Leadership at CVS Caremark Corporation - Assignment Example

?Part One CVS Caremark Corporation is the largest pharmacy health care provider in the United s. The company operates over 7,300 retail and specialty pharmacy stores in 43 states and the District of Columbia. The corporation is focused solely on the US market. CVS Caremark’s mission is articulated through its purpose statement as “helping people on their path to better health (CVS Caremark 2)”. It aims to achieve this mission by integrating five key values into its corporate culture: innovation, collaboration, caring, integrity and accountability. Also the company’s CEO, Larry J. Merlo, outlines the three major goals that shall be driving the company in the near future as: (1) increasing access, convenience and choice to pharmacy care; (2) delivering solutions that improve the health of clients; and (3) lowering the overall healthcare costs (CVS Caremark, CVS Caremark 2011 Annual Report 5). CVS Caremark’s annual financial reporting structure depicts the company as divided into three business segments: Pharmacy Services, Retail Pharmacy and Corporate (CVS Caremark, CVS Caremark 2011 Annual Report 22). However, from an operations perspective the company is divided into three strategic business units (SBUs): Pharmacy Services, Retail Pharmacy and MinuteClinic (CVS Caremark, “Our Businesses”). SBUs are mostly autonomous units set up within a corporation that are run like separate companies with their leadership entrusted with full responsibility over their profit and loss (Distelzweig Para 22). CVS Caremark’s three business segments are clearly SBUs because we see each unit being led a president who reports to the corporation’s CEO. Per Lofberg is the president of Pharmacy Services, Mark Cosby, the president of CVS/Pharmacy and Andrew Sussman, president of MinuteClinic. These SBUs are organized along the company’s three broad product lines. The Pharmacy Services business provides a full range of pharmacy benefit management (PBM) services targeting employers, unions, insurance companies, managed care organizations and other sponsors of health benefit plans throughout the US. Retail Pharmacy SBU sells prescription drugs and a wide assortment of general merchandise through the CVS/pharmacies and Longs Drugs retail stores and online through CVS.com. The corporate segment provides management and administrative services such as corporate relations, legal, human resources, corporate information technology and finance departments and so on to support the Company (CVS Caremark, CVS Caremark 2011 Annual Report 23). MinuteClinics are small retail-based, walk-in health clinics located in CVS/Pharmacy stores that offer wellness services, treatment of common ailments and physicals. These clinics provide CVS Caremark with the capabilities to meet its goal of lowering the cost of health care. Given that MinuteClinics operate within the CVS/Pharmacy stores, in the financial statements, MinuteClinics results are reported under Retail Pharmacy. The performance of the Retail Pharmacy and Pharmacy Services segments are evaluated based on net revenues, gross profit and operating profit before the effect of certain intersegment activities and charges. On the other hand, the corporate segment’s performance is evaluated based on operating expenses before the effect of certain intersegment activities and charges (CVS Caremark, CVS Caremark 2011 Annual Report 26). In 2011, the company’s net revenue was $107.1 billion, an increase of $11.3 billion in comparison to 2010. Of these net revenues, the revenue-generating segments, Pharmacy Services and Retail Pharmacy, contributed almost equally towards this amount. However, from a growth perspective, Pharmacy Services segment net sales increased by 24.9% in 2011 in comparison to Retail Pharmacy’s 3.9% increase. CVS Caremark’s more prominent innovations in the recent past have been attained through the integration of services with either other CVS services or other third parties. An example of CVS’s innovation achieved from integration of internal services is the revolutionary combination of the MinuteClinic SBU with pharmacy benefits management (PBM) services. This integration has resulted in creating what the organization refers to as a “sweet spot” because it makes the competitive advantages of the company inimitable. On other hand, CVS patients benefit from lower overall costs spent on health care. An innovation example achieved through collaboration with external partners is manifested through the strategic alliance between CVS and Inverness Medical Innovations. The concept of using collaborations to innovate is not a new concept. It was advanced by Hamel, Doz, and Prahalad (134) as a way through which the smart collaborating partner could obtain three major advantages: gaining technological advantage at a relatively low cost; gaining market access at a lower cost; and strengthening of the company’s competitive advantages by developing benchmarks from examining the practices of the alliance partner. This CVS and Inverness Medical Innovations alliance improves communications between the health management providers and its, supplier CVS Caremark. Through this collaboration both patients and health care providers experience unique benefits. On the one hand, patients get to experience timelier, coordinated and personalized disease management. On the other hand, the provider partners – in this case CVS and Inverness Medical Innovations – can use shared technologies to improve claims management, medication adherence and disease management efforts (CVS Caremark, “Press Release” Para 6). In assessing whether CVS Caremark has the characteristics of a learning organization, Cors (12) proposes looking at whether the organization displays the following seven dimensions: 1) it creates continuous learning opportunities, 2) it promotes dialogue and inquiry, 3) it promotes collaboration and team learning, 4) it empowers staff to evolve a collective vision, 5) it establishes systems to capture and share learning, 6) it connects the organization to its environment, and 7) it provides strategic leadership for learning. CVS has a strong diversity program that encompasses talent diversity, sustaining an inclusive environment at the workplace, creating equal opportunities and serving diverse communities (CVS Caremark, “Diversity” Para 2). The company has a Corporate Diversity Council that ensures all leaders who manage undergo diversity awareness training, and includes diversity metrics within their performance goals. The council also conducts diversity market research through employees and customer feedback. Other teams that promote inclusiveness within the CVS workplace are 12 colleague groups and area leadership diversity teams. This passion for diversity and the initiatives that are currently learning display all the seven dimensions of a learning organization cited by Cors (12) above. Part Two The President and Chief Executive Officer of CVS Caremark Corporation is Larry J. Merlo, a 56 year old man who has been with CVS Caremark and its subsidiaries for more than 30 years (Forbes Para 1). Merlo studied pharmacy at the University Of Pittsburgh School Of Pharmacy and joined Thrift Drug and People’s Drug immediately after completing his college studies. This store later became part of the CVS/Pharmacy network of stores from where Merlo rose along the ranks to be named the president of CVS/Pharmacy in 2007. Merlo is a family man, married to one wife, Lee Ann, and has a teenage daughter, Kristen. Other than having a passion for his current job, the CVS CEO is also a die-hard American football fan who supports Steelers and Pitt (BRT.org Para 6). Merlo has also worn other national hats such as being the chairman of the Board for the National Association of Chain Drug Stores (NACDS). Four personal traits of the CEO are revealed through this brief biography. First, Merlo’s long-commitment to working within CVS Caremark, 30 years, demonstrate that he is a man who had a good amount of faith to believe in his career prospects within the company. Secondly, he comes out as being patient given that he opted to stay with the company and slowly rise up through the CVS/Pharmacy ranks. Thirdly, success hardly ever comes through patience or faith alone without focus. Merlo must have exuded focus on his assigned roles and responsibilities to inspire confidence to the CVS Caremark leadership in his abilities such that they kept increasing his responsibilities as the years went by. Fourthly, from the huge number of years spent working within the organization and also given that he has held several leadership positions within that time period, it can be safely assumed that Merlo has the prerequisite experience and insight on CVS/Pharmacy operations and retail services needed to effectively execute the functions of the CVS Caremark Corporation’s CEO. It is difficult to outline the CEO’s vision for the company without first comprehending the current challenges that the organization faces. There are two major challenges that face the broader American health care provider industry. First, there is the rise in health care costs with a rapidly aging population that demands for lower-cost solutions. This means that health care providers such CVS Caremark have to pursue strategies that will enable them sell products that are affordable to their customers while being profitable for their shareholders. The second challenge is the looming major shortage of physicians in the US. There are fewer primary care doctors coming out of the medical schools than the demand for their services. Here too, as a key player in the health care industry, CVS Caremark must devise strategies to mitigate this. In his letter to shareholders within the CVS Caremark 2011 Annual Report, Larry J. Merlo outlines his vision for the company to be the reinvention of pharmacy for better health through: provision of greater access, convenience, and choice to pharmacy care; delivery of solutions that improve the health of the company’s customers; and ultimately lowering the cost of health care (CVS Caremark, CVS Caremark 2011 Annual Report 3–4). Under Merlo’s leadership, CVS Caremark has aggressively pursued internal integration of services as well as collaboration with third parties to meet the challenges of lowering overall health care costs as well as lowering the impact of primary care physician shortage on their communities. For example CVS Caremark entered into a strategic alliance with Inverness Medical Innovations in 2011. This collaboration would, on the one hand, help employers and payers to manage their costs more efficiently. On the other hand, it would help participants by providing them with multiple delivery channels (CVS Caremark, “Press Release” Para 3). Most of all it improves communication between Inverness Medical Innovations’ health management program and their provider, in this case CVS Caremark. Better communication between these two parties enables them both to improve administration of preventive care and monitoring of prescription drug adherence by patients. Mr. Merlo has been at the helm of CVS Caremark for only 13 months given that he took the Chief Executive Officer role in March 2011. This relatively short duration lowers the capacity to accurately evaluate his performance with regards to the changes experienced by the organization in this time period. The major change under Merlo has probably been completing the acquisition of Universal American’s Medicare Part D business for $1.25 billion (CVS Caremark, “CVS Caremark to Complete Acquisition of Universal American’s Medicare Part D Business” Para 1). This acquisition of Medicare Part D increases CVS Caremark’s 1.2 million plan members by an additional 1.9 million plan members (Trefis Para 4) which leads to an accelerated growth in the number of mail order pharmacy claims and the number of pharmacy network claims to be processed by CVS Caremark. Most of all, Merlo has to ensure as seamless a transition as possible in the integration of the acquired business to CVS Caremark’s vision, values and corporate culture. Given the short duration that Merlo has been the CEO of CVS Caremark, and limited literature on him, to classify his leadership style this paper uses induction from academic literature. Balgobind (26) states that transformational leaders: raise awareness of the importance of designated values; get followers to transcend their own self-interests; and expand or alter followers’ needs on Maslow’s hierarchy of needs. There is no evidence of Merlo doing either of this. Neither is he seen offering CVS employees inspirational motivation or individualized consideration other key attributes of transformational leadership. That which can be identified with certainty from the company website is that there is contingent reward in exchange for mutually agreed upon goal accomplishment. This is a transactional leadership attribute. The lack of core transformational leadership examples from CVS Caremark makes us therefore conclude that Larry J. Merlo is a transactional leader. Balgobind (24) reminds us that “transformational leadership is complimentary to transactional style and it is likely to be ineffective in the total absence of a transactional relationship between leaders and subordinates”. Works Cited Balgobind, Vanisha. “The Impact of Transformational Leadership on Subordinate Job Satisfaction.” June 2002 : n. pag. Print. BRT.org. “Business Roundtable: Larry J. Merlo.” Business Roundtable. 8 Apr. 2012. Web. 8 Apr. 2012. Cors, Rebecca. “What Is a Learning Organization? Reflections on the Literature and Practitioner Perspectives.” 5 May 2003 : n. pag. Print. CVS Caremark. CVS Caremark 2011 Annual Report. Woonsocket, RI: CVS Caremark Corporation, 2012. Print. ---. “CVS Caremark Code of Conduct.” 1 Jan. 2012 : n. pag. Print. ---. “CVS Caremark to Complete Acquisition of Universal American’s Medicare Part D Business.” CVS Caremark. 28 Apr. 2011. Web. 8 Apr. 2012. ---. “Diversity.” CVS Caremark. 7 Apr. 2012. Web. 7 Apr. 2012. ---. “Our Businesses.” CVS Caremark. 7 Apr. 2012. Web. 7 Apr. 2012. ---. “Press Release.” CVS Caremark. 7 Apr. 2012. Web. 7 Apr. 2012. Distelzweig, Howard. “Organizational Structure.” Encyclopedia of Business 2012. Web. 7 Apr. 2012. Forbes. “Larry J. Merlo Profile.” Forbes.com. 7 Apr. 2012. Web. 7 Apr. 2012. Hamel, Gary, Yves L Doz, and C. K Prahalad. “Collaborate with Your Competitors - and Win.” Harvard Business Review 67.1 (1989): 133–139. Print. Trefis. “Medicare Part D Acquisition Boosts CVS Caremark.” Forbes. 28 Jan. 2011. Web. 8 Apr. 2012.  Read More