Global CIO: Merck Bets Big On HCL In $500 Million Transformation Deal - InformationWeek
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07:15 PM
Bob Evans
Bob Evans

Global CIO: Merck Bets Big On HCL In $500 Million Transformation Deal

Focusing on growth and new products as it looks to slash costs by $3.5 billion, Merck is betting long-time partner HCL can help on both strategic fronts.

Juggling chainsaws must feel like this.

As pharmaceuticals giant Merck & Co. continues rolling out major new products in 2010 and beyond, it's also committed to stripping out $3.5 billion in costs over the next couple of years—including the elimination of 17,500 full-time positions—as it digests a major acquisition and refocuses on accelerated science and innovation for the future.

In that context of optimizing for both productivity and revenue growth, Merck has decided to significantly deepen its strategic relationship with IT-services firm HCL Technologies with a 5-year, $500-million agreement calling for HCL to enhance Merck's IT infrastructure and enterprisewide database architecture and undertake transformational projects for supply chain and financial systems.

In a phone interview this week, HCL Americas president Shami Khorana called the Merck engagement a "landmark deal" that allows HCL to not only run and manage a number of key IT systems but also drive some "business transformational aspects on top of that."

In addition, Khorana said, both companies felt an urgency to construct the deal on a truly global basis as a means of helping Merck become a company that not only sells around the world but that can also engage with customers, conduct research, and manage and enhance its business-technology systems on a global basis.

"It's a great opportunity for us to work with them on a global-delivery basis," said Khorana, "not just out of their main site in the U.S. plus our site in India, but in multiple places around the world including Poland and Latin America and others, and some locally from our own development center in North Carolina." As part of the expanded Merck engagement, HCL plans to add 100 new positions at that Cary, North Carolina, facility.

"That ability to provide delivery of a full range of services from multiple global sites is what Merck had in mind," Khorana added.

In an HCL press release, Merck VP of application services Richard G. Branton emphasized the growing confidence that his company has placed in HCL as a provider of not only IT expertise but also "pharmaceutical domain expertise.

Over the past five years, Branton says in the release, "Merck has leveraged HCL's extensive expertise in life sciences and healthcare to streamline operational efficiencies and consolidate its IT portfolio." And as part of the companies' enhanced partnership, he added, HCL is now responsible for enabling Merck to "leverage global delivery services to meet our business imperatives."

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Following the acquisition late last year of Schering-Plough and its ongoing integration, those business imperatives for Merck include parallel efforts to accelerate new-product development while reengineering the company on the fly to be more nimble, more market-focused, and more opportunistic.

To give you a sense of the environment in which HCL will be operating, and of the scope of challenges Merck expects HCL to help it overcome, here are a few comments from Merck CEO Richard T. Clark from the company's most-recent earnings report, released in mid-February. As you read these, bear in mind the rapidly shifting expectations CIOs are placing on their IT-services partners as they expect not just technical capabilities but also domain expertise, business-process mastery, and revenue-generating ideas:

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