Applied Strategy Incorporated for Humana - Assignment Example

Task Applied Strategy Incorporated for Humana PESTEL forces Political A) “While regulations and interpretive guidance on many provisions of the Health Care Reform Law have been issued to date by the Department of Health and Human Services, there are certain provisions of the law that will require additional guidance and clarification in order to fully understand the impact of the law on our overall business” (Humana Inc., 3). B) To operate properly within the industry, there are various policies that the organization is mandated to fulfil in order to be certified to provide Medicare services to the general public. These polices act in seeking to impose regulatory authority upon the healthcare industry and streamline operations by the involved firms. Adherence to these polices is an essential aspect for operating effectively. The company has realized that these regulations provide operational difficulties as they could present adverse effects upon the profitability of the organization. In seeking to spread the risks presented by the regulations and the mandatory policies, various programs have been established by the firms operating within the industry. This occurred upon the understanding of the difficulties associated with the necessity to adhere to policies established by the federal and state governments. 2. Economic A) “The U.S. economy continues to experience a period of slow economic growth and high unemployment. We have closely monitored the impact that this volatile economy is having on our operations” (Humana Inc., 35). B) The economic status has a significant effect upon the organizational profitability, since much of the business is dependent on the purchasing power of members. High unemployment rate within the economy results in workforce reduction, which in turn causes the members to become unable to purchase the products provided by the organization. This leads to reduced memberships, which adversely affect the profitability of the business. The economic weakness of the nation has further caused the budgets for the national and state governments to get drastically reduced, because of the reduced earnings gained from tax returns. This shortage of revenue on the government side could easily cause a reduction on the coverage provided by the healthcare insurance, and a subsequent increment of taxes levied upon the organization undertaking insurance operations within the private sector. Although the organization can simply attempt to mitigate the effects of a weakening economic status through increasing the premiums, there is no assurance that this could provide a cover for all the costs incurred. 3. Sociocultural A) “We have made substantial investments in the Medicare program to enhance our ability to participate in these programs. Over the last few years we have increased the size of our Medicare geographic reach through expanded Medicare product offerings” (Humana Inc., 21) B) The organization is offering services for both Medicare prescription drugs and Medicare advantage plan, in order to provide the customers with a variety from which to choose from. These services are provided in addition to the other services that the organization offers to the society. The expansive coverage of the services provided by Humana includes fifty states, Puerto Rico and the District of Columbia. This wide coverage has been essential in enhancing the growth of the organization through reaching to the populations. Growth of the Medicare products accompanied by the geographic expansion of the organization remains a core element contained within the strategic objectives for the company. Failure to comprehensively integrate these strategies could present adverse effects upon the organizational, financial position and general operations. There’s an increased concentration in the revenue of the company coming from Medicare products, which is at 74%. The diversification of the services is essential as the organization seeks to spread the business risks across the entire market. 4. Technological A) “Our business depends significantly on effective information systems and the integrity and timeliness of the data we use to run our business” (Humana Inc., 22) B) Since much of the business conducted by the organization involves people, there is need to integrate effective information management systems seeking to ease the access to these services. The organization has adopted and integrated information technology into the operations of the organization for the data management aspects of the business. Considering the business segments that the organization operates, the integration of information technology system has been essential in reducing the number of systems operated through upgrading of the existing systems, with more powerful and modern technologically advanced systems. The information systems within the organization has remained subject to increased organizational commitment of a significant amount of resources. The resources are aimed at maintaining, protecting and enhancing the functional capacity of the existing system. Technological systems are also utilized within the organization in seeking to provide security protection to the company database from being hacked. The company relies heavily on information for many of the business operations, and accurate information could have a noteworthy effect on the business processes for the organization. 5. Environmental A) “We are subject to various federal, state, and local laws and regulations relating to the protection of human health and the environment” (Humana Inc., 31). B) The environmental concerns presented by the various regulations are a major challenge to the business operations for the company. The environmental organizations have become increasingly strict in enhancing the adherence to environmental policies and violation of these provisions could result in hefty fines being imposed upon the involved parties. Humana, however, tries very much to ensure that all the activities undertaken by the organization are in accordance to the various environmental regulations provided by the regulating authorities. This mainly concerns the handling of waste generated from the facilities operated by the organization. The major challenge presented by the environmental regulations are within the changes that might be introduced, in future regarding the environmental aspects. 6. Legal A) “Our business activities are subject to substantial government regulation. New laws or regulations, or changes in existing laws or regulations or their manner of application” (Humana Inc., 29). B) There are numerous regulations governing the operations of the firms operating within the industry, governed by the federal and state governments. Due to the services and products provided by the organization within the healthcare industry, regulations by different authorities remains essential. Many of the regulations within the industry seek to provide standardization of various aspects of the healthcare sector. Compliance to these regulations requires the implementation of significant systems that enhance the training and administrative efforts made by the organization. The regulations also involve the provision of regulations concerning the confidentiality of personal information contained within the database of the organization from unauthorized access and theft. Some of these regulations impose fines and additional penalties among organizations affected by such incidents. This requires the implementation of management systems, which seek to ensure the compliance to these regulations and other legal provisions. Porter’s five forces 7. Current competitors (high) A) “Our competitors vary by local market and include other managed care companies, national insurance companies, and other HMOs and PPOs, including HMOs and PPOs owned by Blue Cross/Blue Shield plans” (Humana Inc., 17). B) The healthcare industry is one of the most competitive business environment. With the provision of a wide variety of services and products within the industry, many organizations have become actively involved and created intense competition within the industry. This competition is intensified by the presence of many companies managed by insurance providers operating and providing healthcare. Some of the competitors operating within the industry are better established and have a larger market share as well as greater financial resources. The diversity of the business operations undertaken by Humana has been a key source of the increased competition. The organization faces intense competition within the insurance segment of the business operations. Competition also comes from other businesses which are not the core business of the organizations of providing healthcare services to individuals. 8. Threat of new entrants (and entry/exit barriers more generally) A) “We believe that barriers to entry in our markets are not substantial, so the addition of new competitors can occur relatively easily, and customers enjoy significant flexibility in moving between competitors” (Humana Inc., 20). B) The healthcare sector of the economy remains one which has relatively low barriers to entry and this has been critical in increasing the threat of new entrants into the business. There are numerous factors upon which competition within the healthcare sectors become based. Consideration of different factors results into different organizations joining operations within the market. Consumers of the services offered become attracted to the diversity and enjoy the availability of many different services. Since much of the business operations involve the provision of services, minimal capital is required. This has been the major reason for which the threat of new entrants has become relatively increased within the industry. The industry has been highly profitable and the prospects of competitors exiting the market remain relatively low with a high threat of new entrants into the same market. 9. Suppliers (moderate) A) “We depend on independent third parties for significant portions of our systems-related support, equipment, facilities, and certain data, including data center operations, data network, voice communication services and pharmacy data processing” (Humana Inc., 22). B) The support services required by Humana have been outsourced to the specialist firms in seeking to ensure the smooth operation of the organization. Many of the services that are sourced from outside the organization involve the information technology services, essential for daily operations and meeting basic required operational capabilities. Being a specialized organization, many of the suppliers commonly charge high prices for providing these services. The legal protection provided to the organization’s business services are insufficient to protect the company from misappropriation of the information contained within the system. The negative effects that might result from failures of these suppliers, affecting the members is a liability of the Medicare provider rather than the supplier. The dependence on these suppliers makes the company operations highly vulnerable third party failures, becoming liabilities to the organization. Such dependency increases the risk of the business operations. 10. Buyers (medium) A) “We use a variety of techniques to provide access to effective and efficient use of health care services for our members” (Humana Inc., 14). B) The organization provides different services to the members in seeking to ensure that the buyers are provided with a wide choice of products. The membership bases the capacity for the organization to influence the providers has been critical in enabling the organization to receive discounted prices from the healthcare providers. The organization employs different strategies in seeking to ensure that the members receive the best services from the providers. The chief focus of the business is the care providers with whom the organization has been contracted in seeking to ensure the services provided are satisfactory to the customers. Specialized services that are provided by the organization form a major element that causes the buyers to prefer human over other Medicare providers. 11. Threat of substitute products/services (high) A) “We also estimate costs associated with long-duration insurance policies including long-term care, life insurance, annuities, and certain health and other supplemental insurance policies sold to individuals for which some of the premium received in the earlier years is intended to pay anticipated benefits to be incurred in future years” (Humana Inc., 20). B) There is a general shift for individuals seeking future benefit policy reserves, which also serve as investment options for individuals. With the high rate of unemployment combined with the weakening of the economy, investment options have become quite attractive to the populations. These future policies, however, involve calculations based on numerous assumptions utilized in estimating the value of investment and the risk involved. These policies have long term claim payouts, and they present higher risks in the variability of claims, either on the positive or negative side. The organization has utilized an approach for monitoring the loss experience following the issuance of long-term policies in seeking to avert the losses that might result from these policies. Premium rate increments can be utilized in seeking to avert the potential losses associated with these policies. SWOT dimensions 12. Strengths A) “We believe we have good relations with our employees and have not experienced any work stoppages” (Humana Inc., 18). B) The organizational functioning has been enhanced through the employees of the organization who are able to conduct their responsibilities effectively. Cooperation between the employees and the management is one of the strengths exhibited by Humana, and which has been crucial to the establishment of an organization with a sting culture and values. The management services of the organization have been centralized in seeking to enhance the control and ensure well-coordinated operations. The centralized management of the company operation covers all the operational aspects of the organizations ranging from human resources, accounting and law among many others. The coordination experienced among the employees of the organizations is a unifying factor that reduced the involved risks like work stoppage resulting form industrial actions being undertaken by employees. The effectiveness of the management processes utilized by the organization is one of the strengths that ensure the effective functioning of the organization. 13. Weaknesses A) “We use a substantial portion of our revenues to pay the costs of health care services delivered to our members” (Humana Inc., 19). B) The insurance segment of the organization is faced by a big challenge in the payment of healthcare service costs of the many members of the company. The approach that has been adopted by the organization for payment of future estimates to healthcare providers is a major cause for the increased costs that are incurred by the organization. This remains the major weakness of the business strategy adopted by the organization within the insurance segment. Premiums within the healthcare insurance services are normally fixed for a period of one year and economic changes and other factors like claims result in the increased payments being made. The payments for insurance claims and capitations come from the revenue generated by the organization. This has had an effect on the profitability of the organization. Many of the costs incurred by the organization cannot be recovered within the contract year through the charging of higher premiums. A consideration of various factors using actuarial methods and assumptions is hence essential in estimating the approaches that the recovery of the costs can be undertaken. 14. Opportunities A) “The recently implemented Health Care Reform Law created a federal Medicare-Medicaid Coordination Office to serve dual eligible” (Humana Inc., 21). B) The government has introduced state-funded projects that will be utilized in the demonstration of the coordination existing between Medicare and Medicaid. The outcomes of these demonstrative projects could result in the implementation of strategic initiatives that would provide opportunities for the organizations that operate with both of these segments of the healthcare system. Participation in these state-based contracts presents an opportunity for Humana to develop strategic options seeking to attract and retain dual eligible members in seeking to enhance the profitability of the organization. New exchange programs that might develop from the adoption of these strategies present the organization with an opportunity for introducing new commercial products, subsequently resulting in the growth of the organizational product base. 15. Threats A) “Diverse legislative and regulatory initiatives at both the federal and state levels continue to affect aspects of the nation’s health care system” (Humana Inc., 17). B) The regulation of various aspects related to the provision and the development of Medicare programs has had a detrimental effect on the profitability of an organization operating within the industry like Humana. Government policies that have been formulated regarding the provisions of Medicare services are relatively unpredictable creating a business threat. Such threats are in the incapacity to estimate the operational requirements in terms of regulatory elements. Within the recent past the government has implemented regulations seeking to lower the premiums paid by consumers. Such policies have presented a negative impact upon the business. With regulations targeting the various elements of the healthcare sector, predictions and development of business strategies gets difficult as the organizations struggle to maintain profitability within a highly regulated business environment. 16. A) overall strategy “We use a variety of techniques to provide access to effective and efficient use of health care services for our members. These techniques include the coordination of care for our members, product and benefit designs, hospital inpatient management systems, the use of sophisticated analytics, and enrolling members into various care management programs” (Humana Inc., 14). The organization has developed different products aimed at satisfying the needs of the clients. The adoption of differentiation strategy by the company remains the core competitive strategy which the organization has utilized at the business level. The creation of unique products within a highly competitive market could enable the company to overcome the business constraints which are caused by the presence of high competition within the market. The differentiation strategy increases the buyer loyalty to the company products, consequently mitigating the risk presented by new entrants into the market (Sharp and Dawes, 744). Loyalty has ensured the company retains all the clients even when the economic condition within the country appears to be weakening. The value drivers within the products provided by the company include the reduction of buyer costs and sustainability of the products offered. Buyer costs are effectively reduced through the provision of high quality products which reduce the element of failure occurring through breakdowns. The quick response by the company to problems occurring has also been a fundamental element which has aided in the reduction of buyer costs. The perceptions of uniqueness and reputation which have been created by the company have become fundamental elements which have provided protection against the imminent threat emanating from new entrants into the market. This approach has worked well for Humana at it has enabled the organization to absorb the high costs involved in getting the products ready through charging different premiums for different products. 16 B) conclusion Humana has adopted a differentiation strategy which has enabled the company to maintain competitiveness within the market and sustainability as well. With the market being highly competitive, the approach has worked well and has been the fundamental cause for the successful expansion which the organization has undergone. While the approach has been effective in enhancing sustainability of business operations, there is need for the organization to consider opportunities which would enable a backward, vertical integration of the operations. The core competences displayed by the organization through the management of current business segments could be essential in aiding the organization to develop new business lines, as opposed to the expansions occurring through acquisitions. The acquisitions which the organization as conducted have been perceived as effective strategies which have aided the company in maintaining its current positions as a market leader within the sector (Diamond, 48). Works cited Diamond, Frank. “Humana Steps back to Seize the Future. With the Purchase of Concentra, a Company That Operates 300 Clinics, the Health Insurer Once Again Provides Care.” Managed care 20.7 (2011): 48. Humana Inc. Annual Reprot on Form 10-K. Washington, D.C: N. p., 2013. Sharp, Byron, and John Dawes. “What Is Differentiation and How Does It Work?” Journal of Marketing Management 17 (2001): 739–759. Print.  Read More