Merck & Co Inc Case Study Analysis Analyze Merck case in DETAILS: A well-written case analysis is characterized by clear organization of information, thou

Merck & Co Inc Case Study Analysis Analyze Merck case in DETAILS:

A well-written case analysis is characterized by clear organization of information, thoughtful analysis, and realistic, workable solutions to the problems presented in the case. Make sure that your analysis is not merely a rehash of the case: do not copy sections from the case.

things to consider along with other questions:

1. Corporate strategy and business (or competitive)strategy

What have been the key elements of the company’s corporate strategy up until the time of the case? What is the company’s business strategy? What role does corporate culture play in the implementation of the company’s strategies?

2. Industry analysis
Define the industry to which the company belongs. Using Porter’s five forces model, analyze the competitive forces in this industry. Discuss those factors or problems which are most important for this industry and why they are important.

3. Company situation analysis

Make lists of internal strengths, internal weaknesses, external opportunities, and external threats. Be sure to include analysis of financial information in examining the company’s internal capabilities. Based on your analysis, summarize the major strategic issues facing the company and industry.

4. Recommendations

Select and describe a strategy for this company. Your strategy recommendations should be justified in terms of how well they deal with environmental threats, take advantage of opportunities, minimize internal weaknesses, and utilize the organization’s competitive strengths.

More details about what to cover in the case analysis is attached.

Attached is:

– The Case itself

– Instructions

-How to analyze a case slides

– How to analyze financial ratios

-an example of answering questions

Please message me if you need more explanation. MGMT 497
Framework for Business Case Analysis
1. STRATEGIC ANALYSIS
A. Specific Types of Strategies Pursued
Evaluate the main components of the company’s strategy and how well the strategy is executed. Identify the
key success factors for the company, and understand how the company gains and maintains its competitive
advantage. Think about the potential merits (pros) and drawbacks (cons) of the company’s strategy as well.
A.1. Corporate-Level Strategies: Based on “big picture” analysis, these strategies identify and guide a
company’s overall strategic direction (including decisions on which product or service markets to
compete in, which geographic regions to operate in, and how company resources should be allocated):
o Growth (through internal development or external activities through mergers and acquisitions,
strategic alliances and partnerships, and/or licensing agreements)
Vertical Integration – Seeking ownership or increased control over distributors/retailers
(forward integration) or over suppliers (backward integration)
Horizontal Integration – Seeking ownership or increased control over competitors
Related (Concentric) Diversification vs. Unrelated (Conglomerate) Diversification
Domestic Growth vs. International Growth
o Stability – Pause, digest, and consolidate after rapid growth or some turbulent events
o Retrenchment – Turnaround through cost cutting, downsizing, divestment, and/or spin-off
A.2. Business-Level Strategies: What are the specific business strategies (including tactics and actions)
the company employs to gain and maintain a sustainable advantage over the competition? Possible
sources of competitive advantages include but not limited to the following:
o Business Model Innovation
o Customer Value Creation
o Technological Innovation
o Process and/or Operations Innovation
o Product and/or Service Innovation
A.3 Generic Competitive Strategies: Which type of generic competitive strategy best describes the
competitive approach taken by the company? There are five possible such strategies:
o Broad Low-Cost Leadership Strategy
Striving to achieve lower overall costs than industry rivals.
o Broad Differentiation Strategy
Striving to build customer loyalty by differentiating one’s product offering from rivals’.
o Best-Cost Provider Strategy
Striving to give customers more value for the money by incorporating good-to-excellent
product attributes at a lower cost than rivals.
o Focused Low-Cost Strategy
Targeting on a narrow market segment, out-competing rivals on basis of lower cost.
o Focused Differentiation Strategy
Offering a niche group of customers a product or service customized to their needs or tastes.
B. General Strategy-Related Issues and Questions
o What are the key elements of the company’s strategy to gain a competitive edge over rivals?
o What important strategic issues and problems does the company need to address?
o What are the specific areas the company should focus on to enhance its performance?
o What recommendations (in terms of possible actions and strategic changes) would you make to help
the company improve its profitability and strengthen its competitive position?
o Does the recent acquisition (if any) make good strategic sense for the company?
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MGMT 497
Framework for Business Case Analysis
2. INTERNAL ENVIRONMENT ANALYSIS I
A. Identify the Key Elements of the Corporate Culture
B. Assess Specific Strengths and Weaknesses (by area of operations):
o Marketing & Sales
o Operations Management
o Research and Development (R&D)
o Human Resource Management (HRM)
o Finance
C. Comparison with Major Competitors
What are the company’s main competitive strengths compared to its rivals? What makes this company
different from its competitors? What areas need the most improvement within the company?
3. INTERNAL ENVIRONMENT ANALYSIS II
A. Financial Ratio Analysis
o Liquidity Ratios
o Efficiency (or Activity) Ratios
o Leverage Ratios
o Profitability Ratios
Calculate and evaluate these financial ratios for the company (see an additional handout available at our
class website based on the financial data given in the written case.
What is your assessment of the change in the company’s financial conditions over the recent fiscal years
covered in the written case?
Note: Not all the company cases provide a complete set of financial data for financial ratio analysis. If you
are not able to calculate any specific ratios due to insufficient data, you will not be responsible for such
ratios in the exam. In addition, some financial ratios may be modified and have an alternative formula. To
avoid discrepancy and maintain uniformity, your financial ratio calculation should be based on the formulas
given in a separate handout.
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MGMT 497
Framework for Business Case Analysis
4. EXTERNAL ENVIRONMENT ANALYSIS I
A. Macro Environment and Trends (Actual and Perceived)
Identify different forces that are, or will be, driving changes in the industry and the company’s business
environment. Some of these possible trends may not be directly discussed in the written case. Hence, you
may need to add your own analysis of their relevance.
Evaluate External Opportunities and Threats to the Company’s Growth:
o Economic Trends
Product sales depend on the general demand and cost conditions. Changes in macroeconomic
conditions (e.g., changes in unemployment rates, interest rates, credit availability, currency rates,
stock prices, wages, disposable income, budget deficits and taxation, and fuel and commodity prices)
can threaten or enhance the profitability of an industry.
o Demographic Trends
Changing customer demographics (e.g., aging population, changing gender composition, changing
racial and ethnic composition, changing life expectancy, and rising education levels) can spur new
growth opportunities for some businesses but present threats to other businesses.
o Social and Cultural Trends
Social changes (e.g., growing health consciousness, increasing environmental awareness, increasing
traffic congestion, rising number of single-parent or two-working adult families with kids, changing
attitudes toward saving, changing attitudes toward leisure time, changing tastes and preferences,
changing lifestyles, and rapid growth in internet users) can create opportunities and threats as well.
o Technological Trends
Technology changes (e.g., advances in materials engineering, manufacturing techniques, information
technology, and wireless communications) can present opportunities and create threats. They can
make established products obsolescent overnight, but they can also create new products and new
manufacturing and product distribution processes.
o Political and Legal Trends
Changes in political and legal factors (e.g., unionization, market regulations or deregulations, tort
reform, antitrust legislation, import-export regulations and taxes, government subsidies, defense
expenditures, state and national elections, political relationships with foreign governments, changes
in patent laws and intellectual property protection laws, changes in environmental protection laws,
government policy changes, and changes in political conditions in foreign countries) can open up
new opportunities and create threats as well.
o Global Environment Changes
Changes in international markets (e.g., exchange rates, free trade agreements, globalization of
businesses, and can create new growth opportunities for some industries but also open up other
industries to greater international competition. Changes in geopolitics can also have significant
economic and business implications for an industry.
B. Industry Environment Analysis
B.1. General Analysis
o What are the main business and economic characteristics of the relevant industry?
o What are the major issues facing the industry under discussion?
o What factors do you see as critical to competitive success in the industry?
o What are the key factors contributing to the company’s success in the relevant industry?
o What accounts for the company’s weak showing in the industry?
o How is the industry changing? What are the major forces/factors driving change in the industry?
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MGMT 497
Framework for Business Case Analysis
5. EXTERNAL ENVIRONMENT ANALYSIS II
A. Michael Porter’s Five Forces Analysis
The five forces essentially define the nature and the strength of competitive pressures a company faces in the
industry. For details, read Michael Porter’s article in Harvard Business Review (2008, pp.79-93):
o Rivalry Among Existing Competitors (including domestic and foreign companies)
This is about the competition among existing players in the industry. Is there strong competition
between the existing players? Is there one player very dominant in strength and size?
o Threats of New Entrants (possible barriers to entry)
This covers the possibility of new competitors entering the company’s market. How easy or difficult
is it for new entrants to start competing at a significant level?
o Bargaining Power of Suppliers (materials, parts, service inputs, or intermediate or finished goods)
This includes suppliers’ power to set delivery schedules, quantities, prices, and standards. How
strong is the position of suppliers? Do many potential suppliers exist or only few potential suppliers?
o Bargaining Power of Buyers (consumers or distributors)
This includes customers’ power to set delivery schedules, quantities, prices, and standards. How
strong is the position of buyers? Can they work together to influence the terms of transactions?
o Threats of Substitute Products or Services (including substitutes offered by firms in other industries)
This covers the possibility of a new technology, product, or service that may make the existing
industry’s product or service much less relevant, if not entirely obsolete (e.g., digital TVs for analog
TVs, DVDs for VHS tapes, PCs for typewriters, and digital films for photographic films; whereas,
petroleum oil has no good substitute to date). How easy can a product or service be substituted?
Entry Barriers
• Economies of scale
• Proprietary product differences
• Brand identity
• Switching costs
• Capital requirements
• Access to distribution
• Absolute cost advantages
Proprietary learning curve
Access to necessary inputs
Proprietary low-cost product design
• Government policy
• Expected retaliation
Suppliers
Rivalry Determinants
• Industry growth
• Fixed (or storage) costs / value added
• Intermittent over-capacity
• Product differences
• Brand identity
• Switching costs
• Concentration and balance
• Informational complexity
• Diversity of competitors
• Corporate stakes
• Exit barriers
New Entrants
Threat of
New Entrants
Industry
Competitors
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Intensity
of Rivalry
Determinants of Supplier Power
• Differentiation of inputs
• Switching costs of suppliers and firms in the industry
• Presence of substitute inputs
• Supplier concentration
• Importance of volume to supplier
• Cost relative to total purchases in the industry
• Impact of inputs on cost or differentiation
• Threat of forward integration relative to threat of
backward integration by firms in the industry
Threat of
Substitutes
Substitutes
Determinants of Substitution Threat
• Relative price performance of substitutes
• Switching costs
• Buyer propensity to substitute
Buyers
Determinants of Buyer Power
Bargaining Leverage
• Buyer concentration
vs. firm concentration
• Buyer volume
• Buyer switching costs
relative to firm
switching costs
• Buyer information
• Ability to backward
integrate
• Substitute products
• Pull-through
Price Sensitivity
• Price/total purchases
• Product differences
• Brand identity
• Impact on quality/
performance
• Buyer profits
• Decision-maker’s
incentives
Collectively, these five forces determine a company’s competitive strengths, thus driving its long-term
profitability. You should identify the strength of each force as being strong, moderate, or weak, along
with your supporting arguments. Some points may not be explicitly stated but implied in the case.
Hence, you may need to add some extra reasoning yourself.
-4-
MGMT 497
Some Notes on Financial Ratio Analysis
Profitability Ratios
(1)
Gross Profit Margin (GPM) =
Total Revenues ? Cost of Sales
× 100%
Total Revenues
The gross margin indicates how much of every dollar of sales is left after paying out the costs of goods sold. The margin
reflects the company’s pricing, cost structure and production efficiency. A healthy gross margin is important for keeping
cash flow strong. This financial ratio is not available for some companies like banks and insurance companies.
(2)
Operating Profit Margin (OPM) =
Operating Income
× 100%
Total Revenues
Operating income (or operating profit), which equals gross profit minus operating expenses, tells us show how much
income a company can generate from its own operations. It does not include income from investments in other businesses.
Operating profit margin indicates how effective a company is at controlling the costs and expenses associated with their
normal business operations. It shows how much a company makes (before interest and taxes) on each dollar of sales. A
high operating margin gives management more flexibility in determining prices.
(3)
Net Profit Margin (NPM) =
Net Income
× 100%
Total Revenues
This indicates how much a company actually keeps in earnings per dollar of sales after all expenses (including interest and
taxes) are paid. It shows the company’s ability to sell a product or service at a low cost or a high price. NPM can be
significantly different from OPM in size due to the impact of interest and tax expenses.
(4)
Return on Asset (ROA) =
Net Income
= Net Profit Margin × Asset Turnover Ratio
Total Assets
This is a measure of profit per dollar of assets, a common measure of managerial performance. It indicates how efficiently
the firm uses its assets. Since the return on asset can be expressed as the net profit margin (which shows the level of
operational efficiency) times the asset turnover ratio (which indicates the degree of asset use efficiency), the firm may
increase ROA by expanding profit margins or increasing asset turnover.
(5)
Return on Equity (ROE) =
Net Income
= ROA × (1 + Debt-to-Equity Ratio)
Shareholders’ Equity
It measures how efficiently a company is using shareholders’ money to generate profits. It shows how efficiently the firm
manages its overall operations (including operational efficiency, asset use efficiency, and use of financial leverage).
Financial Leverage Ratios (for Debt Management)
(6)
Debt-to-Asset Ratio =
Total Debt
Total Assets
The debt-to-asset ratio indicates the proportion of assets that are financed with debt (total liabilities that include all shortterm and long-term liabilities). It gauges the degree of the firm’s financing obligations and its ability to meet all these
obligations. It also shows the firm’s ability to obtain additional financing for potential expansion and growth opportunities.
(7)
Debt-to-Equity Ratio =
Total Debt
Total Shareholders’ Equity
The debt-to-equity ratio indicates the relative use of debt and equity as sources of capital to finance the firm’s assets.
MGMT 497
(8)
Some Notes on Financial Ratio Analysis
Interest Coverage Ratio =
Income before Taxes + Interest Expense on Debt
Interest Expense on Debt
This ratio measures the company’s ability to generate enough income before interest and taxes (EBIT) – including both
operating and non-operating income – to meet debt service payments.
Liquidity and Efficiency Ratios
(9)
Current Ratio =
Current Assets
Current Liabilities
The current ratio is one of the liquidity ratios for operation management. It indicates a firm’s ability to meet current
obligations (including accounts payable, short-term notes payable, current portion of long-term debt, accrued income taxes,
and other accrued expenses) with its current assets (including cash and cash equivalents, marketable securities, account
receivables, prepaid expenses, and inventories).
(10)
Quick Ratio =
Current Assets ? Inventory
Current Liabilities
The quick ratio – also referred to as the acid test ratio – indicates a firm’s ability to meet short-term obligations based on its
most liquid assets without liquidating inventories, which are typically the least liquid of a firm’s current assets and may not
be sold for their full price.
(11)
Inventory Turnover =
Total Sales
Inventory
The inventory turnover ratio indicates the average number of times inventories are sold and re-stocked (or turned over) in a
year. It gauges the firm’s ability to manage inventory efficiently.
(12)
Asset Turnover =
Total Sales
Total Asset
The asset turnover ratio is one of the activity (or efficiency) ratios for asset use management. It indicates how effectively
the firm is using its assets to generate sales.
Illustrative Example
Costco:
Profitability Ratios
Leverage Ratios
Liquidity Ratios
Efficiency Ratios
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
Return on Asset
Return on Equity
Debt-to-Asset Ratio
Debt-to-Equity Ratio
Interest Coverage Ratio
Current Ratio
Quick Ratio
Inventory Turnover
Asset Turnover
FY2011
10.69%
2.80%
1.68%
5.46%
11.63%
0.53
1.13
21.54
1.14
0.59
13.11
3.25
FY 2010
10.83%
2.72%
1.71%
5.47%
12.03%
0.55
1.20
19.50
1.16
0.60
13.53
3.20
FY 2009
10.81%
2.54%
1.55%
4.94%
10.84%
0.54
1.19
16.87
1.11
0.53
12.93
3.18
Business Strategies or
How to Analyze a Case
Dr. K. Kwong
MGMT 497
How to Analyze a Case
n? Mission/Vision & Objectives
n? Industry Analysis
n? S.W.O.T. Analysis
n? Current Strategy
n? Recommendations
MISSION Defined
Answers the question:
“What business are we in?” or
“Why do we exist?”
–Customer Needs: What is being satisfied?
–Customer Groups: Who is being satisfied?
Vision Statements
n? Future-oriented; transformative
n? Mission = what is; vision = what will be
n? Companies may have mission or vision or
both
MISSION Defined
Costco:
“To continually provide our members with
quality goods and services at the lowest
possible prices”
OBJECTIVES
= a desired future state that a company
attempts to realize.
Should be:
– precise & measurable
– addressing important issues
– challenging but realistic
– set for a specific time period
– consistent with each other
Types of Objectives
n? Financial
n? Profitability
n? Revenue growth
n? Long-term shareholder value
n? Customer
n? Product/service attributes; relationship; image
n? Internal Process
n? Operations, customers, innovation
n? Corporate social responsibility
n? Learning & growth
n? Human, information, & organization resources
EXTERNAL ENVIRONMENT
ANALYSIS
—? A. Macro Environment and Trends (Actual and
Perceived)
—? B. Industry Environment Analysis
–?
–?
–?
–?
–?
B1. Generic Analysis
Main Economic and Business Characteristics of the
Industry
Identify Factors that are Crucial to Competitive Success in
the Industry
Major Issues and Conditions Facing the Industry
B2. Michael Porter’s Five Forces Analysis
Evaluate External Opportunities and Threats to the
Company’s Growth:
n? Macroeconomic Factors
n?
Product sales depend on the general demand and cost conditions. Adverse
changes in macroeconomic conditions (e.g., interest rates, unemployment
rates, currency rates, and fuel and commodity prices) can threaten the
profitability of an industry.
n? Demographic Factors
n?
Changing customer demographics (e.g., aging population, changing gender
composition, changing racial and ethnic composition, and higher education
levels) can spur new growth opportunities for some businesses but present
threats to other businesses.
n? Social Fac…
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