Financial Management Assignment 1

Prepared by,
Arijit Chakravorty (PGP14006)
Arijit Hawlader (PGP14007)
Avinash Baxla (PGP14009)
Barsha Naskar (PGP14010)
Rohan Bhavale (PGP14011)

Question 1:
In what ways, if any, does the financial area at Merck add value beyond what you
would expect from a typical large company finance group?
At that time there was no systematic planning model, so Merck developed the
research planning model.
Merck also introduced simulation planning & hedging model. This model was
very effective as they kept on innovating it.
Mercks model was integrated and centralized, it reported to a single authority.
They transferred internal relationships into partnerships. Finance personnel were
also involved earlier and more directly in much business decision, contributing
their financial expertise in the joint pursuit of business objective. The finance
department provided a wide range of financial services to them.
Finance department was merged with forecasting & analytics department.
They recruited for finance department from good B- schools in USA with a large
number.
There was no rigidity & the finance department was constantly re-structured.

Question 2:
What were the essential ingredients or pre conditions that enabled Merck's finance
group to develop its capabilities?
The organization was rated amongst the best in the U.S.A consistently. They had a
vision to grow in future with a great extent.
To make possible the growth they formed multiple alliances, in the form of Joint
Ventures. This led to an improve their market capitalization..
The competition from the local players was huge in generic drugs and to dominate
over them they came up with a model to effectively analyze the returns on their in
future.
To focuses on innovation, they did R&D expenditure and it was increasing year on
year. They did not have a suitable model to classify the expenditure as capital or
revenue, nor could they ascertain the profitability from a given product or venture.
they came up with a suitable long term revenue hedging model to owe to the
currency fluctuations and for managing the foreign exchange hedging activities
The leadership of Ms. Judy Lewent was very effective. She took initiative to carry
out various tasks outside her domain.
The decision making was very effective and this helped to develop their capability.

Question 3:
Can other companies develop similar capabilities?
Mercks strategy was effective but complex and improper execution of that could
lead to total disarray.
Their strength was R&D and this was the driver of their profitability. The R&D
need not be the case with other companies.
So, as Merck did, other organizations also can come up with a similar model. It
needs being systematic and have good leadership. However, organizations can
come up with their own models capitalizing based on their choice or possibility.