Merck on a self-destructive course with its Vioxx strategy
When we at iProceed established a strong correlation between good strategy and business, we also found that there was even a stronger correlation between bad strategy and eventual death of a company. A company that provides an excellent example of really poor strategy is Merck.
Despite Merck’s Vioxx liabilities estimated by us at $65 billion (and now we think it is a very conservative estimate), there has been no change in Merck’s legal or business strategies. When last month, Merck announced that it might settle some lawsuits, I praised a change in strategy. How stupid I was to pay attention to what the company said. In a conference call today, Merck executives said several times that the company will fight each case individually. In fact I got the impression that they even want to back off from settlement talks. “We will have to make decisions about what’s the right way to proceed with those cases,” Ken Frazier said. To me it appears that the company management has is in disarray and they have no clue what they are doing or saying. Not the best way to get out of this mess.
Things just don’t stop there. Remember when people say that when you do the same things, only idiots expect different results. So while Merck’s legal strategy did not work in the Carol Ernst case, the company is so arrogant that it does not want to admit its mistakes. It is sticking to its original strategy and legal team. Good for all the trial lawayers who know exactly what to expect. Nobody knows what the outcome of the Humeston trial will be, but what I am afraid about is that the company is stuck. Since it does not know what to do, it is trying every desperate measure it can to convince Wall Street that it is a company to be taken seriously.
But finally I am seeing that some analysts on Wall Street are finally starting to see how much trouble Merck is in. “Lack of earnings growth until 2009, a below-average (although improving) pipeline score, and an overhang from ongoing Vioxx litigation will keep a lid on the stock, in our opinion,” says Bear Stearns. This is a good start. I am hoping that other analysts will take it from here and come up with more realistic assessment of Merck’s future.
So what does it mean for you?
If you know something is not working, it is a great idea to admit your mistake and change course. Trust me – you will be admired for it because you are more likely to succeed that way. Strategy formulation should be an objective and impersonal exercise. Strategy is too complex to get it right. That is why it is good to keep it as a living document that changes as the environment changes.
Recommended article: Lessons to learn from Merck’s handling of Vioxx recall
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