Humana Incorporation Operation Challenges Evaluation Essay

Introduction

Humana Incorporation has managed to position itself optimally within the US healthcare insurance industry. The firm’s success hinges on the acknowledgement and implementation of best management practices. One of the issues that the firm has emphasized over the years relates to marketing.

In its operation, the firm faces significant challenges arising from the dynamic nature of the healthcare industry.

This paper evaluates a number of issues associated with Humana Incorporation operation such as its business level strategy, marketing strategy, and financial position and strategy, production and purchasing strategy, among others.

Business level strategy

Development of competitive strategy is very important in a firm’s effort to succeed in its operation (Harvard Business Review, 2011). Hoskisson (2008) asserts that business-level strategies are concerned with how a firm intends to develop a high competitive advantage relative to its competitors.

When formulating business-level strategies, the firms’ management teams should take into account their core competencies, resources, and capabilities.

Additionally, a firm should take into account the goods and services it deals with and its target customers coupled with how it distributes when formulating business-level strategies (Hill & Jones, 2007).

In its domestic market, Humana Incorporation faces intense competition from two main health insurance companies, viz. Aetna and Cigna. The lucrative nature of the US health care industry has motivated Aetna to incorporate diversity as its business level strategy in order to achieve continued growth.

The firm recognizes the importance of integrating diversity in all its operational spheres (Aetna, 2010). On the other hand, Cigna has adopted differentiation as its business level strategy in an effort to achieve its objective of becoming the industry leader.

The firm focuses on specialty and individual products and introduction of new healthcare products (Manders, 2008).

Marketing strategy

In its marketing practices, Humana Incorporation has integrated the concept of market targeting. The firm has identified different market segments, which have enabled it to formulate different healthcare policies. Some of the firm’s target customers include the government and employers.

Additionally, the firm has also targeted institutional customers such as Medicaid and Medicare companies. The firm also appreciates the fact that customers are conscious to price.

Therefore, the firm has incorporated price discounts in its premium pricing strategy and thus its competitiveness within the healthcare industry has increased.

In an effort to create sufficient market awareness, Humana Incorporation has integrated different marketing methods such as telemarketing. The firm also conducts direct marketing in an effort to promote its sales using its large sales force.

Financial position and strategy

The firm has managed to nurture a healthy financial position given its asset records. On June 30, 2012, the firm’s assets with regard to cash equivalents, investment in securities and cash amounted to $13.53 billion.

This represents an increment with a margin of $285 million or a 2% increase from its previous level of $13.25 billion on 31 March 2012.

By the end of its 2^nd quarter in 2012, the firm’s total assets amount $ 20.9 million while its total liabilities amounted to $12.4 million. This shows that the firm has a sufficient working capital (Humana Inc., 2012, p.18).

Given its increase in earnings during the 2^nd quarter of 2012, the firm has managed to lower its debt-to-capitalization ratio with 30 basis points.

The firm has also managed to improve its cash flows during 2012. During its 2^nd quarter of 2012, the firm’s operational effectiveness resulted in an increment in its cash flows, which amounted to $706 billion compared to $161 billion during the 2^nd quarter of 2011.

The firm has also managed to increase its stockholder’s equity from $ 8.063 during 2011 to $ 8.455 in 2012 (Humana Inc., 2012). The firm’s financial strategy is to increase its financial strength

The organization’s production and purchasing strategies

In an effort to satisfy its customers, Humana Incorporation has incorporated effective production and purchasing strategies. The firm has a procurement department that is charged with the responsibility of ensuring that it offers high-quality services to its customers.

The firm purchases its products from different suppliers (Christensen, Allworth, & Dillion, 2012). Over the years, Humana Incorporation has managed to develop a strong client-vendor relationship. The firm’s success is greatly dependent on the quality of the products purchased.

In its purchasing strategy, the firm categorizes its products into four groups, which include facilities, services, supplies, and equipments. The equipments relate to security systems, telecommunications, furniture and telecommunication.

Facilities relate to leasing, management, janitorial services, architects, and building maintenance. On the other hand, services include advertising and media, legal, printing, translation, marketing and relocation while supplies relate to medical and pharmaceuticals and general office (Humana Inc., 2012).

Humana Health Incorporation

The firm’s management team appreciates the fact that its success is greatly dependent on its ability to serve its customers. As a result, Humana Incorporation has integrated a comprehensive recruitment strategy. The strategy entails sourcing for employees both internally and externally.

The objective is to enable the firm have a strong human resource base. Humana Incorporation also appreciates the fact that its effectiveness in providing healthcare insurance policies is dependent on the prevailing public healthcare policy.

Through its human resource department, the firm is concerned with ensuring that the government offers effective healthcare plans. In line with its corporate responsibility, the firm has devised a number of strategies that clearly define its commitment towards serving its members, associates, the society, and the world at large (Humana Inc., 2012)

Humana Incorporation SWOT Analysis

Strengths

1. One source of the firm’s strengths revolves on its resources, core competences, and capabilities. Over the years, Humana Incorporation has managed to develop a strong financial base. This aspect has contributed to the firm’s success with regard to dealing with financial challenges associated with health care insurance.
   For example, at times the forecasted insurance cost is less than the actual insured medical cost; consequently, the firm has to seek other sources of finance in order to cater for the deficit. Based on its rich financial resources, Humana Incorporation has managed to deal with such challenges. During its 2^nd quarter of 2012, the firm’s accumulated revenue amounted to $9.70 billion, which was a 4% increment from its 2011 revenue of $ 9.28 billion (Humana Inc., 2012).
2. To meet its customers’ healthcare needs, the firm has developed a broad product portfolio. Consequently, the firm has managed to nurture a high level of customer satisfaction.
3. In an effort to be competitive, Humana Incorporation appreciates the importance of market communication. Koekemoer (2004) asserts that marketing communication is critical in influencing the target market. The firm has adopted emerging Information Communication Technologies (ICT) to attain efficiency and effectiveness in market communication. An example of such technologies entails development of a web portal known as the Physicians’ Online, which enables customers to obtain prescriptions online.
4. Humana Incorporation has managed to attain a higher competitive advantage compared to its competitors due to its commitment with regard to new product innovation. The firm’s innovativeness has also led to its success in controlling prices. The firm achieves this goal by developing effective cost analysis models.
5. The firm’s capabilities are associated with its ability to avoid risk by developing effective underwriting criteria. The criterion enables the firm to assess whether to cover a particular health risk or not. With regard to core competencies, the firm can identify possible acquisition targets. Ultimately, the firm can undertake different acquisitions.

Weaknesses

1. Humana Incorporation has not been successful with regard to geographical reach. This aspect has limited the firm’s ability to increase its membership levels, which arises from the fact that only a few customers can access the firm’s services.
2. Despite implementing emerging technologies, the firm’s competitiveness with regard to technology is limited by the fact that most of its competitors have also implemented similar technologies.
3. One of the firm’s major customers is the military. However, the firm is not very effective with regard to bidding. Therefore, there is a high probability of the firm losing contracts from the government during the bidding process.

Opportunities

1. Currently, Humana Incorporation operates in only 18 states (Parnell, 2009). By formulating and implementing an effective globalization model, Humana Incorporation can expand geographically. The firm will attract a large number of customers due to its attractive and diverse health plans. Its success in attracting new customers is enhanced by the fact that it has a strong sales force in addition to its ability in implementing innovative marketing plan. The ultimate effect will be an increment in the firm’s sales revenue hence its profitability.
2. Over the past decade, the US government has increasingly become concerned with the healthcare of its senior citizens and more senior citizens are being incorporated in the government’s healthcare plans. Humana Incorporation can take advantage of this market opportunity by designing healthcare plans that will appeal such potential customer groups. To capture this customer group, Humana Incorporation should formulate an effective marketing scheme.
3. Currently, the US healthcare industry is characterized by a high rate of consolidation (Hammaker & Tomlinson, 2011). This aspect presents a unique market opportunity to Humana Incorporation. Considering its success in acquiring small healthcare firms, Humana Incorporation will expand into new territories. Additionally, acquisition will improve the firm’s ability to serve its increasing membership levels.
4. The firm’s innovativeness also presents an opportunity to the firm for it can attract new customer categories by developing new health care products.

Threats

1. One of the risks relates to the occurrence of economic recession, which may adversely affect its income level for a recession would negatively affect the consumer’s purchasing power and hence their ability to purchase insurance covers.
2. The high rate of technological innovation in an effort to offer customer high quality healthcare services poses a threat for the firm for such innovations will lead to an increase in the cost of medical care.
3. The firm’s success is also threatened by the fact that its competitors are increasingly considering entering its geographical territory. Incorporation of such strategies by competitors will lead to a decline in the firm’s profitability to increased rivalry. The competitors are imitating Humana’s business model to penetrate its geographical market successfully. This move will likely culminate in price wars unless the firm undertakes continuous innovation.
4. Humana Incorporation has previously experienced lawsuits by clients. Some of these lawsuits have not been resolved yet. As a result, the unresolved lawsuits may have adverse effects on the firm’s sales revenue and profitability (Pozgar, 2008).
5. Emergence of new diseases and medical conditions such as H1N1 poses a threat to the firm in offering healthcare insurance for such conditions may lead to occurrence of medical crises (Scutchfield & Keck, 2003).

Strategic alternatives

1. Humana Incorporation should continue focusing on its current business model.
2. The firm should incorporate the concept of backward vertical integration to increase its membership.
3. The firm should utilize its core competencies with regard to acquisition.
4. The firm should study the environment in order to identify potential customer categories to increase its membership level.

Pros and cons of strategic alternatives

By focusing on the current business model, the firm will nurture a strong relationship with its current customer categories. However, this move will limit the firm’s ability to grow its membership level. Growing its membership level will contribute towards the firm increasing its profitability.

However, this aspect will result to growth in the degree of complexity in the firm’s effort to deal with numerous policies, for example in the event of health crisis.

Similarly, backward vertical integration will lead to increased complexity in managing the various medical policies designed to cater for the diverse customer needs (Swayne, Duncan & Ginter, 2008). Utilizing its core competencies will facilitate the development of new business lines.

Conclusion

From the analysis conducted, it is evident that Humana Incorporation’s success hinges on effective implementation of various functional, marketing, and business strategies.

Therefore, the company has managed to grow a strong financial base. However, it is paramount for the firm to consider the abovementioned strategic alternatives to succeed in the future.

Reference List

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Christensen, C., Allworth, J., & Dillion, K. (2012). How will you measure your Life. London, UK : Harper Collins Publishers.

Hammaker, D., & Tomlinson, S. (2011). Health care management and the law: Principles and applications. Clifton Park, NY: Cengage Learning.

Harvard Business Review. (2011). HBR’s 10 must reads on strategy. Boston, MA: Harvard Business Review Press.

Hill, C., & Jones, G. (2007). Strategic management theory: An integrated Approach. New York, NY: Cengage.

Hoskisson, R. (2008). Competing for advantage. Mason, OH: Thomson.

Humana Inc: Humana reports second quarter 2012 financial results. (2012). Web.

Koekemoer, L. (2004). Marketing communications. Lansdowne, SA: Juta Academic.

Manders, M. (2008). Healthcare: Strategy and growth. Web.

Parnell, J. (2009). Strategic management: Theory and practice. Mason, OH: Cengage.

Pozgar, G. (2008). Legal aspects of health care administration. Mason, OH: Jones & Barlett Learning.

Scutchfield, F., & Keck, W. (2003). Principles of public health. Cliffton Park, NY: Thomson.

Swayne, L., Duncan, J., & Ginter, P. (2008). Strategic management of health Care organization. San Francisco, CA: Jossey-Bass.