Cardinal Health, its mission and its current situation. An environmental analysis is presented to analyze the current environment in which the company operates. A SWOT analysis summarizes the company's internal strengths, weaknesses, potential opportunities, and potential threats. The issue in the case study is overviewed, and supporting facts and significant factors are presented that support the problem. Three potential alternative solutions are given, with an evaluation of each solution's strengths and weaknesses. Lastly, a potential solution will be presented, as well as how Cardinal Health can monitor the solution for its effectiveness.
Cardinal Health is a primarily American health care services organization. Headquartered in Dublin, Ohio. The company provides services and products to hospitals, pharmacies, physician offices, and ambulatory surgery center. Cardinal distributes a wide range of products including over-the-counter products, pharmaceutical, radiopharmaceutical, surgical, medical, and laboratory products. With approximately 31,200 employees, the company reported revenues of $98,502.8 million for their fiscal year ending June 2010 ("Company profile," 2010). This paper explores the background of the company, its mission and its current situation. An environmental analysis is presented to analyze the current environment in which the company operates. A SWOT analysis summarizes the company's internal strengths, weaknesses, potential opportunities, and potential threats. The issue in the case study is overviewed, and supporting facts and significant factors are presented that support the problem. Three potential alternative solutions are given, with an evaluation of each solution's strengths and weaknesses. Lastly, a potential solution will be presented, as well as how Cardinal Health can monitor the solution for its effectiveness.
Company & Case Study Background:
In 1971, company founder, Robert Walter, borrowed $1.3 million to purchase Cardinal Foods, a wholesale food distributor in Ohio. The company grew into a strong, regional food wholesaler. However, the food industry was changing and there were barriers to national expansion for Cardinal. The fragmented pharmaceutical distribution industry, with a high growth rate, showed Walters a new path of opportunity for his company. In 1979, Cardinal began evolving into Cardinal Distribution, with a migration to pharmaceutical distribution. In 1983, the company was renamed Cardinal Health, Inc. As the company went public and focused all of its attention on the healthcare industry. In five years, the company had completely exited the food business (Pearce & Robinson, 2004, p. 18-5).
By 2006, Cardinal, McKesson and Amerisource controlled 90% of the industry. Unlike their other competitors, Cardinal realized a large portion of their operating income from non-distribution activities. As Pearce and Robinson (2004) note, "Their diversified operating income strands included distributing pharmaceutical dispensing through their Pyxis subsidiary, and providing pharmacy services through outlets like Medicine Shoppe" (p. 18-7). The company competed in four segments: medical-surgical products and services, pharmaceutical distribution and provider sales, automation and information services, and pharmaceutical technologies and services. It was effective in cross-selling, as well as bundling services and products and made the company an indispensable partner to healthcare providers and pharmaceutical companies. In 2006, the company considered reorganizing into two operating units: Health Care Supply Chain and Clinical and Medical Products (p. 18-8).
Cardinal Health had built their value to customers through four operational drivers. These included: "A relentless pursuit of growth, a total focus on customer needs, a continual push toward operational excellence in everything they do, and, finally, recognition that leadership development is critical to Cardinal's future success" (cited Pearce & Robinson, 2004, p. 18-9). The company also selectively used co-branding to enhance their image and value. Training their employees helped align their employees activities with the company's mission. Through these strategies, Cardinal was able to leverage their unique market knowledge to meet the needs of customers and suppliers.
Cardinal helped hospitals and pharmacies meet the challenges of growing cost pressures, with a need to maintain quality care. These organizations were also challenged by the need to manage increasingly complex patient and financial information. Cardinal's automated ordering and dispensing technology helped reduce loss and theft for hospitals and pharmacies. In addition, Cardinal offered a franchise option to pharmacists that included marketing resources, information systems, and purchasing power. Pharmaceutical manufacturers benefited from Cardinal's ability to design and product customized packaging for their products. In addition to these values, the company has facilitated growth through acquisition, absorbing more than 50 companies since 1980 (Pearce & Robinson, 2004, p. 18-12). Acquiring well-run companies in adjacent markets expanded the company's economic horizons.
Today, the business world was plagued by companies that had grown too fast, had high levels of debt and had unfocused strategies. In contrast, Cardinal Health had grown slowly, had a low 16% of capital debt level, and had a structured acquisition strategy from which the company had never strayed. In a growing and changing healthcare industry, Cardinal's service became evermore important. Healthcare distributors are vitally important to the industry as they "assure that products needed to diagnose, prevent, and treat health care ills are distributed to the many locations where they are used" (Pearce & Robinson, 2004, p. 18-2). In fact, it is estimated that distributors like Cardinal saved the industry more than $146 billion annually through the maximization of economies of scale (p. 18-3).
One of the largest political factors affecting Cardinal Health is the passaged of the Clinton administration's Health Security Act. Passed in 1993, the Health Security Act and its price regulation, had negative effects on stock prices for pharmaceutical companies and their investment in research and development (Golec, Heggle & Vernon, 2010, p. 239). Price regulation has affected other parts of the world as well. The pharmaceutical market in Taiwan has also been negatively affected by political price regulation (Fei-Yuan & Weng-Foung, 2010, p. 218).
Cardinal operates within a dynamic industry.
In 2006, health care expenditures totaled $2.5 trillion, which was 16.3% of the U.S.
Gross domestic product, and (was) growing at a rate faster than the GDP. The U.S.
population age 65 and over was expected to double in the next 25 years. By 2030, almost one out of five Americans (some 72 million people) would be 65 years or older (…) This
consumer segment spent $610 billion on health care, utilized 74% of all pharmaceuticals, represented 65% of hospital bed days, (and) accounted for 42
percent of physician visits in 2002" (Pearce & Robinson, 2004, p. 18-1).
The healthcare industry, according to Pearce and Robinson (2004) was under increasing pressure to cut costs and increase service and functionality. Labor shortages in the pharmacy and nursing fields added to the challenges. Stringent regulations and significant regulatory oversight limited the industry's freedom to conduct business effectively. In response, many companies undertook new strategies, including partnering with organizations like Cardinal. These strategies were facilitated by state-of-the-art technology. In addition, pharmaceutical companies merged to become global organizations that could ship their products around the world at a substantial cost savings. New geographic areas became centers for production, beyond the U.S. And Europe. (p. 18-2).
In the late 1990s, the Internet began to threaten Cardinal's position in the distribution step of the supply chain. In response, in 2000, Cardinal implemented a $20 million cardinal.com project. AsPearce and Robinson (2004) noted, this web-based project was "designed to service the company's entire customer base of health care facilities and physician's offices, cardinal.com was a procurement portal that offered more than 500,000 items for purchase" (p. 18-3). Cardinal was at the forefront of using computerized control of products. The company also used the global abilities of the Internet to reach geographic regions where they had very low penetration, resulting in 20% of customers being new customers, by 2002, for cardinal.com (p. 18-3).
Robust portfolio of products and services
Strategic alliances with manufacturers
Economies of scale to retain market leadership
History of strategic acquisitions fuel growth
High dependence on American market, with increased concentration risk
Heavily reliant on a few large customers that exposes the company to vulnerability
Increasing aging population in the United States
Growing generics market offer potential new growth
International expansion for growth
Strong competition from Cardinal's two primary competitors.
Further healthcare reforms could negatively impact the industry, much like Clinton's has
Continued economic struggles in the United States
("SWOT analysis," 2010).
The primary issue facing Cardinal is a need to continue their past growth, for the long-term future. As the company has begun expansion into foreign markets, would their business model work in other countries? How can the company ensure their future is even brighter than their past?
The company has seen significant growth since its beginning as a regional food wholesaler. Much of this growth has been due to acquisitions that company has made over the years. With more than 50 acquisitions in its history, the company has been able to parlay each new company into a competitive advantage for the company. As an example, the 2002 acquisition of Syncor propelled the company forward to become the largest pharmaceutical wholesaler in America. Specifically, this gave them leadership position in the nuclear pharmacy…