Staying Competitive in Every Sector and Every Part of the Business — Alex Gorsky, CEO Johnson & Johnson

The Industrialist’s Dilemma — February 15, 2018

This post first appeared on February 22, 2018 in The Industrialist’s Dilemma.

As we proceed through the third year of The Industrialist’s Dilemma, the teaching team is beginning to see new trends emerge within the short time horizon of our course to date. When we started almost three years ago we thought that rising disruptors were going to increasingly knock incumbents on their heels, and only those large organizations who were well versed in the latest methods of product development and organizational structure would be able to accurately defend their positions.

The start of this year had us thinking that almost all of the larger firms we have studied are “awake” to the problem of digital disruption, but they are at various stages in their journeys of digital transformation. But we are now seeing a new trend: given the length of time required for many of these industries to change, incumbency has become a competitive advantage for some of the established firms provided that these companies take the necessary actions to focus (almost manically) on their customers’ needs.

This may have been best exemplified by Alex Gorsky’s visit last week, where we learned how Johnson & Johnson is fighting every day to live up to the company’s famous Credo and are using it as a compass in how they think about technological transformation.

Alex has some fun with Aaron Levie

The Need to Stay Competitive in Discreet Spaces

Alex spent a fair amount of time talking about how his company manages three very different and unique business: pharmaceuticals, medical devices and consumer products. While all of the businesses are focused on health and wellness, the solutions, channels and technologies behind each are radically different and, in fact, do not overlap.

Alex made one observation that struck us as particularly impactful: while he discussed the importance of being competitive with every product in every sector (being number one or two in every market segment), he also talked about measuring each business as being competitive against best-of-breed competitors in each space — everything ranging from a division’s cost structure, its R&D spending, its product pipelines, etc. In other words, J&J is managing each business as completely independent units that must remain best-in-class on all vectors of competitive advantage — both for revenue and expenditures. And software and technology is simply one tool to help make that possible.

The three of us began to wonder if one of the potential fallacies of software development is the belief that software can easily be leveraged across business units and divisions in an organization, and the low cost of software distribution creates the false assumption that software should, by definition, be easily scalable across all parts of a company. This low friction to expansion might cause developers to lose sight of the importance of remaining best-in-class on all aspects of their product as software appears so easy to leverage at the surface. This false assumption might thus enable companies to forget to stay competitive on best-in-class components in software development, and therefore lose the drive to aggressively compete on all vectors of competition in the market. This might explain why large software behemoths have had a hard time creating and distributing unified solutions that work well between various product groups as they lose sight of vying to remain competitive on every vector of battle, but companies like J&J can use (or not) technical solutions that meet customer needs overtly and measurably.

The one software organization where this insight was perhaps best articulated was in an interview I did several years ago with Sundar Pichai of Google in the context of the Android operating system. Pichai posited that the operating rhythm with his teams has been to force each to be competitive with best-in-class solutions in each of their markets (Gmail, Maps, Calendar, etc.), and not to force the various groups to integrate with other parts of Google by executive diktat. While Pichai acknowledged that the opposite strategy had served Apple well in the early days of iOS, he was more worried that forcing collaboration between Anrdoid and other Google software teams would drive the creation of bloatware as happened to Microsoft in the 2000–2014 era. As such, he purposefully has not required his teams to work together, unless it makes sense to do so for each groups’ business requirements.

No matter what side of the “religious preference” one has of Android vs. iOS, the former’s 85%+ global market share shows that Pichai’s strategy of not requiring software groups to be required to collaborate is certainly not hurting the company in the market. While an individual may have a preference of one OS vs. another, Pichai’s philosophy more closely resembles how Alex is running J&J’s various divisions — by forcing them to stay competitive in the market on every key figure of merit — regardless of any specific corporate digitization initiative.

Customer Outcomes Drive All Corporate Behaviors

At one point Alex shared that J&J is expressly looking for places and ways that digitization and information can create better experiences for customers, but above and beyond that focus, he is driving to keep his teams fiercely at the forefront of their respective markets and not to get distracted by peripheral activities. While on the one hand this is a standard defense of the conglomerate structure, and it risks making an organization blind to where an unexpected attack might arise, it highlights to us a very clear-minded approach at the corporate level of where digitization can and can not help companies. J&J’s single-minded attention to customer outcomes, as first articulated 75 years ago in the corporate Credo, is serving today as a guiding principle in how the company will and will not look to digitization and information to transform the company.

We have previously written about how legacy ecosystems and cultures can inhibit change when new methods of doing business are up-ending the very nature of competitive advantage. However, Alex highlighted where the legacy guiding principles of the company are enabling J&J to see technology and data as a tool and not a panacea for its business challenges. While he continues to invest in J&J’s migration of data to the cloud and by hiring as many data scientists as biologists, he held the class captive with his discussion of the Credo as the company’s moral compass to stay focused on patient outcomes as their “Job 1.”

Alex said that all of the actions the company takes should follow from the Credo’s guiding principles. And perhaps this is a situation where the incumbent has an advantage over an upstart — the ability to draw upon 130 years of behaviors, philosophies and a culture that embodies attributes which live beyond the shorter time horizons of technological change and disruption.