J&J, Lilly, Merck have best management in pharma, says report
- When it comes to managing their businesses, pharmaceutical companies could learn a thing or two from Johnson & Johnson, Eli Lilly & Co. and Merck & Co., a new report from The Wall Street Journal suggests.
- The report ranked 250 companies spanning more than a dozen sectors on their effectiveness, or ability to do "the right things well." Five overarching categories contributed to a company's placement on the list: customer satisfaction, employee engagement and development, innovation, financial strength and social responsibility.
- J&J came in 4th, while Lilly and Merck respectively finished 40th and 42nd. The three big drugmakers led the healthcare and life sciences sector, which had a total of 25 companies on the list.
The report's methodology stems mostly from a ranking system developed at Claremont Graduate University's Drucker Institute. There, researchers determined that five dimensions of corporate performance could provide insights into how effective — and effectively managed — a company is.
The institute tapped into a variety of third-party data providers to help measure those dimensions. For example, it used information from the American Customer Satisfaction Index to gauge how happy consumers were with products and services on the market.
Because the five dimensions all influence each other, the ranking system doesn't inherently deem one more important than the other. It does, however, give them different weights based on how they contribute to a company's overall effectives. Customer satisfaction and financial strength each contribute less than 20% to the total score, whereas social responsibility contributes more than 20%.
In each dimension, companies are given a "t-score" somewhere in the range of zero to 100. The median for the range is 50 and the standard deviation is 10; the number of standard deviations that a company scores above or below the median reflects how well it has done in that particular dimension.
J&J, for example, performed well in innovation, where it had a t-score of 88.8. The big pharma also scored at least two standard deviations higher than the median for social responsibility, financial strength, and employee engagement and development — which helped it achieve a total score of 83.4. Notably, the only three companies to outperform J&J were tech giants Amazon.com Inc., Apple Inc. and Alphabet Inc.
Lilly and Merck scored high social responsibility as well, and were separated from each other in overall scores by just one-tenth of a point. Other healthcare and life sciences companies to make it on the list include:
|45||Bristol-Myers Squibb Co||65.6|
|55||Edwards Life Sciences Corp.||64.2|
|115||Becton Dickinson & Co.||58.3|
|123||Cardinal Health Inc.||57.5|
|132||Gilead Sciences Inc.||57|
|149||Varian Medical Systems Inc.||55.8|
|154||Baxter International Inc.||55.3|
|159||Regeneron Pharmaceuticals Inc.||55|
|192||Boston Scientific Corp.||53.8|
|194||Thermo Fisher Scientific Inc.||53.6|
|194||CVS Health Corp.||53.6|
|203||IQVIA Holdings Inc.||53.3|
Yet regardless of the exact ranking, making it onto the list is still a commendable achievement, according to The Wall Street Journal.
"The fact that a firm is ranked toward the bottom of the Management Top 250 does not mean that it is not managed effectively. The lowest-ranked firm on the list is still in the top 40% or so of a much larger group of companies that was analyzed."
In order to qualify for the list, a company had to have either a market capitalization of at least $10 billion, shares that are a component of the S&P 500 stock index, or a spot in the publicly traded section of the Fortune 500 list for 2016.
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