Essay - Inside Merck & Co. - Exam Case
Organizational Structure (EBP670C05)
Rijksuniversiteit Groningen
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Inside Merck & Co.
Exam Case Organisational Structure
A. Visscher
Table of Contents
Introduction
- • Introduction
- • Organizational Structure
- • Miles & Snow Strategic Types
- • Porter’s Competitive Advantage
- • Bartlett & Ghoshal
- • Strategy Improvement
- • Internal Environment
- • External Environment
- • References
In 1887, a branch of E. Merck AG of Germany was created in the U. when Theodore Weicker moved there. Weicker formed a partnership with George Merck in 1891, whose grandfather was the founder of the German company. At the beginning, Merck only sold drugs and chemicals from Germany, but since they opened their plants in 1903. One year later, Weicker left the firm. 80% of the stock which was owned by the family in Germany was given to the US government. After the WWI, these stocks were sold, setting the foundation for today’s company.
Organizational Structure Functional structure, multidivisional structure, or matrix structure are the three different pos- sibilities how major companies as Merck can be structured. The multidivisional structure is the structure which Merck applies in their company. This structure means that the company has subsidiaries all over the world, so this is organized around product or geographic markets. Some subsidiaries are even self-sufficient speaking of functional expertise.
At Merck, which is a transparent company, everyone should report to the CEO. The people with a function below the CEO are the presidents in their divisions, for instance Animal Health, Human Resources and Consumer Healthcare. As mentioned, Merck is a company that is organized around geographic markets. Merck keeps track of the total amount of revenue in each different region such as the United States itself, Europe, Middle East and Africa, Japan, Asia Pacific, Latin America and other regions. The company operates worldwide which is possible because of advanced technology.
Merck is divided in five primary divisions: Global Human Health, Animal Health, Consumer Healthcare, Merck Research Laboratories and Merck Manufacturing. Each division has its own president which is the ‘boss’ of that division. Each president informs the CEO about ac- tivities in the division. These divisions are dispersed over the whole world.
Miles and Snow Strategic types Merck is one of the global leaders in pharmaceutical products. They have a broad list of prod- ucts they sell to customers including 117 patents. These products contain Animal Healthcare products, human pharmaceutics and vaccines. Their patents enable Merck to sell their product
without the pressure of competitors, and therefore those patents are their competitive ad- vantage, which enabled them to become one of the biggest pharmaceutical companies in the world.
Because Merck relies on their patents, and therefore their R&D centre is very important. They are continuously seeking to develop new products, being ahead of competitors and also will- ing to counter global deceases. When a new product is developed, Merck asks for a patent in order to prevent competitors to copy their product. So it is very important for a company in the pharmaceutical industry like Merck to be the first mover, staying ahead of competitors, and therefore choose the proper strategy.
However, it is hard to put Merck in a box of being a prospector or an analyser as they have aspects of both strategies. Of course, Merck would like to be a prospector, but for a big com- pany like Merck this is impossible due to the high complexity. Nevertheless, Merck does rely on their R&D development centre as they develop the new products. Also, Merck is unable to copy product from competitors because that is impossible in the pharmaceutical world. Based on these facts it would be logic to say that Merck is a prospector However, when looking better at the specific aspects of a prospector, it becomes clear that Merck does not cover the picture. Being a prospector is seen as being aggressive, attacking new markets and react quickly to any signs of market opportunities. Also their industry would be in the growth stage of its life cycle. All these aspects do not cover Merck.
An analyzer can be characterized as being in between a defender and prospector. They tend to take fewer risks than prospectors, but are also less committed to stability than defenders. They expand in areas close to their existing markets and they hardly develop wholly new products. Merck does develop new products, but not in a new market and stays within the medicines. Merck also does not take a lot of risk as they always have a few core products that are a stable income generator due to the patent.
So looking at Merck’s strategy and trying to link it to one of the Miles and Snow’s strategies, it is hard to actually choose one because Merck has a lot of aspects of both an analyzer and prospector. However, we think Merck is an analyzer as they are a big company that protects its market instead of seeking new markets.
Porter’s competitive advantage strategies
Of course these are all strategies that are hard to execute, but this is how they plan to achieve cost leadership and maintain their position by staying ahead of competitors while still provid- ing quality. However, in the end, their most important goal is to develop products that are unique, which provide the customer from quality and reliability because eventually these ‘new’ products are necessary to gain profit in the future. The segment in which Merck operates is not price sensi- tive and the customers have specific needs that Merck tries to satisfy by being unique by us- ing their patents. That is why the differentiation strategy fits best.
Barlett & Ghoshal It is hard to say if Merck is local responsive in countries where they operate. Of course, Merck designs medicines and vaccines that cure threatening deceases, but most of the time these do not occur in companies in which they operate but in developing countries like Africa. Merck has subsidiaries all over the world, but those are not local responsive as they don’t pro- duce their own product that is only sold in that country, but Merck sells the same products all over the world. Merck does centralize its marketing and R&D activities at home in America, while all the other value creation functions are decentralized to subsidiaries all over the world. Valuable skills and products are transferred to markets where competitors lack those skills and prod- ucts. All these aspects fits the international strategy most.
Strategy Improvement Merck is a very successful company that has been one of the global pharmaceutical leaders for a long time. They have the following mission statement: “The mission of Merck is to pro- vide society with superior products and services by developing innovations and solutions that improve the quality of life and satisfy customer needs, and to provide employees with meaningful work and advancement opportunities, and investors with a superior rate of re- turn.” This, of course, is a very clear statement that shows Merck’s ideal scenario. However, they are achieving this, so it is hard to think of strategy improvements. Merck’s biggest threat is the loss of their patent protection. When this occurs, Merck will not have stable income generators and will eventually collapse. Another big threat is other com- panies. Merck tries to stay ahead of these companies by being the first mover, ensuring they
are the first to develop medicines that satisfy customer demands. However, this is getting more complex than ever as new, more complicated deceases rise and every company comes up with products to counter the decease that mostly all give the same effect. So Merck has to find another way to create an advantage towards its competitors. Achieving cost-leadership in the pharmaceutical industry is hard and often not necessary. However, there are some pro- cesses that could be less expensive. By outsourcing several logistic services and resource gathering, Merck can focus more on efficiency and eventually lower their prices. If Merck be- comes cost-leader and still keeps its image of reliable, customers will choose Merck above others. However, it is hard for us to look for opportunities as we are not involved in the phar- maceutical industry and we would have to see all processes itself to give a good advice on this subject. But if Merck is able to achieve the cost-leadership and at the same time keep being innovative and compete with others in developing new products, Merck can create another competitive advantage, one which the customer is unable to refuse.
Merck’s external strategy In order to provide a good view of the external environment of Merck we divided the an- alyzation in five different parts, namely:
- The competitive rivalry in the industry
- The threat of new entrants
- The power of suppliers
- The power of buyers
- The threat of substitutes
All these factors explained and combined will give a specific and detailed overview of Merck’s external environment.
The competitive rivalry in the industry
The power of suppliers The third aspect of the external environment to be discussed is the supplier power. Merck has great power over the suppliers because the company does have a decent amount of control in the pharmaceutical market. Because Merck has its own plants in which they are able to develop drugs, they are not really dependent of one specific sup- plier. The only thing the company need from suppliers are basic raw materials. Suppliers are aware of this, and if Merck wants to do business with them, Merck already has the advantage because the supplier need Merck more than Merck needs the supplier. This is because Merck is a big consumer of these material, so a contract with Merck means a lot for these suppliers. Whenever a supplier does not please Merck or cannot supply the plants with materials, Merck will reject the supplier and move to another one after which the original supplier will get in a lot of financial trouble.
The power of buyers The fourth aspect that determines Merck’s external environment is the power of the buyer. Merck has great control in the buyer market. If a company does not want to nego- tiate with Merck, then Merck will go somewhere else with ease because there are a lot of possible retailers for Merck. Again, when a retailer does not please Merck or does not keep themselves to rules from Merck, the pharmaceutical giant will reject the retailer and change to another one. This action could shut a whole store chain down, and even destroy a company.
The threat of substitutes The last aspect is the threat of substitutes. This is the area where the company has the most uncertainties, especially in the area of patent expiration. A pharmaceutical patent lasts about 20 years if no changes are done to a drug. Merck can live off only 1 drug with patent if this would be necessary. However if a patent expires Merck will need to un-
dergo the negative financial consequences of this. Merck's asthma and allergy drug, Sin- gulair’s patent expired in August 2012 and over the past years Merck lost 75% of its sales to a generic drug. Merck now has to invent and develop new drugs to compensate the big losses of the Singular drug sales. Concluding this, it can be said that there is al- ways a need for R&D at Merck, and that they will invest a lot in the development part of the MNE.
Merck’s internal environment Most large pharmaceutical companies like Merck are expected to innovate most of the time because these companies have the required financial needs en recourses to attract the most intelligent and brightest scientists. A consequence of this fact is that the sala- ries of the employees of pharmaceutical companies have a reputation a being lot higher then the ones of employees at other companies. As described earlier on, Merck needs be aware of possible threats and in order to do this together with the desire to create larger collaborative networks then smaller competitors, most pharmaceutical employees main- tain close ties with competing firms, regulatory agencies and academic institutions.
Bureaucracy Merck has, as it is one of the biggest pharmaceutical companies in the world, a lot of per- sonnel. In order to organize pharmaceutical personnel in large numbers, a lot of bureau- cracy is needed. Following Weber’s thoughts of bureaucracy, this means that there is a big distance between the managers and personnel as they have to maintain an imper- sonal relationship with employees. Furthermore is there a well defined formal hierarchy and there are formal written records. We have checked this hypothesis by searching for employees’ experiences online, they mark the following points:
- It is difficult to get higher up in the company, the opportunity to grow 'only occurs when the manager likes you’.
- It is difficult to speak your mind and a lot of employees are afraid to do this because of possible retaliation of management.
- It is difficult to make changes within the company.
- Things get very political as you move up in middle management.
Reference
merck/
nl.wikipedia/wiki/MSD
en.wikipedia/wiki/Merck_%26_Co.
merckresponsibility/
bjudy4710.blogspot/2013/06/chapter- 11 -organizational-structure
pharmtech/pharmtech/Manufacturing/Merck-Lays-Out-New-Manage- ment-and-Organizational-S/ArticleStandard/Article/detail/
library.corporate-ir/library/73/731/73184/items/177357/Strategy1.pdf
Essay - Inside Merck & Co. - Exam Case
Vak: Organizational Structure (EBP670C05)
Universiteit: Rijksuniversiteit Groningen
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