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

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for Merck (Italy)

Based on various researches at Oak Spring University , Merck is operating in a macro-environment that has been destablized by – increasing household debt because of falling income levels, increasing inequality as vast percentage of new income is going to the top 1%, increasing transportation and logistics costs, technology disruption, cloud computing is disrupting traditional business models, talent flight as more people leaving formal jobs, central banks are concerned over increasing inflation, banking and financial system is disrupted by Bitcoin and other crypto currencies, geopolitical disruptions, etc

---

---

---

---

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.

---

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 Italy
4. Making a Major Drugs sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Merck

---

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

The strengths of Merck are -

Ability to lead change in Major Drugs

– Merck is one of the leading players in the Major Drugs industry in Italy. Over the years it has not only transformed the business landscape in the Major Drugs industry in Italy 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.

Organizational Resilience of Merck

– The covid-19 pandemic has put organizational resilience at the centre of everthing Merck does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.

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.

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.

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.

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.

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.

Sustainable margins compare to other players in Major Drugs industry

– Merck has clearly differentiated products in the market place. This has enabled Merck to fetch slight price premium compare to the competitors in the Major Drugs industry. The sustainable margins have also helped Merck to invest into research and development (R&D) 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.

Innovation driven organization

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

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.

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.

---

---

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

The weaknesses of Merck are -

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.

Low market penetration in new markets

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

High bargaining power of channel partners in Major Drugs industry

– because of the regulatory requirements in Italy, Merck is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the Major Drugs industry.

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.

High cash cycle compare to competitors

Merck has a high cash cycle compare to other players in the Major Drugs industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.

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.

Capital Spending Reduction

– Even during the low interest decade, Merck 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 Major Drugs industry using digital technology.

Increasing silos among functional specialists

– The organizational structure of Merck is dominated by functional specialists. It is not different from other players in the Major Drugs industry, but Merck needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Merck to focus more on services in the Major Drugs industry rather than just following the product oriented approach.

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.

Need for greater diversity

– Merck 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.

Products dominated business model

– Even though Merck has some of the most successful models in the Major Drugs industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. Merck should strive to include more intangible value offerings along with its core products and services.

---

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

The opportunities of Merck are -

Learning at scale

– Online learning technologies has now opened space for Merck 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.

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.

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.

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.

Building a culture of innovation

– managers at Merck can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Major Drugs industry.

Redefining models of collaboration and team work

– As explained in the weaknesses section, Merck is facing challenges because of the dominance of functional experts in the organization. Merck can utilize new technology in the field of Major Drugs industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.

Reforming the budgeting process

- By establishing new metrics that will be used to evaluate both existing and potential projects Merck can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.

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.

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.

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.

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.

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.

---

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

The threats of Merck are -

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 business can come under increasing regulations regarding data privacy, data security, etc.

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.

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 needs to understand the core reasons impacting the Major Drugs industry. This will help it in building a better workplace.

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.

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.

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.

Easy access to finance

– Easy access to finance in Major Drugs industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Merck can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.

Instability in the European markets

– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Merck will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.

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.

Regulatory challenges

– Merck needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Major Drugs industry regulations.

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.

Shortening product life cycle

– it is one of the major threat that Merck is facing in Major Drugs sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.

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.

---

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.

--- ---