Johnson & Johnson announced global restructuring initiatives designed to strengthen its business as health care company. The company is taking steps to prioritize its innovation efforts around the many growth opportunities in health care and to execute aggressively on bringing key new products to market.
The company’s plans are expected to increase its operational efficiency and generate annualized, pre-tax cost savings of $1.4-$1.7 billion when fully implemented in 2011, with $800-$900 million expected to be achieved in 2010. The associated savings will provide additional resources to invest in new growth platforms; ensure the successful launch of its many new products and continued growth of its core businesses; and provide flexibility to adjust to the changed and evolving global environment.
“Johnson & Johnson has long adhered to a broad-based operating model and set of sound management principles that have driven our success,” said William C. Weldon, Johnson & Johnson Chairman and Chief Executive Officer. “Today, we are announcing a series of actions and plans designed to ensure that our company remains well-positioned and appropriately structured for sustainable, long-term growth in the health care industry.”
The company expects to record an associated pre-tax, restructuring charge in the range of $1.1-$1.3 billion in the fourth quarter of 2009, treated as a special item. The company also confirmed its earnings guidance for full-year 2009 of $4.54 – $4.59 per share, which excludes the impact of special items such as restructuring charges.
Cost savings will be achieved primarily by reducing layers of management, increasing individual spans of control, and simplifying business structures and processes across the company’s global operations.
Position eliminations will form only one component of the savings. Weldon said, “These types of changes are difficult under any circumstances, and will have a very personal impact on people who have been dedicated to the mission of Johnson & Johnson. We recognize their contributions to the achievements of our business, and are committed to treating them fairly and with respect throughout this process.”
The company said initiatives would be implemented at the operating company levels to be certain the businesses can meet the needs of the customers they serve on a day-to-day basis. The company estimates that position eliminations will be in a range of 6-7% of its global workforce, subject to any consultation procedures on these plans in countries where required.