Strategic Analysis: McKesson Pharmaceuticals

The main aim of conducting the study was to evaluate McKesson Pharmaceutical business strategy. The report outlines various strengths, weaknesses, opportunities, and threats (SWOT) that the company is likely to experience in increasing its competitive advantage. From the analysis, the McKesson Pharmaceuticals’ business strategy has much strength in ensuring that the company maintains its top position in the industry hence having more advantage than the competitors. The company has invested a lot of resources in various countries to increase its profitability and customer share. The firm has also effectively managed its products and it has introduced health IT systems to tackle the high flow rate of patients in hospitals. Moreover, the popularity and guaranteed profitability of the firm has enabled it to have many stakeholders who maintain the organization’s financial status above the equilibrium to facilitate its operations.

However, the McKesson also experiences various weaknesses that limits its competitive advantage in the market. The company is not effectively investing its financial assets to the expected areas. Besides, its share in the stock market is reducing putting stakeholders trust at risk. Furthermore, McKesson Pharmaceuticals also experiences various threats and opportunities in its operations. The company must adhere to rules and regulations that are in existence in various countries that it operates. Fluctuations in currencies are likely to affect the profitability of the organization. However, due to advancement of technology, the McKesson Pharmaceutical has more advantage in the industry as compared to its competitors.

From the analysis, McKesson Pharmaceuticals should revise and adopt its strategic vision, re-evaluate on financial expenditure and improve on seller-buyer communication skills. Moreover, IT health systems should be compatible with small hospitals and clinics.

Business Strategy Report: McKesson Pharmaceutical

Introduction

Background

McKesson Pharmaceuticals has maintained its position as the key distributor of medical products in the United States. The firm’s market power has enabled it to have more advantage in the industry than its competitors hence increasing its profitability. Nevertheless, the company has highly invested in IT equipment to monitor and valuate its sales and management of resource. McKesson relies on a data-based IT system as the main strategy to ensure its profitability and continued success. Nevertheless, the firm has many loyal stakeholders who are ready to support it in any financial situation thus facilitating liquidity flow of financial assets. However, the company has various strengths, weaknesses, threats, and opportunities that affects its ability to increase its profitability. As a result, this paper evaluates McKesson strategic plan using SWOT analysis and outlines recommendations to its current framework.

Aims and Objectives

To evaluate McKesson financial expenditure

To determine the impact of new entrants to the firm

To determine McKesson share in small market

To asses how technological advancement has affected the company

Methodology

The report incorporated the use of information from the company’s website and literature on the pharmaceutical industry to outline the facts and do the analysis. SWOT analysis was use as a guiding tool in the evaluation of McKesson strategical plan.

Findings

From the study, McKesson Pharmaceuticals was at a top position in the American’s pharmaceutical industry. Therefore, it had much control in the market than its competitors thus having competitive advantage. Besides, the company did not have more share in the small market and most of its tenders entailed large amounts of capital. McKesson had also invested most of its financial resources in the construction of offices in different parts of the world. Additionally, small hospitals could not meet the high operating cost of IT health systems distributed by the McKesson Pharmaceuticals.

Internal Strategic Analysis – Strengths and Weaknesses

Strength

Organizational Asset Audit

Having a well-defined organizational structure enables members of the firm to exercise the strength of determining the main individuals who have the responsibilities of performing various duties in the day-to-day business activities. In ensuring that none of the business aspects is left unattended, the company will make sure that every element in the firm is linked up to an individual to take control over it. McKesson Pharmaceuticals has clearly outlined its organizational structure allowing every individual in the company to identify their roles and exercise their responsibilities. The approach has enabled the company’s members to individually perform their tasks as well as working as a team in facilitating the main objective of the firm. Notably, the existence of a corporate structure in McKesson Pharmaceutical has contributed to the perfection of the decision-making process. Identification of decision makers is a crucial duty for the company because they are the key implementers of various strategic plans that affect the firm’s entire operations. According to McKesson (2016a), McKesson has invested in more than 10,000 physicians and other 36000 workers to facilitate an extensive operation to the company and effectively attend to the outgrowing consumer demand.

McKesson Pharmaceutical has focused on its global growth through the creation of various offices in France, Australia, Netherlands, Irelands, and the UK. Additionally, McKesson is well-equipped with warehousing facilities since it has many stores in both Canada and the United States to keep their healthcare products. Therefore, the company can produce more products at once and distributes them in bits hence reducing the cost of production and meeting consumer demand on time. The company has a total asset equivalent to $60 million hence it has a strong foundation of improving on its competitive advantage in the industry (McKesson 2016a, p.30).

Organizational Capability Audit

The McKesson has efficiently incorporated its resource in the provision of quality services to its customers. Jorge L. Figueredo the Executive Vice President of McKesson has incorporated the entire technological innovation for the company to introduce the product and in-built IT software (McKesson 2018). The firm has invested in various pharmaceutical systems that add a significant benefit to the overall revenue of the company. Besides, the organization has implemented the use of Extranet in delivering its information concerning management, products, values, and recruitment of new staffs. The HR system employs social media platforms such as Twitter and Facebook in the recruitment of experienced professionals and new graduates. Thus, it maintains its competitive advantage through retaining and acquiring new talent and customers.

Value Chain Analysis

McKesson Pharmaceutical is an upright integrated organization that has efficiently perfected in its operations from the management of products, development, planning, production, to other services. The availability of information within a firm enables it to effectively meet consumers’ satisfaction. The ability of McKesson Pharmaceuticals to operate all its business activities internally gives the firm a competitive advantage in the market. Additionally, multiplicity is not only in the operations or personal activities in the value chain but also to the products sold to buyers when customer service, production of goods, an R&D work together and exercising user-centric in their activities. Additionally, McKesson has introduced various changes to its Customer Resource Management Software and Electronic Medical Record initiative for easier and coherent data management (McKesson 2017). Furthermore, through reinforcement of operations, the firm’s activities are self-maintained, autonomous, and predictable thus allowing the management to serve effectively its customers.

Product Portfolio Analysis

McKesson Pharmaceutical has competitively invested in Health and Technology Investment portfolio. Concerning the “One McKesson Initiative,” the company is offering extensive IT solutions in ensuring clinical transformations and advanced healthcare standards (Whitehurst 2014). The system portfolio is designed for hospitals that have a high flow of patients hence proving to be effective in handling big data allowing hospitals to quickly make informed decisions regarding the patient care efficiently. Furthermore, the institutional healthcare IT systems allow creates the foundation for customers ordering products over electronic medium hence reducing the time needed by the buyers to physically inquire for products. However, the IT systems require many resources for smooth functionality, which is relatively expensive for low-level health centers to acquire.

Stakeholders Analysis

The main interest of stakeholders in a firm is to maximize wealth. They mainly invest in an organization focusing on getting back returns for dividends and an increase in the stock value (Garcia‐Castro and Aguilera 2015, p.137). The McKesson Pharmaceutical is among the largest publicly listed firms thus it constitutes of crucial stakeholders. In every financial reporting and filling, it informs the stakeholders regularly regarding the financial position annually and quarterly. McKesson produces a good impression in the revenue performance thus the organization has adequately perfected on stakeholder’s expectations.

Weaknesses

However, McKesson has not effectively planned for its financial asset. Looking at the liquid asset and the current asset ratios, it clearly depicts that the organization can effectively use its finances in other ways other than what is happening currently. Besides, the organization is not capable of efficiently tackling challenges brought up by newcomers to the segment and it has lost its share in the small market niche category. Therefore, the company needs to create a strong framework directly focusing on all aspects from the lowest salespersons to the board of directors. The corporate structure is much compatible only with the present business models hence restricting its growth along with the products segments. Despite McKesson successfully incorporating small organizations, it has failed to integrate companies that have disparities in their work culture.

Product management team will not effectively improve the commodities production thus the McKesson will face difficulties in meeting the customer demands. Besides, the firm can change its organizational processes to meet the buyers wants since all its activities are internal. However, it becomes hard for the company to exercise its power as the firm outgrows.

From 2012 to 2016, the firm has maximized its profit with income per share growing to $9.84 in 2016 from the former $5.56 in 2012. However, in 2016, the organization’s stock market share has decreased from $226.20 in 2015 to $157.25 (McKesson 2016a, p.36). This poor performance might be disturbing to the minds of stakeholders hence might contribute to the fall of the firm if correct measures are not in place.

External Strategic Analysis – Opportunities and Threats

Opportunity

Industry Analysis

The McKesson Pharmaceutical consists of two categories; full-line wholesaler and specialty distributor (McKesson 2018). The full-line wholesalers supply pharmaceuticals to different outlets including institutional and outpatients’ health facilities, whereas, the specialty supplies medical products to clinics and hospitals owned or operated by physicians. By 2015, the industry was dominated by three organizations only accounting for almost 85% of the McKesson’s total revenue collection (McKesson 2016a, p. 30). A high level of industrial concentration provides the incumbent with an advantage especially to those who have a top position in the market. Therefore, it is not easy for new investors to effectively enter the industry and obtain a large market’s share.

Nonetheless, McKesson high concentration in the industry enables it to have a control over the buyers bargaining power. It is a key determinant in the price of pharmaceutical commodities in the market. The company has the strength of deciding the terms and conditions to be used in carrying out day-to-day business over its competitors since it denominates the market. An incumbent acquires competitors in the market to maintain or increase its position. In the last ten years, the pharmaceutical industry has experienced various acquisitions and important mergers. The McKesson Pharmaceutical obtained the US Oncology and PSS World Medical hence maintaining its domination in the industry (McKesson 2013). Therefore, McKesson has been able to take more advantage in the pharmaceutical distribution industry over the competitors.

Market Analysis

The company acquires pharmaceutical commodities from different producers none of which represents more than 6% of the firm’s in the 2016 overall purchases (Trumbach, McKesson and Ghandehari et al, 2016, p.133) This is an important supply chain framework for the for-McKesson Pharmaceuticals. Depending on multiple suppliers enables the company to continue effectively its processes even if one of the vendors discontinues or affected by various elements. Morhardt, Adidjaja & Asokan et al, (2012, p.14) points out that, major suppliers for the organization consist of the largest supplier of pharmaceutical products: Gilead Sciences, GlaxoSmithKline, Pfizer, AstraZeneca, Sanofi S.A., Mark & Co., and Novartis. Nevertheless, these producers dominate the market hence they have a significant command of power, McKesson also controls its power as a buyer since it is the largest distributor of pharmaceutical products.

The company can easily influence the buying price of commodities from its vendors since it is the powerful buyer. Besides, it can also dictate on the production standards and other elements that entails pharmaceutical. For example, according to the law, manufacturers are required to serialize drug products before releasing them to the market. McKesson Company can choose not to contract business with producers who are not abiding by this requirement. Despite having the power over the supplier, the organization is putting more effort to maintain a healthy and mutual relationship that is beneficial to its suppliers.

Additionally, McKesson distributes pharmaceutical products to a wide range of clients including institutional medical care providers, pharmacies, retailers, medical laboratories, and physicians. As of 2016, the company has invested in other outlets across the world particularly in the UK, New Zealand, and Australia. Majority of the customers being in North America, which entails 80% and the largest customer-base, CVS accounts for almost 20.3% of the total revenue (McKesson 2016b). Not only do customers require quality products, but also, they need safe commodities that have met legal requirement delivered to them along with other expectations that are significant in the pharmaceuticals. Pharmacies, hospitals, and pharmaceuticals buyers may not provide or stock drugs that may be harmful to the patient’s health. McKesson takes care of the health of a patient by ensuring that it does business only with legit vendors.

Threat

Competitors Analysis

Competitors are important aspects of any business organizations. They are the driving force for a company to put much concentration on achieving the objective of customer satisfaction. Competitors also determine the extent of rivalry and the degree in which newcomers can join the market. McKesson experiences high competition in the distribution of pharmaceutical products from the AmerisourceBergen Corporation and Cardinal Health. According to Craft (2018), they are the main competitors for the firm constituting of about 30% and 22% of the overall pharmaceutical market in the United States respectively. Apart from these two competitors, there are many other rivals consisting of Curascript Specialist, Morris & Dickson, Smith Drug, H.D. Smith, and Anda Distribution (Craft 2018). Nonetheless, there are other thousands of mid-sized and small regional specialty wholesalers all over the United States that give McKesson Pharmaceutical stiff completion in the industry. Despite all this rivalry that McKesson faces, it has remained to be the largest pharmaceutical distributor in the United States accounting for an approximate of one-third of the overall market share. Hence being an appropriate source of facilitating a competitive advantage to the organization over the rivals.

Economic Factors Analysis

The pharmaceutical industry is facing a positive development after many years of slow growth rate and economic recession (Baily, Manyika and Gupta 2013, p.3). As a result, McKesson Company has the advantage to recruit more customers and expand its share in the market. Besides, the reduced transportation cost hence decreased the rate of shipping can lower the McKesson products cost thus offering the firm an opportunity of profit maximization or benefiting the consumer thus increasing its market share. Furthermore, the low rate of inflation among the Americans and other consumers has highly contributed to the stability of the firm thus allowing it to even offer credit at a low-interest rate to its customers.

Social Factors Analysis

The community area represents the greater location or society in which the firm operates. Various organizations have realized the importance of creating a strong social foundation governed by ethical standards in their growth. McKesson satisfies the expectation of the concerned society in different ways such as donations to the community, voting for non-medical cancer supporting services to the low-income population, volunteerism, focus on elimination of environmental footprints, and supporting policies that safeguard workers wellbeing (General 2011). Nonetheless, the firm has built an excellent relationship between the wholesalers and distributors; despite the dealers marketing its products, they also provide extensive training to the sales team to describe effectively to the consumers how they can rip positive results from using their products. Hence defining the organization’s commitment to the society hence it gains a competitive advantage over its competitors in the industry.

Technological Factors Analysis

The advancement in technology has enabled companies to effectively meet the consumer demands through easy allocation, monitoring and distribution of products in the consumer market. The new technology has enabled McKesson Pharmaceutical to have a full control over its price distribution between the new and existing customers. The company is able to retain its current and genuine customers and lure other new buyers through offering valuable propositions. Additionally, the environmental policies create a uniform competition platform for all players in the market. Therefore, McKesson is advantageous in obtaining the largest market share by involving its new technology in its operations. Furthermore, the company’s online platform has created new channels for selling products. With more advancements and conversing with customers through the online platforms, the company can know better its customers, thus improving on buyers wants (McKesson 2017).

Political Factors Analysis

McKesson Pharmaceuticals is entitled to observing the law of the locals, the state and the federal government and any other laws in their counties of operations. Mostly, laws and regulations are built to protect the consumers’ safety, competitive environment, pollution, financial reporting, and workers’ welfare. Given that the pharmaceutical products are very critical, more emphasis focuses on them to ensure the parties involved in its production, distribution, and retailing meet the required standards as expected by the law. If McKesson does not comply with these legal requirements, it may face various consequences such as heavy fines, lawsuits, or even losing their license as pharmaceutical distributors. Nonetheless, the stability of political environment in the United States has enabled the company to undertake effectively its operations as long as it does not contradict with the legal requirements in place. The projecting trends in the isolationism of the American economy can also follow suit in other nations thus affecting negatively the firm’s global sales. Additionally, the high demand for most profitable goods is seasonal and any unlikely occasion in the high season can affect the firm’s revenue collection in the low to mid-term.

Discussion: Evaluation of McKesson Business Strategy

Currently, McKesson Pharmaceuticals is using a Data-Based approach in ensuring its profitability. The organization has implemented cost-saving and growth measures of 20% that would lead to an operating margin of 4%. The performance strategy is determined in achieving better results by improving the operational performance, clinical, financial needs (Blake 2018). Nonetheless, technology is employed as a guiding tool towards attaining the desired goals of the company. The organizational enhancements begin with the establishment of a robust intelligence enterprise, which incorporates data collection and analysis. McKesson focuses on advancing in the supply chain, employees’ management, the flow and capacity of patients, service line, and the pharmacy.

The McKesson data-based strategy is appropriate in delivering the company’s objectives since it breaks large volumes of data into a simple way that can be analyzed within a short period of time hence providing relevant information. Besides, the strategy allows a quick and easy retrieval of data whenever it is required. Nonetheless, it is easy to identify areas that need much effort and resources to ensure profitability. However, computerized systems might experience breakdowns leading to loss of vital information for the company’s operations. The organization should also equip itself with alternative data backups methods other than their main IT system.

Additionally, the operating cost of the computerized systems is relatively expensive that most concerns are direct unto it instead of the products. The high level of financial assets that these computerized systems consume would have been invested in other areas of the company. However, despite the high expenditure on the IT systems, the strategy is effective in ensuring profitability for the firm.

Conclusion

In spite of McKesson Pharmaceutical Data-Based strategy having much strength in making the organization achieves its projected objective, it also has various weaknesses in its processes. For instance, the company has not effectively planned for its financial assets in a way that could lead to a higher outcome. Nonetheless, the strategy does not deal with the new entrants to the market and, it is not focused on acquiring small market shares. However, the dominance and position of the company enable it to have many opportunities and competitive advantage over the competitors. Technological advancement has contributed to the growth of the company. Additionally, the political and economic threats may lead to the fall of the company if a strong measure that complies with the law and the economic state is not considered. Generally, the Data-Based approach will enable McKesson Pharmaceutical to achieve its projected objective of increased profitability.

Recommendations

Following the challenges that McKesson Pharmaceutical faces in the provision of its services to customers and meeting stakeholders’ expectations, it is important for the firm to revise and adopt its strategic vision. Since the organization has rapidly outgrown, it appropriate for the firm to revise its working framework because it is difficult to change the existing strategy. The organization needs to decide between continuing with its differentiation approach or adopting a new low-cost framework. Besides, the McKesson Pharmaceutical should reduce its operational cost in order to remain competitive in the market. It is not a guarantee that targeting the highest value returns contracts would ensure the profitability of the firm.

The McKesson Pharmaceuticals should also re-plan on the use of its financial assets and invest in areas where it will increase its competitive advantage over other organizations in the medical industry. Much concern should be on training its vendors so that they improve the seller-buyer communication skills. Additionally, the IT health systems should be designed to meet the operational cost of low-level hospitals and clinics to increase their competitive advantage in the small market. The organization should also adhere to the political and legal requirements of their countries of operation to avoid being victims of firm closure or heavy fines.

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