Merck (in 2009): Open for Innovation? SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Innovation & Entrepreneurship
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of Merck (in 2009): Open for Innovation?
The pharmaceutical industry faces the threat of patent expirations, diminishing new drug breakthroughs, adverse regulatory laws, increasing competition, and a harsh economic climate. Merck & Company felt these mounting pressures and had become increasingly reliant on blockbuster drugs. With its new drug pipeline running dry, Merck accepted that the biotech industry is too complicated for it to navigate alone. As it stood, it was producing only 1% of the biomedical research in the world. Thousands of new ideas were emerging around the world, both inside and outside of the company. An open innovation strategy would allow the company to source new ideas externally and at a faster rate. This came with many risks including the reduced competitive advantage of protected intellectual property. While Merck had been moving toward an open innovation strategy, its history of internal research and development had created a culture resilient to working externally. Should Merck pursue an open innovation strategy? If so, how?
Authors :: Alicia Horbaczewski, Frank T. Rothaermel
Swot Analysis of "Merck (in 2009): Open for Innovation?" written by Alicia Horbaczewski, Frank T. Rothaermel includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Merck Externally facing as an external strategic factors. Some of the topics covered in Merck (in 2009): Open for Innovation? case study are - Strategic Management Strategies, Innovation, Mergers & acquisitions, Technology and Innovation & Entrepreneurship.
Some of the macro environment factors that can be used to understand the Merck (in 2009): Open for Innovation? casestudy better are - – technology disruption, wage bills are increasing, increasing commodity prices, there is increasing trade war between United States & China, challanges to central banks by blockchain based private currencies, increasing transportation and logistics costs, talent flight as more people leaving formal jobs,
cloud computing is disrupting traditional business models, there is backlash against globalization, etc
Introduction to SWOT Analysis of Merck (in 2009): Open for Innovation?
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Merck (in 2009): Open for Innovation? case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Merck Externally, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Merck Externally 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 (in 2009): Open for Innovation? can be done for the following purposes –
1. Strategic planning using facts provided in Merck (in 2009): Open for Innovation? case study
2. Improving business portfolio management of Merck Externally
3. Assessing feasibility of the new initiative in Innovation & Entrepreneurship field.
4. Making a Innovation & Entrepreneurship topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Merck Externally
Strengths Merck (in 2009): Open for Innovation? | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Merck Externally in Merck (in 2009): Open for Innovation? Harvard Business Review case study are -
Organizational Resilience of Merck Externally
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Merck Externally does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
High brand equity
– Merck Externally has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Merck Externally to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Successful track record of launching new products
– Merck Externally has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Merck Externally 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.
Diverse revenue streams
– Merck Externally is present in almost all the verticals within the industry. This has provided firm in Merck (in 2009): Open for Innovation? 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.
Sustainable margins compare to other players in Innovation & Entrepreneurship industry
– Merck (in 2009): Open for Innovation? firm has clearly differentiated products in the market place. This has enabled Merck Externally to fetch slight price premium compare to the competitors in the Innovation & Entrepreneurship industry. The sustainable margins have also helped Merck Externally to invest into research and development (R&D) and innovation.
Strong track record of project management
– Merck Externally is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Low bargaining power of suppliers
– Suppliers of Merck Externally in the sector have low bargaining power. Merck (in 2009): Open for Innovation? has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Merck Externally to manage not only supply disruptions but also source products at highly competitive prices.
Innovation driven organization
– Merck Externally is one of the most innovative firm in sector. Manager in Merck (in 2009): Open for Innovation? Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Effective Research and Development (R&D)
– Merck Externally 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 (in 2009): Open for Innovation? - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Analytics focus
– Merck Externally is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Alicia Horbaczewski, Frank T. Rothaermel can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Cross disciplinary teams
– Horizontal connected teams at the Merck Externally are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Training and development
– Merck Externally has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Merck (in 2009): Open for Innovation? 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.
Weaknesses Merck (in 2009): Open for Innovation? | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Merck (in 2009): Open for Innovation? are -
Capital Spending Reduction
– Even during the low interest decade, Merck Externally has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
No frontier risks strategy
– After analyzing the HBR case study Merck (in 2009): Open for Innovation?, it seems that company is thinking about the frontier risks that can impact Innovation & Entrepreneurship 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 strategic competitive environment developments
– As Merck (in 2009): Open for Innovation? HBR case study mentions - Merck Externally takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Low market penetration in new markets
– Outside its home market of Merck Externally, firm in the HBR case study Merck (in 2009): Open for Innovation? needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High operating costs
– Compare to the competitors, firm in the HBR case study Merck (in 2009): Open for Innovation? 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 Merck Externally 's lucrative customers.
Lack of clear differentiation of Merck Externally products
– To increase the profitability and margins on the products, Merck Externally needs to provide more differentiated products than what it is currently offering in the marketplace.
Interest costs
– Compare to the competition, Merck Externally 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.
Skills based hiring
– The stress on hiring functional specialists at Merck Externally 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.
Increasing silos among functional specialists
– The organizational structure of Merck Externally is dominated by functional specialists. It is not different from other players in the Innovation & Entrepreneurship segment. Merck Externally needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Merck Externally to focus more on services rather than just following the product oriented approach.
Need for greater diversity
– Merck Externally has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Merck (in 2009): Open for Innovation? 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 Merck Externally has relatively successful track record of launching new products.
Opportunities Merck (in 2009): Open for Innovation? | 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 (in 2009): Open for Innovation? are -
Better consumer reach
– The expansion of the 5G network will help Merck Externally to increase its market reach. Merck Externally 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Merck Externally 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 (in 2009): Open for Innovation?, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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. Merck Externally can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Leveraging digital technologies
– Merck Externally 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Merck Externally 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.
Using analytics as competitive advantage
– Merck Externally 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 (in 2009): Open for Innovation? - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Merck Externally to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Learning at scale
– Online learning technologies has now opened space for Merck Externally to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Innovation & Entrepreneurship industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Merck Externally 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. Merck Externally 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Merck Externally can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
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 Merck Externally in the consumer business. Now Merck Externally can target international markets with far fewer capital restrictions requirements than the existing system.
Loyalty marketing
– Merck Externally 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Merck Externally 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 Merck Externally to hire the very best people irrespective of their geographical location.
Creating value in data economy
– The success of analytics program of Merck Externally has opened avenues for new revenue streams for the organization in the industry. This can help Merck Externally to build a more holistic ecosystem as suggested in the Merck (in 2009): Open for Innovation? case study. Merck Externally can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Threats Merck (in 2009): Open for Innovation? External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Merck (in 2009): Open for Innovation? are -
Consumer confidence and its impact on Merck Externally demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Merck Externally needs to understand the core reasons impacting the Innovation & Entrepreneurship industry. This will help it in building a better workplace.
Regulatory challenges
– Merck Externally 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 Innovation & Entrepreneurship industry regulations.
Environmental challenges
– Merck Externally 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. Merck Externally can take advantage of this fund but it will also bring new competitors in the Innovation & Entrepreneurship industry.
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. Merck Externally 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 Merck Externally is facing in Innovation & Entrepreneurship sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
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 Merck Externally.
Easy access to finance
– Easy access to finance in Innovation & Entrepreneurship field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Merck Externally 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
– Merck Externally has witnessed rapid integration of technology during Covid-19 in the Innovation & Entrepreneurship industry. As one of the leading players in the industry, Merck Externally needs to keep up with the evolution of technology in the Innovation & Entrepreneurship 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.
Increasing wage structure of Merck Externally
– 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 Merck Externally.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Merck Externally with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Stagnating economy with rate increase
– Merck Externally 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.
Weighted SWOT Analysis of Merck (in 2009): Open for Innovation? 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 (in 2009): Open for Innovation? 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 (in 2009): Open for Innovation? 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 (in 2009): Open for Innovation? 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 (in 2009): Open for Innovation? 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 Merck Externally needs to make to build a sustainable competitive advantage.
