Johnson & Johnson is a company that produces and sells goods worldwide, is crucial for multiple markets, and requires its internal management to be well-structured and diversified. Decision-making for such businesses must consider the overall mission yet address the local unit or product need (Mroua et al., 2017). Furthermore, becoming more diversified, dividing value creation into levels, and segmenting the products help a corporation maintain strong positions in multiple industries simultaneously (Hitt et al., 2017). Allowing organizations to expand and challenge themselves provides an opportunity to target new customers and ensure that a company has a unique competitive advantage. This paper aims to discuss how Johnson & Johnson utilizes diversification concepts in its organizational growth strategy.
The need for diversification at a company emerges once it selects to grow through expanding to other industries or going beyond its original country’s markets. Johnson & Johnson used both strategies throughout more than a century of its existence and can serve as an example of exercising varying its segments (Johnson & Johnson, n.d.). A firm’s performance is tied to the revenue and influences it produces; therefore, diversification can create additional value, reduce it, or be neutral to that aspect (Hitt et al., 2017). The strategy can be applied to managerial decisions, impact resources and incentives, or enhance market power and develop an economy of scope (Hitt et al., 2017). Diversification level depends on how much of its revenue is generated from a dominant segment, and Johnson & Johnson’s flat is very high due to the variety of brands it earns (Hitt et al., 2017). Johnson & Johnson implied innovative brands gradually to the list of products that the company had to offer so that the range of variety increased exponentially and required strategic changes.
Today, worldwide multi-market corporations developed optimal strategic management approaches so that the units can maintain high performance independently. Johnson & Johnson’s structure is now diversified into three general segments: consumer health goods, medical devices, and pharmaceutical products (Johnson & Johnson, n.d.). It is a value-creating separation and is mainly based on the specific requirements of the market niches the company addresses. Diversification is a corporate-level strategy, and for Johnson & Johnson, it is crucial to let each of its brands generate revenue and grow independently (Mroua et al., 2017). For instance, if Band-Aid bandage sales would drop, the Haldol medication’s production and distribution would not suffer. Moreover, to remain popular in the target market, Johnson & Johnson pursued a value-adding diversification type as a means of improving its performance and increasing the quality of its production.
Johnson & Johnson’s diversification shows how the economies of scope can be successfully integrated into a company’s operations even though the segments perform separately. Indeed, resource providers are similar for their healthcare goods and medical devices production, while the logistics are set to deliver all products based on the region rather than the type (Mroua et al., 2017). Furthermore, the theoretical concept that diversification allows vertical integration and creates multipoint competitive advantage can also be proven by Johnson & Johnson’s practices (Hitt et al., 2017). The company’s healthcare products segment includes a wide variety of goods for skincare, childcare, and basic hygiene so that one consumer buys from the firm while addressing multiple needs. Johnson & Johnson also uses their own inputs for producing similar products under different brands, enhancing its market power through vertical integration.
The issue of relatedness manifested itself during the diversification of Johnson & Johnson. The company deployed both approaches to ensure that the changes within its production process could be introduced into the organizational setting (Monga, 2020). As a result, the company translated into the context of every market, making its processes cohesive and promoting knowledge sharing (Monga, 2020). Johnson & Johnson managed to retain a fresh and original outlook on the industry and its opportunities.
Johnson & Johnson’s example illustrates the differences between the theoretical perspectives and the actual changes that must be implemented to enable corporate growth challenges. The company’s diversification addresses the theoretical concepts that emphasize how value can be influenced through it. However, Johnson & Johnson’s strategies to vary brands and improve their performance were also necessary for managerial decision-making, resource distribution, and logistics (Mroua et al., 2017). Moreover, diversification was required for the corporation to ensure that its products were well-received and conducive to multiplying value. In Johnson & Johnson’s case, both operational risks and external ones are calculated carefully based on a comprehensive analysis of key external (economic, political, social, and technological) and internal (organizational capacities-related) factors (Hitt et al., 2017). As a result, Johnson & Johnson managed to keep its products appealing to its target consumer audience.
Having created solid partnerships and implemented a branding strategy that has made its products instantly memorable, Johnson & Johnson has established itself as the prime example of properly executed diversification. The company’s current status indicates that it has successfully built its brand structure and segmentation. Consequently, Johnson & Johnson should be credited for giving its partners creative initiative in developing easily recognizable brands that appeal to the target demographic. Diversification allows the corporation to maintain high performance even when not all of its parts operate at their best (Hitt et al., 2017). Johnson & Johnson shows that a company can combine internal managerial needs with external environment demands in their strategic decision-making.
Diversification is a strategy that allows businesses to create additional value, optimize their management, and timely facilitate the external environment’s threats, risks, and opportunities. Johnson & Johnson is a profound example of a corporation where dividing the segments led to growth and successful performance in various markets worldwide. The company’s strategies address the theoretical concepts of diversification and reveal their usefulness for value creation, improved execution, and recourses’ use optimization. Johnson & Johnson is a highly diversified corporation that expanded to such a level through the long history and continuous innovations’ implementation necessary to maintain its competitiveness.
References
Hitt, M. A., Duane Ireland, R., & Hoskisson, R. E. (2017). Strategic management: Competitiveness & globalization: Concepts and cases (12th ed.). Cengage.
Johnson & Johnson. (n.d.). Our products.
Monga, A. S. (2020). When being good backfires: Overcoming misfits between brand and corporate social responsibility. Rutgers Business Review, 5(2), 153-158.
Mroua, M., Abid, F., & Wong, W. K. (2017). Optimal diversification, stochastic dominance, and sampling error. American Journal of Business, 32(1), 58-79.