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 - – there is increasing trade war between United States & China, digital marketing is dominated by two big players Facebook and Google, 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, cloud computing is disrupting traditional business models, challanges to central banks by blockchain based private currencies,
central banks are concerned over increasing inflation, 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 -
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.
Learning organization
- Medco Merck is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Medco Merck is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Merck-Medco: Vertical Integration in the Pharmaceutical Industry Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
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.
Low bargaining power of suppliers
– Suppliers of Medco Merck in the sector have low bargaining power. Merck-Medco: Vertical Integration in the Pharmaceutical Industry has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Medco Merck to manage not only supply disruptions but also source products at highly competitive prices.
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.
Training and development
– Medco Merck has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Merck-Medco: Vertical Integration in the Pharmaceutical Industry Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
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 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.
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.
Innovation driven organization
– Medco Merck is one of the most innovative firm in sector. Manager in Merck-Medco: Vertical Integration in the Pharmaceutical Industry Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
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.
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.
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 -
Low market penetration in new markets
– Outside its home market of Medco Merck, firm in the HBR case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Merck-Medco: Vertical Integration in the Pharmaceutical Industry HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Medco Merck has relatively successful track record of launching new products.
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.
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.
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.
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.
Slow decision making process
– As mentioned earlier in the report, Medco Merck has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Medco Merck even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
High cash cycle compare to competitors
Medco Merck has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
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.
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.
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 -
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Sales & Marketing industry, but it has also influenced the consumer preferences. Medco Merck can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
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.
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.
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.
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.
Creating value in data economy
– The success of analytics program of Medco Merck has opened avenues for new revenue streams for the organization in the industry. This can help Medco Merck to build a more holistic ecosystem as suggested in the Merck-Medco: Vertical Integration in the Pharmaceutical Industry case study. Medco Merck can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
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.
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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Medco Merck can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Merck-Medco: Vertical Integration in the Pharmaceutical Industry, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Medco Merck can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Medco Merck to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Medco Merck to hire the very best people irrespective of their geographical location.
Loyalty marketing
– Medco Merck has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, 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 -
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 .
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.
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.
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.
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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Medco Merck can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Merck-Medco: Vertical Integration in the Pharmaceutical Industry .
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.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Medco Merck will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Shortening product life cycle
– it is one of the major threat that Medco Merck is facing in Sales & Marketing sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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.
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.
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.
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.
