The events that Merck encountered in the early 1990s have brought the company under intense economic and political pressure. Managed Care Organizations (MCOs) lowered the prices of drugs since they gained more control over drug prices and alone accounted for 75% of drug purchases. Generic substitutes put more pressure on the pharmaceutical industry. In addition to the election of President Bill Clinton in 1992, who exerted political pressure on the high profit margins of pharmaceutical companies and their alleged contribution to runway U.S. health care costs.
Merck CEO, Vagelos at that time, initiated a series of actions to adapt the company to the pressuring circumstances. The immense outside pressure created a sense of uncertainty and ambiguity which is best explained through the political frame. Vagelos actions demonstrated the power of the political frame which is demonstrated by his firmwide cost-cutting campaign. He also inclined to lay off his employees by his managed headcount and cut all waste strategies.
Vagelos exerted a structural act by moving the corporate headquarters from its historic home in New Jersey to a 30 wooded campus near Whitehouse Station. The old headquarter was alongside the company research and manufacturing facilities, but the new site was merely corporate and isolated from the company’s other divisions. This move has weekend the sense of family and relationship through the human resource frame. Although, Vagelos claimed a human resource face to create a new corporate culture to prepare the company to meet external challenges, but his acts spoke of power and conflict through the political frame.
The political frame created more confusion for Merck employees especially after Vagelos name Richard Markham as president of the company, who resigned after six months leaving the company in more confusion. The absence of the human resource and the symbolic frames has caused morale of company employees to decrease and there was a perception that Merck was losing its way as a company.
Advantages and Disadvantages to Merck
Advantages for the political frame are the practice of power in face of uncertainty and confusion. However, the political frame created more confusion and the sense of team was lost. Advantages of the human resource frame builds on the sense of family and strong relationships to embrace the company for exerted pressure. The advantages of the symbolic frame are ability to handle complex and uncertain conditions of the company.
Evaluation of Gilmartin Performance in Creating Change:
Gilmartin has introduced so much change in Merck to enable the company to survive economic and political outside pressures. His performance would be evaluated in this section using the keys to a successful change introduced by Tucker in 1995. The following objects need to be clearly identified: need, objectives, participation, broad guidelines, details by group, benefits of change, and giving rewards.
At first the need to change is identified at Merck to be initiated by the increasing economic and political pressure that was imposed on the company during 1992-1993. The change outside the company signalled change inside Merck. The company strategy and organization was compelling especially after the departure of CEO Roy Vagelos. The objectives of this change were to increase company sales, and revenues, increase morale, develop a sense of direction for the company for the future.
Guidelines of the change were to maintain the established high ethical standard of the company while developing the tradition of scientific excellence through a cross-function function.. Participation in the change was mainly administrated by the groups that maintain the company; its employees and management, in addition to stockholders. The benefits of this change were to achieve the objectives mentioned in the previous section. In addition to increased earnings and established a sense of direction for the future to come.
Rewards for this change were given to employees’ due to their positive view of Merck. Employees were also very pleased with the progress Merck had on management training and leadership development. Employees were also pleased with the their much developed communication among students.
The rationale for my analysis considered the political and economic pressures exerted on the company in addition to decreasing income and revenue pressures which created the need for the analysis. Objectives aimed at the improvement of the initial status presented. Guidelines were the specific way Gilmartin followed to achieve his objectives. Participation pointed out the affected or participating elements that would be changed. The benefits gained from this change are at best when they match the objectives or even outperform what was expected as the outcome of change. Rewards are the benefits to participants.
Stakeholders of the Recall of Vioxx:
The 2004 Merck announcement concerning its recalling of the arthritis medicine; Vioxx, has caused the company stock to decrease by 27% on the following day. In 2005, Merck has set aside $685 million for Vioxx’s legal defense for more than 11,000 cases. The internal and external stakeholders are: Patients taking Vioxx, the United States Food and Drug Administration, Merck ; Company Shareholders, and other pharmaceutical firms.
Negative Impact of Vioxx Recall:
The potential negative impact of the recall of Vioxx, the most successful product launch in the history of Merck is multi-sided to include many losses. The financial losses were estimated to be ten percent of total expected sales per year which amounts to $2.5 billion per year (Appleby ; Matt 2004). The financial loss is further to be enlarged by the large number of lawsuits filed against the company. However, the bold legal strategy that Merck took to fight every individual Vioxx law suit on a case by case basis is expected to dampen the effect of litigation. Merck accepts to take the cost of one billion dollars in litigation fee rather than open the door for settlements which would be devastating with the entrance of thousands of new law suits. Merck hopes that the waiting game would cause many plaintiffs to back off.
The reputation of Merck also sustained great damage. It is believed that Vioxx is responsible for some disastrous health outcomes. Merck is shown to care all about business with less integrity towards doing what’s right for its customers. However, it is the reputation of Merck relative to other pharmaceutical company’s that really determines the extent of damage to Merck’s reputation.
In reaction to the increasing economic and political pressures on Merck, Vagelos should have followed a combination of symbolic and human resource frame to better mobilize the company to sustain the encountered pressures. He should have built on the strong emotions and relationships between company employees who were developed during the company golden age 1992-1993. He also could have adhered to his alleged symbolic frame and created a symbol for the company to adhere to until hard times have passed through.
Recommendation to Merck:
It is recommended that Merck pursuit the development of new products to make up for the decrease in total sales that resulted from the recall of Vioxx. The company should also improve its reputation within the pharmaceutical industry through the involvement in a number of ethical activities to the community. Merck could re-establish its reputation by blaming the FDA for not recalling the drug after learning of Vioxx’s risks. Merck could work with FDA to change its approval process to ensure the safety of future drugs.
Appleby, J. & Matt, K. (2004). Merck estimates $2.5B impact from pulling Vioxx plug. USA Today Posted 9/30/2004 obtained on October 15, 2007 from http://www.usatoday.com/money/industries/health/drugs/2004-09-30-merck-cover_x.htm
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