Case Study: Johnson & Johnson and Managing IT

Corporate Headquarters: New Brunswick, N.J.
Year founded: 1886
CIO: JoAnn Heffernan Heisen
Employees: 100,942 in 51 countries
Business Units: 195
Revenue: *$24.6 billion, up 9% over same period last year
Net income: *$4.56 billion, up 14% over same period last year
IT Budget: More than $1.2 billion in 2001
* for the nine months ending Oct. 1, 2001

One dreary fall morning five years ago, Johnson & Johnson CEO Ralph Larsen called his controller, JoAnn Heffernan Heisen, to his office at the company’s New Brunswick, N.J., headquarters for a chat. Larsen had just launched a corporatewide cost-cutting campaign to help finance a drive by the maker of Tylenol and Band-Aids into highly competitive and costly new drug markets. Then, as now, high-tech medicine was Larsen’s vision for the future for the 115-year-old healthcare products company.

That morning, Larsen wanted J&J’s technology people to be a bigger part of all of that—and to get a whole lot smarter about how the company was using technology. And no wonder: J&J was spending unknown millions annually on IT (no one back then could even estimate how much)—yet business executives and customers weren’t getting the business information they needed. Cash-squeezed hospitals, for example, were asking J&J to help them cut their stashes of supplies, but J&J didn’t have the Web-based tracking systems needed to deliver on that request. Further, not only couldn’t corporate execs tell you how much it cost the company to make Band-Aids in any one region of the world, they also didn’t know how many of J&J’s 195 operating companies in 51 countries were selling to Wal-Mart

and other retailers, or precisely what they were selling at any given time. Perhaps most frustrating: The in-house information networks that did exist suffered frequent outages that could knock out e-mail for hours at a time.

“Nobody was talking to each other,” Heisen recalls. “And why should they? Nobody asked the business units to talk with each other before, and no one had asked how much we were spending on each piece of the business.”

Change was in order. Larsen told Heisen he wanted to cut J&J’s IT costs dramatically. He also wanted reforms. Could she help? Heisen didn’t take very long to answer. As controller, she had just closed the books for that fiscal year, and, she recalls, “in the middle of that, J&J’s IT system went down suddenly, and I was a little upset with our IT folks.” Heisen left Larsen’s office that morning with a new job—as CIO—and a two-word mission. “He told me, simply, ‘Fix it,’ ” Heisen says. “He said, ‘We can’t tell you what’s wrong; we just know it’s wrong.’ “

So began a long and difficult voyage of reform and discovery for the $29 billion healthcare products company, one that began as a simple plan of action to improve IT but is ending up reshaping the company—and the way it’s managing change. At the heart of J&J’s quest has been a need to find answers to tough questions facing many large corporations today: In an age of globalization and e-business, how can information technology best support a far-flung, loose-knit organization composed of dozens of diverse businesses operating globally under one corporate umbrella? What IT systems should be shared, and by whom? Which business activities should stay local—and, most difficult—which should be unmasked for control by corporate cost-cutters? How does a company choose?

Today, five years into its overhaul, J&J is still asking some of those same hard questions, and its effort to “optimize” IT is still far from complete. Critics suggest progress is slow, cultural resistance to some of the changes continues to be formidable—Heisen quips she’s taken to wearing black and blue “to reflect the perils of the job”—and tough cost-cutting challenges lie ahead. But so far, the project is well on its way to saving J&J hundreds of millions of dollars—Heisen is attempting to cut IT costs at a pace of $50 million per year by 2003—and the project is also accelerating the pace of pharmaceutical research and forging unprecedented levels of cooperation between what has been, for decades, fiercely independent business units.

Adopting a new form of management has been key. Call it federalized planning. Companies from J&J to BP PLC and United Technologies Corp. are using it to negotiate better cooperation between IT and business at their large, multinational organizations in hopes of boosting the bottom line. It’s tricky to manage: Even five years after kicking off the changes at J&J, Heisen says, it’s hard getting all of J&J’s business units to go along with some of even the most benign changes in policy. “I get 190 land mines in any given day,” Heisen says. Some business units, for example, try to convince her they can’t adopt some corporate technology standards or kick in their share of the cost for upgrades in infrastructure. But that’s nothing compared with how intransigent some of the units were when she first started the project: “I couldn’t even get them to answer the surveys I sent out about what type of systems they were operating,” Heisen recalls.

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