Q.1. Why Project Chatham was conceived? What objectives was it set to achieve?

Answer. J&J was the major source of the supplier of the pharmaceuticals and the equipment to
the hospitals in the U.S. About three-fifths of the $15billion industry was being served by J&J.
But in the initial years of 1970's the hospital system began to change dramatically. The
government was involved in most of the decision making processes of the hospitals. The total
costs increased by almost twice the rate as that of inflation while the hospital industry was able
to recover only 85% of their costs. Hence the pressure was there on the hospitals to reduce the
cost by standardization and group purchasing. Most of the decisions regarding the
procurement were being made by the business managers and the material managers rather
than the doctors and nurses. J&J was mainly focused on their business competitors like P&G,
Bristol-Mayers and 3M rather than focusing on the changing environment. They thought that
the solution would be against the J&J culture of decentralization. A lot of money was also
involved in the process and the complacent attitude of the company also pulled them off. But
later in mid-1979, they came to understand the consequences of the government's cost-
containment pressure. The changing status in the hospital business also had affected their
financial status. Therefore to cope up with the external environment they have decided to form
the Project Chatham to meet their marketing strategies.

The major objective of Chatham was to examine the strategies to improve the marketing reach
of the company and to meet the challenges of the external environment. The expansion of the
product portfolio including the pharmaceuticals and the diagnostic instruments had also
offered them a vast advantage over the other companies. The major work of the company was
to analyse the hospital business including the regulatory developments as well. They used to
ask for information directly from the professionals and the hospital administrators to seek out
the problems that the department is facing. However, the major problem that they faced was
going for a centralized logistics and distribution system among the 13 companies. Their major
objective lead to the foundation of Hospital Services Group (HSG) that had a consolidated
distribution network, a common customer service and an electronic order entry for the
suppliers as well as customers for the orders. Their major idea was to position themselves
better as a corporate customer.