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 - – increasing energy prices, digital marketing is dominated by two big players Facebook and Google, increasing transportation and logistics costs, increasing household debt because of falling income levels, central banks are concerned over increasing inflation, geopolitical disruptions, competitive advantages are harder to sustain because of technology dispersion,
challanges to central banks by blockchain based private currencies, customer relationship management is fast transforming because of increasing concerns over data privacy, 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 -
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.
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.
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.
Digital Transformation in Innovation & Entrepreneurship segment
- digital transformation varies from industry to industry. For Merck Externally digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Merck Externally 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.
High switching costs
– The high switching costs that Merck Externally 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.
Highly skilled collaborators
– Merck Externally 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 (in 2009): Open for Innovation? HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
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.
Ability to lead change in Innovation & Entrepreneurship field
– Merck Externally 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 Merck Externally in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
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.
Operational resilience
– The operational resilience strategy in the Merck (in 2009): Open for Innovation? 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.
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.
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 -
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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Merck Externally is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Merck (in 2009): Open for Innovation? can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
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.
Aligning sales with marketing
– It come across in the case study Merck (in 2009): Open for Innovation? 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 (in 2009): Open for Innovation? can leverage the sales team experience to cultivate customer relationships as Merck Externally is planning to shift buying processes online.
Products dominated business model
– Even though Merck Externally has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Merck (in 2009): Open for Innovation? should strive to include more intangible value offerings along with its core products and services.
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.
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.
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.
High cash cycle compare to competitors
Merck Externally 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Merck (in 2009): Open for Innovation?, in the dynamic environment Merck Externally has struggled to respond to the nimble upstart competition. Merck Externally has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
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.
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 -
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.
Manufacturing automation
– Merck Externally can use the latest technology developments to improve its manufacturing and designing process in Innovation & Entrepreneurship 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.
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.
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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Merck Externally is facing challenges because of the dominance of functional experts in the organization. Merck (in 2009): Open for Innovation? 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.
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.
Developing new processes and practices
– Merck Externally can develop new processes and procedures in Innovation & Entrepreneurship 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.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Innovation & Entrepreneurship industry, but it has also influenced the consumer preferences. Merck Externally can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Buying journey improvements
– Merck Externally can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Merck (in 2009): Open for Innovation? 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.
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.
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.
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.
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 Merck Externally 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.
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 -
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.
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 Merck Externally business can come under increasing regulations regarding data privacy, data security, etc.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Merck Externally in the Innovation & Entrepreneurship industry. The Innovation & Entrepreneurship 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.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
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.
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.
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.
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 Merck Externally in the Innovation & Entrepreneurship 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 Merck Externally with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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.
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.
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.
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.
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.