Chapter 11 Organizational Structure

     Many major companies can be structured in three different ways; functional structure, multidivisional structure, or matrix structure.  Merck is organized as a multidivisional structure which is organized around product or geographic markets and are often self-sufficient in terms of functional expertise.

   Above shows a organizational chart of Merck.  Here is the link because the picture is very hard to see, Chart.  When you click on the link you can see everyone reports to the CEO and the people right below him are the presidents in their respective divisions such as animal health, emerging markets, etc..  I believe that this type of structure is the best for Merck over the others because the amount of employees it has.With close to 90,000 people working for the company and multiple divisions within the company this structure provides the best functionality.  All these different division really do not need to interact with each other because they are basically a small company within itself so their is no point in having your boss having nothing to do with your job description.  I know a person that works in Memphis for Merck, but his boss is in New Jersey; this is because he is in a division is located in New Jersey.  This is fine because of technology advances and  his job title can be done anywhere in the USA.

Chapter 12 New Ventures And Corporate Renewal

     These two definitions can definitely be confused with each other.  A new venture is the creation of a new business from scratch; where corporate renewal is the outcome of successful strategic change in the context of an established business. At one point every company had to start out as a new venture and Merck is no exception.

     The first step in any new venture is finding that niche in the market that has not been explored yet or needs redefining.  So for a company like Merck and a lot of their profits being in the pharmaceutical side they would want to design a new drug or redesign an old one to keep profits high. So, of course getting those inital investments to research a new drug are never a problem because of the profits Merck pulls in.  Once the clinical studies are done and all the testing is complete which can take years the profits will start to roll in.  Some of best ventures that Merck has done are Singuliar, profits around $10.4 billion, Januvia, profits around $7 billion, and Coppertone, profits near $3 billion.

Source

Profits

Chapter 10 Mergers And Acquisitons

     Chapter 10 the books talks about acquisitions and mergers.  The difference between the two is that an acquisition is the transfer of ownership through stock purchase or exchange and merger is the consolidation or combination of one firm with another.  Merck being the multi-billion dollar company it is has definitely made it share of acquisition the past 10-20 years and then they turn that acquisition into a merger.

     The biggest acquisition that Merck has had in the past few years is acquiring Schering-Plough in late 2009 for roughly $41 billion dollars and stock.  So why buy another major company, well as I have mentioned in many previous blog posts Merck wanted a certain product or products that Schering-Ploug was producing in R&D.  The main drug the company was producing was vorapaxar.  This particular drug which is found in magnolia trees is suppose to help with blood thinning.  Schering-Ploug also provided Merck with Coppertone and Dr. Scholl's as well as better global reach.  About 70% of Schering's revenue comes from outside the United States. 

     As I have done my research on Merck, they have continuously bought up smaller companies for around $500 million or less just to take advantage of a particular drug or two that is ready to go on the market and make money.  When you have close to $40 billion in revenue for a year, $500 million is only about 2% of its annual revenue. 

Source

Acquisition

Chapter 9 Understanding Alliances

     So why would a company enter an alliance with another company?  In many instances companies align strategies because with two or more firms combining resources and capabilities in order to enhance the competitive advantage of all parties.          

     Merck has many alliances with smaller companies in which Merck takes a greater responsibility, this qualifies as an equity alliance.  A bigger strategic alliance in which Merck partnered with is PAREXEL International Corporation.  The partnership provide strategic access to global clinical development services for designated biosimilar candidates to Merck BioVentures. So, in English the job of PAREXEL is for their organziation is to help expedite time to market products for Merck BioVentures. I think the easiest way to see if these two oraganization were successful are stock prices because they are both publically traded companies.
     When the press release came out in January 12, 2011 the stock price of Merck(MRK) was 37.15 per share with the volume at 12,888,900 and today, June 25, 2013 the stock is 46.41 and shares are 18,080, 700.  PAREXEL(PRXL) stock price was 20.45 and the share volume was 946,100 volume.  Today, June 24, 2013 the stock price is now 48.56 and the volume is 684, 300.
     After a quick glance the stock prices went up for both Merck, up $9.26, and PAREXEL, up $28.11.  Of course this alliance is not the only reason that both companies stock prices went up , but with a quick glance I have to say this partnership was and still is a total success.

Source
PAREXEL Partnership

Chapter 8 International Strategies

     International strategy is how a company approaches business activities outside its borders and how it will do in the future.  So why would a company want to go international, well think the answer is easy, money.  A company is going to reach its peak revenue at some point.  A prime example of this is the NFL.  With revenue in the billions of dollars, but Super Bowl numbers really starting to level off in the United States the only way to expand is international.  That is why you see the NFL starting to play game in London and talking about having a team in Europe. 

     Merck is definitely an already international company as of 2010 the US company has around 55,000 employees in 120 countries with 31 factories worldwide.  Merck produces a lot of its raw materials in foreign countries then ships those plants to factories to turn into pharmaceutical drugs. They do this because of the cost benefit and will profits becoming harder to come by a company is willing to take whatever steps it can to keep those profits high. An international project that Merck works on is fighting counterfeit medicine, an international task force estimates that up to 30% of all medicine are counterfeit.  Many of these drugs can be deadly because the the dosage amounts greatly vary between pills.  A person can easily overdose on these types of drugs.  Merck has developed a machine called the Minilab, which can detect counterfeit medicines quickly, easily, and reliably.


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Fighting Counterfeit

Chapter 7 Diversification

     Diversification is the degree in which a firm conducts business in more than one arena. As I have mentioned in a previous blog post Merck is in many different areas of business which are pharmaceutical, life science tools, animal health, and specialty chemicals. Having Merck in these four different areas allows the company to have success in each area or if one area has a few bad quarters they can offset than by positives quarters in the other areas.

     I think we have all heard the saying don't put all your eggs in one basket and that saying fits perfectly with what diversification is not.  In 2010, the pharmaceutical accounted for nearly 90% of all revenue with animal health, consumer care, and specialty chemicals accounting for the other 10%.  Now that may sound like didn't follow the diversification method, but if you dig deeper you can see they did. Since Merck is an international company not all sales come from one place with 44% of revenue from US, 29% in Europe/Middle East/Africa, 8% in Japan, and 18% in emerging markets.  Since each region has different requirements for pharmaceutical sales, not all eggs are in one basket.

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Revenue

Chapter 6 Dynamic Strategy

     Chapter 6 talks about maintaining your competitive advantage in the face of dynamic conditions.  A company must be willing to change over the span of time or at the drop of a hat.  A great example would be a gas station, say your competitor drops his/her gas 3¢ per gallon, now you would start freaking out because people love the cheapest gas.  So, of course now you are going to drop your gas down the same price to make sure your competitor does not gain a competitive advantage.  These are definitely dynamic conditions because you have to think quickly or could lose out of thousands of dollars of potential profit.  

     Having researched Merck for the past few weeks, I feel like their biggest challenge is whether to be a first mover or fast follower.  In the pharmaceutical industry many of times you want to be the first mover which is a firm choosing to initiate a strategic action, whether the intro of a new product or service.  As I have mentioned numerous times in previous blogs; when a company such as Merck gets so far along in its clinical trials/data and it believes it can take this product to the market it will patent the product.  This gives the company 20 years of using that formula for the drug without another company stealing it.  Being the first mover for this allergy drug has made Merck around $55-60 billion dollars in sales.  So, where does Merck go as a company from here to be another first mover.  Well, in my opinion they already are on their way, with Lambrolizumab.  I believe with the rise of tanning beds and teenagers/young adults thinking they need all this sun to look good, their will be a rise in melanoma cancer in the next few decades. With Merck already in the early stages of clinical trials with great success Lambrolizumab will be the next money maker.  So, in the pharmaceutical industry I definitely think you need to be the first mover and now a fast follower.