Merck-Medco: Vertical Integration in the Pharmaceutical Industry SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Sales & Marketing
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of Merck-Medco: Vertical Integration in the Pharmaceutical Industry
Records the analyses and actions taken by Merck Pharmaceuticals in its acquisition of Medco, a channel intermediary (called "pharmacy benefit manager"). While many of its competitors seem to be faring poorly, Merck seems to have managed the Medco integration superbly.
Swot Analysis of "Merck-Medco: Vertical Integration in the Pharmaceutical Industry" written by V. Kasturi Rangan, Marie Bell includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Medco Merck facing as an external strategic factors. Some of the topics covered in Merck-Medco: Vertical Integration in the Pharmaceutical Industry case study are - Strategic Management Strategies, Mergers & acquisitions, Supply chain and Sales & Marketing.
Some of the macro environment factors that can be used to understand the Merck-Medco: Vertical Integration in the Pharmaceutical Industry casestudy better are - – increasing transportation and logistics costs, banking and financial system is disrupted by Bitcoin and other crypto currencies, wage bills are increasing, competitive advantages are harder to sustain because of technology dispersion, increasing energy prices, increasing commodity prices, increasing household debt because of falling income levels,
challanges to central banks by blockchain based private currencies, geopolitical disruptions, etc
Introduction to SWOT Analysis of Merck-Medco: Vertical Integration in the Pharmaceutical Industry
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Merck-Medco: Vertical Integration in the Pharmaceutical Industry case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Medco Merck, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Medco Merck operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Merck-Medco: Vertical Integration in the Pharmaceutical Industry can be done for the following purposes –
1. Strategic planning using facts provided in Merck-Medco: Vertical Integration in the Pharmaceutical Industry case study
2. Improving business portfolio management of Medco Merck
3. Assessing feasibility of the new initiative in Sales & Marketing field.
4. Making a Sales & Marketing topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Medco Merck
Strengths Merck-Medco: Vertical Integration in the Pharmaceutical Industry | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Medco Merck in Merck-Medco: Vertical Integration in the Pharmaceutical Industry Harvard Business Review case study are -
Digital Transformation in Sales & Marketing segment
- digital transformation varies from industry to industry. For Medco Merck digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Medco Merck has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Ability to recruit top talent
– Medco Merck is one of the leading recruiters in the industry. Managers in the Merck-Medco: Vertical Integration in the Pharmaceutical Industry are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Sustainable margins compare to other players in Sales & Marketing industry
– Merck-Medco: Vertical Integration in the Pharmaceutical Industry firm has clearly differentiated products in the market place. This has enabled Medco Merck to fetch slight price premium compare to the competitors in the Sales & Marketing industry. The sustainable margins have also helped Medco Merck to invest into research and development (R&D) and innovation.
Highly skilled collaborators
– Medco Merck has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Merck-Medco: Vertical Integration in the Pharmaceutical Industry HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Effective Research and Development (R&D)
– Medco Merck has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
High switching costs
– The high switching costs that Medco Merck has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Operational resilience
– The operational resilience strategy in the Merck-Medco: Vertical Integration in the Pharmaceutical Industry Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Ability to lead change in Sales & Marketing field
– Medco Merck is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Medco Merck in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
High brand equity
– Medco Merck has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Medco Merck to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Diverse revenue streams
– Medco Merck is present in almost all the verticals within the industry. This has provided firm in Merck-Medco: Vertical Integration in the Pharmaceutical Industry case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Superior customer experience
– The customer experience strategy of Medco Merck in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Successful track record of launching new products
– Medco Merck has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Medco Merck has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Weaknesses Merck-Medco: Vertical Integration in the Pharmaceutical Industry | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Merck-Medco: Vertical Integration in the Pharmaceutical Industry are -
Aligning sales with marketing
– It come across in the case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Merck-Medco: Vertical Integration in the Pharmaceutical Industry can leverage the sales team experience to cultivate customer relationships as Medco Merck is planning to shift buying processes online.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Medco Merck supply chain. Even after few cautionary changes mentioned in the HBR case study - Merck-Medco: Vertical Integration in the Pharmaceutical Industry, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Medco Merck vulnerable to further global disruptions in South East Asia.
Interest costs
– Compare to the competition, Medco Merck has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
No frontier risks strategy
– After analyzing the HBR case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry, it seems that company is thinking about the frontier risks that can impact Sales & Marketing strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Increasing silos among functional specialists
– The organizational structure of Medco Merck is dominated by functional specialists. It is not different from other players in the Sales & Marketing segment. Medco Merck needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Medco Merck to focus more on services rather than just following the product oriented approach.
High bargaining power of channel partners
– Because of the regulatory requirements, V. Kasturi Rangan, Marie Bell suggests that, Medco Merck is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Skills based hiring
– The stress on hiring functional specialists at Medco Merck has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry, is just above the industry average. Medco Merck needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
High operating costs
– Compare to the competitors, firm in the HBR case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Medco Merck 's lucrative customers.
Workers concerns about automation
– As automation is fast increasing in the segment, Medco Merck needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Medco Merck is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Opportunities Merck-Medco: Vertical Integration in the Pharmaceutical Industry | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry are -
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Medco Merck in the consumer business. Now Medco Merck can target international markets with far fewer capital restrictions requirements than the existing system.
Low interest rates
– Even though inflation is raising its head in most developed economies, Medco Merck can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Leveraging digital technologies
– Medco Merck can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Using analytics as competitive advantage
– Medco Merck has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Medco Merck to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Sales & Marketing industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Medco Merck can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Medco Merck can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Medco Merck is facing challenges because of the dominance of functional experts in the organization. Merck-Medco: Vertical Integration in the Pharmaceutical Industry case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Manufacturing automation
– Medco Merck can use the latest technology developments to improve its manufacturing and designing process in Sales & Marketing segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Better consumer reach
– The expansion of the 5G network will help Medco Merck to increase its market reach. Medco Merck will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Medco Merck to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Medco Merck can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Medco Merck can use these opportunities to build new business models that can help the communities that Medco Merck operates in. Secondly it can use opportunities from government spending in Sales & Marketing sector.
Developing new processes and practices
– Medco Merck can develop new processes and procedures in Sales & Marketing industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Buying journey improvements
– Medco Merck can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Merck-Medco: Vertical Integration in the Pharmaceutical Industry suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Threats Merck-Medco: Vertical Integration in the Pharmaceutical Industry External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry are -
High dependence on third party suppliers
– Medco Merck high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Regulatory challenges
– Medco Merck needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Sales & Marketing industry regulations.
Easy access to finance
– Easy access to finance in Sales & Marketing field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Medco Merck can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Technology acceleration in Forth Industrial Revolution
– Medco Merck has witnessed rapid integration of technology during Covid-19 in the Sales & Marketing industry. As one of the leading players in the industry, Medco Merck needs to keep up with the evolution of technology in the Sales & Marketing sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Medco Merck.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Medco Merck in the Sales & Marketing industry. The Sales & Marketing industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Stagnating economy with rate increase
– Medco Merck can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Increasing wage structure of Medco Merck
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Medco Merck.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry, Medco Merck may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Sales & Marketing .
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Medco Merck in the Sales & Marketing sector and impact the bottomline of the organization.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Medco Merck with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Medco Merck business can come under increasing regulations regarding data privacy, data security, etc.
Environmental challenges
– Medco Merck needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Medco Merck can take advantage of this fund but it will also bring new competitors in the Sales & Marketing industry.
Weighted SWOT Analysis of Merck-Medco: Vertical Integration in the Pharmaceutical Industry Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Merck-Medco: Vertical Integration in the Pharmaceutical Industry is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Medco Merck needs to make to build a sustainable competitive advantage.