Peterson’s Outsider Strategy for J&J Shakes Up Consumer
To fix Johnson & Johnson (JNJ)’s disgraced consumer unit, Sandra Peterson took a gamble, jettisoning several well-known brands to concentrate on big sellers like the pain pill Tylenol.
Doing so, she believed, would allow J&J to sharpen quality controls for the remaining products and put more effort into boosting their sales globally. Now, 18 months after Peterson arrived as the highest-ranked outsider ever hired by J&J, she insists that change, and others, are reviving a unit that saw more than 40 brands pulled from store shelves on quality concerns in the three years before she arrived.
Yesterday, J&J said the consumer unit’s sales were up 2.4 percent in the second quarter, led by a 9 percent rise from over-the-counter drugs, including Tylenol.
“We’ve made huge progress,” said Peterson, 54, who brought with her a reputation for quickly shoring up two units at Bayer AG. “Yes, there is more we can do. But with our retail partners, we are in a very good place right now.”
Along with the product cuts, Peterson has spent her first year rebuilding the unit’s broken infrastructure, she said, creating new systems for quality assurance and communication. The results: Three of four recalled drugs, including Tylenol and Motrin are once again on store shelves.
Even so, Peterson readily admitted during a recent interview at J&J’s New Brunswick, New Jersey headquarters that the unit remains a “work in progress,” and she’s fully aware pressure will build for better financial results moving forward.
“Investors have been giving them a bit of a honeymoon,” thanks to the management changes and other reasons, said Jeff Jonas, a portfolio manager at Gabelli Funds in Rye, New York. But J&J can’t expect to carry that advantage for long, he said. Rebuilding consumer’s “cash cow” status could add $500 million or more yearly to the operating profit, important when J&J faces new growth challenges ahead, Jonas said.
The consumer unit has long been one of the three main legs of a stool that supports almost $75 billion in yearly J&J revenue. While sales of drugs and medical devices dwarf those from consumer products, they are also more dependent on science and engineering breakthroughs and regulatory approvals.
Until the mid-2000s, with its emphasis on everyday home-care -- from Band-Aids to Listerine to over-the-counter pills -- consumer was the picture of consistency. After acquiring Pfizer Inc. (PFE)’s consumer business in 2006, though, the flood of recalls began.
When Alex Gorsky, a former Army captain who briefly left the company to work for Novartis AG (NOVN), became J&J’s CEO in April 2012, his first comments were on how disappointed he was with the recalls. A few months later, he began to woo Peterson, whom he met for the first time at the Advanced Medical Technology Association (AdvaMed), where he represented J&J and she spoke for Bayer’s diabetes division.
“I was somewhat familiar with her from her reputation in the marketplace,” Gorsky recalled. Then, “we had a couple of occasions to talk, and it was hard not to be impressed by her.”
Eventually, he became convinced that her diverse background and outsider status -- she also worked at Medco Health Solutions Inc., Nabisco Holdings Corp. and Whirlpool Corp. (WHR) -- was needed to change the entrenched patterns that had created the broken unit’s problems in the first place.
“We talked about a partnership, and the leadership environment she would be joining,” Gorsky said last month in an interview. “The more we talked, the more we saw a nice, complementary fit.”
By year’s end, she was on board in a position created for her. She received the title of worldwide chairwoman, making her the highest J&J executive ever brought in from the outside and giving her responsibility for overseeing everything from information technology and supply chain to the consumer unit.
With the move of Jesse Wu, the former consumer group chief, to the company’s China operation, rebuilding the damaged consumer unit has demanded much of her attention.
While Peterson “wasn’t your traditional consumer lead,” Gorsky said, her experience in “transforming and evolving businesses” is what sold him on the move.
Known as “Sandi” throughout her career, Peterson has established a reputation within the business community for a “very direct and methodical, but quiet way,” said Christopher Coughlin, chairman of the board at Dun & Bradstreet Corp. (DNB), where Peterson has been a trustee since 2002.
“She’ll just get on with it, and let the results speak for themselves,” said Coughlin, who first met Peterson in 1996, when they both worked at Nabisco.
Peterson, meanwhile, describes herself as being “an intense listener” who does her best work when she’s not behind a desk. She’s comfortable in the factory in jeans and a t-shirt and said she reaches out to workers at all levels, sometimes starting at 7 a.m. for coffee with interns.
“The people inside the company, generally two-to-three levels down, they know best what’s wrong and how to fix it,” she said. “It’s just that their voices aren’t being heard. I listen for words, tonality and language. If I’m sitting in an office, I’m not doing my job.”
Her best attributes, she said, are a “willingness to say I don’t know, can you help me, and being willing to fail.”
Her desire to bring change may have begun at the start of her career, when she joined the consulting firm McKinsey & Co. in 1987. There she was exposed to turnarounds and transformations, themes of her later working life.
In her next few jobs, at Whirlpool, Nabisco and Medco, “I got to touch not just the strategy but the execution,” she said. “I liked it. I didn’t want to tell someone how to do it anymore, I wanted to get involved and do it myself.”
At Whirlpool, she facilitated the integration of Philips NV’s major appliance subsidiary, she says, and worked to expand the company’s U.S.-centric model. At Medco, she helped spin the business off from the drugmaker Merck & Co. (MRK) In her last job, at Bayer, she helped boost the diabetes and crop science units, according to Marijn Dekkers, the Germany-based company’s CEO.
Both businesses “weren’t going as well as they had been in the past,” Dekkers said in a telephone interview. “In both cases, she came in relatively quickly, did a strategic analysis of the industry and then translated that insight into an executional operating plan.”
At J&J, the speed of Peterson’s decision-making has been an advantage, said Alison Lewis, who Peterson brought in from Coca-Cola Co. (KO) in December to be the global chief marketing officer for the consumer unit.
“She’s all about speed and decision making, not admiring the problem for too long,” Lewis said in an interview.
Peterson, meanwhile, said that in her early discussions with workers she found that speed in decision-making had been an issue at J&J, a company formed around collaboration and consensus-building. Peterson borrowed an idea from Apple Inc. (AAPL) to help address the issue, creating a “directly responsible individual” for every project.
Other steps she’s taken include imposing a uniform global quality program, with the same standards and metrics applied to every consumer product across the company, no matter where it may be produced or by whom.
“And we track and monitor it,” she said.
Peterson has also cut the number of products offered, including K-Y personal lubricants and the women’s sanitary protection business in North America, after finding that a fraction of them accounted for 80 percent of its revenue. To make up for the losses, Peterson wants to boost sales on products for about a dozen diseases or conditions where “we should be the best in the world,” she said.
Those products include items such as the company’s Clean&Clear for acne; Aveeno, the oatmeal-based cream for rough skin; Imodium for diarrhea; and Zyrtec and Benadryl for allergy sufferers.
Peterson has also built a new leadership team for the unit. She elevated individuals such as Kathy Salerno, vice president of research and development for the North American consumer group, from inside the company and brought in others like Lewis from the outside.
“There is value in finding a combination of internal people, stretching them and seeing their potential, then marrying that with someone from the outside,” Peterson said. “If you have the right personalities, they both get so much more out of it and the business gets so much more.”
Already, some people point to Peterson as a possible CEO candidate, if not at J&J, where Gorsky is about the same age, then elsewhere.
“Sandi is not one who is caught up in the ambition of, ’I need to be No. 1,’” Coughlin, the Dun & Bradstreet chairman, said in a telephone interview. “But I’m certain she will have those opportunities. Would she find it more satisfying than where she is at? Honestly, I don’t know.”
Peterson, meanwhile, isn’t one to devise elaborate five-year plans. Her bottom line philosophy, she says, is to keep life in perspective.
Peterson’s family and its needs have guided much of her career. She left Whirlpool to relocate from Michigan to the east coast, which was more welcoming for her husband, who gave up his career to raise their sons. She left Medco to be at home with her boys when her husband was battling cancer.
With his death, “I always remember what’s the most important thing, my kids,” she said. “When you lose somebody, you never forget. I don’t get stressed out about things the way other people do. I’ve become very centered with what’s important in life because of that experience.”
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