There are several things that family businesses can learn from the history of Merck.
Cohesion and continuity are the benefits of adherence to family values and tradition. Merck values of hard work, empathy, and striving for excellence were imbibed and inculcated across generations mainly through practice.
Well-structured family and business governance mechanisms like the ones followed in Merck, make decision-making more systems and process oriented rather than person oriented. Separation of operational versus strategic matters or family versus business issues brings clarity in decision-making and also in the roles and responsibilities of different family and non-family members.
Merck is also a unique family business where the family continued to exercise strong oversight across 12 generations. Similarly, the strong professional practices of the organisation take care of the weaknesses of stewardship orientation and keep the business focused on its strategic objectives. Merck had been able to continually anticipate changes in the macro-environment and adapt itself to not only survive those changes but thrive through organisational transformation.
Seven steps to sustainability
1. Develop a very long-term strategic vision and ability to anticipate change
Merck always restructures itself and constantly strategises for very long-term horizon spanning multiple generations. A key component of their long-term sustenance strategy is to keep the business healthy, efficient, profitable, and growing. This ensures that the business continues to be an attractive and rewarding investment for family shareholders to remain together. In addition, they developed an ability to anticipate and prepare timely for the forthcoming changes in the macro-environment. This preparedness has helped them overcome grave survival crises during the two world wars. Hence, family businesses that develop an intergenerational long-term vision and build the capabilities to quickly anticipate and respond to changes in the business environment are more likely to last.
2. Inculcate family values, culture, and tradition
The Merck family has deep-rooted values that are respected, practiced and passed on from generation to generation. Caring for others, culture of stewardship, merit and excellence, and the tradition of hard work, openness, and mutual trust are imbibed and practiced by the Merck family members. Family businesses that focus on living the values and inculcating those in their next generations build continuity in their work culture and establish lasting traditions. This deep tradition saves family members from wavering on their commitments to the family and business, and contributes to the family legacy.
3. Establish sound corporate and family governance structures and mechanisms
Merck has established well-structured family governance mechanisms like a family constitution, a family board, and a board of partners. These lay out normal practices for terms of engagement of family members with business and family governance bodies and established policy-driven decision-making. Family members have agreed on the norms of ownership and its transfer under the family shareholder agreement. There is clarity on family members’ roles and responsibilities. These ensure that the potential for conflict is minimised and everyone works towards the larger objective of common good.
4. Sharp focus on core business areas and strengths
Merck decided to focus on its core competencies and grouped its businesses in three main divisions of healthcare, life science, and performance materials. It hived-off non-core businesses like over the counter and generic drugs. Orienting itself to the core businesses saved Merck a lot of energy and efforts that were earlier exhausted in categories where value-addition was low. This saved them from utilising time and energy in disjointed businesses that have no synergies.
5. Prepare to manage growth and complexities
Merck made several acquisitions and restructured its businesses to manage the challenges of growth and rising complexities. It focused on making high-end, niche products which offered high value-addition like, liquid crystals. Merck continually evolved, but always aimed at maintaining its technology leadership through cutting-edge research and innovation. For this, it built a large global research and development centre at its head office in Darmstadt. This ensured that Merck always had the competitive advantage on the technology front.
6. Groom and nurture the next-generation members
Merck puts strong emphasis on developing next-generation members for future responsibilities in business. Hard work and merit are at the core of their grooming process. The next-generation family members at Merck have to earn a university qualification and make professional careers independent of the family business. The company has also started the Merck Family University which conducts a development programme for family members. The next-generation members who are eligible to join the business are regularly mentored by the family seniors. Merck always recognised that well-equipped, trained, and capable next-generation members are essential to take the business into the next orbit of growth and ensure long-term survival.
7. Institutionalise learnings and transform continually
In order to transform themselves into sustainable institutions family businesses need to continue to remain valuable to the market, relevant to the society and meaningful to the family and custodians. Merck ensures that it fulfils all these criteria. It focuses on institutionalisation of business processes, especially on the governance dimension. Through strategic acquisitions and sell-offs Merck continually transformed its business portfolio to keep it relevant for the markets it served. These efforts ensured that Merck maintained its profitability over the long run. R&D is a critical part of its business model, hence Merck ensures that these activities are integrated and the learnings are institutionalised.
The way forward: Plan in parallel to transform into a lasting institution
Family businesses can complement their learning from the Merck case by applying parallel planning, an effective tool that family businesses can adopt to achieve the twin objectives of business growth and long-term survival. Parallel planning helps business families integrate their values and vision with strategy, investment, and governance activities. Most importantly, the parallel planning process takes into account the family’s expectations and business needs and aligns the family and business plans. When properly implemented over a long period of time, parallel planning ensures that both the business and family support each other’s needs and objectives, thus transforming the family business into a long-lasting institution.
Merck stands as a shining example of a family business that has been able to consistently demonstrate the effectiveness of parallel planning throughout its journey of three and a half centuries. Many more family businesses can surely attempt to emulate this feat and build a lasting legacy of their own.