knowledge that they need at J&J IT system as Chief Information Officer Ed Parish has already indicated. It would be followed by impacting pay and performance through sharing performance evaluations and finally taking over the succession planning so that the company president can choose a qualified successor as the IT director position opens (Ross, 2005).

Conclusion

            Five to ten years from now, J&J should still be using the decentralized management approach since it has been the organizational backbone for a long time. Even as giving autonomy to operating companies has downsides, J&J will be able to control these using other various strategies. The decentralized management system will keep J&J as a big name when it comes to providing health care products and services. By then, it should have also already adopted a powerful centralized information system if all the problems were carefully addressed.

References

Ross, J. 1995. Johnson & Johnson: Building an Infrastructure to Support Global Operations. Massachusetts Institute of Technology: Center for Information System Research.

Telschow, M. 2001. Business Policy and Administrative Action in a Global Economy. Retrieved September 8, 2008, from http://www.hausarbeiten.de/faecher/vorschau/104110.html

Analysis of Johnson and Johnson. 2008 May. Retrieved September 8, 2008, from http://www.researchandmarkets.com/reports/ c89193

Serving Markets in Three Business Segments. Retrieved September 8, 2008, from http://careers.jnj.com/careers/global/ organization_structure/business_segments/index.htm;jsessionid=4PEYPA5AAJL4GCQPCCEGU3AKB2IIWTT1

Johnson and Johnson. 2008. Factbook 2008. Retrieved September 8, 2008, from http://www.jnj.com/connect/pdf/pdf-company/2008-fact-book.pdf