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Running Head: CVS INTERNAL ENVIRONMENT ANALYSIS 1
Resources
Tangible Resources
a. Physical Resources
Tangible resources are used in the operation of a business to produce goods or
provide a service in a company. CVS Health Corporation is the largest retail drugstore in
the United States. It is one of the top retail pharmacies, selling over-the-counter and
prescription items.
CVS has approximately 9,600 pharmacies, more than 1,100 walk-in medical clinics,
a leading pharmacy benefits manager with more than 75 million plan members, to
provide the best available service for its customers across the United States (CVS 10-k
report, 2016).During the year ended December 31, 2015, CVS Pharmacy Services
Segment operated 24 retail specialty pharmacy stores, 11 specialty mail order pharmacies
and five mail order dispensing pharmacies, and 83 branches for infusion and enteral
services, including approximately 73 ambulatory infusion suites and six centers of
excellence, located in 40 states, Puerto Rico and the District of Columbia. (10-K, 2015).
b. Organizational Resources
In 2015, CVS opened 161 new retail pharmacy stores, acquired 1,672 pharmacies
within Target stores. As of December 31, 2015, CVS employed approximately 243,000
colleagues, which included more than 34,000 pharmacists, nurses, nurse practitioners and
CVS INTERNAL ENVIRONMENT ANALYSIS 2
physician assistants. The total included approximately 88,000 part-time colleagues who
work less than 30 hours per week.
CVS's ExtraCare card program helps them continue to build loyal customer base.
The ExtraCare program is one of the largest and most successful retail loyalty programs
in the United States. ExtraCare program facilitate them to balance their marketing
program allowing them to reward loyal customers by providing automatic sale prices,
customized Coupons, ExtraBucks® rewards and other benefits. ExtraCare has about 70
million active cardholders. (CVS 10K,2015)
c. Financial Resources
Table 1. CVS selected financial data
CVS INTERNAL ENVIRONMENT ANALYSIS 3
In 2015, CVS reported expected revenue of $153,290 million, an increase of
$13,923 billion from 2014. Gross profit increased $1.2 billion, or 4.6% and Operating
CVS INTERNAL ENVIRONMENT ANALYSIS 4
expenses increased $506 million, or 3.0%, Net interest expense increased $238 million.
In 2014, loss on early extinguishment of debt is $521 million, but in 2015 loss on early
extinguishment of debt is 0. Income tax rate was 39.3%, Income from continuing
operations increased $585 million or 12.6% to $5.2 billion in 2015. Net income
attributable to CVS Health increased $593 million or 12.8% to $5.2 billion (or $4.63 per
diluted share) in 2015. This is all reason of CVS net income increase. (CVS 10-k report,
2015).
Table 2. Walgreens selected financial data item 6
CVS INTERNAL ENVIRONMENT ANALYSIS 5
In 2014, Walgreens reported an expected revenue of $76,392 million. Gross
profit increased $3.7 billion, Net interest expense is debt. Income tax rate was 39.3%,
Income tax provision is $1,526 million. Net income attributable to Walgreen Co.
decreased $518 million in 2014.
d. Technological Resources
As of December 31, 2015, CVS has operated five mail order dispensing pharmacies
in the United States. Primarily for maintenance medications, to these pharmacies via
CVS INTERNAL ENVIRONMENT ANALYSIS 6
mail, telephone, fax, e-prescribing or the Internet (CVS 10-k report, 2015).
CVS also offers a technology platform that helps identify and capture cost savings
opportunities for specialty drugs billed under the medical benefit by identifying outliers
to appropriate dosages and costs, and helps to ensure appropriate clinical use of these
drugs. (CVS 10-k report, 2015). On August 18, 2015, CVS completed their acquisition of
Omnicare, broadening their base of pharmacy care to a new dispensing channel, long-
term care pharmacy (CVS 10-k report, 2015).
Intangible Resources
e. Human resources
CVS is one of the largest providers of pharmacy healthcare in the United
States. “CVS operates three primary business units, retail pharmacy, pharmacy
benefit management and retail health clinics. CVS also provides vaccinations,
monitoring of chronic health conditions, health screenings, and the
diagnosis/treatment of minor health problems.” (CVS 10-k report, 2015). CVS is
focused primarily on the sale of pharmacy products prescription drugs, over-the-
counter drugs and personal care products, as well as a wide variety of goods, such as,
convenience foods, greeting cards, beauty products, and seasonal items.
CVS is open 7 days a week, including evenings and weekends. CVS business
strategy centers on providing innovative tools and strategies, as well as quality client
service to introducing unique programs to help control costs for the clients at CVS
CVS INTERNAL ENVIRONMENT ANALYSIS 7
Caremark, including: plan design offerings and administration, formulary management,
Medicare Part D services, mail order, specialty pharmacy and infusion services, retail
pharmacy network management services, prescription management systems, clinical
services, disease management services and medical spend management.(CVS 10-k report,
2015).
f. Innovation resources
In 2014, CVS Pharmacy retail drugstores became the first pharmacies in the
nation to receive Community Pharmacy Accreditation from URAC for delivering the
highest levels of service to the customers. In 2015, CVS completed the acquisition of
Omnicare, Omnicare's long-term care operations include the distribution of
pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care
facilities and other care settings (CVS 10-k report, 2015).
g. Reputation resources
CVS/minuteclinic nurse practitioners have seen more than 27 million patients to
date, with a 95 percent customer satisfaction rating. CVS’ loyalty card program,
ExtraCare, is the largest retail savings and rewards program with more than 70 million
active member households. CVS Health fills or manages 1.7 billion prescriptions each
year and has captured one third of the total US prescription growth since 2008. CVS
Health includes the largest US specialty pharmacy with $31 billion in revenue. CVS
Health and MinuteClinic partner with more than 60 major health systems and health care
providers across the country. Every day, CVS/pharmacy serves 5 million customers in
CVS INTERNAL ENVIRONMENT ANALYSIS 8
their retail pharmacies across the country (CVS 10-k report, 2015).
Capabilities
CVS’ most impressive capability has been its’ ability to establish itself as the
leading innovator in the retail drug industry by using advanced techniques. An example,
On August 18, 2015, CVS completed the acquisition of Omnicare, the Company acquired
100% of the outstanding common shares and voting interests of Omnicare, Inc.
(“Omnicare”), for $98 per share for a total of $9.6 billion and assumed long-term debt
with a fair value of approximately $3.1 billion. CVS plans to open between 100 to 200
new pharmacies per year, while the company continues to add to its 640 Minute Clinics
inside its retail pharmacies, with plans to expand to more than 1,000 in the next three
years. Here, nurse practitioners diagnose illnesses, injuries, and skin conditions, and
provide a variety of wellness services (CVS Health Corporation).
CVS is also trying to develop a globalized economy. Example for: “In 2013, CVS
bought Drogaria Onofre, Brazil’s 8th largest drugstore chain which marked CVS
Caremark into the international drug store level. Besides, health care and pharmacy is
expected to grow big in Brazil for the next decade.”(Strategies for Global business).
Core Competencies
CVS has successfully continued to provide innovative tools and strategies, as well
as quality client service in order to help improve clinical outcomes both for clients and
CVS INTERNAL ENVIRONMENT ANALYSIS 9
their plan members to better manage overall healthcare costs (CVS, 2016). CVS is one of
the bigger and better drugstore chains on the stock market. It’s been consistently
profitable over the years and also efficient in boasting a much higher sales-per-store
metric than its most comparable rivals such as Walgreen and Rite Aid.
CVS distinguishes itself from other competitors as a result of its culture and
sharply and suitable market strategy to expand itself through acquisition. The former
president and CEO said that he admired CVS from day one because of its informal
culture: everyone was called on a first-name basis and placed a high priority on respect
and results (Ryan, 2012 ).
CVS went public in 1996 and did quite a few acquisitions throughout the next
several years. From the first acquisition Revco, a dominant player in the Midwest and
Southeast to the more recent one-Target. CVS demonstrated that it has the ability and
capability to utilize the resources it acquired to better develop itself and keep its business
growing. In December 2015, CVS completed the acquisition of the pharmacy and clinic
business of Target. As a result of this acquisition, CVS acquired Target’s 1,672
pharmacies across 47 states and will operate them through a store-within-a-store format,
branded as CVS Pharmacy®. Of the 1,672 acquired pharmacies, 79 Target clinic locations
will be rebranded as MinuteClinic® and they are expected to open up to 20 new clinics in
Target stores within the next 3 years. This new acquisition will give CVS access to the
existing and new markets, and eventually increase its market share and drive economic
growth.
CVS INTERNAL ENVIRONMENT ANALYSIS 10
Competitive AdvantagesFour Criteria Test for Sustainable Competitive Advantage
Resource or Capability
Values Rare Costly to initiate
Non-Substitutable
Competitive consequences
Performance
Implications
Brand Image
YES NO NO NO Competitive parity
Avg. returns
New Technology
YES NO YES NO Competitive parity
Above-avg. returns
Acquisition YES NO YES NO Competitive parity
Above-avg. returns
Physical Resources
YES NO YES NO Competitive parity
Above-avg. returns
Customer Support
YES NO YES NO Competitive parity
Above-avg. returns
Chart Interpretation
Brand image is the current view of the customers about the company's brand, it
can be defined as a unique bundle of associations within the minds of the target
customers. As far as CVS goes, the customers can easily connect with the company from
CVS INTERNAL ENVIRONMENT ANALYSIS 11
its symbol. CVS definitely has competitors, such as Walgreens and Rite Aid, which
represents 5.9% and 16.1% share of the 2014 prescriptions revenues, respectively (Drug
Channels). CVS represents a total of 23.7% of the 2014 prescription revenues from retail
and service segments. Thus, the overall performance is higher than the industry average.
The data of total revenue for main competitors in the retail drugstore industry indicates
that CVS has substitutes, meaning customers have options to buy drugs in any other
stores. Thus, CVS has a rare capability in brand image. The brand image is not costly to
build and has become more popular over time.
Acquiring and applying new technologies when operating in the retail drugstore
industry is a necessary factor to be successful. CVS has developed internally and uses
software to meet its unique customers’ needs. Other companies in the same industry have
developed their own software within their company. Understanding the cost for research
and development of these technologies and the time it takes to increase the maturity of
the technology is important but difficult. Plus, compliance with changes in privacy and
information security laws and standards would be another cost for CVS. Therefore, it
would cost the company a large quantity of capital to finish one specific program and
finally work out in the market. CVS applies several varieties of digital technology, such
as Omniview® and Health Engagement. EngineTM technology helps to identify
customers’ need and deliver service to them, in turn, it improves the efficiency of its
operations.
CVS’s operations depend on their information technology systems and the
information initiated, collected, processed, stored and handled by systems. However,
CVS INTERNAL ENVIRONMENT ANALYSIS 12
there are failures or disruptions in technology that could adversely impact the company’s
operation.
Furthermore, CVS opened a new technology development center in Boston in
2014: this Health Digital Innovation Lab accommodated about 100 people for the
development of new stores. Investing in new technology definitely helps companies
neutralize threats and explore ways to find new opportunities. However, CVS is not the
only one in the industry that spends capital on R&D and new technology development.
For instance, Walgreens launched a multi-year initiative into IT (Information technology)
to upgrade their process into a seamless view of patients, wherever they are being served
in the Walgreens network. New patient-facing portals empower customers to schedule
appointment and access information about the health conditions and share health contacts
(Walgreen’s 2012). Therefore, new technology investments are neither rare in capability
nor a non-sustainable part for CVS. Additionally, new technology development is costly
to initiate. Operating expenses increased $241 million, or 30.3%, to $1.0 billion in
December of 2015, as compared to the prior year. Operating expenses increased $45
million, or 6.0%, to $796 million in December of 2014. Information technology expense
is a part of operating expense for CVS.
CVS has approximately 9,600 pharmacies, more than 1,100 walk-in medical
clinics and serves more than 75 million plan members. Rite Aid operated 4,587 stores in
31 states as of the end of its fiscal year 2014 (CVS, 2016). Walgreens operated 8,309
locations in 50 states. Wal-Mart serves nearly 260 million customer who visit its over
11,000 stores under 72 banners in 27 countries and e-commerce websites in 11 countries
CVS INTERNAL ENVIRONMENT ANALYSIS 13
(Wal-Mart, 2016). Kroger operates 2,625 supermarkets and multi-department stores. In
addition to the supermarkets, as of January 31, 2015, it operated through subsidiaries 782
convenience stores (Kroger, 2016). CVS’s competitors are all having the same kind of
advantage and substitute of one another to some extent. CVS’s physical resources are not
rare capabilities and CVS performs above the average level.
CVS is a pharmacy innovation company that is reinventing pharmacy for better
health and is continuously developing new approaches to improve access for patients,
promote better health outcomes and control payer costs. To better serve its customers,
CVS has introduced integrated pharmacy health care services that provide an earlier,
easier and more effective approach to engaging them in behaviors that can help lower
costs, improve health and save lives. They provide different kinds of programs based on
customer special needs. For example, Maintenance Choice® is a program for eligible
participating plan members where they have the option to fulfill their prescriptions at
retail pharmacy stores for the same price as mail orders. Another example would be the
Pharmacy Advisor®, a program that facilitates pharmacist counseling, both face-to-face
and over the telephone, to help participating plan members manage their health
conditions (CVS, 2016). In order to better provide customer support, it will cost CVS
money to provide different types of support to existing or potential customers. Overall,
the company keeps a sustainable competitive advantage in the industry compared to its
competitors.
CVS in recent years has branched out into additional segments of the pharmacy
business by buying l large presence in both pharmacy benefit management and specialty
CVS INTERNAL ENVIRONMENT ANALYSIS 14
retailing in nursing homes (Walgreens, 2016). CVS acquired several companies to obtain
quality staff, knowledge or business intelligence in order to provide better service to
customers and ultimately increase shares. The most recent 2 acquisitions are Omnicare,
the leading provider of pharmacy services to long-term care facilities, for a total
enterprise value of approximately $12.9 billion and Target pharmacy. Acquisitions are a
valuable capability for CVS since CVS could apply the acquired different kinds of
resources to neutralize threats and find new opportunities.
CVS’s competitor, Walgreens acquired Kerr drug that contributed 76 drugstore
locations as well as specialty pharmacies and a distribution center in 2014. Also, the
acquisitions in Mexico and Chile positioned Walgreens well to become an influential
player in the Latin American market, which provide more growth opportunities than
CVS. Plus, Walgreens’ bid to acquire Rite Aid would solidify the buyer's’ spot as the
country’s biggest drugstore chain in terms of total stress and prescription sales
(Walgreens 2016).
Wal-Mart and Kroger both have some acquisitions in recent years as well. Thus, it
is not abnormal for companies in the retail drugstore industry to expand themselves by
mergers and acquisitions. There is not obvious evidence to show that CVS has more of a
competitive advantage in the acquisition part.
CVS takes care of its customers and patients by providing them better service
with relatively low price. It has Specialty ConnectTM , its integrated specialty pharmacy
offering that integrates specialty mail and retail capability, providing members with
special needs of consulting from experienced specialty pharmacists. Plus, the ExtraCare®
CVS INTERNAL ENVIRONMENT ANALYSIS 15
Health Card program, offers discounts to eligible plan members on certain over-the-
counter health care products sold in CVS pharmacy stores. Walgreens also has similar
programs to appeal to customer and provide discounts for loyalty. Customer support is a
valuable capability and cost-benefit part for CVS. Other competitors that provide better
customer services could substitute the customer support part of CVS and it’s not a rare
capability for CVS.
Supply Chain
CVS has a clear mission to support all of the stores and make it as easy and
satisfying as possible for customers to do business at CVS. The company is able to be
successful in part because of its excellent supply chain that services over 5300 retail store
locations. The chain is made up of primary activities such as inbound logistics,
operations, outbound logistics, marketing & sales and services, as well as support
activities such as firm infrastructure, human resource management, technological
development and procurement (CVS’s Supply Chain Performance and New DC Impress).
All of these services work together to assist CVS in having one of the most successful
supply chains in business.
Primary Activities
a. Inbound Logistics (supply chain management)
CVS has a very sophisticated and complex distribution network, it consists of 13
CVS INTERNAL ENVIRONMENT ANALYSIS 16
Distribution Centers. The company uses various technologies to speed up the inbound
logistics and these processes along with its direct integration with stores had allowed for
deliveries to be on time 98.4% of the time. An example of one of the automated processes
used by CVS to make them even more efficient is de-boxing. Currently inbound product
is de-boxed before it is even put into storage, and that speeds up the process by removing
the task from the pick line (CVS’s Supply Chain Performance and New DC Impress).
CVS uses direct integration by having planograms available for all store locations at the
distribution centers. This allows for the picking of products to be in aisle/stocking
sequence for each store and this speeds up how fast goods are be able to be put up in
stores, which increases productivity as well as makes the stores safer due to lack of
clutter in the isles (Premium Trucking: The Right Tools for the Right Job).
CVS imports a significant amount of goods from other countries but they do so
ethically and responsibly through audits and inspections. With the help of Intertek, and
other third parties, CVS monitors compliance with the Supplier Ethics Policy and trade
standards. They also make sure all suppliers stay compliant with United Nation’s
Universal Declaration of Human Rights. The declaration prohibits human trafficking of
any kind, as well as prohibits labor that is forced through child labor or imprisoned labor.
CVS supplier factories also are audited to make sure they have safe and fair working
conditions and to make sure there is no discrimination based on a person’s age, gender or
any other protected class (Ethics and Human RightsC, 2016).
CVS INTERNAL ENVIRONMENT ANALYSIS 17
b. Operations
As mentioned above, CVS imports many of its goods from overseas and through
inspections and audits, CVS maintains its high operational standards in part through
diverse suppliers. By giving all types of business the opportunity to work with CVS, it
increases competition, which in turn can reduce cost and make the supply chain more
resilient. The diverse suppliers program is two tiers, they are focused on purchasers to
make sure the suppliers are not only diverse but provide quality goods and services
(Multicultural Products and Services, 2016).
CVS has many distribution centers that range in size from 230,000sq. Ft. to
980,000sq. Ft. Of the over 7,300 CVS/pharmacy stores, more than 4 million customers
are served daily (Gentry, 2001). CVS is served by 18 distribution campuses, and they
have their own fleet of trucks as well as third-party operators such as Penske, Ryder and
M&M Transport Services Inc. to move product through their warehouses. They employ
more than 8,000 people and have a fleet of over 300 tractors and 1,500 trailers that are
privately owned. They also have more than 300 third-party tractors and 800 third-party
trailers. The third-party partners are all branded CVS to make sure they live up to the
same high standards they have for their own operators and fleets (Morgan, 2014).
CVS takes pride in the efficiency of its supply chain and they have programs in
place to ensure employees live up to the efficiency standards. One of the programs CVS
designed to maintain high operations across their logistics team is the PRIDE project
which stands for Personal Responsibility in Delivering Excellence. It focuses on creating
a working environment focused on performance, productivity, reliability, quality, safety
CVS INTERNAL ENVIRONMENT ANALYSIS 18
and continuous improvement. The PRIDE program gets employees interested in
production at a high level by providing associates with financial incentives for exceeding
the company’s established productivity standards and encourages employees to provide
feedback on ways to improve the supply chain (Morgan, 2014).
c. Outbound Logistics
CVS has put a great deal of effort in perfecting their outbound logistics programs.
One of the main ways the company is doing this is through the efficiency of their fleet
delivery systems. CVS makes hundreds of thousands of deliveries each year from over
22000 origin points, to distribution centers and then out to the over 4000 stores. CVS
uses Descartes visibility and event management software and they use an enterprise
resources (Biederman, 2012). Descartes is able to help CVS reduce its inventory in order
to prevent order failures by having exception alerts and helps manage supply chain events
by monitoring inbound shipments in order to decrease the cycle time. The Descartes
system has four core processes (commercial, logistics, transportation and product
information) that in working together can offer information like pallet weights &
measures, help with activities like ordering and help with company shipping visibility
(Biederman, 2012). CVS has invested a great deal of resources to improve efficiency and
reduce costs. They use route optimization software that helps them manage deliveries to
retail stores as well as monitor and forecast fuel usage, so they can plot out the optimum
efficient route for all trucks. The company’s fleet also is equipped with onboard
computers that record data such as average speed and idle time that factor into a truck’s
CVS INTERNAL ENVIRONMENT ANALYSIS 19
fuel usage (Biederman, 2012).
The company has also been able to reinforce its outbound distribution strategy by
partnering with partner experts to help go along with its own systems. The external
partners have helped to provide support in areas like financing, preventive maintenance,
emergency roadside assistance, administrative support, insurance, fuel, and safety
services (Transportation and Supply Chain Solutions for the Bottom Line, 2016). One of
the outbound partners CVS uses is the fleet services of Ryder, and they supply CVS with
over 312 drivers, 248 tractors and 634 trailers. Of the numerous distribution centers CVS
has, Ryder operates in Rhode Island, New Jersey, Michigan, Texas, Alabama, Florida,
New York and Puerto Rico. Their responsibilities include taking outbound tractor-
trailers, delivering merchandise to stores and picking up and returning merchandise to
distribution centers. CVS extended its reach into new markets like Hawaii and Puerto
Rico, most of the business is serviced in those markets are on a Direct-to-Store delivery
model that Ryder has helped with. They helped CVS locate the best ports and distribution
centers to serve the stores, they also helped CVS determine if the distribution centers had
the right amount of space, compared the cost of barges vs. vessels (Biederman, 2012).
d. Marketing & Sales
CVS uses a great deal of advertising and promotions to assist with marketing and
sales. The company has some marketing strategies including having convenient locations
that are open 24 hours to help people that cannot go shopping frequently and using social
media outlets like Facebook where customers can earn coupons for “liking” the brand.
CVS INTERNAL ENVIRONMENT ANALYSIS 20
CVS also realizes that they have an extremely diverse population of customers, and they
realize the customers have different wants and needs from the company. Some of the
company’s most popular multicultural product lines include: Milani cosmetics, NUANCE
Salma Hayek beauty products, Gamesa cookies, Fabuloso household cleaners, Suavitel
fabric softeners, La Costena grocery items and Ricitos de Oro baby care items
(Multicultural Products and Services, 2016). CVS acquired Navarro Discount Pharmacy,
which is a leading Miami chain with a significant amount of knowledge and experience
serving the Hispanic market. Given their diversity in customers and growth of their
Hispanic customer base, CVS wanted to learn about the services, products, value, and
atmosphere that resonate with Hispanic customers.
Recently CVS has been working on a new campaign for marketing where the
slogan is “think customers”. They want to ensure that every customer that patrons a store
receives an optimal experience that is personalized. One part of the campaign comes from
its ExtraCare rewards program, where they have made it so customers receive coupons
based on what they are likely to buy, which gives them the personalization feel. By using
the “think Customer” philosophy, CVS has even been able to change store layouts and
products offered to better service the customers (‘Think Customer’ is new mantra at
CVS/Pharmacy, 2014). The company also has been using new marketing techniques to
help make up from sales lost when they made the industry first decision to no longer sell
tobacco. CVS is making up for these lost sales by marketing themselves as a health
conscious company and putting a new emphasis on the beauty category. They plan to
offer the most innovative national brands as well as develop exclusive store brands. An
CVS INTERNAL ENVIRONMENT ANALYSIS 21
example, as mentioned above is NUANCE Salma Hayek beauty products (Multicultural
Products and Services, 2016). Through these new initiatives, CVS wants to help guide
their customers on the path to being healthy.
e. After Sale Service
CVS tries to keep its customers happy by offering exceptional after sale services,
these services include return policies on store bought and online bought products as well
as satisfaction guarantees on CVS products. The company has a policy where refunds are
permitted for non-prescription items, when accompanied by printed receipt, to make it
convenient for the customer, they can return the products to the stores or via mail within
30 days of the purchase. Customers can even return CVS branded and other
nonprescription products if they have been opened, they want to keep the customers
satisfied (Return Policy, 2016).
The company also offers 100% satisfaction guarantee on CVS/pharmacy Brand
products and 100% satisfaction guarantee on beauty purchases. If a customer is
dissatisfied with a CVS branded product for any reason, they can bring back the product
whether it is opened or unopened and receive a full refund with no questions asked. The
policy for all beauty products is similar to that of CVS branded products they can bring
back the product whether it is opened or unopened and receive a full refund with no
questions asked. Also, refunds for non-CVS/pharmacy Store Brand Cosmetic items can
be done without a receipt but a CVS/pharmacy gift card will be issued (Return Policy,
2016).
CVS INTERNAL ENVIRONMENT ANALYSIS 22
Support Activities
a. Human Resource Management
CVS prides itself on having strong skills in recruiting, hiring, training and developing
employees throughout the company. They pride themselves on being a team that works
together to make the company bigger and better, being a good team member is the best
way to succeed in the company. CVS leads by example and builds their strong leadership
from inside (Rosenthal, 2012). The company hires and trains people who have the values
they find appealing and those who buy into their mantra of team first, by developing
these people they are able to build strong leaders of their own.
CVS does hiring in many different departments including Analytics,
Pharmacy Technician, Corporate, Retail Store, Customer Care, Internships, and
the Distribution Center. They offer employees the chance to make a positive and lasting
impact on the community, the customers' lives and the company's success. These benefits
include, but are not limited to: Competitive pay-for-performance, Medical and dental
insurance, Prescription plan, Vision coverage, free health screenings and immunizations,
Free Health and wellness programs, Business travel and life insurance, Vacation/paid
time off, Adoption coverage/assistance, Merchandise discounts from CVS/pharmacy,
Education reimbursement, Employee Assistance Program and 401(k) retirement plan.
When training and developing employees, CVS provides endless opportunities to apply
skills new and current team members already have in ways they never thought of.
Employees are empowered to develop professionally and personally (Who we are, 2016).
CVS INTERNAL ENVIRONMENT ANALYSIS 23
b. Technological Development
CVS has a strong commitment to technological development, they continue to invest in
programs that push technology to new levels, and have even opened technology
development center in Boston. Their Digital Innovation Lab accommodates over 100
people and focuses on building customer-centric experiences in health care, the lab is
made up of developers, product managers, digital strategists, and user- experience
designers. The goal, for CVS is to create a “seamless experience” when the customer is
interacting with the company on the internet or phone and in its stores (CVS to open tech
hub in Boston, 2014).
CVS is also integrating technology with how they handle some loss prevention problems.
They plan to reduce their shrink and improve operations, CVS internally is using the
program VIPER. The program works by monitoring transactions such as voids, returns
and coupons by monitoring trends, the program can identify transactions that are outside
the norm and require further investigation. By using the VIPER program CVS was able
to effectively increase sales and reduce shrink (CVS Integrates Technology across
Business Functions to enhance its ROI, 2008).
c. Procurement
CVS has a Procurement department that is dedicated to providing non-resalable
goods and services to Stores, Regional Business Offices, Distribution Centers, and
Corporate Departments. CVS streamlines the procurement process by using the most
current practices and technologies, and continuing to have a strong relationship with
CVS INTERNAL ENVIRONMENT ANALYSIS 24
suppliers. CVS has also created a web based portal to share daily POS and Inventory data
with the Store for-resale suppliers. It provides suppliers with access to daily point of sale
and Inventory data from all stores (Partnering with CVS/pharmacy, 2016).
d. Firm Infrastructure
The infrastructure of CVS is made up of Architecture and Engineering Services,
RPMSA (Retail Program Management Strategy & Administration), Construction Project
Management, Administrative Facilities Management, Print Operations and Capital &
Energy Administration. Architecture and Engineering Services provides branding,
planning and design of CVS stores and facilities, it combines technical knowledge with
management skills and business expertise. RPMSA develops and implements strategic
approaches to how to manage construction programs that impact CVS (Partnering with
CVS/pharmacy, 2016). The Construction Project Management team’s job is to focus on
the implementation and execution in the stores being built. The Administrative Facilities
Management team is responsible for the space planning, operations, repairs and
maintenance, and mail services for CVS, the team completes over 150,000 repair actions
and supports the moves of over 6500 employees. The Retail Facilities Management
team’s job is to support and preserve the value of all properties, they do this by having
the best maintenance and cost-effective options available. Print Operations is responsible
for the Weekly, Monthly and Seasonal shelf labeling and the printing and distribution of
store related communications such as Planograms. The Capital & Energy Administration
department is responsible for all budgeting, forecasting and reporting requirements for
CVS INTERNAL ENVIRONMENT ANALYSIS 25
both Retail Construction and Store & Corporate Properties (Partnering with
CVS/pharmacy, 2016).
Figure II
Weighed Competitive Strength Assessment
(Rating Scale: 1=very weak; 10=very strong)
Key Success Factors ImportanceWeight
CVS Walgreens Wal-Mart Rite Aid Kroger
SR S SR S SR S SR S SR S
Store location and Convenience
0.25 10 2.5 9 2.25 7 1.75 8 2 6 1.5
Product Selection and variety
0.25 9 2.25 10 2.5 8 2 6 1.5 7 1.75
Customer Services 0.15 6 0.9 7 1.05 5 0.75 8 1.2 9 1.35
Technology 0.15 8 1.2 9 1.35 7 1.05 6 0.9 5 0.75
Brand 0.1 8 0.8 7 0.7 9 0.9 6 0.6 5 0.5
Talented Workforces 0.1 9 0.9 7 0.7 5 0.5 8 0.8 6 0.6
Sum of Importance 1.00
Weighted OverallStrength rating
50 8.55 49 8.55 41 6.95 42 7 38 6.45
The retail drug stores industry is highly competitive, the competition mainly on
the basis of (1) store location and convenience (2) customer service and satisfaction (3)
product selection and variety. (CVS, 2016) The three areas mentioned in CVS 10-k report
CVS INTERNAL ENVIRONMENT ANALYSIS 26
could also be considered as the company’s key successful factors. Except for this,
Distribution channel, the establishment of brand and technology also play key roles for
the company’s successes in the future.
Store location and convenience
Store location and convenience is always one of the most important features for the
retail drugstore industry. One of the ways to keep and attract the customers is to provide
them convenience. Customer will go to the store that is more convenient to them.
According to the 10k report of CVS, store location and convenience is the critical area
the company competes with its competitors, therefore 0.25 is given to store location and
convenience as the importance weight.
The following figure shows the number of stores for 5 pharmacy chains in 2015.
CVS ranks first with 9600 stores. Walgreens and Rite Aid second and third, and Kroger
has the least stores among these five companies. (SK&A, 2016) There is news about
Walgreens Boots Alliance’s intention to purchase Rite Aid, and if the acquisitions
succeed, there will be a big change for the ranking. However, CVS for now still the first.
According to CVS 10-k report, CVS’s retail stores are located in 49 states, which further
prove its high level of geographic coverage. (CVS, 2016) The company also plans to
enhance the level of location and convenience in three areas: entering new markets,
adding stores within existing markets and relocating stores to more convenient sites.
(CVS, 2016) In a conclusion, CVS has the high level of geographic coverage and
convenience and therefore should earn 10 points, and 9 points will give to Walgreens.
CVS INTERNAL ENVIRONMENT ANALYSIS 27
Rite Aid, Wal-Mart and Kroger will receive 8 points, 7 points and 6 points respectively.
Table 3. Top 5 Pharmacy chains ranked by number of stores in 2016
Rank Pharmacy Chain
City State Stores Numbers of States Covered
1 CVS Corporation
Woonsocket RI 9600 49
2 Walgreens Deerfield IL 8232 50
3 Rite Aid Corporation
Camp Hill PA 4608 31
4 Wal-Mart Stores Inc.
Bentonville AR 3646 50
5 Kroger Company
Cincinnati OH 1156 31
Source from SK&A Report, Retrieved from:
http://www.skainfo.com/reports/most-powerful-pharmcies
Product Selection and variety
Besides the store location and convenience, product selection and variety also
plays the key role to attract customers as well. The customer might go to the closest drug
stores, but what if that store doesn’t have much product choice offered to the customer or
doesn’t have specific brand the customer the customer want? The store will lose the
customer at least once. Since the product and services provided by pharmacies are pretty
similar, more product selection and variety will be critical for the company to attract
CVS INTERNAL ENVIRONMENT ANALYSIS 28
customers and generate revenues. After evaluated the importance of product selection and
variety, this article gave 0.25 to this key successful factor. The numbers of brands each
company carry could be one of important data show the level of product variety.
Based on the source of each company’s official website, every company carries at
least this 10 featured categories: baby and child, beauty, diet and nutrition, health and
medicine, home health care, household and grocery, personal care, sexual health, skin
care, vitamins. Except for this 10 featured categories, Wal-Mart and Kroger also provide
many choices on apparel, jewelry, sports and fitness, furniture, kitchen. Compared to
traditional pharmacy chains, Walmart and Kroger has the advantages of household and
grocery. However, traditional pharmacy chains are more specialized in the area of beauty,
personal care, home health care, nutrition and medicine. CVS has more than 3000 brands
under the beauty categories and more than 300 brands for diet and nutrition. (CVS, 2016)
According to the investigation of Walgreens official website, it has almost same featured
categories as CVS on each website. However, Walgreens carries more brands under 6
featured categories including beauty, diet and nutrition, home health care, household and
grocery, personal care, skin care compared to CVS. (Walgreens, 2016) (CVS, 2016)
Therefore, 10 points was given to Walgreens, and 9 points given to CVS. Rite Aid
doesn’t has much strength on the product selection and variety, the numbers of brand
choices is limited and incomparable to its two strong competitors-CVS and Walgreens.
(RiteAid, 2016) Unlike Wal-Mart and Kroger which provide various product choice for
household and grocery, rite aid’s business is limit in medicine and some beauty products,
so 6 points will be given to Rite Aid. (Wal-Mart, 2016) (Kroger, 2016) Wal-Mart and
CVS INTERNAL ENVIRONMENT ANALYSIS 29
Kroger will earn 8 points and 7 points respectively since more featured categories and
brands are provided by Wal-Mart.
Customer Services
As analyzed in external report, the whole drugstores industry sell the similar
product and provide undifferentiated services. The companies in this industry compete
with others mainly for providing higher level of convenience, lower price and border
product selection, but it also can stand out for its high quality customer services. Good
quality of customer services can also help the company build the brand, earn the good
reputation, obtain the new customers and maintain loyal customers. Except for dispense
prescriptions, CVS also provides services including face-to-face patient counseling,
closing gaps in care and recommending more cost effective drug therapies, all of these
can be considered as a way to build service differentiation. (CVS, 2016) Customer
service is so critical to the company’s success that 0.15 was given as the weight of
importance.
The following figure shows the Customer Satisfaction Index for Retail Pharmacy
Chains in 2014 and 2015, which can be a good data to evaluate the level of customer
service for each company. The figure indicates that Kroger rank the top of customer
satisfaction index, followed by target. CVS seems like not doing very well to satisfy its
customer. The figure also shows a declining trend of customer satisfaction index from
2014 to 2015 for the whole industry and almost every company. Fast expansion could be
one of the most important reasons for this decline. (ACSI, 2015) From above analysis, 9
CVS INTERNAL ENVIRONMENT ANALYSIS 30
points will be given to Kroger who rank highest for customer satisfaction index, followed
by Rite Aid (8), and Walgreens (7). CVS and Wal-Mart will receive 6 and 5 points
respectively due to their low score for the customer satisfaction index.
Table 4. The American Customer Satisfaction Index for Retail Pharmacy Chains
Company 2014 2015 % Change
Drug Stores 77 73 -5.2%
Kroger 81 81 0%
Target 78 80 3%
Kmart (Sears) NM 76 NA
Walgreens 77 74 -4%
CVS 75 71 -5%
Rite Aid 78 69 -12%
Wal-Mart 68 68 0%
NM: Not Measured
NA: Not Available
Source from ACSI Report, Retrieved from:
http://www.theacsi.org/industries/retail/drug
Technology
The retailing drug stores industry has benefited a lot from the technological
advances. Many pharmacies and drug stores use EDI software to keep track of
CVS INTERNAL ENVIRONMENT ANALYSIS 31
prescription inventories by selecting and ordering items with a bar code scanning device;
advances in computerized retail point-of-sales (POS) systems allow pharmacies and drug
stores to improve their inventory turnover. As the fast development of Health Information
Technology (HIT), companies in this industry are able to enhance efficiency and to
provide better services and convenience to the customers and generate more revenues.
The development of software and application makes electronic prescribing possible to the
customers. (IBISWorld, 2015)According to the data showed in Interbrand report,
customers who engage with Walgreens online and mobile applications spend six times
more than those who only visit stores. (Interbrand, 2014) Technology has laid the
foundation for the company’s business. The competition not only takes place in the area
of locations, product and service, but also spreads to the field of technology. Therefore,
0.15 was given to technology as the importance weight.
Major investments are made in HIT infrastructure. CVS and Walgreens are both
the pioneers in this area. What’s more, both of them lead the way on effectively utilizing
mobile applications, which make it easier for customers to fill prescriptions, shop by
smartphones and manage their rewards programs CVS is also doing well in online
personal personalization data gathered from loyalty cards. In order to keep up, Wal-Mart
has also invested in mobile, smaller stores and e-commerce. (Interbrand, 2014) Rite aid
and Kroger both have their mobile app and online pharmacy. However, these two
companies don't offer much choices of product as their competitors. According to the
rating and users numbers in apple stores, Walgreens has the highest rating and most users
followed by CVS and Wal-Mart pharmacy. (Apple, 2016) Even Though Rite aid has the
CVS INTERNAL ENVIRONMENT ANALYSIS 32
least users and lowest rating for their apps, Kroger’s application is less developed than
Rite Aid’s for online pharmacy business. (Kroger, 2016) In a conclusion, Walgreens
earns highest score in the term of technology which is 9 points, followed by CVS (8),
Wal-Mart (7), Rite Aid (6) and Kroger(5).
Establishment of Brand
The retailer mainly sell product from other manufacturers, the brand recognition
might not be so important as other industries. However, more and more retailing
drugstores chains are choosing to develop their private brand product line which account
for significant portion of their total revenue. Corporate brand products play an important
role in many retailing company’s merchandising strategies. For example, kroger carries
over 14,000 private label items; Kroger’s “banner brand” (Kroger®, Ralphs®, Fred
Meyer®, King Soopers®, etc.) is designed to satisfy its customers with quality products.
(Kroger, 2016) The other company including CVS, Walgreens, Rite Aid and Wal-Mart
also carries a large numbers of private labels to satisfy its customer's needs with better
price offered. Good brand image could help these retailers to differentiate its products sell
their private brands and generate more revenues.
What's more, great brand establishment also means customer loyalty. If there are
several drugstores near the customer, he will first choose the one that is most reliable and
has best image to him. Brand image and establishment here might not as important as
other successful factors, but it also play a big role for these retailers. Therefore, 0.1 was
given to this factor as the importance weight.
CVS INTERNAL ENVIRONMENT ANALYSIS 33
According to report of Best Retail Brands in the U.S 2014, Wal-Mart ranks the
first, followed by Target. CVS and Walgreens rank at 5 and 6 separately. Kroger, Rite
Aid are not on this list. (Interbrand, 2014) However, due to significant numbers stores
opened nationwide, there is a reason to believe that brand value of these two companies is
also relatively high for the whole retail drugstore industry. 9 points given to Wal-Mart
due to its high brand value all around the world. CVS earn 8 points due to its higher
brand value rank and more intensive geographic coverage after buying Target Pharmacy.
7 points will be given to Walgreens due to its high rank in brand value. Rite Aid and
Kroger earn 6 and 5 points respectively because Rite Aid has more stores which could
partly result in higher brand recognition when compared to Kroger. (SK&A, 2016) In
other words, Kroger is not so famous as Rite Aid as pharmacies.
Talented workforces
“Successful operators must staff employees with the accreditation to give
medication advice to consumers.”(IBIS world, 2016) A knowledgeable front-end staff is
also essential to provide efficient transactions and consumer product advice. CVS believe
their pharmacy business benefits from the investment in both people and technology
(CVS, 2016) More talented workforces the company has, more likely the company has
high level of customer services satisfaction. Talented workforces can also help the
company enhance the efficiency of operation and save the cost. The following figure
show the numbers of pharmacist each company has. Talented workforces was given 0.1
for importance weight.
CVS INTERNAL ENVIRONMENT ANALYSIS 34
There is a lot of requirement and training expenditure for one pharmacist, therefore,
pharmacists can be considered as most important human resources. Higher ratio of
pharmacists per store means higher investment for pharmacists each store. At this term,
Kroger ranks first followed by Wal-Mart and Walgreens. CVS and Rite Aid rank the
lowest.
Table 5. Average pharmacists
Pharmacy
Chain
Stores Pharmacists Pharmacists
/store
CVS Corporation
8965 18650 2.08
Walgreens 7736 17769 2.29
Rite Aid Corporation
4520 9217 2.03
Wal-Mart Stores Inc.
4340 10384 2.39
Kroger Company
1887 4800 2.54
Source from SK&A Report, Retrieved from:
http://www.skainfo.com/reports/most-powerful-pharmcies
Another aspect of talented workforces need to be considered is the gains on human
resources investment. As the following figure shows, CVS has the highest return ratio on its
human resources investment with 33,742 USD net income per employee and 988,974 USD
net income per employee. Rite aid also has relatively high return on employees with net
CVS INTERNAL ENVIRONMENT ANALYSIS 35
income 38141 USD per employee, followed by Walgreens with 18,302 USD per employee.
There is not much financial information available for Wal-Mart since it is a private owned
company. However, Kroger has the similar business type with Wal-Mart, these two
companies might both have low ratio on human resources investment.
Table 6. Gains on Human Resources Investment
Pharmacy Chain Net Income/Employees Revenue/Employees
CVS Corporation 33,742 988,974
Walgreens 18,302 460,910
Rite Aid Corporation 38,141 577,852
Wal-Mart Stores Inc. N/A N/A
Kroger Company 4,754 254,826
Source from Reuters company financial ratios, retrieve from:
http://www.reuters.com/finance/stocks
After measuring both human resource investment and return on human resources
investment, this article gave CVS 9 points due to its high return ratio on human resources.
Rite aid was given 8 points due to its high return ratio. Walgreens was given 7 because of
its relatively low return on HR investment but high investment on pharmacists per stores. 6
CVS INTERNAL ENVIRONMENT ANALYSIS 36
points was given to Kroger and 5 points for Wal-Mart since both company have very low
return on human resources investment.
Conclusion
CVS is doing well in key success factors such as store location and convenience,
product selection and variety, technology and brand. However, it also has weak link which
is the customer service. CVS earn the highest score in weighted overall strength rating with
8.55 points, same as its strongest competitors Walgreens. Walmart and Kroger is weakest in
terms of this rating with the score 6.95 and 6.45 respectively. However if Walgreens
successfully buy rite aid, CVS would suffer more pressures by then. The threats comes from
supermarket such as Walmart and Kroger cannot be ignored due to their lower price offer,
convenient location and broad selection for “front store” products. Even Though CVS has
many comparative advantages over most of its competitors, but the competition in this
market is still intense. How to overcome its weak link and maintain its comparative
advantages is critical and directly affect the CVS’s future strategies.
Figure III
CVS INTERNAL ENVIRONMENT ANALYSIS 37
SWOT Analysis
Conclusion
CVS is a very successful retail drugstore that prides itself on many of its strengths
including many locations in various geographic locations, innovation in technology,
strong brand, strong product selection and strong distribution channel. These strengths
have helped to build CVS into the highly successful and growing company it is.
However, since the threat of other competing companies such as Walgreens, Rite Aid,
Kroger and Wal-Mart -Mis a growing concern CVS needs to focus attention on some of
CVS INTERNAL ENVIRONMENT ANALYSIS 38
its weaker points. CVS needs to work on its customer service levels in its stores to stay
competitive. Companies such as Wal-Mart offer the same or similar products for better
prices and they offer many other convenient products that CVS does not offer, so CVS
needs to increase its customer service skills and the services they offer to customers in
order to compete in the market. CVS is a strong and well known company that will
continue to grow in its strengths and continue to be a force in the retail drugstore
industry, if the company can take its customer service to a higher level they have the
potential to be exceptionally strong and even more profitable.
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