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[Music]
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Consumers tend to associate Johnson and
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Johnson with band-aids and baby shampoo.
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But those well-known products are only
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part of a much larger picture, according
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to William Weldon, chairman and CEO of
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the New Brunswick, New Jerseybased firm.
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In fact, Weldon has the mind-boggling
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task of overseeing more than 200
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operating companies across three
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sectors, including consumer products,
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pharmaceuticals, and medical devices. On
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June 18th, Weldon spoke at the 2008
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Wharton Leadership Conference about the
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challenges of running the Johnson and
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Johnson family of companies. In an
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interview with Knowledge at Wharton, he
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elaborated on how J&J's decentralized
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structure informs his leadership style
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and what he sees as key issues for the
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healthcare industry in the coming decade
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among other topics. Mr. Weldon, thanks
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for joining us today. It's great to be
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here. Many of our readers are familiar
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with Johnson and Johnson consumer
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products, but they may not be familiar
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with uh the Johnson and Johnson family
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of companies and what that actually
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encompasses. Can you give us an
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overview? The way the way we look at our
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organization is really that we have
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three business segments we work in. One
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is the uh consumer business which you
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alluded to which is a lot of the baby
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products um uh baby shampoo, baby powder
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um band-aids but then it also includes
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Neutrogena and Aino and and many of the
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uh other uh a lot of consumer companies
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that people would not know belong to the
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J&J family. The second part of our
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business is our medical device and and
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diagnostics business, which by itself is
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the largest medical device and
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diagnostics business in the world. And
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that consists of everything from
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cardiovascular products for stances to
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joint replacements for knees and hips to
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lenses with acu and um blood glucose
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meters uh surgical uh ethicon sutures
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and endoscopic instruments. So it covers
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a broad array of of products. And then
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we have our pharmaceutical business
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which is our largest segment. and it's
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over 40% of our business and that really
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deals with cardiovascular products uh
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oncology products uh immune mediated for
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rheumatoid arthritis and and uh those
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types of areas. So a lot in the verology
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area for HIV AIDS and tuberculosis. So
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when you when you look at J&J, most
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people think of it as the consumer side,
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but um it's actually our smallest
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portion of the business and um it's
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about uh we have about 61 billion in
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revenue and anywhere from 180 to 200
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billion in market cap. What are the main
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challenges of leading in a decentralized
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corporate environment including across
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countries and cultures? You know, it's
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it's interesting. I I think there's
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pluses and minuses to decentralized and
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centralized. I think J&J is probably the
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reference company for being
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decentralized.
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You know, there are challenges to it and
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that is that you don't have as much
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control as you may in a centralized
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company. But the the good part of it is
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that you have wonderful leaders, you
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have great people that you have a lot of
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confidence and faith in and they run the
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businesses. So if you look at it that uh
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if you take Japan for example, we have
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local management running the companies.
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They understand the consumer, they
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understand the people they're dealing
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with and they understand the government
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and the needs in the marketplace.
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whereas it's very hard to run it from
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the US and and think that we we would
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know enough to be able to do this. So I
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I think it really affords us a lot of
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opportunities by being decentralized.
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What you do lose is control. But with
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our Kredo and with the the value system
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that we work under, we feel very very
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confident about our leadership and our
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management and you have to have trust
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and confidence in them. I think the
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other thing that decentralization does
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is it gives you a tremendous opportunity
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to develop people. So you give them a
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lot of opportunity to work in different
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areas to work in smaller companies to
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make mistakes and work and ultimately
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move into larger companies. I also think
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the benefit of the cultural side that
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you asked about is that you do have
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local people running the businesses. So
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the men and women that run our
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businesses around the world usually are
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are people that grew up in those
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markets, understand those markets and
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develop themselves in those markets. So
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they can relate to the needs of the of
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the customer, whoever that customer may
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be. So, so the challenge really I you
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know I see it a great uh a great benefit
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rather than a challenge because the
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problem with centralization is if one
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person makes one mistake it can
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the whole organization. This way you've
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got wonderful people running businesses
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uh you have to have confidence in them
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but you let them run it and you don't
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have to worry about uh making that one
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big mistake. When you became CEO in 2002
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what was the biggest challenge you faced
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and how did you overcome it?
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Um, you know, I think the challenges
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always are is it's around the area of
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people and making sure you have the
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enough really outstanding leaders to run
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the businesses. We just talked about
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decentralization and and uh and and
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allowing people to run the business. We
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have over 200 operating companies. We
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need 200 great leaders. I think the
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challenge is always developing the great
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leaders that can run the businesses. I
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think that's always the biggest
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challenge. I think the thing that that
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really is the challenge for anybody who
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goes into a role like I went into is
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worrying about who's going to sit here
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next. I mean, it's a responsibility
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where you have, you know, you can think
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about shareholders, but you think about
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the 120,000 plus employees and families
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that we're responsible to and you want
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to make sure when when you leave that
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you're leaving it in hands of people
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that you feel are you're very
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comfortable with. You could go on and
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talk about we had we had challenges in
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our pharmaceutical pipeline and we had
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to really revamp and do a lot of things
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in in our R&D organization to make sure
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that we strengthened our pipeline. Um
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because it really is when you think
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about it's dependent upon people and
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pipeline. So you look at pipeline of
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people and pipeline of products and
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those are the two things that I think we
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have to be focused on all the time. Your
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field like many requires a heavy focus
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on innovation in order to stay ahead.
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How does Johnson and Johnson's uh
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decentralized corporate structure um
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relate to innovation? How does it
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enhance it? Well, I think I think what
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decentraliz where decentralization helps
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in innovation is that it allows
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different people with different you know
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different skills, different thoughts and
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bring together different products and
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technologies to satisfy unmet you know
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needs of of patients or or customers. So
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for example, if you look at um we had a
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meeting where we brought together our
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engineers from our MD and D group and
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our scientists from our pharmaceutical
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businesses and they came up with putting
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a drug on a stent and and developed the
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drug alluding stent for cardiovascular
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disease which was a huge breakthrough
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and it it actually brought the skills
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and knowledge from two different sets of
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people together. We're now working on a
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product that we just launched in Europe
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and we'll launch here shortly which did
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the same thing. It brought the skills of
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the engineers together with the skills
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of the scientists to to develop a
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basically a patch which will deliver a
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narcotic for post-operative use. So the
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patients don't have to carry around the
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PCA pumps and everything else with them
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all the time. They just touch it. It's
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about the size of a credit card. You hit
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it and you get your dose of narcotic and
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it has a battery which makes sure it's
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delivered properly in the right amount,
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the right time, right frequency. Um so
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so you look at the convergence of these
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skills and technologies and products and
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then people and I think it offers us a
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distinct competitive advantage. If you
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fast forward into the future, I think
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you're going to see a lot more
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personalized medicine. So we're going to
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look at biomarkers and genomics and
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genetics and and we're going to be able
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to identify who will respond to a
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product, who won't respond, who will get
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a side effect, who won't get a side
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effect. And that takes the skills of our
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diagnostics group and our pharmaceutical
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group and putting them together to
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identify the patient that will will
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respond to these products. So I think
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that the decentralization and having
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these this broad array of companies
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actually um fosters innovation and
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stimulates each other who are working in
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similar areas. And what are the
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downsides to that structure? Uh with so
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many subsidiaries I imagine that
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coordination must become quite an issue.
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I think yeah I think you hit upon it. I
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think the downside to decentralization
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or or in in this area of innovation is
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actually the coordination. Um it's
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trying to get people, you know, together
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moving in the same direction. One of one
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of the real challenges is that as I said
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before, we have our pharmaceutical
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group, our medical device and
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diagnostics and our consumer group.
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Well, they each have their
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responsibilities in their in the markets
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they compete in. So when we try and
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bring people together across the
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different groups, sometimes, you know,
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there's there's enough to do in their
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own group that now we're asking them to
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cross boundaries and work together. And
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sometimes we'll set up skunk work groups
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where we'll send them off on their own.
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We call that our internal ventures where
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we we'll do those things. Um but but
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that is that is the challenge is the
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coordination. Not so much there's that
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there's replication but finding the
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right people to be able to give the
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resources to this convergence of
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technologies as opposed to just working
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in their own areas. If you if you look
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at straight innovation as you would in
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any pharmaceutical group or medical
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device or consumer group we have all
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those working in our R&D organizations
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in each of those. It's the ability to
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work across the boundaries that really
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brings true innovation I think and and
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is going to take some real breakthroughs
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and bring real breakthroughs in the
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future. But it also does take some
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coordination and some some sacrifice
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from the individuals. So that that is
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the toughest thing is getting people to
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get outside of the silos that they work
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in and work across the groups. Can you
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identify uh the formal and informal ways
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that Johnson and Johnson identifies new
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innovations? Yeah, we have we have a few
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things. One one thing is we have what we
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call internal ventures. And the internal
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ventures would be uh somebody working in
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the organization or a group of people
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who may put forward a recommendation of
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something that could be done. We're
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we're doing a lot of work in stem cells
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for example where none of the groups
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will take ownership with it but there's
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a great opportunity there. So they put
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together a business plan, present it,
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put together a budget with it and then
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we allow that group to go off and work
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on that. We we create other
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environments. For example, if we're were
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looking at the area of oncology where we
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may bring people from the consumer
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pharmaceutical and medical device and
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diagnostics groups together to share
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what they're doing and out of that we'll
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you know basically they will generate
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ideas where they can work together to to
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bring products forward and it's usually
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better when they generate them than when
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we try and impose upon them. We did do a
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a review of our pipeline um probably
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about a year ago and we found that there
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were 80 products in our pipeline that
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had some form of convergence that was
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necessary. Now the important thing for
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us to do is to make sure that we
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understand the value that those bring
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and maybe of the 80 of them we ought to
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work on a half a dozen of them and it's
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being able to to bring those down into a
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focused area. We have another another
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product going on in our medical device
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group and our ethicon group which is
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primarily in the suture and wound
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closure area that is um needing the
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skill sets of the people in our
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biotechnology area and it's um actually
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a product to stop bleeding serious
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bleeding but it has to have a bio base
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on it. So we brought actually scientists
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from the biotechnology area over to work
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specifically in the ethicon group to
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work in that area. So it's uh you know
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we we have a lot of both formal and
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informal ways that we create this
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environment and probably the last thing
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we do which has been very successful is
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we've created an our own internet for
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our scientists so they can go on and see
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what others are doing communicate with
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each other so that if there's an
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interest in one area they can get scing
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about those areas and working together
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to to bring products to the market. What
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are the major challenges facing drug and
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healthcare companies both in the US and
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abroad? Yeah, I I think probably the
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single, you know, if it's not the single
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largest, but if you look at the cost of
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health care, um, you know, I think it's
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it's a responsibility we all have to
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figure out how do we get it better under
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really under control. Um, and it's
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driven by demographics. It's driven by,
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you know, the aging population, the
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emerging middle class in other parts of
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the world and technology. And people
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want to live longer. They want to live
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better. They want to live healthier. So
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I think we have we have a couple
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responsibilities. One is to get up front
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and look at prevention and wellness and
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healthy people and how do you keep them
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healthy and then treat them on the other
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end where they need the treatment. So I
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think the cost of healthcare is a big
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challenge. I think the regulatory
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environment has become another huge
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challenge. I think that um people are
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looking for products that can be risk-f
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free and there you know you get up on a
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morning and you walk across the street
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that's not risk- free. So don't think
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that you're going to be able to deliver
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a product in a patient. Drugs by
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definition have good effects and side
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effects. I've had a knee replaced and
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you know there's a risk associated with
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having your knee replaced. Mine's worked
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out extremely well, but it could have
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also gone another way. you can there's
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all kinds of of issues there and I think
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that the everybody's looking for this
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risk-free environment and it's not risk-
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free. It's uh there are risks associated
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with it. I think we have to define them.
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We have to do good research. We have to
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look at evidence-based medicine and see
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what's what's going to come out of it.
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But I think the regulatory environments
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have become somewhat um uh risk averse
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if you will and trying to find out
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everything. and until you get out into
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usually into patients many times you
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don't find everything out because of the
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way somebody may use a product or
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whatnot. So, so I think it is in the
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area of cost control. I think it is in
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the area of regulatory are probably the
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two biggest no matter where you look in
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the world um barriers that we have to
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overcome. And it puts the onus on I
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think the industry. Um and this isn't
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all bad. Puts the onus on us to do
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better work when we do our clinical
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trials, when we do our research, when we
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when we we have full transparency and
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disclosure. I think that's that's really
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important. Um, and I think it comes to
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the ability of the regulatoratory bodies
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and industry to work together. And we've
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been advocates of strengthening the
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regulatory bodies because the stronger
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they are in science, the stronger it'll
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force us to be and the better it'll be
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for patients. Um, and then and then the
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cost side, we just have to be willing to
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step up and make sure that we are and I
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think the industry does support indigent
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people. um you know we've we've done
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we've we've actually supported in
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subsahara Africa HIV products we've made
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available there at at very low prices if
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there are indigent patients here in the
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United States they just have to file a
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form with ourselves or any other
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pharmaceutical company and we'll supply
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them products free of charge if they
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qualify which is you know a very low
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level to qualify so I think we're doing
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all we can but I think we have to
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continue to do more Johnson and Johnson
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has operated in India for more than 50
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years now and recently there was a big
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shakeup among drug companies there when
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a Japanese firm Dichi Sano bought out
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Ramaxi.
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What is what is your view on that deal
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and does it say anything about the state
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of the pharmaceutical industry in India?
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Well, I think 70 you know I I could be
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wrong on this but I think about 70% of
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drugs dispensed are generics here in the
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United States today. Um there's a big
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opportunity in the generic field because
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of large products going off patent. Um
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but I think if you are a researchbased
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company um you need to really commit
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yourself to research. Um if you're a
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company committed to your employees, you
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need to make sure they're treated
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appropriately and and properly and and
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there's costs associated with that. So I
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think what what it really comes down to
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that there there is a need for generic
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companies, good generic companies. Um a
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model that some you know companies may
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want to choose is to go both generic and
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ethical pharmaceuticals let's call them
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or or or researchbased drugs. Um so it's
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each each company has their own choices
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that they have to make. Personally, I
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think that if you have good research,
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you understand the needs of patients,
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and you can deliver good products into
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the market, that's the most important
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thing to be doing, and that's where
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where we've committed ourselves so far,
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but um that's not to say that that we
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wouldn't go into to generics or other
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companies. And and I don't think, you
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know, I think that there's a big market
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emerging, big opportunities in the
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future. And I think it's uh each company
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has their own business model that they
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think is the the best for them. Some may
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be to both be a researchbased and a and
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a generic company. Others just research
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based and others just generic based. So
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I think it's a it's an individual
00:16:30
choice. But I think as you as as the
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generic industry has evolved, it's
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evolved into very good products um and
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that many reputable companies are going
00:16:41
there and feeling that that's part of
00:16:43
the model that they want to choose. So I
00:16:45
think it's just really personal choice
00:16:47
for the company. Thank you very much for
00:16:48
speaking with us today. Thank you.
00:16:51
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00:16:53
For more information, please visit
00:16:55
knowledge.warton.upen.edu.
00:16:58
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