1. A Strategic Management Case Study
Shane Theriault, Pierre-Olivier Lachance, Garik Teriault, Sierra Daigle
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2. Overview Company Overview Company Timeline New Mission and Vision
Existing Mission and Vision
New Mission and Vision
External Assessment
Industry analysis
Opportunities and threats
CPM Matrix
EFE Matrix
Internal Assessment
Organizational Structure
Financial Condition
Divisional Analysis
Strengths and weaknesses
IFE Matrix
Strategy Formulation
SWOT Matrix
Space Matrix
IE Matrix
Grand Strategy Matrix
Matrix Analysis
QSPM Matrix
Strategic Plan for the Future
Objectives
Strategies
Implementation Issues
EPS/EBIT
Projected financials
Evaluation
Balanced Scorecard
CVS Caremark 2

3. Company Timeline
Melville had been founded in 1892 by shoe supplier Frank Melville.
Melville Corporation was incorporated in1922.
First Consumer Value Store (CVS) opens in Lowell, Massachusetts in 1963.
The CVS name was used for the first time in 1964 with 17 locations.
Throughout the following decades they have purchased many other pharmacies.
Clinton Drug and Discount stores – 84 locations in Indiana and Midwest.
New Jersey-based Mack Drug chain – 36 locations in New Jersey.
Peoples Drug – 490 Locations throughout Mid-Atlantic
1997 – Revco Chains – 2500 locations in Ohio, Mid-Atlantic, and Southeast US.
Sales reached $1 billion in 1985
In 1993, formerly traded as MVL on the New York Stock Exchange, the company now trades as CVS.
In 1995 and 1996, Melville Corp. sold off the company’s other segments to focus on CVS.

4. Company Timeline
In1999, CVS launched their CVS ProCare Pharmacy for complex drug therapies.
In 1999, CVS acquired Soma.com, the first online pharmacy, and renamed it CVS.com.
In 2004, CVS purchased 1,268 Eckerd drug stores and Eckerd Health Services, a PBM/mail-order pharmacy business, from J. C. Penney. as CVS.
On July 13, 2006, CVS announced that it had entered into a definitive agreement to acquire Minneapolis-based MinuteClinic.
On November 1, 2006, CVS announced that it was entering into a purchase agreement with Nashville-based Caremark Rx Inc., a pharmacy benefits manager. The new company is called CVS Caremark Corporation.

5. Current Vision & Mission Statement
Vision statement:
We strive to improve the quality of human life.
Mission Statement:
We provide expert care and innovative solutions in pharmacy and health care that are effective and easy for our customers.

6. Revised Vision Statement
Our purpose is to guide people along the path of better health

7. Revised Mission Statement
At CVS Caremark we strive to improve the every day quality of human life by providing the highest quality pharmaceuticals and consumer products (2) in the United States (3). With the help of our valued employees (9) and advancing technology (4), we will provide the premier shopping experience to all of our customers, ranging from child to adult (1). Our goal is to reward our customers with the best prices and best service possible(7). CVS will continue to grow and improve through investment and expansion opportunities (5) while always maintaining the highest ethical and moral standards (6). Most importantly, we will continue to care and support the communities and the environment (8) that we are a part of.

8. External Audit

9. Industry Market Analysis
Share of 2011 Prescriptions Revenues
Market shares are shown in percent.
% %
CVS Caremark Corporations
Walgreen Company
Rite Aid Corporation
Express Scripts, Inc
Prescriptions Revenues
(Billions)
CVS Caremark Corporations
Walgreen Company
Rite Aid Corporation
Express Scripts, Inc

10. Industry Market Analysis

11. Opportunities & Threats

12. Opportunities
Organic food industry has rebounded from the recession quickly with growth rates back above 6% in 2011, bringing annual US sales above $26 Billion.
1,0154,000 people will reach the age of 65 in the coming three years
71.7% of Americans report having internet access in their home.
Affordable Care Act passed in 2010 will extend medical coverage to over 45 million Americans currently without coverage, starting in 2014.
In 2011, patent drugs with annual sales of $12 Billion have expired. Additional patent expirations is expected to increase this number to above $30 Million in the coming year.
In 2008, the AAMC projected a shortage of full-time equivalent physicians by 2025.
Medicare drug spending is expended to increase by 8.5% annually over the next decade.

13. Threats Unemployment is at 8.5%
R&D costs are high, on average between $4 billion to $11 billion per drug.
Threat of large distributors such as, Target who already have over 1031 locations, entering the pharmaceutical market increasing competition
Walgreens increased prescriptions refills by 5.3% in the last year.
Increase demand for environmentally safe products
Legalization of drug importation would lead to a national saving of 1.7 billion.
Future government policy changes to regulation
48 million American adults did not fill prescription in 2010

14. EFE External Factor Evaluation Matrix (EFE) Opportunities Weight
External Factor Evaluation Matrix (EFE)
Opportunities
Weight
Rating
Weighted Score 1.
Organic food industry has rebounded from the recession quickly with growth rates back above 6% in 2011, bringing annual US sales above $26 Billion.
0.04 1 2.
1,0154,000 people will reach the age of 65 in the coming three years
0.09 3
0.27 3.
71.7% of Americans report having internet access in their home.
0.07
0.21 4.
Affordable Care Act passed in 2010 will extend medical coverage to over 45 million Americans currently without coverage, starting in 2014. 5.
In 2011, patent drugs with annual sales of $12 Billion have expired. Addition patent expirations is expected to increase this number to above $30 Million in the coming year. 2
0.18 6.
In 2008, the AAMC projected a shortage of full-time equivalent physicians by 2025.
0.08 4
0.32 7.
Medicare drug spending is expended to increase by 8.5% annually over the next decade.
0.06
Threats
Unemployment is at 8.5%
0.05
0.10
R&D costs become high, on average between $4 billion to $11 billion per drug.
0.30
Threat of large distributors such as, Target who already have over 1031 locations, entering the pharmaceutical market increasing competition
Walgreens increased prescriptions refills by 5.3% in the last year.
Increase demand for environmentally safe products
Legalization of drug importation would lead to a national saving of 1.7 billion.
Future government policy changes to regulation 8.
48 million American adults did not fill prescription in 2010
0.15
TOTALS
1.08
2.83

15. CPM Competitive Profile Matrix (CPM) CVS Walgreen Rite Aide
CVS
Walgreen
Rite Aide
Critical Success Factors
Weight
Rating
Score
Advertising
0.13 3
0.39 4
0.52 1
Market Penetration
0.11
0.33
0.44 2
0.22
Customer Service
0.10
0.20
0.30
Store Locations
0.14
0.42
0.56
0.28
Financial Profit
0.09
0.27
0.36
Customer Loyalty
0.40
Market Share
0.08
0.32
0.24
Product Quality
0.05
0.15
Top Management
0.07
0.21
Totals
1.00
3.13
3.67
1.92

16. Internal Audit

17. Organizational Structure

18. Divisional Analysis Netflix recognizes three segments
Pharmacy Services
Retail Pharmacy
Corporate (Please note that this segment is not acknowledged in the book’s case study)

19. Strengths
We operated 657 MinuteClinics in 25 states and the District of Columbia of which 648 were located within CVS/pharmacy stores
Our proprietary loyalty card program, ExtraCare ® , has well over 68 million active cardholders, making it one of the largest and most successful retail loyalty card programs in the country
CVS carries over 4,400 CVS/pharmacy and proprietary brand products,
Strong service assortments including Prescription management systems, Mail pharmacy, Minute clinic, eye care, discounted drugs agreements
$48 million in charitable contributions in 2011
cvs.com attracted at least 26 million visitors annually by 2008
21st on the Fortune 500's list of largest corporation in US
4.6 Billion in free cash flow in 2011, a 39% increase over 2010's number

20. Weaknesses
CVS has a smaller Gross Margin with 21.01% compared to its competitors: Rite Aid 26.54%; Walgreens 28.36%; Walmart 25.26%
8+ major legal cases against CVS in the last decade.
Near all revenues are derived from the United State Market
CVS has a goodwill value of
Fewer Physical(7,300) locations then next biggest competitor Walgreens who has 8,582
657.8 million prescriptions filled versus 819 millions by Walgreens.
CVS Caremark has a American Customer Service Index of 73

21. IFE

22. Financial Information

23. Ratio analysis
Growth Rate Percent
CVS Caremark
Walgreen
Rite Aid
Net Income (YTD vs YTD)
Sales (5-Year Annual Avg.)
63147
25534
Net Income (5-Year Annual Avg.)
3285.2
2201.8
(1085)
Dividends (5-Year Annual Avg.)
Profit Margin Percent
Gross Margin 19 28 27
Pre-Tax Margin 5 6 2
Net Profit Margin
3.2 4
5Yr Gross Margin (5-Year Avg.)
20.57
28.4
Liquidity Ratios
Debt/Equity Ratio .7
.85
4.42
Current Ratio
1.56
1.52
1.82
Quick Ratio
.71
.53
.52

24. Company Analysis

25. Space Matrix Possible Strategies:
Backward, forward, horizontal integration
Market penetration
Market development
Product development
Diversification

26. Grand Strategy Matrix Possible Strategies:
Backward, forward, horizontal integration
Market penetration
Market development
Product development
Diversification

27. SWOT Matrix

28. Matrix Analysis

29. Possible Strategies Backward & Forward integration Not feasible
Short supply and delivery chain
Market penetration
SO2 - Increase marketing of Minute Clinics services by 15% (S1, S4, O2, O4, O6, O7)
ST1 - Exclusivity contract with Target to install MinuteClinics and prescription pharmacy (S1, S4, O3, O4, O8)
Market development
WT - Gain locations and expand internationally (W3, W5, W6, T3, T4, T6)
Product development
SO1 - Increase number of proprietary brand products by 20% (S3, S6, OS3, O5, O7)
Diversification
WT – Take advantage of increase in environmental conversation. (W2, W7, T5, T7)

30. QSPM

31. QSPM

32. Strategy formulation

33. Strategy
Grow to Win

34. 3 Year Goal Annual Objectives
First Year
- Increase marketing expense by 50% in 2012
- Acquire Rite Aid
Second Year
- Increase marketing expense by 25%
- Renovate a 1/3rd of Rite Aid Locations to CVS Caremark
Third Year
- Renovate half of remaining Rite Aid Locations to CVS Caremark

35. Strategic Fit
- Increase in Demand - Supply shortage of Health Care providers - Location is a large Critical success factor - Great Cash flow and financial stability - Close Competing firms

36. Strategy Costs
Marketing Expense: = $317 Million = $211 Million Increase to $316.5 Million Increase to $395.5 Million Increase to $496.5 Million Estimated Acquisition Cost - $1,000,000,000

37. Implementation

38. Foreseeable issues Cost of Acquisition
Changes in Government Regulations
Anti-trust laws

39. Projected Financials Assumptions
Capital Needed: 1,165 million Stock Price: $40.78 Shares Outstanding: 1,338 million Interest Rate: 5% Tax Rate: 39% Dividends: 647 million (2011 amount)

40. EPS/EBIT
100% Stock = 28.6 Million additional stocks sold

41. EPS

42. Projected Income Statement

43. Projected Balance Sheet

44. Projected Ratios

45. Strategic Evaluation

46. Balance Score Card

47. Update
New CEO at end of 2011
Order Refill is the most visited area of their Website
Revenues increased by 15% in 2012
Market cap increased by 12%
Stock price increased to $48 a share
Earning per share increased 2.59 in 2011 to 3.03 in 2012
Old CEO – Tom Ryan
New Ceo – Larry Merlo

48. Questions

49. References
CVS Caremark. (2012) Annual Report. Woonsocket. CVS Caremark. (2013). Company History. Retrieved from CVS Caremark: CVS Caremark Corp. (2013). Retrieved from Business Insight: Essentials: Gross, D. D. (2014, April 6). CVS Caremark Corporation. Retrieved from nternational Directory of Company Histories: Rite Aid. (2012) Annual Report. East Pennsboro Township. University of Oregon Investment Group. (2011). CVS Caremark Corporation. Eugene: University of Oregon. Walgreen. (2012) Annual Report . Chicago.

50. THANK YOU!