Merck Case

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Pharmaceuticals: Merck Sustaining Long-term Advantage Through Information Technology

Hiroshi Amari Working Paper No. 161

Working Paper Series Center on Japanese Economy and Business Columbia Business School December 1998

Columbia-Yale Project: Use of Software to Achieve Competitive Advantage

PHARMACEUTICALS: MERCK
Sustaining Long-term Advantage Through Information Technology

Prepared by

Hiroshi Amari Research Associate, Yale University

William V. Rapp and Hugh T. Patrick Co-principal Project Investigators

Center for International and Area Studies Yale University New Haven, CT 06520 203-432-9395 (Fax: 5963) e-mail: william.rapp@yale.edu Revised December 1998

Table of Contents
1. Introduction: Objective of this Study 2. The Pharmaceutical Industry in a Global Context 3. Product R&D and Clinical Trials 4. Manufacturing and Process R&D 5. Technological Factors Structure-Based Drug ("Rational Drug") Design Structure-Based Drug ("Rational Drug") Design 6. Merck 7. Managerial Decision Making 8. Decision Making on IT projects 9. Joint Ventures 10. Information Technology and Organization

11. Appendix I - Summary Answers to Questions for Merck - Strategy & Operations 12. Appendix II - INDUSTRY AND FIRM BUSINESS DATA 13. Bibliography

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Introduction: Objective of this Study This case study of Merck was completed under a three year research grant from the Sloan Foundation. The project's purpose is to examine in a series of case studies how U.S. and Japanese firms who are recognized leaders in using information technology to achieve long-term sustainable advantage have organized and managed this process. While each case is complete in itself, each is part of this larger study.1 This pharmaceutical industry case together with other cases2 support an initial research hypothesis that leading software users in both the U.S. and Japan are very sophisticated in the ways they have integrated software into their management strategies and use it to institutionalize organizational strengths and capture tacit knowledge on an iterative basis. In Japan this strategy has involved heavy reliance on customized and semicustomized software (Rapp 1995) but is changing towards a more selective use of package software managed via customized systems. In turn, U.S. counterparts, such as Merck, who have often relied more on packaged software, are doing more customization, especially for systems needed to integrate software packages into something more closely linked with their business strategies, markets, and organizational structure. Thus, coming from different directions, there appears some convergence in approach by these leading software users. The cases thus confirm what some other analysts have hypothesized, a coherent business strategy is a necessary condition for a successful information technology strategy (Wold and Shriver 1993).3 These strategic links for Merck are presented in the following case. Industries and firms examined are food retailing (Ito-Yokado and H. Butts), semiconductors (NEC and AMD), pharmaceuticals (Takeda and Merck), retail banking (Sanwa and Citibank), investment banking (Nomura and Credit Suisse First Boston), life insurance (Meiji and USAA), autos (Toyota), steel (mini-mills and integrated mills, Nippon Steel, Tokyo Steel and Nucor), and apparel retailing (WalMart). The case writer and the research team wish to express their appreciation to the Alfred P. Sloan Foundation for making this work possible and to the Sloan industry centers for their invaluable assistance. They especially appreciate the time and guidance given by the center for research on pharmaceuticals at MTT as well as Mr. Sato at Takeda. This refers to cases for which interviews have been completed. See footnote 3. These and other summary results are presented in another Center on Japanese Economy and Business working paper: William V. Rapp, "Gaining and Sustaining Long-term Advantage Through Information Technology: The...
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