Balanced Scorecard:

Balanced Scorecard: Centocor Ortho Biotech Inc.

Chitalu Mwila

ITMGMT 540 City University Gordon Whitehead Fall 2009

Balanced Scorecard: Purpose and Overview During the process of creating a balanced scorecard for Centocor Ortho Biotechs IT Strategic Objectives, four different scorecard perspectives were analyzed; Financial, Customer, Internal Process, and Learning and Growth. The analysis was conducted to show how the four scorecard perspectives are linked to the IT Strategic Objectives which are comprised of analyzing the current SAP Maintenance Platforms, partnering with internal and external IT

support teams to ensure consistence performance of systems, integrating an IT budget that would meet the estimated cost of operations for each fiscal year in the strategic plan, as well as ensuring that service level agreements are met for both internal and external clients. The purpose of this Balanced IT Scorecard is to demonstrate how the scorecard will be used to reinforce IT Strategic Objectives that were identified in the IT Strategic Plan. Part of this process will include, looking at Centocor Ortho Biotechs financial data, stakeholder expectations, and internal processes that focus on procurement and R & D processes, and finally the learning and growth aspect of the business. By focusing at these four key areas, the balanced scorecard will provide insightful measures on how the objectives will be carried out and reinforced within the company. This supplemental document will further explain how each of the four quadrants of the IT Balanced Scorecard will have an impact on the company as a whole and will indicate the importance of utilizing resources in order to steer financial business plans to meet company goals.

Balanced Scorecard: Financial The financial portion of the IT Balanced Scorecard is the most critical component of the scorecard because it looks at how Centocor Othor Biotechs pharmaceutical net sales, capital, cash flow, R & D expenses, and the companys operating profit will be impacted by the IT Strategic Objects identified. Since the implementation of the SAP Maintenance System, the financial data of the main production plant in Malvern, PA has enabled housing company

information that is critical to the production process and can now be easily tracked. Figure 1 is a chart that looks at Johnson & Johnsons Pharmaceutical Divisions financial data and compares the companys performance over a 3 year period. The main key highlights listed in figure 1 are; net sales for the pharmaceutical division were highest in 2007 when the company had increased their R & D expense. This is a good indicator that supports investing heavily in R &D since Centocor Ortho Biotech is a company based on biotechnology that utilizes multiple R &D resources during the production and manufacturing process of its drugs. The second highlight is the difference in operating profit between the years 2007 and 2008. As the chart indicates below, maintenance repairs were the highest in 2008 and as a result, operating income was also at its peak that year as well. This indicates that the company may have done major repairs or upgrades to their systems and the impact was optimal equipment performance which resulted in increased operating income for the pharmaceutical division which included Centocor Ortho Biotechs operating income.

Balanced Scorecard:

In Millions of US Dollars

Johnson & Johnson Pharmaceuticals Division

30,000 20,000 10,000 0 Net Sales 2006 2007 2008 23,267 24,866 24,567 R & D Expense 4,964 5,265 5,095 6,540 7,605 Op Profit Maintenance / Repairs 506 485 583

Financial Area 2006 2007 2008

Figure 1 Source: Johnson & Johnson 2008 Annual Report

Johnson & Johnson Financials

16 14 12 10 8 6 4 2 0 In Billions of US Dollars 14.8 13 Capital Cashflow 3.4 3.6 3.8 15

2006

2007 Year

2008

Figure 2 Source: Johnson & Johnson 2008 Financial Review

Balanced Scorecard: Customer The customer portion of the scorecard looks at image and relationships between the company and the clients or patients. During the financial research, a section entitled customer transactions was located under Johnson & Johnson Pharmaceuticals financial data. This information is very useful in comparing funds distributed to customers in the forms of rebates,

returns, and promotions as these transactions financially impact each years forecasted budget as well as IT operations. Customer transaction impact IT operations as they are transactions that are processed through internal systems that either discount, or reimburse clients and customers on the cost of drugs purchased either through the healthcare network or through distribution channels. Figures 3 and 4 below list both the actual dollar amounts in millions, as well as the percentage forecasted towards customer transactions. In 2007, the highest transactional percentage was the rebates section. This may have been in part due to a new drug that was introduced to the market that offered a rebate or a new pricing strategy may have been implemented for a drug that was reformulated. The healthcare network is a good source for gathering market information to tie rebates and promotional strategies to pharmaceutical drugs especially when there is a generic drug available that is similar to the therapeutic drug manufactured by a company like Centocor Other Biotech. By providing a rebate or promotional incentive for the client or patient, the drug manufacture is still gaining market share by adding that client to its consumer profile. Figure 4, the same strategy was used, and again rebates were the highest percentage for customer transactions.

Balanced Scorecard:

2008 Forecasted Customer Transactions (In Millions of US Dollars)

677 513 Rebates Returns Promos 4,580

Figure 3 Source: Johnson & Johnson 2008 Financial Review

2007 Forecasted Customer Transactions (In Millions of Dollars)

728 360 Rebates Returns Promos 4,408

Figure 4 Source: Johnson & Johnson 2008 Financial Review Internal Business Process Internal business processes is centered around controlling procurement processes. For Centocor Ortho Biotech, controlling and managing the replenishment schedule for materials, equipment, software, and hardware is one of the primary functions administered by the procurement manager. The Balanced Scorecard indicated that a replenishment schedule be constructed, housed in the SAP Maintenance System, and updated quarterly. The request to update the schedule quarterly ties into meeting service level agreements. The identified distribution, and delivery timeframe listed indicates that the procurement and fulfillment process should be completed within 3 business days. Failure to comply with this

Balanced Scorecard:

timeframe results in failure to meet this particular service level agreement. By setting extremely high standards, the procurement controlling, managing, and fulfillment process will be managed more closely and will leave little room for error and the risk of not having particular materials, equipment, or software in stock. By housing the replenishment schedule in the SAP Maintenance System, this will allow management to track and maintain shipments, delivery, and distribution of both internal supplies and external shipments of products within Centocor Ortho Biotechs product profile. Learning and Growth The learning and growth segment for Centocor Ortho Biotech and Johnson & Johnson Pharmaceuticals looked at funding allocated for system maintenance and upgrades as well as associate training on system upgrades. Figure 1 showed that in 2006 $506 million dollars was spent on maintenance and repairs for equipment and hardware, $485 million in 2007, and $583 million in 2008. Equipment maintenance and upgrades are essential to the performance levels of equipment at both Centocor Ortho Biotech and Johnson & Johnson Pharmaceuticals. This is an area where a significant amount of funding should be allocated to ensure that equipment is maintained and upgraded with the latest updates. Upgrades and maintenance will also enable the IT division to have the capability to meet and exceed service level agreements made to both internal and external clients. Future recommendation is that the equipment and maintenance budget be increased at least by 10% for equipment that is nearing its full depreciation. An increase in this area will allow room to purchase new equipment for equipment that needs to be replaced.

Balanced Scorecard: Figure 2 below highlights administrative expenses which include training and development curriculums and activities. The Balanced Scorecard called for the IT trainer to be heavily involved in the implementation, training and administering of training materials for upgrades made to the system. The chart below shows a comparison of funding allocation between the fiscal years of 2006 through 2008. The chart shows that administrative expense spending increased from year to year. With the proposed recommendation of increasing the budget for maintenance and system upgrades, the administrative expenses budget will also have to be increased for the next 3-5 years. With that, it will be ITs responsibility to conduct associate training on the changes and impacts the upgrades will have on the systems functionality.
Admin Expenses

25,000 20,000 In Millions of US 15,000 Dollars 10,000 5,000 0 2006 17,422

20,451

21,490

Admin Expenses

2007 Fiscal Year

2008

Figure 5 Source: Johnson & Johnson 2008 Financial Review

Balanced Scorecard: Performance Drivers The performance drivers for Centocor Ortho Biotechs Balanced Scorecard are as follows: Financial - Actual budget spending vs. forecasted budget allocations for each division. Incentives for meeting financial goals would allow for funds to be reallocated toward departmental spending on items like new equipment Customer - By making rebates and promotions more easily accessible to clients and patients through healthcare networks like doctors offices and pharmacies, consumers will be more likely to utilize those services Internal Processes - Meeting service level agreements will be measured as a performance tool for each associate. By holding each employee accountable to meeting individual performance matrixes, the company as a whole can benefit from increased performance levels Learning and Growth

- IT managers will have the responsibility of ensuring that all equipment is functioning at optimal levels and will be responsible for dispatching associates to resolve issues and system malfunctions within a specified time frame agreed upon between department managers and the IT group

Balanced Scorecard: Outcome Measures

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Outcome measures for Centocor Ortho Biotech will measure the overall performance of the company. Below is an overview of how each balance scorecard perspective will be measured Financial - Analysis of quarterly spending vs. a comparison in quarterly sales from previous years Customer - Primarily customer transactions will be an indicator for a large percentage of the customer base because it will provide data that will help the company know how many clients and patients are purchasing drugs that they have manufactured Internal Processes - Meeting service level agreements for distribution, internal, and external clients for IT support, and product delivery to healthcare networks and patients Learning and Growth - Meeting the targeted goal of having 90% of the department associates attend scheduled training through best practices sessions

Balanced Scorecard: References: Johnson & Johnson Pharmaceutical Research and Development LLC, 2008. 2008 Historical Financial Review . Retrieved December 1, 2009, from

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http://files.shareholder.com/downloads/JNJ/784813090x0x201810/abca6e90-44a0-42afbf4b-2210f3621857/HistoricalReview.pdf