Introduction
The modern world of business is today becoming more tough and competitive as different companies strive to gain a competitive edge over others. In order for a company to become successful and stay successful in a competitive world, it is important for management to take a strategic risk. Following the traditional ways of business and staying safe all the time may cost the company its success since the company may be overcome by other businesses. One of the ways that management can ensure the company becomes and remains successful is through strategic management. Strategic management involves a collection of managerial actions and decisions that determine the performance of a firm in the long-term.
Strategic management involves internal and external environmental scanning, strategy formulation or planning, implementation of the strategy, evaluation and control (Hunger & Wheelen, 2011). Therefore, strategic management uses the SWOT analysis to monitor and evaluate external threats and opportunities in regards to the company’s strengths and weaknesses to develop and implement new strategic decisions for the organization. Organizations that use strategic management are more successful than those that do not engage in strategic management (Hitt, et al. 2009). Therefore, it is important for managers from all calibers of organizations to consider strategic management in order to gain the competitive edge. This paper discusses the situation in CVS and Wal-Mart chains of pharmaceuticals to determine the issues affecting these companies and provide recommendations on ways to solve the issues.
Analysis
In the case study given of video 13, the CVS and Wal-Mart drug stores are considering cutting the costs on prescription medicine in order to attract customers to the stores. In CVS pharmaceutical the vitamins and other medicine are too expensive for ordinary customers who have fixed and tight budgets to afford. Health care services have been skyrocketing owing to the hard economic times that the business world is experiencing.
Due to this situation, the drug stores have turned to offering prescription drugs that are generic in order to attract a large customer base. The companies are offering the generic prescription drugs at low costs in order to attract a large customer base to their stores. Once in the drug stores, the management of these companies believes that customers will purchase other drugs at their normal prices. In as much as the sale of the generic prescription drugs do not bring in big profits for the company, the management aims at building customer loyalty for future purchases.
The CVS drug store faces competition in the marketplace and the industry where it operates and thus management needs to carry out a competitive strategy for the company to remain successful (Hunger & Wheelen, 2011). Among the competitors of CVS Pharmaceutical is the Wal-Mart drug store, which stocks generic prescription drugs at a lower cost. The competitor drug store is the pioneer of cheaper generic prescription drugs and hence it has managed to attract many customers and create loyalty with its customers. The CVS drug store, on the other hand has realized that several customers are shying away from purchasing its medicine because of the high cost of the medicines and the high health care cost. In order to cut cost and attract more customers, CVS Pharmaceutical is considering stocking prescription drugs, which are affordable to the customers because these cheap drugs will create customer loyalty.
The drug stores need to analyze the external environment in which it operates in order to remain competitive. In analyzing the external environment, the management of this company needs to consider the opportunities and threats posited in the environment. The management will need to consider factors that affect the long-term prospects of the business such as economic, technological, political legal and socio cultural forces that affect the business. These forces keep on changing as the business changes and if not considered, they may leave a company at a disadvantage. The company in this case needs to address the issues of the industry to determine the different companies operating in the same industry as theirs.
The management needs to address the issue of similar companies that are stocking the same products as theirs to determine the kind of mechanisms that they use in attracting customers. In addition, the company needs to address issues related to corporate social responsibility because these are among the factors that could be preventing the company from gaining a competitive edge (Gluck, et al. 2010). The company also needs to address the composition of its top management because the success of any corporation begins with its chief executive officer. If the CEO is not strict with his or her work, the entire workforce will often sleep on their job. In this company, the customers may be leaving because the CEO has not addressed the issue of cost in its chain of drugs.
In probing the identified problems in this company, the management needs to use various analysis methods to remain competitive. The management should conduct a SWOT analysis to determine its strengths and weaknesses in light of the opportunities and threats in the external environment. The strengths of this company could be that it has a strong brand name, which makes it competitive and attractive among its competitors. The CVS Pharmaceutical is a giant drug store that is known for stocking different types of medicines for various illnesses. This fact indicates that the company has created a brand name for itself that is good for the company. The strong brand name ensures that the company has good reputation with its customers hence attracting a large customer base. However, the CVS drug store has its weaknesses. For instance, the company stocks drugs that are highly priced making customers shy away from purchasing them. The company and its management need to analyze the prices charged in other drug stores in order to be at the same level with its competitors.
The SWOT analysis will also help the company determine the opportunities and threats in the external environment. Opportunities for this company include the availability of new technology that the company can take advantage of in attracting many customers to the drug store. New technology can help the company better its services and provide quicker and efficient products to its customers (Gamble & Thompson, 2010). Technology keeps on changing and it is important for the company to keep watch on any emerging technologies in the industry in order to remain competitive. The SWOT analysis is effective in determining the threats of the company such as the emergence of substitute products in competitor industries. For instance, in this case study, Wal-Mart has introduced generic prescription drugs, which are cheaper compared to other medicines that CVS stocks in its stores. The management of CVS drug store needs to analyze the substitute products and ways of countering the effects that the substitute products may cause such as taking away customers.
It is also important for the management of this company to conduct an industry analysis in order to determine the competitiveness of the industry in which it operates. The Michael Porter’s five forces model can be an effective tool in assisting the management of this company to analyze the industry environment (Hackman, 2002). The first force to analyze is the threat of newcomers in the industry who bring in new capacity and the need to gain a substantial market share. The management will also need to analyze the rivalry that exists between existing firms in the industry. There is also the threat of other companies in the industry bringing in substitute products and services that encourages more competition in the company. The company will also need to conduct the industry analysis to determine the bargaining powers that both buyers and suppliers have in influencing competition.
The different courses of action that the company chooses to adopt have pros and cons. Using a SWOT analysis to determine the problems of the company will enable it to determine its strengths and weaknesses and areas that need improvement. However, this comes at a cost to the company because it will have to reduce the prices of its products to fit in the market. The company may also be forced to restructure its top management in order to improve long-term performance such as the change of the CEO. All these changes come at a cost to the company as it seeks to gain a competitive advantage.
Conclusion
It is clear that behind every successful company is a strong strategic management team. The duties of a strategic management team in a company are to ensure that the company remains competitive in the long-term and also improves its performance. In order for a company to be successful and retain the success, the strategic management team needs to analyze the external and internal environment in which the company operates. The management team can utilize the SWOT analysis and the industry analysis as proposed by Michael Porter to identify the issues in their operating environment. In determining the alternative actions to take, the company should analyze the costs and benefits of each course of action to avoid losing to its competitors. In the given case study, the management of CVS chain store has made a great step in stocking generic prescription drugs that more customers now prefer because of their lower costs. The lowering of the costs of these generic drugs does not make big profits for the company but it ensures that customers remain loyal to the drug store, which is good for business. Therefore, the CVS and Wal-Mart drug stores should embrace strategic management for the long-term performance of these companies.
References
Gamble, J. & Thompson, A. (2010). Essentials of strategic management: The quest for competitive advantage. New York: McGraw-Hill.
Gluck, F.W. et al, (2010). Strategic management for competitive advantage. Harvard Business School Publishing.
Hackman, J.R. (2002). Leading teams: Setting the stage for great performances. Harvard Business Review.
Hitt, M.A. et al. (2009). Strategic management: Competitiveness & globalization concepts. Mason, OH: Cengage Learning.
Hunger, D.J. & Wheelen, T.L. (2011). Essentials of strategic management, 5th Ed. New Jersey: Prentice Hall.
