Discovering the Future at Merck

Characterise Merck’s new strategy for pursuing alliances? How is Merck’s strategy different from that of other pharmaceutical companies that you know? What are the relative merits of this different approach?

In the past, Merck had been conservative in its approach to alliances, despite the virtually unlimited number of opportunities available to the company. Management soon realised that couldn’t maintain its position as a leader without collaborating with external partners such as academic research facilities and small entrepreneurial companies.

To address the issue, Merck made two substantial internal changes in 2000.

1. The budget for external collaboration was increased to eliminate competition between external and internal projects. External projects received their own (presumably equal to internal projects’) budget.

2. A virtual organization was established to handle aspects of the collaborative process ranging from identifying and reviewing opportunities to negotiating and closing deals.

This virtual organization was led by Shapiro who believed that Merck could leverage its internal capabilities better by working together with researchers (academia/small firms). Shapiro also believed in taking steps to battle the NIH syndrome. This was done by making scientists take responsibility for keeping track of innovations outside of the company.

Under the guidance of Shapiro, Merck adopted a collaboration strategy very different from its competitors. Shapiro believed that rather than simply engaging in more external collaborations, it was necessary to set Merck apart from other companies. To do this he maintained 3 guiding principles:

1. Parallel Internal and External Programs

Previously, rival companies used Merck’s external collaborations for which it lacked internal capabilities to rapidly enter relevant markets. By running