Coventry/Aetna Health Care Insurance - Assignment Example

? Aetna Health Care Insurance Table of Contents PART I - DIRECTIONAL AND INTERNAL ANALYESES 3 Aetna: A Brief Overview 3 Directional 4 Mission ment 4 Vision Statement 5 Long Term Performance Objectives 5 Long Term Strategic Objectives 6 Internal 7 SWOT analysis 7 Sustainable Competitive Advantage (SCA 10 Individual Functional-level strategies (FLS) 11 TOWS Matrix 13 PART II- INDUSTRY/MARKET ATTRACTIVENESS/PORTER’S ANALYSIS 16 Health Care Industry: A Brief Overview 16 Porter’s five forces 17 References 22 PART I - DIRECTIONAL AND INTERNAL ANALYESES Aetna: A Brief Overview Aetna, Inc. Is an US based health care company that provides a number of consumer oriented health care and traditional insurance products and its related services. The services include pharmaceutical, medical, behavioural, dental, group life, and also disability plans. It was founded in the year 1853 by Eliphalet A. Bulkeley. The company is also ranked in the global fortune 100 list. The customers of the company include governmental units, college students, expatriates, government-sponsored plans, individuals, employer groups, and labour groups. The company mainly operates with three business segments namely large case pension, group insurance and health care. Furthermore the company also has insurance in the form of dismemberment insurance, accidental death policy, and group universal life policy. These insurances offer benefits in the form of adult day care, and nursing facilities. The target segment for this product category includes employers which offers free insurance policy to their employees and the family members of those employees (Yahoo Finance, n.d.). The company also faces intense competition from the competitors. However it mainly competes with four major competitors. The four major competitors of the company are Assurant, Humana, United Health One and Louisiana Blue Health Care Insurance. At this time, Health Care Insurance companies are charging higher premiums due to their suppliers, employers, products, hospitals, doctors; government etc. The surge in economy and the upcoming new state run health care exchange program will bring more competing and completive rivalry among insurance companies such as The Big Four seeking new clients. Directional Mission Statement The mission of Aetna is to help the people in achieving financial and health security by offering them high quality and cost effective health care. However the primary intentions are to protect the finances of people during any health related risks. Also the company proposes continuous development of the health care services. These developments are possible with the help of doctors, employers, hospitals, patients, and also public officials (Aetna, n.d.). The company also believes in performing their work with integrity, excellence and accountability, quality service and employee engagement. Hence the mission statement of the company is formulated below. The mission statement will be developed by highlighting various factors. Aetna is trying to help people to achieve health and financial security with high quality products and services during the time of any health related risks. Aetna is also striving to achieve economical stability and offer improved service to the customers. The customers of the company include employer, individuals and linked group. The products are available through various channels and the primary intention is to save the funds of the customers during any health issues. Business level strategy (BLS) of the company is as follows:- Low Cost Strategy: - The low cost strategy of the company mainly emphasizes on maintaining the lowest possible cost. However it does not mean lowest price. Aetna therefore focuses on the resources that increases efficiency and reduces the cost (Albany, n.d.). In the context of pricing the company either lowers the price for gaining more market share or keeps the price according to the market level. Differentiation Strategy: - The Company also follows the differentiations strategy. In this context the company offers wide range of products to its customers and continuously focuses on the development of unique products. This is also the reason why Aetna tries to enhance and develop its resources to promote quality, customer responsiveness and innovation. Vision Statement The vision statement has been developed keeping in mind about the scenario five years from now. Hence the vision statement for the company is highlighted below:- Aetna intends to offer the customers with the best online experience of buying, paying premium and claiming their insurances with a smart, intelligent and lighter website. Long Term Performance Objectives The performance objectives are developed by following a SMART approach. The performance objectives of the company are as follows:- Revenue Growth: - The overall health care industry growth rate in USA is 5.28 % in the year 2012. While in the previous year the industry growth rate was 4.85 % (Fiercehealthcare, 2012). Hence on an average the industry growth rate is 5%. Now based on the competitive strengths such as wider product ranges and good market reputation, the company should also aim to achieve 5% annual growth. R & D investment: - The Company should try to increase the R & D investment rate, in order to develop new and innovative products. EPS (Earning per Share): - The present EPS of the company is $5.08; hence the company should try to increase the EPS to $7.25 by 2017. Long Term Strategic Objectives The long term strategic objectives of the company are as follows:- Launching new products such as customized insurance plans to increase sales, customer retention, customer loyalty and attain the desired growth. The company should also look after the ways to reduce operational cost and offer customers’ products by further lowering the price. To improve the internal process and increase the efficiency of the organization. This will also help in reducing the overall cost. Implementation of Information technology and to develop an online platform on which customers are able to view, buy and claim their policies. This will allow the company to get continuously connected with the customers. Internal SWOT analysis SWOT analysis is carried out to assess the internal strengths, weaknesses and external opportunities and threats of a company (Williams, Champion & Hall, 2011, p.108). After reviewing the literature as well as some authentic electronic sources some of the resources and capabilities of the company are as follows:- First nationally acclaimed insurance company and strong brand name Strong market reputation Wide range of products Several employee development programs Only company to offer full range health care. Cost-effective and high quality health care Plans (Aetna, n.d.). Resources/Capabilities Aetna Industry Average Market Reputation Strong Market reputation Average History First nationally acclaimed insurance company Other companies comes after Aetna Products Wide range of products and the only company to offer full range health care products. Also has large number of products and none offers full range of health care products. Internal Skills Training and development program for the employees to develop skills less focus on training and development is Price Low priced products Moderately or highly priced products Aetna is the company which is the first nationally acclaimed insurance company and hence it acts as strength to the company. People like to invest in companies which have good reputation as well as rich history. Consequently in case of Aetna both the elements are present. The company is operating in the market for more than 150 years and has been able to attain good reputation in the market place. In case of the competitors there is hardly any company that has been operating in the market for more than 150 years. One of the biggest strengths of the company is that it offers a large number of products to the customers which help customers in choosing their products according to their needs. Thus it acts as one of the major strengths of the company. However the competitors also come up frequently with new products and services, which pose serious threat to the company. The company also believes maintaining a strong human resource. Therefore for this purpose it has initiated a number of employee training programs in order to ensure the fact that the customers of the company receive high quality service. On the other hand it also acts as a weakness to the company as they needs to spend quite a large amount in providing employee trainings. Also in this context the competitors do not spends large amounts for training purposes and rather spends it for R&D and marketing activities. Thus in one way training acts strength to the company, while in another perspective it acts as a weakness. Now from the identified strengths, some of the key factors can acts as a driver of customers. The key factors are as follows:- Good Market reputation Wide range of products. Customer oriented approach. Economically beneficial and cost effective plans. Strong workforce and sound management team. Offer full range health care services and thus considered as a one-stop shop. Supplier diversity is one of the major strengths of the company The weighted average table is provided below Table I –Weighted Average Table KSF/Strength Measure Weight Aetna Rival 1 Rival 2 Rival 3 Rival 4 Product Quality 0.2 8/1.6 7/1.4 6/1.2 8/1.6 9/1.8 Technology 0.2 8/1.6 7/1.4 7/1.4 7/1.4 9/1.8 Customer Service 0.2 8/1.6 8/1.6 8/1.6 6/1.2 7/1.4 New Product development 0.1 7/0.7 7/0.7 8/0.8 8/0.8 6/0.6 Financial resources 0.2 8/1.6 6/1.2 9/1.8 5/1.0 7/1.4 Distribution network 0.1 9/0.9 8/0.8 9/0.9 7/0.7 6/0.6 Total Weight 1.0 8.0 7.1 7.7 7.7 7.6 (Author’s Creation) Sustainable Competitive Advantage (SCA The sustainable competitive advantages of the company that has been identified from the findings of the strengths are as follows:- Supplier Diversity: - The Company enjoy sustainable competitive advantage by embracing an excellent supplier diversity program. The suppliers list includes certified minorities, and small business suppliers. It helps the company to strengthen the business relationship and increase the purchasing from underutilized suppliers. In the context of suppliers the company also has supplier relationship management program. It measures the expertise level and engagement of the suppliers in various business practices. Supplier diversity programs is considered as one of the sustainable competitive advantage for the company as it offers greater market access, facilitates economic development, strengthens the public relations. By helping the minority suppliers to grow, the level of competition among the customers increases to a large extent. Hence by embracing supplier diversity, the company also holds the chance of getting raw materials at lesser price. Market Reputation: - The Company has a good market reputation which enhances the brand loyalty and thus acts as a sustainable competitive advantage. Good market reputation helps the company to attain new customers and to tap new markets. Also for the competitors will find it tough gain market reputation overnight. Moreover good market reputation acts as a valuable asset to the company. Individual Functional-level strategies (FLS) Aetna has several strengths in the form of good market reputation, supplier diversity program, comprehensive product portfolio, cost effective plans and customer oriented approach among others. In order to further create sustainable competitive advantages the company needs to do carry out the following course of action in the next 5 years: - Expanding the supplier diversity: - In accordance with the changing business environment Aetna needs to spread out the diversity program by including GLBT owned companies or women owned companies. This will help the company to have greater market access and satisfy diverse group of customers. Integrating IT in the system of operation: - Although the company has already incorporated IT in their system of operations, it further needs to boost the system. However in order to create develop a sustainable competitive advantage, it needs to initiate a new program which is not available to the competitors. The internal assessment of the company revealed that it has a number of weaknesses. The weaknesses are mainly associated with high training cost and frequent arrival of new products in the market, which is causing difficulties for the company. However in order to curb those weaknesses the company should take the following approaches:- 1. The company should offer customized health care policies to its clients. This will act as a shield to the everyday new products. Moreover such kind of product will be able to meet the expectations of mass customers. 2. Aetna should also try to reduce the total cost of training. It can be achieved by offering e-training. Marketing Mix of Aetna Product: - The Company offers a wide range of products. However it also needs to add few more variants, to the product line. One of the products can be customized health care insurance, where the customer can decide on the premium term, premium amount and coverage value. Price: - In general the company offers affordable price for the products. Even the company also takes the privilege of being the cost leader. Hence the pricing strategy does not need any modifications. Place: - A number of study as well as authentic electronic sources reveal that the company has a wide network of dealers. This acts as a competitive advantage to the company. However the company can approach various other distribution channels in order to sell their products. The company can tie-up with banks and can cross sell their products to the customers of the bank. Promotion: - The Company needs to spend high amount for the purpose of promoting their products. The promotions can be carried out through TV advertisements, newspaper and magazine advertisement and also through direct mailing strategy. Dividend Policy: The Company should try to offer 10% dividend to the shareholders. TOWS Matrix Internal Strengths (S) Wide distribution network Wide range of products Strong market reputation Low ratio of medical loss Cost effective policies Internal Weaknesses (W) High training expense Reliance on one single product External Opportunities (o) Changing Customer needs Technological advancements (SO) With diverse products and customized policies, the company holds a good chance of meeting the changing needs of customers. Technology can be effectively used to further strengthen the distribution network and developing products. (WO) Product diversification can reduce reliance on one product. Technology can highly reduce the training cost through e-training. External Threats (T) High threat of new entrants in the industry Economic slowdown and adverse demographic changes (ST) Through wide distribution network, products and good market reputation the intensity of rivalry can be minimized. Cost effective plans can be useful during economic slowdown and online platform may reduce the impact of demographic changes. (OT) High training expenses and new entrant can affect the company significantly. Financial crisis can also affect adversely. PART II- INDUSTRY/MARKET ATTRACTIVENESS/PORTER’S ANALYSIS Analyzing the macro environment of an organization is a matter of serious concerns. It offers various challenges. There are several frameworks and tools by which the external factors can be broken down into easier and manageable variables. This will also help to investigate the external components with ease. However the intentions for this study are to uncover the industry or market attractiveness. Also evaluating industry attractiveness falls in the category of external factors. Hence Porter’s five forces model will be used to examine the attractiveness of the industry in which Aetna Corporation belongs. Tools such as Porter’s five forces and industry lifecycle enable us to present detailed insights of the macro environment of the business. In order to perform an industry analysis, the first stage is to determine the key constituents of the structure of industry. Since Aetna is involved in the providing health care services and offers insurance product, it can be highlighted that the company belongs to a service industry. Hence a brief overview of the service industry is provided below:- Health Care Industry: A Brief Overview Health care industry comprises of the providers of remedial, diagnostic, preventive, and therapeutic services. It includes hospital, doctors, nurses, and other public, voluntary and private organizations. Furthermore it also embraces pharmaceutical and medical apparatus manufacturers, and also health insurance companies. In USA the health care industry is presently witnessing unsteady situations. A substantial part of the healthcare expenditures is incurred by the US government, while the rest portions are covered by the private companies. Major players of the industry include Assurant, Humana, United Health One and Louisiana Blue Health Care Insurance and Aetna among others. The average annual growth rate of the industry is around 5 %. Also with the increased spending in the health care segment offers the industry with high chances of success in the future. Now the study is intended to find out the industry attractiveness and based on its market size, capital requirements, intensity of competition, seasonal factors, opportunities and threats, external factors, and degree of uncertainty among others, it is believed that the industry is fairly attractive. However in order to test the actual happenings of the industry porter’s forces analysis has been carried out and it is presented below:- Porter’s five forces Porters Five Forces Models or commonly known as PFF was originally developed by Michael E. Porter in the year. The primary aim of this model is to help companies to determine the attractiveness of the industry where it belongs. Furthermore it also helps to gauge the profitability of the industry. Michael E. Porter has proposed five forces through which the aforementioned factors can be determined. The five forces are; 1. Threat of new entrants: - The threat of a new entrant in an industry is the threat for a company when a new player enters the market. The new entrant in an industry can further increase the competition level, thereby reducing the attractiveness of the industry. In other words new entrants are described as the companies that are presently not competing within the given industry but has the potential to compete in the industry if chooses to do so. In general that is for any industry whether insurance or FMCG, it will draw new firms if it is profitable and offers high return. Since insurance industry is profitable and offers higher rate of returns as compared to some of the other industries of the world, the threat of a new entrant is always on the higher side. Again owing to the fact that insurance business is heavily dependent upon the trust of seller and buyer, a new player in the industry may face some kind of problems. Apart from that are number of other factors that act as a barrier for a new entrant in this industry. Some of the evident barriers are high initial investments, high economies of scale, and also to a large extent legal and government barriers. Therefore based on all the aforementioned factors it can be concluded that the threat of new entrants in this industry in average. However the level of threat also impacts in the profitability of the existing players. If the number of players increases in an industry, the prices are bound to fall and thereby increasing the competitiveness of the industry to a large extant. On the other hand there will not much effect on the overall cost. 2. Threat of substitutes: Threat of a substitute is characterized by the threat from a substitute product or service. Therefore the capability to surrogate a product or service can lower the profitability and industry attractiveness. Substitute products are characterized by the availability of same category products, which performs the same function as the existing product. In this case the substitute of a health care insurance product can be ‘medi-claim’ products. However there is hardly any substitute for health insurance. The primary intentions of a buyer towards having a health insurance are to get coverage for their medical expenses. Due to the increasing cost of medical care and moreover high cost has forced consumers to opt for health care insurance. In USA there is around 84% of the total population uses health care insurance. They either have government or private health care insurance. Also technology is getting highly used in this industry, for example a health care solution providing company of USA known as Cerner, has initiated customers claims processing services through the use of information technology. Although there are products which are being developed presently that acts as a substitute to health care insurance, but the threat of substitutes is low in this industry. Low threat of substitutes signifies minimal impact on profit. On the other hand high threat of substitutes would highly impact the profitability of the existing firms. With low threat of substitutes the prices will be not affected. Similarly the cost will also remain unchanged. 3. Bargaining power of suppliers: Bargaining power of the suppliers is the ability of the suppliers to increase the cost of raw materials. If the suppliers have high bargaining power the cost of raw materials gets increased (Jones and Hill, 2009, p.64). The suppliers of the health insurance industry include nursing homes, hospitals, pharmaceutical companies as well as medical device proving companies. In this category there are numerous companies and the suppliers’ low sensitivity of price due to intense competition. Therefore owing to the fact that there are large numbers of suppliers for a health care insurance company, the bargaining power of the suppliers is low. Hence with low bargaining power the cost will be reduced and the profit margins will be increased. However the price needs to be unchanged for making profit. 4. Bargaining power of buyers: Buyers are the individuals or the companies that are the sole factors which determines the demand for a product in the market place. Bargaining power depends on how fast the buyer identifies other sources. It also refers to the capability of consumers to bargain and lessen the price of the commodity or to increase the cost of the company by demanding more quality products and services. The buyers list of the health insurance includes employers, individuals, and linked group among others. In general buyers have higher price sensitivity as they health care are a large proportion of their total cost, mainly for the employers. Since there are large number of players in the health care service industry, the bargaining power of the buyers are high. Therefore with high bargaining power the prices will be lowered and thereby reducing the profit margin. However with high bargaining power the cost remains unchanged. 5. Intensity of competition within the industry: This depends on the structure of the competition and industry costs, strategic objectives, degree of differentiation, switching objectives, and exit barriers. This force reflects the competition within the industry. Rivalry among industry is about the intensity of competition among the organizations. There are large numbers of competitors within the insurance industry. Thus the intensity of competition within the industry is high. It also has a strong impact on the profitability of the firms. With strong competitions, the pricing are done according to industry standards and the profitability also gets lowered. The cost on the other hand remains unchanged. Now based on the findings of all the factors, it can be stated that the hypothesis holds true that is the insurance industry is fairly attractive. Opportunities • Changing needs of customers Rapid development of technology Diversification of Suppliers Threats • Industry favourable for new entrants. • Economic slowdown and adverse demographic changes All the above points clearly justifies that the health care insurance industry is fairly attractive. Apart from the all the aforementioned factors there are few other factors that impacts in the attractiveness of the industry. The factors are market size, capital requirements, intensity of competition, seasonal factors, opportunities and threats, external factors, and degree of uncertainty. Hence also taking these factors into account it can be clearly stated that insurance industry is fairly attractive. References Aetna. (No Date). About us. Retrieved from http://www.aetna.com/about-aetna-insurance/index.html. Aetna. (No Date). Quality measurement. Retrieved from http://www.aetna.com/healthcare-professionals/quality-measurement/index.html. Albany. (No Date). Business level strategy. Retrieved from http://www.albany.edu/faculty/ja0754/bmgt481/lecture4.html. Fiercehealthcare. (2012). US healthcare costs annual growth rates show broad based increases in December 2011, according to the S&P healthcare economic in. Retrieved from http://www.fiercehealthcare.com/press-releases/us-healthcare-costs-annual-growth-rates-show-broad-based-increases-december. Jones, G. R., and Hill, C. W. L., 2009. Strategic management theory: An integrated approach. Connecticut: Cengage Learning. Williams, C., Champion, T., & Hall, I. (2011). MGMT. Connecticut: Cengage Learning. Yahoo Finance. (No Date). Aetna Inc. Retrieved from http://in.finance.yahoo.com/q/pr?s=AET. Read More