Leadership Case Study: Analyzing Conflict and Change at Merck

This case study examines the organizational conflicts and changes at Merck, a leading pharmaceutical company. It begins with an overview of Merck's historical context, highlighting its scientific leadership under Dr. Roy Vagelos and its subsequent challenges due to market shifts, generic drug competition, and the rise of managed care organizations. The case study details the conflict between Merck and Pfizer over cholesterol drugs and the company's organizational structure inadequacies, particularly in marketing. It then analyzes the changes initiated by Ray Gilmartin, including the introduction of new marketing philosophies, franchise business groups, and Worldwide Business Strategy Teams (WBSTs) to improve communication and market focus. The study also addresses the problems within the WBSTs and emphasizes the importance of cross-functional resources and maximizing drug label value. The case study provides a deep dive into the challenges and strategic adaptations within Merck's leadership and organizational structure.

Assignment – II
Case Study on
Merck: Conflict and Change
G R O U P - 3 , S E C A
❑A L E K H YA K M
❑C H I N M A I M
❑D E E P I K A R
❑D R U PA D P
❑F O U Z I YA
❑G A N E S H P S
❑P R A S A N T H V
❑K AV I T H A K
❑R A J E S H K
❑V I N D H YA L K

Introduction / Background
❖ In the fiscal Year end of 2002, Ray Gilmartin, CEO was under pressure since stock market
had trailed that of competitors' & concerns had surface about the strength of Merck’s pipeline
due to lack of Marketing strategy.
❖ In 1917, the US Government seized the stock of all German-held subsidiaries, the Merck
family and other investors bought back the company’s stock and incorporated as U.S. firm
with no ties to Germany Parent. By the start of World War II Merck Research Labs was the
leading pharmaceutical research institution in US. It had a world class reputation attracting top
researches in the field s of Chemistry, Biology and Pharmacology.
❖ Three of the key technologies of the period – Vitamins, antibiotics and hormones were
developed at MRL.
❖ In 1970, it revolutionized pharmaceutical research. Dr. Roy Vagelos was recruited as head of
MRL & opened entirely new therapeutic areas and enhanced its reputation for bringing
breakthrough drugs to the market, many of them were blockbusters. In 1980’s, sales more than
double, profits tripled. 1987 to 1990, each year, the company was among the top 10 most
valuable companies ranked by Business week.

A “Science-Led” Company
• MRL was led by top scientists with a core strategy & its success was manifested in leadership
in patent filings in 1990s.
• In 1980s and early 1990s Roy Vagelos ran Merck with “Chairman’s Staff”. The EVP of Human
Health Sales & Marketing was sole line manager and the single point of market contact. Under
EVP, marketing functions was organised geographically.
• The first decisions are made by scientist & veto decisions are made by scientist.
• Lack of marketing role in the organization
Organization Change at MERCK
↗ Market Share of generic prescription drugs in units sales increased from 19% in 1984 to 43%
in the 1996.
↗ Smaller companies entered the drug discovery & development business in collaboration with
Merck’s competitors.
↗ Product exclusivity periods declined sharply as competitive drugs with the same category
emerged more rapidly than before.
↗ The biggest change was Managed care organizations (MCOs) began restriction in type,
number & prices of drugs on their formularies.

Approach to Manage Organizational Change
✓ Roy Vagelos launched a program called the “New Reality” which is research-driven business
model.
✓ It featured company wide cost cutting measures to address declining markets.
✓ Senior Management preferred organic growth & Pfizer was not ready for merger.
✓ Vagelos championed vertical integration to manage cared to Medco Containment Service
acquisition.
❑ Conflict with product between
Merck & Pfizer, Merck’s
organization structure was not
operating effectively. It shows the
inadequacy in marketing &
inadequacy between research &
marketing team.
MERCK Pfizer
▪ Introduced new drug Zocor in reducing
Cholesterol, was not able to command the
Cholesterol market for very long
▪ Recognizing the gap teamed up with Warner-
Lambert in 1996 & introduced new Cholesterol
drug “Lipitor” which was twice effective as
Zocor
▪ Zocor – Triglyceride's data was not included on
the label
▪ Label stressed its efficacy in lowering
Triglycerides
▪ Market Share 27% ▪ Within year a year market-share was 26% & it
had 28% new prescriptions
▪ Targeted patients through DTC marketing
▪ DTC marketing was often viewed as distaste ▪ Targeted patients through DTC marketing

Re-organization of Merck
➢ In June 1994, Ray Gilmartin was hired to succeed Roy Vagelos as CEO of Merck.
➢ A new marketing philosophy was introduced to re-capture industry eminence &
commercial success.
➢ Marketing was divided into domestic & international marketing.
➢ Introduced more line managers to report directly to him.
➢ Eliminated position of EVP of Human health & replaced with three marketing presidents
who reports him directly.
➢ Product and Cycle time excellence process, a protocol for communication between MRL,
manufacturing & marketing during the drug development process.
➢ A new Marketing concept was introduced in US “Franchise Business Groups” which
added a layer of marketing jobs with strategic and line responsibility which provided
career paths for ambitious marketing employees.
➢ Introduction of Worldwide Business Strategy team to link the functions with cross-
functional organizational structures to focus on franchise strategies and implementation.

Conclusion & OB Concepts
Changes at Merck done by Ray Gilmartin
• PACE Process & WBSTs were formed.
• Cross-functional resources to maximize the value of each franchise group.
• Maximizing the value of the drug label.
• MRL participated in customer focus trying to improve understanding of lifestyle &
compliance issues.
Problems in WBST
• Gilmartin avoided creating formal lines of hierarchical control between WBSTs and the
functions.
• Head of WBST had no decision making authority, which resulted lot of variation in the
effectives of different WBSTx.