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A Strategic Management Case Study on CVS Caremark Corporation

A Strategic Management Case Study on CVS Caremark Corporation. By: Carter Vaillancourt, Megan Land, and Emily Michaud UMFK. Overview. Company Overview A brief history of CVS Existing Mission and Vision Existing Strategies New Mission and Vision. External Assessment Industry Analysis

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A Strategic Management Case Study on CVS Caremark Corporation

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  1. A Strategic Management Case Study on CVS Caremark Corporation By: Carter Vaillancourt, Megan Land, and Emily Michaud UMFK

  2. Overview CompanyOverview • A brief history of CVS • Existing Mission and Vision • Existing Strategies • New Mission and Vision External Assessment • Industry Analysis • Opportunities and Threats • EFE Matrix • CPM Matrix Internal Assessment • Organizational Structure • Strengths and Weaknesses • Financial Condition • IFE Matrix Strategy Formulation • SWOT Matrix • Space Matrix • Grand Strategy Matrix • Matrix Analysis • QSPM Matrix Evaluation Balanced Scorecard CVS Caremark Update Implementation • Projected Financials Strategic Plan for the Future • Objectives • Strategies

  3. Company Timeline • The CVS name was used for the first time in 1964. That year, they had 17 retail locations, and 40 stores only five years later • The chain had more than 400 stores by 1981. Sales reached $1 billion in 1985, partly due to the pharmacies being added to many of CVS's older stores • In 2004, CVS purchased 1,268 Eckerddrug stores and Eckerd Health Services, a PBM/mail-order pharmacy business, from J. C. Penney 1960s 1970s 1980s 1990s 2000-2005 2006-2010 • By 1974, CVS had 232 stores and sales of $100 million • In 1994, CVS started PharmaCare Management Services. • In 1999, CVS acquired Soma.com, the first online pharmacy, and renamed it CVS.com • On November 1, 2006, CVS announced that it was entering into a purchase agreement with Nashville-based Caremark Rx Inc., a pharmacy benefits manager • On August 12, 2008, CVS Pharmacy announced that it would acquire Longs Drugsfor $2.9 billion

  4. CVS Caremark Segments

  5. Figure 11: 2010 CVS Caremark Retail Segment Revenue Break Down 2010 CVS Caremark Retail Segment Revenue Break Down

  6. 2009 2010

  7. Existing Vision Statement We strive to improve the quality of human life.

  8. Existing Mission Statement We provide expert care and innovative solutions in pharmacy and health care that are effective and easy for our customers.

  9. Existing Strategies • Use Minute Clinic locations and Specialty pharmacy division to lower cost while improving the health of those we serve • Increase CVS Caremark leadership in and contribution to the areas of pharmacy services and healthcare

  10. Proposed Vision Statement CVS Caremark’s vision is to improve the quality of life through convenient and cost efficient offerings.

  11. Proposed Mission Statement At CVS Caremark our mission is to provide quality products and services through our pharmaceuticals and consumer products (2). We strive to be the number one provider in the United States (3) by investing not only in our company (5) and technological advances (4) but also in the communities in which we serve (8). Whether our customers are new to this world our are veterans, (1) we know that our company can provide them with the newest and most effective products and services, while promoting the healthy communities in which they live. Through our valued employees (9), CVS is able to provide quality services and quality products (7).

  12. External Analysis

  13. Operating Expenses as a % of Revenue

  14. Gross Margin as a % of Revenue

  15. Competitive Analysis

  16. U.S Pharmacies 2010

  17. Rx Same-Store-Sales Trends

  18. Opportunities • Universal Health Care and economy recovery, $10 trillion by 2020 • Imminent introduction of generic brands lowering the cost • Over the next five years, roughly $50 billion branded drugs will lose patent protection • With healthcare reform slowly coming into effect, 32 million Americans previously without coverage will now have some short sort of coverage. • People 65 years of age or older fill more than 25 prescriptions annually on average, 3 times the national average. • As baby boomers age, approximately 70 million Americans will turn 65 in the next 20 years • It is estimated that by 2014, 8 out of the top 10 drugs in the U.S. will be specialty drugs, where expenditures are expected to rise to $100 billion. • Medicare part D market is expected to grow 8.5% annually from 2010 to 2020 • Global pharmaceutical industry is expected to grow, especially Brazil, India, Russia, and China, which is expected to be the 3rd largest market in 2011

  19. Threats • It is estimated that there could be a dearth of 200,000 healthcare professionals and 800,000 nurses by 2020 • Potential government intervention in health care after election in 2012 • Imminent introduction of generic brands lowering the margin • CVS’ is behind Wal-Mart by nearly $140 billion in market cap. • CVS’ additional competitor Walgreens is behind them by a market cap of roughly $10 billion. • Walgreens increased the number of prescriptions filled in 2010 by 7.5% , whereas ours decreased. • In the next 5 years, 9 out of the top 10 best-selling drugs in the world will go off patent, resulting in an expected loss of sales • Extensive regulation has increased the time from drug discovery to approval from 6 years in the 1970s to 13.5 years in the 2000s. • Pharmaceutical companies struggle to develop new drugs as R&D costs become high, on average between $4 billion to $11 billion per drug

  20. CPM

  21. EFE

  22. Internal Analysis

  23. Organizational Chart THOMAS M. RYAN Chairman of the Board and Chief Executive Officer PER G.H. LOFBERG Executive Vice President and President – Caremark Pharmacy Services LAIRD K. DANIELS Senior Vice President – Finance and Controller and Chief Accounting Officer DOUGLAS A. SGARRO Executive Vice President and Chief Legal Officer LISA G. BISACCIA Senior Vice President and Chief Human Resources Officer LARRY J. MERLO President and Chief Operating Officer TROYEN A. BRENNAN, M.D. Executive Vice President and Chief Medical Officer DAVID M. DENTON Executive Vice President and Chief Financial Officer HELENA B. FOULKES Executive Vice President and Chief Marketing Officer SARA J. FINLEY Senior Vice President and General Counsel JONATHAN C. ROBERTS Executive Vice President and Chief Operating Officer – Caremark Pharmacy Services STUART M. MCGUIGAN Senior Vice President and Chief Information Officer NANCY R. CHRISTAL Senior Vice President – Investor Relations CAROL A. DENALE Senior Vice President and Corporate Treasurer EVP; President, Caremark Pharmacy Services EVP Internal Operations, Real Estate, Retail Field, Organizations

  24. CVS Worth Analysis

  25. Income Statement

  26. Balance Sheet

  27. Balance Sheet Continued

  28. CVS Caremark Financial Ratios

  29. Strengths • CVS is the largest pharmacy health care provider in the U.S with over 7,100 pharmacies. • Gross profit as a percent of net revenues increased 21.0% • Operating expenses decreased 1.8% from 2009. • Employee base of 202,000 employees • CVS is recognized as one of the largest pharmacy benefit managers (PBMs) in the US. Registering more than four million customers per day • Market cap increased by 5.8% from 44 billion to 47 billion in 2010 • More than 65% of stores are open around the clock or offer extended hours • Has 560 MinuteClinic locations across 26 states, easing health care overcrowding from lack of Primary care providers. • Generates more than $11 billion in specialty pharmacy revenue annually

  30. Weaknesses • Substantial amount of outstanding debt, 11 million • Since March 2009, the Company has been named in a series of putative collective and class action lawsuits filed in federal courts • Pharmacy services segment is showing less revenue than the retail segment • High cost of revenue and operational expenses; 76,156, 14,092 • Net interest expense increased 1.2% since 2009. • Pharmacy network claims processed decreased 12.5% in 2010 due to the expiration of a few large client contracts. • Income from continuing operations decreased by 7.2% in 2010 • Net revenues decreased by $2.3 billion in 2010 • CVS shares returned 7.9% in 2010, trailing the S&P 500 Index of 12.8% return

  31. IFE

  32. Strategy Formulation

  33. SO Strengths Opportunities ST WO WT Threats Weaknesses

  34. FS 6 Aggressive Conservative 5 4 3 2 1 CS IS -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 -1 -2 -3 -4 -5 Competitive Defensive -6 ES Space Matrix

  35. GSM Quadrant I 1. Market development 2. Market penetration 3. Product development 4. Forward integration 5. Backward integration 6. Horizontal integration 7. Related diversification Quadrant II 1. Market development 2. Market penetration 3. Product development 4. Horizontal integration 5. Divestiture 6. Liquidation Quadrant III 1. Retrenchment 2. Related diversification 3. Unrelated diversification 4. Divestiture 5. Liquidation Quadrant IV 1. Related diversification 2. Unrelated diversification 3. Joint ventures

  36. Matrix Analysis

  37. Strategic Evaluation Product Development • Increase number of stores open 24 hours by 20%. (Not Enough Need as of 2010) • Offer Educational Programs/Trainings to better prepare our staff to answer customer questions. (Most questions of customers require answers from a Pharmacist) • Offer incentives to employees based on customers they get to sign up for loyalty program (Causes customers to be prompted with questions on their fast and convenient stop at CVS) • Take advantage of the expiring patents on drugs by developing more Generics ( Already in this market strongly) • Increase our food segment to increase revenue and better compete with Walmart and Walgreens ( Did not apply to our mission) Market Development • Expand into areas such as Latin America and Asia. (Country drugs laws differ)

  38. QSPM

  39. QSPM Continued

  40. Strategic Fit

  41. Primary Care Shortage and Rising Demand • Expected shortage of 45,000 Primary Care Physicians (PCP) by 2020 • Health Care Reform expected to add 32 Million newly-covered patients by 2014 The percentage of U.S medical School graduates that are choosing Residency Spots in Family Medicine has declined 54% since 1997

  42. Primary Care Shortage

  43. MinuteClinic Revenue Growth from 2007 to 2010

  44. MinuteClinic User vs. Non User 2010 Lower total Healthcare costs for Person who used MinuteClinic

  45. 2010 MinuteClinic Overview • Largest Retail Clinic Provider • Health Care/Retail Leadership • 9 Million Visits since inception • 50% of Population Reports for no current physician

  46. 3 Year Goals Year 1: Begin Construction ($11,500,000) Year 2: Open 50 New MinuteClinics ($9,250,000) Year 3: Open 50 New MinuteClinics ($9,250,000)

  47. Strategic Implementation

  48. Estimated Cost of Additional MinuteClinics • $185,000 Salaries/per location/per year • $75,000 Building (start up cost) • $40,000 Supplies and Equipment _______________________________________ 300,000 per MinuteClinic *100 Locations = 30,000,000 Capital Needed

  49. Projected Financial Assumptions

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