Merck (MERK) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for Merck (Indonesia)

Based on various researches at Oak Spring University , Merck is operating in a macro-environment that has been destablized by – digital marketing is dominated by two big players Facebook and Google, central banks are concerned over increasing inflation, supply chains are disrupted by pandemic , increasing household debt because of falling income levels, competitive advantages are harder to sustain because of technology dispersion, talent flight as more people leaving formal jobs, cloud computing is disrupting traditional business models, there is backlash against globalization, increasing transportation and logistics costs, etc

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Introduction to SWOT Analysis of Merck

SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Merck can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Merck, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which 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.

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SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix

SWOT analysis of Merck can be done for the following purposes –
1. Strategic planning of Merck
2. Improving business portfolio management of Merck
3. Assessing feasibility of the new initiative in Indonesia
4. Making a Major Drugs sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Merck

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Strengths of Merck | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The strengths of Merck are -

Low bargaining power of suppliers

– Suppliers of Merck in the Healthcare sector have low bargaining power. Merck has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Merck to manage not only supply disruptions but also source products at highly competitive prices.

Training and development

– Merck has one of the best training and development program in Healthcare industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.

High switching costs

– The high switching costs that 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.

Highly skilled collaborators

– Merck has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Major Drugs industry. Secondly the value chain collaborators of Merck have helped the firm to develop new products and bring them quickly to the marketplace.

Effective Research and Development (R&D)

– Merck has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Merck staying ahead in the Major Drugs industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.

Learning organization

- 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 Merck is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Merck emphasize – knowledge, initiative, and innovation.

Diverse revenue streams

– Merck is present in almost all the verticals within the Major Drugs industry. This has provided Merck 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 of Merck comprises – understanding the underlying the factors in the Major Drugs industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.

Ability to lead change in Major Drugs

– Merck is one of the leading players in the Major Drugs industry in Indonesia. Over the years it has not only transformed the business landscape in the Major Drugs industry in Indonesia but also across the existing markets. The ability to lead change has enabled Merck in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.

Innovation driven organization

– Merck is one of the most innovative firm in Major Drugs sector.

Analytics focus

– Merck 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 Major Drugs industry. The technology infrastructure of Indonesia is also helping 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 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.

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Weaknesses of Merck | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The weaknesses of Merck are -

Employees’ less understanding of Merck strategy

– From the outside it seems that the employees of Merck 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.

Slow to strategic competitive environment developments

– As Merck is one of the leading players in the Major Drugs industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Major Drugs industry in last five years.

Lack of clear differentiation of Merck products

– To increase the profitability and margins on the products, Merck needs to provide more differentiated products than what it is currently offering in the marketplace.

Slow to harness new channels of communication

– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Merck is slow explore the new channels of communication. These new channels of communication can help Merck to provide better information regarding Major Drugs products and services. It can also build an online community to further reach out to potential customers.

High dependence on Merck ‘s star products

– The top 2 products and services of Merck still accounts for major business revenue. This dependence on star products in Major Drugs industry has resulted into insufficient focus on developing new products, even though Merck has relatively successful track record of launching new products.

Ability to respond to the competition

– As the decision making is very deliberative at Merck, in the dynamic environment of Major Drugs industry it has struggled to respond to the nimble upstart competition. Merck has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.

No frontier risks strategy

– From the 10K / annual statement of Merck, it seems that company is thinking out the frontier risks that can impact Major Drugs industry. 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.

Low market penetration in new markets

– Outside its home market of Indonesia, Merck needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.

Workers concerns about automation

– As automation is fast increasing in the Major Drugs industry, Merck needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.

Slow decision making process

– As mentioned earlier in the report, 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 Major Drugs industry over the last five years. 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 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 supply chain. Even after few cautionary changes, Merck is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Merck vulnerable to further global disruptions in South East Asia.

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Merck Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The opportunities of Merck are -

Manufacturing automation

– Merck can use the latest technology developments to improve its manufacturing and designing process in Major Drugs sector. 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 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.

Finding new ways to collaborate

– Covid-19 has not only transformed business models of companies in Major Drugs industry, but it has also influenced the consumer preferences. Merck can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.

Harnessing reconfiguration of the global supply chains

– As the trade war between US and China heats up in the coming years, 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 Merck 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 in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Major Drugs industry, and it will provide faster access to the consumers.

Use of Bitcoin and other crypto currencies for transactions in Major Drugs industry

– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Merck in the Major Drugs industry. Now 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, Merck can use these opportunities to build new business models that can help the communities that Merck operates in. Secondly it can use opportunities from government spending in Major Drugs sector.

Leveraging digital technologies

– Merck can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.

Remote work and new talent hiring opportunities

– The widespread usage of remote working technologies during Covid-19 has opened opportunities for 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 Merck to hire the very best people irrespective of their geographical location.

Low interest rates

– Even though inflation is raising its head in most developed economies, 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.

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 can explore opportunities that can attract volunteers and are consistent with its mission and vision.

Using analytics as competitive advantage

– Merck has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Major Drugs sector. This continuous investment in analytics has enabled Merck to build a competitive advantage using analytics. The analytics driven competitive advantage can help Merck to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.

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 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.

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Threats Merck External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The threats of Merck are -

Environmental challenges

– 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. Merck can take advantage of this fund but it will also bring new competitors in the Major Drugs industry.

Learning curve for new practices

– As the technology based on artificial intelligence and machine learning platform is getting complex, 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 Major Drugs sector.

Stagnating economy with rate increase

– Merck can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the Major Drugs industry.

Barriers of entry lowering

– As technology is more democratized, the barriers to entry to Major Drugs industry are lowering. It can presents Merck with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Major Drugs sector.

Increasing international competition and downward pressure on margins

– Apart from technology driven competitive advantage dilution, 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 Merck prominent markets.

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.

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.

High dependence on third party suppliers

– 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.

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.

Technology acceleration in Forth Industrial Revolution

– Merck has witnessed rapid integration of technology during Covid-19 in the Major Drugs industry. As one of the leading players in the industry, Merck needs to keep up with the evolution of technology in the Major Drugs 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.

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 in the Major Drugs sector and impact the bottomline of the organization.

Consumer confidence and its impact on Merck 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 Major Drugs industry and other sectors.

Increasing wage structure of 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 Merck.

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Weighted SWOT Analysis of Merck Template, Example

Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Merck 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 Merck 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 Merck 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 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 needs to make to build a sustainable competitive advantage.

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