Balanced Scorecard for Centocor Ortho Biotech Inc.

7/28/2019 Balanced Scorecard for Centocor Ortho Biotech Inc.

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Balanced Scorecard: 1

Balanced Scorecard:

Centocor Ortho Biotech Inc.

Chitalu Mwila

ITMGMT 540

City University

Gordon Whitehead

Fall 2009




Purpose and Overview

During the process of creating a balanced scorecard for Centocor Ortho Biotech’s 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 Biotech’s 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.




Financial

The financial portion of the IT Balanced Scorecard is the most critical component of the

scorecard because it looks at how Centocor Othor Biotech’s pharmaceutical net sales, capital,

cash flow, R & D expenses, and the company’s 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 & Johnson’s Pharmaceutical Division’s financial data and compares

the company’s 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 Biotech’s operating income.




Johnson & Johnson Pharmaceuticals Division

0

10,000

20,000

30,000

Financial Area

I n M i l l i o n s

o f U S D o l l a r s

2006 2007 2008

2006 23,267 4,964 506

2007 24,866 5,265 6,540 485

2008 24,567 5,095 7,605 583

Net Sales R & D Expense Op ProfitMaintenance /

Repairs

Figure 1

Source: Johnson & Johnson 2008 Annual Report

Johnson & Johnson Financials

3.4 3.6 3.8

13

14.8 15

0

2

4

6

8

10

1214

16

2006 2007 2008

Year

I n

B i l l i o n s o f U S D

o l l

a r s

Capital

Cashflow

Figure 2Source: Johnson & Johnson 2008 Financial Review




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 year’s 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.




2008 Forecasted Customer Transactions

(In Millions of US Dollars)

4,580

513

677

RebatesReturns

Promos

Figure 3

Source: Johnson & Johnson 2008 Financial Review

2007 Forecasted Customer Transactions

(In Millions of Dollars)

4,408

360

728

Rebates

Returns

Promos

Figure 4


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




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

Biotech’s 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.




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 IT’s responsibility to conduct

associate training on the changes and impacts the upgrades will have on the systems

functionality.

17,422

20,451 21,490

0

5,000

10,000

15,000

20,000

25,000

In Millions of US

Dollars

2006 2007 2008

Fiscal Year

Admin Expenses

Admin Expenses

Figure 5





Performance Drivers

The performance drivers for Centocor Ortho Biotech’s 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 doctor’s 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




Outcome Measures

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




References:

Johnson & Johnson Pharmaceutical Research and Development LLC, 2008. 2008 Historical

Financial Review . Retrieved December 1, 2009, from

http://files.shareholder.com/downloads/JNJ/784813090x0x201810/abca6e90-44a0-42af-

bf4b-2210f3621857/HistoricalReview.pdf

http://files.shareholder.com/downloads/JNJ/784813090x0x201810/abca6e90-44a0-42af-bf4b-2210f3621857/HistoricalReview.pdf




Balanced Scorecard for Centocor Ortho Biotech Inc.

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