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Wednesday, April 13, 2011

Internal environmental analysis CVS

CVS Caremark is the biggest pharmacy health care provider in the United States. The company’s services are comprise of Pharmacy benefits management (PBM), mail order pharmacy service, specialty pharmacy, plan design and administration, formulary management and claims processing. The company operates in 49 states of the US and District of Columbia with approximately 7,000 stores (CVS, 2010).
Through wholly owned subsidiaries and third-party organization along with CVS’s own store, the company delivers its products and services to its customers. The company operates an online store, where consumers can login to and place their order. CVS acquire Caremark Corporation in 2007. The company thus took over Caremark’s pharmacy stores.
The purpose of this segment of the report is to examine the Internal Environment of CVS Caremark Company. The major competitors will be named and major company issues will be described. This section will include the description of CVS’s resources, both tangible and intangible, alone with its capabilities, core competencies, and four criteria test.
Through a value Chain Analysis, each part of the company’s activities and operations will be examined, providing a more in-depth picture of CVS Caremark Company. A SWOT analysis chart will follow as the graphical depiction of the results of the internal and external analysis.

Tangible Resources
CVS is the best known brand for health care provider all over the United States and District of Columbia. It has consistently been the market leader in the United States market for health care provider over the past several years, with current operation in 91 of the top 100 drugstore market of United States and holds the number one or two market shares in 68 stores of these markets (CVS 10k, 2010). CVS’s net sales increased $11,257 million (i.e.12.87%) to 98,729 million during the year ended December 31, 2009 compared to 2008. The increase in sales revenue is due to favorable consumer acceptance of the company’s new and existing services. Company’s gross profit has increased by 2,204 million (i.e. 11.27%) as compared to 2008 (CVS, 2010a).
As of December 31, 2009, CVS has a $9 million of outstanding letters of credit which guaranteed foreign trade purchases. CVS has $1086 million of cash and cash equivalents as of December 31, 2009. CVS’s long-term debt, such as bonds with maturity period of  5 to 10 years, was rated “Baa2” by Moody’s with a stable outlook and “BBB+” by Standard & Poor’s with a negative outlook. Similarly, CVS’s commercial paper program was rated “P-2” by Moody’s and “A-2” by Standard & Poor’s with investment grade (CVS 10k, 2010).
CVS operates into three business segments: Pharmacy Services segment, Retail pharmacy segment, and corporate segment. The Pharmacy Service segment provides a full range of pharmacy benefit management (“PBM”) services including mail order pharmacy services, specialty pharmacy services, plan design and administration, formulary management and claims processing. In addition to this, through the company’s Silver Script Insurance Company and Accendo Insurance Company subsidiaries, CVS is the national provider of drug benefits to eligible beneficiaries under the Federal Government’s Medicare Part D program (CVS 10k, 2010). As of December 31, 2009, the pharmacy Services segment operated 49 retail specialty pharmacy stores, 18 specialty mail order pharmacies and 6 mail service pharmacies located in 25 states, Puerto Rico and the District of Columbia. Retail Pharmacy segment includes 7,025 retail drugstores of which 6,964 operated a pharmacy, online retail website,, and retail health care clinics. The retail drugstores are located in 41 states and the District of Columbia operating primarily under the CVS/Pharmacy name. During fiscal year 2009, CVS filled approximately 615 million retail prescriptions or approximately 18% of the U.S. retail pharmacy market (CVS 10k, 2010). Corporate segment of CVS provides management and administrative services to support the overall operations of the Company. The corporate segment consists of executive management, corporate relations, legal compliance, human resource, corporate information technology and finance department (CVS 10k, 2010).
CVS and its subsidiaries have approximately 211,000 employees, including approximately 26,000 pharmacists, nurse practitioners and physician assistants. In addition to that approximately 84,000 employees are part –time employees who work less than 30 hours per week (Yahoo Finance, 2010). The company’s management is responsible for establishing and maintaining effective control over financial reporting. CVS publishes quarterly and annual progress reports; however, the total control of the reporting is in the hands of the management committee.
CVS’s ExtraCare card program helps them continue to build loyal customer base. ExtraCare program is one of the largest and most successful retail loyalty programs in the United States (CVS 10k, 2010). ExtraCare program facilitate them to balance their marketing program allowing them to reward loyal customers by providing automatic sale prices, customized Coupons, ExtraBucks rewards. In addition, companies offer a full range of high-quality CVS brand and proprietary brand products. As of December 31, 2009, CVS carry 4,300 CVS brand and proprietary brand products, which accounts for approximately 17% of front store sales revenue (CVS 10k, 2010).
During 2009, CVS opened 178 new retail pharmacy stores, relocated 109 stores and closed 76 stores. During the last five years, CVS opened more than 1,400 new and relocated stores and acquired approximately 1,200 stores. CVS is expecting to open 250 to 300 new or relocated stores during the fiscal year 2010.
In order to remain competitive in the retail drug industry CVS has been investing in both people and technology. People want their prescriptions filled accurately and ready when promised by professional pharmacist using the latest tools and technology. Considering the current demand of the customers, CVS introduced integrated pharmacy health care service which includes “a flexible fulfillment option that affords eligible plan members the convenient choice of picking up their medications at any CVS/pharmacy store or obtain them through mail order” (CVS 10k, 2010). CVS’s Drug utilization review system is one of the commendable technologies in the health care sector which helps to check for harmful interactions between prescription drugs, over-the counter products, vitamins and herbal remedies (CVS 10k, 2010).
Intangible Resources
CVS has become the most competitive retail drug store company in the United States because of its intangible resources. Its talented employees are always looking to improve the way they operate front store, pharmacy segment and corporate segment.  The integrated effort of its employees and management make CVS to become the nation’s largest drug chain standing on 19th position of fortune 500 magazine (CNN Money, 2010).
            CVS hired employees at corporate position, store/ distribution management or pharmacist. CVS offer fresh internship for graduate students for corporate position. To obtain the advantages from the energetic, enthusiastic, and result oriented personality with latest knowledge about the current business environment, CVS offer the job opportunity for the best intern (CVS, 2010b).  To remain more competitive in the retail drug industry, CVS adopt the innovative technology which assists them to be a leader in the market offering the affordable service cost for its customers (CNN Money, 2010). In 2009, CVS began to rollout of RX connect to reengineer the way their pharmacists communicate and fill prescriptions. Further, CVS’s Assisted Inventory Management System facilitates them to control the inventory cost by effectively linking all stores and distribution centers with suppliers to speed the delivery   of merchandise in a manner that both increase in-stock positions in the stores and lowers the investment in inventory (CVS 10k, 2010).  CVS is one of the first in the industry to introduce Drug Utilization Review Technology that checks for harmful interactions between prescription drugs, over-the-counter products, vitamins and herbal remedies (CVS 10k, 2010).  CVS competes with its rivals on the basis of technology, quality performance, customer service and price for both over the counter (front store) products such as, Vitamins, beauty/cosmetics, General merchandise and others and pharmacy prescriptions.
            CVS is always ahead in providing exceptional customer service to its customers.  It has most efficient, competent, well-organized and resourceful customer service employees in comparison to its rivals. The customer service employees are well trained and experienced, who are always ready to help customers demand. CVS promotes a team-oriented atmosphere where the company’s knowledge base could expand through the mentoring of the newer employees by long-term customer service employees (CVS, 2010c).
            CVS currently operates into multiple information systems platforms to support pharmacy services segment. The information systems incorporate architecture that centralizes the data generated from filling mail service prescriptions, adjudicating retail pharmacy claims and fulfilling other PBM clients’ service contracts (CVS 10k, 2010).
            Upon the date of December 31, 2009, CVS does not have its own trademark and service marks. CVS has recently applied to register a variety of trademarks, service marks and trade names used in its business (CVS 10k, 2010).
            Management turnover and hourly employee turnover rate in CVS is very low which lead strong performance and gain of market share. Since the last 5 years CVS is one of the companies in industry having low employee turnover ratio (Goddard, 2010).
CVS’s most impressive capability is derived from its knowledge resource. The company has been able to establish itself as the leading innovator in the retail drug industry by using advanced techniques to facilitate the exchange of knowledge. For example, the use of RX connect accomplishes quick and secure pharmacists communication and accuracy on prescriptions fill. Another great example of knowledge resource is automatic prescription refill system, CVS Rapid Refill, this system enable customers to order prescription refills 24 hours a day using a touch-tone telephone (Seeking alpha, 2008).
CVS has a strong marketing capability demonstrated by such innovative marketing techniques as continuously developing new and unique products and services and capable to adjust mix of merchandise to match the customers’ need and preferences to improve customer satisfaction. Such innovative thinking is a capability developed from CVS’s strong human resources especially from the management side. Combining innovative resources and marketing resources has led to a strong capability for the company. Some of the examples of CVS of strong marketing capabilities are: innovative store design that changes the shopping experiences for the customers, favorite product categories of baby boomers, easy new path from the front door directly to the pharmacy and big discounts marts (advertising industry, 2010).
Strong financial resources provide CVS with the capability of acquiring patents and brand reorganization through strategic merger and acquisitions of competitors, or companies that can help it expand its product line. For example, CVS acquire SilverSCript Insurance and Accendo Insurance and become national provider of drug benefits to eligible beneficiaries under the Federal government’s Medicare Part D program. After the merger of CVS with Caremark Company, CVS is the largest retail drug store of the nation. 
            Energetic, enthusiastic and result-oriented human resources, effective marketing strategies and innovative technology provide proficient Operation capability to CVS. CVS has proved efficient operation by lowering the cost of inventory and by implement VIPER (Visible Improvement in Profits, Execution and Results) system. VIPER system monitors Store operations, Pharmacy operations, Marketing, Merchandising, Sales/audit, Bank reconciliation, Treasury and Compensation. The system mitigates losses attributable to process deficiencies or fraudulent behavior by providing visibility to transactions processed through point-of-sale systems (Retechla, 2008).
Core Competencies
CVS Caremark Corporation is a market leader in the retail drug industry. CVS has united its resources and capabilities such a unique way that always create core competencies and that allow the company to maintain a competitive position in the industry. It has been successful in maintaining its competitive advantage over rivals by rapidly innovating new and unique products and services in the market which is very hard for its competitors to mimic. The company has always been first to introduce innovative services. As of December 31, 2009, CVS have 4,300 CVS brand products including vitamins, general merchandise and beauty products (Rekers, 2010).
CVS’s Outstanding Customer Service enables them to be a number one pharmacy store in the nation. CVS has been recognized from different organizations for excellent customer service. Capable and eager workforces’ commitments to provide excellent service make it possible for CVS to deliver industry leading customer service (Rekers, 2010).
CVS has a core competency in its marketing capability which is always innovative and rare for its competitors. In the industry, CVS is the only one company implementing ExtraCare Loyalty program. The program not only facilitates CVS to attract new customers but also to retain existing customers. CVS has adjusted its marketing mix in such a way that swathes customers from all demographic, i.e. customer from all age, sex, all income group and soon (PBN staff, 2010).



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