08/16/2010 12:03 pm ET | Updated May 25, 2011

In Command But Not in Control By Design: J&J's Management Model

How would you manage 250 operating companies spread over three industries that do business in more than 60 countries?

That's a question Johnson & Johnson CEO William Weldon has thought about every day since taking the top job at the 120-year old company in 2002.

Rather than impose a tight-fisted command-and-control leadership model, Weldon operates with a hybrid philosophy, first implemented in the 1980s. Following in the footsteps of his predecessors, Weldon hires and promotes top talent, and then provides his division heads a great deal of autonomy to make decisions on go-to-market strategies, product development and other key issues. While he leads from the company's headquarters in New Brunswick, N.J., he encourages business leaders to drive decision-making deep into their organizations, and to operate with the spirit of entrepreneurs.

Between 2002 and 2009, the strategy worked like a wonder drug. During this period, sales at the consumer products, pharmaceutical and medical device giant nearly doubled to $62 billion while annual profits jumped by more than $6 billion.

This year, however, the company's management model has been called into question. The reason is due to the poor handling a product recall by J&J's McNeil Consumer Healthcare. The division responsible for products like Children's Tylenol and Motrin tried to limit the scope of a product recall, even dubbing it a "product retrieval". The actions angered the FDA and members of Congress, who immediately called for hearings.

Since then, critics have called for the ousting of McNeil's management team. Others have wondered J&J should change its management philosophy.

So far, J&J is sticking by its management model--and for good reason. The reality is that problems at McNeil notwithstanding, it works. So much so that business leaders and management theorists are studying it. In particular, thought leaders are analyzing how Weldon blends decentralized decision making with authoritative leadership. Rather than choose one model over the other, he blends the best from each to achieve higher returns.

The decentralized structure, for example, allows those employees closest to customers to pursue opportunities without interference from their superiors. At the same time, the company's formal hierarchy enables J&J's executive team to set broad corporate objectives that serve the company as a whole. Case in point: improved collaboration.

Due to the decentralized nature of the company, whose operating units are based all around the world, J&J has not historically transferred institutional knowledge throughout its ranks. But in recent years, Weldon has pushed the company to make better use of its collective product expertise and customer knowledge. This collaborations led to the development of several product breakthroughs, including the health care industry's first drug-enhanced stent.

"While our people operate in a small-company setting, they also have access to the know-how and resources of a Fortune 50 company," says Weldon. "It's like having dozens of strategic partners at their fingertips."

The approach will surely come in handy as J&J addresses the problems with McNeil and pursues its top priorities--increasing innovation, maximizing the product pipeline, expanding its global footprint and leveraging talent.

Limited to authoritative leadership model or democratic decision making, J&J might not achieve these diverse and lofty goals. A lack of central authority would limit its ability to muster the corporate resources to support a major push into emerging economies. And an absence of local decision making would hamper efforts to pursue breakthrough innovations in niche markets. Weldon understands this and thus leverages the power of the "and."

Tight-fisted authority or egalitarian leadership? J&J prospers by doing both.

Inder Sidhu is the Senior Vice President of Strategy & Planning for Worldwide Operations at Cisco, and the author of Doing Both: How Cisco Captures Today's Profits and Drives Tomorrow's Growth. Follow Inder on Twitter at @indersidhu.