Introduction
Ethics is an important concept which enables people to observe high moral standards in all their dealings. In the case of Merck Company, the firm took important steps to address different problems that resulted from selling a defective drug known as Vioxx to various consumers in the market.
The aftermath of the scandal elicited different reactions from both consumers and other organizations due to negative effects that were experienced by some patients after taking it. This case shows that modern organizations need to be more responsible in their dealings to avoid selling products which are likely to endanger their customers’ health.
Vioxx was sold to more than twenty million during the four year period it was in the market that is from 1999 to 2004. Consequently, it earned the firm more than 2.5 billion dollars in sales by the time it was withdrawn from the market in 2004. However, the negative publicity associated with the firm’s unethical practices made it lose a significant portion of its market value by more than 27 billion dollars.
. The failure by the firm to implement high ethical practices had a negative impact on its image in the market. Therefore, the firm found itself on the defensive due to its failure to take its moral and ethical obligations in the industry seriously. Even though it later used product labels to warn customers about the side effects of Vioxx, the firm continued to reap rewards from the drug despite the dangers it posed to consumers.
Therefore, the firm’s failure to address safety concerns associated with the product before it was launched into the market exposed it to many risks which were harmful to its long term operations. This paper will discuss various ethical factors which can be associated with Merck Company and how they impacted on the firm’s operations in the industry (Giacalone & Thompson, 2006, p. 270).
Summary
The role of ethics in any organization helps it to understand its responsibilities to help it relate better with its customers and employees. Therefore, all organizations need to work harder to avoid the situation which Merck found itself in after releasing a faulty pharmaceutical product in the market.
Vioxx which was intended to treat arthritis pain had undergone a lot of marketing which helped it to become successful after it was certified by the Food and Drug Administration in 1999. The financial rewards which the firm realized from the sale of the drug were immense and on average it earned more than 2 billion dollars annually.
This was about 10 percent of the firm’s total sales revenues obtained from the pharmaceuticals market each year (Culp & Berry, 2007, p. 7). However, even though the firm had invested large sums of money to market the product, it failed to conduct appropriate studies to measure if it was safe enough to be consumed by people.
In the 1980’s and 1990’s, the firm had managed to maintain a reputation of ethical responsibility to its clients and had won several awards as one of America’s most loved companies. However, the firm’s problems began with the appointment of Raymond Gilmartin, as its top leader, despite the fact he had did not have any previous training in pharmaceuticals.
After the drug’s launch into the market, patients who took it to lessen their pain began experiencing different side effects. Some patients’ health deteriorated after taking the drug and several cases were publicized in the media to show the adverse effects of the drug on consumers. S
ome studies conducted by independent medical experts showed that patients who consumed the drugs had a higher risk of getting heart attacks and strokes (Culp & Berry, 2007, p. 13). Even though the firm attempted to make more upgrades on the drug, its own clinical tests showed that Vioxx was not viable in the long run.
After this discovery, there was conflicting opinion in the firm with some experts advocating for its withdrawal from the market. Other experts encouraged the firm to use appropriate labels, which had instructions on how it should be used. However, after lengthy discussions between the head of research Peter Kim and other senior executives, the firm decided to withdraw the drug from the market due to safety concerns.
Soon after, the company announced the decision to take the drug off the market to control the damage which had already been done. Since it had willingly withdrawn the drug without being compelled to do so by the FDA, the firm showed that it cared about its professional image in the industry (Green, 2007, p. 751).
The firm also demonstrated that it was willing to sacrifice its long term objectives to safeguard the wellbeing of its customers in the market.
However, even though the drug’s withdrawal from the market was a noble gesture, some people questioned why the firm had failed to see such a problem for close to five years. In addition, the marketing strategy which the firm used to attract consumers misled arthritis patients that Vioxx was going to alleviate their pain.
This encouraged more people to purchase it without taking time to understand how it was going to serve their healthcare needs. The failure by the FDA to heed the warnings of its researchers regarding potential side effects associated with the drug also came under more scrutiny (Green, 2007, p. 754).
Consequently, its laxity in enforcing the rules caused the drug to be sold to customers who did not have important information about the potential dangers they were exposing themselves to.
Two Direct and Indirect Forces
The two direct forces from the task environment which the firm has to contend with are: high quality operational practices and high transparency standards. On the other hand, two indirect forces from the general environment which impact on the firm’s operations in the industry include: stringent regulatory standards and increased consumer awareness.
High Quality Operations
High quality operations enable business firms to plan ahead so that they can develop beneficial synergies with their stakeholders to strengthen their performance in their respective industries. Therefore, this allows an organization to streamline its functions to produce high quality products which satisfy the needs of its customers in the market.
As a result, firms that have high quality operations focus on increasing the value of their brands in specific markets they serve to ensure they attain good results in the long run (Pohlman & Gardiner, 2000, p. 76). Consequently, this enables a firm to understand the needs and interests of its customers and employees to develop mutually beneficial relationships with them.
The firm has integrated various functions to help it achieve high quality results from its operations. Merck has competent research professionals who carry out routine tests on its products to ensure they satisfy high quality standards set. In addition, the firm has focused on improving the skills of its employees to make them more capable of dealing with different challenges they face in their workstations (Pohlman & Gardiner, 2000, p. 79).
As a result, managers delegate some tasks to their subordinates and this enables them to use high quality problem solving techniques to achieve good outcomes.
The firm uses feedback from its customers and other stakeholders in the industry to find out specific areas of its operations need to be improved to help it attain its objectives in the industry. As a result, the firm uses information obtained from customer feedback to understand their concerns and how they can be addressed to make them have positive perceptions towards it (Weiss, 2009, p. 67).
The use of integrated marketing communications approaches allows the firm to acquire valuable insights regarding general consumers’ attitudes and how they are likely to affect the quality standards it has set in its operations.
Transparency
This is an important force which enables modern firms to establish relationships based on trust with all their stakeholders. Many business firms encourage external inspectors to vet their systems to find out if they satisfy high quality standards which they have set for themselves in different industries which they operate in (Weiss, 2009, p. 69).
Transparency allows a firm to share information with its customers, shareholders and employees regarding its financial earnings and its future plans in a given industry.
Merck has instituted policies which encourage all employees in the firm to be more open with one another to prevent unnecessary problems. In addition, the firm allows external bodies to assess its systems and products to find out if they have any defects that may affect their performance in their respective markets.
This enables the company to sell products which have been certified as safe to different consumer groups (Weiss, 2009, p. 71). Consequently, this approach has allowed the firm to develop important networks within the industry which are beneficial to its operations.
The company uses this force to share important information with customers related to its financial and non-financial functions. As a result, this allows it to take part in different types of corporate social responsibility initiatives to strengthen its reputation.
In addition, the firm has more effective public relations campaigns which enable it to respond to different issues which affect its customers in the industry (Minkes, Small & Chatterjee, 1999, p. 331). Consequently, this has allowed the firm to put in place more effective information controls to ensure that it serves the needs of different customer categories that rely on it more effectively.
Stringent Regulatory Standards
Stringent regulatory standards enable business firms to observe high quality practices in their industries. Since they are enforced by a single body, a firm is able to understand the expectations it must satisfy to enable it to sell various commodities in a particular market easily.
Business firms that comply with stringent regulatory standards demonstrate that they respect ethical practices which determine the manner in which they execute their functions in particular industries (Minkes, Small & Chatterjee, 1999, p. 328). In addition, such firms open up their products, processes and policies to external assessment to ensure they satisfy benchmarks which have been set in the industry.
Merck has improved its relationship with the FDA and other watchdog bodies in the pharmaceuticals industry develop high value products. The firm used its past negative experience to carry out important improvements in its operations which helped it to safeguard the quality of its products in the market (Driscoll & Hoffman, 2000, p. 56).
More importantly, Merck has initiated collaborations with regulatory bodies in other countries to find out how specific yardsticks it needs to attain in its operations to strengthen consumer confidence.
The firm uses regulatory standards which are enforced in different countries to find out which specific components in its products are not recognized in other countries. Therefore, this approach allows it to measure other factors in its products which may have a negative impact on the safety of specific consumer demographics.
In addition, patent laws enable the firm to find out whether it can give licenses to other firms in foreign countries to manufacture generic drugs at a lower cost (Driscoll & Hoffman, 2000, p. 59). Consequently, regulatory standards enable the firm to increase its awareness about its responsibilities in different market environments.
Increased Consumer Awareness
This is one of the most indirect influences which business firms in various countries have to contend with. Consumers are exposed to a lot of commercial information and this has increased the level of competition between firms in the industry. In addition, they know their rights and expectations and they easily switch to other brands when they feel that their needs are not being met by a particular product.
Therefore, this has encouraged many modern firms to develop strategies which focus on satisfying consumers’ needs to enable them to have positive experiences whenever they use their products (Day, 1999, p. 122).
Merck’s management understands that all its products must satisfy all safety and health requirements before they are sold to consumers. This has helped the firm to develop effective customer care processes by allowing consumers to communicate directly with its sales representatives regarding different issues they are facing.
In addition, Merck subsidizes some of the products it sells in poor African and Asian countries as part of its corporate social responsibility (Day, 1999, p. 129). Therefore, this approach has allowed the firm to improve the manner in which it interacts with different stakeholders in various countries it operates in.
The company uses high impact marketing strategies to improve consumers’ perceptions towards its internal and external practices. Crucially, the firm’s marketing strategies do not only focus on increasing its revenues in different markets it operates. They help Merck in developing important relationships which are likely to propel it forward in the long run (Franz & Kirchmer, 2012, p. 91).
Therefore, this has helped it provide appropriate information about its products, including their strengths and potential weaknesses to customers. In addition, the firm uses appropriate labels which enable consumers to understand how various components are likely to affect them in the long run.
Facets of Value Driven Management
Relevant Facets
High quality operations in the firm correspond to the facet of value driven management which presupposes that value drives action. Business firms need to have a unique offering in the market to appeal to customers that they are targeting. High quality operations enable business firms to produce appropriate commodities and services which satisfy the needs and expectations of their customers.
Moreover, it allows an organization to use effective decision making models to increase its overall efficiency in a particular industry (Franz & Kirchmer, 2012, p. 95).
Managers and other employees in a firm are able to develop effective strategies which guide them on what they are supposed to achieve within a particular period. Thus, this allows a firm to come up with appropriate actions which help it deal with various challenges it is facing in a particular industry.
The processes of value creation benefit all stakeholders in an organization and this is achieved through high levels of transparency. This facet shows that a firm needs to observe ethical and moral principles in the way it engages with its internal and external stakeholders. All business firms need to balance between their financial and non-financial goals to help them satisfy the needs of their stakeholders more effectively.
In addition, transparency in a firm allows employees to observe strict moral codes, thereby observing virtues of honesty, trustworthiness, dedication and loyalty (Reidenbach & Goeke, 2006, p. 51). These virtues are important in the value creation process because they enable a firm to use different resources which are at its disposal to attain positive outcomes in the long run.
The third facet which is relevant to stringent regulatory standards is that different actions may have different effects on a firm. Therefore, a firm that works hard to comply with its regulatory obligations minimizes its risks and is able to plan ahead more effectively compared to a firm which fails to do so.
This shows that business firms need to anticipate different opportunities and challenges they are likely to encounter in their operations to enable them to achieve their objectives (Reidenbach & Goeke, 2006, p. 57). All processes in a firm must conform to benchmarks which have been set in an industry to enable a firm to become more competitive in its operations.
Increased customer awareness is also another force which can be associated with the facet that emphasizes different actions may have different effects on a firm. Consumers’ purchasing patterns and behaviors are influenced by complex factors which every business firm needs to be aware of to make a positive impact in the industry.
Therefore, business firms need to use effective communication tools to interact with their consumers to strengthen the value of their products and services in industries where they operate (Trevino & Nelson, 2010, p. 173). In effect, this allows a firm to increase the value of its brand in a particular market and this helps them to benefit from high levels of consumer loyalty by becoming more competitive in the long run.
Value Adders/ Value Destroyers
These forces are value adders because they enable a firm to have a positive purpose which guides its operations in an industry. For instance, Merck’s management used its negative ethical experience to improve its internal operations to make them more responsive to the needs of its stakeholders in the industry.
This has helped the firm to show its stakeholders that its operations are guided by high quality values which influence the manner in which its employees perform their duties.
More importantly, the willingness by the firm to accept responsibility even when things go wrong has earned it a lot of admirers who are impressed by its candid approach (Trevino & Nelson, 2010, p. 179). Therefore, this has enabled the firm to adhere more to important ethical standards which are related to its operations to enable it to achieve positive results from its operations.
Value destroyers can be transformed into value adders when business firms accept to take responsibility for their actions. In addition, business firms need to collaborate with people living in communities which are close to where they operate to establish positive, long term relationships.
For instance, a business firm’s public relation efforts can be made more meaningful if it takes part in different activities which bring positive changes into people’s lives (Boarright, 2012, p. 1 30).
It can initiate different long term projects in communities which face various challenges to ensure people living there overcome different problems which they have to contend with. Thus, this enables a firm to create more value in its internal processes to help it build a strong reputation in the industry in the long run.
Long Term Value Creation
Long term value creation enables a firm to use business models which allow it to focus on long term sustainability in its operations. This approach cannot be successful in a firm that lacks highly skilled leaders who understand what they need to do to achieve good results. More importantly, business firms need to identify how value creation strategies used can conform to their other functions in the long run.
This will enable a firm to streamline its operations to enable it to improve the quality of its internal as well as external processes. Therefore, this ensures that a firm is in a better position to estimate its potential market value to help it understand specific strategies it can use to actualize it (Boarright, 2012, p. 139).
An effective value creation strategy should balance between improving perceptions that exist about a firm in an industry and investing in internal operational excellence to help a firm to stay ahead of its competitors in a particular industry.
There are many implications which a firm needs to be ready to face when it chooses to pursue a long term value creation strategy. One of the main implications a firm needs to focus on is the extent to which its approach will be sensitive or insensitive to specific cultural values which are observed in a particular location.
This enables a firm to understand how it can develop appropriate products and services which conform to general cultural attitudes of people it targets. In addition, employee empowerment is another area a firm needs to focus on to ensure its value creation strategies yield positive results in the long run (Boarright, 2012, p. 136).
This will enable a firm to put in place appropriate human resource policies to enable it to develop highly skilled and motivated employees who are able to execute responsibilities assigned to them more effectively. Lastly, a firm needs to understand how it can deal with unexpected results and risks it is likely to face due to its value creation strategy.
Conclusion
Ethics is an important concept which modern business firms cannot afford to ignore. In the last decade, Merck Company has demonstrated that it is willing to put aside its financial objectives in favor of maintaining good relations with its stakeholders in different countries.
The firm’s actions earned it a lot of admirers because it demonstrated that it cared more about the health and wellbeing of its customers than the high amount of profits it was obtaining from Vioxx in the market. Business firms need to do more to make their internal operations more valuable in the long run by observing high ethical standards.
References
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