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[Solved] Corporate Transformation at Merck KGAA Case Study Solution

[Solved] Corporate Transformation at Merck KGAA Case Study Solution is the case study from HBR. The case narrates the transformation of a family-owned business into a multinational organization. The case narrates the entire journey of the transformation, governance, and leadership changes in the organization and eventually delivers for the stakeholders.

Corporate Transformation at Merck KGAA: Case Introduction

Before Stefan Oschmann took over as CEO and chairman of the executive board at Merck KGaA in Darmstadt, Germany in 2016, the company had already begun its transformation from a mid-tier traditional German industry player into a global modern science and technology player. When Oschmann joined Merck KGaA, the company was already a major player in both industries. Oschmann’s predecessor, Karl-Ludwig Kley, led a restructuring and portfolio overhaul at Merck from 2007 to 2013, and it had the blessing of the company’s founding family, which was now in its 13th generation and still owned the majority of the shares.

Very promising early results were found in the study. Due to an internal optimization program and the purchase of three major companies—Serono, Millipore, and Sigma-Aldrich—revenues and profits more than doubled in the ten years leading up to 2016. These buyouts allowed the company to expand into new industries, such as life sciences and performance materials, in addition to healthcare and pharmaceuticals. However, more effort was required.

Since the company’s 350th anniversary was coming up in 2018, Oschmann maintained the rate of change by announcing additional divestitures and restructurings. Workers responded to the news, expressing growing exasperation over the new measures, and they noted that Oschmann had maintained the pace of change. Oschmann and his executive board were tasked with figuring out which of the company’s strategic options would be best for the consumer health division in the fall of 2017. Should they get rid of a division that isn’t profitable on its own but is symbolic of the company’s origins because of the household names associated with its pain and cold remedies?

Corporate Transformation At Merck: Strategic intention of various CEOs to Merck from the 1970s

In the course of the case, we find 4 CEO from the 1970s

Hans Joachim Langmann (1970-2000), who served as the CEO for thirty years. He was a scientist by background and a member of the family

Bernard Scheuble (2000-2007)– A company old guard with 19 years of experience in Merck with a specialization in operations

Karl Ludwig Kley (2007-2016) was appointed An outsider with strong executive experience in Bayer and as CFO of Lufthansa

Oschmann (2016- Onwards) – Joined as the head of the Healthcare division in 2011 and became Deputy CEO to Kley. He assumed his role in April 2016

Corporate Transformation at Merck
Corporate Transformation At Merck: CEOs and Tenure

Corporate Transformation At Merck: Strategic Initiatives

CEOStrategic Priorities
LangmannAcquired and created various companies and subsidiaries outside Germany Led Public Listing of MKDG in 1995 – Focus on Outside Capital for Expansion Created significant value for the organization and made Merck 700 million (DM) to & 7 Billion Euros
ScheubleDidn’t pursue the path of his predecessor of expansion by acquisition Sold of parts to the business to achieve higher profits
KleyStronger Portfolio Management as there was huge variability in revenues and performance of various divisions Diverse out of the “Cash Cow” Crystal Liquid Business Replacing the geographical Managing Directors with a New Leadership organization to represent the emerging needs of geographies – fast growth in Asia, reduce dependence on Europe and focus on the business in the USA Led the following

Three Major Acquisitions:  
a.Sereno (2006): Swiss Biotech Firm which had led in a very Niche Market in the USA with patented drugs like Rebif. Cemented the scale of KGAA in the USA with combined revenues of 1 Billion Dollars Post Acquisition Integration:

Relocation of Combined Pharma headquarters in Geneva Led Major cost savings eventually and developed new synergies between German and Swiss organizations Leading to the attrition of 80% of manpower in both organizations

b.Millipore Acquisition (2010)- Major supplier of Lab equipment and service provider Helped in Diversification of the life sciences into a third pillar Worked towards cementing the already developed synergy between both organizations

c.Sigma-Aldrich (2015): Cemented its leadership in the Pharma Business Epi-Centered the Pharma business to the USA, its largest market Similar working culture led to the development of significant synergies between both organizations  

Fit for 2018 initiative: Transform the Darmstadt site into a contemporary headquarters Creation of new R&D centers, and define the commitment to the home base  

One Company Initiative: As the company was growing bigger with acquisitions and business expansion Significant investment in branding Creation of Vibrance in the branding which would attract new talent and customers
Corporate Transformation At Merck: CEOs Initiative
OschmannOschmann was the right-hand man for the Kley and supported many initiatives. He focused primarily on employee engagement, the creation of a redefined employee culture, and small empowered groups to advance R&D.  

Foster Collaboration and brought a strong employee focus operational Efficiency and Debt ReductionRapid R&D through Gold pass and Promise Ventures

Enacted new employee surveys and acted to support the disengaged group’s significant

Focus on DigitizationFocus on Key Business Areas by divesting the Biosimilar division to focus on key business areas
Corporate Transformation At Merck: CEOs Initiative
Corporate Transformation at Merck
Corporate Transformation At Merck: Summary

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Corporate Transformation At Merck: Impact of the Initiatives

  1. Family-Owned Business to a Truly Global One: Breaking the silos of a family-owned business and making it a truly global one with a strong presence in many emerging economies in Asia and with a significant presence in its biggest market USA
  2. Developing Synergies: Worked towards synergies by the acquisition of organizations of various scales and creating significant economic and people values
  3. Growing out of Home Country: Generally, family-owned businesses struggle to grow out of their home countries, Germany in the case of Merck. However, with Oschmann, they become a truly global company
  4. Future Readiness: Family Owned Businesses tend to settle for the status quo with less investment in technology and digitization. In Merck’s case, we see that CEO’s vision has made it truly digitized and future-ready with a great employee culture
  5. Strong Financial Footing: The Vision of these three CEOs has made Merck Truly a darling of the stock exchange and proves the financial behemoth of the organization in a field that has significant barriers to entry. Hence, we can expect Merck to have a significant competitive advantage in the future also. Added is the stock price performance for reference.
Corporate Transformation at Merck
Corporate Transformation At Merck: CEOs Initiative: Shareholder Value Addition

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