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Internal analysis
Value Chain Analysis
This section provides an analysis of how Well Point Company achieves value in its performance. It will determine how the company creates greatest possible value for its clients. The analysis uses Porter’s value chain analysis focusing on two categories of activities- primary and support activities.
Primary activities
Inbound and Outbound Logistics
Inbound logistics refers to the activities involved in receiving, storing and distributing or disseminating incoming materials and goods in an organization (Gibson 179). At WellPoint, the institution deals with a wide range of products in the managed health care. The company provides services to its clients through its affiliates working within the WellPoint umbrella.
The Blue Cross is responsible for transferring services and products to customers in California (WellPoint 6). Here, the affiliated company is a licensee that ensures that customers obtain health insurance services from the mother company, the WellPoint, through a devolved system that allows an easy way of customer-company relations.
Information from the customers, including employers, employees and other citizens is obtained from the various centers of Blue Cross in California (WellPoint 8). Information is then processed, stored and transmitted to WellPoint. On the other hand, Blue Cross is responsible of transmitting outbound information, products and services to the customers in California and surrounding regions.
Blue Cross and Blue Shield licensee act as the intermediary between WellPoint and customers in Georgia, Missouri, Maine, Kentucky, Colorado, Indiana and Connecticut (WellPoint 8). It is responsible for transmitting inbound information from the customers in these regions to WellPoint.
It obtains information from clients, including complains, requests, new registrations, service utilization, clinical and dental reports from the clients and their hospitals. It stores and disseminates this information to the mother company. In addition, it is responsible for the outbound products, services and information from WellPoint to customers and healthcare facilities in these regions (WellPoint 8).
This phenomenon is the same for Blue Cross, Blue Shield, Anthem Blue Cross and Blue Cross Blue shield affiliates that act as the intermediary between WellPoint and customers in states such as Nevada, New York, Ohio, Virginia, Washington, and New Hampshire (WellPoint 9).
Anthem Life Insurance is responsible for delivering products to the company clients, including group term life, short-term and long-term disability income, accidental death and dismemberment.
These intermediaries, known as “companies” at WellPoint, are responsible for adding the value of relationships between the company and the customers spread throughout the country (WellPoint 12). They are also responsible for dealing with delays in service provision to the customers. They collect data from the field and disseminate it to the mother company, which serves to add onto the quality of service delivery.
Operations
According to the company website, WellPoint operates as an umbrella of various organizations known as “companies” (WellPoint 16). These “companies” act as the main channels through which services are delivered to the clients. WellPoint has used mergers and acquisitions to obtain these units, most of which were formerly individual companies that have now been absorbed.
Anthem Blue Cross and Blue Cross Blue Shield, Empire BlueCross BlueShield, Anthem Life Insurance and Blue Cross & Blue Shield of Georgia are the main “companies” that operate under the WellPoint umbrella (WellPoint 16). The company has delegated its services to these units, which carry out most of the tasks involved in service delivery.
They are also used to reach out to more states and counties throughout the country, including outdoor advertising and product promotion. In addition, they are given the responsibility of task coordination in service provision to the clients.
The company’s top management, which operates from the headquarters in Indianapolis, Indiana, is responsible for controlling and managing these units (WellPoint 13). The top management coordinates the activities, tasks and financial flow from the headquarters.
Sales and Marketing
The Company markets its products through the “companies” units and brands that reach out to the customers. According to the company’s website, WellPoint sells health care insurance and related services as well as products such as lenses, eyeglasses and other ocular products to meet the high demand and satisfy its customers.
In the 2012 fiscal year, the company’s sales increased by 13% due to a number of factors. For instance, the company acquired Amerigroup and 1-800 CONTACTS in 2012, which increased its coverage (WellPoint 18).
Marketing at the company is highly organized and intensive. It involves programs such as CareMore, which has been used to help elderly people stay healthy during their retirement age.
It involves a number of services known as “head-to-toe” programs that look at the general health for the senior citizens, including disease managements, education, wellness and fitness programs as well as proactive services (WellPoint 21). In addition, advertising campaigns through mass media are dedicated to improve the public awareness of the company’s products and services.
Services
WellPoint recognizes the delicate nature of health care services, given that they are meant to improve and extend human life. The company has developed a number of programs to ensure a smooth, effective and sustainable service delivery. The company’s CareMore Neighborhood Care Centers are facilities that have been developed to provide customers with coordinated services from clinical teams and highly trained staff.
There are weekly visits by nursing professionals to ensure that customers are progressing in the right way (WellPoint 22). The company also facilitates advanced doctor-patient relationship through its focus on primary care for customers in all age groups.
These programs are tailored towards attracting people towards its services. The care centers are spread in various parts of the country, including neighborhoods, companies and community level.
The company recognizes the need for patient-centered healthcare services. The focus on direct doctor-patient relationship is one of the major aspects that the company has been using to facilitate its services to the clients.
It focuses on home-based care for elderly patients as well as those with difficulties in reaching out for the facilities (WellPoint 24). It makes use of qualified nurses, clinicians and other specialists in reaching out to these groups.
Support activities
General administration
The Company’s overhead is the most powerful decision making organ and the most important source of competitive advantage. The top management, located at the company’s headquarters in Indianapolis, plays a significant role in coordinating the activities of the “companies” and brands developed within the WellPoint umbrella. The top management has been making decisions to expand the company’s coverage in the US.
For instance, in the last few years, the top management has focused on both organic and inorganic growth, including acquisitions and establishment of new facilities and offices across the country. For instance, the acquisition of Anthem, Amerigroup and 1-800 CONTACTS have been used to expand the company’s coverage (WellPoint 23).
The top management at WellPoint is responsible for continually promoting ethical behavior among the employees, especially those who deal directly with the customers. They also support diversity and protect their patients as well as employees by creating an environment that accommodates patients and employees into the WellPoint family.
Moreover, the top management is responsible for controlling and directing the services of the vast number of “companies” under the WellPoint umbrella. For instance, the acquired companies such as Amerigroup and Anthem are integrated into the company, but they are allowed to continue running their programs, which are coordinated from the overall administration at WellPoint.
Technology Development
Technology is an important aspect of modern healthcare. Most health care systems are increasingly using technology to enhance service delivery at all levels. WellPoint has embarked on a program to enhance technology use in service delivery.
According to the company’s annual report, the use of technology is because the American healthcare system is complex, with the importance of healthcare information rising every day (WellPoint 21). According to the report, the company has decided to collaborate with technology developers to ensure that its services are enhanced and quality improved.
In addition, the company has focused on the use of technology to provide quality and customized services to its clients.
For instance, it has collaborated with IBM and other key experts in the health care industry such as Memorial Sloam Kettering to create new products that utilize the latest technologies in health delivery systems (WellPoint 24). IBM is responsible for creating these technologies, which are utilized in the clinics and other facilities set up by WellPoint.
In addition, the IMB Watson technology is being used at WellPoint to help clinicians identify options for treatment for complex diseases and conditions such as cancer within the shortest time possible (WellPoint 19).
For instance, the company reported that it is working with cancer researchers and specialists from a number of backgrounds such as WESTMED medical group and Mine Center for Cancer Medicine. The collaboration aims at testing new technologies developed under the IBM Watson agreement.
Human Resource management
WellPoint is a service delivery corporation, which specializes in healthcare, one of the most delicate sectors in the world. Achieving the corporation, patients and social health goals is achievable only when the company focuses on its human resources (WellPoint 23). Expertise is the most important aspect of health care. WellPoint recognizes the need for qualified and sustainable human resource.
It ensures that the relationship between the heath teams and managers enhances employee performance. WellPoint goes for the most trained staff, ranging from the simplest tasks such as hygiene to the most complicated services such as surgery and diagnosis.
The company has a well-established human resource center, which is led by an executive president and chief HR officer, a chair that is currently held by Randy Brown (WellPoint 21). The purpose of this office is to ensure that employee complaints, problems, suggestions and other issues are addressed in the right manner and protocol.
Conclusion of the value chain analysis
WellPoint specializes in a highly delicate sector. It recognizes the need for continued value creation in service delivery. Value is created across the various units, programs and “companies” that operate under the WellPoint umbrella. Supportive activities are too enhanced to ensure that the primary activities create value in service delivery.
The top management plays an important role in coordinating the activities of the vast number of programs and make decisions that lead to expansion of the company’s service delivery and coverage.
The focus on employee development and application of skills and knowledge is aimed at ensuring that clients find comfort in the company’s services and employees. Therefore, it is worth noting that the company’s value chain is well coordinated, with a clear focus on creating value for the services and products provided to the client.
Financial Analysis
WellPoint has developed its clientele in companies, individuals and groups seeking quality medical care, including direct health care services and supportive services such as insurance coverage (WellPoint 6). Therefore, the company has a wide range of customers from across the country.
This section seeks to examine the company’s financial performance between 2009 and 2013, focusing on profitability, liquidity and solvency. The company’s sales and revenue has been increasingly significantly since 2009, albeit a number of shifts in profit margins in some financial years.
The conventional method of financial analysis seeks to determine solvency, liquidity and stability based on the ratio analysis (Ehrhardt 34). In this way, financial ratios are grouped into a number of categories as follows:
Short-term liquidity rations for WellPoint
Current ratio
The purpose of determining current ratio is to find out the company’s solvency, which is defined by the ability to meet its debts on a short-term period (Agarwal, Grassl and Pahl 23). The current ratio WellPoint has remained stagnant since 2009, which is greater than one. This is a clear indication that the company is able to meet its short-term debts.
Quick ratio
This financial ratio examines the ability of a company to meet its current debts by considering the value of cash equivalents and short-term investments against current liabilities (Black and Boal 131).
Thus, Quick Ratio = (Cash & Equivalents + Short-Term Investments + Accounts Receivable) ÷ Current Liabilities (Lasher 43). At WellPoint, the company has maintained a quick ratio of about 0.54 since 2010. This is an indication that the company can pay its short –term debts using its short-term assets.
Cash ratio
This is the ratio of cash over current liabilities (Hedin, Hirvensalo and Vaarnas 83). Some short-term creditors are interested in current liabilities of an organization. At WellPoint, a cash ratio of 0.53 has been maintained since 2010, indicating that the company can meet its current debts with little impact on performance.
Solvency is an important aspect of any company. Companies must avoid insolvency trading, a practice that is illegal in the United States.
Debt to equity ratio
This indicates how a company uses debts to obtain assets (Rothaermel 239). At WellPoint, the debt to equity ratio is less than one, which indicates that the company‘s degree of using debt or leverage to finance its assets is relatively low (Wall and Duning 98).
Cash coverage ratio
This is a measure of a company’s workflow needed to meet the debts at short and long-term basis.
Profitability analysis
Between 2009 and 2013, WellPoint witnessed increased growth in its profits. The company’s net profit after tax in 2009 was 4,745.9 million, which is the highest in the five-year period. By 2010, the income reduced by 39.2% to 2,887.1 million. In fact, this decline is attributable to the world economic crisis, which affected profitability in most organizations.
Nevertheless, the financial recovery has been slow, considering that the net income has remained constant at around 2650 million per annum. Similarly, the total net income was 4,745.9 million in 2009, but reduced to 2887.10 million in 2010 and has since remained constant at around 2600 million. It is worth noting that the company has maintained a constant net profit margin of about 4% since 2011.
Prior to that, the company experienced a rapid decline in profitability, with a loss of 2% between 2009 and 2010. This is an indication that the company is concentrating its resources on other issues such as expansion of its coverage and size, which is likely to affect profitability.
Profit margin: This is a measure of the profit generated by the sales during the financial year. At WellPoint, profit margin has been maintained at about 4% since 2010 after falling from 7% in 2009. This is an indication that the degree of profitability is constant.
Return on sales
This ratio determines the effectiveness of using assets to generate returns (Palmer 121).
Return on equity
This ratio determines the effectiveness of the amounts of investor’s investments that is being used to generate them their expected returns (Ketz, Doogar and Jensen 57). It is an important ratio for investors who wish to inject investments or withdraw from the company. High ROE means that the investors are set to gain from their investments.
Market Value ratios
Price-earnings ratio determines how much of the investors’ current earnings they are willing to invest back into the company. It indicates the level of investors’ satisfaction with the performance.
Market-to-book ratio
This is a comparison of the market value of the company’s investments to the investments at a given period.
Corporate financial highlights for the past five years
Conclusion for financial analysis
The company has experienced a reduction of performance in almost all aspects since 2009. Between 2009 and 2010, the company’s performance was affected by the US economic crisis, which reduced its profitability, liquidity, solvency and market value. Nevertheless, the company has maintained a steady performance since 2010, which shows its ability to manage its resources and use effective growth strategies.
Maintaining a steady profit margin and profitability has ensured that the company remains attractive to investors, especially because it is listed at the NYSE.
Currently, the company expects increased performance in 2014 and consequent financial years, which is attributed to an improving economy, government policies on Medicare and the recent acquisitions of new companies. In addition, increased coverage on the US market is expected to raise the company’s performance in the coming years.
Core competencies and VRIO analysis
WellPoint has been acquiring other small and large companies since it was established one decade ago. It has used both organic and inorganic strategies to enhance growth. In the organic context, the company has continued to establish its own units and outlets throughout the country, naming them after its brands to reach out to customers in remote areas.
In the non-organic context, the company has used acquisition strategy to increase its size. For instance, the acquisition of Amerigroup and Anthem is an important step that promoted the company’s presence in the American Medicare market.
Value: WellPoint is known for its ability to use multiple brands to reach out to the remote parts of the country. It enhances its value using innovative ideas to provide clients with customized Medicare products. In addition, the recent use of IBM Watson technology is an indication of the company’s focus on value creation and promotion.
Rarity
The American Medicare market is characterized with massive competition as well as strict government regulations, with the government playing a leading role in the process of service provision to the population. In addition, competition from service providers is relatively high. For the company, two key issues enable its presence to grow and expand;
Focus on costs
The WellPoint Company is able to use minimum costs to improve its services. Despite the use of resources to expand through acquisitions, the company has remained focus on cutting on costs.
Mission fulfillment
The Company focuses on fulfilling its mission through annual expansion to reach out to a large number of individuals and provide quality service. In addition, focuses on providing customized services to different customer groups, including the employees, non-employed and senior citizens.
Inimitable
The Company’s ability to focus on special growth and service provision strategies through “companies” within the company is a unique feature. It offers services to the customers in various counties and states using different brand names, which is a unique feature in the American Medicaid market. The company expects to sustain this feature for a long time. It is a feature that can hardly be copied by other companies in the market.
Organization
The Company concentrates on the US market. In addition, it focuses on providing coverage to every state and county in future. The company delegates the vast tasks to its affiliates or “companies” within the WellPoint umbrella.
Each unit or “company” has the responsibility of working out plans to reach out to the customers wherever they are. WellPoint has also embarked on providing customized services to the customers on a next-door program, which allows people to find the company’s outlets next to their neighborhoods.
Works Cited
Agarwal, Ravi, Wolfgang Grassl, and Joy Pahl. “Meta-SWOT: introducing a new strategic planning tool.” Journal of Business Strategy 33.2 (2012): 12-21. Print
Black, Janice and Kimberly Boal. “Strategic resources: Traits, configurations and paths to sustainable competitive advantage.” Strategic management journal 15.S2 (1994): 131-148. Print
Ehrhardt, Brigham. Corporate Finance: A Focused Approach. Hokken, NJ: John Wiley and Sons, 2012. Print.
Gibson, Charles. Financial Reporting and Analysis: Using Financial Accounting Information. Mason, OH: Cengage learning, 2011. Print
Hedin, Hans, Irmeli Hirvensalo and Markko Vaarnas. The Handbook of Market Intelligence. Lontoo: John Wiley & Sons, Ltd, 2011. Print.
Ketz, Edward, Rajib Doogar and David Jensen. A cross-industry analysis of financial ratios: comparabilities and corporate performance. New York: Quorum Books, 2009. Print
Lasher, William. Practical Financial Management. Los Angeles, CA: South-Western College Pub, 2010. Print.
Palmer, Joseph. Financial ratio analysis. New York: American institute of certified accounts, 2003. Print.
Rothaermel, Frank T. Strategic Management: Concepts. McGraw-Hill Irwin, 2013. Print
Wall, Alexander and Raymong Duning. Ratio Analysis of Financial Statements: An Explanation of a Method of Analysing Financial Statements by the Use of Ratios. New York: Harper Collins, 2009. Print
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