Situation Analysis of Humana - Essay Example

?Create a Situation Analysis of a company I want to work for Table of Contents Create a Situation Analysis of a company I want to work for Table ofContents 2 Cover Letter 3 Situation Analysis of Humana 4 About Humana 4 Understanding the Customer 5 Customer Segment 5 Understanding the Level of Competition 6 Industry Analysis 8 Demand of Health Insurance in the US 9 Product Life Cycle 10 Conclusion 11 References 12 Appendix 14 Cover Letter Humana is a health insurance and healthcare service company in the US. Humana delivers insurance products and healthcare programs for its customers. Humana also supports charitable actions to encourage healthy lives and communities. The situation analysis of Humana reveals that Humana understands its customers’ needs and develops its products according to customers’ needs and preferences. To make their customers satisfied Humana differentiates its product by conducting ethnographic research. Humana provides various programs for their customers and takes complete advantage of the customers’ understanding. In the insurance market, Humana has a number of strong competitors such as Atena and Signa. As the health industry market is in growth stage, Humana tries innovation of new products which is the biggest strength of the company. The good business practices and strategies have made Humana one of the biggest players in the healthcare industry. Situation Analysis of Humana About Humana Humana is one of the top health care providing companies of the US. Unlike other companies, Humana considers it as a challenge to meet consumer expectations of reliability and personalization. Humana deals with health insurance products and health plans. Humana’s products and services are all customer centric. The customers always hope that the company understands their needs. Humana’s ‘customer service representatives’ have the capability to understand the enquiries of the customers and can provide appropriate solutions to them. Humana’s service model is designed in such a way that it can identify the specific needs of the customers. The reason is that the insurer needs to appeal exclusively to individual customers. The uniqueness in product and service appears when customers have good interaction with the company and they can experience something innovative which cannot be found in other company. The differentiation makes the customers feel that the company understands them and their problems. Through providing innovative and exclusive perspectives on health and benefits to customers, Humana has succeeded to accomplish its objectives. To successfully manage the healthcare, develop budget plan, and maintain health expenses, Humana conduct ethnographic research. Humana seeks to provide its employees the appropriate information which is needed for making the above decisions. The career in Humana is based on four principles which are consolidation, personalization, distillation and actionability. To provide good product Humana positions a prototype before introducing the end product in the market (Hewlett-Packard Development Company, “Insurance and Technology”). Understanding the Customer Humana provides flexibility, appropriate pricing and superior value for their customers. The managers and agents are the essential part for the success of Humana. Humana respects their job which they perform for the customers and continuously tries to make it simple for the customers to engage with the company. With regard to heath insurance product, Humana recognizes the needs of customers and develops customer centric plans. Its services include commercial products; self funded services and individual products. Humana conducts various programs for customers such as specialty benefit, supplemental and behavioral health program, professional life plan and wellness programs. Humana follows user centric strategy. It tries to maximize the customers’ experience by observing their actions not just their requirements. The end–user involvement is quite vital because it can provide in-depth understanding about the real users of Humana’s products and its tasks. The ethnographic study helps Humana to observe the preference of the customers and their activities by engaging them frequently (Hewlett-Packard Development Company, “Insurance and Technology”). Customer Segment In the health care market, there are certain equilibrium points where the supply meets the demand. These points represent the customer or customer group for insurance products. Premium Services Source: (Oplas, “Socialized Healthcare vs. Market Segmentation”). In the above diagram, point A signifies those customers who prefer lower premium for lower health coverage. Point B signifies customers who prefer comparatively higher premium for wide services. Finally, point C implies those customers who want the most costly premium for much wider coverage (Oplas, “Socialized Healthcare vs. Market Segmentation”). Understanding the Level of Competition Threat of New Entrants: The threat of new entrants for Humana is relatively low. To enter into the healthcare business high initial investment is needed with respect to research and development. A company has to bear huge risk because of huge finance without prospecting any return. With regard to health product the big risk for a new company is the government regulatory requirement and developing a network of good physicians. Besides, Humana has the ‘first mover’ advantage and it will be difficult for new entrants to compete with a large player such as Humana. Supplier Power: The supplier power is moderate for Humana. The drug companies have limited power over Humana because they are not able to sell their products directly to the customer. If there is many version of same medicine then the supplier power will be low. But, there is also a risk that physicians or other hospitals may decide not to engage with the network of Humana. It can cause a huge impact on the sale of Humana’s products if it is not acknowledged by potential customer. Buyer Power: The buyer power of Humana is low because with regard to healthcare services people’s choice to purchase has low effect on health insurance because whether the financial condition is good or bad the need for insurance will not change. Health insurance product has low relation with the country’s economy or people’s purchasing power so there is demand for insurance anyway. Though the buyer’s power is less, there is a risk because a few of the customers of Humana may contribute the large portion of its business. This can make the bargaining power of buyer to become moderately high. Substitute: The threat of substitute for Humana is low. There is no other way to get health insurance products other than healthcare company. Competitive Rivalry: The competitive rivalry among companies is quite high for Humana. The other healthcare companies are always competing with each other to provide good benefit to the customers. The customer prefers to purchase only one insurance product at a time. A large company such as Humana has to struggle continuously for selling most of its products to customers and other large companies. The rivals’ can put price pressure on Humana by reducing the cost of their services and products. The two major competitor of Humana are Atena and Signa (Ge, “Porter’s Five Forces – Healthcare Industry). Industry Analysis Humana operates in heath insurance and medicinal plan industry. People purchase insurance to avoid risk by providing a certain amount of premium to receive advantage from it. The health insurance market is interconnected with other segments of healthcare system. The parties of health insurance include insurer, employer, federal and national governments and other healthcare providers. Humana operates in perfectly competitive market. In healthcare insurance industry, the goods and services are allocated effectively when social cost of resources such as worker, building, machinery, raw material become equal to the social advantage of consuming the insurance product. The characteristics of healthcare industry are: There are lots of buyers and lots of sellers The competitors can freely enter in the market as well as freely leave the market The market information is symmetric i.e. each company knows the exact information thus there are no informational advantage There are no transaction related costs in health insurance market and the complexity of decision has no impact on selection of product Health insurance companies’ try to maximize their profit and customers try to maximize safety The expenditure on health paid by federal government, state government, and private companies has risen significantly since 1960. In last 40 years, the customers’ spending on health expenditure has raised faster than growth of the US economy. The designing of health care network influences the utilization of health care products. Maximum people go to physician for medical purposes. The consumers of health insurance products usually depend on intermediaries instead of cooperating directly with other elements of health care system. Consumers get assistance from professionals of intermediaries such as managers, insurers and physicians because they pilot the health care system. The intermediaries safeguard people from financial threat related serious medical problems. They also provide reliable information about the price of certain health care products or services. The heavy dependence on intermediary is the major characteristics of present health insurance market. The relationships of intermediaries have considerable affect on the health insurance industry because they represent themselves on behalf of individuals over the packages of insurance products (Austin & Hungerford, “The Market Structure of the Health Insurance Industry”). Demand of Health Insurance in the US The demand of health insurance product depends on individual’s perception towards risk, inconsistency of medical cost, usefulness of health care covered by the company, and income of the individual. The Americans are quite strict with respect to budget. The rising health care costs have made balancing the budget more difficult. Presently, the spending on health care products is increasing at a rapid rate compared to spending on food, vehicle and petrol. Source: (Humana, “Why Do I Need Health Care Budget?”). It can be seen that the spending on health care is growing at 10% per annum. Product Life Cycle The health care insurance market is now on a growth stage. More and more people are purchasing health care products currently. Thus, Humana seeks to differentiate its products from other competitors. Humana provides affordable health insurance plans which fulfill the individual needs and help to minimize the costs. Humana allows people to select the coverage which is suitable for individual needs and their budget (Humana Medical Plan, “Affordable health insurance options”). Source: (Austin & Hungerford, “The Market Structure of the Health Insurance Industry”). The above table shows that Humana was ranked in 7th position in terms of total medical enrollment in the year 2008. Conclusion The future of healthcare industry is uncertain because it is driven by political, economical and regulatory factors. In the US the changes in law of healthcare can have significant impact on the healthcare industry. In this changing business environment, Humana will need to ascertain new strategies and approaches. Humana has to maintain its business standard in any economic condition. Though the continuous increasing cost of healthcare services and insurance premium is a great threat for Humana, there are many opportunities for Humana in the healthcare industry as many people prefer to take health insurance because of a sense of responsibility. There are certain people who do not have interest in health issues. Humana can successfully educate these people to consider seriously the health related issues. Humana’s well-structured management strategies will help it to survive in the healthcare industry in future. References Austin, Andrew D. & Hungerford, Thomas L. “The Market Structure of the Health Insurance Industry”. June 10, 2011. Congressional Research Service, 2009. Ge, Linda. “Porter’s Five Forces – Healthcare Industry”. June 10, 2011. Docstoc, 2010. Humana Medical Plan. “Affordable health insurance options”. June 10, 2011. Humana One, No Date. Humana. “Why Do I Need Health Care Budget?”. June 10, 2011. Family Health Budget, 2005. Hewlett-Packard Development Company. “Insurance and Technology”. June 10, 2011. United Business Media, 2011. Luzietti, Joanne. “Sample Case Analysis Presentation”. June 10, 2011. Portland State University, 2008. Oplas, Bienvenido J. “Socialized Healthcare vs. Market Segmentation”. June 10, 2011. Minimal Government Thinkers, 2010. Samcarrara. “Product Life Cycle- Overview”. June 10, 2011. Home, 2011. Appendix SWOT Analysis of Humana Internal Strengths Innovative and non substitutable products Rapid growth in the healthcare industry Exceptional business model Weaknesses Bad business performance in commercial sector Low margin in healthcare industry External Opportunity Expansion by the means of merger and acquisition Predictable increase in healthcare industry Innovate new products and services for customers Threats Economic recession Political instability Rising cost of medical expenses Increase in competition Source: (Luzietti, “Sample Case Analysis Presentation”). PLC Stage of Health Insurance Industry Source: (Samcarrara, “Product Life Cycle- Overview”). Porter’s Five Forces Analysis of Humana Read More