Strategic Analysis: McKesson - Term Paper Example

?Introduction The paper focuses on McKesson and the application of a number of strategic analysis models to examine the company’s external and internal environment along with their business-level strategies. Performing an external and internal analysis can allow for the assessment of the effects of industry trends and the company’s performance in relation to competitors and how this can deliver value. Such industry-level trends can have a considerable impact on McKesson’s strategy and operations. Michael Porter’s Five Forces will be applied as a framework the external analysis of McKesson particularly for reviewing the bargaining power of buyers, bargaining power of suppliers, availability of substitutes, threat of new entrants, and intensity of industry rivalry. Meanwhile, internal analysis will also be performed to examine McKesson’s own capabilities and performance. To have a more comprehensive view, a SWOT analysis will be performed to identify the company’s internal attributes, which are its strengths and weaknesses, along with the external attributes, referring to possible opportunities and threats. Company Background McKesson is known to be the largest pharmaceutical distributor in the United States as well as in the entire North America with which they distribute to over 40,000 pharmacy locations from hospitals and community pharmacies to government agencies and retail distributors (CNN 2009). At present, the company has been ranked as 15th in the FORTUNE 500 as they have obtained over $112.1 billion for their annual revenue. As a medical supply company, McKesson has been aiming to distribute homecare and medical-surgical supplies along with information technologies which allow the health care sector to carry out more effective and safer patient care. McKesson is comprised of a wide range of businesses that serve the health care industry; these are primarily divided into two, the distribution solutions and the technology solutions. While the former emphasizes the distribution of medical supplies, the latter signifies the healthcare information technology systems that the company has developed in reducing or eliminating the need for paper medical records and prescriptions. For instance, it has been reported that their hardware and software are being utilized in over 70% of the hospitals in the United States that have a capacity of 200 beds or more. McKesson’s hospital information system solutions are also comprised of electronic health record systems and clinical decision support systems that enable the company to address the needs of various areas in the healthcare sector (McKesson 2011). However, the company has experienced a number of difficulties over the years that have challenged their use of business strategies. For instance, in their establishment of the McKesson Information Solutions, the change resulted to a considerable increase in turnover in all organizational levels. In addition, scores for employee and customer satisfaction were notably reduced; furthermore, members of the senior executive team and the middle management also departed from the organization, thereby generating more than a 20% increase in overall turnover and losing the confidence of customers. Majority of the concerns associated with McKesson has emphasized management and external issues which have consequently influenced their business-level strategies. The following sections will then look into the internal and external environment of the company, thereby examining their strengths and weaknesses along with the possible opportunities and threats. One of the most noteworthy strengths of Mckesson since the 1960s has been the company’s vision and commitment, especially of the top level management (Clemons and Row 14). They have aimed to generate more effective ways of improving the position of the company in the coming years and obtain competitive advantage over similar firms. After its management, the greatest strength of McKesson is its size with which increased sales and net income have been evident in the early 1990s. The company has effectively implemented its strategic strengths within the industry to distribute different lines of business within and outside of health care. McKesson has also come up with thorough strategic planning as to when and where they will expand their pharmacies. Such strategy for geographic expansion has placed an emphasis on opening outward in new areas, supplying each area with abundant stores for them to move into new territories. Such form of strategy generated synergy through the grouping of new pharmacies and facilities in small and large areas alike; as such, this enabled McKesson and its subsidiaries to spread advertising expenses as they entered new markets, keeping their costs for advertising at 1% of sales as compared to 2% to 3% for competing companies. The relationship of McKesson with its stakeholders has also been noted by many; such relations have led the company in gaining competitive advantage (McKesson, 2009). Moreover, procurement management has allotted considerable time with vendors to understand their cost structure. Consequently, this has reduced the ambiguities in the negotiation process, allowing Walmart to cut down costs and offer appropriate prices for its quality products. Numerous vendors perceive the company’s focus on close coordination as a mutually beneficial proposition. This helped reduce unnecessary costs and enhanced collaborative efforts and sharing of data, improving the rest of their operations. Porter’s Five Forces Framework The paper makes use of the strategic analysis model based on the five forces of Michael Porter to examine McKesson’s performance and positioning. First, with regards to potential entrants, McKesson is assured that they will not experience considerable threats brought about by new entrants due to the fact that there are high entry barriers for these organizations that are entering the industry of pharmaceutical distribution. Concerning the bargaining power of buyers, there is no need for them to bargain with Mckesson to obtain lower prices and greater quality due to the fact that the company has already generated the philosophy emphasizes high quality of products and services for an appropriate price. They have also developed and carried out pricing strategies with customer partners and teams for marketing, pricing, and business development, ensuring that their prices are suitable for the individuals that they serve, consistent with the quality that they will obtain from the products and services. Next, regarding the bargaining power of suppliers, McKesson carefully chooses its suppliers and has established strong and long-term relationships for them to carry out their pricing philosophies. Suppliers are also aware of the requirements provided by McKesson, hence the need to keep their contracts to avoid the need for redesign and restructure. Additionally, the ability of McKesson in offering products that are of reasonable price and high quality along with excellent customer service helps ensure that there is a reduced threat regarding substitute products and services. To address and meet the expectations of customers can yield product satisfaction, further decreasing the likelihood for substitute products and services to be purchased. Their basic principles of having respect for customers, demonstrating excellence in the workplace, providing first-rate customer service, and taking responsibility for their promised products and services all contributed in reduced threats of substitute products and services. Finally, with regards to the intensity of rivalry among competitors in the industry, the size and positioning of McKesson as the largest pharmaceutical distributor in North America has cut down the competitive pressure brought on by other companies. The depth and range of McKesson’s product and service offerings together with a considerably large customer base in the healthcare sector has helped the company obtain a unique position in addressing their customers’ needs, including 5,000 hospitals, 10,000 care sites, 750 homecare agencies, 450 pharmaceutical manufacturers, 26,000 retail pharmacies, and 200,000 physicians. SWOT Analysis: McKesson The following SWOT analysis will place an emphasis on McKesson’s management strategies within the workplace that have contributed to their achievements as well as reported ineffectiveness over the years. The top level management of McKesson has emphasized the concept of leadership in bringing together their employees to provide excellent customer service. Despite the important function that reasonable prices and superior quality play in satisfying customers, there is also a need to look into the most important assets of the company, which is the human capital. Nonetheless, the following sections will look into various aspects that will indicate the strong and weak points of McKesson along with potential risks and opportunities in relation to such dimensions. Strengths The culture that McKesson has consistently acted with and demonstrated over the years has enabled consumers worldwide to perceive that the company is highly capable of exhibiting effective leadership practices. For example, their organizational beliefs that every employee should not be taken for granted nor should their needs be disregarded have encouraged Mckesson to not just focus on cost-cutting strategies and price leadership for customers; rather, the management has also paid close attention to the personal and professional development of their workers. Open communication and continuous feedback are encouraged as employees are allowed to put forth their complaint, observation, or suggestion to company managers from job performance and interaction with colleagues to improving company policies and activities. The open door policy can, then, increase likelihood of responding to problems, preventing possible predicaments, and cultivating the employees’ understanding of organization’s underlying rationale for their practices, procedures, and decisions. Additionally, McKesson follows a number of basic beliefs and values- respect for the individual, service to customers, and striving for excellence. To focus on customers’ needs and expectations and seeking opportunities with which the company can exceed such requirements also instigated the management to come up with efficient programs with which their employees will become highly capable of providing excellent products and services. Employee training and development has become an important issue and McKesson leaders responsible for updating learning programs believed that an overhaul in employees and other resources is necessary if organizational objectives are to be met (Schmidt 1). Employees that are interested in training have been asked to assist in writing and teaching various programs to make the best use of their potential. These programs aimed to transform McKesson workers into more knowledgeable, more professional, and more customer-oriented employees by providing opportunities to create solutions to problem, and analyze tasks and situations, hence, benefitting from the intellectual stimulation opportunities that McKesson leaders have provided. Servant leadership has been of paramount importance to the leaders of McKesson as they attempt to lead not behind their desks but in the working places of their employees where they can provide assistance, analyze situations, generate solutions, and establish a dynamic and proactive environment. This can then increase employee morale and increase the likelihood of goal accomplishment. All these then indicate that McKesson is highly customer oriented. Moreover, the company’s use of information technology has been evident over the recent years (McKesson, 2011). The application of the latest technological trends allows the company to collaborate with their customers in developing solutions, from supply management technology and inventory management to business support services, repackaging, and innovative clinical services. On the whole, their use of information technology has enabled automation and interactivity services to assist hospitals, physician offices, as well as healthcare agencies and centers in enhancing patient safety, reducing costs and variability of care, improving efficiency of healthcare, and enhancing the management of resources and revenue streams. Weaknesses However, despite McKesson’s organizational aim to deliver excellent products and satisfying services to customers at low costs, there have been substantial criticisms regarding the company’s management of human resources over the years. With having at least two million employees working for the company’s stores, McKesson has been faced with various issues and concerns regarding its personnel, such as ineffective management of technological change. Reports of high rates of annual employee turnover, such as 70% of their workers leaving their jobs in their first year, have indicated that theirs is an unsatisfied workforce.. Although workers who have higher salaries are motivated to become more productive, the needs and expectations of lower-paid workers are not addressed. In fact, some full-time employees receive less than what the average worker should be earning. In effective leadership, to establish strong relationships with employees by identifying and responding to their needs and expectations so greater potential can be achieved should be evident. Failure to meet the needs of employees will result to increased rates of voluntary turnover as well as additional costs for recruiting and training new workers. Poor working conditions can also influence the way that employees view their leaders, regardless of the management’s efforts in establishing a favorable environment. Due to several unfavorable actions and decisions on the part of McKesson, employees have shown dissatisfaction over the working conditions that the leaders have allowed to take place. This can, then, undermine the trust and respect that employees initially established for their managers and reduce their leaders’ idealized influence on the subordinates. All these unfavorable conditions can lead to reduced performance and productivity of employees that may consequently affect the perceptions of customers regarding service delivery. Opportunities Majority of the opportunities available to McKesson can be attributed to the needs of customers, particularly of patients. For instance, there has been an increased need to deal with complex diseases and advancements in specialty care; this further increases the opportunity for McKesson to facilitate collaboration among healthcare providers, payors, and drug manufacturers. The company will then play an important role in developing comprehensive solutions, increasing pharmaceutical options, and enhancing health outcomes. Moreover, due to the socially responsible programs and policies of the company, this can further attract consumers who are environmentally conscious. Their implementation of adequate employee training and development programs can also help maximize flexibility, retain current employees, and attract new ones. Furthermore, their training programs allow for employee development, which plays a crucial role for the company’s long-term growth and success owing to the fact that employees are one of the most important factors that contribute to the success of any business. Their standardized systems for employee selection, performance management, and leadership development can also be perceived as a means of increasing employee satisfaction and organizational performance that will further attract new workers. Expectations are set at a high level and job candidates are motivated to successfully demonstrate their competencies to be accepted in a work environment that promises a dynamic and proactive climate for both employees and customers. Therefore, it is possible that McKesson can easily attract a large number of potential employees. When employees are qualified, capable, and competent, it can be expected that a company demonstrates good performance. Well trained workers can handle situations in an efficient manner, analyze circumstances and come up with practical solutions, and satisfy customers through their service, thus, the possibilities for customer loyalty and/or retention. When employees feel that they have great potential in attain personal and professional growth, they are motivated to learn new skills and willingly meet challenges in the workplace, improving the possibilities for the company to accomplish goals and objectives through employee productivity. Moreover, having managers and supervisors to work with their subordinates in the same place at the same time can allow for close monitoring that may help prevent errors and malfunctions; it can also allow for more open communications, enabling both sides to exchange information, ideas and feedback, with the actual performance of employees being observed and evaluation. Threats A number of threats can be identified for McKesson to effectively address; for instance, due to intense competition and despite the favorable performance of the company over the years, threats brought about by national and global competitors should not be overlooked. They should also implement effective business strategies in reducing the intentions of their customers in taking substitute products and services into consideration. There may also be more threats than opportunities when it comes to the evaluation of McKesson’s human resource management practices. Although their policies aim to provide satisfactory service quality to customers, many of these do not essentially address the needs of their employees, their most important resources. Previous complaints against the company may reduce the likelihood of current employees recommending others to apply and work for McKesson. Workers may tend to voluntarily switch employers and work for competing companies that offer inexpensive employee insurance and benefit programs that will assist employees in obtaining security and stability for their basic needs. Business Strategies Information systems have played an important function in the management of business level strategies at McKesson. The development of new systems that enhance reporting and performance has helped utilize the advantages of leveraging human capital (McKesson 2011). Their application of the latest technological trends allows the company to establish collaboration with their customers in solutions development; in addition, their use of information technology has been further utilized to improve patient safety, reduce costs, improve healthcare effectiveness, and better manage resources and revenue streams. Also, through the employment of IT professionals within the McKesson workplace, they are able to generate internal systems that are in coherent with the mission and vision of the company. Such strategy allows McKesson to address the demands of their customers in an efficient and convenient manner, providing mutual benefits for both customers and the company itself. Additionally, there has been an increased focus on the flexibility of workforce members by limiting wages and making use of more part-time employees while increasing opportunities for training and development. With the demands of maintaining a strategic position and addressing the increasing needs of customers, McKesson has also applied business strategies aimed for cost reduction and adaptation to new markets. Through sole-owned subsidiaries along with a buyout approach, the company has been able to reduce the threats of competitors and obtain advantages in their targeted markets. Bibliography Clemons, Eric , and Michael Row. "A strategic information system: Mckesson Drug Company's Economost." Strategy and Leadership 16.5. (1988): 14-19. Print. "Fortune 500." CNN Money. CNN , 2009. Web. 6 Dec. 2011. . DDI. “McKesson realized it: leadership development leads to great business results”. Web. 7 Dec. 2011. " McKesson's Fiscal Year 2008-2009 Corporate Citizenship Report." McKesson. McKesson, 2009. Web. 7 Dec. 2011. . "Mckesson: our history." McKesson. McKesson, n.d. Web. 7 Dec. 2011. McKesson. McKessson: company profile. Web. 7 Dec. 2011. Schmidt, Elaine. "A Healthy Approach: Why McKesson Is a Best Place to Work." iSix SigmaJune 2011: 1. Print. Read More