Merck Case Analysis

Merck & Co. Case Analysis July 10, 2003

By: Cindy Branon Zach Evans Melissa Holder Kendall Joseph Brandon McLain Shane Morgan

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Merck Case Analysis

Group 3

Situation Analysis Merck is one of the largest, most successful pharmaceutical companies in the world, a $5 billion company at the time of the case. Merck pursues a multinational strategy in its global operations, achieving 47 to 52 percent of revenues overseas, depending on exchange rates. This multinational approach is the result of the vast array of national regulations for selling legal drugs, thereby requiring different approaches for each market. The organization of the business operations and foreign regulations are the drivers for Merck’s Information Technology unit. Merck operates separate information systems departments in each country, a polycentric structure, thus mirroring the overall corporate structure. Merck’s foreign subsidiaries operate autonomously but are required to submit financial reports monthly to headquarters in New Jersey. The data produced from the reports were used by top management to plan financial strategy. The three week long manual process of closing the prior month’s books negatively impact timely decision making by management. Problems and Opportunities Merck IS had been tasked with creating a financial reconciliation and reporting system for corporate headquarters. The project faced numerous obstacles ranging from technology, culture, language, geography and internal politics. Building consensus to design and implement a system is difficult when working with diverse and distant staff. The satellite IS departments were fiefdoms of the local managers and the hardware and software systems across the company were different and often incompatible. The architecture was highly decentralized and linking all units posed network and communications problems because of the nature of foreign, and often government controlled, telecommunications firms. Costs involved with implementing and maintaining the system also were forecasted to be high. Alternatives Management decided to build a system to connect foreign offices with headquarters that would provide an electronic method for uploading reports. Merck IS decided to build a

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Merck Case Analysis

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“supersystem” to which satellite offices would connect. The project relied on existing IBM S/34, S/36 and S/38 minicomputers and would require 700 new programs to be created. The 700 programs needed were just the initial implementation; revisions and new reports would require constant recoding. A new management team was assembled to assess the problems of the project and recognized the work required to make the system function was unreasonable. They decided to start from scratch with a new team, but for political reasons, let the original project continue. The new project team decided to write programs for the lowest common denominator, the S/36 systems. The Lotus 1-2-3 type system required only 40 new RPG programs to be created and won over IS management because it was simpler to implement. We believe that two other alternatives existed for Merck in the areas of hardware and software. The first alternative would be the upgrade of all systems corporate wide to S/38, or even AS/400. This would allow for much easier project implementation by reducing the amount of interfacing programs required. Although similar to adopting the S/36 programming strategy, this alternative provides an installed base of modern systems, permitting future growth. A second alternative would be to evaluate existing external software packages to solve the financial reporting problem. Software developed in house must be carefully designed, created and maintained, a potentially time-consuming and high-cost practice. Recommendation Our recommendation would be to use Merck’s second system that utilized 40 programs globally written to the S/36 standard: the system was simplistic in its design, the implementation was uncomplicated and the productivity increases justified the cost of development. It appears that Merck’s accounting department killed the system because it worked to well; apparently IS built a good system. This solution should entail a plan for finding new positions at Merck for any displaced accounting staff.

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Merck Case Analysis

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However, we do not believe this to be a final solution. Data, management, staff and business requirements always change, therefore IS and its systems must be capable of change. The IS staff should create a systems review team to examine new technologies in light of present system functions. IS consolidation of the global hardware on one system, perhaps IBM’s AS/400, in the future may be reasonable, although not cost effective or easily deployable for the present time. Likewise, software packages that provide centralized corporate data management may become available. Continually evaluating IS needs may prevent future situations requiring hurried, inelegant but workable systems. Actual Implementation Although the technical challenges were difficult, the project was achievable. However, the political implications of implementing the system were not understood by IS. The project was terminated because some accounting staff positions were no longer necessary because of the efficiency of the system in performing the administrative tasks. The failure of the project has not deterred global IS efforts at Merck. In 1995 Merck developed a sales management system named Compass to share sales data amongst sales staff regardless of location. The system was launched to assist the marketing efforts of Astra/Merck, a joint marketing venture of Merck and Astra AB of Sweden. 1 Merck built a Internet based VPN in 1997 to enable company scientist access to research databases from anywhere in the world.2 A procurement system created by Ariba was purchased in 1998 by Merck to manage its $2 billion annual purchasing of nonproduction and indirect supplies.3

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http://www.computerworld.com/news/1995/story/0,11280,4361,00.html http://www.nwfusion.com/news/1999/0118merck.html 3 http://www.informationweek.com/story/showArticle.jhtml?articleID=6510890 2

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