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J&J case: Innovation as response to business adversity

Seven people died in 1982 after ingesting Tylenol capsules that had been tampered with. This occured in the Chicago area, but Johnson & Johnson issued a recall of Tylenol across the US. J&J's sales and market share nose-dived.

Roger Martin writing in the Jan/Feb 2010 issue of Harvard Business Review says "J&J's response (the recall) is considered the textbook case of a company's "doing the right thing" regardless of the impact on profits." CEO James Burke was praised for taking an exemplary moral stance and for his implementation of J&J's credo. The credo, which was crafted in 1943 and considered the world's most powerful statement of business purpose, declares the order of priority: Customers first, shareholders last.

Recall was J&J's first response to the adversity. Demonstration of commitment to "customer first" was the follow-up response. J&J introduced the world's first tamper-resistant packaging for over-the-counter health products. Loyalty toward Tylenol rocketed after the introduction of this innovation. By September 2009, J&J was the world's 9th largest company in terms of market cap.

This case shows how shareholders do great when customer is at the top of list. It also shows how innovation could be used at a time of adversity to achieve a turn-around.

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