Comprehensive Analysis of McKesson

McKesson has been one of the organizations operating in the United States since organized healthcare in the country began to take shape. For more than 180 years, the corporation has played a crucial role in defining the American healthcare system by influencing the standards for the supply chain in the care industry as well as playing a vital role in revolutionizing care technology. The recent achievement that McKesson has attained is becoming the second-largest specialty organization in US Oncology in 2010 (McKesson, 2019). Additionally, in 2014, the corporation acquired Celesio healthcare and pharmaceutical Company based in Germany. This strategy made McKesson a global healthcare leader as the company moved up the ranks of the Fortune 500 companies in the United States to 11 th place with annual revenue of about $179 billion (McKesson, 2019). The corporation’ s mission is to enhance care services by revolutionizing care in all settings through every product and partnership as well as by catering to the needs of each patient at a time (McKesson, 2019). McKesson’s corporate strategy focuses on most important issues based on the shared ICARE principles of accountability, respect, integrity, excellence, and always putting the needs of customers first. The organization exploits the stated strategy to enhance its ability to increase competitive advantage by ensuring that the quality of its products creates a sustainable healthcare future, adopting eco-friendly production mechanisms and focusing on the betterment of patient health. Thus, McKesson is an industry leader that aims at enhancing its competitive advantage through the implementation of a corporate strategy that prioritizes the needs of consumers. This paper will assess McKesson’s corporate strategy and its ability to increase the organization’s competitive advantage. 

External Stakeholders 

Competitors 

The website for McKesson DEF 14A (2014) reveal that Johnson & Johnson, Merck & Co. Inc., Pfizer Inc., Eli Lilly and Company, and Bristol-Myers Squibb Company as some of the direct competitors for McKesson. Based on the “FY 2014 Compensation Peer Group” data, a comparison of the revenue that the named organizations earn indicates that McKesson ranks first, whereas it is the last, in sixth place, based on the market cap values. The table below shows a comparison between the McKesson and competitors based on revenue flow and market cap. 

Competitive analysis for McKesson Corporation 

(McKesson DEF 14A. (2014) 

Organization	Revenue ($)	Revenue Ranks	Market Cap ($)	Market Cap Ranks
McKesson	137.6	1	40.6	6
Johnson & Johnson	71.3	2	277.8	1
Merck & Co. Inc.	44	4	166.9	2
Pfizer Inc.	51.6	3	205.4	3
Eli Lilly and Company	23.1	5	65.9	5
Bristol-Myers Squibb Company	16.4	6	86.1	4

Industry 

The pharmaceuticals industry is generally characterized by reversed logistics, a concept that focuses on the planning and implementation of efficient and cost-effective management of raw materials, inventory, and finished goods. The players in the stated sector are bound by the need to meet high-quality constraints, maintain production over long periods and shorten product cycles, all of which are factors that impact the supply chain of pharmaceuticals and result in high sales margins. Therefore, in instances that pharmaceutical companies require to recall their products as was the case with Tylenol created by Johnson & Johnson as well as Vioxx by Merck, the affected companies may lose their competitive advantage because of the associated credibility issues (Narayana, Elias, & Pati, 2014). Thus, remaining ahead of competitors in the pharmaceutical industry requires players to maintain high-quality standards. 

Technology 

Technology plays an essential role in the healthcare system especially in the analysis of large data samples. The organization partnered with Genpact to create systems that offer corporations within the healthcare industry professional automation services including source to pay, order to cash, and contract management. The stated technology has been used to maximize various healthcare processes since 2016, including customer service, data management, and reporting. Moreover, McKesson has recently implemented financial solution software called the “Claims Lifecycle Artificial Intelligence” (Volpe et al., 2014, p. 676) which optimizes the claims process for both payers and providers (Volpe et al., 2014). In response, competitors such as Johnson & Johnson have partnered with other organizations to create the Digital Health Partner, which is recognized for its powerful analytical capabilities and its ability to provide virtual medical care services (Canuel et al., 2014). Therefore, the heightened rates of competition in the pharmaceutical industry necessitate the integration of tech solutions in business operations to retain the market leader position. 

One of the attributes that allow top players in the pharmaceutical industry to retain their position is the ability to produce high-quality drugs and healthcare services that have minimal side effects. Companies such as McKesson, Merck, and Pfizer must be capable of controlling the physicochemical properties of their products to optimize the compounds of the drugs they produce and minimize clinical failure, which may taint the image of the brands (Waring et al., 2015). Additionally, top industrial players must be capable of offering value-added services that extend beyond healthcare services (Laws, 2015). Furthermore, they must keep up with technology trends that can be implemented to optimize processes, including production and supply chain management, to exploit the efficiencies thereof and maximize the rate of fulfilling consumer needs. Hence, top players must structure themselves as learning organizations to increase their adaptability to changing trends, failure to which other players in healthcare outcompete the key layers. 

Moreover, pharmaceutical organizations also incur costs to facilitate retailing activities, which contribute to revenue acquisition. In 2016, McKesson’s acquisition expenses totaled at $114 million, dropping from the $218 million that the company spent in 2014. From the stated investment, the organization earned operating profits amounting to $3553 million, depicting an upward trend from the $2472 million acquired in 2014 (McKesson Form 10-K, 2016). An assessment of the expenses of Johnson & Johnson and its earnings in 2016 indicates that the corporation spent $1043 million on pharmaceutical production, from which it accrued $19803 million (Johnson & Johnson Form 10-K, 2016). A comparison of the two organizations establishes that the minimization of spending is vital to the maximization of profit margins and the maintenance of competitive advantage. 

Vendors 

McKesson has an extensive vendor network that comprises of organizations that share the same values with it. The criterion that applies when determining the organizations that qualify for vending positions requires that the applicants be oriented towards offering excellent consumer services, competitive prices, open communication, and e-commerce options. Additionally, corporations seeking to be considered for open vending positions by McKesson must possess at least one of the traits of Small Business Administration, determined by the stated corporation. The characteristics thereof include small businesses that are owned by veterans, members of the LGBT community, women, or other minority groups as well as those that are based on HUBZone (HOPE, 2015). Provided an organization meets the stated criteria; it stands a chance to become a McKesson vendor regardless of whether it is self-certified or approved by a list of corporations that the named company recognizes with that regard. 

Customers 

McKesson delivers its products to a range of consumers, including wholesale medical suppliers, surgical equipment distributors, and clinical resource vendors, aiming at supporting various healthcare specialties and enhancing patient care. The organization’s main consumer base can be categorized into institutional care providers, national retailers, and independent vending pharmacies. A specific example of customers served my McKesson is redistribution centers that offer warehouse purchasing services and institutional healthcare providers such as Fulfill-RxSM. However, the corporation is looking to acquire a more stable consumer base regardless of the irregularities that are associated with the purchase of pharmaceuticals in bulk (Mu ñ oz et al., 2016). Thus, McKesson’s consumer base comprises of high-end customers that purchase goods on a large-scale basis. 

Governmental Entities 

McKesson has had the privilege to work with the US government on a contract basis. The organization’s services were acquired under the Pharmaceutical Prime Vendor (PPV) Program used to provide veterans and other government agencies medication and pharmacy products. The company’s services were procured for eight years, between 2012 and 2020, to fulfill the needs of the stated institutions (OPAL, 2019). Therefore, apart from serving the general public, McKesson also meets the American government requirements directly. 

In the United States, the Food and Drug Administration (FDA) branch of the government is charged with preceding over matters concerning the efficacy and safety of medication. Over the last century, federal control over pharmaceuticals has grown to the extent that the stated industry is one of the most regulated. The most critical law focuses on establishing quality standards that ensure that medicines are viable for human consumption. Organizations that comply with the Current Good Manufacturing Practice (cGMP) enjoy the privilege of enhanced product quality and the minimization of legal implications. However, McKesson should be concerned with the amendments that the US government is seeking to make to impose further regulations of the pharmaceutical industry including the standardization of drug prices, which may lower profit margins, and the requirement to document all research and development costs, which are the proposed new determinants of product pricing (Elder, Kuentz & Holm, 2016). Therefore, despite the advantages that are associated with the existing FDA regulations in the pharmaceutical industry, the proposed changes are likely to impact McKesson and other industrial players negatively. 

Communities 

McKesson impacts the communities within which it exists by offering its consumers high-quality medication and drugs that enhance their well-being. Additionally, the organization has also established a foundation that supports initiatives that are designed to improve patient health through the reduction of care costs, management of well-being, and increasing access to quality healthcare services. The McKesson Foundation also specializes in meeting the care needs of low-income cancer patients and the non-medical requirements of community members. Additionally, the corporation launched a separate initiative oriented towards combating the opioid crisis. The foundation is based on a $100 million commitment, and its objectives include educating the community, addressing crucial policy issues, and increasing lifesaving treatments for those affected by opioid overdoses (McKesson Foundation, 2019). Hence, McKesson is keen on fulfilling its corporate social responsibilities by positively impacting the lives of community members. 

Internal Stakeholders 

Shareholders 

The organization that holds the most significant shares at McKesson is Wellington Management Company, LLP based on the stock numbers obtained as of 31 st May 2018. The concerns that are associated with the named shareholder are based on the voting power that it has based on its 5,653,158 shares and the dispositive authority possessed with respect to 20,971,721 shares. Hence, Wellington Management Company, LLP has a 10.4% control of corporate votes, a factor that increases its impact on McKesson’ s corporate strategy (McKesson Schedule 14A, 2018). Despite possessing the autonomy to run its daily operations, McKesson remains under the control of its largest shareholder, whose vote based-decisions have direct and indirect effects on the activities of the corporation. 

Board of Directors 

McKesson ’s board of directors comprises of ten individuals whose primary responsibility is to ensure that the company maintains effective and sound corporate governance strategies. The board members are committed to excise oversight on the organization’s affairs and foster adherence to the highest business ethics s tandards, including meeting corporate governance requirements as stipulated by both the New York Stock Exchange and the federal law (McKesson, 2019). Below is a list of the board members and the duties they are assigned. 

Edward A. Mueller: Board chairman who participates in both the compensation and governance committees. 

Dominic J. Caruso: Chair of the audit committee and a member of the compliance and finance committees. 

N. Anthony Coles, M.D.: Chair of the compensation committee and a member of the finance committee. 

M. Christine Jacobs: Member of the audit and governance committees. 

Donald R. Knauss: Member of the audit committee and chair of the finance committee. 

Marie L. Knowles: Member of the audit, finance, and compliance committees. 

Bradley E. Lerman: Compliance committee chairperson and a member of the compensation and governance committees. 

Susan R. Salka: Compensation committee member and chair of the governance committee. 

Brian S. Tyler: Board member of the International Federation of Pharmaceutical Wholesalers (IFPW), and IFPW Foundation board director. 

Kenneth E. Washington: Member of the compliance and finance committees. 

Among the issues that the McKesson Board of Directors is dealing with is the resolution of the legal implications that the organization is facing. The board members feel the necessity of resolving the litigation charges made against the company to prevent further diversion of the Management’s attention from business operations (McKesson Form 10-K, 2016). Thus, the board has resolved that finding solutions to the legal implications that the organization is facing will contribute to the realization of the goal of planning for the future and positioning the corporation for long-term success. 

Management 

The top managers at McKesson comprise of a team of executive officers consisting of six individuals. Brian Tyler is the CEO of the organization, and George Figueredo is the executive vice president and the head human resource officer. Kathy McElligott also holds the executive VP position and heads both the information and technology departments. Bansi Nagji, Lori Schechter, and Britt Vitalone equally hold the executive VP title and lead the strategy and business development, legal and general counsel, and the finance departments, respectively (McKesson, 2019). All the members of the top management team receive annual compensation that is delivered in cash, which is accompanied by a substantial additional amount that varies based on the successful realization of pre-determined performance targets. The payout of McKesson executives depends on the computation of the sum of 75% of the adjusted earnings per share (EPS) added to 25% of the EBITDA value, the product which is multiplied by the individual modifier and the management incentive plan (MIP) target award for the year in question (McKesson Schedule 14A, 2018). Below is a visual representation of the formula used to compute McKesson executive salaries in 2015. 

The shakeup that has characterized the top management team at McKesson is the takeover of Brian Tyler as CEO. Tyler became McKesson’s leader in April 2019, succeeding John Hammergren, who had occupied the stated position since 1999 (Walker, 2018). The change in leadership depicts the organization’s ability to adapt to the dynamic business conditions in the pharmaceutical industry, which may require the positioning of individuals with specialized skills in top positions, who serve a strategic purpose associated with maintaining the corporation’s competitive advantage. 

Employees 

Currently, McKesson has about 80, 000 employees, a number that has increased from 32, 500 over ten years. The organization has implemented various policies to govern the conduct of the members of its workforce, including the shared ICARE principle, anti-harassment, and open door strategies as well as guidelines for workplace behavior. The latter has ensured that the organization minimizes incidences of unresolved employee issues (McKesson Form 10-K, 2016). At the moment, there are no ongoing discussions on raising the pay of McKesson employees. 

SWOT Analysis 

Strengths 

The strengths that McKesson has are associated with its reach and distribution because the organization has a large number of outlets in every state that serves as an extensive network for delivering products to consumers. The company has a low-cost structure that enables efficient production which minimizes the input costs, allowing it to retain the capacity to avail goods to consumers at affordable rates. Additionally, the corporation has a strong financial position, based on data obtained from the analysis of its profits over the last five years, as well as accumulated profit reserves that can be used to for capital expenditures in the future. Moreover, McKesson has a large asset base that increases its solvency, and the company’s workforce is skilled owing to the extensive training that contributes to the heightened motivation levels among its employees (Zhang & Zhang, 2017). Therefore, the exploitation of the stated strengths, among others, which put McKesson ahead of its competition facilitates the attainment and maintenance of a competitive advantage, which is vital to retaining a market leadership position. 

Weaknesses 

Apart from its strengths, McKesson possesses traits that are likely to be detrimental to its continued success. Such characteristics include the corporation’s undertaking of research and development projects that are not adequately targeted, a factor that increases spending but does not maximize the product thereof. Secondly, the organization has a waiting period between production and purchase that is longer than average, resulting in inventory build-ups and the addition of unnecessary costs to the business. Thirdly, McKesson rents some of its properties, a factor that increases business costs because of the vast sums of rent that the organization must pay monthly. The business also has a low current ratio, a factor that highlights the possibility that the organization may experience liquidity issues in the future. Furthermore, its current liabilities are more than its existing assets, which may result in liquidity issues where organizational operations are involved (Zhang & Zhang, 2017). The weaknesses stated above highlight the areas of concern that McKesson must assess and amend to fill the gaps in its corporate strategy and maximize the organization’s growth as well as secure the future of the business. 

Opportunities 

In every industry, there are opportunities that corporations may utilize to stay ahead of the competition and secure organizational success. McKesson can exploit the increased access to the internet to boost its online presence and use the platform to increase interaction between itself and its consumers to understand their needs further. The alteration of the e-commerce trend and the associated sales increases should propel the corporation in establishing online sales platforms to keep up with industry trends and maximize returns. The company can also use social media platforms to increase brand awareness, owing to the heightened number of users, whose opinion can be assessed to offer customer feedback. Moreover, McKesson should consider the automation of its processes to exploit technical efficiencies and contribute to the betterment of customer experience (Zhang & Zhang, 2017). Thus, the organization should orient its development efforts towards utilizing untapped resources in the pharmaceutical industry to retain its competitive advantage over consumers. 

Threats 

Threats weaken the position of an organization in the industry within which it exists. Increased competition is a factor that may be detrimental to the operations of McKesson because it pressurizes the corporation to maintain or lower prices, resulting in the decline of profit margins. The fluctuation of the exchange rate also impacts the organization because of the international sales that it requires to make. Moreover, the political uncertainties in the US have become a business barrier that hinders performance and in other cases, causes corporations to incur unnecessary costs. Furthermore, fluctuating interest rates destabilize the economic and financial environments, affecting the purchasing power of consumers whose tastes are changing, a factor that continually pressures the organization to alter its products. Hence, McKesson must handle the threats it faces effectively failure to which the business may collapse. 

Recommendations 

Based on the findings of the analysis conducted on the McKesson Company, it is evident that the organization is dedicated to maintaining its success as a market leader. For the corporation to attain the stated goal, it must focus on maximizing its strengths and opportunities as well as minimizing the threats it faces and addressing the weaknesses of the business. Thus, among the recommendations that would contribute to safeguarding McKesson’s future in the pharmaceutical industry include: 

The organization must consider implementing technical solutions to enhance the efficiencies of its operations and its capability to meet consumer needs. 

The corporation should implement better financial management strategies that minimize business costs and maximize profit acquisition. 

The business should prioritize its consumers and engage them as much as possible to ensure that the products produced to meet their needs. 

The company should implement a learning organization structure to increase its capability of swiftly adapting to the dynamic business environment. 

References 

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McKesson Foundation. (2019). McKesson Foundation | Find Grantmakers & Nonprofit Funders | Foundation Directory Online. Retrieved 10 September 2019, from https://fconline.foundationcenter.org/fdo-grantmaker-profile/?key=MCKE006 

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