Case Project Phase 1 & 2: CVS Health Corporation
Jocelyn R. Gregory
Saint Leo University
September 30, 2018
MBA-599 Strategic Management
Dr. Shannon Jackson
The pharmaceutical trade is the part of the healthcare field that manufactures, distributes and sells medication. The industry consists of multiple divisions including the invention, manufacture, and selling of drugs. The primary objective of the company is to offer medicine that thwarts infections, treat illnesses as well as preserve health. Today’s business environment has become more dynamic, competitive and increasingly more complex. Therefore, the retail pharmacy sector has diversified its market, selling more than medications and prescriptions, but also confectionery, cosmetics, and groceries. Currently, the leaders in the pharmaceutical retailer’s industry are Walmart and Rite Aid, OptumRx (UnitedHealth), Express Scripts, Walgreens Boots Alliance, CVS Health and these account for around 66% of the U.S. prescribed dispensing revenues in 2017. The purpose of this comprehensive strategic management case is to evaluate CVS Health Corporation’s current strategies in comparison to the industry and competitors using both internal and external assessments, financial data, organizational capabilities and make recommendations to keep, change or modify policy and outcomes accordingly.
Company Description and its Products
CVS Health Corporation (CVS) is a provider of healthcare services with its headquarters in Woonsocket, Rhode Island. The company is the country’s biggest chain of drugstores as well as the market-leader of pharmacy benefits managers (PBM) having almost 90 million plan participants.
The corporation’s sales at the end of June was 186.967 billion dollars with a workforce of more than 260,000 workers and operation spanning to 9,600 retail stores and 1,100 walk-in clinics across over 50 states, inclusive of Washington, D.C., Puerto Rico and BrazilCITATION CVS18 l 1033 (CVS, 2018).
CVS works in three categories: Corporate Pharmacy Services, and Retail Pharmacy, as well as four departments: CVS/specialty, CVS/MinuteClinic, CVS/pharmacy, and CVS/Caremark. CVS Health Corporation offers preferred retail products such as over-the-counter medicines, cosmetics, personal care items, grab-and-go grocery, and photos.
CVS Health Corporation as a pharmacy organization aims at supporting individuals in their quest to better health through provision of services related to pharmacy benefit management, disease control programs, retail and specialty pharmacy, mail order, as well as retail clinics (CVS, 2017). CVS and its subsidiaries are the nation’s biggest incorporated pharmacy healthcare provider as per the revenues and prescriptions filled.
Additionally, the CVS Health Corporation has several branches under its umbrella, and these include Aetna, CVS Caremark, Drogaria Onofre, Navarro Discount Pharmacies, Longs Drugs, CVS Pharmacy,Accordant, Coram, and Omnicare, CVS Specialty, Wellpartner, and MinuteClinic. (CVS History, 2018).
CVS Health History
The company was started by the Goldstein brothers, Stanley and Sidney, who grew from selling health and beauty products to retail in 1963. The duo later launched their first Consumer Value Store (CVS) in partnership with Ralph Hoagland. In 1967, CVS launched operation of its first stores with pharmacy departments, and in 1969 it was sold to Melville Corporation to further expansion. In 1996, it became a publicly traded company.
CVS Health Corporation was concerned with the growing increase of common chronic diseases; such as diabetes, hypertension, and cardiovascular and the consumer’s ability to access healthcare at low cost. So, they identified three areas of concern to tackle the trend and ways to deliver better care at a lower price. According to Brennan (2018), the three regions are;
CVS operates in a highly competitive and evolving healthcare environment. The Retail – Pharmacies and Drug Stores industry includes pharmacy-led health and well-being companies as well as operators of retail drugstores such as Walgreens and Rite Aid Corporation.
CVS Health competes with other drugstore chains, supermarkets, online and other discount retailers, mail order pharmacies, convenience stores, mass merchants and other and PBMs such as PharMerica, Express Scripts, OptumRx, Humana, Prime Therapeutics, MedImpact, Walgreens, Rite Aid, Wal-Mart, and PharMerica Corporation. Strategic alliances between these companies could negatively affect the company.
Walgreens, CVS, and Rite Aid are the major drugstore chains in the U.S. respectively. As of 2012, Walgreens is in the first position enjoying a market cap of $28.51 billion, $72.2 billion in 2011 total revenue and an S;P rating of A. With a market cap of $56.56 billion, $107.1 billion in revenue and an S;P rating of BBB CVS is placed second. Rite Aid ranks third with a market cap of $1.49 billion, $26.1 billion in revenue and has an S;P rating of B- (Tran, 2007). These are seemingly CVS’ main competitors in the health industry.
CVS Health’s organizational structure is the typical a top-down, centralized composition primarily divided into the company’s four subsidiaries: CVS MinuteClinic, CVS Specialty, CVS Caremark, and CVS Pharmacy. The company is currently under the ownership of Larry Merlo who is the President and Chief Executive Officer (CEO) and responsible for directing several top executive vice presidents including Jonathan C. Roberts (COO), David M. Denton (CFO) and Troyen A. Brennan (CMO).
Today, various other companies are in financial partnership with CVS Health Corporation. In total, these companies make up over 84% of shares. Additionally, insider trading consists of five members of executive level management who trade their dividends and buy into the company’s shares. Larry Merlo currently holds the most significant number of shares traded, with over 241,150 shares individuallyCITATION Lin17 l 1033 (Lin, 2017).
Strategic Elements of History
The fast and rapid development of CVS Health Corporation is attributed to its acquisitions as well as diversification of its business model. In 2001, as a component of strategic restructuring, CVS closed more than 200 stores and moved others from strip centers to individual sites. CVS moved in the healthcare path in 2004 with the purchase of the Eckerd Stores as well as Eckerd Health Services; thereby securing entry into the field of drug benefits management for big companies as well as government firms’ workforce and providing them the lead on Walgreens. Due to this acquisition, CVS Health Corporation turned into a respectable brand in the field of healthcare.
CVS acquired Minute Clinic in 2006 which was an innovative in-store retail clinic providing treatment for regular medical issues, required immunizations, and screenings. This consequently resulted in further expansion of the healthcare company. At the same time, CVS pursued expansion for its specialty pharmacy business division which is primarily centered on the treatment of complex or rare diseases including cancer and HIV with expensive drugs.
The 21 billion-dollar mergers of CVS with Caremark in 2007 solidified a defining moment in the company’s history. This established the company as one of the leading pharmacy benefits managers in the country. In like manner, CVS agreed with Cardinal Health to launch, the most impressive generic drug sourcing business in the country.
These expansions were subsequently succeeded by the purchase of Coram, an alimentary nutrition component of Apria Healthcare offering specialty infusion services. Coram is the leading supplier of full-scale infusion services and cares for over 165,000 patients every year CITATION CVS14 l 1033 (CVS, 2014). Moreover, the acquisition of Coram enabled CVS to amplify its competitive advantage in specialty services while adding to its unique competencies.
As well, this accomplishment was in alignment with the strategy of the company to invest in major ventures that can lead to company growth. CVS Health has earned a reputation for making alliances and acquisitions, as evidenced by the CVS-Target deal. In 2014, CVS carried out the purchase of its targets of pharmacy and clinics to control 1,672 Target drug stores throughout forty-seven states. Also, these facilities were rebranded as CVS pharmacy and MinuteClinic. In September 2014, the corporation rebranded from CVS Caremark to CVS Health to reflect the company’s public obligation to health and fitness that coincided with getting rid of tobacco products from all retail stores.
Vision and Mission Statement
The mission statement for CVS Health is:
“Above all else, our mission is to improve the lives of those we serve by making innovative and high-quality health and pharmacy services safe, affordable and easy to
The company’s vision is:
“to strive to improve the quality of human life.”CITATION Alc18 l 1033 (Alchin, 2018)Assessment of Vision and Mission Statement
According to the text, the mission statement is a statement of a company’s purpose for existingCITATION Dav15 p 42
y l 1033 (p. 42). The mission statements for CVS Health is precise, robust and consumer and health oriented. It communicates that the primary concern of the company is the customer/affected party. The emphasis of this affirmation is the customer, the quality of its products and services the ease of use as well as the affordability. However, the mission statement lacks some essential elements such as employees, culture and social obligation.
As indicated by CITATION Dav15 l 1033 (David & David, 2015) the mission statement must incorporate nine factors and is critical to productive business and culture. Upon assessment. 40 percent of CVS Health personnel believe that they are inspired by the organization’s mission, vision, and values, 14 percent state that the main reason they stay at CVS Health is because of the mission statement and 62 percent believe the company’s goals were clear, and they were invested in them CITATION Com18 l 1033 (Comparably, 2018).
External Factor Evaluation (EFE) Matrix
External Factor Evaluation (EFE) matrix technique is a deliberate management tool typically while evaluating the existing company circumstances. The EFE matrix is an excellent instrument to envisage as well as arrange the opportunities as well as threats the company is likely to encounter. External variables examined in the EFE matrix are microeconomics which are exposed to legal, political, economic and social, and other outside factors (that is to say; demographic, cultural, social, along with environmental factors). Here is CVS Health’s EFE:EFE MATRIX for CVS Health Corporation
WEIGHT RATING WEIGHTED SCORE
OPPORTUNITIES The typical cost of brand-name prescription drug has grown by 58 % in the last five years 0.06 2 0.12
A rise in healthcare consumerism 0.09 2 0.18
Rising healthcare expense will create additional demand for educated healthcare professionals 0.13 3 0.39
Aging public is going to boost healthcare spending 0.06 3 0.18
CVS-Aetna merger is going to increase customer healthcare technology platform 0.05 3 0.15
The expected consistent rise in drug prices due to inflation and other factors 0.03 3 0.09
Patent medications expiration 0.04 2 0.08
Improved delivery of healthcare products throughout several sectors 0.07 4 0.28
The new taxation policy – increase its profitability 0.04 3 0.12
The worldwide pharmaceutical business is anticipated to develop, particularly in Brazil, India, Russian, and China (BRIC), that is expected to be the 3rd largest market 0.05 2 0.10
THREATS Government funded reimbursement programs issues 0.10 3 0.30
Drug utilization trends – changing customer purchasing behavior 0.05 2 0.10
The launch of generic brands alternatives can lower the margin 0.02 3 0.06
DOJ anti-trust regulation impacting the PBM industry 0.02 2 0.04
Price war in the PBM industry could affect the company’s gross margins 0.03 2 0.06
Shifting legislative and political priorities & intervention 0.03 3 0.09
Changes in business benchmarks – fluctuation regarding merchandise standards 0.03 4 0.12
Increase in competitor expansion – traditional and non-traditional competitors (Walmart, Amazon) 0.04 3 0.12
Unstable interest rates can make potential financing challenging 0.02 4 0.08
Local shops sales impacted by State regulation changes/intervention 0.04 3 0.12
TOTAL EFE 1.00 2.78Strategic Implications
The EFE score of CVS is 2.78, and this indicates that the company’s strategies are slightly above average implying that they are in a position to respond to their present prospects from outside the company and to lessen the consequences of threats outside the company. Nevertheless, the connection between business organizations and society is essential is the key to a company’ success. Furthermore, some elements influence the business-societal relationship. These are:
Varying expectations of the society
Increasing ethical considerations
New state regulations
Self-motivated ordinary environment
Introduction of new technology
CVS operates as a duopoly, and thus economies of scale and pricing power have provided it with unmatched advantages. Moreover, trends and demographics in medicine are potent drivers for continued growth; as well as specialization (value chain analysis focusing on activities that produce a unique product or differentiation in service).
Nevertheless, CVS Health should deal with increased competition from mass merchandisers and supermarket chain in non-pharmaceutical products. Also, there are a lot of uncertainties brought about by changes in insurance (i.e., Medicare, Medicaid, and the repeal of ACA). CVS Health’s keenness to gauge trends and new developments and the cognitive ability to define specific opportunities for the organization is unparalleled. This will further the company’s competitive advantage because its leaders can identify slight shifts in consumer activities, marketplaces, and social and economic systems; and position the organization to pursue those opportunities.
Competitive Profile Matrix (CPM)
The Competitive Profile Matrix (CPM) is an investigative tool which identifies a firm’s main competitors and compares them using areas of competitive value (critical success factors) of the industry. These factors include innovation, brand reputation, product quality, technological competence, market share, customer loyalty, management competency, price competitiveness, and social responsibility and very many others.
The advantage of a CPM is that it reveals the company’s comparative strengths and weaknesses against its adversaries. This enables the company to identify areas where it should adjust and where it should maintain which as a result, empowers it to make a successful competitive decisionCITATION Por90 l 1033 (Porter, 1990). Below is CVS Health’s CPM:
CPM MATRIX for CVS Health Corporation
CVS Walgreens Rite Aid
Critical Success Factor Weight Rating Score Rating Score Rating Score
Advertising 0.07 2 0.14 4 0.28 3 0.21
Market Penetration 0.08 4 0.32 3 0.24 2 0.16
Customer Service 0.10 3 0.30 1 0.10 2 0.20
Store Locations 0.08 3 0.24 4 0.32 2 0.16
Services Offered 0.08 4 0.32 3 0.24 2 0.16
Employee Dedication 0.08 3 0.24 3 0.24 3 0.24
Financial Profit 0.10 4 0.40 4 0.40 2 0.20
Customer Loyalty 0.10 3 0.30 4 0.40 2 0.20
Market Share 0.08 3 0.24 4 0.32 2 0.16
Product Quality 0.08 4 0.32 4 0.32 2 0.16
Top Management 0.05 3 0.15 4 0.20 2 0.10
Price Competitiveness 0.10 3 0.30 2 0.20 3 0.30
TOTAL 1.00 3.273.26 2.25
CVS Health (24%) faces challenges from two significant competitors; specifically, Walgreens which holds a 16% and Rite Aid Corporation with 4% market share respectively. CVS Health’s CPM score is 3.27. This considerably larger rating shows that CVS is better in the marketplace as compared to Walgreens. However, the company has opportunities that can enable it to obtain a far more substantial competitive advantage. A great deal of this is because of CVS’s historical ‘status quo’ strategy of doing business rather than modifying procedures based on changing the environment and the fact that Walgreens has not entered the PBM industry has given the competitive edge to Walgreens.
For CVS Health, probably the most substantial critical success factor impacting the company is marketing and advertising, assessed by declining revenue in the Retail/LTC sector that which is 40% of earnings. The retail drugstore industry is competitive by nature, and competitiveness is dynamic as retailers adjust to changing trends in the marketplace and seek to keep customers.
CVS ranks number 78 on the American Customer Satisfaction Index (ACSI) (a 3% gain from last). The ACSI captures client views regarding vital components of the shopping experience for the drug store industry, including: store layout and cleanliness, checkout speed, staff courtesy and helpfulness, store locations and hours, sale and promotion frequency, merchandise variety and selection, merchandise availability, pharmacy services and company websiteCITATION DiM18 l 1033 (DiMeglio, 2018).
Porter’s Five-Forces of Analysis
Porter’s five forces model is a business strategy tool that uses five industry forces to assess the nature of competition and attractiveness of an industry. Porter’s Five-Forces of Analysis is one of the most commonly used techniques of analysis to better understand the industrial climate in which the firm maneuvers and analyze the attractiveness of an industry structure CITATION Por08 l 1033 (Porter, 2008). The model suggests that five forces determine the attractiveness and long-term profitability of an industry. These include:
The Degree of Rivalry Within the Industry
The Threat of Substitutes
The Threat of New Entrants
Bargaining Power of Buyers
Bargaining Power of Suppliers
CVS Health’s Porter’s Five-Forces Analysis in comparison to the U.S. drugstore industry is as below:
CVS Health Corporation rebranded their name from CVS Caremark to CVS Health Corporation in September of 2014 to mirror the organization ‘s objective of helping customers on the way to better overall healthCITATION Cas141 l 1033 (Castel ; DeAngelis, 2014).
CVS Health Corporation managers can use the Porter Five Forces to understand how it affects profitability and create a method for improving systems for CVS Health’s competitive advantage and profitability in the industry in the future. Additionally, managers should use the model to develop a strategic position in the healthcare industry; but also favorable outcomes in the entire Healthcare field.
CVS Health can handle the degree of rivalry within the industry by using innovation as a driver to modernize methods, empowering them to create a sustainable competitive advantage and a viable differentiation that centers around introducing new product and services to sustain market competitiveness and broaden growth throughout the industry. Due to this level of competition, CVS Health differentiates by “store location and convenience, customer service and satisfaction, product selection and variety and price.” (2017 10-K).
Threats of Substitute Products or Services
CVS Health Corporation operates in a competitive industry, and the risk of substitute products and services is high. CVS is equipped to handle the threat of substitute through;
Maintaining a service-oriented approach
Understanding the core need of the customer
Increasing the switching cost for the customers
Rivalry of all the current competitors.
When the competitors and all the present players in an industry are rigorous, it will likely drive down prices and reduce the general profitability of the market. This competition can take a toll on the overall long-term profitability of the organization.
Threats of New Entrants
Barriers to Entry shows how easy or difficult it is for prospective players to enter the industry an succeed. If a market is profitable and there are few barriers to enter, there are higher chances that new players will emerge into the industry and intensify competition for the market. Subsequently, top competition for market shares within the sector will thus lower the industry’s profitability. For that note, it is essential for CVS and the crucial existing market players to set up strong barriers of entry to deter new entrants. For example, building economies of scale can lower the fixed cost per unit, building capacities and spending money on research and development can minimize the threat of new competitors.
Other entrants in the drugstore industry create innovation, brand new means of operation and put pressure on CVS Health through reduced pricing approach, lowering expenses, and propositions to the customers. CVS Health Corporation needs to handle all these issues and develop effective barriers to safeguard the competitive edge.
CVS Health is able to handle the risks of new entrants by continuing to innovate products and services which not only offer the existing consumer a motive to purchase the products but also attract new clients.
New entrants are not as likely to get into a dynamic business in which developed contenders as CVS Health Corporation continually redefine the standards. It substantially reduces the opening for the new firms to gain a foothold, consequently discouraging competitors that are new in the market.
Bargaining Power of Buyers
Consumers hold a limitless capacity to shop from any business they want. Customers frequently look for discounts and offer on established products since they want to buy the best products readily available by paying the minimum cost possible. CVS Health Corporation controls the bargaining power of buyers by developing an extensive base of buyers.
CVS Health brand brings high customer satisfaction and tends to create customers that like them over the company’s competitors. As such, by delivering certain advantages connected with products and services, CVS Health can regulate the bargaining power of customers and reduce the departure of existing customers.
Bargaining Power of Suppliers
Since drugs store companies are all set up to purchase brand-name medicines through a drug wholesaler instead of from a manufacturer they have to hire wholesalers. Strong bargaining power allows vendors to market more expensive or low-quality raw materials to buyers.
Three drugstore chains control about 85% to 90% of all revenues from drug distribution in the United States, and these include AmerisourceBergen Corp. (NYSE: ABC), Cardinal Health Inc. (NYSE: CAH) and McKesson Corp. (NYSE: MCK). Cardinal Health Inc supplies to all the CVS retail stores and distribution centers, while McKesson provides to the Caremark mail facilities and some small retail businesses. This can directly affect CVS Health profits since it’s paying much more for materials.
Implications of Porter Five Forces on CVS Health Corporation
The Drugstore Industry is a vast industry consisting of large, well-known chains and heavily concentrated. The annual growth rate of the industry is 2.2 percent and revenue of 257 billion dollars. According to “Drug Channels” in 2013 the pharmacy industry consisted of five significant chains which controlled 63 % of the industry revenues.
CVS faces challenges from two significant competitors; Walgreens and Rite Aid. Managers should formulate the firm’s strategies using the results of the analysis; For instance, the difficulties of achieving economies of scale in the market can be solved by pursuing the cost leadership strategy. As well, the product development strategy should be used if the current market growth is slow and the market is saturated.
Competitive Position Analysis
This industry includes pharmacy-led health and well-being companies and operators of retail drugstores like Walgreens Boots Rite Aid Corporation (RAD), who happens to be CVS’s primary competitors. Following the year-end reports from 2017, net sales for CVS Health increased by 2.2 percent, and the earnings per share also rose 27.07 percent versus the previous year. Below is a table of comparison between the three rival chain drug stores.
Total Revenue 184,765.0 118,214.0 21,529.0
Gross Profit 28,545.0 29,162.0 4,780.1
Operation Income 9,517.0 5,557.0 133.4
Net Income 6,622.0 4,078.0 943.5
EPS $6.44 $3.78 $-0.06
Based on its 2012 overview of the industry, “Drug Channels” noted that five major chains control 63% of industry business. CVS, Walgreens, and Rite Aid are commonly referred to as the “big three” of the drugstore chain. CVS has a strong position in the pharmaceutical sector in the U.S. As of December 2014, the company had a presence in 7,822 retail stores, 7,775 of which were located in the US, and the remaining 47 in Brazil.
CVS Health Incorporation had over 1,000 CVS/MinuteClinic stores located in the US. The CVS offers PBM and mail service pharmacy to over 2,000 clients and their 65 million plan members. But the industry is heavily concentrated and has experienced significant competition from a discount store and food chains.
As of 2014, Express Scripts and CVS Caremark continued to manage over half of the total PBM market, while Catamaran, OptumRx, and Prime Therapeutics are gaining market share. These five leading PBMs differ by customer targets, channel strategies, and technology solutions. CVS Health Incorporation is seeking to widen to further its brand by finding new markets in other countries.
This company can grow its business because the population of different countries is consistently increasing. The firm has to make some partnerships with some other companies to expand their presence in some other areas or new economic markets. With its provision of unique integrated healthcare services such as pharmacy benefit management, specialty pharmacy, and online pharmacies, CVS can reliable succeed in these new markets.
Every American drug retailer in the is experiencing advantageous business situations which consist of a the aging US population, improved insurance coverage through the ACA and anticipated generic launches shortly. However, CVS Health has many more opportunities in the value chain than most of its competitors in the pharmacy retail industry and is thus in the best position of further growth. CVS has a national network of over 67,000 retail pharmacies to cater to an aging population. This can significantly increase the total number of prescriptions made every day as the pharmacies enable its reach to more customers. Additionally, this is likely to increase the amount of orders handled by the PBM services division, as more than 40% of PBM prescriptions come through CVS Health retail pharmacies.
The organization can attain a diversified population of customers through its four divisions. CVS/specialty provides specialty management services including Accordant, Novologix, Coram; and specialty pharmacy services to patients. CVS/MinuteClinic is one of the leading retail medical clinic providers in the US. CVS/pharmacy offers over-the-counter drugs, beauty products, and cosmetics, photo finishing, seasonal merchandise, greeting cards, and convenience items. CVS/Caremark offers several PBM services including discounted drug purchase arrangements, Medicare Part D services, mail service pharmacy offerings, plan design and administration, and prescription management systems. Diversified product offerings help the company in catering to a wide range of customers, which in turn improve its financial performance.
The rising labor cost in the US, intense competition, the general spread of prescription drug abuse and changes in regulations significantly affect the company’s profitability and market share. As well, Walmart focusing on pharmaceutical drugs, Changing Healthcare Environment, Generic drugs also lower the profit margins of the company.
CVS Health Corporation’s distinctive competencies are to provide health care services at low cost, quality, and convenience while establishing itself as a people and health friendly brand. CVS strategy is not a one-size-fits-all. According to Porter’s Generic Strategies and CVS’s position in the market, it is pursuing the ‘focused’ strategy. However, historically CVS Health Corporation uses the horizontal integration competitive strategy. Horizontal integration is the acquisition of business activities that are at the same level of the value chain in similar or different industries. In simpler terms, horizontal integration is the acquisition of a related business – to the end-consumers (forward integration). It may acquire, but it may also merge with or takeover, another company to strengthen itself—to grow or increase its capacity, achieve economies of scale or product uniqueness, reduce competition and risks, increase markets, and enter new markets.
Acquisitions and share repurchases, dividends and other strategic investments. Forward vertical integration, is where a company owns another company to get closer to the ultimate consumer in the supply chain. Merging its retail and PBM business, which offers diversification and value to shareholders. Eliminating tobacco sales, to increase collaboration with doctors and healthcare systems. The company has kept growing through diversification and acquisitions and possesses the distinctive blend of patient touch points that allow it to supply a diverse network of healthcare services efficiently. In more than 50 years, CVS has become the nation’s biggest operator of health clinics and the largest dispenser of prescription drugs.
Internal Factor Evaluation (IFE) Matrix
Internal Factor Evaluation matrix (IFE) is an essential internal strategic management tool used to visualize and prioritize a company’s major strengths and weaknesses of different functional areas (i.e., finance, marketing, technology, operations, accounts, human resources); also, it identifies and evaluates the relationships between themCITATION Dav15 p 92 y l 1033 (David ; David, p. 92).
The IFE Matrix together with the EFE matrix is a strategy-formulation tool that can be utilized to evaluate how a company is performing regarding identified internal strengths and weaknesses of a company. Scores below 2.5 point to internally weak business, while scores above 2.5 indicate a strong internal position. Below is Hershey’s IFE:
IFE MATRIX for CVS Health Corporation
Key Internal Factors Weight Rating Weighted Score
Strengths Leading integrated pharmacy health care provider in the U.S. 0.05 4 0.20
Ranked #7 on Fortune 500’s list of most profitable companies. 0.04 4 0.16
Strong Financial Performance and Significant Free Cash ($4.4B) 0.11 4 0.44
Pharmacy Services Segment – 2.8% revenue increase 0.06 3 0.18
Retail/LTC Segment 5.7% revenue increase 0.10 3 0.30
1,110 MinuteClinic provide 80% lower cost of care compared to ERs 0.07 4 0.28
cvs.com attracted at least 50 million visitors annually by 2020 0.04 3 0.12
ExtraCare card ranked #1 for retail loyalty programs – driving ‘front-store’ sales growth 0.07 3 0.21
Mergers and Acquisitions 0.05 4 0.20
inventory management system to link stores/distribution centers with suppliers and speed up activities across the value chain. 0.05 3 0.15
Pending lawsuits and government investigations. 0.02 2 0.04
High acquisitions-related integration debt 0.02 2 0.04
$4 Billion loss in PBM sales to competitors 0.05 2 0.10
11.9% below industry average for operating income 0.05 1 0.05
Lack of aggressive advertising and marketing promotions. 0.05 1 0.05
Outdated store-fronts – inconsistent in the store experience and it has instability in the promotion of the stores 0.05 1 0.05
Compared to competitors, non-pharmacy merchandise sales are 4% lower 0.06 1 0.06
Compliance with Laws and Regulatory Requirements 0.02 2 0.04
Pharmacist and technicians are rated the least experienced compared to the competition 0.03 1 0.03
A large number of acquisitions has taken focus from the core business practices 0.01 2 0.02
Total IFE Score 1.00 2.72Strategic Implications
CVS Health’s IFE score is 2.72 points, and this shows that they are slightly above average internally.
As there is a reasonable increase in spending on health care and drug spending in the United States, the company has chosen to offer complete and inclusive patient care to all its customers. The entire company of CVS is leveraging on one large health plan to collaborate with patient-centered medical home model.
The company is coming up with strategies aimed at reducing the price of healthcare services by use of innovative formulary techniques. The company has also take part in networks of small phramacies that are restricted. For patients that use their walk-in medical clinics at CVS?MinuteClinic, the company reduced co-pay by over 8 percent. Total incremental client savings are also expected to raise to over 3.5 billion dollars due to the use of the formularly management strategy by the company.
The company was the first of all phamacy chain companies to stop selling tobacco products. When the company chose not to sell cigarettes anymore, it clearly faced a financial risk. Nonetheless, the company mantained its stand and dropped the sale of a product that was fetching sales amounting to two million dollars. This showed that the company is not only looking at getting money but also minds about the health of the customers.
Financial Ratio Analysis
Financial ratios use a company’s financial information (i.e., balance sheet, income statement) to determine the company’s strengths and weaknesses in the areas of investment, financing, and dividendCITATION Dav15 p 103 y l 1033 (David & David, p. 103). It can also provide managers with a useful tool to measure internal goals against progress, competitors, trends or the overall industry. Below is CVS Health Corporation’s key financial ratios:
KEY FINANCIAL RATIOS FOR CVS Health CorporationCVS Walgreens Industry Sector
Net Income 188,892.00 131,898.00 Earnings Per Share 7.04 5.98 6.73 Sales – 5 Yr. Growth Rate 8.46 10.54 -13.06 8.36
EPS – 5 Yr. Growth Rate 10.55 9.37 11.67 7.01
LT Growth Rate (%) 11.40 11.64 Dividend Yield – 5 Year Avg 1.70 1.86 1.22 2.31
Dividend 5 Year Growth Rate 25.21 9.57 13.00 7.94
P/E Ratio 54.04 16.91 21.82 39.10
Price to Sales (TTM) 0.43 0.56 27.73 5.67
Price to Cash Flow 20.01 11.83 14.74 34.06
Current Ratio 2.34 0.93 1.36 1.46
Quick Ratio 1.87 0.47 0.91 0.86
Debt-to-Total-Assets Debt-to-Equity 182.85 54.24 32.05 51.23
Long-term Debt-to-Equity 172.91 44.91 19.43 5.53
Inventory turnover 10.82 10.52 11.86 6.53
Total Assets Turnover 1.66 1.78 2.11 1.77
Accounts Receivable Turnover 14.15 19.00 529.73 17.79
Gross Profit Margin 15.56 23.83 17.84 37.75
Operating Profit Margin 3.19 4.55 3.17 17.81
Net Profit Margin 0.81 3.37 2.10 13.26
EBITDA Margin 6.64 6.87 Pre-Tax Margin 2.29 4.09 3.37 17.90
Return on Total Assets (ROA) 1.34 5.99 5.63 24.49
Return on Investment 1.80 8.69 10.69 60.94
Return on Stockholder’s Equity (ROE) 4.28 14.94 11.89 73.73
Earnings Per Share (EPS) 7.04 5.98 CITATION Reu18 l 1033 (Reuters, 2018)Strategic Implications
The company has three reportable segments;
However, revenue is only recorded for the Pharmacy Services and Retail segments.
Critical financial targets that are met or exceeded are based on three pillars which the company considers essential in a quest to maximize shareholder value, and these include: (1)
Productive, long-term growth
Generating significant free cash flow
Optimizing capital allocation.
CVS Health Corporation The company, formerly known as CVS Caremark Corporation, recorded revenues of $153,290 million during FY2015, an increase of 10% over FY2014. For FY2015, the company derived most of its revenues from the US. The company generates revenues through two business segments: pharmacy services (58.2% of the total revenues, before eliminations, in FY2015) and retail/LTC (41.8%).
The initial Step of planning is SWOT and the primary goal of a SWOT breakdown is commonly to assist companies to develop a strong business strategy by examining four key elements:
Weaknesses (internal factors)
Threats (external factors) it faces in the marketplace.
Strengths and weaknesses in the SWOT matrix are internal factors; which are internal value creating (or destroying) elements such as assets, skills, or resources a company has at its disposal relatively to its competitors. Opportunities and threats are factors a company cannot control but emerge from either the competitive dynamics of the industry or market. Below is CVS Health’s SWOT Matrix:
An extensive network of retail pharmacy stores and pharmacy services in the US – operational excellence in delivering services
Shareholder value driven by a significant free cash flow and a strong financial performance
Strategic acquisitions to expand CVS’ pharmacy and clinic presence
Dependence on US Market expands customer access to care while helping to lower overall health care costs and improve health outcomes.
Digital Innovation innovative marketing and adjust the mix of merchandise to match our customers’ needs
Evolving Market flexible, clinically-oriented services
ExtraCare loyalty program driving front-store sales growth
Strong Foothold in the US Market products and services offered
Competition Intense competition in retail/LTC and PBM industries
Exclusive Wholesale Distributor purchase our merchandise from numerous manufacturers and distributors
Changing Industry demographics aging American population
Expand into International Markets
Policy, Laws and Regulations development and utilization of preferred formularies
CVS can leverage existing opportunities in the PBM, retail pharmacy and LTC pharmacy market to stimulate future revenue and profitability. According to the Center for Medicare and Medicaid Services, health care spending accounts for 17.7% of the country’s Gross Domestic Product (GDP) and the prescription drug industry shares ten percent of the cost. The CMS also projects this growth to continue approximately 5.5% annually until 2026; resulting in 19.7% GDP which equates to 5.7 trillion dollars (cms.gov).
The main factors projected to drive the growth of health care spending are demographic trends, an increase in medical goods and services and the pharmaceutical industry, unstable regulatory requirements. However, CVS Health Corporation is the leading integrated healthcare provider in America with a diverse portfolio to accommodate the growing trends.
CVS has recorded a strong financial performance with significant free cash flow. The company’s revenue has grown at a compounded annual growth rate (CAGR) of 11.1%, from $153.3 billion to $184.8 billion during the three-year period between the fiscal year 2015 and 2017. As a result, the company’s free cash flow totaled $4.5 billion. Thus, CVS Health has the financial power to pursue many business strategies.
The 2007 merger of CVS, a large operator of pharmacies, and Caremark Rx, a leading pharmacy benefit management company, formed the leading integrated pharmacy health care provider in the U.S. The merger uniquely positioned CVS to deliver significant benefits to health plan sponsors through effective cost management solutions and programs that engage plan members and promote healthier and more cost-effective behaviors.
Also, the merger has enhanced the company’s ability to offer plan members and consumers expanded choice, greater access, and more personalized services. Strategic acquisitions expanded CVS’ pharmacy care and clinic business presence. For instance, with the addition of Target, CVS added 1,672 pharmacies and 79 clinics (rebranded MinuteClinic) to its inventory. With this acquisition, CVS would leverage on its integrated business model and its scale to have its operating profits and sales volume increased through providing convenience and cost savings to consumers and payors. Moreover, the acquisition provided CVS consumers with expanded options and access to its health care services.
The nation’s aging population will play a significant role in the evolving health care market, and it offer the company new opportunities. The company as well gains access new market with the acquisition of Omnicare, a pharmaceutical dispensing channel and expands its ability to dispense prescriptions in assisted living, skilled nursing, and long-term care (LTC) facilities, serving the senior patient population. As such, CVS can capitalize on this demographic trend in serval ways:
Omnicare is a leading pharmacy provider in the long-term (LTC) market that delivers more than 70 million prescriptions a year. This gives CVS the prime position to gain the competitive advantage.
CVS would also expand its presence in the growing specialty pharmacy business. Omnicare’s complimentary specialty pharmacy platform and clinical expertise would augment CVS’ capabilities and enable CVS to continue to provide cost-effective solutions to patients and payors.
Medicaid enrollment is expected to increase as well as the amount of spending on managed care. Moreover, the challenging macroeconomic environment in the country requires the state to control further rising Medicaid costs, which opens an array of opportunities for managed care organizations such as CVS.
CVS, UnitedHealth, and Humana are the top three firms for prescription drug plans and account for 55% of all Part D (PDP and MA-PD) enrollees in 2018. CVS had the smallest market share, so it has an opportunity to grow (shares gained through acquisition). Nevertheless, CVS Health has the most PDP enrollees, is the top Part D firm in only six states and SilverScript Choice plan more than doubles the enrollees of United Health’s AARP.
The age population of people over 65 years is anticipated to grow 18% in the next five years and 38% through 2025. This demographic uses over two times the amount of prescriptions of the under-65 population, creating a long-term tailwind for the industry. Increased use coupled with increased in prescriptions for a specific population is expected to fuel a six percent rise in annual expenditure on prescriptions in the next ten years.
MinuteClinic is forging strategic clinical affiliations with some of the largest and most prominent healthcare systems in the US, creating opportunities for a variety of collaborative programs. During the fiscal year 2015, it added new health systems bringing the total to 63 primary health system affiliations. MinuteClinic is collaborating with the leading healthcare systems in the U.S. to ensure that patients receive care at the appropriate site of service.
It is becoming an integral part of the services these organizations offer as they develop accountable care companies, healthcare homes that are patient-centered, in addition to other models of care. In addition to providing care for common acute illnesses, injuries, and skin conditions, MinuteClinic offers chronic disease and wellness services while integrating medical records with primary care providers.
CVS operates in a highly competitive industry; also, there are several large health insurers and managed care plans UnitedHealth and retail pharmacies which have their PBM capabilities as well as several other national as well as local organizations that a number of the same services. Intense competition could affect CVS’ market position.
The PBM industry is experiencing margin pressure as a result of competitive pressures and increased client demands for lower prices. CVS maintains contractual relationships with generic pharmaceutical manufacturers and brand name pharmaceutical manufacturers that provide for purchase rebates on medications sold by pharmacies in the company’s retail network and by its mail order pharmacies all or a portion of which may be passed on to clients.
Customers would be affected by the Repeal of the Affordable Care Act. However, CVS is ready to address any policy changes and continue to bring solutions and reduce healthcare costs. Also, in comparison to brand name a higher margin on generic drugs is made by the company.
CVS has great success within US market; however, the businesses are going global. To place itself in the top global retail pharmacy sphere, CVS should expand its share into the international marketplace.
The Boston Consulting Group (BCG) growth-share matrix is a planning tool to help with long-term strategic planning, to help a business consider development possibilities by reviewing its portfolio of products to determine where to commit, to discontinue or develop products. The BCG growth-share matrix breaks down products into four categories: dogs, cash cows, stars, and question marks. Here’s is CVS Health’s BCG Matrix:
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Relative Market Share Position
High 1.0 Low 0.0 Industry Sales Growth Rate High 0.20 Low -0.20
CVS Health’s BCG Matrix illustrates that CVS Pharmacy is in the Star and enjoys a fast growth and a significant market share. Star products have rapid growth and dominant market share. This means that star products can be seen as market-leading products. A higher investment will be required for these products if they are to retain their position, to support further growth and continue leading other competitive products. With that, a lot of income will also be generated by the star products due to the strength they have in the market. The company is currently in the process of rebranding these assets as CVS Pharmacy and MinuteClinic locations.
CVS Retail/LTC division is in the Question Marks and has less market share in a dominant growing market. Even though they are in a high growth market these products do not seem to have a high percentage of the market. Investment should be high for question marks. Health and Beauty and ExtraCare are driving front-store gains; CVS MinuteClinic expands its scope of services. The average revenue in 2015 (after excluding the impact of the company’s exit from tobacco) increased 2 percent—and 4 percent in our core health and beauty businesses. These outcomes are satisfying since the uninspiring tendency in overall shopping visits across the retail landscape. Higher margins and growth opportunities are also availed ny health and beauty compared to other front store categories, and the company is intensifying its attention on the two through a blend of store remodeling, merchandising enhancements, and improved product mix. Consumers have also retorted devotedly to the company’s expanded healthy food options. CVS also continued to strengthen its position with Hispanic customers, the fastest growing demographic in the country through opening CVS Pharmacy Más in 12 locations in Miami. These outlets make available a number of products and services related to the hispanic demographic not found in traditional drugstores, and we saw sales in the test scores increase by an average of 10 percent. CVS plan to develop this concept further in the future.
Now in its 18th year, the ExtraCare loyalty initiative continues to play an indispensable role in driving all stores to profitability. This helps in identifying the company’s customers such that CVS is able to build on their relationship with them through personalized promotions. Such customers make up over 30 percent of the company’s customer base, but they are responsible for driving sales up to 80 percent of the company’s merchandise. In 2017, we rolled out CVS Pay ® nationwide, an end-to-end mobile payment solution that integrates payment, prescription pick-up, and our ExtraCare ® loyalty program into one spot at checkout. CVS in the availability of competitive sources for substantially all of the products we carry and in casse one supplier is lost, it won’t likely have a material effect on the business.
ExtraCare loyalty program driving front-store sales growth
CVS’ front-store business, which sells prescription drugs and an assortment of general merchandise, offers an ExtraCare loyalty program to its customers. The ExtraCare loyalty program, introduced in 2001, is one of the largest and most successful retail loyalty programs in the US. Customers who choose to participate in the ExtraCare loyalty program receive mailers featuring special coupon offers and health information. They also receive exclusive cardholder savings on select merchandise and earn “Extra Bucks” for purchases they make during designated shopping periods.
The ExtraCare loyalty program has approximately 70 million active cardholders, making the loyalty card program one of the United States’ most successful and largest. Furthermore, the loyalty program has helped CVS in leveraging the customer insights (gained through ExtraCare loyalty program) to convert customers to categories they shop elsewhere, to launch personalized digital circulars, and to tailor its merchandise mix to meet customer needs.
The ExtraCare loyalty program of CVS has helped it in driving its front-store profitability besides assisting it in leveraging customer insights.
Related and Unrelated Diversification Strategy- One of the possible ways to overcome the seasonality sale fluctuation and improve gross profit margin, would be the implementation of a similar or unrelated diversification strategy. Appropriate acquisition of different companies not directly related to the retail industry would stabilize the company’s sales throughout the year. The company should also search the opportunities for related diversification. One of the alternatives could be a development of their brand products and services that would enable to practice with their own set of the off-season and under unfavorable weather conditions.
The Strategic Position & Action Evaluation (SPACE) matrix is a strategic management tool that focuses on strategy formulation more so for the competitive position of a company. The environment affects every business that operates in it. Competitive pressures, barriers to entry, price elscticity, inflation, GDP growth, overall economic condition, industry growth potential, are some of the SPACE matric factors related to business external strategic dimensions.
The SPACE matrix can be subdivided into four quadrants where each quadrant suggests a different type strategy and these include:
These are based on four areas of analysis. (a) Internal strategic dimensions (Financial Strength; Competitive Advantage); and (b) External strategic dimensions (Environmental Stability); Industry Strength), then it calculates the importance of each of these dimensions and places them on a Cartesian graph with X and Y coordinates. The following diagram shows CVS Health’s 106045309435500-635777875SPACE matrix:
CVS Health is positioned in the Aggressive Quadrant of the SPACE matrix conveys that the company should pursue an aggressive strategy. The organization has a strong competitive position it the market with rapid growth. The internal areas of strength are required such at a market penetration and market development strategy is developed. This may involve acquisition of competitors, integration with other companies and product development.
CVS unique selling proposition is being a legacy brand and the most significant drug retailer and pharmacy benefits manager in the US. CVS enjoys a number of various competitive advantages that exist in their two segments aimed at generating revenue. First, they can generate considerable free cash flow, which puts them in a position to acquire in a consolidating industry. The free cash flow yield of the biggest competitor Walgreens is lower than that on of CVS at 6.66 percent compared to the 8.98 percent. Secondly, CVS leads the pahramcy services industry and PBM solutions. CVS was able to win more than 50% of revenue from clients changing PBMs in 2016 and had a client retention rating of 97%. This the company’s continued growth and leadership in the industry. As well, as the government policies keep changing, the company is seeking to gain from the increasing number of individuals that need medical attention, in addition to a lower corporate tax rate, as they are currently taxed at around 39%, leading to more profit that can be put forth to investments into the business.
Another strategic management tool that can be used to analyze working conditions and the strategic position of a business is the Internal-External (IE) matrix. The Internal-External Matrix or short IE matrix is based on an analysis of internal and external business aspects put together to form a single suggestive model.
Three major regions that have different strategic implications can be derived out of the IE matrix. Cells 1, 2 and 3 reveal the grow and build strategy. This means intensive and aggressive tactical approach. Policies should focus on market penetration, market development, and product development. A horizontal integration, forward integration and backward integration from the operational perational perspective should also be considered. The hold and maintain strategy is represented by cells IV, V and VI. In this case, your tactical plan should focus on market penetration and product development. The harvest or exit strategy is represented by Cells VII, VIII and IX. If amount of money needed to revive a company is lo, it should then be attempted to revitalize the company. The aggressive cost management is another alternative to play the end game.
Just like the BCG matrix, the IE matrix positions an organization into a nine-cell pattern. On the IE Matrix’s x-axis, total weighted score of 1.0 to 1.99 of IFE represents a weak internal position. A rating of 2.0 to 2.99 is considered average. A grade of 3.0 to 4.0 is robust. On the horizontal, the total weighted score of 1.0 to 1.99 of IFE is considered low. A score between 2 and 2.99 is medium. Points between 3.0 to 4.0 represent a high score. Below is CVS Health’s IE Matrix:
BUSINESS SEGMENT Year End 2017 Percent Revenue
CVS/Specialty – Pharmacy Division 60%
CVS/Pharmacy – Retail/LTC Division 40%
CVS Health’s IE Matrix implies that the organization Pharmacy Services segment 3.5 EFE total weighted score and the IFE total weighted score of 3 are both externally and internally high. CVS can hold its position, but due to competitiveness, not get complacent. On the other hand, the Retail/LTC total weighted score of 2.3 and 2.5 respectively, are internally and externally average and has much room for improvement. CVS Health should pursue strategies focused on increasing market penetration and product development.
The pharmacy services outlook is relatively positive. With an increased covergae and a higher employed population within the United States, there is higher demand from plan sponsors for PBM services. The population of aged people is also growing as these seek drug is also a growing elderly population seeking drug cost savings which is a goal of PBMs. Various trends in the consumer characterize the retail/LTC outlook. Retail sections are looking for more suitable and convenient locations for their outlets, higher customer service and satisfaction, better product selection and lower prices. The highly regional LTC pharmaceutical services and nature, and because of this are not too competitive due to specialization Prescription drugs accounted for close to 68 percent of revenue in both 2012 and 2011. Rite Aid struggles significantly on front-end sales (health and beauty aids along with general merchandise) which account for only 17% of total revenue. However, the profit margin relative to these products is higher than brand name drugs.
CVS Health continues to be a lucractive business venture because of its ability to generate significant cash flow, their putting emphasis the returns of shareholders and the company being an industry leader in pharmacy providers for long-term care and innovative cost solutions. CVS enjoys 8.98% of cash-flow yield and a five-year free cash flow growth rate of 14.51%. CVS has had dividend increase for 14 years consecutively, has a share buyback program and is a leading company because of its free cash flow, to acquire in a consolidating industry.
Increase Advertising Store Expansion
Strengths Weight AS TAS AS TAS
1 Larges drug retailer in the U.S. 0.09 3 0.27 4 0.36
2 Online Retailing 0.08 3 0.24 4 0.32
3 Strong performance and financial health 0.11 3 0.33 4 0.44
4 Health leaders 0.10 2 0.20 4 0.40
5 Mergers ; acquisition 0.05 2 0.10 4 0.20
6 Strong Free Cash Flow 0.06 2 0.12 4 0.24
7 Reliable suppliers 0.05 1 0.05 4 0.20
8 High level of customer satisfaction 0.05 2 0.10 4 0.20
9 Successful track record of developing new products 0.06 2 0.12 4 0.24
10 Strong Brand Recognition 0.04 3 0.12 4 0.16
Increase Advertising Store Expansion
Weaknesses Weight AS TAS AS TAS
1 Limited success outside core business 0.03 1 0.03 1 0.03
2 Product demand forecasting 0.01 0 0.00 1 0.01
3 High attrition rate in work force 0.01 1 0.01 1 0.01
4 New entrants 0.02 0 0.00 1 0.02
5 Investment in new technologies 0.04 1 0.04 1 0.04
6 Lower competitor’s inventory 0.03 1 0.03 1 0.03
7 Improper and inefficient financial planning 0.06 1 0.06 1 0.06
8 Legal Proceedings 0.07 1 0.07 1 0.07
9 Global Competitiveness 0.04 1 0.04 1 0.04
10 0.00 0 0.00 1 0.00
Increase Advertising Store Expansion
Opportunities Weight AS TAS AS TAS
1 New technology to practices differentiate pricing strategy in the new market 0.07 3 0.21 4 0.28
2 New taxation policy 0.04 3 0.12 4 0.16
3 Decreasing cost of transportation 0.03 3 0.09 4 0.12
4 New trends in the consumer behavior 0.05 3 0.15 4 0.20
5 Opening of new markets because of government agreement 0.08 3 0.24 4 0.32
6 New customers from online channel 0.04 3 0.12 4 0.16
7 Government green drive 0.05 3 0.15 4 0.20
8 Aging population with increased prescription needs 0.08 3 0.24 4 0.32
9 Fighting the Opioid crisis 0.05 3 0.15 4 0.20
10 Growth Potential in Medicaid Markets 0.03 3 0.09 4 0.12
Increase Advertising Store Expansion
Threats Weight AS TAS AS TAS
1 Growing strengths of local distributors 0.05 0 0.00 0 0.00
2 Rising raw material 0.03 0 0.00 0 0.00
3 Increasing competition from mail order pharmacy 0.05 0 0.00 0 0.00
4 Increasing prices in the China 0.02 0 0.00 0 0.00
5 No regular supply of innovative products 0.02 0 0.00 0 0.00
6 Imitation of the counterfeit and low-quality product 0.02 0 0.00 0 0.00
7 Changing consumer buying behavior 0.08 0 0.00 0 0.00
8 Different legislations and constant product standard instabilities. 0.07 0 0.00 0 0.00
9 Changing government regulations and interventions 0.08 0 0.00 0 0.00
10 Amazon 0.06 0 0.00 0 0.00
TOTALS 3.49 3.47
QSPM reveals that both increasing sales of front-end goods and increasing an online presence for the purchase of prescription drugs are equally attractive for CVS Health Corporation. The rebranding effort helps align the company for an expanded role in providing health care services beyond the traditional retail pharmacy business model. CVS Health’s recent definitive merger agreement with Aetna further strengthens the company’s strategy to pursue a total healthcare management business model with multiple patient access touchpoints. CVS should increase non-drug retail products such as food and drink.
Hypothetical Strategic Alternatives
Just like any company or business entity, CVS Health incorporation also needs strategies that will help it achieve a number of goals and objectives when applied to both human and material resources. These are particularly intended at fixing the loopholes that exist within the current strategies used by the company. There is a need for a new direction for CVS to increase its profits and help it maintain a competitive advantage in the market that it is currently enjoying. These strategic alternatives are handy because even though the company may give credit to the current strategies having enabled it get where it is now, there is a lot of work that needs to be done if the company is to retain the market-leader position.
Current Organizational Structure
The current organizational structure of the company is centered around the chairman of the board who also doubles as the Chief Executive Officer. Below him is a number of Executive Vice Presidents as well as Senior Vice presidents with their assigned roles and responsibilities. Below these are the presidents of the four divisions of the company and other internal operations officers. This seemingly small organizational structure for such a large and diverse company shows that a lot of work and decision-making processes are rested in these few places of authority.
As well, it indicates that a lot of the business processes are left for the care and management of the junior workers who may be incompetent or overwhelmed by the load of tasks that they must take on. For that note, there is a need for CVS Health company to reform its current organization structure to allow in a number of other authorities that are in line with the strategy of the company. Strategic failure is eminent in cases where the company without cascading the changes throughout the organization’s structure. In the case that CSV Health Incorporation introduces another organizational Structure, the workplace environment will be improved and become more productive, and staff communication and innovation will be enhanced.
The best organizational structure that the company can probably take on is the Functional Organizational Structure. The structure includes a CEO and the deputy CEO’s below which is a tier of people responsible for every managerial area of the company or the four divisions of the company for this case. Below these are the heads of various departments that are responsible for the various minor tasks in the company. The strengths of this type of organizational structure are that it encourages specialization as each department focuses on its area of expertise. As for CVS, each of the four divisions can focus on its private domain and bring out the best results. As well, the structure encourages productivity because the specialism practiced means that staff is competent in the tasks they partake. As well, there is a high degree of clarity as all the company’s employees can understand their roles as well those of others.
The primary weaknesses of this type of organizational structure are that the common bond that is paramount in the success of a business is weakened. A weak relationship between the workers of the company means that their performance and morale will be low and hence limiting the company’s chances of excelling. As well, the other weakness of this type of organizational structure is that it limits the coordination not only between workers but also between departments. Making each department independent of the other is likely to limit both coordination and communication between them and may to a large extent tear the organization up and lead to its collapse. Lastly, a functional organizational structure may encourage disputes between the departments or divisions of the company. These may arise due to budgetary competition or disagreements over the collective goals of the company and how they may be achieved relative to the departmental levels.
With reference to the core values the CVS, the best alternative managerial structure that the company can take up is the organic managerial structure. this is because it considers the needs of the authority and the different capabilities of every employee as an individual. This will likely lead to effective group leadership and enjoying the benefits of team work. The organic leadership structure leverages on the notion that leadership is shared among a number of employees rather than being centrally held by one person. For that note, the structure considers every employee’s opinions and ideas hence enhancing and encouraging teamwork among all the workers of the different departments of the company instead of them being in competition with each other. the other strength identified with this structure is that its use offers a strong point of motivation to the employees to collectively take part in the company’s tasks and perform.
One of the weaknesses poses by this managerial structure emanate from the fact that no limits are set for the standards, boundaries and rules on which the company moves. Whereas this may be of advantage to some companies, it may likely breed greed and selfish motives among some workers who are unsatisfactorily hungry for power and authority. It may as well antagonize customer relations as one customer may receive different replies to one query. As well, the structure poses communication barriers between departments and divisions of the company. This is because the departments govern themselves and this may cause conflicts between two departments in case they fail to agree over an issue they collectively have to consider.