Johnson and Johnson 2006 Annual Report Download - page 6

J O H N S O N & J O H N S O N 2 0 0 6 A N N U A L R E P O R T
growth. A downturn in economic conditions in one health
care segment may be offset by growth in another segment.
Even more important, our breadth offers four key
advantages that enable us to elevate our performance.
First, because of our closeness to customers—our strong
partnerships with scientists and professionals across so many
fields within human health and across so many geographies
—we can identify and rapidly capitalize on the most attractive
business opportunities emerging in human health. When
we spot an emerging opportunity, our breadth enables us to
quickly deploy the necessary resources to develop it.
Second, breadth allows for strategic transfer of knowledge,
new technology, talent and capabilities internally across
business platforms and across business segments. Several
examples of strategic transfer of knowledge across business
platforms and business segments are highlighted in the
following pages in the stories about the people behind some of
the innovative products introduced in 2006.
Third, our breadth also gives us a clear advantage in
converging technologies. Increasingly, breakthrough innova-
tions in new or adjacent markets are enabled by careful
integration of multiple technologies. Our people are accus-
tomed to working within and across our business segments to
incorporate technological breakthroughs that achieve impor-
tant innovations for customers. It’s like having access to the
know-how, proprietary information and technology resources
of many companies, but all within our own corporation.
Finally, our breadth also allows us to leverage scale in
an increasingly competitive global environment. Through
efficient application and deployment of resources around the
globe, we’ve been able to optimize our cost infrastructure,
particularly in areas such as manufacturing, finance,
procurement and information technology.
STRENGTH IN A DECENTRALIZED APPROACH The decentralized
manner in which we operate our businesses marries the best
qualities of smaller companies—an entrepreneurial drive for
growth and close proximity to customers—with the resources,
know-how and investment capital of a Fortune 50 company.
This strategic approach gives us many advantages over a
centralized operation. One is a strong sense of ownership,
entrepreneurship, agility and accountability seldom seen
in large multinational corporations. The leadership and
employees of our 250 operating companies around the world
are intensely competitive. We look to the leaders of our decen-
tralized businesses to grow their businesses faster than their
competitors. They are driven to innovate . . . to bring greater
value to the marketplace through internal discoveries, applica-
tion of new science, technology, in-licensing and acquisition.
We believe our decentralized approach to running the
business yields better decisions—in the long run—for patients,
health professionals and other customers, because the
decision-makers are close to their customers and are in a
better position to understand their needs.
Finally, our decentralized approach to managing the
business is a tremendous magnet for talent, because it gives
people room to grow and room to explore new ideas, thus
developing their own skills and careers.
STRENGTH IN A FOCUS ON THE LONG TERM We manage our business
as a marathon, rather than a sprint. This too is a source of
enduring financial strength.
Managing our business for the long term keeps us focused
on the underlying performance of our business. While conscious
of ongoing performance in all time frames, we focus on keeping
our businesses healthy for the long term.
This forces us to anticipate and capitalize on change, to
look at the future of our businesses through many different
lenses—through the eyes of new customers, new markets,
new technologies and new fiscal realities. A desire to capitalize
on changes in the global health care environment that favor
consumer-driven health care was part of our rationale for
acquiring Pfizer Consumer Healthcare.
Managing our business for the long term leads us to
intensify investments as needed to maintain our leadership
positions in key growth markets.
A long-term view enables us to take prudent risks on
innovative ideas and completely new ways of doing things
—new and better products and alternative therapeutic
approaches, novel technologies, new and better manufacturing
processes. Some of these long-term investments—such as our
investment in Veridex’s fledgling cellular- and molecular-level
diagnostics platform—have the power to potentially transform
the practice of medicine (see page 14), just as our initial
investment in Ethicon Endo-Surgery, Inc. over 15 years ago
led a revolution in minimally invasive surgery.
Managing for the long term enables us to make smarter
acquisitions that deliver long-term shareholder value. We are
willing to take on important, challenging work, often requiring
sustained efforts, in order to achieve significant—and possibly
4
2 0 0 6 S A L E S B Y S EG M E N T
(in billions of dollars)
R E S E A R C H E X P E N SE
(in millions of dollars)
S H A R E H O L D E R RET U R N
(%)
S&P 500 Index
S&P Pharmaceutical Index
S&P Health Care Equip Index
Johnson & Johnson
8.4 7.8
11.7 12.0
10-YEAR COMPOUND ANNUAL GROWTH RATE
Medical Devices
& Diagnostics
$20.3
38%
Pharmaceutical
$23.2
44%
Consumer
$9.8
18%
$ 5 3 . 3 T OTA L
$5,344
2004
$7,125
2006
$6,462
2005