Background
SWOT analysis is a valuable strategic tool that could be used in planning when doing situational analysis in an organization. The strengths and weaknesses (S/W) aspect depicts the internal strategic factors that could be used to ensure a strong industry position. On the other hand, the opportunities and threats (O/T) are external factors that affect a business in terms of its growth, competition, regulation, and other related elements. CVS is among the leading industry players in the health sector and it maintains its position among competitors by analyzing the different factors that affect its performance. This paper is a SWOT analysis of CVS Company to understand the various factors, both internal and external, that affect its operations and how they could be used to promote its growth through strategic planning.
Internal Factors
Strengths
As a leading player in the health care industry, CVS has many strengths that it could leverage to thrive in the ever-competitive marketplace. In addition to protecting its current market share, these strengths help the company to penetrate new markets in its quest to expand its customer base. The following is a list of strengths associated with the company:
- Strong brand presence.
- Consistency is brought by the automation of activities.
- Impressive returns on capital expenditure.
- Strong dealer community.
- Successful mergers and acquisitions.
- Enough free cash flow.
- A strong base of reliable suppliers.
- Dedicated customer relationship management attributes.
- product innovation.
The CVS’s strong brand presence in the market is a major strength against its competitors. According to Newton (2019), the company’s brand makes it easily recognizable, which gives it a positive corporate image. Additionally, the adoption of new technology has allowed the company to create synergy in its operations, and thus customers are served better and efficiently. CVS is in a position to scale up or down operations based on demand, which allows it to have good returns on capital expenditure by starting new projects and new revenue streams with good returns on investment (Newton, 2019). The strong dealer community has created distribution networks whereby distributors are not only involved in promoting the company’s products but also training various sales teams for the maximum extraction of value from products. The successful mergers and acquisitions have seen the company partner with strategic players in the industry to streamline its operations and establish a robust supply chain. The company also has high market penetration rates in the US, thus gaining a competitive advantage over its rivals and new entrants by leveraging economies of scale. Therefore, by focusing on the strengths listed in this analysis, CVS could grow into a formidable player in the health sector in the US and beyond.
Weaknesses
Despite the many strengths associated with CVS, the company has several weaknesses that could be improved in the process of establishing competitiveness and strategic positioning. The following are the CVS’s weaknesses: –
- A rigid organizational culture.
- High turnover rates.
- Poor product demand forecasting.
- Poor strategic planning.
- Low levels in investing in technology.
- Higher days sales inventory (DSI).
- Ineffective financial planning.
CVS’s weaknesses lie in its rigid corporate culture that has affected its success rate in launching into new markets. Additionally, as Harris (2019) observes, the company’s business model could be easily imitated by existing competitors and new entrants. For instance, CVS is primarily a healthcare business with a retail pharmacy wing, and this model could be easily replicated (Harris, 2019). Another weakness is the high reliance on the US market, which means that should any dynamics change, its profitability would be affected adversely. The company has a higher attrition rate of employees as compared to its peers in the industry and thus it has to spend a lot of time and resources in hiring and training new workers. Currently, as the company seeks to expand in line with its vision and mission, it has not invested enough in technology to match its short-term and long-term objectives, which is a major weakness. Additionally, the poor product demand forecasting, which has bedeviled the company for long means that it experiences higher DSI as compared to its close competitors. Finally, CVS has ineffective financial planning as reflected in the current asset and liquid ratios, which means that it could perform better with the right financial planning. Therefore, the company should come up with strategies to improve on these weaknesses and reap the associated benefits.
External Factors
Opportunities
- Innovative technologies and e-commerce.
- New tax regimes in the healthcare sector.
- Decreasing transportation costs.
- Changing consumer trends.
- New markets.
- e-clinics.
- Enough free cash flow.
- The green and sustainability drive.
- Mergers and acquisitions.
Innovative technologies, such as e-commerce are a major opportunity for CVS in its quest to expand operations and record new growth levels. The establishment of e-clinics and e-commerce websites to support its pharmacy retail wing could be furthered to address customer needs and improve their satisfaction. e-commerce could help the company in differentiating its pricing strategy and penetrate new markets, maintain a loyal customer base, and introduce value-oriented propositions. For example, CVS Health Hub is an innovation that could steer the company into a new era of being competitive in the market. During this Covid-19 pandemic era, the decision to e-clinic visits to patients is timely (Cohen, 2020) and it is an opportunity that the company could exploit further. Additionally, mergers and acquisitions present a good opportunity for the company to expand. While this factor appears as a strength given that the company already has merged and acquired various entities, it is also an opportunity to pursue such strategies in the future. For instance, in 2019 CVS partnered with Roger Williams University to develop a program to support its suppliers (Fitzpatrick, 2019). New tax regimes in the healthcare sector could open opportunities for CVS, as an established player in the industry, to increase profitability. Additionally, transportation costs are decreasing with time and this trend is expected to continue, which means the company will enjoy lower shipping rates. This opportunity could be used to increase profitability or it could be passed to consumers who would enjoy low prices and this aspect could allow the company to gain more market share. Changing consumer trends could open new revenue streams for the company as it diversifies into new product lines and markets. New markets are opening following government agreements on free trade and lowered tariffs. Additionally, enough free cash flow is an opportunity for the company to invest in new product lines through its diversification programs, while the green and sustainability drive by CVS makes both federal and state governments potential clients for the company. These approaches should be pursued further as opportunities for the company.
Threats
- Increased competition in the market.
- Rising costs of raw materials.
- Lack of regular supply of innovative technologies.
- Counterfeiting, imitation, and low-quality products.
- Ever-changing consumer buying behaviors and preferences.
- Prone to regulatory frameworks in the healthcare industry.
- Lawsuits.
The healthcare sector is highly competitive and this aspect threatens the growth of CVS as a brand. Direct competition from retailers, such as Walgreens, Walmart, and Rite Aid among others, is a real threat to CVS as a business establishment. For instance, the entry of Amazon into the health sector with the promise to deliver drugs at consumers’ doorsteps could potentially affect CVS’s revenues (Cheng, 2020). Additionally, the weakness of a simple business model that could be copied by competitors coupled with counterfeiting, imitation, and low-quality products are serious threats to CVS. In addition, the cost of raw materials keeps on rising with inflation, which could negatively affect the company’s profitability (Das, 2020). The lack of regular innovative technologies in tandem with the ever-changing industry dynamics is a major threat to the company especially in the wake of the aforementioned competition. Additionally, imitations and counterfeiting have led to the flooding of the market with low-quality products and with the increasing cost of living, consumers could prefer what is affordable albeit poor quality. Similarly, the healthcare sector is heavily regulated and a policy change could affect the company negatively. Finally, lawsuits from different quarters based on product standards and compliance with regulatory measures are also threats to CVS.
Competitive Advantage
CVS could derive the best competitive advantage by focusing on strengthening its brand. According to DeVries (2019), strong brands contribute directly to competitiveness because consumers like to associate with strong brands. Therefore, CVS could leverage technology to achieve this goal and at the same time expand its customer base. Additionally, strategic mergers and acquisitions would go a long way in strengthening its brand by meeting customer needs with improved satisfaction.
References
Cheng, A. (2020). Why the new Amazon Pharmacy could pose a real threat to drugstores. Forbes. Web.
Cohen, J. (2020). CVS MinuteClinic now offering e-Clinic visits to patients. BronxTimes. Web.
Das, S. (2020). More drugs may see price revisions as raw material costs, expenses rise. Business Standard. Web.
DeVries, H. (2019). How branding provides a competitive advantage. Forbes. Web.
Fitzpatrick, E. (2019). CVS Health and RWU partner on professional development program to support diverse suppliers. Roger William University. Web.
Harris, P. (2019). CVS’s organizational culture characteristics & strategic implications. Web.
Newton, V. (2019). CVS value chain analysis & VRIO/VRIN analysis (Resource-based view). Web.