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.


Source
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.

Source
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. 

Chapter 5 Creating Business Strategies

     In this chapter the book talks about strategic positioning.  Strategic positioning is how a company should reduce the effects of rivalry and thus will improve profitability. As I have mentioned in my previous blog posts the rivals of Merck are Pfizer, GlaxoSmithkline, and Novartis.  As you can see in this chart from Yahoo, Chart, many of the competitors are close in revenue and employees.  So, how does a company like Merck separate itself and increase profits. 

     The way that Merck is able to separate itself is developing a new drug that sweeps the market.  It is not rocket science in the pharmaceutical industry; each company is developing new drugs for allergies, cancer detection, common cold, joint pain, depression, etc..  Of course there is going to be overlap in this industry, but you have to remember once a company in the process of developing a drug, they request a patent on the product and no one else can make it for 20 years.  Merck's Singulair, which is an allergy drug was one of their top money makers and the patent just recently expired.  Now, they are developing a drug called, lambrolizumab.  This drug will help cancer cells be detected by the body's immune system, that are sometimes avoided. As you can see, if this drug gets far enough into clinical studies and is patented Merck could have its next winner in terms of profits and avoid the effects of its rivals. 

Source

Lambrolizumab

Chapter 4 External Environment

     This chapter discusses a companies external environment in which is can provide many business opportunities and also business threats.  The book then talks about how a company can use the SWOT analysis.  Which you have seen before is, strength, weaknesses, opportunities, and threats. This is a very easy tool for a company to use to see where they stand and where they need to improve.  I am going to talk about Michael Porter's five-forces model, which determines the basic structure of an industry and how they relate to Merck.

     First is rivalry, which is intensity of competition within an industry. For many years Merck's rivals were Pfizer, GlaxoSmithkline, and Novartis.  They would compete against each other to see how could get out new drugs the fastest and then would hold that patent for 20 years so competing companies could not produce a similar drug.  In the past few years though these companies have started to work together, to develop new drugs. I would say the rivalries between companies was fierce, but not on the same level as a Coke/Pepsi.

     Next is threat of entry and exit barriers.  These mean how easy a company can enter into the industry, compete in that industry, and if needed to exit the industry would it be possible without a high cost. I do not believe that Merck has to worry about new rivals, getting into a new venture, or exiting a particular drug area.  Merck is considered one the big drug companies so if a new up and coming company started to compete, Merck could just buy the company and add it to its portfolio.  Merck has many of times exited a venture when a drug did not get approved by the FDA.  Of course it could cost millions upon millions of dollars, but Merck is such a large company it does not affect its bottom line too much.

     Supplier power is the third leg in Porter's model. Merck has great supplier power because they have a decent amount of control in the pharmaceutical market. Since Merck does have its own plants in which they develop for drugs, they really do not need outside suppliers.  These suppliers know this so if Merck wants to do business with them, Merck already has the edge because the supplier need Merck more than Merck needs the supplier.

     Buyer power is the fourth aspect in Porter's model.  Merck also has great control in this market. If a company is does not want to negotiate with Merck, then Merck will  somewhere else.  This could shut the plant down, and even destroy a whole town.

     The last is in Porter's model is threat of substitutes.  This is the area where Merck is most vulnerable especially in the area of expiration of patents.   A pharmaceutical patent lasts 20 years if no changes are done to a drug.  Merck's asthma and allergy drug, Singulair, patent expired in in August 3, 2012 and over the past year Merck lost 75% of its sales to a generic drug. Now, Merck has to develop new drugs to offset the losts of Singular sales.

Chapter 3 Competitive Advantage

     Competitive advantage can be looked at by two different models and in simplest terms they are, resource and capabilities and what actives firms choose to engage in.  I am going to discuss resources is this blog post. Resources are inputs used by firms to create products and services.  It can then be split up into tangible and intangible resources and for this blog post I am going to focus on tangible resources

     When you think of a tangible resource, you think of something you can reach out and touch such as cash, employees, product, and real estate.  The two that stick out to me are cash and employees. Merck is had a cash flow of $5.8 billion dollars in 2011 and $2.8 billion in 2012, after paying $1.3 billion in pensions and $960 million in legal settlements. With that kind of cash and Merck in the process of buying back close to $16 billion dollars back in stock, the company has an advantage over the many other pharmaceutical companies.  Merck is able to spend more money on research and development, as well as enhancing the current product line.
   
     The next advantage that Merck has is its employees, for any company to succeed you need employees to be willing to innovate, work hard, and enjoy what they do.  So, how does Merck and its 86, 000 employees maintain a competitive advantage over its competitors; to me the answer is autonomy. Autonomy, is how much freedom one has at their job and usually with more autonomy employees get a greater sense of responsibility. One way that Merck's accomplishes this is employees in certain fields can get a $500k-$1 million grant to do research without someone blinking an eye. Another way is summer hours.  I know that might seem crazy, but for a company to give you shorter hours on a Friday to spend with your family is huge in employees eyes. Merck, also has bonuses at the end of each year and they depends on your ranking in the company and revenue earned that year.  Who doesn't love a check for thousands of dollars each year for doing good work?  Lastly, to keep Merck's employees staying with Merck is that they offer restricted stock units in which they see earnings after three years.

     These are just two of the ways that Merck keeps their employees in-house and maintain a competitive advantage over its competitors.

Sources
Cash Flow

Chapter 2 Vision and Mission

In Chapter 2 the book talks about the companies vision and mission.  A vision is an understanding of what the firm will be in the future.  Mission is what the company stands for, its values and purpose.  Working together, a vision and mission tells people about the firm's identity and future goals, but also gives employees a direction in which the company is headed. 

Merck's mission statement is broken into three parts.

Our aspiration is to make great things happen. 

With our research-driven specialty businesses, we help patients, customers, partners and our communities around the world to live a better life. 

We deliver entrepreneurial success through innovation. 

The first sentence talks about how Merck does not want to be an average company; they want to always be improving as a company.  This means for their shareholders, customers, and employees.  The second sentence defines what Merck will be doing as a company.  Since, they work in a specialty business, Merck wants to maintain a high level of quality for their customers, alliances, and communities the companies work in.  The last sentence talks about continuing to innovate products and services to continue long-term, profitable growth. 

Source

Mission Statement

Chapter 1 Merck's Strategic Management

My name is Brandon Judy, and I am a senior at the University of Memphis, majoring in supply chain management. I chose Merck as my company because the pharmaceutical industry intrigues me, and this is an opportunity for me to learn more about one of the major companies in the industry.

Merck & Co. is a healthcare company that is #57 on the Forbes 500. They design and deliver consumer products, vaccines, prescription medicines and animal health products.  Merck first opened its production facility in Berlin, Germany in 1851 with the founder being Dr. Ernst Christian Fiedrich.  Then, in 1891, Merck opened its first plant in the United States.  Merck's headquarters are currently located in Whitehouse Station, New Jersey and they also have another facility in Memphis, Tennessee. Merck & Co. had a revenue stream of $47.3 billion dollars with them spending $7.9 billion on research and development.

Strategy means how a company will achieve its goals and objectives. When you think of a company like Merck, they do that by designing breakthrough medicines and drugs that will help human and animal patients cure/prevent diseases and extend their lives.  So, many of Merck's strategies are based off of continuing a certain drugs research or canceling it and wasting millions and years of research on that particular drug. Merck has six strategies as a business and they are:

1.  Remain the specialty markets of pharmaceuticals, life science tools and specialty chemicals.

2.  Continue to improve on the foundations of Merck's success.

3.  Gain future growth in the emerging markets.

4.  Use the mega-trends that will influence our society, such as the growing middle class and ways of  working, to our advantage.

5.  Continues to develop and refocus on our business platforms.

6.   Aim to strengthen our winning culture, build up talent base and optimize systems and processes.

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History
Strategies

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