1. What is the role of strategic leadership in a company like Johnson & Johnson?

2. How can synergy best be managed at a company such as Johnson & Johnson?

Johnson & Johnson (J&J) had relied heavily on acquisitions to enter and expand into a wide range of health care related businesses. As it grew, J&J developed into a complex enterprise made up of over 250 different businesses, organized into three different divisions: consumer products, pharmaceuticals, and medical devices. J&J’s success across its three divisions and many different businesses hinged on its unique structure and culture. Most of its business units were acquired because of the potential demonstrated by promising new products in their pipelines. Each of these units was therefore granted nearly total autonomy to develop and expand on their best-selling products. That independence fostered an entrepreneurial attitude that had kept J&J competitive.

The relative autonomy that was accorded to the business units had also provided the firm with the ability to respond swiftly to emerging technologies. However, it had prob¬ably prevented the firm from pursuing opportunities that would result from closer collaboration among the units. Because the units fiercely guarded their independence, they had rarely searched for opportunities on which they could combine their different areas of expertise.

William C. Weldon, the firm’s chief executive up until 2012, had believed that the best opportunities might come from increased collaboration between its different units – that the firm had the ability to develop new products by pooling resources, combining its strengths across pharmaceutical products, medical devices and diagnostics, and consumer products, thereby developing synergy through convergence. Therefore he created a corporate office that would get business units to work together on promising new opportunities, convinced that the push for communication and coordination and an emphasis on meeting tough performance targets would allow the firm to develop the synergy that he was seeking. However, after a swarm of product recalls, manufacturing lapses, and government inquiries were blamed on his obsession with cutting costs, Weldon stepped down as CEO in April 2012.

New CEO Alex Gorsky was a consummate insider, having run the two biggest of J&J’s divisions. Going forward, Gorsky wanted to maintain a balance at J&J between the controls necessary to protect the firm’s reputation and the freedom that would allow its business units to keep growing. Gorsky began to challenge the firm’s once-sacrosanct principle of giving complete autonomy to its 250-odd units. In his view, decentralization that fostered creativity should not allow these different units to be completely disconnected. Just as Weldon did, Gorsky wanted various units of the firm to work together to find synergies, to cross-fertilize ideas, and to reap cost savings that could be reinvested in the business.

To that end he created the position of group worldwide chairman, to align everything from HR policy to procurement processes from the 250 business units. In addition, J&J’s seven different pharmaceuticals R&D units were merged, creating a highly coordinated and streamlined development process where global teams and innovation centers could not only cut significant time off of drug approval, but also create interactions with outside entrepreneurs that could source productive new ideas.

Gorsky had needed to rethink the process by which the company managed its diversified portfolio of companies in order to ensure that it could keep growing without creating issues that could pose further threats to its reputation. He did agree that the firm might have to be more selective, careful and decisive about the products it pursued, and possible divest itself from those technologies that didn’t show enough potential for growth. Although there had been both cost reduction and growth in opportunities, would J&J be able to continue to find avenues for growth, drawing substantial benefits from the diversified nature of its businesses while still maintaining control?