TO: FROM: SUBJ: DATE:

Professor Vasu Ramanujam Tatsunori Sasaki Analysis of Codman & Shurtleff, Inc. February 15, 2007

Johnson & Johnson relies on decentralized management system and its autonomous operating subsidiaries to compete in high-competitive health care markets. The planning and control system has benefits and detriments. The system creates a decentralized culture which is necessary for their success. The center of the control function is the Executive Committee comprising the chairman, president, chief financial officer, vice president of administration, and eight Executive Committee members with responsibilities for company sectors. In some ways, each subsidiary reports to a member of the Executive Committee. However, each company develops its own plans and strategies. In addition, those strategic plans remain fixed over a five-year period. Therefore, the managers are not only effectively delegated but also strongly accountable for their actions. They set their targets by themselves. Then, they move toward the goals based on their own decisions. So, there is no excuse for them to miss the objectives. Thats why Roy Black states that decentralized

management is unequivocal accountability for what you do. Five- and Ten-year plans at Johnson & Johnson let them have long-term views and learning opportunities. It is in the fast-moving, complex, high competitive health care businesses. It is hard to make a prediction for the future and so the view point is likely to be short-tem focus. It might have adverse effect on long-term corporate performance. At Johnson & Johnson,

however, each subsidiary has to develop a five- and ten-year strategic plan and use it as a guiding vehicle for short-tem profit plans and budgets. Its long lasting performance proves effectiveness of

the system. Using the five- and ten-year planning concept, Johnson & Johnson requires managers to include in their plans an explanation of how and why their estimations have changed over time. This allows the company to adjust their thinking over time and to achieve ex-post learning. Tied with subjective and qualitative compensation systems, highly decentralized planning and control system at Johnson & Johnson enhance innovation within the company. The company delegate strategic planning to operating subsidiaries. It asks each subsidiary to report the plan and review the result with the corporate. By controlling output rather than process, it allows the subsidiaries to seek innovative ways to achieve the corporate mission. As stated in the case, Salary and bonus reviews are entirely subjective and qualitative and are intended to reward effort and give special recognition to those who have performed uniquely. It promotes an innovative culture among the company. At the same time, however, Johnson & Johnsons planning and control system which enhances innovation in the entire business could have negative impacts on the corporate performance. Even though it use certain formats such as five- and ten-year plans for planning and review, Johnson & Johnson gives flexibility to the process. For example, five- and ten-year plans are required only four numbers and narrative description of how these targets would be achieved. While it encourages innovation, the system has less power over the process. If it became more diverse and complex, Johnson & Johnson might lose essential controls over the subsidiaries. On the other hand, Emerson Electrics planning system has tighter control than Johnson & Johnsons, though they also seem decentralized. Emerson has more standardizing procedures for the planning process, using standard formats such as the value measurement chart, the sales gap chart, and the 5-back-5-forward chart. Producer Strategy. It gives the subsidiaries less flexibility to implement its Best Cost

In addition, coordination is another issue of Johnson & Johnsons planning system. It has various subsidiaries in the specific areas. Some companies conduct very similar businesses. In theory, Johnson & Johnson could undertake the coordination among the corporate at the review of the strategic plans. The system might fail to ensure that each strategy of the operating subsidiaries doesnt jeopardize others, creating undesirable competitions between the subsidiaries. In sum, Johnson & Johnsons planning and control system fits the business well. It creates a highly decentralized but accountable and innovative culture within the company. It also builds a learning organization with a long-term viewpoint. The choice of the systems depends on needs of the companies. Johnson & Johnson needs to enhance innovation. Thats why it chose such a system. On the other hand, Emerson Electric has to control the businesses to achieve a specific low-cost strategy. A business must construct its planning and control system carefully according to various needs of the company.