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Shane Theriault, Pierre-Olivier Lachance, Garik Teriault, Sierra Daigle A Strategic Management Case Study Your Logo.

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Presentation on theme: "Shane Theriault, Pierre-Olivier Lachance, Garik Teriault, Sierra Daigle A Strategic Management Case Study Your Logo."— Presentation transcript:

1 Shane Theriault, Pierre-Olivier Lachance, Garik Teriault, Sierra Daigle A Strategic Management Case Study Your Logo

2 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 Overview 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

3 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 The CVS name was used for the first time in 1964 with 17 locations. Throughout the following decades they have purchased many other pharmacies. – Clinton Drug and Discount stores – 84 locations in Indiana and Midwest. – New Jersey-based Mack Drug chain – 36 locations in New Jersey. – 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

4 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. Company Timeline

5 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. Current Vision & Mission Statement

6 Our purpose is to guide people along the path of better health Revised Vision Statement

7 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. Revised Mission Statement

8 External Audit

9 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 Prescriptions Revenues (Billions) CVS Caremark Corporations Walgreen Company Rite Aid Corporation Express Scripts, Inc

10 Industry Market Analysis

11 Opportunities & Threats

12 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 % 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 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 full-time equivalent physicians by Medicare drug spending is expended to increase by 8.5% annually over the next decade. Opportunities

13 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 Threats

14 EFE External Factor Evaluation Matrix (EFE) OpportunitiesWeightRatingWeighted Score 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 ,0154,000 people will reach the age of 65 in the coming three years % of Americans report having internet access in their home Affordable Care Act passed in 2010 will extend medical coverage to over 45 million Americans currently without coverage, starting in 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 In 2008, the AAMC projected a shortage of full-time equivalent physicians by Medicare drug spending is expended to increase by 8.5% annually over the next decade ThreatsWeightRatingWeighted Score 1. 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 million American adults did not fill prescription in TOTALS

15 Competitive Profile Matrix (CPM) CVSWalgreenRite Aide Critical Success FactorsWeightRatingScoreRatingScoreRatingScore Advertising Market Penetration Customer Service Store Locations Financial Profit Customer Loyalty Market Share Product Quality Top Management Totals CPM

16 Internal Audit

17 Organizational Structure

18 Netflix recognizes three segments Pharmacy Services Retail Pharmacy Corporate (Please note that this segment is not acknowledged in the book’s case study) Divisional Analysis

19 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 cvs.com attracted at least 26 million visitors annually by st on the Fortune 500's list of largest corporation in US Billion in free cash flow in 2011, a 39% increase over 2010's number Strengths

20 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 Fewer Physical(7,300) locations then next biggest competitor Walgreens who has 8, million prescriptions filled versus 819 millions by Walgreens. 7.CVS Caremark has a American Customer Service Index of 73 Weaknesses

21 IFE

22 Financial Information

23 Ratio analysis Growth Rate PercentCVS CaremarkWalgreenRite Aid Net Income (YTD vs YTD) Sales (5-Year Annual Avg.) Net Income (5-Year Annual Avg.) (1085) Dividends (5-Year Annual Avg.) Profit Margin Percent Gross Margin Pre-Tax Margin 562 Net Profit Margin Yr Gross Margin (5-Year Avg.) Liquidity Ratios Debt/Equity Ratio Current Ratio Quick Ratio

24 Company Analysis

25 Space Matrix Possible Strategies: Backward, forward, horizontal integration Market penetration Market development Product development Diversification Possible Strategies: Backward, forward, horizontal integration Market penetration Market development Product development Diversification

26 Grand Strategy Matrix Possible Strategies: Backward, forward, horizontal integration Market penetration Market development Product development Diversification Possible Strategies: Backward, forward, horizontal integration Market penetration Market development Product development Diversification

27 SWOT Matrix

28 Matrix Analysis

29 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) Possible Strategies

30 QSPM

31 QSPM

32 Strategy formulation

33 Strategy Grow to Win

34 Objectives First Year - Increase marketing expense by 50% in Acquire Rite Aid Second Year - Increase marketing expense by 25% - Renovate a 1/3 rd of Rite Aid Locations to CVS Caremark Third Year - Increase marketing expense by 25% - Renovate half of remaining Rite Aid Locations to CVS Caremark 3 Year Goal Annual Objectives

35 - 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 Strategic Fit

36 Marketing Expense: = $317 Million = $211 Million Increase to $316.5 Million Increase to $395.5 Million Increase to $496.5 Million Estimated Acquisition Cost - $1,000,000,000 Strategy Costs

37 Implementation

38 -Cost of Acquisition -Changes in Government Regulations -Anti-trust laws Foreseeable issues

39 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) Projected Financials Assumptions

40 EPS/EBIT

41 EPS

42 Projected Income Statement

43 Projected Balance Sheet

44 Projected Ratios

45 Strategic Evaluation

46 Balance Score Card

47 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 Update

48 Questions

49 CVS Caremark. (2012) Annual Report. Woonsocket. CVS Caremark. (2013). Company History. Retrieved from CVS Caremark: purpose/company-history CVS Caremark Corp. (2013). Retrieved from Business Insight: Essentials: 3.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: 3.ursus.maine.edu/essentials/article/GALE|CX /b1ad641 bc1714a5e67e86d926fbacac7?u=maine_fortkent Rite Aid. (2012) Annual Report. East Pennsboro Township. University of Oregon Investment Group. (2011). CVS Caremark Corporation. Eugene: University of Oregon. Walgreen. (2012) Annual Report. Chicago. References

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