CVS Health and Safety Inc Strategic Analysis - Case Study Example

CVS Health and Safety Inc. Strategic Analysis Name: Tutor: Course: Date: Table of Contents Table of Contents 2 1.0 Introduction 3 1.1 History, products and services 3 1.2 Vision, mission and values 3 1.3 Clients and competition 4 1.4 CEO 5 1.5 Rationale for choosing CVS Health and Safeway Inc 6 1.6 Environmental Analysis 6 1.6.1 PESTEL Analysis 6 1.6.1.1 Politico-legal aspects 6 1.6.1.2 Economic aspects 7 1.6.1.3 Socio-cultural aspects 7 1.6.1.4 Technological aspects 7 1.6.1.5 Environmental aspects 8 1.6.2 SWOT Analysis 8 1.7 BCG Matrix of CVS Health and Safeway Inc 9 1.8 Conclusion 10 References 12 Smith, C.H. (2015). How Healthcare Is Dooming the U.S. Economy. Available at: http://www.washingtonsblog.com/2015/05/how-healthcare-is-dooming-the-u-s-economy.html 12 Smith, Y. (2016). The Link Between Health Spending and Life Expectancy: The US is an Outlier. Available at: https://www.nakedcapitalism.com/2016/08/the-link-between-health-spending-and-life-expectancy-the-us-is-an-outlier.html 12 1.0 Introduction CVS Health is one of the leading Fortune 500 listed company in the American drug retail industry. Together with Safeway Inc. the companies have splendid experience in medicine distribution. Moreover, the latter has diversified into a number of products that gives them competitive parity and competitive advantage. CVS Health and Safeway Inc. have heavily invested in pharmacy and health nutritional products which over time have endeared them towards sustainability and respect from its customers and competitors. With a long history o performance, the company has made strategic decisions in the recent past that has affected its financial and social responsibility. The top management of both firms is led by the chief executive officer (CEO). This report highlights the products/services, mission and values, environmental analysis and BCG matrix. 1.1 History, products and services CVS Health was founded in 1892 in Woonsocket, Rhodes Island. It has more than 250,000 employees and a market capitalization of over $79.8 billion (CVS Health, 2016). It is not only in the top 50 of the world’s most valuable brands but also comes as one of the America’s top public company. Engaging in provision of healthcare services, CVS Health offers pharmacy benefit management solutions, assortment of general merchandize, selling of prescription drugs and administrative services. Safeway Inc. is a subsidiary of Albertons founded in 1915 in Pleasanton, California. Being a food and drug retailer, its subsidiaries are Carrs, Pavilions and Randall’s Food Markets. Services offered include home delivery, pharmacy and distribution manufacturing employing more than 160,000 people (Safeway Inc., 2013). The company has more than 1300 stores in the United States selling nutritional foods, pharmacy drugs and fresh groceries. 1.2 Vision, mission and values CVS Health vision is to improve the quality of human life. Its mission is to make high-quality and innovative health to improve people’s lives and offer easy and affordable access to pharmacy services. CVS Health values to customers are passion and relentless drive towards improvement and innovativeness. On colleagues, the values include teamwork, integrity, respect, and supportive work environment (CVS Health, 2017). Similarly, CVS Health contribution is about results in giving back to communities and achieving financial goals as well as holding each other’s accountability to performance. Safeway Inc. vision of the company is deliver healthier and sustainable food and pharmacy products nationwide and beyond. Its mission is to earn people’s loyalty through passion and talents of employees as well as to fulfill their needs with unique shopping experience and superior-quality products. Safeway Inc. is based on the Save Mart values system based on sustainability, credibility, diversity and inclusion. This is commitment to support and inspire the kind of workplace that inspires and supports all workers to perform to their best. 1.3 Clients and competition CVS Health’s major competitors are Rite Aid, UnitedHealth Group and Walgreens while clients are drug stores and hospitals. The company is responding to the aggressive competition with strategic acquisitions particularly the acquisition of Omnicare in retail and PBM segments. CVS Health has outsmarted some of its competitors such as Wal-Mart stores and Walgreens in providing basic health care from walk-in medical clinics. The pharmacies are staffed with physician assistants and nurse practitioners offering routine vaccinations and treatment for common ailments. Wal-Mart fell short of its targets after announcing an expansion of thousands of clinics that would have allowed doctors and hospitals to operate. Meanwhile, CVS Caremark is ahead of Walgreen despite the latter’s acquisition of Take Care Health Systems in 2007 (CVS Health, 2007). Safeway Inc. major competitors are Vons, Kroger and Food Lion while clients are individual customers, companies and institutions. The company reported revenue decrease in 2014 much faster than the decrease among the competitors mentioned above. The competition factors include condition of assets, selection, service, price, quality and location coming from both non-traditional and traditional grocery retailers. However, Safeway Inc. has a way of offering niche and specialty supermarkets apart from restaurants, convenience stores, dollar stores and drug stores. From time to time, Safeway Inc. alongside competitors is engaging in price competition that is likely to affect the operating margins. 1.4 CEO The Chief Executive Officer of CVS Health is Larry Merlo who also doubles up as its president. He is a School of Pharmacy graduate from the University of Pittsburgh. Merlo is leading more than 1100 walk-in medical clinics and over 9700 retail pharmacies (CVS Health, 2017). Under Merlo, CVS Health is transforming healthcare through services and products so as to be effective and affordable to communities, businesses and people. The CEO has been behind the elimination of tobacco sales in its stores and change of its corporate name to CVS Health. Merlo joined the company in 1990 as a pharmacist and has been in managerial positions in the recent past. Under Merlo, the company delivered significant organic growth and made successful acquisitions in its retail pharmacy history. Safeway Inc. CEO is Bob Miller appointed to the helm of the company’s leadership Robert Edwards. Meanwhile, Miller will lead Albertson LLC and New Albertsons Inc. as the executive chairman while Edwards will remain the vice chairman. Edwards has been behind the tough decisions that affected positioning of the company for the future and shareholder’s value (Safeway Inc. 2013). He has also been behind the expansion of grocery items inclusive of food and general merchandize to a number of departments such as pharmacy, floral and bakery. 1.5 Rationale for choosing CVS Health and Safeway Inc CVS Health and Safeway Inc. have been chosen in this report because they are leading healthcare companies with more than 100,000 employees, a number of subsidiaries and have more than 70 years in operations. The US companies have stable financial and organizational structure implying an embedded culture of high levels of performance and achievement. They are also subject to the US pharmacy regulations as well as being competitors in the drug retail industry. In addition, they are affected by similar external environmental aspects that make them sustainable companies in the United States today. Although they share same industry, Safeway Inc. has highly diversified products compared to CVS Health (CVS Pharmacy, 2016). On the other hand, the latter has differentiated products and may also benefit from cost-leadership strategies to achieve competitive advantages. 1.6 Environmental Analysis The environmental analysis done below concerns the US companies and the aspects considered affects both CVS Health and Safeway Inc. on an equal measure. Therefore, this analysis is considered as affecting the two companies alike and will not be considered separately. 1.6.1 PESTEL Analysis 1.6.1.1 Politico-legal aspects The US government through the Affordable Care Act (2010) has affected smaller players than larger players like CVS Health, Rite Aid and Walgreens. Moreover, the government encourages networking in medical care among PBM companies and health insurers so as to reduce medication costs. Retail outlets and pharmacies follow stringent regulations especially when importing drugs into the United States and reimbursement schemes such as pay-for-performance. Besides, the regulations require healthcare service providers to communicate and collaborate, especially nurse practitioners, pharmacy technicians and pharmacists (Blanding, 2012). In addition, the US government expanded the use of EMRs as a way to impact on the operations of pharmacies through health information technology. 1.6.1.2 Economic aspects American devotes 17.8 percent of its budget on health-care which is about $3.2 trillion. Retail prescription drugs spending is about $324 billion due to growth in generics, new medicines and blockbuster drugs. Health insurance premiums are also paid to finance health care with minimal taxes (PR Newswire, 2017). The overall US household spending has also grown by 4.7 percent since 2014 due to increased employer-sponsored private insurance premiums (US Government, 2016). Through Medicaid, the federal government spending has also increased by 8.9 percent from 2015 to 2016. 1.6.1.3 Socio-cultural aspects Urban decay and white flight has witnessed shrinking population in some US cities despite the increasing population in the US. However, the US is an outlier in linking life expectancy to health spending. In addition, high expenditures of US government on citizens are highly unequal though the health of the population has merit. Majority of the US population are young but a significant number are also aging which requires well established hospitals, clinics and pharmacies (Smith, 2016). Again, a sizeable number of people are turning to organic health food and regular physical exercise to get rid of lifestyle diseases. Health care costs are more in females ($361,192) compared to males ($268, 679) which has seen males have a shorter life-span than females (Smith, 2015). 1.6.1.4 Technological aspects The use of Electronic Medical Records (EMRs) is on the increase as the government is addressing technological barriers by adopting interoperable and portable EMRs. On the contrary, substantial upgrades of technology in pharmacy and healthcare is required in terms of facilities and staff uses (Japsen, 2017). Other forms of technology include expert systems on treatment of diseases as well as affordable and portable telemedicine. 1.6.1.5 Environmental aspects The US has invested heavily in climate change which is seen concern pharmaceutical manufacturers, regulators and environmentalists. Pharmaceutical industry is tending towards green chemistry by preventing pollution and eliminating hazardous wastes and emissions. Besides investing in integrated EHS programs, the US department of environment is agitating for clean manufacturing practices and effective pollution prevention measures (Blanding, 2012). Some of the recommended methods are recycling and materials reduction methods as well as capital appropriation requests and environmental cost accounting systems. 1.6.2 SWOT Analysis Strengths: CVS Health Strong employee base of over 250,000 Strengthens workforce by employing mature workforce Strong brand and the 2017 Healthiest Employer Innovative and creative in using HER systems Healthy and sustainable earnings growth to shareholders Increasing market share and profitability Sufficient capital to acquire companies like Omnicare Safeway Inc Highly diversified products and services Well financed by majority-owned investors Positive profit margins and return on equity Motivated and high performing based on over 138,000 employees Inclusive board of management and directors Excellent shopping experience Weaknesses: CVS Health Inability to differentiate from competitors like Walgreens, Rite Aid and Amazon Safeway Inc. Limited range of suppliers and high supplier power Employee base limited in specialization and know-how on key products Difficulty in differentiating products and increasing brand involvement Opportunities: CVS Health and Safeway Inc. Innovative ways to delivery of medical care Closer ties with health insurers Growth in clinical capabilities and value-based care Increased pace of domestic and cross-border M&As in the retail pharmacy industry Network products utilizing proprietary technology International expansion to more than 9 countries increases it competitive advantages Online opportunities for grocery delivery services Threats: CVS Health and Safeway Inc. Stringent regulations creating high entry barriers Entry of Amazon to hurt CVS shares (Japsen, 2017) Resurrection of Trumpcare to lead to 37,000 job losses and hospital closure Opioid abuse by patients and other medical prescriptions Lack of strategic planning and feasibility studies in establishing store formats Increased pressure on sustainability and conservation of endangered animal species especially sea animals 1.7 BCG Matrix of CVS Health and Safeway Inc Firms use the Boston Consulting matrix (BCG) as a strategic tool to evaluate its current products/services in terms of market growth rate and relative market share. The tool aid firms to make informed decisions regarding products/services needing addition, deletion or changes to generate positive revenue and its current product portfolio. The matrix comprise of products or services that have been categorized as cash cows, stars, dogs and question marks. To start with, cash cows are market leaders with high market growth rate and market share while star products have high market share as they are able to generate large amounts of cash. On the other hand, dogs are low market share and low growth rate products/services. Finally, question marks are rapidly growing products/services with low market share and as such consume large amounts of cash. Cash Cows CVS Health Pharmacy care and medicine Store brands and healthier food options Health products and vitamins Safeway Inc. Grocery deliveries Immunization services Specialty care services Stars CVS Health Extracare services CVS skincare products Extracare loyalty products Prescription mail order services Safeway Inc. Online prescription services Deli Pharmacy Gift cards Nutritional services Wellness services Question Marks CVS Health Braces and supports Beauty club Wellness services and vaccinations Medication therapy services Safeway Inc. Coupons Gift cards Dogs CVS Health Classic beauty basics Personalized savings and rewards Chronic conditions monitoring Safeway Inc. Floral and gift deliveries Money services Gas reward points 1.8 Conclusion CVS Health is one of the leading companies in pharmacy and healthcare products in the United States. With a strong employee base and excellent financial performance, the company should be able to take advantage of cash cow products such as pharmacy care and medicine, store brands and healthier food options as well as health products and vitamins. The business environment favors the growth of pharmacies and health food companies but with a lot of regulations. Similarly, Safeway Inc. that is more diversified than CVS Health is yet to make gains from pharmacy because the cash cows are grocery deliveries. Meanwhile, Safeway Inc. has more diversified food and pharmacy products while CVS Health has invested heavily in differentiated or specialized healthcare products. References Blanding, M. (2012). Public health and the US economy. Available at: https://www.hsph.harvard.edu/news/magazine/public-health-economy-election/ CVS Health (2007). Corporate Social Responsibility Report. Available at: https://cvshealth.com/sites/default/files/2007-csr-report.pdf CVS Health (2017). About Health. Available at: https://cvshealth.com/ CVS Health (2016). Our integrated services. Available at: https://cvshealth.com/about/our-offerings CVS Pharmacy (2016). Supplier diversity. Available at: http://www.cvssuppliers.com/supplier-diversity Japsen, B. (August 9, 2017). CVS Health CEO Doubts Amazon entry into pharmacy business. Forbes, Available at: https://www.forbes.com/sites/brucejapsen/2017/08/09/cvs-health-ceo-doubts-amazon-entry-into-pharmacy/#5f7b36833acb PR Newswire (2017). Safety Inc. Available at: http://www.prnewswire.com/news-releases/safeway-inc-300490278.html Safeway Inc. (2013). Careers at Safeway Inc. Available at: http://www.careersatsafeway.com/why-work-for-us/missionvision-statement Smith, C.H. (2015). How Healthcare Is Dooming the U.S. Economy. Available at: http://www.washingtonsblog.com/2015/05/how-healthcare-is-dooming-the-u-s-economy.html Smith, Y. (2016). The Link Between Health Spending and Life Expectancy: The US is an Outlier. Available at: https://www.nakedcapitalism.com/2016/08/the-link-between-health-spending-and-life-expectancy-the-us-is-an-outlier.html US Government (2016). National Health Expenditures 2015 Highlights. Available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/highlights.pdf Read More