The protagonists of the case are CEO Kenneth Frazier and Roger Perlmutter, president of research, as they contemplate Merck's future in light of a difficult external environment and multiple internal challenges. Overall, the pharmaceutical industry faces the threat of patent expirations, diminishing new drug breakthroughs, adverse regulatory laws, increasing competition, and a harsh economic climate. 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 percent of the biomedical research in the world. Thousands of new ideas were emerging around the world, both inside and outside of the company. While Merck had been moving toward an open innovation strategy, its stellar history of internal research and development had created a culture resilient to working externally. Should Merck pursue an open innovation strategy? If so, how? Another issue that the case deals with is executing corporate strategy via acquisitions of smaller biotech companies such as Merck's recent acquisition of Idenix.
Swot Analysis of "Merck & Co., Inc." written by Frank T. Rothaermel includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Merck Merck's facing as an external strategic factors. Some of the topics covered in Merck & Co., Inc. case study are - Strategic Management Strategies, and Innovation & Entrepreneurship.
Some of the macro environment factors that can be used to understand the Merck & Co., Inc. casestudy better are - – increasing commodity prices, increasing government debt because of Covid-19 spendings, talent flight as more people leaving formal jobs, geopolitical disruptions, wage bills are increasing, banking and financial system is disrupted by Bitcoin and other crypto currencies, customer relationship management is fast transforming because of increasing concerns over data privacy,
there is backlash against globalization, competitive advantages are harder to sustain because of technology dispersion, etc
Introduction to SWOT Analysis of Merck & Co., Inc.
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Merck & Co., Inc. case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Merck Merck's, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Merck Merck's 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 & Co., Inc. can be done for the following purposes –
1. Strategic planning using facts provided in Merck & Co., Inc. case study
2. Improving business portfolio management of Merck Merck's
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 Merck's
Strengths Merck & Co., Inc. | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Merck Merck's in Merck & Co., Inc. Harvard Business Review case study are -
Organizational Resilience of Merck Merck's
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Merck Merck's does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
High switching costs
– The high switching costs that Merck Merck's 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.
High brand equity
– Merck Merck's has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Merck Merck's to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Diverse revenue streams
– Merck Merck's is present in almost all the verticals within the industry. This has provided firm in Merck & Co., Inc. 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.
Operational resilience
– The operational resilience strategy in the Merck & Co., Inc. 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.
Successful track record of launching new products
– Merck Merck's has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Merck Merck's 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.
Innovation driven organization
– Merck Merck's is one of the most innovative firm in sector. Manager in Merck & Co., Inc. Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Cross disciplinary teams
– Horizontal connected teams at the Merck Merck's 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.
Digital Transformation in Innovation & Entrepreneurship segment
- digital transformation varies from industry to industry. For Merck Merck's digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Merck Merck's 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.
Training and development
– Merck Merck's has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Merck & Co., Inc. 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.
Learning organization
- Merck Merck's 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 Merck Merck's is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Merck & Co., Inc. Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Ability to lead change in Innovation & Entrepreneurship field
– Merck Merck's 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 Merck's in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Weaknesses Merck & Co., Inc. | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Merck & Co., Inc. are -
Workers concerns about automation
– As automation is fast increasing in the segment, Merck Merck's 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.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Merck & Co., Inc., it seems that the employees of Merck Merck's don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Merck & Co., Inc., in the dynamic environment Merck Merck's has struggled to respond to the nimble upstart competition. Merck Merck's 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 & Co., Inc. 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 Merck's 's lucrative customers.
Capital Spending Reduction
– Even during the low interest decade, Merck Merck's 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 cash cycle compare to competitors
Merck Merck's 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 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 Merck Merck's supply chain. Even after few cautionary changes mentioned in the HBR case study - Merck & Co., Inc., it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Merck Merck's vulnerable to further global disruptions in South East Asia.
Slow decision making process
– As mentioned earlier in the report, Merck Merck's 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. Merck Merck's 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.
No frontier risks strategy
– After analyzing the HBR case study Merck & Co., Inc., 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.
Skills based hiring
– The stress on hiring functional specialists at Merck Merck's 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.
Lack of clear differentiation of Merck Merck's products
– To increase the profitability and margins on the products, Merck Merck's needs to provide more differentiated products than what it is currently offering in the marketplace.
Opportunities Merck & Co., Inc. | 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 & Co., Inc. are -
Learning at scale
– Online learning technologies has now opened space for Merck Merck's 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.
Creating value in data economy
– The success of analytics program of Merck Merck's has opened avenues for new revenue streams for the organization in the industry. This can help Merck Merck's to build a more holistic ecosystem as suggested in the Merck & Co., Inc. case study. Merck Merck's can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
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 Merck's can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Merck Merck's 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 & Co., Inc., to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Merck Merck's in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Innovation & Entrepreneurship segment, and it will provide faster access to the consumers.
Leveraging digital technologies
– Merck Merck's 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Merck Merck's can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Using analytics as competitive advantage
– Merck Merck's 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 & Co., Inc. - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Merck Merck's to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Buying journey improvements
– Merck Merck's can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Merck & Co., Inc. 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Merck Merck's 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.
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 Merck's in the consumer business. Now Merck Merck's can target international markets with far fewer capital restrictions requirements than the existing system.
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 Merck's 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.
Manufacturing automation
– Merck Merck's 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.
Threats Merck & Co., Inc. External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Merck & Co., Inc. are -
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 Merck's needs to understand the core reasons impacting the Innovation & Entrepreneurship industry. This will help it in building a better workplace.
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 Merck's 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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Merck Merck's 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 & Co., Inc. .
Regulatory challenges
– Merck Merck's 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.
Shortening product life cycle
– it is one of the major threat that Merck Merck's is facing in Innovation & Entrepreneurship sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Merck Merck's 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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Merck Merck's with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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 Merck's in the Innovation & Entrepreneurship sector and impact the bottomline of the organization.
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 & Co., Inc., Merck Merck's may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Innovation & Entrepreneurship .
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 Merck's.
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 Merck's business can come under increasing regulations regarding data privacy, data security, 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.
Consumer confidence and its impact on Merck Merck's 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 & Co., Inc. 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 & Co., Inc. 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 & Co., Inc. 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 & Co., Inc. 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 & Co., Inc. 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 Merck's needs to make to build a sustainable competitive advantage.