Johnson & Johnson takes aim at digital disruption

Oct 30, 2017
John Karolefski

Through a special arrangement, presented here for discussion is a summary of a current article from the monthly e-zine, CPGmatters.

The rise of pure-play retailers and manufacturers selling brands directly to consumers is threatening the traditional go-to-market success of CPG vendors.

“At the heart of this disruption, there is a new consumer-centric paradigm that’s challenging completely the cost-of-goods scale and the value scale as we know it,” Jorge Mesquita, EVP, worldwide chairman, consumer, Johnson and Johnson, recently said at Barclays Global Consumer Staples Conference in Boston.

“New companies can now sell directly to consumers profitably in most markets,” he explained. “Innovation used to also be a big barrier for entry, but again you have an ability now through a network of external partnerships to access innovation, even crowd sourcing. And then financial firepower for companies like J&J is not as critical as it used to be because new start-up entrants can access capital relatively easy through VCs.”

He listed five principles that J&J will follow to compete:

  • Broaden the scope of the innovation model. “We need to take our best technologies and roll them out across the world.”
  • Build brands ambidextrously: “We’ve got to make them intensively locally relevant, one market at a time.”
  • Win traditional and emerging channels: “We have a very large driving business in our core FDM category. So, you have Walmart, Target, Kroger, CVS, Walgreens. And that’s a business we’re committing to continue to grow. But in the last few years, we see at both ends of the spectrum very fast-growing channels. E-commerce, of course, led by Amazon at one end, but perhaps another channel that is growing equally fast in a perhaps less heralded way is the discounted channel with companies like Lidl and Aldi. And you have to have the capabilities to compete across all of these channels before that actually gets a scale.”
  • Keep the pedal to the metal on productivity and cost agenda: “Over the last two years, we’ve taken well over $1 billion out of our cost structure through strategic pricing or revenue growth management.”
  • Evolve work processes and culture: “We should be organized as a big multinational company to compete with the small players and the large ones.”

DISCUSSION QUESTIONS: How should CPG brands adjust to the changes in the traditional sell-in channel? What do you think of Johnson & Johnson’s approach to adjusting to the disruption?

"It requires a clear strategy and definition of success, organizational alignment, a culture willing to adapt and a fair bit of courage."
"Success will be driven by distribution and engagement and the best CPG marketers will be highly focused on both."
"...we are seeing the big companies embedding small teams within a co-working facility occupied mainly by startups and solo consultants."

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15 Comments on "Johnson & Johnson takes aim at digital disruption"

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Dr. Stephen Needel

The changes in the traditional sell-in channel may be smaller now than the article implies. That said, companies should be thinking about what changes that will become bigger in the future will mean for them. J&J’s approach seems sound for any business regardless of whether there is channel disruption or not.

Phil Chang
The model sounds great. The challenge for big companies is to adjust how their processes work. Having worked with and still having lots of friends in CPG, the number one challenge isn’t identifying what needs to be done in the marketplace. They can read RetailWire discussions alone to figure out low-hanging fruit — it’s organizational. To be NIMBLE — layers are going to have to get cut out. Brand spending needs to get unlocked and management needs to lose some oversight on the process. Brand managers need to ditch large agency relationships, roll up their sleeves and get into the consumer feedback that’s literally right in front of them. Craft brands are blowing up because they can spend a few thousand on social media campaigns and being authentic, and then read analytics in less than a week. No big company I know is able to do that (or very, very few of them). I hear big things above, but this new age isn’t about big. It’s about small, quick actions that are measureable and effective… Read more »
Phil Masiello

These five principles are great. But to me, what seems to be lacking is any mention of the customer. And that is where startups and innovators are winning.

Startups that are coming up with new models are innovating in the way they engage with the consumer. J&J needs to add a sixth principle and that is to rebuild its reputation with customers. Find better ways to engage with them and work hard to rebuild trust after the many issues they have had over the years.

Their approach shows that they don’t truly understand the disruption around them. Their scale insulates them somewhat, but that too will become vulnerable.

Sterling Hawkins

There is a lot of talk of innovation driven by the business (at least in the article) without the customer side of the equation. And I’m in agreement with Phil’s idea to add a sixth principle. Innovation for the sake of innovation or innovation as a means of process improvement only gets a company so far. Truly understanding the customer and aligning innovation around them is the only way to do this sustainably.

Bob Amster

The competition for the likes of J&J come from start-up brands that would compete with J&J’s brands. How many different channels, retailers and upstarts sell J&J’s products is irrelevant, as long as they continue to sell the J&J brands successfully. Broadening the scope of the innovation model and building brands ambidextrously, coupled with winning traditional and emerging channels, are likely to be the most effective in maintaining and even gaining market share.

Kim Garretson

Regarding “Evolve work processes and culture”: Here in the Twin Cities, with a very active co-working space real estate market, we are seeing the big companies like Target, Best Buy, 3M and others embedding small teams within a co-working facility occupied mainly by startups and solo consultants. Reports are that these innovation teams are reporting good results from getting out from under the big corporate headquarters’ cultures.

Keith Anderson

J&J’s approach is solid — protect the base and adapt to capture growth. The points about competing with emerging brands and winning in emerging channels are salient.

The complexity, however, for large CPGs often derives from the inherent tension between the two objectives I highlighted above (protecting the base and capturing growth). The drivers of growth and change — usually new companies with different definitions of success and sources of capital — are on offense.

For big CPGs, developing new and locally relevant brands or pursuing new channels and business models is not straightforward to reconcile with a focus on productivity and cost reduction.

It can be done, but it requires a clear strategy and definition of success, organizational alignment, a culture willing to adapt and a fair bit of courage.

Seth Nagle

Each CPG brand has to take a different approach based on their brands, shopper demographics and their resources. For some brands that have a weaker relationship with grocers selling through digital might be their best bet but for others that do have a strong relationship with retailers, it’s a fine line they must walk.

These five principles are great but as we’ve seen in the past it can be difficult for organizations the size of J&J to all be synced and in a row together. However with technology allowing teams to communicate effortlessly these days(via Slack, Yammer, GoToMeeting, etc.) there’s no reason why teams can not align their objectives regardless of their size.

Mark Price

Managing all the channels is a requirement for top CPG brands today. Distribution will be absolutely critical to success, and distribution strategies will need to be flexible and agile as the digital and discount channels change with new retailers and e-commerce providers emerging and changing their value propositions.

In addition, consumer engagement across channels will be critical. Customers must be researched and segmented as their behavior is evolving — making the challenge even greater.

Success will be driven by distribution and engagement and the best CPG marketers will be highly focused on both.

Kiri Masters

These are the key words: “New companies can now sell directly to consumers profitably in most markets,” but I disagree that it’s all about access to capital.

New companies are not beholden to entrenched bureaucracy or a need to satisfy the short-term needs of shareholders. They can innovate because they choose to collect and act quickly on the data that their direct-to-consumer channels provide. They are creating products that are built for an e-commerce environment, acting quickly to respond to consumer trends and iterating fast on variations.

CPG firms have tremendous advantages over new companies. The industry relationships, advocacy and other resources give them an incredible upper hand over new upstarts. But they have not responded quickly enough to the changing landscape where data is readily available and requires fast action.

Adrian Weidmann

The strategies outlined by Mr. Mesquita are certainly compelling but it will be more interesting to learn about the tactics implemented to fulfill these aspirations. Nobody can argue with the principle, “Win traditional and emerging channels” — but in today’s landscape, it’s the “how” that will be far more challenging. The two comments principles that resonated with me were: “Broaden the scope of the innovation model” and “evolve work processes … ” How about innovating work processes? All too often brands spend too much time trying to simply digitize the analog workflows. The times dictate that we become paradigm busters and introduce entirely new and different workflows to address the digital transformation.

Nir Manor

CPGs should embrace the opportunities to sell directly to consumers by leveraging new technologies, innovative distribution and logistics. However it is obvious that existing brick-and-mortar formats are here to stay, especially the ones that are more digitally advanced. These brick-and-mortar retailers will remain the main sales generators for CPGs for the coming years. Therefore the approach on winning “traditional” and discounters channels while articulating the digital transformation is the right strategy.

Jeff Miller

These 5 principles are a great start for CPGs and J&J specifically. I think the first step is an awareness that they do have a problem and that they need to start to focus less on their “brands and products” and more on “consumers.” That focus on solving consumer needs is why some of the upstarts are taking market share and why Amazon is taking a greater share of sales from their main current channel partners (Wamart, CVS, etc.). I foresee J&J and other large CPGs making use of capital for acquisitions where hopefully they learn from others and bring in some of the nimbleness that allow these companies to innovate to some of their legacy operations.

Michael La Kier

One of the points of leverage mentioned that may have gotten lost is the revenue growth management function. Being successful in an omnichannel selling world will depend on offering up the right packages for each channel at the right price. And, being maniacal about tracking and adjusting this based on marketplace feedback.

Cameron Conaway

It’s not mentioned here, but I think maintaining its close networks with universities is just as critical to Johnson & Johnson’s plan for “digital disruption.”

They continuously hire steady streams of new graduates, and these graduates, if given the opportunity, can keep J&J relevant. Sustained relevancy, after all, depends on incremental industry disruptions.

"It requires a clear strategy and definition of success, organizational alignment, a culture willing to adapt and a fair bit of courage."
"Success will be driven by distribution and engagement and the best CPG marketers will be highly focused on both."
"...we are seeing the big companies embedding small teams within a co-working facility occupied mainly by startups and solo consultants."

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