Transcript CVS PP v5

A Strategic Management Case Study
Shane Theriault, Pierre-Olivier Lachance, Garik Teriault, Sierra Daigle
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Overview
Company Overview
Company Timeline
Existing Mission and Vision
New Mission and Vision
External Assessment
Industry analysis
Opportunities and threats
CPM Matrix
EFE Matrix
Internal Assessment
Organizational Structure
Financial Condition
Divisional Analysis
Strengths and weaknesses
IFE Matrix
Strategy Formulation
SWOT Matrix
Space Matrix
IE Matrix
Grand Strategy Matrix
Matrix Analysis
QSPM Matrix
Strategic Plan for the Future
Objectives
Strategies
Implementation Issues
EPS/EBIT
Projected financials
Evaluation
Balanced Scorecard
CVS Caremark
2
Company Timeline
• Melville had been founded in 1892 by shoe supplier Frank Melville.
• Melville Corporation was incorporated in1922.
• First Consumer Value Store (CVS) opens in Lowell, Massachusetts
in 1963.
• The CVS name was used for the first time in 1964 with 17 locations.
• Throughout the following decades they have purchased many other
pharmacies.
–
–
–
–
1972 - Clinton Drug and Discount stores – 84 locations in Indiana and Midwest.
1977 - New Jersey-based Mack Drug chain – 36 locations in New Jersey.
1990 - Peoples Drug – 490 Locations throughout Mid-Atlantic
1997 – Revco Chains – 2500 locations in Ohio, Mid-Atlantic, and Southeast US.
• Sales reached $1 billion in 1985
• In 1993, formerly traded as MVL on the New York Stock Exchange,
the company now trades as CVS.
• In 1995 and 1996, Melville Corp. sold off the company’s other
segments to focus on CVS.
Company Timeline
• In1999, CVS launched their CVS ProCare Pharmacy for complex
drug therapies.
• In 1999, CVS acquired Soma.com, the first online pharmacy, and
renamed it CVS.com.
• In 2004, CVS purchased 1,268 Eckerd drug stores and Eckerd
Health Services, a PBM/mail-order pharmacy business, from J. C.
Penney. as CVS.
• On July 13, 2006, CVS announced that it had entered into a
definitive agreement to acquire Minneapolis-based MinuteClinic.
• On November 1, 2006, CVS announced that it was entering into a
purchase agreement with Nashville-based Caremark Rx Inc., a
pharmacy benefits manager. The new company is called CVS
Caremark Corporation.
Current Vision & Mission
Statement
Vision statement:
We strive to improve the quality of human life.
Mission Statement:
We provide expert care and innovative solutions in pharmacy and
health care that are effective and easy for our customers.
Revised Vision Statement
Our purpose is to guide people along the path of better health
Revised Mission
Statement
At CVS Caremark we strive to improve the every day quality of
human life by providing the highest quality pharmaceuticals
and consumer products (2) in the United States (3). With the
help of our valued employees (9) and advancing technology (4),
we will provide the premier shopping experience to all of our
customers, ranging from child to adult (1). Our goal is to
reward our customers with the best prices and best service
possible(7). CVS will continue to grow and improve through
investment and expansion opportunities (5) while always
maintaining the highest ethical and moral standards (6). Most
importantly, we will continue to care and support the
communities and the environment (8) that we are a part of.
External Audit
Industry Market Analysis
Share of 2011 Prescriptions Revenues
Market shares are shown in percent.
CVS Caremark Corporations
Walgreen Company
Rite Aid Corporation
Express Scripts, Inc.
2010
%
20.1
16.2
6.2
5.1
2011
%
20.7
16.5
6.3
4.8
2010-2011 Prescriptions Revenues
(Billions)
2010 2011
CVS Caremark Corporations
Walgreen Company
Rite Aid Corporation
Express Scripts, Inc.
55.7
44.9
17.1
13.2
56.6
45.1
17.1
13.9
Industry Market Analysis
Opportunities & Threats
Opportunities
1. Organic food industry has rebounded from the recession quickly with
growth rates back above 6% in 2011, bringing annual US sales above
$26 Billion.
2. 1,0154,000 people will reach the age of 65 in the coming three years
3. 71.7% of Americans report having internet access in their home.
4. Affordable Care Act passed in 2010 will extend medical coverage to
over 45 million Americans currently without coverage, starting in 2014.
5. In 2011, patent drugs with annual sales of $12 Billion have expired.
Additional patent expirations is expected to increase this number to
above $30 Million in the coming year.
6. In 2008, the AAMC projected a shortage of 124 000 full-time
equivalent physicians by 2025.
7. Medicare drug spending is expended to increase by 8.5% annually
over the next decade.
Threats
1. Unemployment is at 8.5%
2. R&D costs are high, on average between $4 billion to $11 billion
per drug.
3. Threat of large distributors such as, Target who already have over
1031 locations, entering the pharmaceutical market increasing
competition
4. Walgreens increased prescriptions refills by 5.3% in the last year.
5. Increase demand for environmentally safe products
6. Legalization of drug importation would lead to a national saving of
1.7 billion.
7. Future government policy changes to regulation
8. 48 million American adults did not fill prescription in 2010
EFE
External Factor Evaluation Matrix (EFE)
1.
Opportunities
Organic food industry has rebounded from the recession quickly with growth rates back above 6% in 2011, bringing annual US sales above $26 Billion.
Weight
0.04
Rating
1
Weighted Score
0.04
2.
1,0154,000 people will reach the age of 65 in the coming three years
0.09
3
0.27
3.
71.7% of Americans report having internet access in their home.
0.07
3
0.21
4.
Affordable Care Act passed in 2010 will extend medical coverage to over 45 million Americans currently without coverage, starting in 2014.
0.09
3
0.27
5.
In 2011, patent drugs with annual sales of $12 Billion have expired. Addition patent expirations is expected to increase this number to above $30 Million
in the coming year.
0.09
2
0.18
6.
In 2008, the AAMC projected a shortage of 124 000 full-time equivalent physicians by 2025.
0.08
4
0.32
7.
Medicare drug spending is expended to increase by 8.5% annually over the next decade.
0.06
3
0.18
Weight
Rating
Weighted Score
1.
Threats
Unemployment is at 8.5%
0.05
2
0.10
2.
R&D costs become high, on average between $4 billion to $11 billion per drug.
0.10
3
0.30
Threat of large distributors such as, Target who already have over 1031 locations, entering the pharmaceutical market increasing competition
0.07
1
0.07
4.
Walgreens increased prescriptions refills by 5.3% in the last year.
0.09
2
0.18
5.
Increase demand for environmentally safe products
0.04
2
0.08
6.
Legalization of drug importation would lead to a national saving of 1.7 billion.
0.04
2
0.08
7.
Future government policy changes to regulation
0.04
2
0.08
8.
48 million American adults did not fill prescription in 2010
0.05
3
0.15
TOTALS
1.08
3.
2.83
CPM
Competitive Profile Matrix (CPM)
CVS
Critical Success Factors
Walgreen
Rite Aide
Weight
Rating
Score
Rating
Score
Rating
Score
0.13
3
0.39
4
0.52
1
0.13
Market Penetration
0.11
3
0.33
4
0.44
2
0.22
Customer Service
0.10
2
0.20
3
0.30
3
0.30
Store Locations
0.14
3
0.42
4
0.56
2
0.28
Financial Profit
0.09
3
0.27
4
0.36
1
0.09
Customer Loyalty
0.10
4
0.40
3
0.30
2
0.20
Market Share
0.08
4
0.32
3
0.24
1
0.08
Product Quality
0.05
4
0.20
3
0.15
3
0.15
Top Management
0.07
3
0.21
4
0.28
3
0.21
Totals
1.00
Advertising
3.13
3.67
1.92
Internal Audit
Organizational Structure
Divisional Analysis
Netflix recognizes three segments
• Pharmacy Services
• Retail Pharmacy
• Corporate (Please note that this segment is not acknowledged in
the book’s case study)
Strengths
1. We operated 657 MinuteClinics in 25 states and the District of
Columbia of which 648 were located within CVS/pharmacy stores
2. Our proprietary loyalty card program, ExtraCare ® , has well over
68 million active cardholders, making it one of the largest and most
successful retail loyalty card programs in the country
3. CVS carries over 4,400 CVS/pharmacy and proprietary brand
products,
4. Strong service assortments including Prescription management
systems, Mail pharmacy, Minute clinic, eye care, discounted drugs
agreements
5. $48 million in charitable contributions in 2011
6. cvs.com attracted at least 26 million visitors annually by 2008
7. 21st on the Fortune 500's list of largest corporation in US
8. 4.6 Billion in free cash flow in 2011, a 39% increase over 2010's
number
Weaknesses
1. CVS has a smaller Gross Margin with 21.01% compared to its
competitors: Rite Aid 26.54%; Walgreens 28.36%; Walmart 25.26%
2. 8+ major legal cases against CVS in the last decade.
3. Near all revenues are derived from the United State Market
4. CVS has a goodwill value of 26458000
5. Fewer Physical(7,300) locations then next biggest competitor
Walgreens who has 8,582
6. 657.8 million prescriptions filled versus 819 millions by Walgreens.
7. CVS Caremark has a American Customer Service Index of 73
IFE
1.
2.
3.
4.
5.
6.
7.
8.
Internal Factor Evaluation Matrix (IFE)
Strengths
Weight Rating Weighted Score
We operated 657 MinuteClinics in 25 states and the District of Columbia of which 648 were located
0.11
4
0.44
within CVS/pharmacy stores
Our proprietary loyalty card program, ExtraCare ® , has well over 68 million active cardholders,
0.09
4
0.36
making it one of the largest and most successful retail loyalty card programs in the country
CVS carries over 4,400 CVS/pharmacy and proprietary brand products,
0.05
4
0.20
Strong service assortments including Prescription management systems, Mail pharmacy, Minute
0.08
3
0.24
clinic, eye care, discounted drugs agreements
$48 million in charitable contributions in 2011
0.05
3
0.15
cvs.com attracted at least 26 million visitors annually by 2008
0.05
3
0.15
21st on the Furtune 500's list of largest corporation in US
0.04
3
0.12
4.6 Billion in free cash flow in 2011, a 39% increase over 2010's number
0.06
4
0.24
Weaknesses
1. CVS has a smaller Gross Margin with 21.01% compared to its competitors: Rite Aid 26.54%;
Walgreens 28.36%; Walmart 25.26%
2. 8+ major legal cases against CVS in the last decade.
3. Near all revenues are derived from the United State Market
5. CVS has a goodwill value of 26458000
6. Fewer Physical(7,300) locations then next biggest competitor Walgreens who has 8,582
7. 657.8 million prescriptions filled versus 819 millions by Walgreens.
8. CVS Caremark has a American Customer Service Index of 73
TOTALS
Weight Rating Weighted Score
0.08
1
0.08
0.05
0.07
0.05
0.10
0.06
0.06
1.00
2
2
2
1
1
2
0.10
0.14
0.10
0.10
0.06
0.12
2.60
Financial Information
Ratio analysis
Growth Rate Percent
CVS Caremark
Walgreen
Rite Aid
95835.2
63147
25534
3285.2
2201.8
(1085)
19
28
27
5
6
2
3.2
4
2
20.57
28.4
27
.7
.85
4.42
1.56
1.52
1.82
.71
.53
.52
Net Income (YTD vs YTD)
Sales (5-Year Annual Avg.)
Net Income (5-Year Annual Avg.)
Dividends (5-Year Annual Avg.)
Profit Margin Percent
Gross Margin
Pre-Tax Margin
Net Profit Margin
5Yr Gross Margin (5-Year Avg.)
Liquidity Ratios
Debt/Equity Ratio
Current Ratio
Quick Ratio
Company Analysis
Space Matrix
Possible Strategies:
• Backward, forward, horizontal
integration
• Market penetration
• Market development
• Product development
• Diversification
Grand Strategy Matrix
Possible Strategies:
• Backward, forward, horizontal
integration
• Market penetration
• Market development
• Product development
• Diversification
SWOT Matrix
SO Strategies
1 Increase number of proprietary brand products by 20% (S3, S6, OS3, O5, O7)
2 Increase marketing of Minute Clinics services by 15% (S1, S4, O2, O4, O6, O7)
ST Strategies
1 Exlusivity contract with Target to intall MinuteClinics and prescription pharmacy (S1, S4, O3, O4, O8)
2 Increase discounts to ExtraCare members. (S2, S3, S4, S5, T3, T4, T6, T8)
WO Strategies
1 Increase the number of physical location by 2100 over 3 years. (W3, W5, W6, O2, O4, O6, O7)
2 Increase staff sensitivity training and accessebility for aging population and disability (W2, W7, O2, O4, O7)
WT Strategies
1 Take advantage of increase in environmental conservation. (W2, W7, T5, T7)
2 Expand and spread out revenues internationally (W3, W5, W6, T3, T4, T6)
Matrix Analysis
Alternative Strategies
Forward Integration
Backward Integration
Horizontal Integration
Market Penetration
Market Development
Product Development
Related Diversification
Unrelated Diversification
Retrenchment
Divestiture
Liquidation
IE
SPACE
GRAND
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
BCG
COUNT
2
2
2
2
2
2
2
1
Possible Strategies
• Backward & Forward integration Not feasible
•
Short supply and delivery chain
• Market penetration
•
•
SO2 - Increase marketing of Minute Clinics services by 15% (S1, S4, O2, O4, O6,
O7)
ST1 - Exclusivity contract with Target to install MinuteClinics and prescription
pharmacy (S1, S4, O3, O4, O8)
• Market development
•
WT - Gain locations and expand internationally (W3, W5, W6, T3, T4, T6)
• Product development
•
SO1 - Increase number of proprietary brand products by 20% (S3, S6, OS3, O5,
O7)
• Diversification
•
WT – Take advantage of increase in environmental conversation. (W2, W7, T5,
T7)
QSPM
Increase
Marketing
Ependitures
by 15%
1.
2.
3.
4.
5.
6.
7.
1.
2.
3.
4.
5.
6.
7.
8.
Increase the
number of
brick and
morter
locations by
5% annually
Weight
Opportunities
Organic food industry has rebounded from the recession quickly
with growth rates back above 6% in 2011, bringing annual US
0.04
sales above $26 Billion.
1,0154,000 people will reach the age of 65 in the coming three
0.09
years
71.7% of Americans report having internet access in their home.
0.07
Affordable Care Act passed in 2010 will extend medical coverage
0.09
to
million
Americans
currently
coverage,
In over
2011,45
patent
drugs
with annual
saleswithout
of $12 Billion
havestarting
0.09
In 2008, the AAMC progected a shortage of 124 000 full-time
0.08
equivilant physicians by 2025.
Medicare drug spending is expended to increase by 8.5%
0.06
AS
TAS
AS
TAS
0
0.00
0
0.00
3
0.27
4
0.36
4
3
0.28
0.27
2
4
0.14
0.36
3
0.27
2
0.18
1
0.08
2
0.16
1
0.06
2
0.12
Weight
0.05
AS
2
TAS
0.10
AS
3
TAS
0.15
0.10
0
0.00
0
0.00
0.07
2
0.14
4
0.28
0.09
4
0.36
3
0.27
0.04
4
0.16
2
0.08
0.04
0
0.00
0
0.00
0.04
0.05
0
4
0.00
0.20
0
3
0.00
0.15
Threats
Unemployment is at 8.5%
R&D costs become high, on average between $4 billion to $11
billion per drug.
Threat of large distributors such as, Target who already have
over 1031 locations, entering the pharmaceutical market
increasing competition
Walgreens increased prescriptions refills by 5.3% in the last
year.
Increase demand for environmentally safe products
Legalization of drug importation would lead to a national saving
of 1.7 billion.
Future government policy changes to regulation
48 million American adults did not fill prescription in 2010
QSPM
Increase
Marketing
Ependitures
by 15%
1.
2.
3.
4.
5.
6.
7.
8.
1.
2.
3.
4.
5.
6.
7.
Increase the
number of
brick and
morter
locations by
5% annually
Weight
Strengths
We operated 657 MinuteClinics in 25 states and the District of
Columbia of which 648 were located within CVS/pharmacy
0.11
stores
Our proprietary loyalty card program, ExtraCare ® , has well over
68 million active cardholders, making it one of the largest and
0.09
most successful retail loyalty card programs in the country
CVS carries over 4,400 CVS/pharmacy and proprietary brand
0.05
products,
Strong service assortments including Prescription management
systems, Mail pharmacy, Minute clinic, eye care, discounted
0.08
drugs agreements
$48 million in charitable contributions in 2011
0.05
cvs.com attracted at least 26 million visitors annually by 2008
0.05
21st on the Furtune 500's list of largest corporation in US
0.04
4.6 Billion in free cash flow in 2011, a 39% increase over 2010's
0.06
number
AS
TAS
AS
TAS
4
0.44
3
0.33
3
0.27
4
0.36
4
0.20
2
0.10
4
0.32
2
0.16
3
4
3
0.15
0.20
0.12
1
2
2
0.05
0.10
0.08
3
0.18
4
0.24
Weaknesses
CVS has a smaller Gross Margin with 21.01% compared to its
competitors: Rite Aid 26.54%; Walgreens 28.36%; Walmart
25.26%
8+ major legal cases against CVS in the last decade.
Near all revenues are derived from the United State Market
CVS has a goodwill value of 26458000
Fewer Physical(7,300) locations then next biggest competitor
Walgreens who has 8,582
657.8 million prescriptions filled versus 819 millions by
Walgreens.
CVS Caremark has a American Customer Service Index of 73
Weight
AS
TAS
AS
TAS
0.08
4
0.32
2
0.16
0.05
0.07
0.05
3
0
2
0.15
0.00
0.10
1
0
1
0.05
0.00
0.05
0.10
1
0.05
4
0.20
0.06
0
0.00
2
0.20
0.06
4
0.24
3
TOTALS
4.93
0.18
4.51
Strategy formulation
Strategy
Grow to Win
3 Year Goal
Annual Objectives
Objectives
First Year
- Increase marketing expense by 50% in 2012
- Acquire Rite Aid
Second Year
- Increase marketing expense by 25%
- Renovate a 1/3rd of Rite Aid Locations to CVS Caremark
Third Year
- Increase marketing expense by 25%
- Renovate half of remaining Rite Aid Locations to CVS
Caremark
Strategic Fit
- Increase in Demand
- Supply shortage of Health Care providers
- Location is a large Critical success factor
- Great Cash flow and financial stability
- Close Competing firms
Strategy Costs
Marketing Expense:
- 2009 = $317 Million
- 2011 = $211 Million
- 2012 Increase to $316.5 Million
- 2013 Increase to $395.5 Million
- 2014 Increase to $496.5 Million
Estimated Acquisition Cost
- $1,000,000,000
Implementation
Foreseeable issues
- Cost of Acquisition
- Changes in Government
Regulations
- Anti-trust laws
Projected Financials
Assumptions
Capital Needed: 1,165 million
Stock Price: $40.78
Shares Outstanding: 1,338 million
Interest Rate: 5%
Tax Rate: 39%
Dividends: 647 million (2011 amount)
EPS/EBIT
EPS
3.40
3.35
3.30
3.25
3.20
3.15
3.10
3.05
3.00
2.95
2.90
2.85
6,500,000,000
7,400,000,000
Projected Income
Statement
Projected Balance Sheet
Projected Ratios
Strategic Evaluation
Balance Score Card
Area of Objectives
Customers
1 Customer satisfaction
Measure or Target
Time Expectation
Primary Responsibility
Customer satisfaction surveys
Yearly
SVP Health Care/Strategy
Marketing Officer
2 Brand identity
Industry reports/Market Cap.
Higher than competitors
Yearly
SVP Health Care/Strategy
Marketing Officer
Employees
1 Employee Satisfaction
Survey
Semi-Annual
2 Service Training
Number of training seminars
Semi-Annual
Chief Human Resources
Officer
Chief Operations Officer
Operations
1 Retail locations
Increase number of stores by 700 Yearly
Chief Operations Officer
Increase MinuteClinic locations by 3 Years
100
Chief Operations Officer
# of ethics training sessions
Yearly
"Learn about your medicines"medicinal information
Yearly
Chief Human Resources
Officer
Health Care/Strategy
Marketing Officer
Increase by 15% each year
Better than competitors/industry
Avg.
Yearly
Yearly
2 MinuteClinic locations
Business Ethics
1 Ethics Training
2 Patient Awareness
Financial
1 Revenues
2 Ratio Analysis
CFO
CFO
Update
•
•
•
•
•
•
New CEO at end of 2011
Order Refill is the most visited area of their Website
Revenues increased by 15% in 2012
Market cap increased by 12%
Stock price increased to $48 a share
Earning per share increased 2.59 in 2011 to 3.03 in 2012
Questions
References
CVS Caremark. (2012). 2011 Annual Report. Woonsocket.
CVS Caremark. (2013). Company History. Retrieved from CVS
Caremark: http://info.cvscaremark.com/about-us/ourpurpose/company-history
CVS Caremark Corp. (2013). Retrieved from Business Insight:
Essentials: http://bi.galegroup.com.ursus-proxy3.ursus.maine.edu/essentials/company/25141?u=maine_fortkent
Gross, D. D. (2014, April 6). CVS Caremark Corporation. Retrieved
from nternational Directory of Company Histories:
http://bi.galegroup.com.ursus-proxy3.ursus.maine.edu/essentials/article/GALE|CX1302600043/b1ad641
bc1714a5e67e86d926fbacac7?u=maine_fortkent
Rite Aid. (2012). 2011 Annual Report. East Pennsboro Township.
University of Oregon Investment Group. (2011). CVS Caremark
Corporation. Eugene: University of Oregon.
Walgreen. (2012). 2011 Annual Report . Chicago.