Wednesday, May 18, 2011

FEI Day 2: Business Model Innovation at Johnson and Johnson

In the afternoon, Mark Johnson (Author, Seizing the White Space; Chairman and Co-Founder, Innosight) interviewed Sheri McCoy (Vice Chairman, Executive Committee, Johnson & Johnson), generating an insightful discussion about business model innovation at J&J.

The interview highlighted elements of sustaining and disruptive innovation seizing white space opportunities in healthcare by Johnson & Johnson. A truly ambidextrous corporation, it creatively addresses all three opportunity quadrants Mark mentions in his book: core business (fits well with the current organization to serve existing customers in traditional ways), adjacency (fits well with the current organization to serve existing or new customers in fundamentally different ways), and white space (a substantial deviation from current business model to serve customers in fundamentally different ways).

These are some of the questions and insights gleaned from the interview.

How does J&J innovate to “create the new”, while addressing commoditization and other threats in healthcare?
The company draws on the understanding that “decisions are best made closest to the customer,” said Sheri, and is therefore “focused on a decentralized model” with management for the long-term. In so doing, it seeks to strengthen its core business and adds on new as an adjacency. The company “believe[s] that the future is about innovation” and having a spectrum of sectors is valuable.

How does J&J deal with the high level of industry transformation and disruption?
J&J firmly “believes in having a sense of urgency” and a “mentality of differentiation.” Among its therapeutic areas of focus are two risk categories: the more predictable (such as immunology and infectious disease) and the high-risk due to particularly rapid scientific evolution (such as Alzheimer’s in the neuroscience therapeutic area). As the company “look[s] at [its] portfolio, [it] also look[s] at the risk,” commented Sheri, “[and] senior leadership plays a very important role [in understanding] the risks [involved in innovation].” Having a core business allows it to take some risk. When it comes to pilots, Sheri’s recommendation is to go as low as possible but spend enough to thoroughly test the idea.

Has there been significant business model change?
J&J has experienced a “shift from an internal to a more external approach.” An example is a recent move to the wellness and prevention business, stemming from an understanding that many illnesses are preventive. Although this business does not constitute a core competency, the company believes in the value of being broadly based in healthcare, which is why this move is of strategic importance to J&J. However, it remains to be determined whether this will be an integrated or a stand-alone business.

Is there business model change part of the expansion efforts into the emerging markets?
In the developing countries, J&J relies on partnership strengths, such as with governments, hospitals, and generic manufacturers, and applies the “pilot --> fail early --> make the decision --> move” approach. Infectious disease is an area of focus for J&J in expansion to the emerging markets. Here, Sheri underscored the value of J&J’s partnership with the Tianjin University in China, where the company focuses on pulmonary research. Cross-sector collaboration is also a priority in emerging markets, with hospitals presenting some of the best opportunities.

How does RedScript Ventures support innovation at J&J?
RedScript Ventures was developed for areas or initiatives that do not fit with other structures at J&J. “This group is about internal innovation with external focus… [It] allows [the company] not to lose sight of opportunities that may be more risky.”

How does J&J motivate and excite its employees?
“At the end of the day, it is all about the people,” Sheri emphasized. “Some of it has to do with role model behavior. Some people are [simply] wired [for innovation], so you want to make sure [to involve these].” It is also important to stretch people early in their careers and give them different experiences. In addition, M&As have provided another source of entrepreneurial capabilities at J&J.

Where do you see J&J 10 years from now?
Sheri believes that “we will see more personalized medicine [that will offer a broader range of] solutions... [The J&J] business will be more skewed toward emerging markets… [with increased integration of] social media, [evolving] new platforms [in] molecular diagnostics, [growing] the wellness business, and [close work with payers to define reimbursement for use of biomarkers in personal medicine].” An important emphasis will also remain in having a diverse talent base with more entrepreneurs.


Elena Cavallo is a member of the FEI Community and focuses on Strategic Innovation in Medical Research and Healthcare. She is posting live from FEI 2011 in Boston May 16-18.

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