SWOT Analysis Of McKesson Corporation

McKesson is a well-established pharmaceutical firm in the healthcare industry which provide medicines and healthcare to people since it was started. Moreover, McKesson is giving remedy to pharmaceutical distributors as well as healthcare technologies to hospitals, insurers, and medicinal producers. The company includes some significant medication where it ensures that there is better healthcare by providing quality information technologies and medicine. McKesson has spread its business operations in America and Canada. Due to this, McKesson had to face strong completion in the pharmaceutical sector. The paper provides an in-depth SWOT Analysis of McKesson’s businesses and operations to ensure a clear and unbiased view of the main strengths and weaknesses as well as its opportunities and threats. Thus, assisting in formulating strategic arguments to understand business partners, customers, and competitors.

SWOT Analysis of McKesson Corporation

Strengths

I. Business performance

McKesson Corporation enable the care providers to focus on the delivery of healthcare while controlling its revenue cycle through a comprehensive suite of managed services. Some of the services are complete revenue cycle outsourcing, administration of business offices and remote hosting. The company also has a perfect solution for the doctor practices of all sizes regardless of their independence and employment. Some of the solutions include software and connectivity services such as the practice management, electronic health records (HER) software for physicians in every specialty. As a result, the physician offerings in McKesson are the outsourced billing, data input, medical coding, cash collection, management of accounts receivables, and extensive reporting metrics on the related physician practice. Additionally, the company provides a full suite of hospital consulting services such as financial management, compliance services, and strategic services.

II. Information solutions

McKesson provides a comprehensive financial and clinical information systems for all sizes of healthcare organizations. The systems are designed to increase safety and quality of patient care. Therefore, they improve the effective performance of the company. McKesson is recognized for the provision of professional services to enable customers to attain business goals from the automation investment. Furthermore, the solutions to workflow allow caregivers to maintain labor laws while scheduling and attending to payroll. Due to improved information solution, McKesson has an inclusive supply chain management which integrates enterprise resource planning applications on financials, human resource, and enterprise-wide analytics.

III. Related care and analytics

The company is capable of providing health information exchange solutions that have streamlined communication among patients, providers, manufacturers, state entities, and financial institution through its vendor-neutral Relay Health, and intelligent network. These connection have helped customers to hasten the delivery of high-quality as well as improved financial performance via online consultation of doctors by patients, electronic prescription, and point of services resolution of claims by the payers. McKesson Corporation provides both clinical and analytical software that have supported management workflows for optimization of healthcare departments and a complete solution for homecare in the United States (McKesson Corporation, 2018). The pharmacy also offers performance management solutions that are designed to promote the ability of the company to optimize the delivery of quality care. Therefore, the visibility and performance analytics within the company provides business intelligence which enables care providers to control the capacity, productivity, and patient flow in McKesson.

IV. Workflow solutions

The company provides medical information management systems for most healthcare firms including picture archiving on communication systems, radiology information, and cardiovascular information systems. Moreover, the company has an extended approach enterprise which enables it to take advantage of specialty in specific workstations while building on integrated images throughout the care continuum. The technology segment of McKesson is capable of providing a portfolio of information services, and this has enabled the company to improve its quality care as well as ensuring safety, reducing cost and variability of care. Thus, McKesson is capable of managing its resources including the revenue stream.

V. Provision of diversified solution portfolio

McKesson Company has a product portfolio which is designed to address a wide range of healthcare clinical and business performance needs ranging from medication and information access to revenue management. Besides, the company makes good use of its resources to adopt the electronic health records. McKesson has analytical software which measures the progress of the company as it automates the care process for ideal clinical results, business, and regulatory compliance. Similarly, the company is providing a wide range of services which supports the implementation and application of solutions as well as assisting in redesigning the business regarding staffing in both information technology and back office.

Weaknesses

a. Long sales periods

Most of the solution provided by McKesson have lengthy sales and implementation periods which ranges from months to years or more from the first contact with the clients to completion of implementation. Furthermore, the decision on implementation and expansion of information systems are the major issues affecting McKesson. Moreover, most of the solution provided by the company typically require essential capital expenditures as well as time commitment by clients. Therefore, the decision for the customers to delay or cancel such implementations can adversely affect operations of the organization. Likewise, the failure to reach the established milestones in the company’s agreement may lead to a breach of contract. Consequently, leading to penalties as well as reduction of production margins and delay in the ability of the company to recognize income.

b. Over dependent on revenues from the United States

According to the 2016 financial report of the company, it has over 80% of revenues from the U.S segment (McKesson Corporation, 2018). Therefore, this may be risky due to over-dependence on one market for most incomes. Thereby, imposing huge uncertainties concerning political, regulatory, and legal changes that are related to activities in the U.S. Moreover, McKesson rely heavily on revenues from top ten consumers. For instance, the sales of the major customers of the company accounted for about 53% of the overall consolidated revenues in 2016 (McKesson Corporation, 2018). Therefore, the company is likely to face a significant amount of risk regarding liquidity on the income involved due to default in payments, and loss of clients to the other competitors such as Cardinal Health.

c. Employment systems

McKesson Corporation always absorb workers during acquisition periods. This may lead to higher compensation costs than the initial occurrence. As a result, the company may not be able to evaluate its employees on personal basis to maintain corporate culture. Additionally, the high margin of IT services may be profitable, but it reflects a loss of strategic as well as overall focus on the corporate brands. So, it may dilute the functions of the firm and provide more emphasis on the competitors, which may erode the significant market share of McKesson Corporation.

d. Fewer suppliers provide substantial supplies

In 2016, the leading suppliers of McKesson accounted for about 45% of the total purchases (McKesson Corporation, 2018). However, the corporation is obtaining pharmaceutical products from the producers, where none of them accounted for over 6% of the total purchases (McKesson Corporation, 2018). Therefore, the loss of a supplier can adversely influence the company in case there is no alternative source of supply.

Opportunities

1. Healthcare reforms

The Obama care expressively expanded the coverage of health insurance, especially to the uninsured American. Therefore, the way in which the government finances health care and private players changed. Even though some provisions of the Affordable Care Act immediately became effective, others such as the nondiscrimination in health activities, and high-cost employer coverages delayed required rulemaking actions by government agencies to finalize. Therefore, McKesson does not currently anticipate that the Obama care will not have material effects on the financial position and operational results (Cariaga, 2014). But due to the scope of the changes under consideration and the suspicions linked with the implementation of the healthcare reforms, the company cannot forecast the entire effects.

2. Acquisitions

The recent acquisition of CoverMyMeds for $ 1.1 billion enabled McKesson to expand into new businesses (Davis, 2017). Such acquisition was useful to the company as CoveMyMed automated the process of obtaining prior authorization from insurers for specific perception by eliminating long queues and slower customer responses. Moreover, the acquisition created synergies between the provision of McKesson and CoverMyMeds, resulting to more savings for the consumers.

3. Age demographics in the United States

The U.S population is aging rapidly. By 2060, there will about 98 million older persons in the U.S. therefore, expenditure in healthcare is likely to increase, and this offers a tremendous business opportunity to McKesson since demand for medical products will lead to increased distribution requirements.

4. Focus on health analytics

For McKesson to remain competitive for future growth, it should invest in the analytics space where the explosion of information is bound to take place and create integrated experiences not only to the chains that they serve but to their customers such as patients. Through this, the corporation can leverage end to end solution to various customer segments as well as commanding premium in the space.

5. Business commitment

McKesson Corporation is committed towards expansion opportunities particularly to the qualified businesses which can offer exceptional services at competitive values and costs. For the company to retain its unparalleled dedication to customers, it should foster and maintain proactive relationships with its suppliers. The company should value similar qualities in suppliers to the expectation of clients such as competitive pricing, excellent customer service, and e-commerce capabilities.

Threats

a) Retail expansion

Currently, McKesson has expanded its retail operations through several acquisitions. Due to such expansions, the company is subject to business risks that are different from those that it presently face (McKesson Corporation, 2018). As the firm expands into additional retail markets in Europe and Canada, it may lead to increased competition, merchandising and distribution problems. Consequently, McKesson is likely to encounter challenges in attracting customers to its retail areas due to inadequate customer familiarity with the brands. On the other hand, McKesson lacks familiarity with its local consumer preferences as well as seasonal differences in the market. Therefore, the ability to expand relies on the acceptance of retail store experience by the consumers, including the capability to design stores in a way which resonates locally to offer appropriate product assortments that are appealing to the consumers.

The growth in the retail industry has strained the relationships with some distribution customers that are competing in the retail pharmacy sector (McKesson Corporation, 2018). The company lacks assurance that its retail locations will achieve net sales and profitability levels that are consistent with the projected targets. Consequently, the operations and growth prospects of the company may be materially affected.

b) Retail locations

McKesson is facing the challenge of maintaining the existing retail locations and opening new ones in desirable regions (McKesson Corporation, 2018). Furthermore, McKesson competes with other retailers for prospective retail locations. Besides, the local land use, environmental regulations have affected the ability of McKesson to locate suitable retail locations. Thereby, influencing the cost of leasing and buying. The company is having problems in negotiating for real estate leases for the new stores, reintroducing leases for the existing stores and negotiating agreements for innovative sites on tolerable terms (McKesson Corporation, 2018). Additionally, the delays in environmental zoning and real estates have negatively influenced the openings of retails. Furthermore, they have increased the costs and capital expenditures. Since McKesson cannot retain its existing retail locations as well as opening new ones in suitable areas on affordable terms, the operations of the organization may adversely be affected.

c) Legal issues

McKesson is affected by potential legal proceedings. That is the cost of the legal actions is courts are bad publicity. Moreover, changes to the healthcare laws and regulation in the United States affected the ethical distribution of drugs in McKesson in the sense that they increased costs; hence, provided trade barriers to the company. For instance, the Affordable Care Act expanded the associated cost with the maintenance of the current workers as well as hiring new employees. Likewise, the repeal of some sections of the Obama Care is likely to reduce the demand for McKesson’s products (McKesson Corporation, 2018). The company has been mentioned for abusing employees. For example, it has been intimidating workers in Lakeland, Florida leading to poor public relations. This affected the recruiting efforts of prospective individuals who often research the company before being employed.

d) Outsourcing and third-party relationships.

The ability of McKesson to conduct its businesses may be negatively affected due to difficulties with outsourcing and retaining third-party relationships. The company is outsourcing some business and administrative duties and depend on third parties to carry out specific services. The failure to develop, implement and supervise sourcing strategies, it is clear that such plans are ineffective towards the provision of the expected cost savings. Similarly, third parties of McKesson fails to perform as expected. Therefore, the organization is likely to experience operational issues such as increased costs which have affected activities on McKesson.

e) Internal turmoil

The institutional shareholders have been staging votes against the directors in protest of compensation packages. This chaos has been disruptive, and it has downgraded the share price of the company. Henceforth, affecting the investment levels in McKesson. The organization has been cited for price inflation particularly on the prescription of drugs by over 20%. This led to legal settlements and loss of trust among consumers.

f) Changes in legal systems

McKesson is a large multinational company which operates in the United States and global jurisdictions. Therefore, it is subject to tax and regulation laws of the federal, state and local governments in the U.S and numerous international jurisdictions. Legislation can be enacted from time to time in different countries, and this can adversely affect tax positions of the company. Moreover, there is no assurance that the tax rate and cash flow of the McKesson won’t be influenced by these legislative changes (McKesson Corporation, 2018). For instance, if a law is passed to revoke the FIFO inventory accounting method for income tax purposes, it may affect the cash flow of the corporation. Also, is a law is passed to change tax treatments of income in the U.S from foreign activities, it may adversely influence tax expense.

The tax laws of different countries where McKesson operates are incredibly complex and subject to varying interpretations (McKesson Corporation, 2018). For example, different countries which McKesson operates collect value-added tax (VAT). The determination of the way in which VAT is applicable in other countries is subject to interpretations due to complex nature of tax laws and regulations.

Conclusion

The company has over twenty stores in the United States. Moreover, the brand has significantly progressed in the healthcare. Thereby, expanding its business with several employees. The major weakness of McKesson it that it over-rely on the limited segments in both healthcare and medicine business. However, it is one of the successful companies through the maintenance of strong liquid position. Even though McKesson is successful in its operations, it has faced numerous legal issues and concerns due to change in government policies. Therefore, it is struggling to go global through partnerships and acquisitions with other pharmaceutical firms.

References

Cariaga, V. (2014). Will Obama Care help McKesson, other drug companies? Investor’s Business Daily. Retrieved from https://www.investors.com/news/mckesson-ameriscourcebergen-and-cardinal-health-favorable-macro-trends/

Davis, J. (2017). McKesson acquires CoverMyMeds for $1.1 billion. Healthcare IT News. Retrieved from http://www.healthcareitnews.com/news/mckesson-acquires-covermymeds-11-billion

McKesson Corporation. (2018). Retrieved from https://www.sec.gov/Archives/edgar/data/927653/000092765316000020/mck_10kx3312016.htm