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Merck & Co., Inc. is a global pharmaceutical manufacturing company headquartered in Kenilworth, New Jersey, U.S.A. Merck & Co., Inc. is a publicly traded company founded in the United States in 1891 as a subsidiary of the Germany Merck (Jurich & Reiner, 2014). Since 1891, Merck & Co., Inc. has managed to expand its operations globally. Merck & Co., Inc. specializes in the production of vaccines, pharmaceutical products and animal health products. As of June 2017, Merck & Co., Inc. employed 69,000 workers globally and recorded revenue worth $39.8 billion in 2016. The business focus for Merck & Co., Inc. involves using innovative and scientific biopharmaceutical practices to provide effective pharmaceutical products that serve to improve the lives of millions of people and livestock around the world. Succeeding sections of this paper provides an analysis of Merck & Co., Inc.’s business environment and governance structures.
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Determine the impact of the company’s mission, vision, and primary stakeholders on its overall success
In 2016, Merck & Co., Inc. celebrated its 125th anniversary as one of the leading pharmaceutical manufacturers in the world (U.S. Securities and Exchange Commission, 2016). Overall success of Merck & Co., Inc. is not only evidenced by the 125 years of continued operation in the global pharmaceutical industry but also by the company’s positive financial performances as evidenced by the net income of $4.442 billion in 2015 (Merck.com, 2017). The success of Merck & Co., Inc. is attributable to its vision which says, “We are committed to being the premier, research-intensive biopharmaceutical company” (Merck.com, 2017). In 2016 alone, Merck & Co., Inc. set aside $6.8 billion for its research and development projects. Over the 125 years in operation, Merck & Co., Inc. has relied on inventiveness and scientific excellence to transform breakthrough scientific discoveries into pharmaceutical products. Thus, the passion of research-intensive excellence and inventiveness has contributed immensely to the success of Merck in the production of pharmaceutical products for diabetes, cancer and infectious diseases around the world.
Besides the vision of research-intensive biopharmaceutical production, the overall success of Merck & Co., Inc. is also attributable to the company’s mission that says, “To discover, develop and provide innovative products and services that save and improve lives around the world” (Merck.com, 2017). Merck & Co., Inc. sees itself as an organization committed to improving the wellness of not only humans but also animals around the world. Core values for Merck & Co., Inc. include ‘patients first’ and ‘innovation and scientific excellence’. In regards to the core value of ‘patients first’, Merck & Co., Inc. regards patients (both humans and animals) as its primary stakeholders; hence, the company is primarily aiming to meet the needs of the patients. The mission statement and the core values at Merck & Co., Inc. ensure that the company devotes sizable financial and human resources to treating and preventing illnesses around the world. Thus, Merck & Co., Inc.’s success is aided by its genuine desire to see a healthy world.
Analyze the five forces of competition to determine how they impact the company
Porter’s five forces of competition include industry rivalry, threats of substitutes, threats of new entrants, bargaining power of buyers, and bargaining power of suppliers. Regarding the industry rivalry, Merck & Co., Inc. operates within a highly competitive market for pharmaceutical products. Among leading rivals of Merck & Co., Inc. include Pfizer, Johnson & Johnson, and Novartis (Held, 2009). These rivals deploy immense personnel, financial and technological resources towards innovative discovery of pharmaceutical products. Therefore, Merck & Co., Inc. is facing intense competitive pressure from rivals. The intense competition threatens Merck & Co., Inc.’s global market share and revenue levels.
Regarding the threats of substitutes, Merck & Co., Inc. is struggling with the rise of generic and bio-similar pharmaceutical products. The generic availability of rival’s pharmaceutical products and vaccines means customers can switch easily from the original and expensive products offered by Merck & Co., Inc. to the cheap and generic products available in the global pharmaceutical market (Sampat & Shadlen, 2017). Thus, the presence of substitutes also threatens to lower the revenue levels for Merck & Co., Inc.
Regarding the threat of new entrants, Merck & Co., Inc. operates within a highly regulated industry. The pharmaceutical manufacturing sector has a rigorous and lengthy regulation process through a drug’s lifecycle involving patent application, market approval, and patent expiration (Jurich & Reiner, 2014). The lengthy regulation process discourages most new entrants. Also, the research-intensive nature of the pharmaceutical manufacturing sector means that new entrants must incur immense startup costs to acquire the technological infrastructure for intensive research (Ansell, 2016). Therefore, the high entry barriers into the pharmaceutical manufacturing sector mean Merck & Co., Inc. is facing limited threats from new entrants.
Regarding the bargaining power of suppliers, Merck & Co., Inc. deals with multiple suppliers for raw materials and production equipment. The pharmaceutical industry has no dominant supplier. Thus, Merck & Co., Inc. can switch easily from one supplier to another. The low bargaining power of suppliers means Merck & Co., Inc. has a bargaining advantage to safeguard its revenues and profitability.
Regarding the bargaining power of buyers, customers looking for medications for diabetes, cancer, Alzheimer’s and infectious diseases strive to find the most effective but affordable products in the pharmaceutical market (Ansell, 2016). Buyers can switch from one seller to another in the quest to find the most effective and affordable medications. Therefore, the high bargaining power of buyers puts pressure on the sustainability of Merck & Co., Inc.’s profitability.
Create a SWOT analysis for the company to determine its major strengths, weaknesses, opportunities, and threats
SWOT Analysis for Merck & Co., Inc.
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Based on the SWOT analysis, outline a strategy for the company to capitalize on its strengths and opportunities, and minimize its weaknesses and threats
Capitalizing on Strengths
Currently, Merck & Co., Inc. faces a high bargaining power among its customers because the customers are constantly looking for cheap and effective products in the market (Held, 2009). On this account, Merck & Co., Inc. should deploy its cutting-edge Research & Development resources to create cheap but effective products that attract more customers. Also, Merck & Co., Inc. should capitalize on its wide global operation base of 140 countries to deploy effective marketing initiatives; hence, gain a larger market share than its rivals.
Capitalizing on Opportunities
Merck & Co., Inc. is currently struggling with threats of substitutes, especially generic pharmaceutical products. Thus, Merck & Co., Inc. should utilize its superior Research & Development installations to create cheap but effective products that out-compete the generic products in the pharmaceutical markets (Chaturvedi, Dangayach, Sarkar, Sharma, 2017). Also, Merck & Co., Inc. should capitalize on the charitable campaigns to improve its reputation among the customers. Merck & Co., Inc. should use the charitable campaigns to offer free diagnosis and free samples of drugs; hence, attract more customers in need of free or subsidized pharmaceutical products (Sampat & Shadlen, 2017). Also, Merck & Co., Inc. can increase its customer base and market share by expanding to more nations around the world.
Merck & Co., Inc. is struggling to sustain its high profit margins amidst the intense competition within the global pharmaceutical industry. Fortunately, Merck & Co., Inc. can minimize the effects of intense rivalry through mergers and acquisitions. Merging with or acquiring potential rivals help reduce the rivalry. Also, Merck & Co., Inc. can salvage its dented reputation following the withdrawal of Rofecoxib in 2004 by using its well-resourced Research & Development sector to ascertain the safety of future pharmaceutical products; hence, avert further damages on its reputation.
Merck & Co., Inc. can respond to the threats of technological obsolesce by leasing equipment instead of purchasing them. Replacing obsolete technologies is often costly, especially when the fast evolution of pharmaceutical manufacturing technologies threatens to render technologies obsolete within record short times (Held, 2009). Fortunately, leasing technologies from manufacturers allows Merck & Co., Inc. to flexibly replace the leased technologies in cases of obsolesce.
Also, Merck & Co., Inc. can respond to the unpredictable government regulations by remaining up-to-date with proposed policy measures. Government regulations often take several months or even years before they become effective (Chaturvedi et al., 2017). Therefore, Merck & Co., Inc. should always anticipate new regulations and make necessary changes to avoid the penalties of non-compliance with emerging regulations.
Discuss the various levels and types of strategies the firm may use to maximize its competitiveness and profitability
In 2013 and 2014, Merck & Co., Inc. recorded revenues worth $44.26 billion and $42.23 billion respectively. In 2015 and 2016, Merck & Co., Inc.’s revenues dropped to $39.49 billion and $39.8 billion respectively. The apparent decline in the revenue levels and subsequently the profitability of Merck & Co., Inc. was attributable to two factors including loss of exclusive markets to competitors and temporary production shutdowns occasioned by technological inefficiencies.
Loss of exclusive markets to competitors means that rivals were offering cheaper pharmaceutical products compared to the products offered by Merck & Co., Inc. In this context, Merck & Co., Inc. can recover its lost market by driving down its costs of production to allow for competitive pricing of its pharmaceutical products. Driving down costs of production may require outsourcing of cumbersome production stages to other able companies in the global pharmaceutical industry (Jurich & Reiner, 2014). Merck & Co., Inc. should outsource the processing and value addition of raw materials to eliminate unnecessary strains on its production lines. On the other hand, production shutdowns caused by technological inefficiencies can be addressed through attraction and retention of talented engineers to enhance effective maintenance of production lines.
The decreasing revenues at Merck & Co., Inc. were also attributable to diminishing competitive advantage of the company in the global pharmaceutical industry. Fortunately, Merck & Co., Inc. can improve its competitiveness through the training and development of its personnel. The Research and Development department at Merck & Co., Inc. is central to the ability of the company to discover and develop innovative products that appeal most to customers, regardless of the presence of similar products and generics from rivals. In this regard, Merck & Co., Inc. should augment the productivity of its employees, particularly the researchers working in the R&D projects, to increase the chances of realizing scientific breakthroughs. The training and development of personnel should not only focus on scientific excellence but also on economic utilization of recourses to facilitate the discovery and development of cheap but affective pharmaceutical products.
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Outline a communications plan the company could use to make the strategies you recommend above known to all stakeholders
Major stakeholders for Merck & Co., Inc. include customers, employees, government regulatory agencies, and suppliers (Merck.com, 2017). Merck & Co., Inc. should utilize meetings to communicate to the employees about the training and development programs intended to improve the productivity of the company’s workforce. The competitiveness steering committee at Merck & Co., Inc. should schedule for periodic departmental meetings at workplaces to brief the employees on the need for training and development, plus the eligibility requirements and expectations of the training program.
Customers will be notified about the upcoming cheap and effective pharmaceutical products through periodic newsletters and television advertisements. Merck & Co., Inc. currently serves customers in 140 countries around the world (Jurich & Reiner, 2014). Thus, Merck & Co., Inc. should engage the services of an advertisement agency to create and deliver messages related to upcoming products from Merck & Co., Inc.’s R&D initiatives that factor in the effectiveness and affordability needs of customer globally.
Also, Merck & Co., Inc. should notify government regulatory agencies about the need to speed up testing and approval of new pharmaceutical products to shorten the time before the products are released to consumers. Merck & Co., Inc. will ask the government agencies to take part throughout the course of a drug’s development to improve the agencies’ confidence on a new drug; hence, speed up the process of approval. Merck & Co., Inc. will notify the government agencies through formal letters and electronic mails.
Lastly, Merck & Co., Inc. must notify suppliers of contractual services about the company’s need to subcontract specific tasks. Similarly, Merck & Co., Inc. should notify human resources agencies to supply talented engineers to manage its production lines; hence, avoid shutdowns occasioned by technological inefficiencies. Both the subcontractors and the human resources recruitment agencies will be notified through newspaper advertisements and through formal letters and phone calls. Messages targeting all the stakeholders must be intended to inform each stakeholder about its role in the implementation of strategies to enhance the company’s competitiveness and profitability.
Select two corporate governance mechanisms used by this corporation and evaluate how effective they are at controlling managerial actions
Merck & Co., Inc. utilizes both internal governance mechanism and external governance mechanism. Regarding internal governance mechanism, Merck & Co., Inc. is headed by the Executive Board and the Chief Executive Officer. The Executive Board and the Chief Executive Officer supervise all business activities at Merck & Co., Inc. (Jurich & Reiner, 2014). In their supervisory capacities, the CEO and the Board oversee the development of operational policies to ensure that the prescribed operational guidelines adhere to the mission and the vision of the company. The Executive Board and the CEO often recommend policy changes and corrective actions intended to smooth the internal function of Merck & Co., Inc. (Merck.com, 2017). Therefore, the internal governance structures at Merck & Co., Inc. entail the development and control of mission and vision-oriented policies. So far, the internal governance mechanism has been effective in ensuring that Merck & Co., Inc. adheres to its mission and vision statement for the entire 125 years of its existence.
On the other hand, the external governance mechanism involves the reliance on external audit reports, and stakeholders’ perspectives to inform and control the progress of activities inside Merck & Co., Inc. Regulations issued by government agencies dictate the manufacturing and quality standards utilized by Merck & Co., Inc. On the other hand, the annual financial audit reports provided by independent auditors inform the best practices for resource utilization and financial management at Merck & Co., Inc. (Dulcic, Gnjidic & Niksa, 2012). Moreover, the changing needs of the patients guide Merck & Co., Inc. towards developing pharmaceutical products designed to meet the exact needs of the customers. Overall, the external governance mechanism allows stakeholders outside the organization to provide honest and transparent contributions towards the management of Merck & Co., Inc. So far, the external governance mechanism has been beneficial in informing Merck & Co., Inc. about necessary changes based on the dynamic needs of the customers.
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Evaluate the effectiveness of leadership within this corporation and make at least one recommendation for improvement
The leadership at Merck & Co., Inc. believes that patients around the world place their trust in the company. Therefore, the leadership approaches at Merck & Co., Inc. emphasize the value of patient-centeredness in all activities. Periodically, the leadership at Merck & Co., Inc. publishes the values and standards required of all employees, regardless of the employees’ seniority levels. One key value required of all employees is integrity (Jurich & Reiner, 2014). Employees at Merck & Co., Inc. are required to maintain the highest levels of integrity by remaining open, transparent and honest to the needs of the customers. The senior leadership comprising of the Board of Executives and the CEO ensures that all policies and conduct of employees at Merck & Co., Inc. reflect key values of patient-centeredness and scientific excellence.
In the spirit of maintaining integrity to customers’ needs, the leadership of Merck & Co., Inc. oversees the company’s Global Compliance Program. The Global Compliance Program ensures that all employees of Merck & Co., Inc. observe a culture of ethics to prevent noncompliance with regulations, particularly regulations related to production of safe products for the customers (Merck.com). However, the Global Compliance Program pays too much attention to the needs of the patients and fails to consider the needs of the employees. Employees working on pharmaceutical production are exposed to environmental, health and safety risks (Held, 2009). Therefore, it is recommendable that the leadership of Merck & Co., Inc. develops a robust culture that does not overlook the health and safety concerns of its employees. In particular, leaders at Merck & Co., Inc. should compensate adequately all employees harmed in their lines of duty.
Assess efforts by this corporation to be a responsible (ethical) corporate citizen and determine the impact these efforts (or lack thereof) have on the company’s bottom line. Provide specific examples to support your response
Regarding the bottom line, Merck & Co., Inc. has consistently recorded positive net income (profit) for the better part of the 125 years in has been in operation (U.S. Securities and Exchange Commission, 2016). The consistent positive earnings are attributable to the efforts made by Merck & Co., Inc. to become a responsible corporate citizen. First, Merck & Co., Inc. employs effective risk management practices to enhance the favorability of its financial results and operating processes to the needs of investors (Merck.com, 2017). Secondly, Merck & Co., Inc. exercises efforts of full, timely and accurate disclosure of all material information to relevant stakeholders including shareholders and the public to promote transparency.
Moreover, Merck & Co., Inc. exercises its commitment to environmental sustainability through the use of biodegradable packaging solutions for its pharmaceutical products. Lastly, Merck & Co., Inc. takes care of the social and emotional needs of its employees through the provision of part-time work schedules and remote working. In remote working, Merck & Co., Inc. allows employees can occasionally handle work-related tasks at home using online work platforms (Merck.com, 2017). The flexible work schedules allow employees at Merck & Co., Inc. to enjoy optimal work-life balance. Overall, all the efforts that make Merck & Co., Inc. a responsible corporate citizen contribute to achievement of financial objectives including positive net incomes.
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- U.S. Securities and Exchange Commission. (2016). Form 10-K: Merck & Co., Inc. Merck.com. Retrieved form http://s21.q4cdn.com/488056881/files/doc_financials/2017/Q4/merck-q4-10k.pdf