Hilton Hotel Organizational Analysis

Sample of organizational analysis

Internal Environment

A Harvard study suggests that adaptability is the main attribute that makes an organization competitive in the modern business world.[footnoteRef:1] It emphasizes on how internal environment of an organization can be a pathfinder for being competitive as employees are wizards for innovation and development. Daft has also emphasized on how internal environment is an essential attribute for an organization in order to be adaptable with the changes in the external environment.[footnoteRef:2] [1: Reeves, M., & Deimler, M. (2011). Adaptability: The New Competitive Advantage. Harvard Business Review, 89(7/8), 134–141 ] [2: Daft, R. L. (2015). Organization Theory & Design Twelfth Edition. Mason, Ohio: South-Western Cengage Learning.]

Michael Porter, in his book ‘The Competitive Advantage of Nations’, also discussed how an organization’s internal atmosphere contributes to create a long-term sustainable advantage in the marketplace.[footnoteRef:3] Any business including pharmaceutical industry, in order to stay up the game has to familiarize itself with constant evolving marketplace needs. An organization can be prospective, according to Miles and Snow Typology given the flexibility of its internal structure developing a change-ready culture inside the company. [3: Porter, M, E. (1990). The Competitive Advantage of Nations. The Free press. ISBN 0-684-84147-9. ]

In case of Merck, people are to be treasured as they open new windows for the company through their expertise and constant exploration. Change is the only constant in today’s world businesses and an explicit factor for organizations to understand in order to be competitive in the market. Thus, in order to keep up with continuous evolving environment and unpredictable challenges, internal environment comprising management, marketing, operations, finance, and other functional divisions altogether enhance the growth of Merck in the market. Merck has advantage of vast global presence as it operates in more than 140 countries and explicit information about ongoing changes in the market. Merck’s expertise in discovering and developing oncology drugs and vaccines gives them an upper hand to respond in any unpredictable circumstances in the field of medical science. Elsewhere, Merck also has definite threat due to generic competition from its peers in terms of their marketing activities and some exclusive drug developments at affordable prices. Loss of patent exclusivity (LOE), patent litigations, drug approvals, and pricing constraints create significant burden on operations of Merck.

Kenneth C. Frazier is the Chairman of the Board and the CEO of Merck succeeding Richard T. Clark since December 01, 2011;[footnoteRef:4] and substantially increased Merck’s investment on research including early research as well as on launching value creating products in the society. Merck has achieved several tens of FDA and EMA approvals creating blockbuster revenues over years under his regime such as M-M-R-II, Gardasil, Lynparza, Keytruda, and many more. Ken is known for injecting philanthropic initiatives into the 125-plus years history of Merck while committing to its mission of improving lives across the globe. [4: Businesswire. (2011, October 06). Merck Announces Retirement of Chairman and Former CEO Richard T. Clark. Businesswire. https://www.businesswire.com/news/home/20111006006018/en/Merck-Announces-Retirement-of-Chairman-and-Former-CEO-Richard-T.-Clark]

One of the Harvard study explained how good corporate governance is the key for achieving long-term goals as well as creating value for shareholders.[footnoteRef:5] Today corporate governance is a holistic function more than mere a corporate outlook on policy. Senior executives in any growing organization should proactively be a part of both strategic as well as technical initiatives taken by the company. Merck’s leadership team has been doing an applauding job in this prospect where they not only design strategies but also are proactive in executing and outperforming the expectations. Over years, Merck has been successful by achieving various breakthroughs in fields of oncology, neuroscience, vaccines, animal health and OTC drugs. As part of their growing strategy, Merck executives have divested their consumer healthcare business effective from October 1, 2014 as they began on a journey for being a pure research-based organization.[footnoteRef:6] Their planned spin-off of Organon & Co in 2021 also points towards their aggressive nature of forming a pure-science based company. Despite intense competition from peers through generic drugs, Merck has been successful in the by pure science-based activities such as discovery and manufacturing of patented drugs with revenues of approximately $47 billion in 2019. [5: Subramanian, G. (2015). Corporate Governance 2.0. Harvard Business Review, 93(3), 96–105.] [6: George, J. (2020, February 07). What to expect from new Merck spinoff, according to the CEO. Philadelphia Business Journal. https://www.bizjournals.com/philadelphia/news/2020/02/07/what-to-expect-from-new-merck-spinoff-according-to.html ]

Merck’s commitment to their vision of creating breakthroughs in patients’ lives is proven constantly through their explicit research and discovery of drugs while proactively contributing to UN SDG goals. Irrespective of four different operating business segments, research and development is carried out under single entity called as Merck Research Laboratories (MRL) headed by Roger M. Perlmutter. While the manufacturing which is the main source of raising revenues is operated as Merck Manufacturing Division (MMD) led by Sanat Chattopadhyay and Merck Animal Health Division is led by Richard R. DeLuca Jr. On the other hand, Frank Clyburn, and Michael T. Nally serve as Chief Commercial Officer and Chief Marketing Officer respectively. Julie L. Gerberding serves as Merck’s Chief Patients Officer while Robert M. Davis serves as their Chief Financial Officer. Steven C. Mizell is Merck’s Chief HR Officer, Dave Williams is Chief Information & Digital Officer who has led Merck through various technological advancements such as developing 3D printing work centers for expedite research and prototype designing. Jennifer Zachary is their legal counsel ensuring Merck’s policies and codes of conduct in place across the organization. Merck’s Board of Directors is a team of 13 individuals along with one member from Schering-Plough also is an added advantage as their opinion is critical for every initiative taken by Merck. Having expert and diversified executive team and Board allows Merck to perform with par excellence which in turn develops the trust in shareholders while committing in creating the value to the society.

With its wider market presence, Merck reported $10.21 billion, $8.55 billion, and $8.04 billion in selling and administrative expenses excluding (depreciation and amortization) D&A in 2019, 2018 and 2017 respectively.[footnoteRef:7] It shows Merck’s increased expenditure on marketing activities in order to acquire major market share especially for Keytruda and Gardasil in global markets. In 2015, it was attributed that infectious and respiratory disease drug market share was 75.84% and consumer health and vaccine market share rose to 76.11%. [7: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

According to a branding agency in the US, Pfizer was aggressive and spent just near $20 billion for branding followed by Roche spending $15.5 billion and a tie between Merck and JNJ with $13.3 billion on branding in 2016.[footnoteRef:8] Such a neck-to-neck branding activity induces an intense competition between Merck and its peers along with Merck’s blockbuster drugs, Gardasil and Keytruda. With its corporate strategy, Merck is seeking definite competitive advantages through its expertise in the market. It was reported that Merck spent about $95 million specially for DTC TV advertisements in 2019.[footnoteRef:9] [8: Brennan, Z. (2019, July 24). Do Biopharma Companies Really Spend More on Marketing Than R&D?. Regulatory Focus. https://www.raps.org/news-and-articles/news-articles/2019/7/do-biopharma-companies-really-spend-more-on-market] [9: Bulik, B. S. (2020, February 19). Keytruda. Fierce Pharma. https://www.fiercepharma.com/special-report/keytruda-top-10-ad-spenders-big-pharma-2019 ]

Ken, Merck’s CEO and Chairman has constantly reinforced R&D into work culture of Merck making it one of the most valuable assets in the market. Their R&D spending has boosted over years which near nearly $10 billion in 2019 more than any of its prime competitors. Their vivid strength of developing pipeline is fostering Merck into a rapid growth environment whose market capitalization has been increased by over 11% in 2019.[footnoteRef:10] [10: Phillpidis, A. (2019, November 18). Top 10 pharma companies of 2019. GEN Genetic Engineering & Biotechnology News. https://www.genengnews.com/a-lists/top-10-pharma-companies-of-2019/]

In 2018, global pharmaceutical revenues accounted for about $952.1 billion with major sales coming from oncology, immunology, and nervous system. Merck was the top fourth company by acquiring about 4.44% of market share in 2018. Top ten companies in the global pharmaceutical segment in terms of market share are Eli Lilly & Co (2.57%), Bayer AG (2.84%), AbbVie Inc (3.45%), Sanofi (4.11%), GlaxoSmithKline (4.19%), Johnson & Johnson (4.27%), Merck & Co (4.44%), Roche Ltd. (4.69%), Novartis (8.44%) and Pfizer Inc (5.6%).[footnoteRef:11] [11: Pharmaceutical Technology. (2020, January 24). The top ten pharmaceutical companies by market share in 2018. Retrieved from: https://www.pharmaceutical-technology.com/features/top-pharmaceutical-companies/]

Merck also began advertising directly to consumer (DTC) for Keytruda after its rival Bristol-Myers Squibb’s Opdivo advertisement. It had spent about $177.5 million in 2018 and $157.3 million in 2019 for advertising Keytruda, which was the very first time marketing an oncology drug on television. However, Merck had stopped further advertising of Keytruda in late 2019 given its brand name and awareness among the US consumers. Keytruda has raised about $11.2 billion in revenues globally during fiscal 2019. It is forecasted to raise $25 billion in revenues by 2025 by Wall Street analysts leaving behind Humira sales developed by AbbVie .[footnoteRef:12] Merck’s worldwide presence fetches the information advantage which allows Merck to design specific country marketing plans in order to cater those specific nations. Merck is aggressive on collaboration and licensing activities which brings an additional advantage of succeeding in global markets. [12: Hooper, C. L. & Henderson, D. R. (2020, March 05). FDA Shouldn’t Keep Safe Drugs off the Market. Wall Street Journal. https://www.wsj.com/articles/fda-shouldnt-keep-safe-drugs-off-the-market-11585175286]

Merck recently in October 2019, signed a partnership deal with the UK-based 4D Pharma in order for developing three Live Biotherapeutics based vaccines. Merck seeks active contribution to society by giving away about $2.7 billion worth of products free in providing basic healthcare for under poverty line population, $84 million through cash and grant contributions and many more. There is also an indicator on the corporate website which measures effectiveness and fraudulent violations if any made by the Merck during their promotional and other marketing activities. Merck’ performance is indicated through either number of warning letters or untitled letters received either from the Office of Prescription Drug Promotion (OPDP; previously known as the Division of Drug Marketing, Advertising and Communication (DDMAC) renamed in September 2011) or from the Advertising and Promotional Labeling Branch (APLB) of the FDA Center for Biologics Evaluation and Research.[footnoteRef:13] Since 2014 through fiscal 2019, number of warning letters issued either from OPDP or APLB are zero which shows their commitment to code of conduct and fair play in the market. Such initiatives talk for itself how Merck is striving to create a positive impact in patients’ lives as well as developing breakthroughs in medicines leaves Merck to succeed against its competitors. [13: Merck & Co. (n. d.). Ethics & Values: Sales and Marketing Practices. Retrieved from: https://www.msdresponsibility.com/ethics-values/sales-marketing-practices/ ]

A McKinsey study suggests that 35% of pharmaceutical sector’s profit and loss is attributed to their supply chain operations.[footnoteRef:14] Pharma industry is known for having silos between supply side and demand side whose inventory levels are double as that of industry best practices. Their lead times are often fifteen to sixteen times greater than that of other industries with higher level of obsolescence in their supply chain. Thus, in order to cater to needs of market, Merck has devised strategy for connecting the supply chain and demand together using advanced systems. According to Merck’s 2016/2017 corporate responsibility report, Merck has restructured its supply chain in order to save costs and improve capacity.[footnoteRef:15] Their main restructuring was aimed at developing their current manufacturing setups across all 80 distribution locations along with 20 internal and external sites. Redesigning their processes and connecting all 100 locations along their global chain as well as improving their corresponding supplier connectivity was part of their 2016 initiative. They were seeking improvement through employing various Lean and Six Sigma projects across their 100 locations. However, along with above mentioned sites, Merck also operates 148 manufacturing plants externally by producing about 10,300 various product sizes which need data in order to sync with their existing system.[footnoteRef:16] [14: McKinsey & Company. (2012, August 01). Pharma Manufacturing for a New Era. McKinsey & Company. https://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/pharma-manufacturing-for-a-new-era#] [15: Lopez, E. (2017, March 3). Why Merck & Co. turned to supply chain integration to save costs. Supplychain Dive. https://www.supplychaindive.com/news/merck-co-supply-demand-planning-manufacturing-integration/436496/ ] [16: ]

Major disadvantage of Merck’s previous system was their insufficient internal data which delayed production and delivery, thus increasing the lead times about ten to fifteen weeks in general. Such a backlash was also prevalent due to inefficient procurement and planning process, which was later spread to manufacturing, and delivery processes. Merck’s executives believed that such a backlash was caused due to unavailability of market demand information accurately on a timely basis which induced significant gap in the supply chain. Thus, after integration of supply chain and demand, global employees could see the actual finished goods available in the company which could be segregated according to the market needs. Henrik Frojdh, Supply Chain Planning Lead at MSD, said that the only way Merck saw transforming its system was by connecting systems as in providing a single-step solution by integrating demand and supply chain.[footnoteRef:17] Merck reinforced that concurrent planning is the key aspect of their new Enterprise Resource Planning system since 2016 which has helped them deliver great results through 2019 by catering to drugs improving patients’ lives which is their purpose of existence. [17: Cheater, A. (2017, February 16). MSD’s journey to remove silos in its end-to-end supply chain. Kinaxis. https://www.kinaxis.com/en/blog/msds-journey-remove-silos-end-end-supply-chain]

Ken, in 2019 announced that Merck is going to optimize their existing global real estate footprint in terms of revamping and shutting down some of their existing manufacturing plants. Merck has allocated about $1.2 billion as costs for shaking-up its manufacturing network.[footnoteRef:18] Merck is positive about its optimization plans which are expected to be finished by 2023 who has allocated $4 billion towards new investments along with Keytruda approvals across the globe. Thus, it can be noted that Merck is quite intuitive in analyzing its existing gaps seeking initiatives to mitigate in order to gain a long-term valuable proposition in the global pharma industry. [18: Manufacturing Chemist. (2019, May 2). Merck & Co manufacturing restructure risks half billion in factory shut-downs. https://www.manufacturingchemist.com/news/article_page/Merck_and_Co_manufacturing_restructure_risks_half_billion_in_factory_shut-downs/154248]

As aforementioned, capital and resource allocation along with R&D serve as the competencies for Merck making it a competitive global pharmaceutical organization. Merck has been reporting continuous increase in revenues since 2014 with nearly $47 billion in 2019, $42 billion in 2018, and $40.2 billion in 2017. Merck has total assets of $84.5 billion in 2019 and $82.7 billion in 2018 while total liabilities of $58.4 billion in 2019 and $55.8 billion in 2018. Elsewhere its competitors, JNJ had total assets of $157.7 billion and total liabilities of $98.3 billion[footnoteRef:19] and Pfizer reported total assets of $167.5 billion and total liabilities of $104.04 billion in 2019.[footnoteRef:20]. [19: Johnson & Johnson. (n.d.). Johnson & Johnson 2019 Annual Report. Retrieved from: http://www.investor.jnj.com/annual-meeting-materials/2019-annual-report] [20: Pfizer. (n.d.). Pfizer 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/317678438/files/doc_financials/2018/ar/Pfizer-2019-Financial-Report.pdf]

Figure 2: Current assets and current liabilities

Merck over years has seen increase in its revenues which appreciated total asset value over years depicted by above graph in figure 2. Table 1 below depicts current and quick ratios of Merck along with Pfizer and JNJ providing an overview of respective company’s ability to pay off their corresponding debts. Often referred as liquidity ratios, current and quick ratios exhibit an ability of a company to pay off its short-term debts through liquidating its assets indicating Merck is far ahead in its ability to manage its operations while clearing its current obligations.

Table 1: Liquidity Ratios

JNJ conducts business through pharma segment, consumer goods and medical equipment divisions while Pfizer also has Biopharma segment, Upjohn segment and consumer healthcare joint venture with GSK effective on July 31, 2019. Both JNJ and Pfizer have lucrative consumer health divisions which boosts their revenues; JNJ reported $82 billion in 2019 and $81.5 billion in 2018[footnoteRef:21] while Pfizer recorded $53.65 billion in 2018 and $51.75 billion in 2019.[footnoteRef:22] Elsewhere Merck has $46.84 billion in 2019 which is generated only through branded drugs showing Merck’s ability of pure sciences generating revenues through R&D, licensing, and partnerships. Thus, it exhibits Merck’s stronger position in immunology, oncology, vaccines as well as neuroscience making it a strong competitor in the global biopharma shown below by the grapy between pretax income and net profits. [21: Johnson & Johnson. (n.d.). Johnson & Johnson 2019 Annual Report. Retrieved from: http://www.investor.jnj.com/annual-meeting-materials/2019-annual-report] [22: Pfizer. (n.d.). Pfizer 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/317678438/files/doc_financials/2018/ar/Pfizer-2019-Financial-Report.pdf]

Figure 3: Pretax Income & Net Profits from continuing operations[footnoteRef:23] [23: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Trendline in the above picture depicts how net income of Merck has been increasing from fiscal 2014 through 2019, according to their SEC filings. As mentioned earlier, Merck possess a competitive advantage as it generates profits from its cash generated through operational activities. Merck has been cautious in allocating capital for its various business initiatives specially since 2016 where they planned to restructure their manufacturing facilities while taking up new facilities for making Keytruda.

Below picture (Figure 4) also depicts cashflow of Merck through 2019 since 2014 fiscal showing it has been successful in managing its capital across the busines activities. All in all, it is significant that capital and resource allocation is an underlying competency possessed by Merck in order to succeed in globally by using effective actions to conduct R&D and transforming into pure science company.

Figure 4: Cashflow performance

Earlier in the organizational strategy, this paper analyses Merck’s global strategy as a prospector in terms of active discovery and development of novel drugs treating new known diseases and developing breakthrough vaccines. Innovation has been a driving force for Merck since its founding in late 19th century which in order to be a leader in biopharma industry is necessary. Merck’s purpose of existence is to improve lives which it has been committed to since years by developing drugs and vaccines to fight against various diseases and in turn contributing to the society. [footnoteRef:24] [24: Merck & Co. (n.d.). Research and Products. Retrieved from: https://www.merck.com/research-and-products/]

Not only developmental activities, but also Merck is vibrant in conducting early discovery and research, pre and post clinical trials by collaborating and licensing through various strategic initiatives such as Merck Global Health Innovation Fund (GHI).[footnoteRef:25] Merck has also pledged with other global competitors in fighting against the AMR through sponsoring research by donating to AMR Action Fund.[footnoteRef:26] Expense on R&D includes clinical research, discovering, testing, and post release tests of new drugs as well as exploration for existing drugs for any new possibilities. Merck is aggressive in acquiring if any biotech firm is value creating in terms of discovery and development of drugs and therapies; it usually conducts research through its own R&D expertise, strategic partnerships, collaboration and licensing agreements, and various sponsorship programs. [25: Merck & co. (n.d.). Global Health Innovation Fund: Leadership in Digital Health Investing. Retrieved from: http://www.merckghifund.com/] [26: Merck & Co. (2019, October 1). Working together to create a sustainable market for antibiotics. Retrieved from: https://www.merck.com/stories/working-together-to-create-a-sustainable-market-for-antibiotics/ ]

Figure 5: Merck’s R&D expense trend through 2019

According to Merck’s SEC filings, currently immuno-oncology, neuroscience, vaccines, and respiratory diseases are major fields research and development is being done. Merck’s pipeline activity is updated every quarter on their corporate website which as of July 31, 2020 has about 94 candidates inclusive of phase 2, phase 3 and under review candidates.[footnoteRef:27] Some of 94 are developed as monotherapies, while some are developed to be used in conjunction with Keytruda in certain carcinoma treatments and others are developed in collaborations. (KN524) (US) LENVIMA® MK-7902 and (NCCH1508/REMORA) (JPN) LENVIMA® MK-7902 are two candidates out of 94,[footnoteRef:28] of which the FDA had asked for Complete Review Letter (CRLs) from Merck for an explicit study of those two candidates as previously submitted reports during trials were lacking certain details denying approval. [27: Merck & Co. (2020, July 31). Research & Products: Pipeline. Retrieved from: https://www.merck.com/research-and-products/product-pipeline/] [28: Merck & Co. (2020, July 31). Research & Products: Pipeline. Retrieved from: https://www.merck.com/wp-content/uploads/sites/5/2020/08/Merck-Public-Pipeline.pdf]

Out of nearly 71,000 employees worldwide, Merck employs one-fifth in research activities which also includes 3D-prinitng workspaces for developing and designing tissue or cell prototypes and hard-to-find manufacturing parts. Merck is the member of the trade group in the US, PhRMA (Pharmaceutical Research and Manufacturers of America) who spent about $79.6 billion in R&D in 2018 with about 78% expenditure inside the US while all the PhRMA members together spend about 19.2% of their consolidated revenues against R&D yearly. Acquisition of Pelton, collaboration with 4D Pharma in 2019 is facilitating Merck to succeed in having cutting edge technology for expedited discovery and development of novel and lucrative drugs. Merck has eight essential locations for conducting its R&D which are in Boston (MA), Cambridge (MA), Kenilworth (NJ), Rahway (NJ), South San Francisco (CA), Upper Gwynedd (PA), West Point (PA) and London (UK).[footnoteRef:29] In a nutshell, it marks Merck’s culture of engaging with global employees and exploiting their core competencies in bringing value to their brand by active discovery and sale of drugs by inducing a positive and healthy competition in the global marketplace. [29: Merck & Co. (n.d.). Research & Products: Discovery & Development. Retrieved from: https://www.merck.com/research-and-products/discovery-development/]

Merck has always been imperative about its international operations since mid-20th century by expanding from America to Asia, Europe, and middle eastern parts of the globe. Initially in 1899, Merck published ‘Merck Manual’ which had treatments like bloodletting for acute bronchitis, arsenic for impotence and almond bread for diabetes. Merck manual soon became a widely used medical reference which is in use even today. After establishing commercial units in 1891 and transporting chemicals across the New York, George W. Merck founded Merck Research Laboratory (MRL) in 1933 marking Merck’s first step into pharmacological research with three divisions: Pure research, the Merck Institute for Therapeutic Research and Applied Research.[footnoteRef:30] Today Merck operates in 140 countries with about 50 manufacturing sites spread across the globe. [30: Merck & Co. (2020). Merck Company History. Retrieved from: https://www.merck.com/company-overview/history/]

Table 2: Revenue distribution of Merck across globe[footnoteRef:31] [31: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

It can be noted from the above table that the US is the single largest market followed by the Europe, Japan, China and so on. Sales in Europe plunged due to generic competition for some of the patent expiring drugs of the Merck such as Emend which was reapplied and approved. Total international patents owned by Merck today are 1145 along with 55 US patents while Merck operates under 107 tradenames worldwide.[footnoteRef:32] Merck has filed about 130 New Drug Applications (NDA) and currently is the has its own 90 APIs with the US FDA and EMA.[footnoteRef:33] One main advantage of such a decentralized operational structure of Merck is that international locations have autonomy creating their own effective measures for specific markets. Pharmaceutical and animal health segments operate individually seeking constant support from their global teams as well as MRL by effective means of resource allocation. Merck also involves itself in collaboration and strategic partnerships where research and drug development is carried out external facilities which are monitored by Merck or partners depending on the type of the deal. [32: Merck & Co. (n.d.). Company Overview. Retrieved from: https://www.merck.com/company-overview/] [33: Merck & Co. (n.d.). Company Overview. Retrieved from: https://www.merck.com/company-overview/ ]

Figure 6: Scientific Management at Merck for Domestic and International Environment[footnoteRef:34] [34: Nichols, N. A. (1994). Scientific Management at Merck: An Interview with CFO Judy Lewent. Harvard Business Review, 72(1), 88–98.]

Merck has been efficient in executing international operations due to structural efficacy opted since late 20th century. Merck has developed a reliable model for scientific management early on in order to cater to the growing demand in the international environment. According to a HBR article, Judy Lewent in 1994, Merck’s then CFO has expressed her views on how Merck over years had been structured itself for supportive functioning in the global market.[footnoteRef:35] Complexity, risk, and uncertainty are the basic attributes of global market which should be considered while devising any organization’s strategic plan. [35: Nichols, N. A. (1994). Scientific Management at Merck: An Interview with CFO Judy Lewent. Harvard Business Review, 72(1), 88–98.]

Daft emphasized on ‘transnational model’ a framework being used by modern organizations representing an advanced global structure,[footnoteRef:36] exploiting both local and global advantages for their organizational success. Independent locations having decentralized power as well as the coordination and integration activities between the headquarters and global offices are setting Merck high on its market performance. Thus, it shows Merck’s ability and efficiency in adapting to the necessary changes in the international environment with mechanisms integrating varied parts across the globe. With its prospective Organon & Co., spin-off by first half of 2021, Merck is in its way of achieving vibrant success in new markets such as Asia whose potential is still untapped. [36: Daft, R.L., & Armstrong, A. (2015). Organization Theory and Design (3rd ed.). Toronto, ON: Nelson Education.]

Table 2: Top selling products of Merck & Co

As previously mentioned, Merck manufactures branded prescription drugs and vaccines both for humans and animals. As of October 1, 2014, Merck divested their slow-moving consumer care business unit and also is planning a spin-off of their Women healthcare products and biologics segment called as Organon & Co., in 2021. Pharmaceutical segment manufactures human drugs and vaccines in addition to their focused and applied research and development of novel drugs and vaccines. While Merck’s animal health division develops drugs and vaccines for livestock, companion animals, poultry, and aquaculture. Alliances and health services sectors focus on the development and discovery of drugs under partnerships and strategic alliances and third-party discoveries. It was reported that Merck had many drugs selling at gross revenues of over $1 billion in domestic and international markets shown by the above figure 7 in their 10-K filings for fiscal 2019.[footnoteRef:37] [37: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Information technology and control systems form a crucial part in functioning of any organization as they are vital attributes for effective decision-making. Merck operating globally in more than 140 countries, previously had a coordinated system for manufacturing and marketing which they refer to campaigning system of supply chain.[footnoteRef:38] Over years, Merck has followed typical organizational supply chain where they used to procure raw materials and produce drugs in batches making one product after another. They observed inventory costs and storage costs going up with a significant gap between production and delivery of drugs with extravagant lead times, thereby reducing overall product margins. In addition, globalization is making pharmaceutical companies to look for a more differentiating strategy more than developing breakthrough drugs. With given indefiniteness in the operations as well as need for more differentiating strategy, executives at Merck responded with ‘Restructuring Program (RP)’ in order to evolve along with changing external business environment.[footnoteRef:39] [38: Supply Chain Brain. (2018, February 14). How Merck Is Building an End-to-End Supply Chain. Retrieved from: https://www.supplychainbrain.com/articles/27574-how-merck-is-building-an-end-to-end-supply-chain-1] [39: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Major objectives under RP devised in 2016 is end-to-end integration of Merck’s supply chain along with demand. In other words, drugs and vaccines are produced according to the real-time demand which means that setting up manufacturing schedules according to real-time requirement. All the locations across the globe along with their supplier partners can view the current requirement and process the incoming or outgoing activities accordingly. Merck partnering with IBM has already began setting up end-to-end, completely integrated network of supply chain from supplier to customer end. Such globally visible and integrated system provides explicit information of inventory, required stock input levels, accurate requirement of next level raw materials in producing drugs and vaccines necessary.

Merck along with IBM, devised an effective manufacturing system using Six Sigma and Lean principles in order to control their piled up inventory and costs associated, called as Merck Producing system (MPS) using SAP R/3 and integrating it with their existing enterprise resource planning system (ERP). [footnoteRef:40]With MPS in place, Merck has seen 30% reduced production-related inventory costs, 20% lower operating expenses at plant level, and 20% decrease in changeover time in various production lines. Demand requirement planning along with traditional ERP has improved efficiency of Merck’s internal system which could be done by imbibing advanced technological platform through IBM, has given benefits in terms of inventory, visibility of drug discards, and change in workflow.[footnoteRef:41] [40: Abel, J. (2019, June 27). Digital Transformation at Merck Pharmaceuticals. ARC Advisory Group. https://www.arcweb.com/blog/digital-transformation-merck-pharmaceuticals] [41: Abel, J. (2019, June 27). Digital Transformation at Merck Pharmaceuticals. ARC Advisory Group. https://www.arcweb.com/blog/digital-transformation-merck-pharmaceuticals]

In addition, Merck has also sought its way into digitally transforming its vaccine production facilities using IoT and has come up with five main initiatives: product data management, predictive condition monitoring, steam trap monitoring, technology-enabled laboratory, and Stealth Digital Strategies & Open Standards. These electronically sensing production facilities along with real-time data monitoring through tech labs helps find out lagging activities along with a detailed time-to-time analysis to scientists. As mentioned earlier, Merck also has five locations which employ 3D-printing technology in creating prototypes of various tissue to trace chemical and biological activity in addition to develop rarely available manufacturing parts.

Merck is ahead in the game given its wide information exchange globally along with expertise under the elite IT team headed by Dave Williams, serving as Chief Information and Digital Officer for Merck & Co Inc. Merck along with IBM, Walmart and KPMG is collaborating to create a pharmaceutical block chain focused at supply chain of drugs which comes after the enactment of Drug Supply Chain Security Act, in November 2013 which mandates on creating an electronic and interoperable tracking and tracing system for prescription drugs in the US.[footnoteRef:42] Merck also has task table for creating a long-term value which is followed under all strategic considerations developed by the CEO, Ken which Merck is always committed shown in the figure 7 below. [42: Wolfson, R. (2019, June 13). Merck and Walmart Will Track Prescription Drugs on IBM Blockchain In FDA Pilot. Forbes. https://www.forbes.com/sites/rachelwolfson/2019/06/13/merck-and-walmart-will-track-prescription-drugs-on-ibm-blockchain-in-fda-pilot/#6723149d212e ]

Figure 7: Working Matrix of Merck for creating long-term[footnoteRef:43] [43: Feloni, R. (2018, March 9). This chart created by Merck's CEO helps the pharma giant set its long-term strategy. Business Insider. https://www.businessinsider.com/merck-chart-sets-strategic-priorities-2018-3]

Above matrix specifies Merck’s action taken in order to achieve high impact for shareholders while conducting successful business by evolving accordingly. With the help of ongoing restructuring using digital technological transformation along with seeking opportunities by conducting early research and clinical trials, integrated supplier to customer database gives Merck a competitive advantage to differentiate itself in the global pharma. An effective and insightful working matrix in place to validate every strategic action taken as well as devising strategies to exploit the opportunity arising due to rapid changing external environment, Merck has its advantage to succeed and sustain using IT and control systems in place in delivering its vision of serving patients in this digital era.

Daft explained that companies grow in size to acquire and compete on a global scale while investing in new technology and creating a wider impact on global business which is true in case of firms like Merck, Pfizer, JNJ and so on.[footnoteRef:44] Organizational size of Merck resembles Big Company/Small Company Hybrid style as described by Jack Welch, explained by Daft. Merck is one of the top ten largest pharmaceutical companies in the world by acquiring 4.4% of market share in 2018 among the global drug industry and listed one in top five biopharma firms in the US in 2020. Merck discovers, develops, manufactures, and markets human health and animal health patented drugs along with women healthcare products and biosimilars. However, Merck is planning a spin off called as Organon & Co which will produce and market women healthcare as well as biosimilars separately by 2021. As of December 31, 2019, Merck reported that it had nearly 71,000 employees worldwide with 26,000 employed in the US raising worldwide revenues of $46.84 billion.[footnoteRef:45] With more than 50 manufacturing facilities, Merck has grown into a sophisticated organization with its robust structure involving itself in aggressive mergers and acquisitions. Some of major game changing M&As include merging with Schering Plough in 2009, Roseta Inpharmatics, Inc., in 2001, Aton Pharma, Inc., in 2004, Sirna Therapeutics, Inc., in 2006, Novacardia, Inc., in 2007, acquired Peloton Therapeutics in July, and Antelliq Corporation & Immune Design in April 2019, Viralytics Limited (Viralytics) and strategic collaboration with Eisai Co., Ltd. in 2018, Rigontec GmbH along and strategic collaboration with AstraZeneca and controlling interest in Vallée S.A. (Vallée) in 2017.[footnoteRef:46] Organon & Co will be spun off as a separate branch of Merck and Co Inc., making women health products, trusted legacy brands and biosimilars in 2021. [44: Daft, R.L., & Armstrong, A. (2015). Organization Theory and Design (3rd ed.). Toronto, ON: Nelson Education.] [45: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [46: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Daft described organizational life cycle as a cycle consisting of four phases: entrepreneurial, collective, formalization, and elaborative stages. Every organization transforms from one phase to another during its whole existence; usually organizations successful in first year often fail to succeed after five years as demonstrated by Daft.[footnoteRef:47] Merck began its journey as an entrepreneurial firm by selling chemicals across New York in 1891 and soon grew into an elaborated organization by late 20th century. Over years, vast organizational size has built up siloes inside Merck which hindered their performance during 90s seeking re-formalizing their policies in early 2000s. In its quest to grow further, Merck began restructuring in 2016 in an effort to transform the company into a pure research-based organization reinstating their purpose and values. [47: Daft, R.L., & Armstrong, A. (2015). Organization Theory and Design (3rd ed.). Toronto, ON: Nelson Education.]

Merck has reported total revenues of $46.84 billion in 2019, $ 42.3 billion in 2018, $ 40.2 billion in 2017, $ 39.9 billion in 2016 and $ 39.5 billion in 2015 according to their SEC filings.[footnoteRef:48] As any other pharma giant, Merck is also exposed to risk incurring losses from generic competition and loss of patent exclusivity in various regions depending on the validity. Merck had significant impact on its net profits due to lost patent exclusivity for ‘singulair’ in 2012 whose earnings fell by 8% in 2013 Q1 where they had to invest $15 billion for share buybacks in 2013.[footnoteRef:49] Merck is expected to incur losses in fiscal 2020 due to expiration of Emend for injection in Europe and Japan, Birdion and Lenvima in China which could be doubled in the US and European markets given expiration due by 2023. Yahoo Finance as well as Bloomberg analysts have also published article on various firms losing patent exclusivity incurring losses such as Pfizer, JNJ, Merck and Sanofi. Thus, loss of patent exclusivity is an inevitable phase for any pharma which needs focused and early research efforts in creating new medicines to seek advantage of lucrative nature of the industry. [48: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [49: Stynes, T. (2013, May 1). Merck net falls on loss of Singulair patent. Market Watch. https://www.marketwatch.com/story/merck-net-falls-on-loss-of-singulair-patent-2013-05-01 ]

Figure 8: Market cap of top global pharmaceuticals[footnoteRef:50] [50: Data Source: https://www.globaldata.com/top-20-global-innovative-pharma-companies-lose-us2-6-trillion-market-capitalization-in-q1-2020-vs-q4-2019-says-globaldata/]

With the constant EPS growth rate at -100% from 2016 to 2019 according to Yahoo Finance and SEC filings data, Merck is at peak of growth giving it a room for boosting revenues from emerging markets. However, discovering new drugs is aa definite possibility of increasing revenues irrespective of growth rate as new drugs cater to either unknown diseases or discovering new medicines for known diseases. With the ongoing Restructuring Program, Merck is all set to grow as a pure science-based organization. With given its spending structure on R&D, Merck is keen on achieving breakthroughs in oncology with Keytruda along with kinase base treatments indicating its growth potential overall. It can be noted from above discussion that Merck has transitioned itself through stages of life cycle and positioned in an elaborated phase, which now is being transitioned into entrepreneurial stage by restructuring its operations and global locations in an effort to be differentiating in this globalizing era. Despite such setbacks, Merck is still growing in global markets by tapping new markets in Asia whose potential is unclear. As aforementioned, market performance of Merck suggests that it could grow with a limited margin using collaborative agreements and strategic partnerships as well as focused and applied R&D by moving into entrepreneurial phase.

Every organization goes through the phase of temporary decline during its life cycle while the responsive mechanism of the company makes a difference either by sustaining or succeeding or dying in the end. Daft explained organizational decline occurring in five phases: blinded stage, inaction stage, faulty action stage, crisis stage and dissolution stage.[footnoteRef:51] Blinded stage can be revamped using good information of externalities, while inaction and faulty phases can be resolved through taking prompt and corrective actions respectively, crisis can be saved by effective reorganization whereas dissolution stage is definite dead phase which has no solutions except bankruptcy. [51: Daft, R.L., & Armstrong, A. (2015). Organization Theory and Design (3rd ed.). Toronto, ON: Nelson Education.]

It is fascinating that Merck’s stock grew up by 40% over last five years despite considerably low revenues in 2017 and 2016 with their price-to-earnings growth ration is 1.7.[footnoteRef:52] Powerful growth driver is Keytruda which shook up the stock market by boosting their revenues about 45% high in only one year. Investors and analysts estimate that Merck’s Keytruda is going to the highest grossing drug surpassing AbbVie’s Humira by 2025.[footnoteRef:53]With Pfizer’s stock growing at 35% and JNJ much lower and Keytruda being in a blockbuster, Merck’s performance is expected to peak in the industry. Merck’s new acquisitions Taiho and Astex, and ArQule especially for oncology and rare disease developments, it is all set to pioneer in next couple of years moving into a focused research-based organization.[footnoteRef:54] Despite inevitable LOEs, Merck has buckled up its strategies by restructuring and allocating vast capital for early R&D along with 55% raise of revenues from Keytruda as well as developing vaccine for fighting COVID-19, Merck is not even close of a declining phase. It shows Merck’s ability of taking prompt action since 2016 in order to tackle issues arising out of globalization by revamping its global structure as well as its supply chain and demand integration initiatives. [52: Bakiny, P. J. (2020, February 19). Is Merck & Co. Stock a Buy?. Motley Fool. https://www.fool.com/investing/2020/02/19/is-merck-co-stock-a-buy.aspx ] [53: Keown, A. (2019, October 4). Keytruda Set to Become World’s Top-Selling Drug, Forecast Shows. BioSpace. https://www.biospace.com/article/keytruda-set-to-become-world-s-top-selling-drug-forecast-shows/ ] [54: Bakiny, P. J. (2020, February 19). Is Merck & Co. Stock a Buy?. Motley Fool. https://www.fool.com/investing/2020/02/19/is-merck-co-stock-a-buy.aspx ]

Figure 9: Stock trend of Merck & Co.[footnoteRef:55] [55: Thomas, B. (2020, January 17). 3 Things Merck Investors Need to Know In 2020. Seeking Alpha. https://seekingalpha.com/article/4317418-3-things-merck-investors-need-to-know-in-2020]

Rev %% in 2019% in 2018% in 2017

US43%43%43%

EU/M E/Af27%29%29%

Japan8%8%8%

China7%5%4%

Asia6%7%7%

LA5%6%6%

Other3%3%4%

201920182017

KeytrudaKeytrudaJanuvia/Janumet

Januvia/JanumetJanuvia/JanumetKetruda

Gardasil/Gardasil 9Gardasil/Gardasil 9Gardasil/Gardasil 9

ProQuad/M-M-R II/VarivaxProQuad/M-M-R II/VarivaxZetia/Vytorin

BridionBridionProdQuad/M-M-R II/Varivax

Isentress/Isentress HDIsentress/Isentress HDZepatier

Pneumovax 23Pneumovax 23Isentress/ Isentress HD

NuvaRingNuvaRingRemicade

Zetia/VytorinZetia/VytorinPneumovax 23

SimponiSimponiSimponi

Livestock productsLivestock productsLivestock & Poultry

Companion animal productsCompanion animal productsCompanion animals & Acquaculture

201720182019201720182019201720182019

Current Ratio1.351.570.881.331.171.241.411.471.26

Quick Ratio1.030.950.590.830.720.781.041.080.94

PfizerMerckJ&J