McKesson Corporation SWOT Analysis and Stakeholder Review

Introduction

McKesson Corporation is an American healthcare company involved in the distribution of pharmaceutical products as well as the provision of health information technologies and care management tools, primarily in the United States. With a history stretching back nearly two centuries, the organization has grown to become the fifth largest company overall and the largest pharmaceutical distributor in the U.S. by revenue, earning it a place on the Fortune 500 list. This paper provides a comprehensive analysis of McKesson, with particular focus on the company's corporate strategy and its ability to increase competitive advantage. The analysis examines both internal and external stakeholders as well as the internal and external environment through a SWOT analysis.

External Stakeholders

Competitors comprise an important stakeholder group for any business organization. They largely determine the degree of rivalry as well as 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 — the two major competitors, representing approximately 30% and 22% of the total U.S. market share, respectively (MDM, 2016). Beyond 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 also faces competition from thousands of small and mid-sized regional and specialty wholesalers across the U.S. Despite this intense rivalry, McKesson remains the largest pharmaceutical distributor in the country, representing about one-third of the total market share (MDM, 2016), which constitutes a significant source of competitive advantage.

The pharmaceutical distribution industry comprises two categories of players: full-line wholesalers and specialty distributors (MDM, 2016). Full-line wholesalers distribute manufacturers' products to diverse outlets including outpatient facilities and institutional healthcare providers, while specialty distributors supply specialty 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 total industry revenue as of 2015 (MDM, 2016) — McKesson, AmerisourceBergen Corporation, and Cardinal Health. High concentration provides an important advantage for incumbents, particularly those in dominant positions, as it is quite difficult for new entrants to gain a considerable share of the market (Prasad & Warrier, 2016). Concentration also enhances buyer power, which can be crucial for dictating prices as well as trade terms and conditions (Hess & Rothaermel, 2011). Incumbents in concentrated industries often retain or extend their dominance through acquisitions. There have been significant mergers and acquisitions in the pharmaceutical distribution industry over the last decade; McKesson, for its part, has recently acquired PSS World Medical and U.S. Oncology, further consolidating its position (MDM, 2016).

McKesson obtains pharmaceuticals from various manufacturers, none of which accounted for more than 6% of the firm's purchases as of 2016 (Securities and Exchange Commission [SEC], 2016). This is a crucial supply chain strategy: relying on multiple vendors cushions a firm against the risk of business discontinuity in the event that one vendor is affected by adverse circumstances. The major vendors for McKesson include some of 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 holds significant power as a buyer given that it is the largest pharmaceutical distributor. As a powerful buyer, McKesson can effectively influence the prices at which it purchases products from vendors, as well as manufacturing standards and other aspects. For instance, the law now requires drug manufacturers to serialize products, and as a buyer McKesson can decline to do business with vendors that defy this requirement. Even so, the firm strives to maintain healthy, mutually beneficial relationships with its vendors.

McKesson supplies pharmaceuticals to a wide array of customers, including pharmacies, institutional healthcare providers, physicians, retailers, and medical laboratories. Although the firm has operations in other parts of the world — particularly the UK, Australia, and New Zealand — the majority of its customers are in North America, which 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 McKesson's total revenue in 2016 (SEC, 2016). As stakeholders, customers expect quality and safe products, delivery reliability, and legal compliance, among other things. These expectations are especially important in the pharmaceutical industry, as healthcare providers, pharmacies, and buyers of pharmaceuticals require confidence that the drugs they stock will not endanger patients. McKesson fulfills the expectations of its customers by working with reputable drug vendors.

Government entities are also important external stakeholders. McKesson is subject to laws and regulations imposed by local, state, and federal authorities (SEC, 2016), covering aspects such as consumer safety, competition, environmental protection, employee welfare, and financial reporting. Regulatory requirements for the pharmaceutical industry are particularly stringent given the critical nature of the products involved. Government entities expect the firm to comply with all relevant laws and regulations; failure to do so may result in severe consequences such as fines, costly lawsuits, and loss of operating licenses.

Communities generally refer to the broader public or society in which an organization operates. Organizations across diverse sectors have increasingly recognized the benefits of contributing to the wellbeing and prosperity of the communities in which they operate (Benn, Abratt & O'Leary, 2016). McKesson fulfills the expectations of communities in several ways, including donating to social causes, supporting non-medical cancer management services for low-income populations, demonstrating commitment to reducing its environmental footprint, encouraging employee volunteerism, and supporting initiatives that promote employee wellbeing (McKesson, 2015). These initiatives clearly demonstrate the firm's concern for its communities and represent a vital source of goodwill.

Internal Stakeholders

The primary interest of shareholders in an organization is wealth maximization (Benn, Abratt & O'Leary, 2016). Shareholders invest in an organization in return for dividends and capital appreciation. McKesson is a publicly listed company, making shareholders a vital stakeholder group. Through annual reports and SEC filings, the firm regularly informs shareholders about its financial position on a quarterly and annual basis. McKesson's impressive financial performance indicates that the firm has commendably fulfilled shareholder expectations. 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 stock market performance has been relatively poor since 2015, with its share price declining from $226.20 in 2015 to $157.25 in 2016 (SEC, 2016), which may be a cause for concern among shareholders.

Directors serve as the custodians of shareholder funds — they make decisions on behalf of shareholders, ensuring the organization is properly governed and that strategic decisions maximize shareholder wealth (Benn, Abratt & O'Leary, 2016). They achieve this by defining the organization'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 organization's impressive performance over the years can in large part be attributed to the competency of its top leadership.

The board relies on management to implement its decisions. The management team is one of the most important groups of internal stakeholders (Benn, Abratt & O'Leary, 2016): without an able team of executives, an organization may not effectively achieve its strategic goals. For executives to perform at their best, they must be properly compensated and incentivized through a competitive executive compensation structure. John Hammergren serves as both chairman of the board and CEO of McKesson and 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 as a divisional head and became CEO five years later. During his tenure, McKesson has made tremendous achievements — both financially and in terms of innovation. Hammergren is one of the highest-paid CEOs in the U.S., a clear indication of his strong leadership (Kopecki, 2014, July 21).

Employees are directly involved in implementing an organization's strategy and are arguably its most important asset (Amabile & Kramer, 2011). Without individuals with the right skills, knowledge, attitudes, and abilities, an organization cannot effectively achieve its goals and objectives. The extent to which employees support organizational goals depends largely on the structures and processes put in place to manage them (Amabile & Kramer, 2011). Employees expect reasonable compensation, manageable workloads and work schedules, good working conditions, development opportunities, empowerment, and workplace fairness and inclusion. As of March 2016, McKesson had approximately 68,000 full-time employees (SEC, 2016). Employee wellbeing is clearly a priority for the organization: in addition to attractive rewards and benefits, McKesson runs robust initiatives to promote the wellbeing of employees and their families, including health and lifestyle programs, employee assistance programs, retirement plans, and continuous learning opportunities (McKesson, 2015).

Conclusion

On the whole, McKesson is a powerful corporation. This is evidenced by its extensive market share, robust financial strength, and strong market power. The firm has built strong relationships with its key stakeholders, which adds to its competitive strengths. Nonetheless, limited diversification and geographic concentration, combined with threats from competition, unfavorable regulatory changes, and counterfeit drugs, present significant concerns. To enhance its competitive advantage in the rigorously competitive pharmaceutical landscape, it is imperative for the firm to pursue consolidation and strategic partnerships, capitalize on increased healthcare expenditure, and expand into emerging markets.

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