Pharmaceutical Industry and Sec

McKesson Corporation (Mckesson) is an American pharmaceutical distributor with operations mainly in the U.S. The firm has been in operation since 1833, and boasts extensive market share, robust financial strength, and strong market power. The firm has built strong relationships with its key stakeholders, which adds to its strengths. Nonetheless, limited diversification and market focus as well as the threats of competition, unfavourable regulatory changes, and counterfeits present significant concerns for the company.

To enhance its competitive advantage in the rigorously competitive pharmaceutical landscape, it is imperative for the firm to take advantage of consolidation, strategic partnerships, increased healthcare expenditure, and emerging markets. Introduction McKesson Corporation (Mckesson) is an American health care company involved in the distribution of pharmaceutical productions as well as provision of health information technologies and care management tools majorly in the U.S.

With a history that stretches back to close to two centuries, the organisation has grown to be the fifth largest company and the largest pharmaceutical distributor in the U.S. in terms of revenue, making it a Fortune 500 company. This paper provides a comprehensive analysis of Mckesson. Keen on examining the company's corporate strategy and its ability to increase competitive advantage, the analysis particularly focuses on internal and external stakeholders as well as the internal and external environment (SWOT analysis).

External Stakeholders Competitors Competitors comprise an important stakeholder group for any business organisation. They largely determine the degree of rivalry as well the extent to which new entrants can enter the industry (Prasad & Warrier, 2016). As a pharmaceutical distributor, Mckesson faces stiff competition from Amerisourcebergen Corporation and Cardinal Health. These are the two major competitors for the company, representing approximately 30% and 22% of the total market share in the U.S., respectively (MDM, 2016). Besides these two, there are other significant competitors, including Morris & Dickson, H.D.

Smith, Smith Drug, Curascript Specialty Distribution, Anda Distribution, North Carolina Mutual Wholesale, and Rochester Drug Cooperative. Mckesson faces further competition from thousands of small and mid-sized regional and specialty wholesalers spread across the U.S. In spite of an intense threat of rivalry, Mckesson is the largest pharmaceutical distributor in the U.S., representing about one third of the total market share (MDM, 2016). This is a significant source of competitive advantage for the company. Industry The pharmaceutical distribution industry comprises two categories of players: full-line wholesalers and speciality distributors (MDM, 2016).

The former distribute manufacturers' products to diverse outlets including outpatient outlets and institutional healthcare facilities, while the latter distribute speciality pharmaceutical products to physician owned and/or operated hospitals and clinics. The industry is highly concentrated with only three companies accounting for approximately 85% of the total industry revenue as of 2015 (MDM, 2016). These include Mckesson alongside Amerisourcebergen Corporation and Cardinal Health. High concentration in an industry provides an important advantage for incumbents, particularly those with dominant positions.

It is quite difficult for new entrants to successfully enter the industry and grab a considerable share of the market (Prasad & Warrier, 2016). More importantly, concentration enhances buyer power, which can be crucial for dictating prices as well as trade terms and conditions (Hess & Rothaermel, 2011). Incumbents in a concentrated industry retain or increase their dominance by acquiring competitors. There have particularly been significant mergers and acquisitions in the pharmaceutical distribution industry in the last one decade. On its part, Mckesson has recently acquired PSS World Medical and U.S.

Oncology, further consolidating its position in the industry (MDM, 2016). Vendors McKesson obtains pharmaceuticals from various manufacturers, none of which accounts for over 6% of the firm's purchases as of 2016 (Securities and Exchange Commission [SEC], 2016). This is a crucial supply chain strategy for the firm. Relying on multiple vendors cushions a firm against the risk of business discontinuity in the event one of the vendors is affected by adverse events.

The major vendors for Mckesson include the largest pharmaceutical manufacturers: Gilead Sciences, Astrazeneca, Glaxosmithkline, Sanofi S.A., Pfizer, Novartis, and Merck & Co. Whereas these manufacturers command substantial power due to their dominance, Mckesson also commands significant power as a buyer given that it is the largest pharmaceutical distributor. The importance of buyer power cannot be overemphasised (Prasad & Warrier, 2016). As a powerful buyer, Mckesson can easily dictate the prices at which it buys products from vendors. It can also influence manufacturing standards and other aspects.

For instance, the law now requires drug manufacturers to serialise products. As a buyer, Mckesson can readily decline to do business with vendors that defy the requirement. Even so, the firm strives to maintain healthy, mutually beneficial relationships with its vendors. Customers McKesson supplies pharmaceuticals to a wide array of customers, including pharmacies, institutional healthcare providers, physicians, retailers, and medical laboratories.

Whereas the firm has operations in other parts of the world, especially the UK, Australia, and New Zealand, majority of its customers are in North America, which actually accounts for more than 80% of its total revenues (SEC, 2016). The firm's largest customer is CVS, which accounted for approximately 20.3% of the firm's total revenue in 2016 (SEC, 2016). As stakeholders, customers expect quality and safe products, delivery reliability, and legal compliance, among other expectations. These expectations are particularly important in the pharmaceutical industry.

Healthcare providers, pharmacies, and buyers of pharmaceuticals would not want to stock or provide drugs that may endanger the health of patients. Mckesson fulfils the expectations of its customers by working with reputable drug vendors. Government Entities Government entities also comprise important external stakeholders. Mckesson is subject to laws and regulations by local, state, and federal authorities (SEC, 2016). These laws and regulations may relate to aspects such as consumer safety, competition, environmental pollution, employee welfare, and financial reporting.

Regulatory requirements for the pharmaceutical industry are even more stringent given the critical nature of the products the industry provides. Government entities expect the firm to comply with all the relevant laws and regulations, failure to which the firm may incur severe consequences such as fines, expensive lawsuits, and even loss of operating licenses. Communities Communities generally denote the greater public or society in which an organisation operates.

Organisations in diverse sectors and industries have increasingly recognised the benefits of contributing to the wellbeing and prosperity of the communities they operate in (Benn, Abratt & O'Leary, 2016). Mckesson fulfils the expectations of communities via a number of ways. These include donating to social causes, supporting non-medical cancer management services for low-income populations, commitment to reducing environmental footprint, volunteerism, as well as supporting causes that promote employee wellbeing (Mckesson, 2015). These initiatives clearly demonstrate the firm's concern for its communities, a vital source of goodwill.

Internal Stakeholders Shareholders The primary interest of shareholders in an organisation is wealth maximisation (Benn, Abratt & O'Leary, 2016). Shareholders invest in an organisation in return for dividends and increased stock value. Mckesson is a publicly listed company, meaning that shareholders comprise a vital stakeholder group. Through annual reports and SEC filings, the firm must regularly inform shareholders about its financial position, often quarterly and annually. Mckesson's impressive financial performance indicates that the firm has commendably fulfilled the expectations of its shareholders.

The firm has been profitable in the last five years, with earnings per share growing consistently from $5.56 in 2012 to $9.84 in 2016 (SEC, 2016). Nonetheless, the firm's performance in the stock market has been quite poor since 2015, with its share price declining from $226.20 in 2015 to $157.25 in 2016 (SEC, 2016). This could be worrying for shareholders. Board of Directors Directors serve as the custodians of shareholder funds. In other words, they make decisions on behalf of shareholders.

Their job is to ensure the organisation is properly governed and make decisions that most significantly maximise shareholder wealth (Benn, Abratt & O'Leary, 2016). They achieve this by defining the organisation's strategic focus, hiring and supervising the management team, and ensuring compliance with all relevant laws and regulations. Headed by John Hammergren, Mckesson boasts a competent team of directors with extensive corporate experience (SEC, 2016). The organisation's impressive performance over the years can indeed be attributed to the competency of its top leadership.

The board has managed to fulfil the expectations of shareholders, a significant plus for the organisation. Management The board relies on the management to enforce the decisions it makes. The management is actually one of the most important groups of internal stakeholders (Benn, Abratt & O'Leary, 2016). Without an able team of executives, an organisation may not effectively achieve its strategic goals and objectives. However, for executives to perform, they must be properly compensated and incentivised. The board must put in place a competitive executive compensation structure.

John Hammergren serves as both the chairman of the board and the CEO of Mckesson. He is assisted by a team of highly qualified executives, including James A. Beer, Patrick J. Blake, Jorge L. Figuerero, Paul C. Julian, and Bansi Nagji, among others (SEC, 2016). Hammergren joined Mckesson in 1996 when he was hired as a divisional head. Five years later, he became the CEO of the company. During his tenure, Mckesson has made tremendous achievements, not only financially but also innovation-wise.

Hammergren is one of the highest paid CEOs in the U.S., a clear indication of his strong leadership prowess (Kopecki, 2014, July 21). Employees The final group of internal stakeholders relates to employees. Employees are directly involved in the implementation of an organisation's strategy, meaning they are arguably the most important asset an organisation has (Amabile & Kramer, 2011). Indeed, without individuals with the right skills, knowledge, attitudes, and abilities, an organisation may not effectively achieve its overall goals and objectives.

Nonetheless, the extent to which employees support an organisation in achievement of its goals and objectives is in large part dependent on the structures and processes an organisation puts in place to manage its employees (Amabile & Kramer, 2011). Employees expect employers to fulfil a diverse set of needs. They may include reasonable compensation, sensible workload and work schedule, good working conditions, development opportunities, as well as empowerment, support, and authority. Employees also expect fairness and inclusion at the workplace. As of March 2016, Mckesson had approximately 68,000 full-time employees (SEC, 2016).

It is evident that employee wellbeing matters to the organisation. In addition to attractive rewards and benefits, Mckesson runs robust initiatives aimed at promoting the wellbeing of its employees and their families. These include health and lifestyle programs, employee assistance programs, retirement plans, and continuous learning (Mckesson, 2015). SWOT Analysis To survive in a highly competitive environment, a firm must have a bundle of valuable, rare, and inimitable resources and capabilities, both tangible and intangible (Chae, Olson & Sheu, 2014). These constitute the strengths of the firm.

Mckesson has been in operation for nearly two centuries. An extensive operational history gives the firm a significant competitive edge over its competitors. Through consolidation, the firm has over the years become one of the largest pharmaceutical distributors in the U.S. and Canada, accounting for about 33% of the total market share (MDM, 2016). The firm's dominance adds to its strengths. It commands immense power in the pharmaceutical supply chain as well as strong relationships with both drug manufacturers and customers. Mckesson's strengths further stems from its commitment to innovation.

The firm was one of the earliest adopters of barcode scanning, RFID tags, and pharmacy robotics. These technologies have immensely revolutionised the pharmaceutical industry, particularly in the wake of increased counterfeits. Other important strengths include significant research and development (R&D) spending, competent leadership and management, as well as commitment to employee wellbeing and corporate social responsibility. McKesson's impressive financial performance is also an important strength. In the last five years, the firm has recorded strong financial performance as summarised in the table below.

2016 2015 2014 2013 2012 Revenue ($ billions) Net income ($ billions) 2.3 1.5 1.3 1.3 1.4 Assets ($ billions) 56.6 53.9 51.8 34.8 33.1 Working capital ($ billions) 3.4 3.2 3.2 1.8 1.9 Earnings per share ($) 9.84 7.54 6.08 5.69 5.56 Market value per share ($) 87.77 Debt to capital ratio (%) 43.7 50.3 55.4 40.6 36.8 Return on shareholder equity (%) 26.0 17.0 16.2 18.3 19.7 Source: SEC (2016) As shown in the table above, the firm has recorded commendable growth in revenue, profitability, assets, and return on equity in the last five years. Revenue, for instance, grew from $122 billion in 2012 to $190 billion in 2016, making the firm one of the largest firms in the U.S. in terms of revenue.

Though there was a slight decline in profitability between 2012 and 2013, profitability on the whole has remained on an upward trend in the last few years. Return on equity has also grown significantly, jumping from 17% in 2015 to 26% in 2016. Further, the firm's remarkable performance in assets, working capital, and debt to equity ratio has improved its financial position. Whereas the firm has posted impressive financial performance in the last five years, the significant decline of its share price from $226.20 in 2015 to $157.25 in 2016 could be a cause of concern.

In spite of its strengths, Mckesson has a number of weaknesses that may not be ignored. First, compared to most Fortune 500 companies, the company has a rather limited product portfolio. Presently, approximately 98.5% of the firm's revenue comes from pharmaceutical distribution (SEC, 2016). Lack of diversification may place the firm at a significant disadvantage in the event of adverse events in the pharmaceutical industry. Moreover, the firm is extensively dependent on the U.S. and Canada. These two.