Bill of Health

For William Weldon, head of the world’s biggest healthcare company, a successful leader is the person with enough courage to make difficult decisions and enough compassion to understand their impact.

With ultimate accountability for more than 250 companies in 57 countries – businesses covering consumer healthcare, medical devices and diagnostics, and pharmaceuticals – Bill Weldon, CEO of Johnson & Johnson, would be forgiven for thinking that he has a lot on his plate. Founded over 120 years ago, the healthcare giant is the world’s most comprehensive and broadly-based manufacturer of healthcare products, with 2007 revenues totaling $61.1 billion. To put things into perspective, the company’s commitment to science and research brings innovative ideas, products and services together to advance the health and well being of over one billion people every day.

So does he feel the weight of responsibility bearing down on him? Of course. But he modestly attributes the success of the company to Johnson & Johnson’s most valuable resource: its employees. “The challenge for me is constantly making sure that we have the people to really run the businesses and be able to look across the whole breadth of healthcare,” he explains. “On the one hand, healthcare is so dynamic and rapidly changing, and on the other we face many of the same challenges we have for years. The fortunate thing about us is that our business model is decentralized, so we have really extraordinary people who are real experts in each area they operate in; and those are the people that are really responsible for running the business.”

Over the company’s 120-year history, Johnson & Johnson has seen just six CEOs. When Weldon was offered the opportunity to become CEO in 2002, he was keen to continue developing the culture that was established by previous leaders. “Each one of my predecessors had a strong commitment to our Credo and its underlying principles which are that patients and consumers come first, followed by our employees and a commitment to give back to the communities in which we live and work. If we adhere to those principles, the Credo says, our shareholders should realize a fair return. . It is a strong moral compass that guides us to make good decisions and live up to the quality standards that have been set.”

Robert Wood Johnson wrote the company’s Credo 65 years ago, and Weldon describes it as one of the best business documents around. “It has helped set our priorities, and we try to live up to them everyday. All I can hope to do is build on the culture that was established from the beginning and pass along a strong culture to whoever follows me.”

Innovation

A big part of that culture is innovation. “Innovation in healthcare is truly the lifeblood of the industry. You have to continue to innovate in order to stay on top of everything that is going on,” says Weldon. “It really is critical to making sure we are addressing medical needs and bringing value to patients and people who use our products all around the world.”

Weldon believes that there are many ways that J&J can capitalize on innovation and bring better health to patients. By looking at product innovation, it is possible to look at meeting unmet needs, he says – looking at new ways to treat disease and developing new technology for healthcare products. “For example, we have just submitted for approval a new product used for conscious sedation, where we are able to sedate patients requiring an endoscopic procedure in such a way that allows that procedure to be done outside of the hospital. It removes the need for much of the equipment that is required in an operating theatre.”

However, he goes on to explain that firms need to look at more than just new product development when innovating; it is also crucial to look at the way your products are managed, and the market potential for those products. “This could be as simple as modifying an established product in the developed world for use in emerging markets that would bring true innovation to those marketplaces,” says Weldon.

One of the things that Weldon is keen to do as Johnson & Johnson continues to innovate is make sure that the company remains focused on looking at healthcare from a patient-centric perspective. “For example, if you look across J&J through the eyes of a patient with diabetes, we offer solutions across the spectrum of care from blood glucose monitors to surgical intervention; and that starts to address some of the healthcare needs of the individual as well as some of the needs of the government in terms of the reimbursement,” says Weldon. “It’s about taking a more holistic approach.” Indeed, due to the huge breadth of its business, J&J is uniquely positioned to look across a broad array of healthcare needs and use its scale to bring products and technologies together.

Difficult decisions

But the pressure to innovate isn’t the only challenge on the radars of the Fortune 500. Most experts are predicting a global economic downturn as the fallout from last year’s credit crunch continues. And while he won’t go as far as to say that healthcare is immune to any such conditions, Weldon does believe that the industry is somewhat insulated from the worst effects of recessionary periods. Having looked back at challenging periods in the past, Weldon has found that they have had a minimal impact on the business. Nonetheless, he maintains that managing through tough times is, by its very nature, a challenge. “The easiest thing to do is take investments away from your strategic opportunities and focus on the short term,” he says, “but you have to be very careful that you don’t just invest in short-term opportunities and take investments away from strategic prospects. When the economic situation reverses itself, you are likely to find yourself in a difficult position.” Weldon goes on to explain that J&J has a longstanding commitment to managing for the long term. “We try and make sure we have a good balance between short and long-term opportunities, but you do have to be very careful around how you manage the situation; and obviously, we all have to keep a tight rein on our expenses.”

Last year, Weldon made the difficult decision to trim at least 3% of the company’s workforce. Inevitably, for business to be successful, difficult decisions have to be made and Weldon’s call was made on the basis of re-evaluating the whole cost structure of the organization. “We are now well on target to reaching the goal we set, which was to achieve cost savings of approximately $1.3 billion to $1.6 billion throughout this year,” he explains. “The thing that speaks to the people of Johnson & Johnson is that we are able to manage through the changes that we had to make in 2007, and are still able to deliver strong financial results while meeting the goals we set for ourselves to deliver those cost savings for 2008.”

When asked about how he approaches tough decisions affecting people’s lives, such as redundancy, Weldon explains that the decisions themselves are “gut-wrenching” but that he has to look at the business and the market conditions in order to understand where the future is. “Due to market pressures affecting anemia drugs and drug eluting stents, as well as certain of our patents reaching expiration in 2007 and 2008, we felt we had to take some significant actions.” Those actions affected the company’s Pharmaceuticals segment and Cordis franchise, which makes the drug-eluting stent. “We try and manage our business year-in, year-out so we are able to anticipate and deal with issues so that in most cases we don’t have to take any significant action. We prefer to be in a proactive situation as opposed to a reactive situation.”

Decentralization and diversification

Johnson & Johnson is well known for its model of decentralization and being broadly based in healthcare. Weldon believes the strategy has allowed the organization to employ people who are experts in understanding their markets and are able to interface and drive the businesses within the markets. “It’s the magic around J&J,” he says of decentralization. Weldon goes on to explain that “decentralization allows us to develop wonderful people and great leaders; it allows us to be close to the customer and understand the customer’s needs wherever they are, and in any area of healthcare.”

Weldon believes that the philosophy of decentralization, being broadly based in healthcare, managing the business for the long term and adhering to the principles of the Credo has enabled Johnson & Johnson to achieve an extraordinary track record of 75 consecutive years of sales increases, 24 consecutive years of adjusted earnings increases and 46 consecutive years of dividend increases. These figures also demonstrate the company’s ability to succeed in all economic conditions, good or bad. “J&J has a history that is unmatched by probably any company, anywhere, in terms of its sustainability over time as it relates to our performance, what’s delivered, and the extraordinary impact it has had on human healthcare and people’s lives,” Weldon added.

People power

When Weldon joined Johnson & Johnson back in 1971, in the sales and marking department of the company’s McNeil Pharmaceutical subsidiary, Johnson & Johnson was a less than $1 billion corporation. “To have seen J&J grow to the size and breadth it is today is just an unbelievable accomplishment by hundreds of thousands of people. I’m incredibly proud of the people who have gone on to be successes within or outside of J&J, particularly those I’ve had a small impact on – be it giving them advice or mentoring them to get ahead. The real role of leadership is to be able to understand that you work for other people, and to really enjoy seeing their accomplishments and seeing the people you’ve touched in a small way be very successful.”

Johnson & Johnson is noted for its succession planning processes, and the company is keen to identify people early in their careers and give them challenging assignments. The decentralization concept lends itself naturally to the development of leaders by giving more people responsibility to lead and grow businesses. In addition, J&J has a structured, formalized program around leadership development. Employees are put through 360-degree assignments with groups of peers, people are brought in from outside the organization and through succession planning a development plan is put together by assessing and understanding an individual’s strengths and weaknesses. “Personally,” says Weldon, “I try to spend more time with people and on people development than anything else I do in the whole corporation. To me, everything is based upon the strength of the individuals in the company, and you see it time and time again – if you have great people then you have a great organization, even if you don’t have the right structure or the right products. When you have less than great people inside the best structure and the best products, they probably don’t excel the same way the other group would.”

Weldon even spends his time with the summer interns, talking to them about their career and their responsibilities to the future.

Looking ahead

In addition to developing leadership and talent, Weldon sees 3 other critical areas of focus for 2008 and the coming years. The first is to accelerate growth in emerging markets – although Weldon is keen to point out that this does not mean at the expense of continued growth in the developed world. Instead, his company will look to capitalize on the unique, extraordinary opportunities emerging markets offer.

The second area is based around the idea of “winning in healthcare.” For Weldon, this means capturing a larger percentage of the healthcare market, which is worth an estimated $4 trillion. Johnson & Johnson now competes in around $1.2 trillion of that market, and despite being the world’s largest healthcare company, only captures around a five% share. “We need to remain focused in the areas we operate in and look to innovate and bring better products to patients,” Weldon said. “But we also need to look outside of the $1.2 trillion arena in which we compete to the remaining $2.8 trillion marketplace and invest, identify opportunities and broaden our portfolio.”

Weldon’s final priority is to capitalize on convergence. He believes that Johnson & Johnson is well positioned, due to the breadth of the business, to integrate products and technologies to bring better products to satisfy unmet medical needs. “Since 2006, we have been one of the top companies in the industry in terms of getting products approved, as well as putting submissions in for approval,” he says proudly. “As we go through 2008 and 2009, we are going to see these new products really start to accelerate and bring tremendous value as you get to the end of the decade.”

In Weldon’s words: the Beijing 2008 Olympic Games

“The partnership with the Beijing Olympic Games affords us the opportunity to support people who have dedicated their lives to excellence – the athletes who have worked their whole lives to excel in what they do – as Johnson & Johnson has dedicated itself. The goals and standards of the Olympics are very consistent with the goals and standards of J&J.

“The partnership allows us to make contacts and be involved in one of the fastest growing emerging markets in the world, and that’s China. We have been able to bring new advances, make investments and make contacts in China in ways that we haven’t been able to before. It has been a great advantage to the people of China where we have been able to make a commitment and it’s a win for everybody.

“We all have a responsibility to advance human rights but we should do this in appropriate ways. We have always been very strong advocates of human rights and we continue to support Darfur and other areas where some of these challenges have gone on, but we are not a political organization. I hope the Olympics will not be overwhelmed by a political agenda; it should be an opportunity for people who have dedicated their lives to sport and excellence to achieve their goals and dreams.”

A great leader

Weldon believes that the realization of understanding that you work for your employees is a key trait of a successful leader, as is the intelligence and wherewithal to understand the complexity of the world you are working in and the markets you are dealing with. It is also important to Weldon that business leaders stay current with the extraordinary changes in technology and advances in science. “A business leader also has to be the person who stands up and has the courage to make really tough decisions but yet has the compassion to understand the impact that it has in many different areas and deal with it in the appropriate ways.”

Fast facts

• J&J consists of more than 250 operating companies in 57 countries
• There are approximately 120.200 employees worldwide
• Investments in R&D were $7.68 billion in 2007
• International expansion started in 1919
• Sterile surgical dressings and sutures were among the company’s first products
• Sales have increased each year for 75 consecutive years
• Johnson & Johnson was named one of Fortune’s top 10 Most Admired Companies for 2007
• New products introduced within the past five years accounted for 30% of 2007 sales

• Last year, J&J contributed $509.9 million in cash and products to hundreds of programs in more than 50 countries

Great ideas

William Weldon’s top tips for leadership success:

• Look ahead: “We try and make sure we have a good balance between short and long-term opportunities”
• Commit: “We have a commitment to people which ties directly to decentralization”´
• Cover all bases: “We are broadly based in healthcare, which affords us the opportunity to look at healthcare anyplace in the world”